424B2 1 dp210318_424b2-ps2043.htm FORM 424B2

May 2024

Preliminary Pricing Supplement No. 2,043

Registration Statement Nos. 333-275587; 333-275587-01

Dated April 25, 2024

Filed pursuant to Rule 424(b)(2)

Morgan Stanley Finance LLC

Structured Investments

Opportunities in Commodities

Commodity-Linked Notes due May 13, 2027

Based on the Performance of West Texas Intermediate Light Sweet Crude Oil Futures Contracts

Fully and Unconditionally Guaranteed by Morgan Stanley

The notes are unsecured obligations of Morgan Stanley Finance LLC (“MSFL”) and are fully and unconditionally guaranteed by Morgan Stanley.  The notes will pay no interest and will have the terms described in the accompanying prospectus supplement and prospectus, as supplemented or modified by this document.  At maturity, we will pay per note the stated principal amount of $1,000 plus a supplemental redemption amount, if any, based on the price of the underlying commodity on the determination date.  The notes are for investors who are concerned about principal risk but seek a West Texas Intermediate light sweet crude oil futures contract-based return and who are willing to forgo current income in exchange for 174% participation in any positive performance of West Texas Intermediate light sweet crude oil and the repayment of principal at maturity.  The notes are notes issued as part of MSFL’s Series A Global Medium-Term Notes program.

All payments are subject to our credit risk.  If we default on our obligations, you could lose some or all of your investment.  These securities are not secured obligations and you will not have any security interest in, or otherwise have any access to, any underlying reference asset or assets.

SUMMARY TERMS
Issuer: Morgan Stanley Finance LLC
Guarantor: Morgan Stanley
Issue price: $1,000 per note
Stated principal amount: $1,000 per note
Aggregate principal amount: $
Pricing date: May 10, 2024
Original issue date: May 15, 2024 (3 business days after the pricing date)
Maturity date: May 13, 2027
Interest: None
Underlying commodity: West Texas Intermediate light sweet crude oil futures contracts (“WTI crude oil”)
Payment at maturity:

The payment due at maturity per $1,000 stated principal amount will equal:

$1,000 + supplemental redemption amount, if any.

In no event will the payment at maturity be less than the stated principal amount of $1,000 per note.

Supplemental redemption amount: (i) $1,000 multiplied by (ii) the commodity percent change multiplied by (iii) the participation rate; provided that the supplemental redemption amount will not be less than $0 per note.
Participation rate: 174%
Commodity percent change: (final commodity price – initial commodity price) / initial commodity price
Initial commodity price: $         , which is the commodity price on the pricing date, subject to adjustment for non-trading days and certain market disruption events
Final commodity price: The commodity price on the determination date
Commodity price: For any trading day, the official settlement price per barrel of WTI crude oil on the NYMEX Division, or its successor, of the New York Mercantile Exchange, Inc. (the “NYMEX Division”) of the first nearby month futures contract, stated in U.S. dollars, as made public by the NYMEX Division on such date; provided that if such date falls on the last trading day of such futures contract (all pursuant to the rules of the NYMEX Division), then the second nearby month futures contract on such date.
Determination date: May 10, 2027, subject to adjustment for non-trading days and certain market disruption events
CUSIP / ISIN: 61774FDZ2 / US61774FDZ27
No listing: The notes will not be listed on any securities exchange.
Agent: Morgan Stanley & Co. LLC (“MS & Co.”), an affiliate of MSFL and a wholly owned subsidiary of Morgan Stanley.  See “Supplemental information regarding plan of distribution; conflicts of interest.”
Estimated value on the pricing date: Approximately $951.70 per note, or within $51.70 of that estimate.  See “Investment Summary” beginning on page 2.
Commissions and issue price: Price to public Agent’s commissions(1) Proceeds to us(2)
Per note $1,000 $20 $980
Total $ $ $
(1)Selected dealers and their financial advisors will collectively receive from the agent, MS & Co., a fixed sales commission of $20 for each note they sell.  See “Supplemental information regarding plan of distribution; conflicts of interest.”  For additional information, see “Plan of Distribution (Conflicts of Interest)” in the accompanying prospectus supplement.
(2)See “Use of proceeds and hedging” on page 12.

The notes involve risks not associated with an investment in ordinary debt securities. See “Risk Factors” beginning on page 5.

The Securities and Exchange Commission and state securities regulators have not approved or disapproved these notes, or determined if this document or the accompanying prospectus supplement and prospectus is truthful or complete.  Any representation to the contrary is a criminal offense.

The notes are not deposits or savings accounts and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency or instrumentality, nor are they obligations of, or guaranteed by, a bank.

You should read this document together with the related prospectus supplement and prospectus, each of which can be accessed via the hyperlinks below. When you read the accompanying prospectus supplement, please note that all references in such supplement to the prospectus dated November 16, 2023, or to any sections therein, should refer instead to the accompanying prospectus dated April 12, 2024 or to the corresponding sections of such prospectus, as applicable. Please also see “Additional Terms of the Notes” and “Additional Information About the Notes” at the end of this document.

As used in this document, “we,” “us” and “our” refer to Morgan Stanley or MSFL, or Morgan Stanley and MSFL collectively, as the context requires.

Prospectus Supplement for Commodity-Linked Notes dated November 16, 2023 Prospectus dated April 12, 2024

 

 

Morgan Stanley Finance LLC

Commodity-Linked Notes due May 13, 2027

Based on the Performance of West Texas Intermediate Light Sweet Crude Oil Futures Contracts

 

Investment Summary

 

Commodity-Linked Notes

 

The Commodity-Linked Notes due May 13, 2027 Based on the Performance of West Texas Intermediate Light Sweet Crude Oil Futures Contracts (the “notes”) offer 174% participation in any positive performance of the underlying commodity. The notes provide investors:

 

nan opportunity to gain exposure to the performance of WTI crude oil and provide diversification of underlying asset class exposure;

 

nthe repayment of principal at maturity, subject to our creditworthiness;

 

n174% participation in any appreciation of the underlying commodity over the term of the notes; and

 

nno exposure to any decline of the underlying commodity if the notes are held to maturity.

 

At maturity, if the underlying commodity has depreciated or has not appreciated at all, you will receive the stated principal amount of $1,000 per note, without any positive return on your investment. All payments on the notes, including the repayment of principal at maturity, are subject to our credit risk.

 

Maturity: Approximately 3 years
Participation rate: 174%
Interest: None

 

The original issue price of each note is $1,000. This price includes costs associated with issuing, selling, structuring and hedging the notes, which are borne by you, and, consequently, the estimated value of the notes on the pricing date will be less than $1,000. We estimate that the value of each note on the pricing date will be approximately $951.70, or within $51.70 of that estimate. Our estimate of the value of the notes as determined on the pricing date will be set forth in the final pricing supplement.

 

What goes into the estimated value on the pricing date?

 

In valuing the notes on the pricing date, we take into account that the notes comprise both a debt component and a performance-based component linked to the underlying commodity. The estimated value of the notes is determined using our own pricing and valuation models, market inputs and assumptions relating to the underlying commodity, instruments based on the underlying commodity, volatility and other factors including current and expected interest rates, as well as an interest rate related to our secondary market credit spread, which is the implied interest rate at which our conventional fixed rate debt trades in the secondary market.

 

What determines the economic terms of the notes?

 

In determining the economic terms of the notes, including the participation rate, we use an internal funding rate, which is likely to be lower than our secondary market credit spreads and therefore advantageous to us. If the issuing, selling, structuring and hedging costs borne by you were lower or if the internal funding rate were higher, one or more of the economic terms of the notes would be more favorable to you.

 

What is the relationship between the estimated value on the pricing date and the secondary market price of the notes?

 

The price at which MS & Co. purchases the notes in the secondary market, absent changes in market conditions, including those related to the underlying commodity, may vary from, and be lower than, the estimated value on the pricing date, because the secondary market price takes into account our secondary market credit spread as well as the bid-offer spread that MS & Co. would charge in a secondary market transaction of this type and other factors.

 

MS & Co. may, but is not obligated to, make a market in the notes and, if it once chooses to make a market, may cease doing so at any time.

 

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Morgan Stanley Finance LLC

Commodity-Linked Notes due May 13, 2027

Based on the Performance of West Texas Intermediate Light Sweet Crude Oil Futures Contracts

Key Investment Rationale

 

Commodity-Linked Notes offer investors exposure to the performance of commodities or commodity indices and provide for the repayment of principal at maturity, subject to our creditworthiness. They are for investors who are concerned about principal risk but seek a commodity-based return and who are willing to forgo current income in exchange for 174% participation in any positive performance of the underlying commodity and the repayment of principal at maturity.

 

Repayment of Principal The notes offer investors 174% upside exposure to the performance of the underlying commodity, while providing for the repayment of principal in full at maturity, subject to our creditworthiness.
Upside Scenario The price of the underlying commodity increases in value and, at maturity, the notes pay the stated principal amount of $1,000 plus 174% of the appreciation of the underlying commodity.  There is no limitation on the appreciation potential.
Par Scenario The price of the underlying commodity declines or does not appreciate in value and, at maturity, the notes pay only the stated principal amount of $1,000 per note.
May 2024Page 3

Morgan Stanley Finance LLC

Commodity-Linked Notes due May 13, 2027

Based on the Performance of West Texas Intermediate Light Sweet Crude Oil Futures Contracts

Hypothetical Payout on the Notes

 

At maturity, for each $1,000 stated principal amount of notes that you hold, you will receive the stated principal amount of $1,000 plus a supplemental redemption amount, if any. The supplemental redemption amount will be calculated on the determination date as follows:

 

(i) $1,000 multiplied by (ii) the commodity percent change multiplied by (iii) the participation rate of 174%; provided that the supplemental redemption amount will not be less than $0.

 

In no event will the payment at maturity be less than the stated principal amount of $1,000 per note.

 

The table below illustrates the payment at maturity (including the payment of any supplemental redemption amount) for each note for a hypothetical range of commodity percent changes and does not cover the complete range of possible payouts at maturity. The table reflects the participation rate of 174% and assumes a hypothetical initial commodity price of $100. If the commodity percent change is less than or equal to 0%, you will receive only the stated principal amount of $1,000 for each note that you hold at maturity. The actual initial commodity price will be determined on the pricing date. The numbers appearing in the table below may have been rounded for ease of analysis.

 

Commodity percent change Final commodity price Stated principal amount Supplemental redemption amount Payment at maturity Return on $1,000 note
100% $200 $1,000 $1,740 $2,740 174.00%
90% $190 $1,000 $1,566 $2,566 156.60%
80% $180 $1,000 $1,392 $2,392 139.20%
70% $170 $1,000 $1,218 $2,218 121.80%
60% $160 $1,000 $1,044 $2,044 104.40%
50% $150 $1,000 $870 $1,870 87.00%
40% $140 $1,000 $696 $1,696 69.60%
30% $130 $1,000 $522 $1,522 52.20%
20% $120 $1,000 $348 $1,348 34.80%
10% $110 $1,000 $174 $1,174 17.40%
0% $100 $1,000 $0 $1,000 0.00%
-10% $90 $1,000 $0 $1,000 0.00%
-20% $80 $1,000 $0 $1,000 0.00%
-30% $70 $1,000 $0 $1,000 0.00%
-40% $60 $1,000 $0 $1,000 0.00%
-50% $50 $1,000 $0 $1,000 0.00%
-60% $40 $1,000 $0 $1,000 0.00%
-70% $30 $1,000 $0 $1,000 0.00%
-80% $20 $1,000 $0 $1,000 0.00%
-90% $10 $1,000 $0 $1,000 0.00%
-100% $0 $1,000 $0 $1,000 0.00%
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Morgan Stanley Finance LLC

Commodity-Linked Notes due May 13, 2027

Based on the Performance of West Texas Intermediate Light Sweet Crude Oil Futures Contracts

Risk Factors

 

This section describes the material risks relating to the notes. For further discussion of these and other risks, you should read the section entitled “Risk Factors” in the accompanying prospectus supplement and prospectus. You should also consult with your investment, legal, tax, accounting and other advisers in connection with your investment in the notes.

 

Risks Relating to an Investment in the Notes

 

nThe notes do not pay interest and may not pay more than the stated principal amount at maturity. If the commodity percent change is less than or equal to 0%, you will receive only the stated principal amount of $1,000 for each note you hold at maturity. As the notes do not pay any interest, if the underlying commodity does not appreciate sufficiently over the term of the notes, the overall return on the notes (the effective yield to maturity) may be less than the amount that would be paid on a conventional debt security of ours of comparable maturity. The notes have been designed for investors who are willing to forgo market floating interest rates in exchange for a supplemental redemption amount, if any, based on the performance of the underlying commodity.

 

nThe market price of the notes will be influenced by many unpredictable factors. Several factors will influence the value of the notes in the secondary market and the price, if any, at which MS & Co. may be willing to purchase or sell the notes in the secondary market, including the market price of the underlying commodity and futures contracts on the underlying commodity at any time and, in particular, on the determination date, the volatility (frequency and magnitude of changes in price) of the underlying commodity, the price and volatility of the futures contracts on the underlying commodity, trends of supply and demand for the underlying commodity at any time, as well as the effects of speculation or any government actions that could affect the markets for the underlying commodity, interest and yield rates in the market, time remaining until the notes mature, geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the price of the underlying commodity or commodities markets generally and which may affect the final commodity price of the underlying commodity and any actual or anticipated changes in our credit ratings or credit spreads. Generally, the longer the time remaining to maturity, the more the market price of the notes will be affected by the other factors described above. This can lead to significant adverse changes in the market price of the notes. In addition, the commodities markets are subject to temporary distortions or other disruptions due to various factors, including lack of liquidity, participation of speculators and government intervention. As a result, you may receive less, and possibly significantly less, than the stated principal amount per note if you try to sell your notes prior to maturity.

 

nThe notes are subject to our credit risk, and any actual or anticipated changes to our credit ratings or credit spreads may adversely affect the market value of the notes. You are dependent on our ability to pay all amounts due on the notes at maturity and therefore you are subject to our credit risk. The notes are not guaranteed by any other entity. If we default on our obligations under the notes, your investment would be at risk and you could lose some or all of your investment. As a result, the market value of the notes prior to maturity will be affected by changes in the market’s view of our creditworthiness. Any actual or anticipated decline in our credit ratings or increase in the credit spreads charged by the market for taking our credit risk is likely to adversely affect the market value of the notes.

 

nAs a finance subsidiary, MSFL has no independent operations and will have no independent assets. As a finance subsidiary, MSFL has no independent operations beyond the issuance and administration of its securities and will have no independent assets available for distributions to holders of MSFL securities if they make claims in respect of such securities in a bankruptcy, resolution or similar proceeding. Accordingly, any recoveries by such holders will be limited to those available under the related guarantee by Morgan Stanley and that guarantee will rank pari passu with all other unsecured, unsubordinated obligations of Morgan Stanley. Holders will have recourse only to a single claim against Morgan Stanley and its assets under the guarantee. Holders of securities issued by MSFL should accordingly assume that in any such proceedings they would not have any priority over and should be treated pari passu with the claims of other unsecured, unsubordinated creditors of Morgan Stanley, including holders of Morgan Stanley-issued securities.

 

nThe amount payable on the notes is not linked to the price of the underlying commodity at any time other than the determination date. The final commodity price will be based on the commodity price on the determination date, subject to postponement for non-trading days and certain market disruption events. Even if the price of the underlying commodity appreciates prior to the determination date but then drops by the determination date, the payment at maturity will be less, and may be significantly less, than it would have been had the payment at maturity been linked to the price of the underlying commodity prior to such drop. Although the actual price of the underlying commodity on the stated maturity date or at other times during the term of the notes may be higher than the final commodity price, the payment at maturity will be based solely on the commodity price on the determination date.

 

nThe rate we are willing to pay for securities of this type, maturity and issuance size is likely to be lower than the rate implied by our secondary market credit spreads and advantageous to us. Both the lower rate and the inclusion of costs associated with issuing, selling, structuring and hedging the notes in the original issue price reduce the economic terms of the notes, cause the estimated value of the notes to be less than the original issue price and will adversely affect secondary market prices. Assuming no change in market conditions or any other relevant factors, the prices, if any, at which

 

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Morgan Stanley Finance LLC

Commodity-Linked Notes due May 13, 2027

Based on the Performance of West Texas Intermediate Light Sweet Crude Oil Futures Contracts

dealers, including MS & Co., may be willing to purchase the notes in secondary market transactions will likely be significantly lower than the original issue price, because secondary market prices will exclude the issuing, selling, structuring and hedging-related costs that are included in the original issue price and borne by you and because the secondary market prices will reflect our secondary market credit spreads and the bid-offer spread that any dealer would charge in a secondary market transaction of this type as well as other factors.

 

The inclusion of the costs of issuing, selling, structuring and hedging the notes in the original issue price and the lower rate we are willing to pay as issuer make the economic terms of the notes less favorable to you than they otherwise would be.

 

nThe estimated value of the notes is determined by reference to our pricing and valuation models, which may differ from those of other dealers and is not a maximum or minimum secondary market price. These pricing and valuation models are proprietary and rely in part on subjective views of certain market inputs and certain assumptions about future events, which may prove to be incorrect. As a result, because there is no market-standard way to value these types of securities, our models may yield a higher estimated value of the notes than those generated by others, including other dealers in the market, if they attempted to value the notes. In addition, the estimated value on the pricing date does not represent a minimum or maximum price at which dealers, including MS & Co., would be willing to purchase your notes in the secondary market (if any exists) at any time. The value of your notes at any time after the date of this document will vary based on many factors that cannot be predicted with accuracy, including our creditworthiness and changes in market conditions. See also “The market price will be influenced by many unpredictable factors” above.

 

nInvesting in the notes is not equivalent to investing in the underlying commodity or in futures contracts or forward contracts on the underlying commodity. By purchasing the notes, you do not purchase any entitlement to the underlying commodity or futures contracts or forward contracts on the underlying commodity. Further, by purchasing the notes, you are taking credit risk to us and not to any counter-party to futures contracts or forward contracts on the underlying commodity. See “Hypothetical Payout on the Notes” above.

 

nThe notes will not be listed on any securities exchange and secondary trading may be limited. Accordingly, you should be willing to hold your notes for the entire term of the notes. The notes will not be listed on any securities exchange. Therefore, there may be little or no secondary market for the notes. MS & Co. may, but is not obligated to, make a market in the notes and, if it once chooses to make a market, may cease doing so at any time. When it does make a market, it will generally do so for transactions of routine secondary market size at prices based on its estimate of the current value of the notes, taking into account its bid/offer spread, our credit spreads, market volatility, the notional size of the proposed sale, the cost of unwinding any related hedging positions, the time remaining to maturity and the likelihood that it will be able to resell the notes. Even if there is a secondary market, it may not provide enough liquidity to allow you to trade or sell the notes easily. Since other broker-dealers may not participate significantly in the secondary market for the notes, the price at which you may be able to trade your notes is likely to depend on the price, if any, at which MS & Co. is willing to transact. If, at any time, MS & Co. were to cease making a market in the notes, it is likely that there would be no secondary market for the notes. Accordingly, you should be willing to hold your notes to maturity.

 

nThe calculation agent, which is a subsidiary of Morgan Stanley and an affiliate of MSFL, will make determinations with respect to the notes. As calculation agent, MSCG will determine the initial commodity price, the final commodity price, the commodity percent change, the supplemental redemption amount and whether a market disruption event has occurred. Additionally, the calculation agent will calculate the amount of cash you will receive at maturity. Moreover, certain determinations made by the calculation agent may require it to exercise discretion and make subjective judgments, such as with respect to the occurrence or non-occurrence of market disruption events or calculation of the commodity price in the event of a market disruption event. These potentially subjective determinations may adversely affect the payout to you at maturity. For further information regarding these types of determinations, see “Payment at Maturity—Calculation Agent and Calculations” and “—Alternate Exchange Calculation in the Case of an Event of Default” and related definitions in the accompanying prospectus supplement. In addition, MS & Co. has determined the estimated value of the notes on the pricing date.

 

nHedging and trading activity by our affiliates could potentially adversely affect the value of the notes. One or more of our affiliates and/or third-party dealers expect to carry out hedging activities related to the notes (and possibly to other instruments related or linked to the underlying commodity), including trading in the underlying commodity or futures contracts or forward contracts on the underlying commodity. As a result, these entities may be unwinding or adjusting hedge positions during the term of the notes, and the hedging strategy may involve greater and more frequent dynamic adjustments to the hedge as the determination date approaches. Some of our affiliates also trade the underlying commodity on a regular basis as part of their general broker-dealer, commodity trading, proprietary trading and other businesses.

 

Any of these hedging or trading activities on or prior to the pricing date could potentially increase the initial commodity price and, therefore, could increase the price at or above which the underlying commodity must close on the determination date before you would receive at maturity a payment that exceeds the stated principal amount of the notes. Additionally, such hedging or trading activities during the term of the notes, including on the determination date, could adversely affect the commodity price on the determination date and, accordingly, the amount of cash you will receive at maturity.

 

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Morgan Stanley Finance LLC

Commodity-Linked Notes due May 13, 2027

Based on the Performance of West Texas Intermediate Light Sweet Crude Oil Futures Contracts

Risks Relating to the Underlying Commodity

 

nSingle commodity prices tend to be more volatile than, and may not correlate with, the prices of commodities generally. The supplemental redemption amount, if any, is linked exclusively to the price of futures contracts on West Texas Intermediate light sweet crude oil and not to a diverse basket of commodities or a broad-based commodity index. The price of futures contracts on West Texas Intermediate light sweet crude oil may not correlate to, and may diverge significantly from, the prices of commodities generally. Because the notes are linked to the price of a single commodity, they carry greater risk and may be more volatile than a security linked to the prices of multiple commodities or a broad-based commodity index. The price of futures contracts on West Texas Intermediate light sweet crude oil may be, and has recently been, highly volatile, and we can give you no assurance that the volatility will lessen. See “WTI Crude Oil Overview” below.

 

nInvestments linked to a single commodity are subject to sharp fluctuations in commodity prices, and the price of WTI crude oil may change unpredictably and affect the value of the notes in unforeseeable ways. Investments, such as the notes, linked to the price of a single commodity, such as WTI crude oil futures contracts, are subject to sharp fluctuations in the price of the underlying commodity over short periods due to a variety of factors. Demand for refined petroleum products by consumers, as well as by the agricultural, manufacturing and transportation industries, affects the price of crude oil. Crude oil’s end-use as a refined product is often as transport fuel, industrial fuel and in-home heating fuel.  Potential for substitution in most areas exists, although considerations including relative cost often limit substitution levels.  Because the precursors of demand for petroleum products are linked to economic activity, demand will tend to reflect economic conditions.  Demand is also influenced by government regulations, such as environmental or consumption policies.  In addition to general economic activity and demand, prices for crude oil are affected by political events, labor activity, developments in production technology such as fracking and, in particular, direct government intervention (such as embargos) or supply disruptions in major oil producing regions of the world.  Such events tend to affect oil prices worldwide, regardless of the location of the event.  Supply for crude oil may increase or decrease depending on many factors.  These include production decisions by the Organization of the Petroleum Exporting Countries (“OPEC”) and other crude oil producers. OPEC has the potential to influence oil prices worldwide because its members possess a significant portion of the world’s oil supply. In the event of sudden disruptions in the supplies of oil, such as those caused by war, natural events, accidents, acts of terrorism or cyberattacks, prices of oil futures contracts could become extremely volatile and unpredictable.  Also, sudden and dramatic changes in the futures market may occur, for example, upon the commencement or cessation of hostilities that may exist in countries producing oil, the introduction of new or previously withheld supplies into the market or the introduction of substitute products or commodities.  WTI crude oil is also subject to the risk that it has demonstrated a lack of correlation with world crude oil prices due to structural differences between the U.S. market for crude oil and the international market for crude oil.  As a result, the price of WTI crude oil futures contracts may be more volatile than world crude oil prices generally.

 

Additionally, more recently, prior to and since Russia’s further invasion of Ukraine, the price of oil, including the price of WTI crude oil futures contracts, has been volatile and increased significantly. This conflict has led to disruptions in the supply of oil and caused fluctuations in the price of oil, and changing geopolitical conditions and political events in Europe, the Middle East and elsewhere are likely to cause continued volatility in the price of oil. In addition, on March 8, 2022, the U.S. Government issued an executive order banning the import of Russian oil to the United States. The U.S. Congress has also passed legislation to ban imports of Russian oil. These actions, and similar governmental, regulatory or legislative actions in the United States or in other jurisdictions, including, without limitation, sanctions-related actions by the U.S. or foreign governments, could cause prices of oil futures contracts to become even more volatile and unpredictable. Any of these developments could adversely affect the price of WTI crude oil futures and, therefore, the value of the notes and the payment at maturity.

 

In addition, the prices of WTI crude oil futures contracts may be near zero, zero or negative, which can occur rapidly and unexpectedly. For example, in April 2020, a collapse of demand for fuel contributed to an oversupply of crude oil that rapidly filled most available oil storage facilities. Storage shortages meant that market participants that had contracted to buy and take delivery of crude oil were at risk of default under the terms of the May 2020 NYMEX WTI crude oil futures contract. The scarcity of storage resulted in some market participants selling their futures contracts at a negative price (effectively paying another market participant to accept delivery of the crude oil referenced by the relevant contracts). As a result, for the first time in history, crude oil futures contracts traded below zero. On April 20, 2020, the last trading day before expiration of the May 2020 WTI crude oil futures contract, prices of that contract fell to negative $37.63. If the underlying commodity reaches a near-zero, zero or negative price, the value of the notes could be adversely affected and, if the final commodity price is near zero, zero or negative, you will receive only the stated principal amount of $1,000 for each note that you hold at maturity.

 

See “WTI Crude Oil Overview” below.

 

nAn investment linked to commodity futures contracts is not equivalent to an investment linked to the spot prices of physical commodities. The notes have returns based on the change in price of futures contracts on the underlying commodity, not the change in the spot price of the actual physical commodity to which such futures contracts relate. The price of a futures contract reflects the expected value of the commodity upon delivery in the future, whereas the price of a physical commodity reflects the value of such commodity upon immediate delivery, which is referred to as the spot price. Several factors can result in

 

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Commodity-Linked Notes due May 13, 2027

Based on the Performance of West Texas Intermediate Light Sweet Crude Oil Futures Contracts

differences between the price of a commodity futures contract and the spot price of a commodity, including the cost of storing such commodity for the length of the futures contract, interest costs related to financing the purchase of such commodity and expectations of supply and demand for such commodity. While the changes in the price of a futures contract are usually correlated with the changes in the spot price, such correlation is not exact. In some cases, the performance of a commodity futures contract can deviate significantly from the spot price performance of the related underlying commodity, especially over longer periods of time. Accordingly, investments linked to the return of commodities futures contracts may underperform similar investments that reflect the spot price return on physical commodities.

 

nDifferences between futures prices and the spot price of WTI crude oil may decrease the amount payable at maturity. The initial commodity price and final commodity price that are used to determine the payment at maturity on the notes are determined by reference to the settlement price of the first nearby month futures contract for WTI crude oil on the pricing date and the determination date, respectively; provided that if any such date falls on the last trading day of such futures contract, then the second nearby month futures contract on such date will be used, and will not therefore reflect the spot price of WTI crude oil on such dates. The market for futures contracts on WTI crude oil has experienced periods of backwardation, in which futures prices are lower than the spot price, and periods of contango, in which futures prices are higher than the spot price. If the contract is in backwardation on the pricing date or in contango on the determination date, the amount payable at maturity on the notes may be less than if the initial commodity price or the final commodity price, respectively, was determined with reference to the spot price.

 

nSuspension or disruptions of market trading in WTI crude oil futures contracts may adversely affect the value of the notes. The futures market for WTI crude oil is subject to temporary distortions or other disruptions due to various factors, including the lack of liquidity in the markets, the participation of speculators and government regulation and intervention. In addition, the contract is listed on the NYMEX. NYMEX has limits on the amount of fluctuation in futures contract prices which may occur during a single business day. These limits are generally referred to as “daily price fluctuation limits” and the maximum or minimum price of a contract on any given day as a result of these limits is referred to as a “limit price.” Once the limit price has been reached in a particular contract, no trades may be made at a different price. Limit prices will have the effect of precluding trading in the contract or forcing the liquidation of contracts at disadvantageous times or prices. These circumstances could adversely affect the price of WTI crude oil futures contracts, and, therefore, the value of the notes.

 

nLegal and regulatory changes could adversely affect the return on and value of the notes. Futures contracts and options on futures contracts, including those related to the underlying commodity, are subject to extensive statutes, regulations, and margin requirements. The Commodity Futures Trading Commission, commonly referred to as the “CFTC,” and the exchanges on which such futures contracts trade, are authorized to take extraordinary actions in the event of a market emergency, including, for example, the retroactive implementation of speculative position limits or higher margin requirements, the establishment of daily limits and the suspension of trading. Furthermore, certain exchanges have regulations that limit the amount of fluctuations in futures contract prices that may occur during a single five-minute trading period. These limits could adversely affect the market prices of relevant futures and options contracts and forward contracts. The regulation of commodity transactions in the U.S. is subject to ongoing modification by government and judicial action. In addition, various non-U.S. governments have expressed concern regarding the disruptive effects of speculative trading in the commodity markets and the need to regulate the derivative markets in general. The effect on the value of the notes of any future regulatory change is impossible to predict, but could be substantial and adverse to the interests of holders of the notes.

 

For example, the Dodd-Frank Act, which was enacted on July 21, 2010, requires the CFTC to establish limits on the amount of positions that may be held by any person in certain commodity futures contracts and swaps, futures and options that are economically equivalent to such contracts. While the effects of these or other regulatory developments are difficult to predict, when adopted, such rules may have the effect of making the markets for commodities, commodity futures contracts, options on futures contracts and other related derivatives more volatile and over time potentially less liquid. Such restrictions may force market participants, including us and our affiliates, or such market participants may decide, to sell their positions in such futures contracts and other instruments subject to the limits. If this broad market selling were to occur, it would likely lead to declines, possibly significant declines, in commodity prices, in the price of such commodity futures contracts or instruments and potentially, the value of the notes.

 

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Morgan Stanley Finance LLC

Commodity-Linked Notes due May 13, 2027

Based on the Performance of West Texas Intermediate Light Sweet Crude Oil Futures Contracts

WTI Crude Oil Overview

 

Crude oil is used as a refined product primarily as transport fuel, industrial fuel and in-home heating fuel.  The price of WTI crude oil to which the return on the notes is linked is based on the official settlement price per barrel of WTI crude oil on the NYMEX Division of the first nearby month futures contract, stated in U.S. dollars, as made public by the NYMEX Division on such date; provided that if such date falls on the last trading day of such futures contract (all pursuant to the rules of the NYMEX Division), then the second nearby month futures contract on such date.

 

The prices of WTI crude oil futures contracts may be near zero, zero or negative, which can occur rapidly and unexpectedly.  In April 2020, crude oil futures contracts traded below zero.  See “Risk Factors—Risks Relating to the Underlying Commodity—Investments linked to a single commodity are subject to sharp fluctuations in commodity prices, and the price of WTI crude oil may change unpredictably and affect the value of the notes in unforeseeable ways.”

 

Underlying Commodity Information as of April 23, 2024
  Bloomberg Ticker Symbol* Current Price 52 Weeks Ago 52 Week
High		 52 Week
Low
WTI crude oil (in U.S. dollars) CL1 $83.36 $78.76 $93.68 (on 9/27/2023) $67.12 (on 6/12/2023)

 

*The Bloomberg ticker symbol is being provided for reference purposes only.  The commodity price on any trading day will be determined based on the price published by the NYMEX Division and, notwithstanding the Bloomberg ticker symbol provided for reference purposes above, such price may be based on the second nearby month futures contract, as further described under “Commodity price” on the cover page of this document.

 

The following graph sets forth the daily prices of the underlying commodity for the period from January 1, 2019 through April 23, 2024.  The related table presents the published high and low prices, as well as end-of-quarter prices, for the underlying commodity for each quarter in the same period.  The commodity price on April 23, 2024 was $83.36.  We obtained the information in the graph and table below from Bloomberg Financial Markets, without independent verification.  The historical performance of the underlying commodity should not be taken as an indication of its future performance.  No assurance can be given as to the price of the underlying commodity on the determination date.  The actual performance of the underlying commodity over the terms of the notes and the amount payable at maturity may bear little relation to the historical levels shown below.

 

WTI Crude Oil Prices
Daily Closing Prices of the First Nearby Month Futures Contract

January 1, 2019 to April 23, 2024

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Morgan Stanley Finance LLC

Commodity-Linked Notes due May 13, 2027

Based on the Performance of West Texas Intermediate Light Sweet Crude Oil Futures Contracts

WTI Crude Oil (in U.S. dollars per barrel) High ($) Low ($) Period End ($)
2019      
First Quarter 60.14 46.54 60.14
Second Quarter 66.30 51.14 58.47
Third Quarter 62.90 51.09 54.07
Fourth Quarter 61.72 52.45 61.06
2020      
First Quarter 63.27 20.09 20.48
Second Quarter 40.46 -37.63 39.27
Third Quarter 43.39 36.76 40.22
Fourth Quarter 49.10 35.79 48.52
2021      
First Quarter 66.09 47.62 59.16
Second Quarter 74.05 58.65 73.47
Third Quarter 75.45 62.32 75.03
Fourth Quarter 84.65 65.57 75.21
2022      
First Quarter 123.70 76.08 100.28
Second Quarter 122.11 94.29 105.76
Third Quarter 108.43 76.71 79.49
Fourth Quarter 92.64 71.02 80.26
2023      
First Quarter 81.62 66.74 75.67
Second Quarter 83.26 67.12 70.64
Third Quarter 93.68 69.79 90.79
Fourth Quarter 90.79 68.61 71.65
2024      
First Quarter 83.47 70.38 83.17
Second Quarter (through April 23, 2024) 86.91 82.69 83.36
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Morgan Stanley Finance LLC

Commodity-Linked Notes due May 13, 2027

Based on the Performance of West Texas Intermediate Light Sweet Crude Oil Futures Contracts

Additional Terms of the Notes

 

Please read this information in conjunction with the summary terms on the front cover of this document.

 

Additional Terms:
If the terms described herein are inconsistent with those described in the accompanying prospectus supplement or prospectus, the terms described herein shall control.
Denominations: $1,000 and integral multiples thereof
Call right: The notes are not callable prior to the maturity date
Interest: None
Bull or bear notes: Bull notes
Trustee: The Bank of New York Mellon
Calculation agent: Morgan Stanley Capital Group Inc. and its successors (“MSCG”)
Issuer notice to registered note holders, the trustee and the depositary:

In the event that the maturity date is postponed due to postponement of the determination date, the issuer shall give notice of such postponement and, once it has been determined, of the date to which the maturity date has been rescheduled (i) to each registered holder of the notes by mailing notice of such postponement by first class mail, postage prepaid, to such registered holder’s last address as it shall appear upon the registry books, (ii) to the trustee by facsimile, confirmed by mailing such notice to the trustee by first class mail, postage prepaid, at its New York office and (iii) to The Depository Trust Company (the “depositary”) by telephone or facsimile, confirmed by mailing such notice to the depositary by first class mail, postage prepaid.  Any notice that is mailed to a registered holder of the notes in the manner herein provided shall be conclusively presumed to have been duly given to such registered holder, whether or not such registered holder receives the notice.  The issuer shall give such notice as promptly as possible, and in no case later than (i) with respect to notice of postponement of the maturity date, the business day immediately preceding the scheduled maturity date, and (ii) with respect to notice of the date to which the maturity date has been rescheduled, the business day immediately following the actual determination date for determining the final commodity price.

 

The issuer shall, or shall cause the calculation agent to, (i) provide written notice to the trustee at its New York office, on which notice the trustee may conclusively rely, and to the depositary of the payment at maturity on or prior to 10:30 a.m. (New York City time) on the business day preceding the maturity date and (ii) deliver the aggregate cash amount due with respect to the notes to the trustee for delivery to the depositary, as a holder of the notes, on the maturity date.

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Morgan Stanley Finance LLC

Commodity-Linked Notes due May 13, 2027

Based on the Performance of West Texas Intermediate Light Sweet Crude Oil Futures Contracts

Additional Information About the Notes

 

Additional Information:
Minimum ticketing size: $1,000 / 1 note
Tax considerations:

In the opinion of our counsel, Davis Polk & Wardwell LLP, the notes should be treated as “contingent payment debt instruments” for U.S. federal income tax purposes, as described in the section of the accompanying prospectus supplement called “United States Federal Taxation—Tax Consequences to U.S. Holders.” Under this treatment, if you are a U.S. taxable investor, you generally will be subject to annual income tax based on the “comparable yield” (as defined in the accompanying prospectus supplement) of the notes, adjusted upward or downward to reflect the difference, if any, between the actual and projected amount of the payments on the notes.  The comparable yield will be determined on the pricing date and may be significantly higher or lower than the comparable yield if the notes were priced on the date hereof.  The comparable yield and the projected payment schedule (or information about how to obtain them) will be provided in the final pricing supplement.  In addition, any gain recognized by U.S. taxable investors on the sale or exchange, or at maturity, of the notes generally will be treated as ordinary income.    

 

You should read the discussion under “United States Federal Taxation” in the accompanying prospectus supplement concerning the U.S. federal income tax consequences of an investment in the notes.  

 

The comparable yield and the projected payment schedule will not be provided for any purpose other than the determination of U.S. Holders’ accruals of interest income and adjustments thereto in respect of the notes for U.S. federal income tax purposes, and we make no representation regarding the actual amount of the payments that will be made on the notes.  

 

If you are a non-U.S. investor, please also read the section of the accompanying prospectus supplement called “United States Federal Taxation—Tax Consequences to Non-U.S. Holders.”

 

In addition, Section 871(m) of the Internal Revenue Code of 1986, as amended (the “Code”), and Treasury regulations promulgated thereunder (“Section 871(m)”) generally impose a 30% (or a lower applicable treaty rate) withholding tax on dividend equivalents paid or deemed paid to Non-U.S. Holders with respect to certain financial instruments linked to U.S. equities or indices that include U.S. equities (each, an “Underlying Security”).  Because the notes reference a commodity that is not treated for U.S. federal income tax purposes as an Underlying Security, payment on the notes to Non-U.S. Holders should not be subject to Section 871(m).    

 

You should consult your tax adviser regarding all aspects of the U.S. federal income tax consequences of an investment in the notes, as well as any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.  

 

The discussion in the preceding paragraphs under “Tax considerations” and the discussion contained in the section entitled “United States Federal Taxation” in the accompanying prospectus supplement, insofar as they purport to describe provisions of U.S. federal income tax laws or legal conclusions with respect thereto, constitute the full opinion of Davis Polk & Wardwell LLP regarding the material U.S. federal tax consequences of an investment in the notes.

Use of proceeds and hedging:

The proceeds from the sale of the notes will be used by us for general corporate purposes.  We will receive, in aggregate, $1,000 per note issued, because, when we enter into hedging transactions in order to meet our obligations under the notes, our hedging counterparty will reimburse the cost of the agent’s commissions.  The costs of the notes borne by you and described beginning on page 2 above comprise the agent’s commissions and the cost of issuing, structuring and hedging the notes.

 

On or prior to the pricing date, we expect to hedge our anticipated exposure in connection with the notes by entering into hedging transactions with our affiliates and/or third-party dealers.  We expect our hedging counterparties to take positions in the underlying commodity or futures contracts or forward contracts on the underlying commodity or positions in any other available securities or instruments that they may wish to use in connection with such hedging.  Such purchase activity could increase the price of the underlying commodity on the pricing date, and, therefore, could increase the price at or above which the underlying commodity must close on the determination date before you would receive at maturity a payment that exceeds the stated principal amount of the notes.  In addition, through our affiliates, we are likely to modify our hedge position throughout the term of the notes, including on the determination date, by purchasing and selling the underlying commodity or futures contracts or forward contracts on the underlying commodity or positions in any other available securities or instruments that we may wish to use in connection with such hedging activities.  As a result, these entities may be unwinding or adjusting hedge positions during the term of the notes, and the hedging strategy may

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Morgan Stanley Finance LLC

Commodity-Linked Notes due May 13, 2027

Based on the Performance of West Texas Intermediate Light Sweet Crude Oil Futures Contracts

  involve greater and more frequent dynamic adjustments to the hedge as the determination date approaches, including by selling any such instruments on the determination date.  We cannot give any assurance that our hedging activities will not affect the price of the underlying commodity and, therefore, adversely affect the value of the notes or the payment you will receive at maturity.  For further information on our use of proceeds and hedging, see “Use of Proceeds and Hedging” in the accompanying prospectus supplement.
Additional considerations: Client accounts over which Morgan Stanley, Morgan Stanley Wealth Management or any of their respective subsidiaries have investment discretion are not permitted to purchase the notes, either directly or indirectly.
Supplemental information regarding plan of distribution; conflicts of interest:

Selected dealers and their financial advisors will collectively receive from the agent, MS & Co., a fixed sales commission of $20 for each note they sell.

 

MS & Co. is an affiliate of MSFL and a wholly owned subsidiary of Morgan Stanley, and it and other affiliates of ours expect to make a profit by selling, structuring and, when applicable, hedging the notes. When MS & Co. prices this offering of notes, it will determine the economic terms of the notes such that for each note the estimated value on the pricing date will be no lower than the minimum level described in “Investment Summary” beginning on page 2.

 

MS & Co. will conduct this offering in compliance with the requirements of FINRA Rule 5121 of the Financial Industry Regulatory Authority, Inc., which is commonly referred to as FINRA, regarding a FINRA member firm’s distribution of the securities of an affiliate and related conflicts of interest.  MS & Co. or any of our other affiliates may not make sales in this offering to any discretionary account.  See “Plan of Distribution (Conflicts of Interest)” and “Use of Proceeds and Hedging” in the accompanying prospectus supplement.  

Where you can find more information:

Morgan Stanley and MSFL have filed a registration statement (including a prospectus, as supplemented by the prospectus supplement for commodity-linked notes) with the Securities and Exchange Commission, or SEC, for the offering to which this communication relates.  You should read the prospectus in that registration statement, the prospectus supplement for commodity-linked notes and any other documents relating to this offering that Morgan Stanley and MSFL have filed with the SEC for more complete information about Morgan Stanley, MSFL and this offering. When you read the accompanying prospectus supplement, please note that all references in such supplement to the prospectus dated November 16, 2023, or to any sections therein, should refer instead to the accompanying prospectus dated April 12, 2024 or to the corresponding sections of such prospectus, as applicable. You may get these documents without cost by visiting EDGAR on the SEC web site at www.sec.gov.  Alternatively, Morgan Stanley or MSFL will arrange to send you the prospectus and the prospectus supplement for commodity-linked notes if you so request by calling toll-free 1-(800)-584-6837.

 

You may access these documents on the SEC web site at www.sec.gov as follows:

 

Prospectus Supplement for Commodity-Linked Notes dated November 16, 2023

Prospectus dated April 12, 2024

 

Terms used but not defined in this document are defined in the prospectus supplement for commodity-linked notes or in the prospectus.  

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