Investment Summary
Dual Directional Buffered Performance Leveraged Upside Securities
Principal at Risk Securities
The Dual Directional Buffered PLUS Based on the Performance of the S&P 500® Index due October 27, 2025 (the “Buffered PLUS”) can be used:
■As an alternative to direct exposure to the underlying index that enhances returns for a certain range of positive performance of the underlying index, subject to the maximum upside payment at maturity
■To enhance returns and potentially outperform the underlying index in a moderately bullish or moderately bearish scenario
■To achieve similar levels of upside exposure to the underlying index as a direct investment, subject to the maximum upside payment at maturity, while using fewer dollars by taking advantage of the leverage factor
■To obtain an unleveraged positive return for a limited range of negative performance of the underlying index
■To obtain a buffer against a specified level of negative performance in the underlying index
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Maturity:
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14 months
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Leverage factor:
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125%
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Maximum upside payment at maturity:
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At least $1,085 per Buffered PLUS (108.50% of the stated principal amount). The actual maximum upside payment at maturity will be determined on the pricing date.
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Buffer amount:
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10%, with 1-to-1 downside exposure below the buffer
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Minimum payment at maturity:
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$100 per Buffered PLUS (10% of the stated principal amount). Investors may lose up to 90% of the stated principal amount of the Buffered PLUS.
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Coupon:
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None
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The original issue price of each Buffered PLUS is $1,000. This price includes costs associated with issuing, selling, structuring and hedging the Buffered PLUS, which are borne by you, and, consequently, the estimated value of the Buffered PLUS on the pricing date will be less than $1,000. We estimate that the value of each Buffered PLUS on the pricing date will be approximately $972.90, or within $25.00 of that estimate. Our estimate of the value of the Buffered PLUS 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 Buffered PLUS on the pricing date, we take into account that the Buffered PLUS comprise both a debt component and a performance-based component linked to the underlying index. The estimated value of the Buffered PLUS 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 Buffered PLUS?
In determining the economic terms of the Buffered PLUS, including the leverage factor, the maximum upside payment at maturity, 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 Buffered PLUS 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 Buffered PLUS?
The price at which MS & Co. purchases the Buffered PLUS 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 Buffered PLUS 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 Buffered PLUS 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 Buffered PLUS, and, if it once chooses to make a market, may cease doing so at any time.