Subject
to Completion, Preliminary Pricing Supplement dated December 1, 2021
PROSPECTUS Dated November 16, 2020
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Pricing Supplement No. 3,318 to
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PROSPECTUS SUPPLEMENT Dated November 16, 2020
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Registration Statement Nos. 333-250103; 333-250103-01
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Dated December , 2021
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Rule 424(b)(2)
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$
Morgan Stanley Finance LLC
GLOBAL MEDIUM-TERM NOTES, SERIES A
Senior Notes
Trigger PLUS due December 5, 2024
Based on the Worst Performing of the Common
Stock of Penn National Gaming, Inc., the Class A Common Stock of Peloton Interactive, Inc. and the Common Stock of PayPal Holdings, Inc.
Fully and Unconditionally Guaranteed by
Morgan Stanley
Principal at Risk Securities
The Trigger PLUS are unsecured obligations of Morgan Stanley
Finance LLC (“MSFL”) and are fully and unconditionally guaranteed by Morgan Stanley. Unlike ordinary debt securities, the
Trigger PLUS do not pay interest and do not guarantee any return of principal at maturity. Instead, at maturity, you will receive for
each $1,000 stated principal amount of Trigger PLUS that you hold an amount in cash based upon the worst performing of the common stock
of Penn National Gaming, Inc., the class A common stock of Peloton Interactive, Inc. and the common stock of PayPal Holdings, Inc., which
we refer to as Penn Stock, Peloton Stock and PayPal Stock, respectively, and collectively as the “underlying stocks.” At
maturity, if the final share price of each underlying stock is greater than its respective initial share price, you will
receive the stated principal amount of your investment plus leveraged upside performance of the worst performing underlying stock. If
the final share price of any underlying stock is less than or equal to its respective initial share price, but the final
share price of each underlying stock is greater than or equal to 85% of its respective initial share price, which we refer
to as the respective trigger level, you will receive the stated principal amount of your investment. However, if the final share price
of any underlying stock is less than its respective trigger level, you will be negatively exposed to the full amount of the percentage
decline in the worst performing underlying stock and will lose 1% of the stated principal amount for every 1% of decline in the price
of the worst performing underlying stock from its respective initial share price. Under these circumstances, the payment at maturity
will be less than the stated principal amount and will represent a loss of at least 15%, and possibly all, of your investment. Investors
may lose their entire initial investment in the Trigger PLUS. Because the payment at maturity of the Trigger PLUS is based on the
worst performing of the underlying stocks, a decline in any underlying stock to less than its respective trigger level will result
in a loss of a significant portion or all of your investment even if the other underlying stocks have appreciated or have not declined
as much. The Trigger PLUS are for investors who seek a common stock-based return and who are willing to risk their principal, risk exposure
to the worst performing of three underlying stocks and forgo current income in exchange for the leverage feature and the limited protection
against loss that applies only if the final share price of each underlying stock is greater than or equal to its respective trigger level.
The Trigger PLUS are notes issued as part of MSFL’s Series A Global Medium-Term Notes program.
All payments are subject to our credit risk. If we default
on our obligations, you could lose some or all of your investment. These Trigger PLUS 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.
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•
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The stated principal amount and issue price of each Trigger PLUS is $1,000.
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•
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We will not pay interest on the Trigger PLUS.
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At maturity, you will receive for each $1,000 stated principal amount of Trigger PLUS that you hold:
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º
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If the final share price of each underlying stock is greater than its respective initial
share price: $1,000 + ($1,000 × leverage factor × share percent change of the worst performing underlying stock)
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º
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If the final share price of any underlying stock is less than or equal to its respective
initial share price but the final share price of each underlying stock is greater than or equal to its respective trigger
level: $1,000
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º
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If the final share price of any underlying stock is less than its respective trigger
level: ($1,000 × share performance factor of the worst performing underlying stock)
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Under these circumstances, the
payment at maturity will be less than the stated principal amount and will represent a loss of at least 15%, and possibly all, of your
investment.
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•
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The leverage factor is 392%.
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The trigger level of each underlying stock is equal to 85% of the respective initial share price
and is as follows:
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º
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With respect to the Penn Stock, $43.546, which is approximately 85% of its initial share price
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With respect to the Peloton Stock, $37.40, which is 85% of its initial share price
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With respect to the PayPal Stock, $157.157, which is approximately 85% of its initial share price
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The worst performing underlying stock is the underlying stock with the lowest share percent change.
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The share percent change with respect to each underlying stock will be equal to (i) the final share
price minus the initial share price, divided by (ii) the initial share price.
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The share performance factor with respect to each underlying stock will be equal to (i) the final
share price divided by (ii) the initial share price.
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The initial share price with respect to each underlying stock is as follows:
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º
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With respect to the Penn Stock, $51.23, which is its closing price on November 30, 2021.
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With respect to the Peloton Stock, $44.00, which is its closing price on November 30, 2021.
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With respect to the PayPal Stock, $184.89, which is its closing price on November 30, 2021.
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The final share price with respect to each underlying stock will equal the closing price of one share
of such underlying stock times the adjustment factor for such underlying stock, each as of December 2, 2024, which we refer to as the
valuation date. The adjustment factor for each underlying stock will be initially set at 1.0 and is subject to change upon certain corporate
events affecting such underlying stock.
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Investing in the Trigger PLUS is not equivalent to investing in Penn Stock, Peloton Stock or PayPal
Stock.
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The Trigger PLUS will not be listed on any securities exchange.
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The estimated value of the Trigger PLUS on the pricing date is approximately $979.20 per Trigger
PLUS, or within $30.00 of that estimate. See “Summary of Pricing Supplement” beginning on PS-2.
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The CUSIP number for the Trigger PLUS is 61773HPY9 and the ISIN for the Trigger PLUS is US61773HPY98.
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You should read the more detailed description of the Trigger PLUS
in this pricing supplement. In particular, you should review and understand the descriptions in “Summary of Pricing Supplement,”
“Terms” and “Additional Information about the Trigger PLUS.”
The Trigger PLUS are riskier than ordinary debt securities.
See “Risk Factors” beginning on PS-12.
The Securities and Exchange Commission and state securities
regulators have not approved or disapproved these securities, or determined if this pricing supplement is truthful or complete. Any representation
to the contrary is a criminal offense.
PRICE $1,000 PER TRIGGER PLUS
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Price
to public
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Agent’s
commissions and fees(1)(2)
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Proceeds
to us(3)
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Per Trigger PLUS
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$1,000
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$
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$
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Total
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$
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$
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$
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(1)
The Trigger PLUS will be sold only to investors purchasing the Trigger PLUS in fee-based advisory accounts.
(2) MS
& Co. expects to sell all of the Trigger PLUS that it purchases from us to an unaffiliated dealer at a price of $ per Trigger PLUS,
for further sale to certain fee-based advisory accounts at the price to public of $1,000 per Trigger PLUS. MS & Co. will not receive
a sales commission with respect to the Trigger PLUS. See “Additional Information About the Trigger PLUS—Supplemental Information
Concerning Plan of Distribution; Conflicts of Interest.” For additional information, see “Plan of Distribution (Conflicts
of Interest)” in the accompanying prospectus supplement.
(3)
See “Additional Information About the Trigger PLUS—Use of Proceeds and Hedging” on PS-40.
The agent for this offering, Morgan Stanley & Co. LLC, is our
affiliate. See “Additional Information About the Trigger PLUS—Supplemental Information Concerning Plan of Distribution; Conflicts
of Interest.”
The Trigger PLUS 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.
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.
MORGAN STANLEY
ADDITIONAL INFORMATION
ABOUT THE TRIGGER PLUS
Interest Rate
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None
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Book Entry Note or Certificated Note
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Book Entry. The Trigger PLUS will be issued in the form of one or more fully registered global securities which will be deposited with, or on behalf of, DTC and will be registered in the name of a nominee of DTC. DTC’s nominee will be the only registered holder of the Trigger PLUS. Your beneficial interest in the Trigger PLUS will be evidenced solely by entries on the books of the securities intermediary acting on your behalf as a direct or indirect participant in DTC. In this pricing supplement, all references to actions taken by “you” or to be taken by “you” refer to actions taken or to be taken by DTC and its participants acting on your behalf, and all references to payments or notices to you will mean payments or notices to DTC, as the registered holder of the Trigger PLUS, for distribution to participants in accordance with DTC’s procedures. For more information regarding DTC and book entry notes, please read “Forms of Securities—The Depositary” and “Forms of Securities—Global Securities—Registered Global Securities” in the accompanying prospectus.
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Penn Stock; Public Information
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Penn National Gaming, Inc., together with its subsidiaries, is a diversified, multi-jurisdictional owner and manager of gaming and racing properties and video gaming terminal operations. Penn Stock is registered under the Exchange Act. Companies with securities registered under the Exchange Act are required to file periodically certain financial and other information specified by the Securities and Exchange Commission (the “Commission”). Information provided to or filed with the Commission can be accessed through a website maintained by the Commission. The address of the Commission’s website is www.sec.gov. Information provided to or filed with the Commission by Penn National Gaming, Inc. pursuant to the Exchange Act can be located by reference to Commission file number 000-24206. In addition, information regarding Penn National Gaming, Inc. may be obtained from other sources including, but not limited to, press releases, newspaper articles and other publicly disseminated documents. We make no representation or warranty as to the accuracy or completeness of such information.
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This pricing supplement relates only
to the Trigger PLUS offered hereby and does not relate to Penn Stock or other securities of Penn National Gaming, Inc. We have derived
all disclosures contained in this pricing supplement regarding Penn National Gaming, Inc. from the publicly available documents described
in the preceding paragraph. In connection with the offering of the Trigger PLUS, neither we nor the Agent has participated in the preparation
of such documents or made any due diligence inquiry with respect to Penn National Gaming, Inc. in connection with the offering of the
Trigger PLUS. Neither we nor the Agent makes any representation that such publicly available documents are or any other publicly available
information regarding Penn National
Gaming, Inc. is accurate or complete.
Furthermore, we cannot give any assurance that all events occurring prior to the date hereof (including events that would affect the accuracy
or completeness of the publicly available documents described in the preceding paragraph) that would affect the trading price of Penn
Stock (and therefore the price of Penn Stock at the time we price the Trigger PLUS) have been publicly disclosed. Subsequent disclosure
of any such events or the disclosure of or failure to disclose material future events concerning Penn National Gaming, Inc. could affect
the value received at maturity with respect to the Trigger PLUS and therefore the value of the Trigger PLUS.
Neither we nor any of our affiliates
makes any representation to you as to the performance of Penn Stock.
We and/or our affiliates may presently
or from time to time engage in business with Penn National Gaming, Inc., including extending loans to, or making equity investments in,
Penn National Gaming, Inc. or providing advisory services to Penn National Gaming, Inc., including merger and acquisition advisory services.
In the course of such business, we and/or our affiliates may acquire non-public information with respect to Penn National Gaming, Inc.,
and neither we nor any of our affiliates undertakes to disclose any such information to you. In addition, one or more of our affiliates
may publish research reports with respect to Penn National Gaming, Inc., and the reports may or may not recommend that investors buy or
hold Penn Stock. As a prospective purchaser of the Trigger PLUS, you should undertake an independent investigation of Penn National Gaming,
Inc. as in your judgment is appropriate to make an informed decision with respect to an investment linked to Penn Stock.
Peloton Stock; Public Information
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Peloton Interactive, Inc. operates an interactive fitness platform. Peloton Stock is registered under the Exchange Act. Companies with securities registered under the Exchange Act are required to file periodically certain financial and other information specified by the Securities and Exchange Commission (the “Commission”). Information provided to or filed with the Commission can be accessed through a website maintained by the Commission. The address of the Commission’s website is.www.sec.gov. Information provided to or filed with the Commission by Peloton Interactive, Inc. pursuant to the Exchange Act can be located by reference to Commission file number 001-39058. In addition, information regarding Peloton Interactive, Inc. may be obtained from other sources including, but not limited to, press releases, newspaper articles and other publicly disseminated documents. We make no representation or warranty as to the accuracy or completeness of such information.
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This pricing supplement relates only
to the Trigger PLUS offered hereby and does not relate to Peloton Stock or other securities of Peloton Interactive, Inc.. We have derived
all disclosures contained in this pricing supplement regarding Peloton Interactive,
Inc. from the publicly available documents
described in the preceding paragraph. In connection with the offering of the Trigger PLUS, neither we nor the Agent has participated in
the preparation of such documents or made any due diligence inquiry with respect to Peloton Interactive, Inc. in connection with the offering
of the Trigger PLUS. Neither we nor the Agent makes any representation that such publicly available documents are or any other publicly
available information regarding Peloton Interactive, Inc. is accurate or complete. Furthermore, we cannot give any assurance that all
events occurring prior to the date hereof (including events that would affect the accuracy or completeness of the publicly available documents
described in the preceding paragraph) that would affect the trading price of Peloton Stock (and therefore the price of Peloton Stock at
the time we price the Trigger PLUS) have been publicly disclosed. Subsequent disclosure of any such events or the disclosure of or failure
to disclose material future events concerning Peloton Interactive, Inc. could affect the value received at maturity with respect to the
Trigger PLUS and therefore the value of the Trigger PLUS.
Neither we nor any of our affiliates
makes any representation to you as to the performance of Peloton Stock.
We and/or our affiliates may presently
or from time to time engage in business with Peloton Interactive, Inc., including extending loans to, or making equity investments in,
Peloton Interactive, Inc. or providing advisory services to Peloton Interactive, Inc., including merger and acquisition advisory services.
In the course of such business, we and/or our affiliates may acquire non-public information with respect to Peloton Interactive, Inc.,
and neither we nor any of our affiliates undertakes to disclose any such information to you. In addition, one or more of our affiliates
may publish research reports with respect to Peloton Interactive, Inc., and the reports may or may not recommend that investors buy or
hold Peloton Stock. As a prospective purchaser of the Trigger PLUS, you should undertake an independent investigation of Peloton Interactive,
Inc. as in your judgment is appropriate to make an informed decision with respect to an investment linked to Peloton Stock.
PayPal Stock; Public Information
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PayPal Holdings, Inc. is a technology platform and digital payments company. PayPal Stock is registered under the Exchange Act. Companies with securities registered under the Exchange Act are required to file periodically certain financial and other information specified by the Securities and Exchange Commission (the “Commission”). Information provided to or filed with the Commission can be accessed through a website maintained by the Commission. The address of the Commission’s website is.www.sec.gov. Information provided to or filed with the Commission by PayPal Holdings, Inc. pursuant to the Exchange Act can be located by reference to Commission file number 000-36859. In addition, information regarding PayPal Holdings, Inc. may be obtained from other sources including, but
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not limited to,
press releases, newspaper articles and other publicly disseminated documents. We make no representation or warranty as to the accuracy
or completeness of such information.
This pricing supplement relates only
to the Trigger PLUS offered hereby and does not relate to PayPal Stock or other securities of PayPal Holdings, Inc. We have derived all
disclosures contained in this pricing supplement regarding PayPal Holdings, Inc. from the publicly available documents described in the
preceding paragraph. In connection with the offering of the Trigger PLUS, neither we nor the Agent has participated in the preparation
of such documents or made any due diligence inquiry with respect to PayPal Holdings, Inc. in connection with the offering of the Trigger
PLUS. Neither we nor the Agent makes any representation that such publicly available documents are or any other publicly available information
regarding PayPal Holdings, Inc. is accurate or complete. Furthermore, we cannot give any assurance that all events occurring prior to
the date hereof (including events that would affect the accuracy or completeness of the publicly available documents described in the
preceding paragraph) that would affect the trading price of PayPal Stock (and therefore the price of PayPal Stock at the time we price
the Trigger PLUS) have been publicly disclosed. Subsequent disclosure of any such events or the disclosure of or failure to disclose material
future events concerning PayPal Holdings, Inc. could affect the value received at maturity with respect to the Trigger PLUS and therefore
the value of the Trigger PLUS.
Neither we nor any of our affiliates
makes any representation to you as to the performance of PayPal Stock.
We and/or our affiliates may presently
or from time to time engage in business with PayPal Holdings, Inc., including extending loans to, or making equity investments in, PayPal
Holdings, Inc. or providing advisory services to PayPal Holdings, Inc., including merger and acquisition advisory services. In the course
of such business, we and/or our affiliates may acquire non-public information with respect to PayPal Holdings, Inc., and neither we nor
any of our affiliates undertakes to disclose any such information to you. In addition, one or more of our affiliates may publish research
reports with respect to PayPal Holdings, Inc., and the reports may or may not recommend that investors buy or hold PayPal Stock. As a
prospective purchaser of the Trigger PLUS, you should undertake an independent investigation of PayPal Holdings, Inc. as in your judgment
is appropriate to make an informed decision with respect to an investment linked to PayPal Stock.
Historical Information
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The following tables set forth the published high and low Closing Prices, as well as end-of-quarter Closing Prices, of Penn Stock and PayPal Stock for each quarter in the period from January 1, 2018 through November 30, 2021, and of Peloton Stock for each quarter in the period from September 26, 2019 through November 30, 2021. The graphs following each Underlying Stock’s
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historical table
set forth the historical performance of the respective Underlying Stock for the same periods. On November 30, 2021, the Closing Price
for the Penn Stock was $51.23, the Closing Price for the Peloton Stock was $44.00 and the Closing Price for the PayPal Stock was $184.89.
We obtained the information in the tables and graphs below from Bloomberg Financial Markets, without independent verification. The historical
prices of the Underlying Stocks should not be taken as an indication of future performance, and no assurance can be given as to the Closing
Prices of the Underlying Stocks on the Valuation Date. The price of the Worst Performing Underlying Stock may decrease below its respective
Trigger Level so that you will receive a Payment at Maturity that is significantly less than the stated principal amount of the Trigger
PLUS.
If the Final Share Price of any Underlying
Stock is less than its respective Trigger Level, you will lose a significant portion or all of your investment.
Penn National Gaming, Inc.
Historical High, Low and Period End
Closing Prices
January 1, 2018 through November 30,
2021
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High ($)
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Low ($)
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Period End ($)
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2018
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First Quarter
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33.01
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25.55
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26.26
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Second Quarter
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35.45
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25.13
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33.59
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Third Quarter
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36.59
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30.95
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32.92
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Fourth Quarter
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33.92
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17.68
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18.83
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2019
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First Quarter
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25.84
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19.45
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20.10
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Second Quarter
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22.11
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17.69
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19.26
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Third Quarter
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20.92
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16.78
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18.63
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Fourth Quarter
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26.07
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18.28
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25.56
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2020
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First Quarter
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38.28
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4.52
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12.65
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Second Quarter
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37.37
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9.21
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30.54
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Third Quarter
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74.37
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28.60
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72.70
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Fourth Quarter
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96.09
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53.03
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86.37
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2021
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First Quarter
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136.47
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80.89
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104.84
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Second Quarter
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107.52
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73.78
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76.49
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Third Quarter
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84.84
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65.08
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72.46
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Fourth Quarter (through November 30, 2021)
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81.34
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51.23
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51.23
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The following graph shows the daily Closing Prices of Penn
Stock from January 1, 2016 through November 30, 2021. We obtained the information in the graph below from Bloomberg Financial Markets,
without independent verification. The historical Closing Prices of Penn Stock may have been adjusted for stock splits and other corporate
events. The historical Closing Prices should not be taken as an indication of future performance, and no assurance can be given as to
the Closing Price on the Valuation Date.
Historical Daily Closing Prices of
Penn Stock
January 1, 2016 through November 30,
2021
Peloton Interactive, Inc.
Historical High, Low and Period End
Closing Prices
September 26, 2019 through November
30, 2021
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High ($)
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Low ($)
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Period End ($)
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2019
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Third Quarter (from September 26, 2021)
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25.76
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25.10
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25.10
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Fourth Quarter
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36.84
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21.08
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28.40
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2020
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First Quarter
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33.47
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19.51
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26.55
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Second Quarter
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58.43
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26.74
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57.77
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Third Quarter
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100.47
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58.53
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99.24
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Fourth Quarter
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162.76
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100.01
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151.72
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2021
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33.47
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19.51
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26.55
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First Quarter
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167.42
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101.35
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112.44
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Second Quarter
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126.92
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82.62
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124.02
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Third Quarter
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126.43
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85.40
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87.05
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Fourth Quarter (through November 30, 2021)
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96.60
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42.97
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44.00
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The following graph shows the daily Closing Prices of Peloton
Stock from September 26, 2019 through November 30, 2021. The common stock of Peloton Interactive, Inc. began trading on September 26,
2019 and therefore has limited historical performance. We obtained the information in the graph below from Bloomberg Financial Markets,
without independent verification. The historical Closing Prices of Peloton Stock may have been adjusted for stock splits and other corporate
events. The historical Closing Prices should not be taken as an indication of future performance, and no assurance can be given as to
the Closing Price on the Valuation Date.
Historical Daily Closing Prices of
Peloton Stock
September 26, 2019 through November
30, 2021
PayPal Holdings, Inc.
Historical High, Low and Period End
Closing Prices
January 1, 2018 through November 30,
2021
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High ($)
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Low ($)
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Period End ($)
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2018
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First Quarter
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85.45
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72.32
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75.87
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Second Quarter
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85.97
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71.73
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83.27
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Third Quarter
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93.07
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82.14
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87.84
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Fourth Quarter
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89.04
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75.45
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84.09
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2019
|
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First Quarter
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104.15
|
82.09
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103.84
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Second Quarter
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118.79
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104.46
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114.46
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Third Quarter
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121.30
|
102.20
|
103.59
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Fourth Quarter
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109.75
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96.64
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108.17
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2020
|
|
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First Quarter
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123.91
|
85.26
|
95.74
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Second Quarter
|
174.23
|
91.38
|
174.23
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Third Quarter
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210.82
|
169.81
|
197.03
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Fourth Quarter
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243.49
|
179.81
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234.20
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2021
|
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First Quarter
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304.79
|
226.09
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242.84
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Second Quarter
|
293.65
|
239.91
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291.48
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Third Quarter
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308.53
|
259.00
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260.21
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Fourth Quarter (through November 30, 2021)
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271.70
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184.89
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184.89
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The following graph shows the daily Closing Prices of PayPal
Stock from January 1, 2018 through November 30, 2021. We obtained the information in the graph below from Bloomberg Financial Markets,
without independent verification. The historical Closing Prices of PayPal Stock may have been adjusted for stock splits and other corporate
events. The historical Closing Prices should not be taken as an indication of future performance, and no assurance can be given as to
the Closing Price on the Valuation Date.
Historical Daily Closing Prices of
PayPal Stock
January 1, 2016 through November 30,
2021
Use of Proceeds and Hedging
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The proceeds from the sale of the Trigger PLUS will be used by us for general corporate purposes. We will receive, in aggregate, $1,000 per Trigger PLUS issued, because, when we enter into hedging transactions in order to meet our obligations under the Trigger PLUS, our hedging counterparty will reimburse the cost of the Agent’s commissions. The costs of the Trigger PLUS borne by you and described beginning on PS-2 above comprise the Agent’s commissions and the cost of issuing, structuring and hedging the Trigger PLUS. See also “Use of Proceeds” in the accompanying prospectus.
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On or prior to the day on which the
Initial Share Price of each Underlying Stock is determined, we expect to hedge our anticipated exposure in connection with the Trigger
PLUS by taking positions in the Underlying Stocks or in options contracts on the Underlying Stocks that are listed on major securities
markets or positions in any other available securities or instruments that we may wish to use in connection with such hedging. Such purchase
activity could potentially increase the Initial Share Price of any Underlying Stock, and therefore could increase the price at or above
which such Underlying Stock must close so that you do not suffer a significant loss on your initial investment in the Trigger PLUS (depending
also on the performance of the other Underlying Stocks). In addition, through our affiliates, we are likely to modify our hedge position
throughout the term of the Trigger PLUS by purchasing and selling the Underlying Stocks, futures or options contracts on the Underlying
Stocks that are listed on major securities markets or positions in any other available securities or instruments that we may wish to use
in connection with such hedging activities, including by selling any such securities or instruments on the Valuation Date. As a result,
these entities may be unwinding or adjusting hedge positions during the term of the Trigger PLUS, and the hedging strategy may involve
greater and more frequent dynamic adjustments to the hedge as the Valuation Date approaches. We cannot give any assurance that our hedging
activities will not affect the value of any Underlying Stock and, therefore, adversely affect the value of the Trigger PLUS or the
payment you will receive at maturity,
if any (depending also on the performance of the other Underlying Stocks).
Supplemental Information Concerning
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Plan of Distribution; Conflicts of Interest
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MS & Co. expects to sell all of the Trigger PLUS that it purchases from us to an unaffiliated dealer at a price of $ per Trigger PLUS, for further sale to certain fee-based advisory accounts at the price to public of $1,000 per Trigger PLUS. MS & Co. will not receive a sales commission with respect to the Trigger PLUS.
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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 Trigger PLUS. When MS & Co. prices this offering of Trigger PLUS, it will determine
the economic terms of the Trigger PLUS such that for each Trigger PLUS the estimated value on the Pricing Date will be no lower than the
minimum level described in “Summary of Pricing Supplement” beginning on PS-2.
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.
In order to facilitate the offering
of the Trigger PLUS, the Agent may engage in transactions that stabilize, maintain or otherwise affect the price of the Trigger PLUS.
Specifically, the Agent may sell more Trigger PLUS than it is obligated to purchase in connection with the offering, creating a naked
short position in the Trigger PLUS for its own account. The Agent must close out any naked short position by purchasing the Trigger PLUS
in the open market after the offering. A naked short position in the Trigger PLUS is more likely to be created if the Agent is concerned
that there may be downward pressure on the price of the Trigger PLUS in the open market after pricing that could adversely affect investors
who purchase in the offering. As an additional means of facilitating the offering, the Agent may bid for, and purchase, the Trigger PLUS
in the open market to stabilize the price of the Trigger PLUS. Any of these activities may raise or maintain the market price of the Trigger
PLUS above independent market prices or prevent or retard a decline in the market price of the Trigger PLUS. The Agent is not required
to engage in these activities, and may end any of these activities at any time. An affiliate of the Agent has entered into a hedging transaction
in connection with this offering of the Trigger PLUS. See “—Use of Proceeds and Hedging” above.
United States Federal
Taxation
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Prospective investors should note that the discussion under the section called “United States Federal Taxation” in the accompanying prospectus supplement does not apply to the
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Trigger PLUS
issued under this document and is superseded by the following discussion.
The following is a general discussion
of the material U.S. federal income tax consequences and certain estate tax consequences of the ownership and disposition of the Trigger
PLUS. This discussion applies only to investors in the Trigger PLUS who:
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purchase the Trigger PLUS in the original offering; and
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hold the Trigger PLUS as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the “Code”).
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This discussion does not describe all
of the tax consequences that may be relevant to a holder in light of the holder’s particular circumstances or to holders subject
to special rules, such as:
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certain financial institutions;
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certain dealers and traders in securities or commodities;
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investors holding the Trigger PLUS as part of a “straddle,” wash sale, conversion transaction, integrated transaction
or constructive sale transaction;
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U.S. Holders (as defined below) whose functional currency is not the U.S. dollar;
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partnerships or other entities classified as partnerships for U.S. federal income tax purposes;
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regulated investment companies;
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real estate investment trusts; or
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tax-exempt entities, including “individual retirement accounts” or “Roth IRAs” as defined in Section 408 or
408A of the Code, respectively.
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If an entity that is classified as a
partnership for U.S. federal income tax purposes holds the Trigger PLUS, the U.S. federal income tax treatment of a partner will generally
depend on the status of the partner and the activities of the partnership. If you are a partnership holding the Trigger PLUS or a partner
in such a partnership, you should consult your tax adviser as to the particular U.S. federal tax consequences of holding and disposing
of the Trigger PLUS to you.
In addition, we will not attempt to ascertain
whether any issuer of any shares to which a Trigger PLUS relates (such shares hereafter referred to as “Underlying Shares”)
is treated as a “U.S. real property holding corporation” (“USRPHC”) within the meaning of Section 897 of the Code.
If any issuer of Underlying Shares were so treated, certain adverse U.S. federal income tax consequences might apply to a Non-U.S. Holder
(as defined below) upon the sale, exchange or settlement of the Trigger PLUS. You should refer to information filed with the Securities
and Exchange Commission or other governmental authorities by the issuers of the Underlying Shares and consult your tax adviser regarding
the possible consequences to you if any issuer is or becomes a USRPHC.
As the law applicable to the U.S. federal
income taxation of instruments such as the Trigger PLUS is technical and complex, the discussion below necessarily represents only a general
summary. Moreover, the effect of any applicable state, local or non-U.S. tax laws is not discussed, nor are any alternative minimum tax
consequences or consequences resulting from the Medicare tax on investment income.
This discussion is based on the Code,
administrative pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, all as of the date of this document,
changes to any of which subsequent to the date hereof may affect the tax consequences described herein. Persons considering the purchase
of the Trigger PLUS should consult their tax advisers with regard to the application of the U.S. federal income tax laws to their particular
situations as well as any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
General
There is uncertainty regarding the U.S.
federal income tax consequences of an investment in the Trigger PLUS due to the lack of governing authority. Our counsel, Davis Polk &
Wardwell LLP, is unable to render a definitive opinion on the tax treatment of the Trigger PLUS at this time as such opinion is dependent
in part upon market conditions on the pricing date. Our counsel’s opinion will therefore be provided only on the pricing date. However,
under current law, and based on current market conditions, our counsel believes that it is at least reasonable to treat each Trigger PLUS
as a single financial contract that is an “open transaction” for U.S. federal income tax purposes.
Due to the absence of statutory, judicial
or administrative authorities that directly address the treatment of the Trigger PLUS or instruments that are similar to the Trigger PLUS
for U.S. federal income tax purposes, no assurance can be given that the Internal Revenue Service (the “IRS”) or a court will
agree with the tax treatment described herein. Accordingly, you should consult your tax adviser regarding all aspects of the U.S. federal
tax consequences of an investment in the Trigger PLUS (including possible alternative treatments of the Trigger PLUS). Unless otherwise
stated, the following discussion is based on the treatment of the Trigger PLUS as described in the previous paragraph.
Tax Consequences to U.S. Holders
This section applies to you only if you
are a U.S. Holder. As used herein, the term “U.S. Holder” means a beneficial owner of a Trigger PLUS that is, for U.S. federal
income tax purposes:
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a citizen or individual resident of the United States;
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a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state
thereof or the District of Columbia; or
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an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.
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Tax Treatment of the Trigger PLUS
Assuming the treatment of the Trigger
PLUS as set forth above is respected, the following U.S. federal income tax consequences should result.
Tax Treatment Prior to Settlement.
A U.S. Holder should not be required to recognize taxable income over the term of the Trigger PLUS prior to settlement, other than
pursuant to a sale or exchange as described below.
Tax Basis. A U.S. Holder’s
tax basis in the Trigger PLUS should equal the amount paid by the U.S. Holder to acquire the Trigger PLUS.
Sale, Exchange or Settlement of
the Trigger PLUS. Upon a sale, exchange or settlement of the Trigger PLUS, a U.S. Holder should recognize gain or loss equal to the
difference between the amount realized on the sale, exchange or settlement and the U.S. Holder’s tax basis in the Trigger PLUS sold,
exchanged or settled. Any gain or loss recognized upon the sale, exchange or settlement of the Trigger PLUS should be long-term capital
gain or loss if the U.S. Holder has held the Trigger PLUS for more than one year at such time, and short-term capital gain or loss otherwise.
Possible Alternative Tax Treatments
of an Investment in the Trigger PLUS
Due to the absence of authorities that
directly address the proper tax treatment of the Trigger PLUS, no assurance can be given that the IRS will accept, or that a court will
uphold, the treatment described above. There is a risk that the IRS may seek to treat all or a portion of the gain on the Trigger PLUS
as ordinary income. For example, there is a risk (which, depending on the market conditions on the pricing date, could be substantial)
the IRS could seek to analyze the U.S. federal income tax consequences of owning the Trigger PLUS under Treasury regulations governing
contingent payment debt instruments (the “Contingent Debt Regulations”). If the IRS were successful in asserting that the
Contingent Debt Regulations applied to the Trigger PLUS, the timing and character of income thereon would be significantly affected. Among
other things, a U.S. Holder would be required to accrue into income original issue discount on the Trigger PLUS every year at a “comparable
yield” determined at the time of their issuance, adjusted upward or downward to reflect the difference, if any, between the actual
and the projected amount of the contingent payment on the Trigger PLUS. Furthermore, any gain realized by a U.S. Holder at maturity or
upon a sale, exchange or other disposition of the Trigger PLUS would generally be treated
as ordinary income, and any loss realized
would be treated as ordinary loss to the extent of the U.S. Holder’s prior accruals of original issue discount and as capital loss
thereafter. The risk that financial instruments providing for buffers, triggers or similar downside protection features, such as the Trigger
PLUS, would be recharacterized as debt is greater than the risk of recharacterization for comparable financial instruments that do not
have such features.
Other alternative federal income tax
treatments of the Trigger PLUS are also possible, which, if applied, could significantly affect the timing and character of the income
or loss with respect to the Trigger PLUS. In 2007, the U.S. Treasury Department and the IRS released a notice requesting comments on the
U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments. The notice focuses in particular
on whether to require holders of these instruments to accrue income over the term of their investment. It also asks for comments on a
number of related topics, including the character of income or loss with respect to these instruments; whether short-term instruments
should be subject to any such accrual regime; the relevance of factors such as the exchange-traded status of the instruments and the nature
of the underlying property to which the instruments are linked; and whether these instruments are or should be subject to the “constructive
ownership” rule, which very generally can operate to recharacterize certain long-term capital gain as ordinary income and impose
an interest charge. While the notice requests comments on appropriate transition rules and effective dates, any Treasury regulations or
other guidance promulgated after consideration of these issues could materially and adversely affect the tax consequences of an investment
in the Trigger PLUS, possibly with retroactive effect. U.S. Holders should consult their tax advisers regarding the U.S. federal income
tax consequences of an investment in the Trigger PLUS, including possible alternative treatments and the issues presented by this notice.
Backup Withholding and Information
Reporting
Backup withholding may apply in respect
of the payment on the Trigger PLUS at maturity and the payment of proceeds from a sale, exchange or other disposition of the Trigger PLUS,
unless a U.S. Holder provides proof of an applicable exemption or a correct taxpayer identification number and otherwise complies with
applicable requirements of the backup withholding rules. The amounts withheld under the backup withholding rules are not an additional
tax and may be refunded, or credited against the U.S. Holder’s U.S. federal income tax liability, provided that the required information
is timely furnished to the IRS. In addition, information returns may be filed with the IRS in connection with the payment on the Trigger
PLUS and the payment of proceeds from a sale, exchange or other disposition of the Trigger PLUS, unless the U.S. Holder provides proof
of an applicable exemption from the information reporting rules.
Tax Consequences to Non-U.S. Holders
This section applies to you only if you
are a Non-U.S. Holder. As used herein, the term “Non-U.S. Holder” means a beneficial owner of a Trigger PLUS that is, for
U.S. federal income tax purposes:
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an individual who is classified as a nonresident alien;
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a foreign corporation; or
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a foreign estate or trust.
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The term “Non-U.S. Holder”
does not include any of the following holders:
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a holder who is an individual present in the United States for 183 days or more in the taxable year of
disposition and who is not otherwise a resident of the United States for U.S. federal income tax purposes;
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certain former citizens or residents of the United States; or
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a holder for whom income or gain in respect of the Trigger PLUS is effectively connected with the conduct
of a trade or business in the United States.
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Such holders should consult their tax
advisers regarding the U.S. federal income tax consequences of an investment in the Trigger PLUS.
Tax Treatment upon Sale, Exchange
or Settlement of the Trigger PLUS
In
general. Assuming the treatment of the Trigger PLUS as set forth above is respected,
and subject to the discussions below concerning backup withholding and the possible application of Section 871(m) of the Code and
the discussion above concerning the possible application of Section 897 of the Code, a Non-U.S.
Holder of the Trigger PLUS generally will not be subject to U.S. federal income or withholding
tax in respect of amounts paid to the Non-U.S. Holder.
Subject to the discussions regarding
the possible application of Sections 871(m) and 897 of the Code and FATCA, if all or any portion of a Trigger PLUS were recharacterized
as a debt instrument, any payment made to a Non-U.S. Holder with respect to the Trigger PLUS would not be subject to U.S. federal withholding
tax, provided that:
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the Non-U.S. Holder does not own, directly or by attribution, ten percent or more of the total combined
voting power of all classes of Morgan Stanley stock entitled to vote;
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the Non-U.S. Holder is not a controlled foreign corporation related, directly or indirectly, to Morgan
Stanley through stock ownership;
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the Non-U.S. Holder is not a bank receiving interest under Section 881(c)(3)(A) of the Code, and
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the certification requirement described below has been fulfilled with respect to the beneficial owner.
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Certification Requirement.
The certification requirement referred to in the preceding paragraph will be fulfilled if the beneficial owner of a Trigger PLUS (or a
financial institution holding a Trigger PLUS on behalf of the beneficial owner) furnishes to the applicable withholding agent an IRS Form
W-8BEN (or other appropriate form) on which the beneficial owner certifies under penalties of perjury that it is not a U.S. person.
In 2007, the U.S. Treasury Department
and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts”
and similar instruments. Among the issues addressed in the notice is the degree, if any, to which any income with respect to instruments
such as the Trigger PLUS should be subject to U.S. withholding tax. It is possible that any Treasury regulations or other guidance promulgated
after consideration of this issue could materially and adversely affect the withholding tax consequences of ownership and disposition
of the Trigger PLUS, possibly on a retroactive basis. Non-U.S. Holders should note that we currently do not intend to withhold on any
payment made with respect to the Trigger PLUS to Non-U.S. Holders (subject to compliance by such holders with the certification requirement
described above and to the discussions below regarding Section 871(m) and FATCA). However, in the event of a change of law or any formal
or informal guidance by the IRS, the U.S. Treasury Department or Congress, we may decide to withhold on payments made with respect to
the Trigger PLUS to Non-U.S. Holders, and we will not be required to pay any additional amounts with respect to amounts withheld. Accordingly,
Non-U.S. Holders should consult their tax advisers regarding all aspects of the U.S. federal income tax consequences of an investment
in the Trigger PLUS, including the possible implications of the notice referred to above.
Section 871(m) Withholding Tax
on Dividend Equivalents
Section 871(m) of the Code 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, 2023 that do not have a delta of one with respect to any Underlying Security.
Based on the terms of the Trigger PLUS and current market conditions, we expect that the Trigger PLUS will not have a delta of one with
respect to any Underlying Security on the pricing date. However, we will
provide an updated determination in the
final pricing supplement. Assuming that the Trigger PLUS do not have a delta of one with respect to any Underlying Security, our counsel
is of the opinion that the Trigger PLUS 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 Section 871(m) 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 Trigger PLUS.
U.S. Federal Estate Tax
Individual Non-U.S. Holders and entities
the property of which is potentially includible in such an individual’s gross estate for U.S. federal estate tax purposes (for example,
a trust funded by such an individual and with respect to which the individual has retained certain interests or powers), should note that,
absent an applicable treaty exemption, the Trigger PLUS may be treated as U.S. situs property subject to U.S. federal estate tax. Prospective
investors that are non-U.S. individuals, or are entities of the type described above, should consult their tax advisers regarding the
U.S. federal estate tax consequences of an investment in the Trigger PLUS.
Backup Withholding and Information
Reporting
Information returns may be filed with
the IRS in connection with the payment on the Trigger PLUS at maturity as well as in connection with the payment of proceeds from a sale,
exchange or other disposition of the Trigger PLUS. A Non-U.S. Holder may be subject to backup withholding in respect of amounts paid to
the Non-U.S. Holder, unless such Non-U.S. Holder complies with certification procedures to establish that it is not a U.S. person for
U.S. federal income tax purposes or otherwise establishes an exemption. Compliance with the certification procedures described above under
“―Tax Treatment upon Sale, Exchange or Settlement of the Trigger PLUS – Certification Requirement” will satisfy
the certification requirements necessary to avoid backup withholding as well. The amount of any backup withholding from a payment to a
Non-U.S. Holder will be allowed as a credit against the Non-U.S. Holder’s U.S. federal income tax liability and may entitle the
Non-U.S. Holder to a refund, provided that the required information is timely furnished to the IRS.
FATCA
Legislation commonly referred to as “FATCA”
generally imposes a withholding tax of 30% on payments to certain non-U.S. entities (including financial intermediaries) with respect
to certain financial instruments, unless various U.S. information reporting
and due diligence requirements have been
satisfied. An intergovernmental agreement between the United States and the non-U.S. entity’s jurisdiction may modify these requirements.
FATCA generally applies to certain financial instruments that are treated as paying U.S.-source interest or other U.S.-source “fixed
or determinable annual or periodical” income (“FDAP income”). If the Trigger PLUS were recharacterized as debt instruments,
FATCA would apply to any payment of amounts treated as interest and to payments of gross proceeds of the disposition (including upon retirement)
of the Trigger PLUS. However, under proposed regulations (the preamble to which specifies that taxpayers are permitted to rely on them
pending finalization), no withholding will apply on payments of gross proceeds (other than amounts treated as FDAP income). If withholding
were to apply to the Trigger PLUS, we would not be required to pay any additional amounts with respect to amounts withheld. Both U.S.
and Non-U.S. Holders should consult their tax advisers regarding the potential application of FATCA to the Trigger PLUS.
The discussion in the preceding paragraphs
under “United States Federal Taxation,” insofar as it purports to describe provisions of U.S. federal income tax laws or legal
conclusions with respect thereto, constitutes the full opinion of Davis Polk & Wardwell LLP regarding the material U.S. federal income
tax consequences of an investment in the Trigger PLUS.