FWP 1 ms393_fwp-17656.htm PRELIMINARY TERMS NO. 393

December 2023

Preliminary Terms No. 393

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

Dated December 12, 2023

Filed pursuant to Rule 433

Morgan Stanley Finance LLC

Structured Investments

Opportunities in International Equities

Dual Directional Jump Securities with Auto-Callable Feature due December 28, 2026, with 1-Year Initial Non-Call Period

All Payments on the Securities Based on the Performance of the Nikkei Stock Average

Fully and Unconditionally Guaranteed by Morgan Stanley

Principal at Risk Securities

The Dual Directional Jump Securities with Auto-Callable Feature (the “securities”) offered are unsecured obligations of Morgan Stanley Finance LLC (“MSFL”), fully and unconditionally guaranteed by Morgan Stanley, and have the terms described in the accompanying product supplement, index supplement and prospectus, as supplemented or modified by this document. The securities do not provide for the regular payment of interest and do not guarantee the return of any principal at maturity. Beginning after one year, the securities will be automatically redeemed if the index closing value of the underlying index on any of the first four semi-annual determination dates is greater than or equal to the initial index value, for an early redemption payment that will increase over the term of the securities, as described below. No further payments will be made on the securities once they have been redeemed. At maturity, if the securities have not previously been redeemed and the final index value is greater than or equal to the initial index value, investors will receive the stated principal amount of their investment plus unleveraged upside performance of the underlying index, subject to the maximum upside payment at maturity. If the securities have not previously been redeemed and the final index value is less than the initial index value but is greater than or equal to 75% of the initial index value, which we refer to as the downside threshold level, investors will receive at maturity the stated principal amount of their investment plus an unleveraged positive return based on the absolute value of the percentage decline, which will be effectively limited to a 25% return. However, if the securities are not redeemed prior to maturity and the final index value is less than the downside threshold level, investors will be exposed to the decline in the level of the underlying index on a 1-to-1 basis and will receive a payment at maturity that is less than 75% of the stated principal amount of the securities and could be zero. Accordingly, investors in the securities must be willing to accept the risk of losing their entire initial investment. The securities are for investors who are willing to risk their principal and forgo current income and upside above the maximum upside payment at maturity in exchange for the possibility of receiving an early redemption payment greater than the stated principal amount if the underlying index closes at or above the initial index value on a semi-annual determination date, or, if the securities are not redeemed prior to maturity, the possibility of receiving a positive return if the underlying index closes above the initial index value, or below the initial index value but at or above the downside threshold level, on the final determination date. 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 underlying reference asset or assets.

SUMMARY TERMS

Issuer:

Morgan Stanley Finance LLC

Guarantor:

Morgan Stanley

Underlying index:

Nikkei Stock Average

Aggregate principal amount:

$

Stated principal amount:

$1,000 per security

Issue price:

$1,000 per security

Pricing date:

December 19, 2023

Original issue date:

December 22, 2023 (3 business days after the pricing date)

Maturity date:

December 28, 2026

Early redemption:

The securities are not subject to automatic early redemption until approximately one year after the original issue date. Following this 1-year initial non-call period, if, on any of the first four semi-annual determination dates, beginning on December 26, 2024, the index closing value of the underlying index is greater than or equal to the initial index value, the securities will be automatically redeemed for the applicable early redemption payment on the related early redemption date.

The securities will not be redeemed early on an early redemption date if the index closing value of the underlying index is below the initial index value on the related semi-annual determination date.

Early redemption payment:

The early redemption payment will be an amount in cash per stated principal amount (corresponding to a return of at least approximately 9.75% per annum, to be determined on the pricing date) for each semi-annual determination date, as set forth under “Determination Dates, Early Redemption Dates and Early Redemption Payments” below.

No further payments will be made on the securities once they have been redeemed.

Determination dates:

Beginning after one year, semi-annually. See “Determination Dates, Early Redemption Dates and Early Redemption Payments (Beginning After One Year)” below. The determination dates are subject to postponement for non-index business days and certain market disruption events.

Early redemption dates:

See “Determination Dates, Early Redemption Dates and Early Redemption Payments (Beginning After One Year)” below. If any such day is not a business day, the early redemption payment, if payable, will be paid on the next business day, and no adjustment will be made to the early redemption payment.

Payment at maturity:

If the securities have not previously been redeemed, you will receive at maturity a cash payment per security as follows:

●If the final index value is greater than or equal to the initial index value:

$1,000 + ($1,000 × index percent change), subject to the maximum upside payment at maturity

●If the final index value is less than the initial index value but is greater than or equal to the downside threshold level:

$1,000 + ($1,000 × absolute index return)

In this scenario, you will receive a 1% positive return on the securities for each 1% negative return on the underlying index. In no event will this amount exceed the stated principal amount plus $250.

●If the final index value is less than the downside threshold level:

$1,000 × index performance factor

Under these circumstances, you will lose more than 25%, and possibly all, of your investment.

Maximum upside payment at maturity:

$1,250 per security (125% of the stated principal amount)

 

Terms continued on the following page

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 $938.30 per security, or within $45.00 of that estimate. See “Investment Summary” beginning on page 3.

Commissions and issue price:

Price to public

Agent’s commissions (1)

Proceeds to us(2)

Per security

$1,000

$

$

Total

$

$

$

(1)Selected dealers and their financial advisors will collectively receive from the agent, MS & Co., a fixed sales commission of $ for each security 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 product supplement.

(2)See “Use of proceeds and hedging” on page 16.

The securities involve risks not associated with an investment in ordinary debt securities. See “Risk Factors” beginning on page 8.

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, index supplement and prospectus, each of which can be accessed via the hyperlinks below. Please also see “Additional Terms of the Securities” and “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.

Product Supplement for Auto-Callable Securities dated November 16, 2023   ​ ​ Index Supplement dated November 16, 2023   ​Prospectus dated November 16, 2023

 

Morgan Stanley Finance LLC

Dual Directional Jump Securities with Auto-Callable Feature due December 28, 2026, with 1-Year Initial Non-Call Period

All Payments on the Securities Based on the Performance of the Nikkei Stock Average

Principal at Risk Securities

 

Terms continued from previous page:

Downside threshold level:

, which is 75% of the initial index value

Initial index value:

, which is the index closing value on the pricing date

Final index value:

The index closing value on the final determination date

Index percent change:

(Final index value – initial index value) / initial index value

Index performance factor:

Final index value divided by the initial index value

Absolute index return:

The absolute value of the index percent change. For example, a -5% index percent change will result in a +5% absolute index return.

CUSIP / ISIN:

61775MZ82 / US61775MZ823

Listing:

The securities will not be listed on any securities exchange.

Determination Dates, Early Redemption Dates and Early Redemption Payments (Beginning After One Year)

Determination Dates

Early Redemption Dates

Early Redemption Payments
(per $1,000 Security)*

1st determination date:

12/26/2024

1st early redemption date:

12/31/2024

At least $1,097.50

2nd determination date:

6/19/2025

2nd early redemption date:

6/24/2025

At least $1,146.25

3rd determination date:

12/19/2025

3rd early redemption date:

12/24/2025

At least $1,195.00

4th determination date:

6/19/2026

4th early redemption date:

6/24/2026

At least $1,243.75

Final determination date:

12/21/2026

See “Maturity date” above.

See “Payment at maturity” above.

*The actual early redemption payment with respect to each determination date will be determined on the pricing date and will be an amount in cash per stated principal amount corresponding to a return of at least approximately 9.75% per annum.

December 2023 Page 2

Morgan Stanley Finance LLC

Dual Directional Jump Securities with Auto-Callable Feature due December 28, 2026, with 1-Year Initial Non-Call Period

All Payments on the Securities Based on the Performance of the Nikkei Stock Average

Principal at Risk Securities

 

Investment Summary

Dual Directional Jump Securities with Auto-Callable Feature

Principal at Risk Securities

The Dual Directional Jump Securities with Auto-Callable Feature due December 28, 2026, with 1-Year Initial Non-Call Period All Payments on the Securities Based on the Performance of the Nikkei Stock Average (the “securities”) do not provide for the regular payment of interest. Instead, the securities will be automatically redeemed if the index closing value of the underlying index on any of the first four semi-annual determination dates is greater than or equal to the initial index value, for an early redemption payment that will increase over the term of the securities, as described below. No further payments will be made on the securities once they have been redeemed. At maturity, if the securities have not previously been redeemed and the final index value is greater than or equal to the initial index value, investors will receive the stated principal amount of their investment plus unleveraged upside performance of the underlying index, subject to the maximum upside payment at maturity. If the securities have not previously been redeemed and the final index value is less than the initial index value but is greater than or equal to the downside threshold level, investors will receive the stated principal amount of their investment plus an unleveraged positive return based on the absolute value of the percentage decline, which will be effectively limited to a 25% return. However, if the securities are not redeemed prior to maturity and the final index value is less than the downside threshold level, investors will be exposed to the decline in the level of the underlying index on a 1-to-1 basis, and will receive a payment at maturity that is less than 75% of the stated principal amount of the securities and could be zero. Accordingly, investors in the securities must be willing to accept the risk of losing their entire initial investment. 

Maturity:

Approximately 3 years

Automatic early redemption (beginning after one year):

If, on any of the first four semi-annual determination dates, the index closing value of the underlying index is greater than or equal to the initial index value, the securities will be automatically redeemed for the applicable early redemption payment on the related early redemption date.

Early redemption payment:

The early redemption payment will be an amount in cash per stated principal amount (corresponding to a return of at least approximately 9.75% per annum, to be determined on the pricing date), as follows*:

●1st determination date: At least $1,097.50

●2nd determination date: At least $1,146.25

●3rd determination date: At least $1,195.00

●4th determination date: At least $1,243.75

*The actual early redemption payment with respect to each applicable determination date will be determined on the pricing date.

No further payments will be made on the securities once they have been redeemed.

Maximum upside payment at maturity:

$1,250 per security (125% of the stated principal amount)

Payment at maturity:

If the securities have not previously been redeemed, you will receive at maturity a cash payment per security as follows:

●If the final index value is greater than or equal to the initial index value:

$1,000 + ($1,000 × index percent change), subject to the maximum upside payment at maturity

●If the final index value is less than the initial index value but is greater than or equal to the downside threshold level:

$1,000 + ($1,000 × absolute index return)

In this scenario, you will receive a 1% positive return on the securities for each 1% negative return on the underlying index. In no event will this amount exceed the stated principal amount plus $250.

●If the final index value is less than the downside threshold level:

$1,000 × index performance factor

Under these circumstances, investors will lose a significant portion or all of their investment. Accordingly, investors in the securities must be willing to accept the risk of losing their entire initial investment.

December 2023 Page 3

Morgan Stanley Finance LLC

Dual Directional Jump Securities with Auto-Callable Feature due December 28, 2026, with 1-Year Initial Non-Call Period

All Payments on the Securities Based on the Performance of the Nikkei Stock Average

Principal at Risk Securities

 

The original issue price 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. We estimate that the value of each security on the pricing date will be approximately $938.30, or within $45.00 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 index. The estimated value of the securities is determined using our own pricing and valuation models, market inputs and assumptions relating to the underlying index, instruments based on the underlying index, 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 early redemption payment amounts, the maximum upside payment at maturity and the downside 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 index, 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 6 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 index, 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.

December 2023 Page 4

Morgan Stanley Finance LLC

Dual Directional Jump Securities with Auto-Callable Feature due December 28, 2026, with 1-Year Initial Non-Call Period

All Payments on the Securities Based on the Performance of the Nikkei Stock Average

Principal at Risk Securities

 

Key Investment Rationale

The securities do not provide for the regular payment of interest. Instead, beginning after one year, the securities will be automatically redeemed if the index closing value of the underlying index on any of the first four semi-annual determination dates is greater than or equal to the initial index value.

The following scenarios are for illustrative purposes only to demonstrate how an automatic early redemption payment or the payment at maturity (if the securities have not previously been redeemed) are calculated, and do not attempt to demonstrate every situation that may occur. Accordingly, the securities may or may not be redeemed prior to maturity and the payment at maturity may be less than the stated principal amount of the securities.

Absolute Return Feature

The securities enable investors to obtain an unleveraged positive return if the final index value is less than the initial index value but is greater than or equal to the downside threshold level.

Automatic Early Redemption

Beginning after one year, if the underlying index closes at or above the initial index value on any of the first four semi-annual determination dates, the securities will be automatically redeemed for the applicable early redemption payment on the related early redemption date. Investors do not participate in any appreciation of the underlying index.

Upside Scenario if the Underlying Index Appreciates

This scenario assumes that the underlying index closes below the initial index value on each of the first four semi-annual determination dates (beginning after one year). Consequently, the securities are not redeemed prior to maturity. On the final determination date, the underlying index closes at or above the initial index value. At maturity, investors will receive the stated principal amount of their investment plus unleveraged upside performance of the underlying index, subject to the maximum upside payment at maturity of $1,250 per security (125% of the stated principal amount). For example, if the final index value is 5% greater than the initial index value, the securities will provide a total return of 5% at maturity. If the final index value is 80% greater than the initial index value, the securities will provide a total return of only 25% at maturity due to the maximum upside payment at maturity.

Absolute Return Scenario

This scenario assumes that the underlying index closes below the initial index value on each of the first four semi-annual determination dates (beginning after one year). Consequently, the securities are not redeemed prior to maturity. On the final determination date, the underlying index closes below the initial index value but the final index value is greater than or equal to the downside threshold level. In this case, investors receive a 1% positive return on the securities for each 1% negative return on the underlying index. For example, if the final index value is 10% less than the initial index value, the securities will provide a total positive return of 10% at maturity. The maximum return investors may receive in this scenario is a positive 25% return at maturity.

Downside Scenario

This scenario assumes that the underlying index closes below the initial index value on each of the first four semi-annual determination dates (beginning after one year). Consequently, the securities are not redeemed prior to maturity. On the final determination date, the underlying index closes below the downside threshold level. At maturity, investors will receive an amount equal to the stated principal amount multiplied by the index performance factor. Under these circumstances, the payment at maturity will be significantly less than the stated principal amount and could be zero.

 

December 2023 Page 5

Morgan Stanley Finance LLC

Dual Directional Jump Securities with Auto-Callable Feature due December 28, 2026, with 1-Year Initial Non-Call Period

All Payments on the Securities Based on the Performance of the Nikkei Stock Average

Principal at Risk Securities

 

Hypothetical Examples

The following hypothetical examples are for illustrative purposes only. Whether the securities are redeemed prior to maturity will be determined by reference to the index closing value on each of the first four semi-annual determination dates (beginning after one year), and the payment at maturity, if any, will be determined by reference to the index closing value on the final determination date. The actual early redemption payment with respect to each applicable determination date, initial index value and downside threshold level will be determined on the pricing date. Some numbers appearing in the examples below have been rounded for ease of analysis. All payments on the securities are subject to our credit risk. The below examples are based on the following terms:

Hypothetical Early Redemption Payment:

The hypothetical early redemption payment will be an amount in cash per stated principal amount (corresponding to a return of approximately 9.75% per annum) for each semi-annual determination date, as follows:

●1st determination date: $1,097.50

●2nd determination date: $1,146.25

●3rd determination date: $1,195.00

●4th determination date: $1,243.75

No further payments will be made on the securities once they have been redeemed.

Payment at Maturity:

If the securities have not previously been redeemed, you will receive at maturity a cash payment per security as follows:

●If the final index value is greater than or equal to the initial index value:

$1,000 + ($1,000 × index percent change), subject to the maximum upside payment at maturity

●If the final index value is less than the initial index value but is greater than or equal to the downside threshold level:

$1,000 + ($1,000 × absolute index return)

In this scenario, you will receive a 1% positive return on the securities for each 1% negative return on the underlying index. In no event will this amount exceed the stated principal amount plus $250.

●If the final index value is less than the downside threshold level:

$1,000 × index performance factor

Under these circumstances, you will lose a significant portion or all of your investment.

Maximum Upside Payment at Maturity:

$1,250 per security (125% of the stated principal amount)

Stated Principal Amount:

$1,000

Hypothetical Initial Index Value:

30,000

Hypothetical Downside Threshold Level:

22,500, which is 75% of the hypothetical initial index value

December 2023 Page 6

Morgan Stanley Finance LLC

Dual Directional Jump Securities with Auto-Callable Feature due December 28, 2026, with 1-Year Initial Non-Call Period

All Payments on the Securities Based on the Performance of the Nikkei Stock Average

Principal at Risk Securities

 

Automatic Call:

Example 1 — The securities are redeemed following the second semi-annual determination date (beginning after one year).

Date

Index Closing Value

Payment (per Security)

1st Determination Date

15,000 (less than the initial index value)

--

2nd Determination Date

37,000 (greater than or equal to the initial index value)

$1,146.25

In this example, on the first semi-annual determination date, the index closing value is less than the initial index value. Therefore, the securities are not redeemed. On the second semi-annual determination date, the index closing value is greater than or equal to the initial index value. Therefore, the securities are automatically redeemed on the second early redemption date. Investors will receive a payment of $1,146.25 per security on the related early redemption date. No further payments will be made on the securities once they have been redeemed, and investors do not participate in the appreciation of the underlying index.

How to calculate the payment at maturity:

In the following examples, the underlying index closes below the initial index value on each of the first four semi-annual determination dates, and, consequently, the securities are not automatically redeemed prior to, and remain outstanding until, maturity.

 

Index Final Index Value

Payment at Maturity (per Security)

Example 1:

52,500 (greater than or equal to the initial index value)

$1,000 + ($1,000 × 75%), subject to the maximum upside payment at maturity = $1,250

Example 2:

34,500 (greater than or equal to the initial index value)

$1,000 + ($1,000 × 15%), subject to the maximum upside payment at maturity = $1,150

Example 3:

24,000 (less than the initial index value, but greater than or equal to the downside threshold level)

$1,000 + ($1,000 × 20%) = $1,200

Example 4:

6,000 (less than the downside threshold level)

$1,000 × (6,000 / 30,000) = $200

In example 1, the underlying index has appreciated significantly. Therefore, investors receive at maturity the stated principal amount plus a return reflecting 100% of the appreciation of the underlying index, subject to the maximum upside payment at maturity. Investors receive $1,250 per security at maturity. Under the terms of the securities, investors will realize the maximum upside payment at maturity at a final index value of 125% of the initial index value. Therefore, in this example, investors receive only the maximum upside payment at maturity of $1,250 per security at maturity, even though the underlying index has appreciated significantly.

In example 2, the final index value is greater than or equal to the initial index value. Therefore, investors receive at maturity the stated principal amount plus a return reflecting 100% of the appreciation of the underlying index, subject to the maximum upside payment at maturity. Investors receive $1,150 per security at maturity.

In example 3, the final index value is less than the initial index value but greater than or equal to the downside threshold level. Therefore, investors receive the stated principal amount plus a return reflecting the absolute value of the percentage decline. Investors receive $1,200 per security at maturity. In this example, investors receive a positive return even though the underlying index has declined by 20% due to the absolute return feature of the securities and because the underlying index has not declined beyond the downside threshold level.

In example 4, the final index value is less than the downside threshold level. Because the underlying index has declined below the downside threshold level, the absolute return feature is no longer available and investors are exposed to the downside performance of the underlying index at maturity. Therefore, investors receive at maturity an amount equal to the stated principal amount multiplied by the index performance factor.

If the securities are not redeemed prior to maturity and the final index value is less than the downside threshold level, the absolute return feature will no longer be available and you will be exposed to the downside performance of the underlying index at maturity, and your payment at maturity will be less than 75% of the stated principal amount per security and could be zero.

December 2023 Page 7

Morgan Stanley Finance LLC

Dual Directional Jump Securities with Auto-Callable Feature due December 28, 2026, with 1-Year Initial Non-Call Period

All Payments on the Securities Based on the Performance of the Nikkei Stock Average

Principal at Risk Securities

 

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 with 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 or guarantee the return of any principal. The terms of the securities differ from those of ordinary debt securities in that they do not pay interest or guarantee the return of any of the principal amount at maturity. If the securities have not been automatically redeemed prior to maturity and the final index value is less than the downside threshold level of 75% of the initial index value, the absolute return feature will no longer be available and you will be exposed to the decline in the value of the underlying index, as compared to the initial index value, on a 1-to-1 basis, and you will receive for each security that you hold at maturity an amount equal to the stated principal amount multiplied by the index performance factor. In this case, the payment at maturity will be less than 75% of the stated principal amount and could be zero.

￭The appreciation potential of the securities is limited by the maximum upside payment at maturity. The appreciation potential of the securities is limited by the maximum upside payment at maturity of $1,250 per security, or 125% of the stated principal amount. Because, if the underlying index appreciates, the payment at maturity will be limited to 125% of the stated principal amount for the securities, any increase in the final index value over the initial index value by more than 25% of the initial index value will not further increase the return on the securities. The maximum positive return you can receive if the underlying index depreciates is also limited by the downside threshold level.

￭If the securities are redeemed prior to maturity, the appreciation potential of the securities is limited by the fixed early redemption payment specified for each determination date. If the underlying index closes at or above the initial index value on any of the first four semi-annual determination dates, the securities will be automatically redeemed. In this scenario, the appreciation potential of the securities is limited to the fixed early redemption payment specified for each determination date, and no further payments will be made on the securities once they have been redeemed. In addition, if the securities are redeemed prior to maturity, you will not participate in any appreciation of the underlying index, which could be significant. Moreover, the fixed early redemption payment may be less than the payment at maturity you would receive for the same level of appreciation of the underlying index had the securities not been automatically redeemed and instead remained outstanding until maturity.

￭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. may be willing to purchase or sell the securities in the secondary market. We expect that generally the level of interest rates available in the market and the value of the underlying index on any day, including in relation to the initial index value and downside threshold level, will affect the value of the securities more than any other factors. Other factors that may influence the value of the securities include:

othe volatility (frequency and magnitude of changes in value) of the underlying index,

ogeopolitical conditions and economic, financial, political, regulatory or judicial events that affect the component stocks of the underlying index or securities markets generally and which may affect the value of the underlying index,

odividend rates on the securities underlying the underlying index,

othe time remaining until the securities mature,

ointerest and yield rates in the market,

othe availability of comparable instruments,

othe composition of the underlying index and changes in the constituent stocks of such index, and

oany 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. Some or all of these factors will influence the price that you will receive if you sell your securities prior to maturity. For example, you may have to sell your securities at a substantial discount from the stated principal amount of $1,000 per security if the price of the underlying index at the time of sale is near or below the downside threshold level or if market interest rates rise.

You cannot predict the future performance of the underlying index based on its historical performance. The value of the underlying index may decrease so that you will receive no return on your investment and receive a payment at maturity that is less than 75% of the stated principal amount. See “Nikkei Stock Average Overview” below.

￭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 upon an early redemption or 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

December 2023 Page 8

Morgan Stanley Finance LLC

Dual Directional Jump Securities with Auto-Callable Feature due December 28, 2026, with 1-Year Initial Non-Call Period

All Payments on the Securities Based on the Performance of the Nikkei Stock Average

Principal at Risk Securities

 

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.

￭Not equivalent to investing in the underlying index. Investing in the securities is not equivalent to investing in the underlying index 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 stocks that constitute the underlying index.

￭Reinvestment risk. The term of your investment in the securities may be shortened due to the automatic early redemption feature of the securities. If the securities are redeemed prior to maturity, you will receive no further payments on the securities and may be forced to invest in a lower interest rate environment and may not be able to reinvest at comparable terms or returns.

￭The securities will not be listed on any securities exchange and secondary trading may be limited, and accordingly, you should be willing to hold your securities for the entire 3-year term of the securities. The securities will not be listed on any securities exchange. Therefore, there may be little or no secondary market for the securities. 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. 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 securities, 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 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 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. is willing to transact. If, at any time, MS & Co. 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 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 original issue price reduce the economic terms of the securities, cause the estimated value of the securities 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 dealers, including MS & Co., may be willing to purchase the securities 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 securities in the original issue price 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 6 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 index, 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

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Dual Directional Jump Securities with Auto-Callable Feature due December 28, 2026, with 1-Year Initial Non-Call Period

All Payments on the Securities Based on the Performance of the Nikkei Stock Average

Principal at Risk Securities

 

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.

￭Hedging and trading activity by our affiliates could potentially 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 to other instruments linked to the underlying index or its component stocks), including trading in the stocks that constitute the underlying index as well as in other instruments related to the underlying index. 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 final determination date approaches. Some of our affiliates also trade the stocks that constitute the underlying index and other financial instruments related to the underlying index 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 increase the initial index value, and, therefore, could increase (i) the value at or above which the underlying index must close on the determination dates so that the securities are redeemed prior to maturity for an early redemption payment and (ii) the downside threshold level, which is the value at or above which the underlying index must close on the final determination date so that you are not exposed to the negative performance of the underlying index at maturity. Additionally, such hedging or trading activities during the term of the securities could potentially affect the value of the underlying index on the determination dates, and, accordingly, whether we redeem the securities prior to maturity and the amount of cash you will receive at maturity, if any.

￭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 initial index value, the downside threshold level, the final index value, whether the securities will be redeemed on any early redemption date and the payment at maturity, if any. 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 an index closing value in the event of a market disruption event or discontinuance of the underlying index. These potentially subjective determinations may affect the payout to you upon an early redemption or at maturity, if any. For further information regarding these types of determinations, see “Description of Auto-Callable Securities—Postponement of Determination Dates,” “—Alternate Exchange Calculation in Case of an Event of Default,” “—Discontinuance of Any Underlying Index; Alteration of Method of Calculation” and “—Calculation Agent and Calculations” in the accompanying product supplement. In addition, MS & Co. has determined the estimated value of the securities on the pricing date.

￭The U.S. federal income tax consequences of an investment in the securities are uncertain. Please read the discussion under “Additional Information – Tax considerations” in this document and the discussion under “United States Federal Taxation” in the accompanying product supplement for auto-callable securities (together, the “Tax Disclosure Sections”) concerning the U.S. federal income tax consequences of an investment in the securities. If the Internal Revenue Service (the “IRS”) were successful in asserting an alternative treatment for the securities, the timing and character of income on the securities might differ significantly from the tax treatment described in the Tax Disclosure Sections. For example, under one possible treatment, the IRS could seek to recharacterize the securities as debt instruments. In that event, U.S. Holders would be required to accrue into income original issue discount on the securities every year at a “comparable yield” determined at the time of issuance and recognize all income and gain in respect of the securities as ordinary income. The risk that financial instruments providing for buffers, triggers or similar downside protection features, such as the securities, would be recharacterized as debt is greater than the risk of recharacterization for comparable financial instruments that do not have such features. We do not plan to request a ruling from the IRS regarding the tax treatment of the securities, and the IRS or a court may not agree with the tax treatment described in the Tax Disclosure Sections.

In 2007, the U.S. Treasury Department and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments. The notice focuses in particular on whether to require holders of these instruments to accrue income over the term of their investment. It also asks for comments on a number of related topics, including the character of income or loss with respect to these instruments; whether short-term instruments should be subject to any such accrual regime; the relevance of factors such as the exchange-traded status of the instruments and the nature of the underlying property to which the instruments are linked; the degree, if any, to which income (including any mandated accruals) realized by non-U.S. investors should be subject to withholding tax; and whether these instruments are or should be subject to the “constructive ownership” rule, which very generally can operate to recharacterize certain long-term capital gain as ordinary income and impose an interest charge. While the notice requests comments on appropriate transition rules and effective dates, any 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. 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, the issues presented by this notice and any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.

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All Payments on the Securities Based on the Performance of the Nikkei Stock Average

Principal at Risk Securities

 

Risks Relating to the Underlying Index

￭There are risks associated with investments in securities linked to the value of foreign equity securities. The securities are linked to the value of foreign equity securities. Investments in securities linked to the value of foreign equity securities involve risks associated with the securities markets in those countries, including risks of volatility in those markets, governmental intervention in those markets and cross-shareholdings in companies in certain countries. Also, there is generally less publicly available information about foreign companies than about U.S. companies that are subject to the reporting requirements of the United States Securities and Exchange Commission, and foreign companies are subject to accounting, auditing and financial reporting standards and requirements different from those applicable to U.S. reporting companies. The prices of securities issued in foreign markets may be affected by political, economic, financial and social factors in those countries, or global regions, including changes in government, economic and fiscal policies and currency exchange laws. Local securities markets may trade a small number of securities and may be unable to respond effectively to increases in trading volume, potentially making prompt liquidation of holdings difficult or impossible at times. Moreover, the economies in such countries may differ favorably or unfavorably from the economy in the United States in such respects as growth of gross national product, rate of inflation, capital reinvestment, resources, self-sufficiency and balance of payment positions between countries.

￭Adjustments to the underlying index could adversely affect the value of the securities. The publisher of the underlying index may add, delete or substitute the component stocks of the underlying index or make other methodological changes that could change the value of the underlying index. Any of these actions could adversely affect the value of the securities. The publisher of the underlying index may also discontinue or suspend calculation or publication of the underlying index at any time. In these circumstances, MS & Co., as the calculation agent, will have the sole discretion to substitute a successor index that is comparable to the discontinued index. MS & Co. could have an economic interest that is different than that of investors in the securities insofar as, for example, MS & Co. is permitted to consider indices that are calculated and published by MS & Co. or any of its affiliates. If MS & Co. determines that there is no appropriate successor index, the determination of whether the securities will be redeemed on an early redemption date or the payment at maturity, as applicable, will be based on whether the value of the underlying index based on the closing prices of the securities constituting the underlying index at the time of such discontinuance, without rebalancing or substitution, computed by MS & Co. as calculation agent in accordance with the formula for calculating the underlying index last in effect prior to such discontinuance is greater than or equal to the initial index value or downside threshold level, as applicable.

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Morgan Stanley Finance LLC

Dual Directional Jump Securities with Auto-Callable Feature due December 28, 2026, with 1-Year Initial Non-Call Period

All Payments on the Securities Based on the Performance of the Nikkei Stock Average

Principal at Risk Securities

 

Nikkei Stock Average Overview

The Nikkei Stock Average, which we also refer to as the Nikkei 225 Index, is a stock index calculated, published and disseminated by Nikkei Inc. (formerly known as Nihon Keizai Shimbun, Inc.), which we refer to as Nikkei. The Nikkei Stock Average measures the composite price performance of 225 underlying stocks, which represent a broad cross-section of Japanese industries, trading on the Prime Market of the Tokyo Stock Exchange (the “TSE”). Stocks must be listed on the Prime Market of the TSE in order to be included in the Nikkei 225 Index. Nikkei rules require that the 75 most liquid issues (one-third of the component count of the Nikkei 225 Index) be included in the Nikkei 225 Index. Nikkei first calculated and published the Nikkei Stock Average in 1970. The 225 companies included in the Nikkei Stock Average are divided into six sector categories: technology, financials, consumer goods, materials, capital goods/others and transportation and utilities. For additional information about the Nikkei 225 Index, see the information set forth under “Nikkei Stock Average” in the accompanying index supplement.

Information as of market close on December 11, 2023:

Bloomberg Ticker Symbol:

NKY

52 Week High (on 7/3/2023):

33,753.33

Current Index Value:

32,791.80

52 Week Low (on 1/4/2023):

25,716.86

52 Weeks Ago:

27,842.33

 

 

The following graph sets forth the daily index closing values of the underlying index for the period from January 1, 2018 through December 11, 2023. The related table sets forth the published high and low index closing values, as well as the end-of-quarter index closing values, of the underlying index for each quarter in the same period. The index closing value of the underlying index on December 11, 2023 was 32,791.80. We obtained the information in the graph and table below from Bloomberg Financial Markets, without independent verification. The historical index closing values of the underlying index should not be taken as an indication of future performance, and no assurance can be given as to the value of the underlying index at any time, including on the determination dates.

Nikkei Stock Average

Daily Index Closing Values
January 1, 2018 to December 11, 2023

 

 

 

 

 

 

 

 

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Dual Directional Jump Securities with Auto-Callable Feature due December 28, 2026, with 1-Year Initial Non-Call Period

All Payments on the Securities Based on the Performance of the Nikkei Stock Average

Principal at Risk Securities

 

Nikkei Stock Average

High

Low

Period End

2018

 

 

 

First Quarter

24,124.15

20,617.86

21,454.30

Second Quarter

23,002.37

21,292.29

22,304.51

Third Quarter

24,120.04

21,546.99

24,120.04

Fourth Quarter

24,270.62

19,155.74

20,014.77

2019

 

 

 

First Quarter

21,822.04

19,561.96

21,205.81

Second Quarter

22,307.58

20,408.54

21,275.92

Third Quarter

22,098.84

20,261.04

21,755.84

Fourth Quarter

24,066.12

21,341.74

23,656.62

2020

 

 

 

First Quarter

24,083.51

16,552.83

18,917.01

Second Quarter

23,178.10

17,818.72

22,288.14

Third Quarter

23,559.30

21,710.00

23,185.12

Fourth Quarter

27,568.15

22,977.13

27,444.17

2021

 

 

 

First Quarter

30,467.75

27,055.94

29,178.80

Second Quarter

30,089.25

27,448.01

28,791.53

Third Quarter

30,670.10

27,013.25

29,452.66

Fourth Quarter

29,808.12

27,528.87

28,791.71

2022

 

 

 

First Quarter

29,332.16

24,717.53

27,821.43

Second Quarter

28,246.53

25,748.72

26,393.04

Third Quarter

29,222.77

25,935.62

25,937.21

Fourth Quarter

28,383.09

26,093.67

26,094.50

2023

 

 

 

First Quarter

28,623.15

25,716.86

28,041.48

Second Quarter

33,706.08

27,472.63

33,189.04

Third Quarter

33,753.33

31,450.76

31,857.62

Fourth Quarter (through December 11, 2023)

33,625.53

30,526.88

32,791.80

 

Nikkei, the publisher of the Nikkei 225 Index, has the copyright to the Nikkei 225 Index. All rights to the Nikkei 225 Index are owned by Nikkei. Nikkei has the right to change the contents of the Nikkei 225 Index and to cease compilation and publication of the Nikkei 225 Index. In addition, Nikkei has no relationship to us or the securities; it does not sponsor, endorse, authorize, sell or promote the securities, and has no obligation or liability in connection with the administration, marketing or trading of the securities, or with the calculation of the return on your investment. For more information, see “Nikkei Stock Average” in the accompanying index supplement.

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Dual Directional Jump Securities with Auto-Callable Feature due December 28, 2026, with 1-Year Initial Non-Call Period

All Payments on the Securities Based on the Performance of the Nikkei Stock Average

Principal at Risk Securities

 

Additional Terms of the Securities

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

Additional Terms:

If the terms described herein are inconsistent with those described in the accompanying product supplement, index supplement or prospectus, the terms described herein shall control.

Underlying index publisher:

Nikkei Inc., or any successor thereof.

Downside threshold level:

The accompanying product supplement refers to the downside threshold level as the “trigger level.”

Dual directional jump securities with auto-callable feature:

The accompanying product supplement refers to these dual directional jump securities with auto-callable feature as the “auto-callable securities.”

Trustee:

The Bank of New York Mellon

Calculation agent:

MS & Co.

Issuer notices to registered security holders, the trustee and the depositary:

In the event that an early redemption date or the maturity date is postponed due to postponement of the relevant determination date, the issuer shall give notice of such postponement and, once it has been determined, of the date to which such early redemption date or the maturity date, as applicable, has been rescheduled (i) to each registered holder of the securities 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 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 securities 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 such early redemption date or the maturity date, as applicable, the business day immediately preceding such scheduled early redemption date or the maturity date, as applicable, and (ii) with respect to notice of the date to which such early redemption date or the maturity date, as applicable, has been rescheduled, the business day immediately following the relevant determination date as postponed.

In the event that the securities are subject to early redemption, the issuer shall, (i) on the business day following the applicable determination date, give notice of the early redemption of the securities and the applicable early redemption payment, including specifying the payment date of the applicable amount due upon the early redemption, (x) to each registered holder of the securities by mailing notice of such early redemption by first class mail, postage prepaid, to such registered holder’s last address as it shall appear upon the registry books, (y) 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 (z) to the depositary by telephone or facsimile confirmed by mailing such notice to the depositary by first class mail, postage prepaid and (ii) on or prior to the early redemption date, deliver the aggregate cash amount due with respect to the securities to the trustee for delivery to the depositary, as holder of the securities. Any notice that is mailed to a registered holder of the securities 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, or shall cause the calculation agent to, (i) provide written notice to the trustee, on which notice the trustee may conclusively rely, and to the depositary of the amount of cash, if any, to be delivered with respect to each stated principal amount of the securities, 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 securities, if any, to the trustee for delivery to the depositary, as holder of the securities, on the maturity date.

 

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Morgan Stanley Finance LLC

Dual Directional Jump Securities with Auto-Callable Feature due December 28, 2026, with 1-Year Initial Non-Call Period

All Payments on the Securities Based on the Performance of the Nikkei Stock Average

Principal at Risk Securities

 

Additional Information About the Securities

Additional Information:

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, a security should be treated 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 auto-callable 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.

In 2007, the U.S. Treasury Department and the Internal Revenue Service (the “IRS”) released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments. The notice focuses in particular on whether to require holders of these instruments to accrue income over the term of their investment. It also asks for comments on a number of related topics, including the character of income or loss with respect to these instruments; whether short-term instruments should be subject to any such accrual regime; the relevance of factors such as the exchange-traded status of the instruments and the nature of the underlying property to which the instruments are linked; the degree, if any, to which income (including any mandated accruals) realized by non-U.S. investors should be subject to withholding tax; and whether these instruments are or should be subject to the “constructive ownership” rule, which very generally can operate to recharacterize certain long-term capital gain as ordinary income and impose an interest charge. While the notice requests comments on appropriate transition rules and effective dates, any 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 auto-callable 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, 2025 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 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 auto-callable securities and consult their tax advisers regarding all aspects of the U.S. federal income tax consequences of

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Dual Directional Jump Securities with Auto-Callable Feature due December 28, 2026, with 1-Year Initial Non-Call Period

All Payments on the Securities Based on the Performance of the Nikkei Stock Average

Principal at Risk Securities

 

an investment in the securities, including possible alternative treatments, the issues presented by the aforementioned notice and 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 product supplement for auto-callable 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.

Use of proceeds and hedging:

The proceeds from the sale of the securities will be used by us for general corporate purposes. We will receive, in aggregate, $1,000 per security issued, because, when we enter into hedging transactions in order to meet our obligations under the securities, our hedging counterparty will reimburse the cost of the agent’s commissions. The costs of the securities borne by you and described beginning on page 4 above comprise the agent’s commissions and the cost of issuing, structuring and hedging the securities.

On or prior to the pricing date, we will hedge our anticipated exposure in connection with the securities by entering into hedging transactions with our affiliates and/or third party dealers. We expect our hedging counterparties to take positions in the stocks constituting the underlying index, in futures and/or options contracts on the underlying index or its component stocks listed on major securities markets, or positions in any other available securities or instruments that they may wish to use in connection with such hedging. Such purchase activity could potentially increase the initial index value, and, as a result, increase (i) the level at or above which the underlying index must close on the determination dates so that the securities are redeemed prior to maturity for an early redemption payment and (ii) the downside threshold level, which is the level at or above which the underlying index must close on the final determination date so that you are not exposed to the negative performance of the underlying index at maturity. 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 final determination date approaches. Additionally, our hedging activities, as well as our other trading activities, during the term of the securities could potentially affect the value of the underlying index on the determination dates, and, accordingly, whether we redeem the securities prior to maturity and the amount of cash you will receive at maturity, if any. For further information on our use of proceeds and hedging, see “Use of Proceeds and Hedging” in the accompanying product 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 securities, 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, Morgan Stanley & Co. LLC, a fixed sales commission of $ for each security 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 securities. When MS & Co. prices this offering of securities, it will determine the economic terms of the securities, including the early redemption payment amounts, such that for each security the estimated value on the pricing date will be no lower than the minimum level described in “Investment Summary” 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 for auto-callable securities.

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 auto-callable 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 auto-callable 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. 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 prospectus, the product supplement for auto-callable securities and the index supplement if you so request by calling toll-free 1-(800)-584-6837.

December 2023 Page 16

Morgan Stanley Finance LLC

Dual Directional Jump Securities with Auto-Callable Feature due December 28, 2026, with 1-Year Initial Non-Call Period

All Payments on the Securities Based on the Performance of the Nikkei Stock Average

Principal at Risk Securities

 

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

Product Supplement for Auto-Callable Securities dated November 16, 2023

Index Supplement dated November 16, 2023

Prospectus dated November 16, 2023

Terms used but not defined in this document are defined in the product supplement for auto-callable securities, in the index supplement or in the prospectus.

 

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