08/30/2024 | Press release | Distributed by Public on 08/30/2024 07:41
August 2024
Pricing Supplement No. 3,540
Registration Statement Nos. 333-275587; 333-275587-01
Dated August 28, 2024
Filed pursuant to Rule 424(b)(2)
Morgan Stanley Finance LLC
Structured Investments
Opportunities in U.S. Equities
Buffered Jump Securities with Auto-Callable Feature due September 2, 2027
All Payments on the Securities Based on the Performance of the S&P 500® Futures Excess Return Index
Fully and Unconditionally Guaranteed by Morgan Stanley
Principal at Risk Securities
The securities 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 provide for a minimum payment at maturity of only 20% of the stated principal amount. The securities will be automatically redeemed if the index closing value of the underlying index on the first determination date is greater than or equal to the initial index value, for an early redemption payment of $1,105.00 per security, 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 the initial index value, investors will receive the stated principal amount of their investment plus a return reflecting 200% of the upside performance of the underlying index. If the securities have not previously been redeemed and the final index value isless than or equal to the initial index value but has not decreased by an amount greater than the specified buffer amount, investors will receive a payment at maturity of $1,000 per $1,000 security. However, if the securities are not redeemed prior to maturity and the final index value isless than the initial index value by an amount greater than the specified buffer amount, investors will lose 1% for every 1% decline beyond the specified buffer amount, subject to the minimum payment at maturity of 20% of the stated principal amount. Accordingly, investors may lose up to 80% of the stated principal amount of the securities. The securities are for investors who are willing to risk their principal and forgo current income 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 the first determination date or an equity index-based return at maturity if the underlying index closes above the initial index value on the final determination date and the buffer feature that applies only to a limited range of performance of the underlying index. The securities are notes issued as part ofMSFL's Series A Global Medium-Term Notes program.
The underlying index measures the performance of the nearest maturing quarterly E-mini S&P 500 futures contract (the "futures contract") trading on the Chicago Mercantile Exchange (the "CME"). The futures contract references the S&P 500® Index (the "reference index"). For more information about the S&P 500® Index, see the accompanying index supplement. For more information about the underlying index, see "Annex A-S&P 500® Futures Excess Return Index" beginning on page 18.
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.
FINAL TERMS |
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Issuer: |
Morgan Stanley Finance LLC |
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Guarantor: |
Morgan Stanley |
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Underlying index: |
S&P 500® Futures Excess Return Index |
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Aggregate principal amount: |
$3,343,000 |
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Stated principal amount: |
$1,000 per security |
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Issue price: |
$1,000 per security |
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Pricing date: |
August 28, 2024 |
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Original issue date: |
September 3, 2024 (3 business days after the pricing date) |
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Maturity date: |
September 2, 2027 |
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Early redemption: |
If, on the first determination date, 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 early redemption payment on the early redemption date. The securities will not be redeemed early on the early redemption date if the index closing value of the underlying index is below the initial index value on the first determination date. |
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Early redemption payment: |
The early redemption payment will be an amount in cash per stated principal amount of $1,105.00 as set forth under "Determination Dates, Early Redemption Date and Early Redemption Payment" below. No further payments will be made on the securities once they have been redeemed. |
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Determination dates: |
See "Determination Dates, Early Redemption Date and Early Redemption Payment" below. The determination dates are subject to postponement for non-index business days and certain market disruption events. |
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Early redemption date: |
See "Determination Dates, Early Redemption Date and Early Redemption Payment" below. If 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. |
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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 the initial index value: $1,000 + ($1,000 × index percent change × 200%) ●If the final index value is less than or equal to the initial index value but has not decreased by an amount greater than the buffer amount of 20%: $1,000 ●If the final index value has decreased by an amount greater than the buffer amount of 20%: $1,000 × (index performance factor + 20%) Under these circumstances, the payment at maturity will be less than the stated principal amount of $1,000. However, under no circumstances will the securities pay less than the minimum payment at maturity of $200 per security. |
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Terms continued on the following page |
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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." |
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Estimated value on the pricing date: |
$985.90 per security. See "Investment Summary" beginning on page 3. |
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Commissions and issue price: |
Price to public(1) |
Agent's commissions and fees(2) |
Proceeds to us(3) |
Per security |
$1,000 |
$8 |
$992 |
Total |
$3,343,000 |
$26,744 |
$3,316,256 |
(1)The securities will be sold only to investors purchasing the securities in fee-based advisory accounts.
(2)MS & Co. expects to sell all of the securities that it purchases from us to an unaffiliated dealer at a price of $992 per security, for further sale to certain fee-based advisory accounts at the price to public of $1,000 per security. MS & Co. will not receive a sales commission with respect to the securities. 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.
(3)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. 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 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 April 12, 2024
Morgan Stanley Finance LLC
Buffered Jump Securities with Auto-Callable Feature due September 2, 2027
All Payments on the Securities Based on the Performance of the S&P 500® Futures Excess Return Index
Principal at Risk Securities
Terms continued from previous page: |
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Buffer amount: |
20%. As a result of the buffer amount of 20%, the value at or above which the underlying index must close on the final determination date so that investors do not suffer a loss on their initial investment in the securities is 384.456, which is 80% of the initial index value. |
Minimum payment at maturity: |
$200 per security (20% of the stated principal amount) |
Initial index value: |
480.57, 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 |
CUSIP / ISIN: |
61776RKG8 / US61776RKG82 |
Listing: |
The securities will not be listed on any securities exchange. |
Determination Dates, Early Redemption Date and Early Redemption Payment
Determination Dates |
Early Redemption Date |
Early Redemption Payment (per $1,000 Security) |
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1st determination date: |
8/29/2025 |
1st early redemption date: |
9/4/2025 |
$1,105.00 |
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Final determination date: |
8/30/2027 |
See "Maturity date" above. |
See "Payment at maturity" above. |
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Morgan Stanley Finance LLC
Buffered Jump Securities with Auto-Callable Feature due September 2, 2027
All Payments on the Securities Based on the Performance of the S&P 500® Futures Excess Return Index
Principal at Risk Securities
Investment Summary
Buffered Jump Securities with Auto-Callable Feature
Principal at Risk Securities
The Buffered Jump Securities with Auto-Callable Feature due September 2, 2027 All Payments on the Securities Based on the Performance of the S&P 500® Futures Excess Return Index (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 the first determination date is greater than or equal to the initial index value, for an early redemption payment of $1,105.00 per security, 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 the initial index value, investors will receive the stated principal amount of their investment plus a return reflecting 200% of the upside performance of the underlying index. If the securities have not previously been redeemed and the underlying index has not decreased by an amount that is greater than the specified buffer amount, investors will receive a payment of maturity of $1,000 per $1,000 security. However, if the securities are not redeemed prior to maturity and the final index value is less than the initial index value by an amount greater than the specified buffer amount, investors will lose 1% for every 1% decline beyond the specified buffer amount, subject to the minimum payment at maturity of 20% of the stated principal amount. Accordingly,investors may lose up to 80% of the stated principal amount of the securities.
Maturity: |
Approximately 3 years |
Automatic early redemption: |
If, on the first determination date, 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 early redemption payment on the early redemption date. |
Early redemption payment: |
The early redemption payment will be an amount in cash per stated principal amount, as follows: ●1st determination date: $1,105.00 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 the initial index value: $1,000 + ($1,000 × index percent change × 200%) ●If the final index value is less than or equal to the initial index value but has not decreased by an amount greater than the buffer amount of 20% from the initial index value: $1,000 ●If the final index value has decreased by an amount greater than the buffer amount of 20% from the initial index value: $1,000 × (index performance factor + 20%) Under these circumstances, the payment at maturity will be less than the stated principal amount of $1,000. However, under no circumstances will the securities pay less than the minimum payment at maturity of $200 per security. |
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Morgan Stanley Finance LLC
Buffered Jump Securities with Auto-Callable Feature due September 2, 2027
All Payments on the Securities Based on the Performance of the S&P 500® Futures Excess Return Index
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 is less than $1,000. We estimate that the value of each security on the pricing date is $985.90.
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 amount, the buffer amount and the minimum payment at maturity, 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.
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Morgan Stanley Finance LLC
Buffered Jump Securities with Auto-Callable Feature due September 2, 2027
All Payments on the Securities Based on the Performance of the S&P 500® Futures Excess Return Index
Principal at Risk Securities
Key Investment Rationale
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 the first determination date 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.
Scenario 1: The securities are redeemed prior to maturity |
If the underlying index closes at or above the initial index value on the first determination date, the securities will be automatically redeemed for the early redemption payment on the early redemption date. Investors do not participate in any appreciation of the underlying index. |
Scenario 2: The securities are not redeemed prior to maturity, and investors receive a fixed positive return at maturity |
This scenario assumes that the underlying index closes below the initial index value on the first determination date. Consequently, the securities are not redeemed prior to maturity. On the final determination date, the underlying index closes above the initial index value. At maturity, investors will receive the stated principal amount of their investment plus a return reflecting 200% of the upside performance of the underlying index. |
Scenario 3: The securities are not redeemed prior to maturity, and investors receive the return of principal at maturity |
This scenario assumes that the underlying index closes below the initial index value on the first determination date. Consequently, the securities are not redeemed prior to maturity. On the final determination date, the underlying index closes below the initial index value, but has not decreased by an amount greater than the specified buffer amount of 20%. At maturity, investors will receive a cash payment equal to $1,000 per $1,000 security. |
Scenario 4: The securities are not redeemed prior to maturity, and investors suffer a loss of principal at maturity |
This scenario assumes that the underlying index closes below the initial index value on the first determination date. Consequently, the securities are not redeemed prior to maturity. On the final determination date, the underlying index closes below the initial index value by an amount greater than the buffer amount of 20%. At maturity, investors will receive an amount that is less than the stated principal amount by an amount that is proportionate to the percentage decrease of the underlying index from the initial index value beyond the buffer amount. Under these circumstances, the payment at maturity will be less than the stated principal amount. Investors may lose up to 80% of their investment in the securities. |
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Morgan Stanley Finance LLC
Buffered Jump Securities with Auto-Callable Feature due September 2, 2027
All Payments on the Securities Based on the Performance of the S&P 500® Futures Excess Return Index
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 the first determination date, and the payment at maturity will be determined by reference to the index closing value on the final determination date. The actual initial index value is set forth on the cover of this document. 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:
Early Redemption Payment: |
The early redemption payment will be an amount in cash per stated principal amount, as follows: ●1st determination date: $1,105.00 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 the initial index value: $1,000 + ($1,000 × index percent change × 200%) ●If the final index value is less than or equal to the initial index value but has not decreased by an amount greater than the buffer amount of 20%: $1,000 ●If the final index value has decreased by an amount greater than the buffer amount of 20%: $1,000 × (index performance factor + 20%). Under these circumstances, the payment at maturity will be less than the stated principal amount of $1,000. However, under no circumstances will the securities pay less than the minimum payment at maturity of $200 per security. |
Stated Principal Amount: |
$1,000 |
Hypothetical Initial Index Value: |
400 |
Automatic Call:
Example 1 - The securities are redeemed following the first determination date.
Date |
Index Closing Value |
Payment (per Security) |
1st Determination Date |
430 (at or above the initial index value) |
$1,105.00 |
In this example, on the first determination date, the index closing value is at or above the initial index value of the underlying index. Therefore, the securities are automatically redeemed on the early redemption date. Investors will receive a payment of $1,105.00 per security on the 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.
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Morgan Stanley Finance LLC
Buffered Jump Securities with Auto-Callable Feature due September 2, 2027
All Payments on the Securities Based on the Performance of the S&P 500® Futures Excess Return Index
Principal at Risk Securities
How to calculate the payment at maturity:
In the following examples, the underlying index closes below the initial index value on the first determination date, and, consequently, the securities are not automatically redeemed prior to, and remain outstanding until, maturity.
Index Final Index Value |
Payment at Maturity (per Security) |
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Example 1: |
480 (above theinitial index value) |
$1,000 + ($1,000 × 20% × 200%) = $1,400 |
Example 2: |
390 (at or below theinitial index value but has not decreased from the initial index value by an amount greater than the buffer amount of 20%) |
$1,000 |
Example 3: |
100 (below theinitial index value and has decreased from the initial index value by an amount greater than the buffer amount of 20%) |
$1,000 × [(100 / 400) + 20%] = $450 |
In example 1, the final index value is above the initial index value. Therefore, investors receive at maturity the stated principal amount plus a return reflecting 200% of the appreciation of the underlying index. Investors receive a payment of $1,400 per security at maturity.
In example 2, the final index value has decreased from the initial index value but not by an amount greater than the buffer amount of 20%. Therefore, investors receive $1,000 per security at maturity. Investors do not participate in any appreciation of the underlying index.
In example 3, the final index value has decreased from the initial index value by an amount greater than the buffer amount of 20%. Therefore, investors are exposed to the downside performance of the underlying index at maturity beyond the buffer amount. Therefore, investors receive a payment at maturity of $450 per security.
If the securities are not redeemed prior to maturity and the final index value has decreased by more than the buffer amount of 20%, you will be exposed to the downside performance of the underlying index beyond the specified buffer amount, and your payment at maturity will be less than the stated principal amount. Under these circumstances, you will lose some, and up to 80%, of your investment in the securities.
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Morgan Stanley Finance LLC
Buffered Jump Securities with Auto-Callable Feature due September 2, 2027
All Payments on the Securities Based on the Performance of the S&P 500® Futures Excess Return Index
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 and provide a minimum payment at maturity of only 20% of your principal. The terms of the securities differ from those of ordinary debt securities in that they do not pay interest and provide a minimum payment at maturity of only 20% of the stated principal amount of the securities. If the securities have not been automatically redeemed prior to maturity and the final index value has decreased from the initial index value by an amount greater than the buffer amount of 20%, you will be exposed to the decline in the value of the underlying index, as compared to the initial index value, beyond the buffer amount, and you will receive for each security that you hold at maturity an amount that is less than the stated principal amount. You could lose up to 80% of your investment.
■If the securities are redeemed prior to maturity, the appreciation potential of the securities is limited by the fixed early redemption payment specified for the first determination date. If the underlying index closes at or above the initial index value on the first determination date, 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 the first 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 paymentmay be less than the payment at maturity you would receive for the same level of appreciation of theunderlying 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, 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 futures contract, the reference index or securities markets generally and which may affect the value of the underlying index,
odividend rates on the securities underlying the reference 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 80% of the initial index value or if market interest rates rise.
You cannot predict the future performance of the underlying index based on its historical performance. If the final index value is less than 80% of the initial index value, you will be exposed on a 1-to-1 basis to the decline in the final index value beyond the buffer amount. There can be no assurance that you will not lose some or a significant portion of your investment. See"S&P 500® Futures Excess Return Index 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 value of the securities prior to maturity will be affected by changes in the market's view of our creditworthiness. Any actual or
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All Payments on the Securities Based on the Performance of the S&P 500® Futures Excess Return Index
Principal at Risk Securities
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, the futures contract or the component stocks of the reference index. 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 component stocks of the reference 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. However, under no circumstances will the securities be redeemed at any point other than the specified early redemption date.
■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
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All Payments on the Securities Based on the Performance of the S&P 500® Futures Excess Return Index
Principal at Risk Securities
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.
■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, the futures contract or the component stocks of the reference index), including trading in the futures contract and the stocks that constitute the reference 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 reference 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 first determination date so that the securities are redeemed prior to maturity for the early redemption payment, and (ii) 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.
■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 final index value, whether the securities will be redeemed on the early redemption date and the payment 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 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. 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. 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 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 Index
■Higher future prices of the futures contract to which the underlying index is linked relative to its current prices may adversely affect the value of the underlying index and the value of the securities. The underlying index is linked to the E-mini S&P 500 futures contract currently listed for trading on the CME. As the relevant futures contract approaches expiration, it is replaced by a contract that has a later expiration. Thus, for example, a contract purchased and held in September may specify a December expiration. As time passes, the contract expiring in December is replaced by a contract for delivery in March. This process is referred to as "rolling." If the market for these contracts is (putting aside other considerations) in "backwardation," where the prices are lower in the distant delivery months than in the nearer delivery months, the sale of the December contract would take place at a price that is higher than the price of the March contract, thereby creating a "roll yield." While many futures contracts have
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All Payments on the Securities Based on the Performance of the S&P 500® Futures Excess Return Index
Principal at Risk Securities
historically exhibited consistent periods of backwardation, backwardation will most likely not exist at all times. It is also possible for the market for these contracts to be in "contango." Contango markets are those in which the prices of contracts are higher in the distant delivery months than in the nearer delivery months. The presence of contango and absence of backwardation in the market for these contracts could result in negative "roll yields," which could adversely affect the value of the underlying index, and, accordingly, the value of the securities.
■Suspensions or disruptions of market trading in futures markets could adversely affect the price of the securities. Securities markets and futures markets are subject to temporary distortions or other disruptions due to various factors, including the lack of liquidity in the markets, the participation of speculators and government regulation and intervention. In addition, U.S. futures exchanges and some foreign exchanges have regulations that limit the amount of fluctuation in futures contract prices which may occur during a single business day. These limits are generally referred to as "daily price fluctuation limits" and the maximum or minimum price of a contract on any given day as a result of these limits is referred to as a "limit price." Once the limit price has been reached in a particular contract, no trades may be made at a different price. Limit prices have the effect of precluding trading in a particular contract or forcing the liquidation of contracts at disadvantageous times or prices. These circumstances could adversely affect the value of the underlying index, and, therefore, the value of the securities.
■Legal and regulatory changes could adversely affect the return on and value of your securities. Futures contracts and options on futures contracts, including those related to the underlying index, are subject to extensive statutes, regulations, and margin requirements. The Commodity Futures Trading Commission, commonly referred to as the "CFTC," and the exchanges on which such futures contracts trade, are authorized to take extraordinary actions in the event of a market emergency, including, for example, the retroactive implementation of speculative position limits or higher margin requirements, the establishment of daily limits and the suspension of trading. Furthermore, certain exchanges have regulations that limit the amount of fluctuations in futures contract prices that may occur during a single five-minute trading period. These limits could adversely affect the market prices of relevant futures and options contracts and forward contracts.
■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 the 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 80% of the initial index value, as applicable.
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All Payments on the Securities Based on the Performance of the S&P 500® Futures Excess Return Index
Principal at Risk Securities
S&P 500® Futures Excess Return Index Overview
The S&P 500® Futures Excess Return Index, which is calculated, maintained and published by S&P® Dow Jones Indices LLC ("S&P®"), measures the performance of the nearest maturing quarterly E-mini S&P 500 futures contracts trading on the Chicago Mercantile Exchange. E-mini S&P 500 futures contracts are U.S. dollar-denominated futures contracts based on the performance of the S&P 500® Index. For additional information about the S&P 500® Index and how it is calculated and maintained, see "S&P® U.S. Indices-S&P 500® Index" in the accompanying index supplement. For additional information about the S&P 500® Futures Excess Return Index, see "Annex A - S&P 500® Futures Excess Return Index" below.
Information as of market close on August 28, 2024:
Bloomberg Ticker Symbol: |
SPXFP |
52 Week High (on 7/16/2024): |
489.74 |
Current Index Value: |
480.57 |
52 Week Low (on 10/27/2023): |
367.27 |
52 Weeks Ago: |
398.67 |
The following graph sets forth the daily index closing values of the underlying index for the period from January 1, 2019 through August 28, 2024. 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 August 28, 2024 was 480.57. 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.
S&P 500® Futures Excess Return Index
Daily Index Closing Values |
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All Payments on the Securities Based on the Performance of the S&P 500® Futures Excess Return Index
Principal at Risk Securities
S&P 500® Futures Excess Return Index |
High |
Low |
Period End |
2019 |
|||
First Quarter |
259.86 |
222.61 |
257.61 |
Second Quarter |
268.32 |
249.60 |
266.89 |
Third Quarter |
274.16 |
256.53 |
269.81 |
Fourth Quarter |
293.61 |
260.94 |
292.39 |
2020 |
|||
First Quarter |
306.53 |
201.84 |
233.59 |
Second Quarter |
293.38 |
222.52 |
281.92 |
Third Quarter |
326.53 |
283.09 |
306.77 |
Fourth Quarter |
343.81 |
298.67 |
343.81 |
2021 |
|||
First Quarter |
364.75 |
338.62 |
364.75 |
Second Quarter |
395.12 |
368.65 |
395.12 |
Third Quarter |
417.85 |
391.69 |
396.79 |
Fourth Quarter |
442.44 |
396.19 |
440.03 |
2022 |
|||
First Quarter |
442.58 |
385.50 |
419.87 |
Second Quarter |
424.23 |
340.09 |
351.04 |
Third Quarter |
399.05 |
332.14 |
332.14 |
Fourth Quarter |
376.43 |
330.94 |
353.20 |
2023 |
|||
First Quarter |
383.43 |
350.27 |
375.14 |
Second Quarter |
402.80 |
369.52 |
402.80 |
Third Quarter |
414.13 |
382.87 |
383.94 |
Fourth Quarter |
424.17 |
367.27 |
422.98 |
2024 |
|||
First Quarter |
460.16 |
415.04 |
460.16 |
Second Quarter |
476.24 |
433.74 |
472.97 |
Third Quarter (through August 28, 2024) |
489.74 |
446.93 |
480.57 |
"Standard & Poor's®," "S&P®," "S&P 500®," "Standard & Poor's 500" and "500" are trademarks of Standard and Poor's Financial Services LLC. See "Annex A - S&P 500® Futures Excess Return Index" below.
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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: |
S&P® Dow Jones Indices LLC or any successor thereof |
Jump securities with auto-callable feature: |
The accompanying product supplement refers to these 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 the 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 the early redemption date or the maturity date, as applicable, has been rescheduled (i) to the holder of the securities by mailing notice of such postponement by first class mail, postage prepaid, to the 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 the holder of the securities in the manner herein provided shall be conclusively presumed to have been duly given to such holder, whether or not such holder receives the notice. The issuer shall give such notice as promptly as possible, and in no case later than (i) with respect to notice of postponement of the early redemption date or the maturity date, as applicable, the business day immediately preceding the scheduled early redemption date or maturity date, as applicable, and (ii) with respect to notice of the date to which the 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 first determination date, give notice of the early redemption of the securities and the early redemption payment, including specifying the payment date of the 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 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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All Payments on the Securities Based on the Performance of the S&P 500® Futures Excess Return Index
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, it is reasonable to treat a securityas a single financial contract that is an "open transaction" for U.S. federal income tax purposes. 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. 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 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, 2027 that do not have a delta of one with respect to any Underlying Security. Based on our determination 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 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. The discussion in the preceding paragraphs under "Tax considerations" and the |
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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 futures contract, in the stocks constituting the reference index, in futures and/or options contracts on the reference index or the stocks constituting the reference index 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 value at or above which the underlying index must close on the first determination date so that the securities are redeemed prior to maturity for the early redemption payment and (ii) 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. 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. 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: |
MS & Co. expects to sell all of the securities that it purchases from us to an unaffiliated dealer at a price of $992 per security, for further sale to certain fee-based advisory accounts at the price to public of $1,000 per security. MS & Co. will not receive a sales commission with respect to the securities. 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. 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. |
Validity of the securities: |
In the opinion of Davis Polk & Wardwell LLP, as special counsel to MSFL and Morgan Stanley, when the securities offered by this pricing supplement have been executed and issued by MSFL, authenticated by the trustee pursuant to the MSFL Senior Debt Indenture (as defined in the accompanying prospectus) and delivered against payment as contemplated herein, such securities will be valid and binding obligations of MSFL and the related guarantee will be a valid and binding obligation of Morgan Stanley, enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally, concepts of reasonableness and equitable principles of general applicability (including, without limitation, concepts of good faith, fair dealing and the lack of bad faith), provided that such counsel expresses no opinion as to (i) the effect of fraudulent conveyance, fraudulent transfer or similar provision of applicable law on the conclusions expressed above and (ii) any provision of the MSFL Senior Debt Indenture that purports to avoid the effect of fraudulent conveyance, fraudulent transfer or similar provision of applicable law by limiting the amount of Morgan Stanley's obligation under the related guarantee. This opinion is given as of the date hereof and |
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is limited to the laws of the State of New York, the General Corporation Law of the State of Delaware and the Delaware Limited Liability Company Act. In addition, this opinion is subject to customary assumptions about the trustee's authorization, execution and delivery of the MSFL Senior Debt Indenture and its authentication of the securities and the validity, binding nature and enforceability of the MSFL Senior Debt Indenture with respect to the trustee, all as stated in the letter of such counsel dated February 26, 2024, which is Exhibit 5-a to Post-Effective Amendment No. 2 to the Registration Statement on Form S-3 filed by Morgan Stanley on February 26, 2024. |
|
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. 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 prospectus, the product supplement for auto-callable securities and the index supplement if you so request by calling toll-free 1-(800)-584-6837. You may access these documents on the SEC web site atwww.sec.gov as follows: Product Supplement for Auto-Callable Securities dated November 16, 2023 Index Supplement dated November 16, 2023 Prospectus dated April 12, 2024 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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Annex A - S&P 500® Futures Excess Return Index
The S&P 500® Futures Excess Return Index (the "underlying index") is an equity futures index calculated, maintained and published by S&P® Dow Jones Indices LLC ("S&P®"). S&P® is a joint venture between S&P® Global, Inc. (majority owner) and CME Group Inc. (minority owner), owner of CME Group Index Services LLC. The underlying index is reported by Bloomberg under the ticker symbol "SPXFP." All information contained in this document regarding the underlying index has been derived from publicly available information, without independent verification.
The underlying index is the excess return version of the S&P 500 Futures Index, which measures the performance of the nearest maturing quarterly E-mini S&P 500 futures contract trading on the Chicago Mercantile Exchange ("CME"). The underlying index includes a provision for the replacement of the E-mini futures contract as the contract approaches maturity (also referred to as "rolling" or "the roll"). This replacement occurs over a one-day rolling period every March, June, September and December, effective after the close of trading five business days preceding the last trading date of the E-mini S&P futures contract.
E-Mini S&P 500 Futures Contract
The underlying index is constructed from the front-month E-mini S&P 500 futures contract (the "futures contract"). Futures contracts are contracts that legally obligate the holder to buy or sell an asset at a predetermined delivery price during a specified future time period. The futures contract is rolled forward once a quarter, with one-third of the contract being rolled forward on each of the fourth, third, and second day prior to expiration.
The E-mini S&P 500 futures ("ES") contracts are U.S. dollar-denominated futures contracts, based on the S&P 500® Index (the "reference index"), traded on the CME, representing a contract unit of $50 multiplied by the reference index, measured in cents per index point. The ES contracts listed for the nearest nine quarters, for each March, June, September and December, and the nearest three Decembers are available for trading. Trading of the ES contracts terminates at 9:30 A.M. Eastern time on the third Friday of the contract month. The daily settlement prices of the ES contracts are based on trading activity in the relevant contract (and in the case of a lead month also being the expiry month, together with trading activity on lead month-second month spread contracts) on the CME during a specified settlement period. The final settlement price of ES contracts is based on the opening prices of the component stocks in the reference index, determined on the third Friday of the contract month. For more information about the reference index, see "S&P® U.S. Indices-S&P 500® Index" in the accompanying index supplement.
Underlying Index Calculation
The underlying index, calculated from the price change of the futures contract, reflects the excess return of the S&P 500 Futures Index. The level of the underlying index on a trading day is calculated as follows:
IndexERd = IndexERd-1×(1 + CDRd)
where:
IndexERd-1 |
= |
The Excess Return Index level on the preceding business day, defined as any date on which the index is calculated |
|||
CDRd |
= |
The Contract Daily return, defined as: |
|||
where: |
|||||
t |
= |
The business day on which the calculation is made |
|||
TDW0t |
= |
Total Dollar Weight Obtained on t, defined as: CRW1t-1 × DCRP1t + CRW2t-1 × DCRP2t |
|||
TDWIt-1 |
= |
Total Dollar Weight Invested on the business day preceding t, defined as: CRW1t-1× DCRP1t-1 + CRW2t-1 × DCRP2t-1 |
|||
CRW1 |
= |
The contract roll weight of the first nearby contract expiration |
|||
CRW2 |
= |
The contract roll weight of the roll in contract expiration |
|||
DCRP t |
= |
The Daily Contract Reference Price (the official closing price per futures contract, as designated by the relevant exchange) of the futures contract |
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All Payments on the Securities Based on the Performance of the S&P 500® Futures Excess Return Index
Principal at Risk Securities
The underlying index is calculated on an excess return basis, meaning that the level of the underlying index is determined by its weighted return reduced by the return that could be earned on a notional cash deposit at the notional interest rate, which is a rate equal to the federal funds rate.
Overview of Futures Markets
Futures contracts are traded on regulated futures exchanges, in the over-the-counter market and on various types of electronic trading facilities and markets. As of the date of this pricing supplement, the futures contract is an exchange-traded futures contract. A futures contract provides for a specified settlement month in which the cash settlement is made by the seller (whose position is therefore described as "short") and acquired by the purchaser (whose position is therefore described as "long").
No purchase price is paid or received on the purchase or sale of a futures contract. Instead, an amount of cash or cash equivalents must be deposited with the broker as "initial margin." This amount varies based on the requirements imposed by the exchange clearing houses, but it may be lower than 5% of the notional value of the contract. This margin deposit provides collateral for the obligations of the parties to the futures contract.
By depositing margin, which may vary in form depending on the exchange, with the clearing house or broker involved, a market participant may be able to earn interest on its margin funds, thereby increasing the total return that it may realize from an investment in futures contracts. However, the underlying index is not a total return index and does not reflect interest that could be earned on funds notionally committed to the trading of futures contracts.
At any time prior to the expiration of a futures contract, a trader may elect to close out its position by taking an opposite position on the exchange on which the trader obtained the position, subject to the availability of a liquid secondary market. This operates to terminate the position and fix the trader's profit or loss. Futures contracts are cleared through the facilities of a centralized clearing house and a brokerage firm that is a member of the clearing house. Futures exchanges may adopt rules and take other actions that affect trading, including imposing speculative position limits, maximum price fluctuations and trading halts and suspensions and requiring liquidation of contracts in certain circumstances.
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S&P® DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500® FUTURES EXCESS RETURN INDEX, THE S&P 500® INDEX OR ANY DATA INCLUDED THEREIN. S&P® MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY MORGAN STANLEY, OWNERS OF THE SECURITIES, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500® FUTURES EXCESS RETURN INDEX, THE S&P 500® INDEX OR ANY DATA INCLUDED THEREIN. S&P® MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P 500® FUTURES EXCESS RETURN INDEX, THE S&P 500® INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P® HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
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