424B2 1 dp217431_424b2-ps3741.htm FORM 424B2

September 2024
Preliminary Pricing Supplement No. 3,741
Registration Statement Nos. 333-275587; 333-275587-01
Dated September 3, 2024
Filed pursuant to Rule 424(b)(2)

Morgan Stanley Finance LLC

Structured Investments

Opportunities in U.S. Equities

Market Linked Securities—Contingent Fixed Return and Fixed Percentage Buffered Downside

Principal at Risk Securities Linked to the Russell 2000® Index due April 1, 2027 

Fully and Unconditionally Guaranteed by Morgan Stanley

§    Linked to the Russell 2000® Index (the “underlying”)

§    The securities offered are unsecured obligations of Morgan Stanley Finance LLC (“MSFL”) and are fully and unconditionally guaranteed by Morgan Stanley.

§    Unlike ordinary debt securities, the securities do not pay interest or repay a fixed amount of principal at maturity. Instead, the securities provide for a maturity payment amount that may be greater than or less than the face amount of the securities, depending on the performance of the underlying from the starting level to the ending level. The maturity payment amount will reflect the following terms:

§    If the level of the underlying increases (regardless of the extent of that increase), stays the same or decreases but the decrease is to a level that is greater than or equal to the threshold level, you will receive the face amount plus the contingent fixed return of at least 20% of the face amount (to be determined on the pricing date)

§    If the level of the underlying decreases to a level less than the threshold level, you will receive less than the face amount and have 1-to-1 downside exposure to the decrease in the level of the underlying from the starting level in excess of 10% 

§    The threshold level is equal to 90% of the starting level

§    Investors may lose up to 90% of the face amount

§    The securities are for investors who seek an equity index-based return and who are willing to risk their investment and forgo current income in exchange for the contingent fixed return feature and buffer feature that, in each case, apply only if the ending level is greater than or equal to the threshold level

§    Any positive return on the securities at maturity will be limited to the contingent fixed return, even if the ending level significantly exceeds the starting level; you will not participate in any appreciation of the underlying beyond the contingent fixed return

§    The securities 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 securities included in the underlying

The current estimated value of the securities is approximately $955.50 per security, or within $35.00 of that estimate. The estimated value of the securities is determined using our own pricing and valuation models, market inputs and assumptions relating to the underlying, instruments based on the underlying, 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. See “Estimated Value of the Securities” on page 3.

The securities have complex features and investing in the securities involves risks not associated with an investment in ordinary debt securities. See “Risk Factors” beginning on page 10. All payments on the securities are subject to our credit risk.

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

The securities 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 product supplement for principal at risk securities, index supplement and prospectus, each of which can be accessed via the hyperlinks below. When you read the accompanying product supplement and index supplement, please note that all references in such supplements 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 Information About the Securities” 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.

Commissions and offering price: Price to public Agent’s commissions(1)(2) Proceeds to us(3)
Per security $1,000 $28.25 $971.75
Total $ $ $
(1)Wells Fargo Securities, LLC, an agent for this offering, will receive a commission of up to $28.25 for each security it sells. Dealers, including Wells Fargo Advisors (“WFA”), may receive a selling concession of up to $20.00 per security, and WFA may receive a distribution expense fee of $0.75 for each security sold by WFA. See “Supplemental information concerning plan of distribution; conflicts of interest.”

(2)In respect of certain securities sold in this offering, we may pay a fee of up to $3.00 per security to selected securities dealers in consideration for marketing and other services in connection with the distribution of the securities to other securities dealers.

(3)See “Use of Proceeds and Hedging” in the accompanying product supplement.

 

Product Supplement for Principal at Risk Securities dated November 16, 2023         Index Supplement dated November 16, 2023 

Prospectus dated April 12, 2024

 

Morgan Stanley Wells Fargo Securities

 

Morgan Stanley Finance LLC

Market Linked Securities—Contingent Fixed Return and Fixed Percentage Buffered Downside  

Principal at Risk Securities Linked to the Russell 2000® Index due April 1, 2027

Terms
Issuer: Morgan Stanley Finance LLC
Guarantor: Morgan Stanley
Maturity date: April 1, 2027†, subject to postponement if the calculation day is postponed*
Market measure: Russell 2000® Index (the “underlying”)
Underlying index publisher: FTSE Russell, or any successor thereof
Maturity payment amount:

At maturity, the maturity payment amount per $1,000 face amount of securities will be determined as follows:

 

·   If the ending level is greater than or equal to the threshold level:

$1,000 + contingent fixed return; 

·   If the ending level is less than the threshold level:

$1,000 + [$1,000 × (index return + buffer amount)]

 

If the ending level is less than the threshold level, you will receive less, and up to 90% less, than the face amount of your securities at maturity.

Contingent fixed return: At least 20% of the face amount (at least $200 per security), to be determined on the pricing date
Index return:

The percentage change from the starting level to the ending level, measured as follows:

 

ending level – starting level 

starting level

Starting level:           , which is the closing level of the underlying on the pricing date.
Ending level: The closing level of the underlying on the calculation day.
Calculation day: March 29, 2027**†
Threshold level:           , which is equal to 90% of the starting level.
Buffer amount: 10%
Face amount: $1,000 per security.  References in this document to a “security” are to a security with a face amount of $1,000.
Pricing date: September 27, 2024†
Original issue date: October 2, 2024† (3 business days after the pricing date)
CUSIP / ISIN: 61776RTF1 / US61776RTF19
Listing: The securities will not be listed on any securities exchange.
Agents: Morgan Stanley & Co. LLC (“MS & Co.”), an affiliate of MSFL and a wholly owned subsidiary of Morgan Stanley, and Wells Fargo Securities, LLC (“WFS”).  See “Additional Information About the Securities—Supplemental information regarding plan of distribution; conflicts of interest.”
†To the extent we make any change to the pricing date or original issue date, the calculation day and maturity date may also be changed in our discretion to ensure that the term of the securities remains the same.
* Subject to postponement pursuant to “General Terms of the Securities—Payment Dates” in the accompanying product supplement for principal at risk securities.
** Subject to postponement pursuant to “General Terms of the Securities—Consequences of a Market Disruption Event; Postponement of a Calculation Day” in the accompanying product supplement for principal at risk securities.
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Morgan Stanley Finance LLC

Market Linked Securities—Contingent Fixed Return and Fixed Percentage Buffered Downside  

Principal at Risk Securities Linked to the Russell 2000® Index due April 1, 2027

Estimated Value of the Securities

 

The face amount of each security is $1,000. This price includes costs associated with issuing, selling, structuring and hedging the securities, which are borne by you, and, consequently, the estimated value of the securities on the pricing date will be less than $1,000 per security. We estimate that the value of each security on the pricing date will be approximately $955.50, or within $35.00 of that estimate. Our estimate of the value of the securities 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 securities on the pricing date, we take into account that the securities comprise both a debt component and a performance-based component linked to the underlying. The estimated value of the securities is determined using our own pricing and valuation models, market inputs and assumptions relating to the underlying, instruments based on the underlying, 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 securities?

 

In determining the economic terms of the securities, including the contingent fixed return and the threshold level, 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 securities 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 securities?

 

The price at which MS & Co. purchases the securities in the secondary market, absent changes in market conditions, including those related to the underlying, 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. However, because the costs associated with issuing, selling, structuring and hedging the securities are not fully deducted upon issuance, for a period of up to 3 months following the issue date, to the extent that MS & Co. may buy or sell the securities in the secondary market, absent changes in market conditions, including those related to the underlying, and to our secondary market credit spreads, it would do so based on values higher than the estimated value. We expect that those higher values will also be reflected in your brokerage account statements.

 

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

 

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Morgan Stanley Finance LLC

Market Linked Securities—Contingent Fixed Return and Fixed Percentage Buffered Downside  

Principal at Risk Securities Linked to the Russell 2000® Index due April 1, 2027

Investor Considerations

 

The Principal at Risk Securities Linked to the Russell 2000® Index due April 1, 2027 (the “securities”) may be appropriate for investors who:

 

§Seek a contingent fixed return if the ending level is greater than or equal to the threshold level

 

§Understand that if the ending level is less than the threshold level, they will receive less, and possibly 90% less, than the face amount at maturity

 

§Understand that any positive return they will receive at maturity will be limited to the contingent fixed return, regardless of the extent to which the ending level exceeds the starting level

 

§Desire to obtain a buffer against a specified level of negative performance in the underlying

 

§Are willing to forgo interest payments on the securities and dividends on securities included in the underlying

 

§Are willing to hold the securities to maturity

 

The securities are not designed for, and may not be an appropriate investment for, investors who:

 

§Seek a return that is not limited by a contingent fixed payment

 

§Seek a liquid investment or are unable or unwilling to hold the securities to maturity

 

§Are unwilling to accept the risk that the ending level may decrease by more than 10% from the starting level, resulting in a loss of some or a significant portion of the initial investment

 

§Seek full return of the face amount of the securities at maturity

 

§Seek current income from their investments

 

§Seek exposure to the underlying but are unwilling to accept the risk/return trade-offs inherent in the maturity payment amount for the securities

 

§Are unwilling to accept our credit risk

 

§Prefer the lower risk of fixed income investments with comparable maturities issued by companies with comparable credit ratings

 

The considerations identified above are not exhaustive. Whether or not the securities are an appropriate investment for you will depend on your individual circumstances, and you should reach an investment decision only after you and your investment, legal, tax, accounting and other advisors have carefully considered the appropriateness of an investment in the securities in light of your particular circumstances. You should also review carefully the “Risk Factors” herein and in the accompanying product supplement for risks related to an investment in the securities. For more information about the underlying, please see the section titled “Russell 2000® Index Overview” below.

 

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Morgan Stanley Finance LLC

Market Linked Securities—Contingent Fixed Return and Fixed Percentage Buffered Downside  

Principal at Risk Securities Linked to the Russell 2000® Index due April 1, 2027

Determining Maturity Payment Amount

 

At maturity, the maturity payment amount per $1,000 face amount of securities will be determined as follows:

 

 

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Morgan Stanley Finance LLC

Market Linked Securities—Contingent Fixed Return and Fixed Percentage Buffered Downside  

Principal at Risk Securities Linked to the Russell 2000® Index due April 1, 2027

How the Securities Work

 

Payoff Diagram

 

The payoff diagram below illustrates the maturity payment amount on the securities based on a range of hypothetical index returns and the following terms:

 

Face amount: $1,000 per security
Hypothetical contingent fixed return: 20% of the face amount.  The actual contingent fixed return will be determined on the pricing date.
Threshold level: 90% of the starting level
Buffer amount: 10%

 

Securities Payoff Diagram
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Morgan Stanley Finance LLC

Market Linked Securities—Contingent Fixed Return and Fixed Percentage Buffered Downside  

Principal at Risk Securities Linked to the Russell 2000® Index due April 1, 2027

Scenario Analysis and Examples of Maturity Payment Amount at Maturity

 

The following scenario analysis and examples are provided for illustrative purposes only and are hypothetical. They do not purport to be representative of every possible scenario concerning increases or decreases in the level of the underlying relative to the starting level. We cannot predict the ending level on the calculation day. You should not take the scenario analysis and these examples as an indication or assurance of the expected performance of the underlying. The numbers appearing in the examples below may have been rounded for ease of analysis. Notwithstanding anything to the contrary in the accompanying product supplement for principal at risk securities, the amount you will receive per $1,000 face amount of securities at maturity will be the maturity payment amount, defined and calculated as provided in this document. The following scenario analysis and examples illustrate the maturity payment amount on a hypothetical offering of the securities, based on the following terms*:

 

Investment term: Approximately 2.5 years
Hypothetical starting level: 100
Hypothetical threshold level: 90, which is 90% of the hypothetical starting level
Buffer amount: 10%
Hypothetical contingent fixed return: 20% of the face amount.  The actual contingent fixed return will be determined on the pricing date.

 

* The hypothetical starting level of 100 has been chosen for illustrative purposes only and does not represent the actual starting level. The actual starting level, threshold level and contingent fixed return will be determined on the pricing date and will be set forth under “Terms” above. For historical data regarding the actual closing levels of the underlying, see the historical information set forth herein.

 

Example 1 —The underlying appreciates substantially over the term of the securities, and investors therefore receive the face amount plus the contingent fixed return. Investors do not participate in the appreciation of the underlying.

 

Ending level   180  
Index return   (180 – 100) / 100 = 80%
Maturity payment amount = $1,000 +  contingent fixed return
  = $1,000 + $200
  =

$1,200

 

In example 1, the ending level has increased from the starting level by 80%. Therefore, investors receive at maturity the face amount plus the contingent fixed return of $200 per face amount. Investors receive $1,200 per security at maturity (assuming a hypothetical contingent fixed return of $200 per face amount) and do not participate in the appreciation of the underlying. Although the underlying has appreciated substantially, the return on the securities is limited to the contingent fixed return of $200 per face amount (assuming a hypothetical contingent fixed return of $200 per face amount). The actual contingent fixed return will be determined on the pricing date.

 

Example 2 — The underlying depreciates over the term of the securities but does not decline below the threshold level, and investors receive the face amount plus the contingent fixed return.

 

Ending level   92  
Index return   (92 – 100) / 100 = -8%
Maturity payment amount = $1,000 +  contingent fixed return
  = $1,000 + $200
  =

$1,200

 

In example 2, the ending level is less than the starting level, but is greater than or equal to the threshold level. Therefore, investors receive at maturity the face amount plus the contingent fixed return of $200 per face amount. Investors receive $1,200 per security

 

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Morgan Stanley Finance LLC

Market Linked Securities—Contingent Fixed Return and Fixed Percentage Buffered Downside  

Principal at Risk Securities Linked to the Russell 2000® Index due April 1, 2027

at maturity (assuming a hypothetical contingent fixed return of $200 per face amount). The actual contingent fixed return will be determined on the pricing date.

 

Example 3 — The ending level is less than the threshold level. Investors are therefore exposed to the decline in the underlying from the starting level.

 

Ending level   30  
Index return   (30 – 100) / 100 = -70%
Maturity payment amount = $1,000 + [$1,000 × (index return + buffer amount)]
  = $1,000 + [$1,000 × (-70% + 10%)]
  =

$400

 

In example 3, the ending level has declined below the threshold level. Because the ending level has declined below the threshold level, investors are exposed on a 1-to-1 basis to the negative performance of the underlying in excess of 10%. Investors receive a maturity payment amount of $400.

 

If the ending level is below the threshold level on the calculation day, the securities will be exposed on a 1-to-1 basis to any decline in the level of the underlying in excess of 10%. Under these circumstances, you may lose up to 90% of the face amount of your securities at maturity.

 

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Morgan Stanley Finance LLC

Market Linked Securities—Contingent Fixed Return and Fixed Percentage Buffered Downside  

Principal at Risk Securities Linked to the Russell 2000® Index due April 1, 2027

Scenario Analysis – Hypothetical Maturity Payment Amount for each $1,000 Face Amount of Securities.

 

Performance of the Underlying*

Performance of the Securities(1)

Ending Level

Index Return

Maturity Payment Amount

Return on Securities(2)

200 100.00% $1,200.00 20.00%
190 90.00% $1,200.00 20.00%
180 80.00% $1,200.00 20.00%
170 70.00% $1,200.00 20.00%
160 60.00% $1,200.00 20.00%
150 50.00% $1,200.00 20.00%
140 40.00% $1,200.00 20.00%
130 30.00% $1,200.00 20.00%
120 20.00% $1,200.00 20.00%
110 10.00% $1,200.00 20.00%
105 5.00% $1,200.00 20.00%
100(3) 0.00% $1,200.00 20.00%
95 -5.00% $1,200.00 20.00%
90 -10.00% $1,200.00 20.00%
89 -11.00% $990.00 -1.00%
80 -20.00% $900.00 -10.00%
70 -30.00% $800.00 -20.00%
60 -40.00% $700.00 -30.00%
50 -50.00% $600.00 -40.00%
40 -60.00% $500.00 -50.00%
30 -70.00% $400.00 -60.00%
20 -80.00% $300.00 -70.00%
10 -90.00% $200.00 -80.00%
0 -100.00% $100.00 -90.00%

 

*The underlying excludes cash dividend payments on stocks included in the underlying.

 

(1)Assumes a contingent fixed return of 20% of the face amount. The actual contingent fixed return will be determined on the pricing date.

(2)The “Return on Securities” is the number, expressed as a percentage, which results from comparing the maturity payment amount per $1,000 face amount of securities to the purchase price of $1,000 per security.

(3)The hypothetical starting level of the underlying.

 

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Morgan Stanley Finance LLC

Market Linked Securities—Contingent Fixed Return and Fixed Percentage Buffered Downside  

Principal at Risk Securities Linked to the Russell 2000® Index due April 1, 2027

Risk Factors

 

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

 

Risks Relating to an Investment in the Securities

 

§The securities do not pay interest, and you will receive less, and up to 90% less, than the face amount of your securities at maturity if the ending level is less than the threshold level. The terms of the securities differ from those of ordinary debt securities in that the securities do not pay interest or repay a fixed amount of the face amount of the securities. If the ending level is less than the threshold level, which is 90% of the starting level, you will receive less, and up to 90% less, than the face amount of your securities at maturity. Investors may lose some or a significant portion of their investment in the securities.

 

§Your potential return on the securities is fixed and limited. Your potential return on the securities at maturity is limited to the contingent fixed return. Your return on the securities will not exceed the contingent fixed return, even if the underlying appreciates by significantly more than the return represented by the contingent fixed return. If the underlying appreciates by more than the return represented by the contingent fixed return, the securities will underperform an alternative investment providing 1-to-1 exposure to the performance of the underlying.

 

§The market price will be influenced by many unpredictable factors. Several factors, many of which are beyond our control, will influence the value of the securities in the secondary market and the price at which MS & Co. or any other dealer may be willing to purchase or sell the securities in the secondary market, including the level, volatility (frequency and magnitude of changes in level) and dividend yield of the underlying, interest and yield rates in the market, time remaining to maturity, geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the underlying or equities markets generally and which may affect the ending level of the underlying 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 securities will be affected by the other factors described above. The level of the underlying may be, and has recently been, volatile, and we can give you no assurance that the volatility will lessen. See “Russell 2000® Index Overview” below. You may receive less, and up to 90% less, than the face amount per security if you try to sell your securities prior to maturity.

 

§The securities 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 securities. You are dependent on our ability to pay all amounts due on the securities at maturity, and therefore you are subject to our credit risk. If we default on our obligations under the securities, your investment would be at risk and you could lose some or all of your investment. As a result, the market value of the securities 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 securities.

 

§As 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.

 

§The amount payable on the securities is not linked to the value of the underlying at any time other than the calculation day. The ending level will be based on the closing level of the underlying on the calculation day,

 

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Morgan Stanley Finance LLC

Market Linked Securities—Contingent Fixed Return and Fixed Percentage Buffered Downside  

Principal at Risk Securities Linked to the Russell 2000® Index due April 1, 2027

subject to postponement for non-trading days and certain market disruption events. Even if the level of the underlying increases prior to the calculation day but then decreases by the calculation day, the maturity payment amount may be less, and may be significantly less, than it would have been had the maturity payment amount been linked to the level of the underlying prior to such decrease. Although the actual level of the underlying on the maturity date or at other times during the term of the securities may be higher than the ending level, the maturity payment amount will be based solely on the closing level of the underlying on the calculation day.

 

§Investing in the securities is not equivalent to investing in the underlying. Investing in the securities is not equivalent to investing in the underlying or its component stocks. Investors in the securities will not have voting rights or rights to receive dividends or other distributions or any other rights with respect to the stocks that constitute the underlying.

 

§The 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 securities in the face amount reduce the economic terms of the securities, cause the estimated value of the securities to be less than the face amount and will adversely affect secondary market prices. Assuming no change in market conditions or any other relevant factors, the prices, if any, at which dealers, including MS & Co., may be willing to purchase the securities in secondary market transactions will likely be significantly lower than the face amount, because secondary market prices will exclude the issuing, selling, structuring and hedging-related costs that are included in the face amount 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 securities in the face amount and the lower rate we are willing to pay as issuer make the economic terms of the securities less favorable to you than they otherwise would be.

 

However, because the costs associated with issuing, selling, structuring and hedging the securities are not fully deducted upon issuance, for a period of up to 3 months following the issue date, to the extent that MS & Co. may buy or sell the securities in the secondary market, absent changes in market conditions, including those related to the underlying, and to our secondary market credit spreads, it would do so based on values higher than the estimated value, and we expect that those higher values will also be reflected in your brokerage account statements.

 

§The estimated value of the securities 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 securities than those generated by others, including other dealers in the market, if they attempted to value the securities. 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 securities in the secondary market (if any exists) at any time. The value of your securities 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.

 

§The securities will not be listed on any securities exchange and secondary trading may be limited. The securities will not be listed on any securities exchange. Therefore, there may be little or no secondary market for the securities. MS & Co. and WFS may, but are not obligated to, make a market in the securities and, if either of them once chooses to make a market, may cease doing so at any time. When they do make a market, they will generally do so for transactions of routine secondary market size at prices based on their respective estimates of the current value of the securities, taking into account their respective bid/offer spreads, 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 they will be able to resell the securities. Even if there is a secondary market, it may not provide enough liquidity to allow you to trade or sell the securities easily. Since other broker-dealers may not participate significantly in

 

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Market Linked Securities—Contingent Fixed Return and Fixed Percentage Buffered Downside  

Principal at Risk Securities Linked to the Russell 2000® Index due April 1, 2027

the secondary market for the securities, the price at which you may be able to trade your securities is likely to depend on the price, if any, at which MS & Co. or WFS is willing to transact. If, at any time, MS & Co. and WFS were to cease making a market in the securities, it is likely that there would be no secondary market for the securities. Accordingly, you should be willing to hold your securities to maturity.

 

§The calculation agent, which is a subsidiary of Morgan Stanley and an affiliate of MSFL, will make determinations with respect to the securities. As calculation agent, MS & Co. will determine the starting level, the threshold level and the ending level and will calculate the amount of cash you receive at maturity. Moreover, certain determinations made by MS & Co., in its capacity as 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 and the selection of a successor index or calculation of the ending level in the event of a market disruption event or discontinuance of the underlying. These potentially subjective determinations may adversely affect the payout to you at maturity. For further information regarding these types of determinations, see “General Terms of the Securities—Market Disruption Events,” “—Adjustments to an Index,” “—Discontinuance of an Index,” “—Consequences of a Market Disruption Event; Postponement of a Calculation Day” and “Alternate Exchange Calculation in Case of an Event of Default” in the accompanying product supplement for principal at risk securities.  In addition, MS & Co. has determined the estimated value of the securities on the pricing date.

 

§Hedging and trading activity by our affiliates could potentially adversely affect the value of the securities. One or more of our affiliates and/or third-party dealers expect to carry out hedging activities related to the securities (and possibly to other instruments linked to the underlying or its component stocks), including trading in the stocks that constitute the underlying as well as in other instruments related to the underlying. As a result, these entities may be unwinding or adjusting hedge positions during the term of the securities, and the hedging strategy may involve greater and more frequent dynamic adjustments to the hedge as the calculation day approaches. Some of our affiliates also trade the stocks that constitute the underlying and other financial instruments related to the underlying on a regular basis as part of their general broker-dealer and other businesses. Any of these hedging or trading activities on or prior to the pricing date could potentially affect the starting level, and, therefore, could increase the level at or above which the underlying must close on the calculation day so that investors do not suffer a loss on their initial investment in the securities. Additionally, such hedging or trading activities during the term of the securities, including on the calculation day, could adversely affect the level of the underlying on the calculation day, and, accordingly, the amount of cash an investor will receive at maturity.

 

§The maturity date may be postponed if the calculation day is postponed. If the scheduled calculation day is not a trading day or if a market disruption event occurs on that day so that the calculation day is postponed and falls less than three business days prior to the maturity date, the maturity date of the securities will be postponed to the third business day following that calculation day as postponed.

 

§Potentially inconsistent research, opinions or recommendations by Morgan Stanley, MSFL, WFS or our or their respective affiliates. Morgan Stanley, MSFL, WFS and our or their respective affiliates may publish research from time to time on financial markets and other matters that may influence the value of the securities, or express opinions or provide recommendations that are inconsistent with purchasing or holding the securities. Any research, opinions or recommendations expressed by Morgan Stanley, MSFL, WFS or our or their respective affiliates may not be consistent with each other and may be modified from time to time without notice. Investors should make their own independent investigation of the merits of investing in the securities and the underlying to which the securities are linked.

 

§The U.S. federal income tax consequences of an investment in the securities are uncertain. Please read the discussion under “Additional Information About the Securities—Tax considerations” in this document and the discussion under “United States Federal Taxation” in the accompanying product supplement for principal at risk securities (together, the “Tax Disclosure Sections”) concerning the U.S. federal income tax consequences of an investment in the securities. There is no direct legal authority regarding the proper U.S. federal tax treatment of the securities, and we do not plan to request a ruling from the Internal Revenue Service (the “IRS”). Consequently, significant aspects of the tax treatment of the securities are uncertain, and the IRS or a court might not agree with the tax treatment of a security as a single financial contract that is an “open transaction” for U.S. federal income tax purposes. If the IRS were successful in asserting an alternative treatment of the securities, the tax consequences of the

 

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ownership and disposition of the securities, including the timing and character of income recognized by U.S. Holders and the withholding tax consequences to Non-U.S. Holders, might be materially and adversely affected. Moreover, future legislation, Treasury regulations or IRS guidance could adversely affect the U.S. federal tax treatment of the securities, possibly retroactively.

 

Both U.S. and Non-U.S. Holders should consult their tax advisers regarding the U.S. federal income tax consequences of an investment in the securities, including possible alternative treatments, as well as any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.

 

Risks Relating to the Underlying

 

§The securities are linked to the Russell 2000® Index and are subject to risks associated with small-capitalization companies. The Russell 2000® Index consists of stocks issued by companies with relatively small market capitalization. These companies often have greater stock price volatility, lower trading volume and less liquidity than large-capitalization companies and therefore the Russell 2000® Index may be more volatile than indices that consist of stocks issued by large-capitalization companies. Stock prices of small-capitalization companies are also more vulnerable than those of large-capitalization companies to adverse business and economic developments, and the stocks of small-capitalization companies may be thinly traded. In addition, small capitalization companies are typically less well-established and less stable financially than large-capitalization companies and may depend on a small number of key personnel, making them more vulnerable to loss of personnel. Such companies tend to have smaller revenues, less diverse product lines, smaller shares of their product or service markets, fewer financial resources and less competitive strengths than large-capitalization companies and are more susceptible to adverse developments related to their products.

 

§Adjustments to the underlying could adversely affect the value of the securities. The underlying index publisher may add, delete or substitute the stocks constituting the underlying or make other methodological changes that could change the value of the underlying. The underlying index publisher may discontinue or suspend calculation or publication of the underlying at any time. In these circumstances, the calculation agent will have the sole discretion to substitute a successor underlying that is comparable to the discontinued underlying and is permitted to consider indices that are calculated and published by the calculation agent or any of its affiliates. If the calculation agent determines that there is no appropriate successor underlying, the maturity payment amount on the securities will be an amount based on the closing prices at maturity of the securities composing the underlying at the time of such discontinuance, without rebalancing or substitution, computed by the calculation agent in accordance with the formula for calculating the underlying last in effect prior to discontinuance of the underlying.

 

§Historical levels of the underlying should not be taken as an indication of the future performance of the underlying during the term of the securities. No assurance can be given as to the level of the underlying at any time, including on the calculation day, because historical levels of the underlying do not provide an indication of future performance of the underlying.

 

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Russell 2000® Index Overview

The Russell 2000® Index is an index calculated, published and disseminated by FTSE International Limited (“FTSE Russell”), and measures the capitalization-weighted price performance of 2,000 U.S. small-capitalization stocks listed on eligible U.S. exchanges. The Russell 2000® Index is designed to track the performance of the small-capitalization segment of the U.S. equity market. The companies included in the Russell 2000® Index are the middle 2,000 (i.e., those ranked 1,001 through 3,000) of the companies that form the Russell 3000E™ Index. The Russell 2000® Index represents approximately 7% of the U.S. equity market. For additional information about the Russell 2000® Index, see the information set forth under “Russell Indices—Russell 2000® Index” in the accompanying index supplement.

 

The following graph sets forth the daily closing levels of the underlying for the period from January 1, 2019 through August 28, 2024. The closing level of the underlying on August 28, 2024 was 2,188.635. We obtained the information in the graph below from Bloomberg Financial Markets without independent verification. The underlying has at times experienced periods of high volatility. You should not take the historical levels of the underlying as an indication of its future performance, and no assurance can be given as to the closing level of the underlying on the calculation day.

 

Russell 2000® Index Daily Closing Levels

January 1, 2019 to August 28, 2024

 

“Russell 2000® Index” and “Russell 3000ETM Index” are trademarks of FTSE Russell. For more information, see “Russell Indices” in the accompanying index supplement.

 

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Additional Information About the Securities

 

Minimum ticketing size

 

$1,000 / 1 security

 

Tax considerations

 

Although there is uncertainty regarding the U.S. federal income tax consequences of an investment in the securities due to the lack of governing authority, in the opinion of our counsel, Davis Polk & Wardwell LLP, under current law, and based on current market conditions, it is reasonable to treat a security as a single financial contract that is an “open transaction” for U.S. federal income tax purposes. However, because our counsel’s opinion is based in part on market conditions as of the date of this document, it is subject to confirmation on the pricing date.

 

Assuming this treatment of the securities is respected and subject to the discussion in “United States Federal Taxation” in the accompanying product supplement for principal at risk securities, the following U.S. federal income tax consequences should result based on current law:

 

§A U.S. Holder should not be required to recognize taxable income over the term of the securities prior to settlement, other than pursuant to a sale or exchange.

 

§Upon sale, exchange or settlement of the securities, a U.S. Holder should recognize gain or loss equal to the difference between the amount realized and the U.S. Holder’s tax basis in the securities. Such gain or loss should be long-term capital gain or loss if the investor has held the securities for more than one year, and short-term capital gain or loss otherwise.

 

We do not plan to request a ruling from the Internal Revenue Service (the “IRS”) regarding the treatment of the securities. An alternative characterization of the securities could materially and adversely affect the tax consequences of ownership and disposition of the securities, including the timing and character of income recognized. In addition, the U.S. Treasury Department and the IRS have requested comments on various issues regarding the U.S. federal income tax treatment of “prepaid forward contracts” and similar financial instruments and have indicated that such transactions may be the subject of future regulations or other guidance. Furthermore, members of Congress have proposed legislative changes to the tax treatment of derivative contracts. Any legislation, Treasury regulations or other guidance promulgated after consideration of these issues could materially and adversely affect the tax consequences of an investment in the securities, possibly with retroactive effect.

 

As discussed in the accompanying product supplement for principal at risk securities, Section 871(m) of the Internal Revenue Code of 1986, as amended, 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”). Subject to certain exceptions, Section 871(m) generally applies to securities that substantially replicate the economic performance of one or more Underlying Securities, as determined based on tests set forth in the applicable Treasury regulations (a “Specified Security”). However, pursuant to an IRS notice, Section 871(m) will not apply to securities issued before January 1, 2027 that do not have a delta of one with respect to any Underlying Security. Based on the terms of the securities and current market conditions, we expect that the securities will not have a delta of one with respect to any Underlying Security on the pricing date. However, we will provide an updated determination in the final pricing supplement. Assuming that the securities do not have a delta of one with respect to any Underlying Security, our counsel is of the opinion that the securities should not be Specified Securities and, therefore, should not be subject to Section 871(m).

 

Our determination is not binding on the IRS, and the IRS may disagree with this determination. Section 871(m) is complex and its application may depend on your particular circumstances, including whether you enter into other transactions with respect to an Underlying Security. If withholding is required, we will not be required to pay any additional amounts with respect to the amounts so withheld. You should consult your tax adviser regarding the potential application of Section 871(m) to the securities.

 

Both U.S. and non-U.S. investors considering an investment in the securities should read the discussion under “Risk Factors” in this document and the discussion under “United States Federal Taxation” in the accompanying product supplement for principal at risk securities and consult their tax advisers regarding all aspects of the U.S. federal income tax consequences of an investment in the securities, including possible alternative treatments, and any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.

 

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The discussion in the preceding paragraphs under “Tax considerations” and the discussion contained in the section entitled “United States Federal Taxation” in the accompanying product supplement for principal at risk securities, 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 securities.

 

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 securities, either directly or indirectly.

 

Supplemental information regarding plan of distribution; conflicts of interest

 

MS & Co. and WFS will act as the agents for this offering. WFS will receive a commission of up to $28.25 for each security it sells. WFS proposes to offer the securities in part directly to the public at the price to public set forth on the cover page of this document and in part to Wells Fargo Advisors (“WFA”) (the trade name of the retail brokerage business of WFS’s affiliates, Wells Fargo Clearing Services, LLC and Wells Fargo Advisors Financial Network, LLC), an affiliate of WFS, or other securities dealers at such price less a selling concession of up to $20.00 per security. In addition to the selling concession allowed to WFA, WFS may pay $0.75 per security of the commission to WFA as a distribution expense fee for each security sold by WFA.

 

In addition, in respect of certain securities sold in this offering, we may pay a fee of up to $3.00 per security to selected securities dealers in consideration for marketing and other services in connection with the distribution of the securities to other securities dealers.

 

See "Plan of Distribution, Conflicts of Interest" in the accompanying product supplement for information about the distribution arrangements for the securities. References therein to "agent" refer to each of MS & Co. and WFS, as agents for this offering, except that references to "agent" in the context of offers to certain Morgan Stanley dealers and compliance with FINRA Rule 5121 do not apply to WFS. MS & Co., WFS or their affiliates may enter into hedging transactions with us in connection with this offering.

 

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 securities. When MS & Co. prices this offering of securities, it will determine the economic terms of the securities, including the contingent fixed return, such that for each security the estimated value on the pricing date will be no lower than the minimum level described in “Estimated Value of the Securities” beginning on page 3.

 

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 product supplement.

 

Where you can find more information

 

Morgan Stanley and MSFL have filed a registration statement (including a prospectus, as supplemented by the product supplement for principal at risk securities and the index supplement) 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 product supplement for principal at risk securities, the index supplement 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 product supplement and index supplement, please note that all references in such supplements 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, MSFL, any underwriter or any dealer participating in the offering will arrange to send you the product supplement for principal at risk securities, index supplement and prospectus 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:

 

Product Supplement for Principal at Risk Securities dated November 16, 2023

 

Index Supplement dated November 16, 2023

 

Prospectus dated April 12, 2024

 

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Terms used but not defined in this document are defined in the product supplement for principal at risk securities, in the index supplement or in the prospectus.

 

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