Morgan Stanley Finance LLC

Free Writing Prospectus to Preliminary Terms No. 1,681 Registration Statement Nos. 333-221595; 333-221595-01 Dated March 1, 2019 Filed pursuant to Rule 433

Structured Investments

Contingent Income Auto-Callable Securities due July 2, 2020, with 6-month Initial Non-Call Period 

All Payments on the Securities Based on the Worst Performing of the Russell 2000^® Index, the S&P 500^® Index and the EURO STOXX 50^® Index

This document provides a summary of the terms of the securities offered by Morgan Stanley Finance LLC. Investors should review carefully the accompanying preliminary terms, product supplement, index supplement and prospectus prior to making an investment decision.

 

Terms continued from previous page:

Redemption determination dates:	Beginning after six months, quarterly, on September 30, 2019, December 30, 2019 and March 30, 2020, subject to postponement for non-index business days and certain market disruption events.
Early redemption dates:	Beginning after six months, quarterly, on October 3, 2019, January 3, 2020 and April 2, 2020. If any such day is not a business day, that early redemption payment will be made on the next succeeding business day and no adjustment will be made to any early redemption payment made on that succeeding business day.
Coupon barrier level:	With respect to the RTY Index: 70% of its initial index value With respect to the SPX Index: 70% of its initial index value  With respect to the SX5E Index: 70% of its initial index value
Downside threshold level:	With respect to the RTY Index: 70% of its initial index value  With respect to the SPX Index: 70% of its initial index value With respect to the SX5E Index: 70% of its initial index value
Initial index value:	With respect to the RTY Index: its index closing value on the pricing date With respect to the SPX Index: its index closing value on the pricing date  With respect to the SX5E Index: its index closing value on the pricing date
Final index value:	With respect to each index, the respective index closing value on the final observation date
Worst performing underlying:	The underlying index with the largest percentage decrease from the respective initial index value to the respective final index value
Index performance factor:	Final index value divided by the initial index value
Coupon payment dates:	Monthly, as set forth under “Observation Dates and Coupon Payment Dates”  in the accompanying preliminary terms; provided that if any such day is not a business day, that contingent monthly coupon, if any, will be paid on the next succeeding business day and no adjustment will be made to any coupon payment made on that succeeding business day; provided further that the contingent monthly coupon, if any, with respect to the final observation date will be paid on the maturity date
Observation dates:	Monthly, as set forth under “Observation Dates and Coupon Payment Dates” in the accompanying preliminary terms, subject to postponement for non-index business days and certain market disruption events.  We also refer to June 29, 2020 as the final observation date.
CUSIP / ISIN:	61768DX91 / US61768DX913
Listing:	The securities will not be listed on any securities exchange.

The issuer has filed a registration statement (including a prospectus) with the SEC for the offering to which this communication relates.  Before you invest, you should read the prospectus in that registration statement and other documents the issuer has filed with the SEC for more complete information about the issuer and this offering.  You may get these documents for free by visiting EDGAR on the SEC Web site at www.sec.gov. Alternatively, the issuer, any underwriter or any dealer participating in the offering will arrange to send you the prospectus if you request it by calling toll-free 1-800-584-6837.

 

Risk Considerations

 

The risks set forth below are discussed in more detail in the “Risk Factors” section in the accompanying preliminary terms. Please review those risk factors carefully prior to making an investment decision.

·

The securities do not guarantee the return of any principal.

·

The securities do not provide for the regular payment of interest.

·

You are exposed to the price risk of all three underlying indices, with respect to both the contingent monthly coupons, if any, and the payment at maturity, if any.

·

Because the securities are linked to the performance of the worst performing underlying index, you are exposed to greater risks of receiving no contingent monthly coupons and sustaining a significant loss on your investment than if the securities were linked to just one index.

·

The contingent monthly coupon, if any, is based on the value of each underlying index on only the related quarterly observation date at the end of the related interest period.

·

Investors will not participate in any appreciation in any underlying index.

·

The market price will be influenced by many unpredictable factors.

·

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.

·

As a finance subsidiary, MSFL has no independent operations and will have no independent assets.

·

The securities are linked to the Russell 2000® Index and are subject to risks associated with small-capitalization companies.

·

The securities are linked to the EURO STOXX 50® Index and are subject to risks associated with investments in securities linked to the value of foreign equity securities.

·

Not equivalent to investing in the underlying indices.

·

Reinvestment risk.

·

The securities will not be listed on any securities exchange and secondary trading may be limited. Accordingly, you should be willing to hold your securities for the entire 1.25-year term of the securities.

·

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.

·

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.

·

Hedging and trading activity by our affiliates could potentially affect the value of the securities.

·

The calculation agent, which is a subsidiary of Morgan Stanley and an affiliate of MSFL, will make determinations with respect to the securities.

·

Adjustments to the underlying indices could adversely affect the value of the securities.

·

The U.S. federal income tax consequences of an investment in the securities are uncertain.

 

Tax Considerations

 

You should review carefully the discussion in the accompanying preliminary terms under the caption “Additional Information About the Securities– Tax considerations” concerning the U.S. federal income tax consequences of an investment in the securities. However, you should consult your tax adviser regarding all aspects of the U.S. federal income tax consequences of an investment in the securities, as well as any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.

 

Hypothetical Examples

 

The following hypothetical examples illustrate how to determine whether a contingent monthly coupon is paid with respect to an observation date and how to calculate the payment at maturity if the securities have not been automatically redeemed early. The following examples are for illustrative purposes only. Whether you receive a contingent monthly coupon will be determined by reference to the index closing value of each underlying index on each monthly observation date, and the amount you will receive at maturity, if any, will be determined by reference to the index closing value of each underlying index throughout the term of the securities. The actual initial index value, coupon barrier level and downside threshold level for each underlying index will be determined on the pricing date. All payments on the securities, if any, are subject to our credit risk. The numbers in the hypothetical examples below may have been rounded for the ease of analysis. The below examples are based on the following terms:

 

Hypothetical Contingent Monthly Coupon:	9.00% per annum (corresponding to approximately $7.50 per month per security, the midpoint of the range set forth on the cover of this document)*   With respect to each coupon payment date, a contingent monthly coupon is paid but only if the index closing value of each underlying is at or above its respective coupon barrier level on the related observation date.
Automatic Early Redemption:	If the index closing value of each underlying index is greater than or equal to its initial index value on any of the three quarterly redemption determination dates (beginning approximately six months after the original issue date), the securities will be automatically redeemed for an early redemption payment equal to the stated principal amount plus the contingent monthly coupon with respect to the related observation date.
Trigger event:	A trigger event occurs if, on any index business day from but excluding the pricing date to and including the final observation date, the closing level of any underlying index is less than its respective downside threshold level.  If a trigger event occurs on any index business day during the term of the securities, investors will be exposed to the downside performance of the worst performing underlying index at maturity.
Payment at Maturity (if the securities have not been automatically redeemed early):	At maturity, investors will receive, in addition to the final contingent monthly coupon payment, if payable, a payment at maturity determined as follows:   If a trigger event HAS NOT occurred on any index business day from but excluding the pricing date to and including the final observation date: the stated principal amount   If a trigger event HAS occurred on any index business day from but excluding the pricing date to and including the final observation date: (i) the stated principal amount multiplied by (ii) the index performance factor of the worst performing underlying index, subject to a maximum payment at maturity of the stated principal amount.   If a trigger event occurs and the final index value of any underlying index is less than its initial index value, the payment at maturity will be less than the stated principal amount of the securities and could be zero.   Under no circumstances will investors participate in any appreciation of any underlying index.
Stated Principal Amount:	$1,000
Hypothetical Initial Index Value:	With respect to the RTY Index: 1,700 With respect to the SPX Index: 2,700  With respect to the SX5E Index: 3,200
Hypothetical Coupon Barrier Level:	With respect to the RTY Index: 1,190, which is 70% of the hypothetical initial index value for such index  With respect to the SPX Index: 1,890, which is 70% of the hypothetical initial index value for such index With respect to the SX5E Index: 2,240, which is 70% of the hypothetical initial index value for such index
Hypothetical Downside Threshold Level:	With respect to the RTY Index: 1,190, which is 70% of the hypothetical initial index value for such index With respect to the SPX Index: 1,890, which is 70% of the hypothetical initial index value for such index  With respect to the SX5E Index: 2,240, which is 70% of the hypothetical initial index value for such index

* The actual contingent monthly coupon will be an amount determined by the calculation agent based on the actual contingent monthly coupon rate and the number of days in the applicable payment period, calculated on a 30/360 basis. The hypothetical contingent monthly coupon of $7.50 is used in these examples for ease of analysis.

 

How to determine whether a contingent monthly coupon is payable with respect to an observation date:

 

		Closing Level		Contingent Monthly Coupon
	RTY Index	SPX Index	SX5E Index
Hypothetical Observation Date 1	1,500 (at or above coupon barrier level)	1,900 (at or above coupon barrier level)	2,800 (at or above coupon barrier level)	$7.50
Hypothetical Observation Date 2	1,000 (below coupon barrier level)	2,300 (at or above coupon barrier level)	2,600 (at or above coupon barrier level)	$0
Hypothetical Observation Date 3	1,500 (at or above coupon barrier level)	2,250 (at or above coupon barrier level)	2,000 (below coupon barrier level)	$0
Hypothetical Observation Date 4	900 (below coupon barrier level)	1,500 (below coupon barrier level)	1,900 (below coupon barrier level)	$0

 

On hypothetical observation date 1, the RTY Index, the SPX Index and the SX5E Index all close at or above their respective coupon barrier levels. Therefore a contingent monthly coupon of $7.50 is paid on the relevant coupon payment date.

 

On each of the hypothetical observation dates 2 and 3, two underlying indices close at or above their respective coupon barrier levels, but the other underlying index closes below its coupon barrier level. Therefore, no contingent monthly coupon is paid on the relevant coupon payment date.

 

On hypothetical observation date 4, each underlying index closes below its respective coupon barrier level, and, accordingly, no contingent monthly coupon is paid on the relevant coupon payment date.

 

You will not receive a contingent monthly coupon on any coupon payment date if the closing level of any underlying index is below its respective coupon barrier level on the related observation date.

 

How to calculate the payment at maturity (if the securities have not been automatically redeemed early):

 

Example 1: A trigger event HAS NOT occurred.

 

Final Index Value		RTY Index: 2,000 SPX Index: 3,000
		SX5E Index: 3,700
Payment at Maturity	=	$1,000.00 + $7.50 (contingent monthly coupon for the final monthly period)
	=	$1,007.50

In example 1, the index closing values of the RTY Index, the SPX Index and the SX5E Index are all at or above their respective downside threshold levels on each index business day during the term of the securities. Therefore, a trigger event has not occurred and investors receive at maturity the stated principal amount of the securities and the contingent monthly coupon with respect to the final observation date. However, investors do not participate in any appreciation of any underlying index.

 

Example 2: A trigger event HAS occurred.

 

Final Index Value		RTY Index: 2,500 SPX Index: 2,400
		SX5E Index: 2,560
Payment at Maturity	=	$7.50 (contingent monthly coupon for the final monthly period) + [$1,000 x index performance factor of the worst performing underlying index, subject to a maximum of the stated principal amount]
	=	$7.50 + [$1,000 x (2,560 / 3,200)]
	=	$807.50

In example 2, the index closing values of two underlying indices are at or above their respective downside threshold levels on each index business day during the term of the securities, but the index closing value of the other underlying index is below its downside threshold level on one or more index business days during the term of the securities. The final index values of the RTY Index, the SPX Index and the SX5E Index are at or above the respective coupon barrier levels on the final observation date. However, because a trigger event has occurred, investors are exposed to the downside performance of the worst performing underlying index at maturity, even though two of the underlying indices have appreciated. Because the final index value of each underlying index is greater than its respective coupon barrier level, investors receive the contingent monthly coupon with respect to the final observation date. The payment at maturity is an amount equal to the contingent monthly coupon with respect to the final observation date plus (i) the stated principal amount times (ii) the index performance factor of the worst performing underlying index.

 

Example 3: A trigger event HAS occurred.

 

Final Index Value		RTY Index: 850 SPX Index: 1,700
		SX5E Index: 2,080
Payment at Maturity	=	$1,000 x index performance factor of the worst performing underlying index
	=	$1,000 x (850 / 1,700) = $500
	=	$500

In example 3, the index closing values of the RTY Index, the SPX Index and the SX5E Index are all below the respective downside threshold levels on one or more index business days during the term of the securities. Therefore, a trigger event has occurred, and investors are exposed to the downside performance of the worst performing underlying index at maturity. Because the final index value of one or more of the underlying indices are below the respective coupon barrier levels, investors do not receive the contingent monthly coupon with respect to the final observation date. The payment at maturity is an amount equal to the stated principal amount times the index performance factor of the worst performing underlying index.

 

If a trigger event occurs on any index business day during the term of the securities, investors will have full downside exposure to the worst performing underlying index at maturity. Under these circumstances, if the final index value of any underlying index is less than its respective initial index value, investors will lose some or all of their investment in the securities.

 

Russell 2000^® Index Historical Performance

 

The following graph sets forth the daily index closing values of the Russell 2000® Index for each quarter in the period from January 1, 2014 through February 25, 2019. You should not take the historical values of the Russell 2000® Index as an indication of its future performance, and no assurance can be given as to the index closing value of the Russell 2000® Index on the valuation date.

Russell 2000® Index Daily Index Closing Values January 1, 2014 to February 25, 2019

 

S&P 500^® Index Historical Performance

 

The following graph sets forth the daily index closing values of the S&P 500^® Index for each quarter in the period from January 1, 2014 through February 25, 2019. You should not take the historical values of the S&P 500^® Index as an indication of its future performance, and no assurance can be given as to the index closing value of the S&P 500^® Index on the valuation date.

 

S&P 500® Index Daily Index Closing Values January 1, 2014 to February 25, 2019

EURO STOXX 50^® Index Historical Performance

 

The following graph sets forth the daily index closing values of the EURO STOXX 50^® Index for each quarter in the period from January 1, 2014 through February 25, 2019. You should not take the historical values of the EURO STOXX 50^® Index as an indication of its future performance, and no assurance can be given as to the index closing value of the EURO STOXX 50^® Index on the valuation date.

 

EURO STOXX 50® Index Daily Index Closing Values January 1, 2014 to February 25, 2019