Free Writing Prospectus No. 2,089
Registration Statement Nos. 333-221595;
333-221595-01
Dated May 31, 2019
Filed Pursuant to Rule 433
Morgan Stanley Finance LLC Trigger Yield Notes
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Based on 3-Month USD LIBOR
due June 5, 2020
Fully and Unconditionally Guaranteed by
Morgan Stanley
Principal at Risk Securities
The Trigger Yield Notes (the “Securities”) are unsecured
and unsubordinated debt obligations of Morgan Stanley Finance LLC (“MSFL”) and are fully and unconditionally guaranteed
by Morgan Stanley. The Securities provide a return based on the performance of 3-Month USD LIBOR (the “Reference Rate”).
The terms of the Securities differ from those of ordinary debt securities. Ordinary floating rate debt securities linked to an
interest rate typically provide for the return of principal at maturity, subject to our credit risk, and the payment of interest
that depends on the interest rate to which such securities are linked. Any decline in such interest rate would potentially affect
the interest payable on such securities, but would not adversely affect the payment at maturity. The Securities do not pay interest
based on the Reference Rate and, unlike ordinary debt securities, do not guarantee the repayment of any principal at maturity.
Instead, on each quarterly Coupon Payment Date, MSFL will make a Quarterly Coupon payment regardless of the performance of the
Reference Rate. If the Reference Rate on the Final Valuation Date (the “Final Reference Rate”) is greater than or equal
to the Downside Threshold (which is 50% to 53% of the Initial Reference Rate, as set on the Trade Date), MSFL will make a cash
payment to you at maturity equal to the principal amount of your Securities, in addition to the Quarterly Coupon otherwise due.
However, if the Final Reference Rate is less than the Downside Threshold, MSFL will pay you significantly less than the full principal
amount, if anything, at maturity, resulting in a loss on your principal amount that is proportionate to the negative Reference
Rate Return from the Trade Date to the Final Valuation Date, in addition to the Quarterly Coupon otherwise due. In this case, you
will have full downside exposure to the Reference Rate from the Initial Reference Rate to the Final Reference Rate and could lose
some or all of your initial investment in the Securities. The Securities may be appropriate for investors who seek an opportunity
for income at a potentially above-market rate in exchange for the risk of losing their principal at maturity based on changes in
the Reference Rate. You will not participate in any appreciation of the Reference Rate.
Investing in the Securities involves
significant risks. You will lose a significant portion or all of your principal amount at maturity if the Final Reference Rate
is less than the Downside Threshold. If the Final Reference Rate is less than the Downside Threshold, the payment at maturity will
be based on the percentage change of the Reference Rate from the Initial Reference Rate to the Final Reference Rate, and a very
small absolute percentage point change in the Reference Rate can result in a significant loss on the Securities. For example, assuming
a hypothetical Initial Reference Rate of 2.50000% and a hypothetical Downside Threshold of 1.32500% (53% of the hypothetical Initial
Reference Rate), if the Final Reference Rate were to decline by only 1.75000 percentage points to 0.75000%, while the absolute
percentage point change in the Reference Rate is only 1.75000%, that movement actually represents a 70% decline from the hypothetical
Initial Reference Rate to the hypothetical Final Reference Rate, and you would lose 70% of your principal. You will lose all of
your principal amount at maturity if the Final Reference Rate is zero or negative. Generally, the higher the Coupon Rate for the
Securities, the greater risk of loss on those Securities. Your return potential on the Securities is limited to the Quarterly Coupons
payable on the Securities, and you will not participate in any increase in the Reference Rate. If you are able to sell the Securities
prior to maturity, you may receive substantially less than the principal amount even if the level of the Reference Rate is greater
than the Downside Threshold at the time of sale.
All payments are subject to our credit risk. If we default
on our obligations, you could lose a significant portion 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.
q
Quarterly Coupon:
On each Coupon Payment Date, MSFL will pay you the Quarterly Coupon regardless of the performance of the
Reference Rate.
q
Downside Exposure with Contingent Repayment of Principal at Maturity:
If the Final Reference Rate is greater than or equal
to the Downside Threshold, MSFL will make a cash payment to you at maturity equal to the principal amount of your Securities, in
addition to the Quarterly Coupon otherwise due. However, if the Final Reference Rate is less than the Downside Threshold, MSFL
will repay less than the principal amount, if anything, at maturity, resulting in a loss on your principal amount that is proportionate
to the negative Reference Rate Return from the Trade Date to the Final Valuation Date, in addition to the Quarterly Coupon otherwise
due. The Final Reference Rate is observed relative to the Downside Threshold only on the Final Valuation Date. If you are able
to sell the Securities prior to maturity, you may receive substantially less than the principal amount even if the level of the
Reference Rate is greater than the Downside Threshold at the time of sale. Any payment on the Securities is subject to our creditworthiness.
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Trade Date
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June 4, 2019
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Settlement Date
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June 6, 2019
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Coupon Payment Dates
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Quarterly. See “Coupon Payment Dates” on page 4 for details.
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Final Valuation Date**
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June 2, 2020
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Maturity Date**
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June 5, 2020
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*
Expected. In the event that we make any change to the expected Trade Date and Settlement Date, we may change the Coupon Payment Dates, the Final Valuation Date and/or the Maturity Date so that the stated term of the Securities remains the same.
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** Subject to postponement if the Final Valuation Date is not a London banking day. See “Postponement of Final Valuation Date and Maturity Date” under “Additional Terms of the Securities.”
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NOTICE TO INVESTORS: THE SECURITIES ARE SIGNIFICANTLY RISKIER
THAN CONVENTIONAL DEBT INSTRUMENTS. THE SECURITIES DO NOT GUARANTEE THE REPAYMENT OF THE FULL PRINCIPAL AMOUNT AT MATURITY, AND
THE SECURITIES CAN HAVE DOWNSIDE MARKET RISK SIMILAR TO THE REFERENCE RATE. THIS MARKET RISK IS IN ADDITION TO THE CREDIT RISK
INHERENT IN PURCHASING OUR DEBT OBLIGATIONS. YOU SHOULD NOT PURCHASE THE SECURITIES IF YOU DO NOT UNDERSTAND OR ARE NOT COMFORTABLE
WITH THE SIGNIFICANT RISKS INVOLVED IN INVESTING IN THE SECURITIES. THE SECURITIES WILL NOT BE LISTED ON ANY SECURITIES EXCHANGE.
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED UNDER “KEY
RISKS” BEGINNING ON PAGE 6 BEFORE PURCHASING ANY SECURITIES. EVENTS RELATING TO ANY OF THOSE RISKS, OR OTHER RISKS AND UNCERTAINTIES,
COULD ADVERSELY AFFECT THE MARKET VALUE OF, AND THE RETURN ON, YOUR SECURITIES. YOU MAY LOSE A SIGNIFICANT PORTION OR ALL OF YOUR
PRINCIPAL AMOUNT.
This free writing prospectus relates to Trigger Yield Notes Based
on 3-Month USD LIBOR. The Initial Reference Rate and Downside Threshold will be determined on the Trade Date. The Initial Reference
Rate will be the Reference Rate on the Trade Date. The Securities are offered at a minimum investment of $1,000 and integral multiples
thereof.
Reference
Rate
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Coupon
Rate
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Initial
Reference Rate
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Downside
Threshold*
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CUSIP
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ISIN
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3-Month USD LIBOR
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8.00% per annum. Each Quarterly Coupon will be a fixed amount based on equal quarterly installments at the Coupon Rate.
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50% to 53% of the
Initial Reference Rate
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61766YDW8
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US61766YDW84
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*The actual Downside Threshold will be determined on the Trade
Date.
See “Additional Information about Morgan Stanley, MSFL
and the Securities” on page 2. The Securities will have the terms set forth in the accompanying prospectus and prospectus
supplement and this free writing prospectus.
Neither the Securities and Exchange Commission nor any other
regulatory body has approved or disapproved of these Securities or passed upon the adequacy or accuracy of this free writing prospectus
or the accompanying prospectus supplement or prospectus. 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.
Estimated value on the Trade Date
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Approximately $936.40 per Security, or within $21.40 of that estimate. See “Additional Information about Morgan Stanley and the Securities” on page 2.
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Price to Public
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Underwriting Discount
(1)
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Proceeds to Us
(2)
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Per Security
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$1,000
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$15
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$985
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Total
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$
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$
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$
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(1) UBS Financial Services Inc., acting
as dealer, will receive from Morgan Stanley & Co. LLC, the agent, a fixed sales commission of $15 for each Security it sells.
For more information, please see “Supplemental Plan of Distribution; Conflicts of Interest” on page 22 of this free
writing prospectus.
(2) See “Use of Proceeds and Hedging”
on page 20.
The agent for this offering, Morgan Stanley & Co. LLC (“MS
& Co.”), is our affiliate and a wholly owned subsidiary of Morgan Stanley. See “Supplemental Plan of Distribution;
Conflicts of Interest” on page 22 of this free writing prospectus.
Morgan Stanley
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UBS Financial Services Inc.
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Additional Information about Morgan Stanley, MSFL and the Securities
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Morgan Stanley and MSFL have filed a registration statement (including
a prospectus, as supplemented by a prospectus supplement) with the SEC for the offering to which this communication relates. Before
you invest, you should read the prospectus in that registration statement, the prospectus supplement and any other documents relating
to this offering that Morgan Stanley and MSFL have filed with the SEC for more complete information about Morgan Stanley, MSFL
and this offering. You may get these documents for free by visiting EDGAR on the SEC website at.www.sec.gov. Alternatively, Morgan
Stanley, MSFL, any underwriter or any dealer participating in this offering will arrange to send you the prospectus and the prospectus
supplement if you so request by calling toll-free 1-(800)-584-6837.
You may access the accompanying prospectus supplement and prospectus
on the SEC website at.www.sec.gov as follows:
References to “MSFL” refer to
only MSFL, references to “Morgan Stanley” refer to only Morgan Stanley and references to “we,” “our”
and “us” refer to MSFL and Morgan Stanley collectively. In this document, the “Securities” refers to the
Trigger Yield Notes that are offered hereby. Also, references to the accompanying “prospectus” and “prospectus
supplement” mean the prospectus filed by MSFL and Morgan Stanley dated November 16, 2017 and the prospectus supplement filed
by MSFL and Morgan Stanley dated November 16, 2017, respectively.
You should rely only on the information incorporated by reference
or provided in this free writing prospectus or the accompanying prospectus supplement and prospectus. We have not authorized anyone
to provide you with different information. We are not making an offer of these Securities in any state where the offer is not permitted.
You should not assume that the information in this free writing prospectus or the accompanying prospectus supplement and prospectus
is accurate as of any date other than the date on the front of this document.
If the terms discussed in this free writing prospectus differ
from those discussed in the prospectus supplement or prospectus, the terms contained in this free writing prospectus will control.
The 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 Trade Date will be less than $1,000. We estimate that the value of each Security on the
Trade Date will be approximately $936.40, or within $21.40 of that estimate. Our estimate of the value of the Securities as determined
on the Trade Date will be set forth in the final pricing supplement.
What goes into the estimated value on the Trade Date?
In valuing the Securities on the Trade Date, we take into account
that the Securities comprise both a debt component and a performance-based component linked to LIBOR. The estimated value of the
Securities is determined using our own pricing and valuation models, market inputs and assumptions relating to LIBOR, instruments
based on LIBOR, 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 Coupon Rate and the Downside Threshold, 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
Trade 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 LIBOR, may vary from, and be lower than, the
estimated value on the Trade 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.
MS & Co. currently intends, 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.
Investor Suitability
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The Securities may be suitable for you if:
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The Securities may not be suitable for you if:
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You fully understand the risks inherent in an investment in the Securities, including the risk of loss of your entire initial
investment.
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You can tolerate a loss of all or a substantial portion of your investment and are willing to make an investment that may
have the same downside market risk as the Reference Rate.
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You understand that a very small percentage point decrease in the Reference Rate from the Initial Reference Rate to the
Final Reference Rate can result in a significant loss on the Securities and that an investment in the Securities involves significant
risks.
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You believe that the Final Reference Rate is not likely to be less than the Downside Threshold and, if it is, you can tolerate
a loss of all or a substantial portion of your investment.
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You understand and accept that you will not participate in any increase in the Reference Rate, which may be significant,
and that your potential return is limited to the Quarterly Coupons paid on the Securities.
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You would be willing to invest in the Securities if the Downside Threshold were set equal to the top of the range indicated
on the cover (the actual Downside Threshold for the Securities will be determined on the Trade Date).
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You can tolerate fluctuations in the price of the Securities prior to maturity that may be similar to or exceed the downside
fluctuations in the Reference Rate.
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You are willing and able to hold the Securities to maturity, as set forth on the cover of this free writing prospectus.
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You understand and accept the risks associated with the Reference Rate.
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You accept that there may be little or no secondary market for the Securities and that any secondary market will depend
in large part on the price, if any, at which MS & Co. is willing to trade the Securities.
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You understand the factors that influence the Reference Rate and interest rates generally, and you understand and are willing
to accept the risks associated with the Reference Rate.
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You are willing to assume our credit risk, and understand that if we default on our obligations you may not receive any
amounts due to you and could lose your entire investment.
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You do not fully understand the risks inherent in an investment in the Securities, including the risk of loss of your entire
initial investment.
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You cannot tolerate a loss of all or a substantial portion of your investment, and are unwilling to make an investment
that may have the same downside market risk as the Reference Rate.
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You do not seek an investment for which a very small percentage point decrease in the Reference Rate from the Initial Reference
Rate to the Final Reference Rate can result in a significant loss on the Securities and that an investment in the Securities involves
significant risks.
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You believe that the Final Reference Rate is likely to be less than the Downside Threshold and, if it is, you cannot tolerate
a loss of all or a substantial portion of your investment.
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You seek an investment that participates in the full amount of any increase in the Reference Rate and whose return is not
limited to the Quarterly Coupons paid on the Securities.
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You would be unwilling to invest in the Securities if the Downside Threshold were set equal to the top of the range indicated
on the cover (the actual Downside Threshold for the Securities will be determined on the Trade Date).
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You cannot tolerate fluctuations in the price of the Securities prior to maturity that may be similar to or exceed the
downside fluctuations in the Reference Rate.
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You are unable or unwilling to hold the Securities to maturity, as set forth on the cover of this free writing prospectus,
or you seek an investment for which there will be an active secondary market.
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You do not understand the factors that influence the Reference Rate or interest rates generally, or you do not understand
or are not willing to accept the risks associated with the Reference Rate.
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You prefer the lower risk, and therefore accept the potentially lower returns, of fixed income investments with comparable
maturities and credit ratings.
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You are not willing to assume our credit risk for all payments under the Securities, including any repayment of principal.
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The investor suitability considerations identified above are
not exhaustive. Whether or not the Securities are a suitable investment for you will depend on your individual circumstances, and
you should reach an investment decision only after you and your investment, legal, tax, accounting and other advisors have carefully
considered the suitability of an investment in the Securities in light of your particular circumstances. You should also review
carefully the sections entitled “Key Risks” on page 6 of this free writing prospectus and “Risk Factors”
beginning on page 5 of the accompanying prospectus for risks related to an investment in the Securities.
Indicative
Terms
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Issuer
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Morgan Stanley Finance LLC
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Guarantor
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Morgan Stanley
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Issue Price
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$1,000 per Security
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Principal Amount
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$1,000 per Security
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Term
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Approximately 1 year
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Reference Rate
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3-Month USD LIBOR. See “Additional Terms of the Securities—LIBOR.”
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Quarterly Coupon
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Each Quarterly Coupon will be a fixed amount based on equal quarterly installments at the Coupon Rate, which is a per-annum rate, regardless of the performance of the Reference Rate. The Quarterly Coupon amount of $20.00 (8.00% per annum) is applicable to each Coupon Payment Date.
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Payment at Maturity (per Security)
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MSFL will pay you a cash payment on the Maturity Date linked
to the performance of the Reference Rate during the term of the Securities, as follows:
·
If the Final Reference Rate is greater than or equal to the Downside Threshold
, MSFL will pay you the $1,000 Principal
Amount plus the Quarterly Coupon otherwise due.
·
If the Final Reference Rate is less than the Downside Threshold
, in addition to the Quarterly Coupon otherwise due,
MSFL will pay you an amount calculated as follows:
$1,000 + ($1,000 × Reference Rate Return)
In this case, you will lose a significant portion and could lose
all of the Principal Amount by an amount proportionate to the negative Reference Rate Return from the Trade Date to the Final Valuation
Date.
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Coupon Payment Dates
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Quarterly, on September 5, 2019, December 5, 2019, March 5, 2020 and the Maturity Date
provided
that if any such day is not a business day, that interest payment will be made on the next succeeding business day and no adjustment will be made to any interest payment made on that succeeding business day
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Reference Rate Return
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Final Reference Rate – Initial Reference
Rate
Initial Reference Rate
In no event, however, will the Reference Rate Return be less
than -100%.
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Initial Reference Rate
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The Reference Rate on the Trade Date
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Final Reference Rate
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The Reference Rate on the Final Valuation Date
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Downside Threshold
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50% to 53% of the Initial Reference Rate. The actual Downside Threshold will be set on the Trade Date.
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Trustee
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The Bank of New York Mellon
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Calculation Agent
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Morgan Stanley Capital Services LLC (“MSCS”)
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Investment
Timeline
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Trade Date
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The Initial Reference Rate and the Downside Threshold are determined.
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Quarterly Coupon
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MSFL will pay you the applicable Quarterly Coupon.
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Maturity Date
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The Final Reference Rate and the Reference Rate Return are determined
on the Final Valuation Date.
If the Final Reference Rate is greater than or equal to the
Downside Threshold
, MSFL will pay you the $1,000 Principal Amount plus the Quarterly Coupon otherwise due.
If the Final Reference Rate is less than the Downside Threshold
,
in addition to the Quarterly Coupon otherwise due, MSFL will pay you an amount calculated as follows:
$1,000 + ($1,000 × Reference Rate Return)
In this case, you will lose a significant portion and could lose
all of the Principal Amount by an amount proportionate to the negative Reference Rate Return from the Trade Date to the Final Valuation
Date.
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INVESTING IN THE SECURITIES INVOLVES SIGNIFICANT RISKS. YOU
WILL LOSE A SIGNIFICANT PORTION OR ALL OF YOUR PRINCIPAL AMOUNT AT MATURITY IF THE FINAL REFERENCE RATE IS LESS THAN THE DOWNSIDE
THRESHOLD. IF THE FINAL REFERENCE RATE IS LESS THAN THE DOWNSIDE THRESHOLD, THE PAYMENT AT MATURITY WILL BE BASED ON THE PERCENTAGE
CHANGE OF THE REFERENCE RATE FROM THE INITIAL REFERENCE RATE TO THE FINAL REFERENCE RATE, AND A VERY SMALL ABSOLUTE PERCENTAGE
POINT CHANGE IN THE REFERENCE RATE CAN RESULT IN A SIGNIFICANT LOSS ON THE SECURITIES. FOR EXAMPLE, ASSUMING A HYPOTHETICAL INITIAL
REFERENCE RATE OF 2.50000% AND A HYPOTHETICAL DOWNSIDE THRESHOLD OF 1.32500% (53% OF THE HYPOTHETICAL INITIAL REFERENCE RATE),
IF THE FINAL REFERENCE RATE WERE TO DECLINE BY ONLY 1.75000 PERCENTAGE POINTS TO 0.75000%, WHILE THE ABSOLUTE PERCENTAGE POINT
CHANGE IN THE REFERENCE RATE IS ONLY 1.75000%, THAT MOVEMENT ACTUALLY REPRESENTS A 70% DECLINE FROM THE HYPOTHETICAL INITIAL REFERENCE
RATE TO THE HYPOTHETICAL FINAL REFERENCE RATE, AND YOU WOULD LOSE 70% OF YOUR PRINCIPAL. YOU WILL LOSE ALL OF YOUR PRINCIPAL AMOUNT
AT MATURITY IF THE FINAL REFERENCE RATE IS ZERO OR NEGATIVE. GENERALLY, THE HIGHER THE COUPON RATE FOR THE SECURITIES, THE GREATER
RISK OF LOSS ON THOSE SECURITIES. YOUR RETURN POTENTIAL ON THE SECURITIES IS LIMITED TO THE QUARTERLY COUPONS PAYABLE ON THE SECURITIES,
AND YOU WILL NOT PARTICIPATE IN ANY INCREASE IN THE REFERENCE RATE. IF YOU ARE ABLE TO SELL THE SECURITIES PRIOR TO MATURITY, YOU
MAY RECEIVE SUBSTANTIALLY LESS THAN THE PRINCIPAL AMOUNT EVEN IF THE LEVEL OF THE REFERENCE RATE IS GREATER THAN THE DOWNSIDE THRESHOLD
AT THE TIME OF SALE. 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.
An investment in the Securities involves significant risks. Some
of the risks that apply to the Securities are summarized here, but we urge you to also read the “Risk Factors” section
of the accompanying prospectus. You should also consult your investment, legal, tax, accounting and other advisers before you invest
in the Securities.
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The Securities do not guarantee the return of any principal –
The terms of the Securities differ from those of
ordinary debt securities. Ordinary floating rate debt securities linked to an interest rate typically provide for the return of
principal at maturity, subject to our credit risk, and the payment of interest that depends on the interest rate to which such
securities are linked. Any decline in such interest rate would potentially affect the interest payable on such securities, but
would not adversely affect the payment at maturity. The Securities do not pay interest based on the Reference Rate and, unlike
ordinary debt securities, do not guarantee the repayment of any principal at maturity. Instead, if the Final Reference Rate is
less than the Downside Threshold, MSFL will pay you significantly less than the full principal amount, if anything, at maturity,
resulting in a loss on your principal amount that is proportionate to the negative Reference Rate Return from the Trade Date to
the Final Valuation Date, in addition to the Quarterly Coupon otherwise due. In this case, you will have full downside exposure
to the Reference Rate from the Initial Reference Rate to the Final Reference Rate and could lose some or all of your initial investment
in the Securities.
Investing in the Securities involves significant risks. For example, assuming a hypothetical Initial Reference
Rate of 2.50000% and a hypothetical Downside Threshold of 1.32500% (53% of the hypothetical Initial Reference Rate), if the Final
Reference Rate were to decline by only 1.75000 percentage points to 0.75000%, while the absolute percentage point change in the
Reference Rate is only 1.75000%, that movement actually represents a 70% decline from the hypothetical Initial Reference Rate to
the hypothetical Final Reference Rate, and you would lose 70% of your principal. You will lose all of your principal amount at
maturity if the Final Reference Rate is zero or negative.
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Your potential return on the Securities is limited to the Quarterly Coupons paid on the Securities, and you will not participate
in any increase in the Reference Rate –
The potential return on the Securities is limited to the Quarterly Coupons, regardless
of any increase in the Reference Rate. You may be subject to the decline in the Reference Rate even though you will not participate
in any increase in the Reference Rate. As a result, the return on an investment in the Securities could be less than the return
on a direct investment in the Reference Rate.
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A higher Coupon Rate and/or a lower Downside Threshold may reflect greater expected volatility of the Reference Rate, which
is generally associated with a greater risk of loss –
Volatility is a measure of the degree of variation in the Reference
Rate over a period of time. The greater the expected volatility at the time the terms of the Securities are set, the greater the
expectation is at that time that you may lose some or all of your principal at maturity. Further, the economic terms of the Securities,
including the Coupon Rate and the Downside Threshold, are based, in part, on the expected volatility of the Reference Rate at the
time the terms of the Securities are set, where higher expected volatility will generally be reflected in a higher Coupon Rate
and/or a lower Downside Threshold as compared to otherwise comparable securities. Accordingly, a higher Coupon Rate will generally
be indicative of a greater risk of loss while a lower Downside Threshold does not necessarily indicate that the Securities have
a greater likelihood of returning your principal at maturity. In addition, and as described above in “The Securities do not
guarantee the return of any principal,” in general, the higher potential return on the Securities as compared to the return
payable on our ordinary debt securities with a comparable maturity indicates the risk that you may not receive a positive return
on the Securities and may lose a significant portion or all of your investment. You should be willing to accept the downside market
risk of the Reference Rate and the potential to lose a significant portion or all of your Principal Amount at maturity.
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Your return on the Securities (excluding Quarterly Coupons) is based on the performance of the Reference Rate, which may
decline significantly during the term of the Securities, or may become negative –
The Reference Rate may decline significantly
during the term of the Securities, or may become negative, as a result of the factors described under “—The Reference
Rate will be affected by a number of factors and may be volatile” below. An investment in the Securities is highly risky.
You should not invest in the Securities if you do not understand the Reference Rate or interest rates generally.
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The historical performance of the Reference Rate is not an indication of future performance –
The historical performance
of the Reference Rate should not be taken as an indication of future performance during the term of the Securities. Changes in
the levels of the Reference Rate will affect the trading price of the Securities, but it is impossible to predict whether such
levels will rise or fall.
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Reform of LIBOR
–
LIBOR is the subject of recent national, international and other
regulatory guidance and proposals for reform. Some of these reforms are already effective while others are still to be implemented.
These reforms may cause LIBOR to perform differently than in the past, or to disappear entirely, or have other consequences which
cannot be predicted. Any such consequence could have a material adverse effect on the Securities.
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Any
of the international, national or other proposals for reform or the general increased regulatory scrutiny of LIBOR could increase
the costs and risks of administering or otherwise participating in the setting of LIBOR and complying with any such regulations
or requirements. Such factors may have the effect of discouraging market participants from continuing to administer or participate
in LIBOR, trigger changes in the rules or methodologies used in LIBOR or
lead
to the disappearance of LIBOR. The disappearance of LIBOR or changes in the manner of administration of LIBOR could have materially
adverse consequences in relation to the Securities.
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Potential replacement of LIBOR may adversely affect the return on the Securities and their secondary market prices –
Central banks around the world, including the U.S. Federal Reserve, have commissioned working groups that include market participants
(the “Alternative Rate Committees”) with the goal of finding suitable replacements for their currency’s LIBOR
that are based on observable market transactions. The search for replacements accelerated after the Financial Stability Board reported
that uncertainty surrounding the integrity of LIBOR represents a potentially serious systemic vulnerability and risk due to limited
transactions in the underlying inter-bank lending market. In July 2017, the Chief Executive of the United Kingdom Financial Conduct
Authority (the “FCA”), which regulates LIBOR, called for an orderly transition over a 4-5 year period from LIBOR to
the reference rates selected by the Alternative Rate Committees. The FCA’s announcement stated that it expects that it would
not be in a position to sustain LIBOR through its influence or legal compulsion powers after the end of 2021. Any transition away
from LIBOR, as well as the uncertainty surrounding the future of LIBOR and future regulatory and market developments, could have
a materially adverse effect on the return on the Securities and their secondary market prices. See also “Key Risks—Reform
of LIBOR” herein.
|
|
¨
|
You may incur a loss on your investment if you sell your Securities prior to maturity –
You should be willing
to hold your Securities to maturity. If you are able to sell your Securities prior to maturity in the secondary market, you may
have to sell them at a loss relative to your initial investment even if the Final Reference Rate is greater than the Downside Threshold
at the time of sale.
|
|
¨
|
The probability that the Final Reference Rate will be less than the Downside Threshold will depend on the volatility of
the Reference Rate –
Volatility is a measure of the degree of variation in the Reference Rate over a period of time.
The greater the expected volatility at the time the terms of the Securities are set, the greater the expectation is at that time
that the Final Reference Rate will be less than the Downside Threshold, which would result in a loss of all or a substantial portion
of your investment of your principal at maturity. However, the Reference Rate’s volatility can change significantly over
the term of the Securities. The Reference Rate could fall sharply, which could result in a significant loss of principal. You should
be willing to accept the downside market risk of the Reference Rate and the potential to lose a significant portion or all of your
principal amount at maturity.
|
|
¨
|
The Securities are subject to our credit risk, and any actual or anticipated changes to our credit ratings or our 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, including Quarterly Coupons and 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 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.
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|
¨
|
The Securities will not be listed on any securities exchange and secondary trading may be limited –
The Securities
will not be listed on any securities exchange. Therefore, there may be little or no secondary market for the Securities. MS &
Co. currently intends, but is not obligated, make a market in 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. Because we do not expect that other broker-dealers will 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.
|
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¨
|
The Final Reference Rate is not based on the Reference Rate at any time other than the Final Valuation Date –
The Final Reference Rate will be based on the Reference Rate on the Final Valuation Date and the payment at maturity will be based
on the Final Reference Rate as compared to the Initial Reference Rate. Therefore, if the Reference Rate has declined as of the
Final Valuation Date, the payment at maturity may be significantly less than it would otherwise have been had the Final Reference
Rate been determined at a time prior to such decline or after the Reference Rate has recovered. Although the Reference Rate on
the Maturity Date or at other times during the term of the Securities may be higher than the Reference Rate on the Final Valuation
Date, the payment at maturity will be based solely on the Reference Rate on the Final Valuation Date as compared to the Initial
Reference Rate.
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|
¨
|
The market price of the Securities may be influenced by many unpredictable factors –
Several factors, many of
which are beyond our control, will influence the value of the Securities and the price, if any, at which your broker may be willing
to purchase or sell the Securities, including, but not limited to: (i) actual or anticipated changes in the level of the Reference
Rate, (ii) volatility of the level of the Reference Rate, (iii) changes in interest and yield rates, (iv) any actual or anticipated
changes in our credit ratings or credit spreads and (v) time remaining to maturity. This can lead to significant adverse changes
in the market price of the Securities. If you are able to sell the Securities prior to maturity, you may receive substantially
less than the principal amount even if the level of the Reference Rate is greater than the Downside Threshold at the time of sale.
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¨
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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 Issue Price reduce the economic terms of the Securities, cause
the estimated value of the Securities to be less than the 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 Issue
Price, because secondary market prices will exclude the issuing, selling, structuring and hedging-related costs that are included
in the 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 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.
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¨
|
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 Trade Date does not represent a minimum or maximum price
at which dealers, including MS & Co., would be willing to purchase your Securities in the secondary market (if any exists)
at any time. The value of your Securities at any time after the date of this free writing prospectus 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 of the Securities may be influenced by many unpredictable factors” above.
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¨
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Morgan Stanley, MSFL, UBS or our or their respective affiliates may publish research that could affect the market value
of the Securities –
Morgan Stanley, MSFL, UBS and our or their respective affiliates also expect to hedge their obligations
under the Securities. Our or their respective affiliates may, at present or in the future, publish research reports with respect
to movements in interest rates generally or the Reference Rate specifically. This research is modified from time to time without
notice to you and may express opinions or provide recommendations that are inconsistent with purchasing or holding the Securities.
Any of these activities may affect the market value of the Securities. In addition, Morgan Stanley, MSFL, UBS or our or their respective
affiliates expect to hedge their obligations under the Securities and they may realize a profit from that expected hedging activity
even if investors do not receive a favorable investment return under the terms of the Securities or in any secondary market transaction.
Investors should make their own independent investigation of the merits of investing in the Securities and the Reference Rate upon
which the Securities are based.
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¨
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The Calculation Agent, which is our affiliate, will make determinations with respect to the Securities –
As Calculation
Agent, MSCS will determine the Initial Reference Rate, the Downside Threshold, the Final Reference Rate and will calculate the
amount payable at maturity. Moreover, certain determinations made by MSCS, in its capacity as Calculation Agent, may require it
to exercise discretion and make subjective judgments, such as with respect to the Reference Rate. These potentially subjective
determinations may adversely affect the payout to you at maturity. For further information regarding these types of determinations,
see “Additional Terms of the Securities—Reference Rate” below. In addition, MS & Co. has determined the estimated
value of the Securities on the Trade Date.
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¨
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Uncertain tax treatment –
There is no direct legal authority as to the proper treatment of the Securities for
U.S. federal income tax purposes, and, therefore, significant aspects of the tax treatment of the Securities are uncertain.
|
Please read the discussion under “What Are the
Tax Consequences of the Securities” in this free writing prospectus concerning the U.S. federal income tax consequences of
an investment in the Securities. We intend to treat a Security for U.S. federal income tax purposes as a unit consisting of (i)
an Option (as defined below under “What Are the Tax Consequences of the Securities”) written by you to us that, if
exercised, requires you to pay to us an amount equal to the Deposit (as defined below under “What Are the Tax Consequences
of the Securities”), in exchange for a cash amount based on the performance of the Reference Rate, and (ii) a Deposit with
us of a fixed amount of cash to secure your obligation under the Option. Alternative U.S. federal income tax treatments of the
Securities are possible, and if the Internal Revenue Service (the “IRS”) were successful in asserting such an alternative
tax treatment for the Securities the timing and the character of income on the Securities might differ significantly from the tax
treatment
described herein. We do not plan to request a ruling
from the IRS regarding the tax treatment of the Securities, and the IRS or a court may not agree with the tax treatment described
herein. Additionally, the risk that financial instruments providing for buffers, triggers or similar downside protection features,
such as the Securities, would be recharacterized as debt is greater than the risk of recharacterization for comparable financial
instruments that do not have such features.
Even if a Security is properly treated as a unit consisting
of an Option and a Deposit, there is uncertainty regarding whether gain or loss recognized upon settlement at maturity should be
treated as short-term capital gain or loss or as ordinary income or loss (which, in the case of loss, might be treated as a non-deductible
“miscellaneous itemized deduction”).
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.
While it is not clear whether the Securities would be viewed as similar to the prepaid forward contracts described in the notice,
it is possible that any Treasury regulations or other guidance issued after consideration of these issues could materially and
adversely affect the tax consequences of an investment in the Securities, possibly with retroactive effect. The notice focuses
on a number of issues, the most relevant of which for holders of the Securities are the character and timing of income or loss
(including whether the entire coupon on the Securities should be required to be included currently as ordinary income) and the
degree, if any, to which income realized by non-U.S. investors should be subject to withholding tax.
Non-U.S. Holders (as defined below) should note that
we currently do not intend to withhold on any payments made with respect to the Securities to Non-U.S. Holders (subject to compliance
by such holders with certification necessary to establish an exemption from withholding and to the discussion under
“
Additional
Provisions
―
Tax considerations
—
FATCA
”
).
However, it is possible in light of the uncertain treatment of the Securities that an applicable withholding agent will withhold
on any of the payments made with respect to the Securities to Non-U.S. Holders. Furthermore, 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 Securities to Non-U.S. Holders and will 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 U.S. federal income tax consequences of an investment in the Securities, including possible alternative
treatments, the issues presented by the IRS notice and any tax consequences arising under the laws of any state, local or non-U.S.
taxing jurisdiction.
Hypothetical
Payments on the Securities at Maturity
|
These examples are based on hypothetical
terms. The actual terms will be determined on the Trade Date.
The examples below illustrate the payment at maturity for a $1,000.00
Security on a hypothetical offering of the Securities, with the following assumptions (the actual terms for the Securities are
listed on the cover hereof or will be determined on the Trade Date; amounts may have been rounded for ease of reference):
Term:
|
Approximately 1 year
|
|
Coupon Rate:
|
8.00% per annum (or 2.00% per quarter)
|
|
Quarterly Coupon:
|
$20.00 per quarter
|
|
Hypothetical Initial Reference Rate:
|
2.50000%
|
|
Hypothetical Downside Threshold:
|
1.32500%, which is 53% of the hypothetical Initial Reference Rate
|
|
Performance of the Reference Rate
|
Performance of the Securities
|
Final Reference Rate
|
Percentage Increase / Decrease of Reference Rate
|
Reference Rate Return
1
|
Payment at Maturity (excluding Quarterly Coupons)
|
Return on Securities Purchased at $1,000 (excluding Quarterly Coupons)
2
|
Payment at Maturity (including Quarterly Coupons)
|
Return on Securities Purchased at $1,000
(including Quarterly Coupons)
2
|
4.50000%
|
80.000%
|
80.000%
|
$1,000.00
|
0.000%
|
$1,080.00
|
8.000%
|
4.25000%
|
70.000%
|
70.000%
|
$1,000.00
|
0.000%
|
$1,080.00
|
8.000%
|
4.00000%
|
60.000%
|
60.000%
|
$1,000.00
|
0.000%
|
$1,080.00
|
8.000%
|
3.75000%
|
50.000%
|
50.000%
|
$1,000.00
|
0.000%
|
$1,080.00
|
8.000%
|
3.50000%
|
40.000%
|
40.000%
|
$1,000.00
|
0.000%
|
$1,080.00
|
8.000%
|
3.25000%
|
30.000%
|
30.000%
|
$1,000.00
|
0.000%
|
$1,080.00
|
8.000%
|
3.00000%
|
20.000%
|
20.000%
|
$1,000.00
|
0.000%
|
$1,080.00
|
8.000%
|
2.87500%
|
15.000%
|
15.000%
|
$1,000.00
|
0.000%
|
$1,080.00
|
8.000%
|
2.75000%
|
10.000%
|
10.000%
|
$1,000.00
|
0.000%
|
$1,080.00
|
8.000%
|
2.62500%
|
5.000%
|
5.000%
|
$1,000.00
|
0.000%
|
$1,080.00
|
8.000%
|
2.50000%
|
0.000%
|
0.000%
|
$1,000.00
|
0.000%
|
$1,080.00
|
8.000%
|
2.37500%
|
-5.000%
|
-5.000%
|
$1,000.00
|
0.000%
|
$1,080.00
|
8.000%
|
2.25000%
|
-10.000%
|
-10.000%
|
$1,000.00
|
0.000%
|
$1,080.00
|
8.000%
|
2.00000%
|
-20.000%
|
-20.000%
|
$1,000.00
|
0.000%
|
$1,080.00
|
8.000%
|
1.87500%
|
-25.000%
|
-25.000%
|
$1,000.00
|
0.000%
|
$1,080.00
|
8.000%
|
1.75000%
|
-30.000%
|
-30.000%
|
$1,000.00
|
0.000%
|
$1,080.00
|
8.000%
|
1.50000%
|
-40.000%
|
-40.000%
|
$1,000.00
|
0.000%
|
$1,080.00
|
8.000%
|
1.32500%
|
-47.000%
|
-47.000%
|
$1,000.00
|
0.000%
|
$1,080.00
|
8.000%
|
1.32490%
|
-47.004%
|
-47.004%
|
$529.96
|
-47.004%
|
$609.96
|
-39.004%
|
1.25000%
|
-50.000%
|
-50.000%
|
$500.00
|
-50.000%
|
$580.00
|
-42.000%
|
1.00000%
|
-60.000%
|
-60.000%
|
$400.00
|
-60.000%
|
$480.00
|
-52.000%
|
0.75000%
|
-70.000%
|
-70.000%
|
$300.00
|
-70.000%
|
$380.00
|
-62.000%
|
0.50000%
|
-80.000%
|
-80.000%
|
$200.00
|
-80.000%
|
$280.00
|
-72.000%
|
0.25000%
|
-90.000%
|
-90.000%
|
$100.00
|
-90.000%
|
$180.00
|
-82.000%
|
0.00000%
|
-100.000%
|
-100.000%
|
$0.00
|
-100.000%
|
$80.00
|
-92.000%
|
-0.25000%
|
-110.000%
|
-100.000%
|
$0.00
|
-100.000%
|
$80.00
|
-92.000%
|
-0.50000%
|
-120.000%
|
-100.000%
|
$0.00
|
-100.000%
|
$80.00
|
-92.000%
|
-0.75000%
|
-130.000%
|
-100.000%
|
$0.00
|
-100.000%
|
$80.00
|
-92.000%
|
-1.00000%
|
-140.000%
|
-100.000%
|
$0.00
|
-100.000%
|
$80.00
|
-92.000%
|
-1.25000%
|
-150.000%
|
-100.000%
|
$0.00
|
-100.000%
|
$80.00
|
-92.000%
|
|
|
|
|
|
|
|
|
1
The Reference Rate Return will not be less than
-100%, even if the Final Reference Rate is negative.
2
This “Return on Securities” is the number,
expressed as a percentage, that results from comparing the Payment at Maturity per $1,000 principal amount Security to the purchase
price of $1,000 per Security.
Example 1 - The Reference Rate increases by 1.25000 percentage
points from the Initial Reference Rate of 2.50000% to a Final Reference Rate of 3.75000%.
The Reference Rate Return is greater
than the Downside Threshold.
Because the Final Reference Rate is greater than or equal to
the Downside Threshold, the Payment at Maturity is equal to $1,000.00
plus
the Quarterly Coupon otherwise due.
The payment at maturity of $1,000 per Security (excluding Quarterly
Coupons) represents a return on the Securities of 0.000%. The total payment on the Securities over their term (including Quarterly
Coupons) is $1,080.00 per Security, representing a total return on the Securities of 8.000%.
Even though the Reference Rate Return is 50.000% in this example,
your return is limited to the Quarterly Coupons paid over the term of the Securities. You will not participate in any increase
in the Reference Rate.
Example 2 - The Reference Rate decreases by 0.50000 percentage
points from the Initial Reference Rate of 2.50000% to a Final Reference Rate of 2.00000%
. The Reference Rate is greater than
the Downside Threshold.
Because the Final Reference Rate is greater than or equal to
the Downside Threshold, the Payment at Maturity is equal to $1,000.00
plus
the Quarterly Coupon otherwise due.
The payment at maturity of $1,000.00 per Security (excluding
Quarterly Coupons) represents a return on the Securities of 0.000%. The total payment on the Securities over their term (including
Quarterly Coupons) is $1,080.00 per Security, representing a total return on the Securities of 8.000%.
Example 3 - The Reference Rate decreases by 1.75000 percentage
points from the Initial Reference Rate of 2.50000% to a Final Reference Rate of 0.75000%.
The Reference Rate Return is less
than the Downside Threshold and expressed as a formula:
$1,000.00 + ($1,000.00 × Reference
Rate Return)
$1,000.00 + ($1,000.00 × -70.000%)
= $1,000.00 + -$700 = $300.00
Because the Final Reference Rate is less than the Downside Threshold,
in addition to the Quarterly Coupon otherwise due, the payment at maturity is equal to $300.00 per Security (excluding Quarterly
Coupons), resulting in a total loss on the Securities of 70.000%. The total payment on the Securities over their term (including
Quarterly Coupons) is $380.00 per Security, representing a total return on the Securities of -62.000%.
As this example illustrates, if the Final Reference Rate is less
than the Downside Threshold, the payment at maturity will be based on the percentage change of the Reference Rate from the Initial
Reference Rate to the Final Reference Rate and a very small absolute percentage point change in the Reference Rate can result in
a significant loss on the Securities. In this example, while the absolute percentage point change in the Reference Rate is only
1.75000%, that movement actually represents a 70% decline from the Initial Reference Rate to the Final Reference Rate, and investors
would lose 70% of their principal amount at maturity.
If the Final Reference Rate is less than the Downside Threshold,
MSFL will pay you significantly less than the full principal amount, if anything, at maturity, resulting in a loss on your principal
amount that is proportionate to the negative Reference Rate Return.
Example 4 - The Reference Rate decreases by 3.75000 percentage
points from the Initial Reference Rate of 2.50000% to a Final Reference Rate of -1.25000%.
The Reference Rate Return is less
than the Downside Threshold and expressed as a formula:
$1,000 + ($1,000 × Reference Rate Return)
$1,000 + ($1,000 × -100.000%) = $1,000
+ -$1,000 = $0.00
Because the Final Reference Rate is less than the Downside Threshold,
in addition to the Quarterly Coupon otherwise due, the payment at maturity is equal to $0.00 per Security (excluding Quarterly
Coupons), resulting in a total loss on the Securities of the entire principal amount of the Securities. The total payment on the
Securities over their term (including Quarterly Coupons) is $80.00 per Note, representing a total return on the Securities of -92.000%.
As this example illustrates, the Final Reference Rate may be
negative, which would result in a decline from the Initial Reference Rate of more than 100%. However, the Reference Rate Return
will not be less than -100%, even if the percentage decline from the Initial Reference Rate to the Final Reference Rate is greater
than 100%. You will lose all of your principal at maturity if the Final Reference Rate is zero or negative.
What
Are the Tax Consequences of the Securities?
|
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 Securities issued under this free writing prospectus 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 ownership and disposition of the Securities.
This discussion applies only to initial investors in the Securities who:
|
t
|
purchase the Securities at their “issue price,” which will
equal the first price at which a substantial amount of the Securities is sold to the public (not including bond houses, brokers,
or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers); and
|
|
t
|
hold the Securities as capital assets within the meaning of Section
1221 of the Internal Revenue Code of 1986, as amended (the “Code”).
|
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:
|
t
|
certain financial institutions;
|
|
t
|
certain dealers and traders in Securities or commodities;
|
|
t
|
investors holding the Securities as part of a “straddle,”
wash sale, conversion transaction, integrated transaction or constructive sale transaction;
|
|
t
|
U.S. Holders (as defined below) whose functional currency is not the
U.S. dollar;
|
|
t
|
partnerships or other entities classified as partnerships for U.S.
federal income tax purposes;
|
|
t
|
regulated investment companies;
|
|
t
|
real estate investment trusts; or
|
|
t
|
tax-exempt entities, including “individual retirement accounts”
or “Roth IRAs” as defined in Section 408 or 408A of the Code, respectively.
|
If an entity that is classified as a partnership
for U.S. federal income tax purposes holds the Securities, 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 Securities 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 Securities to you.
As the law applicable to the U.S. federal income
taxation of instruments such as the Securities is technical and complex, the discussion below necessarily represents only a general
summary. 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. Moreover, the discussion below does not address the consequences
to taxpayers subject to special tax accounting rules under Section 451(b) of the Code.
This discussion is based on the Code, administrative
pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, all as of the date hereof, changes to
any of which subsequent to the date hereof may affect the tax consequences described herein. Persons considering the purchase of
the Securities 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
Due to the lack of any controlling legal authority,
there is substantial uncertainty regarding the U.S. federal income tax consequences of an investment in the Securities. We intend
to treat a Security, under current law, for U.S. federal income tax purposes, as a unit consisting of the following:
|
(i)
|
an option (the “Option”) written by you to us that, if exercised, requires you to pay us an amount equal to the
Deposit (as defined below) in exchange for a cash amount based on the performance
of the
Reference Rate;
and
|
|
(ii)
|
a deposit with us of a fixed amount of cash, equal to the issue price, to secure your obligation under the Option (the “Deposit”)
that pays interest based on our cost of borrowing at the time of issuance (the “Yield on the Deposit”).
|
Based on the treatment set forth above, a portion
of the coupon on the Securities will be treated as the Yield on the Deposit, and the remainder will be attributable to the premium
on the Option (the “Option Premium”). The Yield on the Deposit will be determined by us as of the Trade Date and set
forth in the applicable pricing supplement.
We will allocate 100% of the issue price of
the Securities to the Deposit and none to the Option. Our allocation of the issue price between the Option and the Deposit will
be binding on you, unless you timely and explicitly disclose to the Internal Revenue Service (the “IRS”) that your
allocation is different from ours. This allocation is not, however, binding on the IRS or a court.
No statutory, judicial or administrative authority
directly addresses the treatment of the Securities or instruments similar to the Securities for U.S. federal income tax purposes,
and no ruling is being requested from the IRS with respect to the Securities.
Significant aspects of the U.S. federal income
tax consequences of an investment in the Securities are uncertain, and no assurance can be given that the IRS or a court will agree
with the tax treatment described herein.
In the opinion of our counsel, Davis Polk & Wardwell LLP, the treatment of the
Securities described above is reasonable under current law; however, our counsel has advised us that it is unable to conclude affirmatively
that this treatment is more likely than not to be upheld, and that alternative treatments are possible. Moreover, our counsel’s
opinion is based on market conditions as of the date of this free writing prospectus and is subject to confirmation on the pricing
date.
Accordingly, you should consult your tax adviser regarding the U.S. federal income tax consequences of an investment in
the Securities (including alternative treatments of the Securities). Unless otherwise stated, the following discussion is based
on the treatment and the allocation described above.
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 Security 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 Securities
Assuming the treatment of the Securities and
allocation of the issue price as set forth above are respected, the following U.S. federal income tax consequences should result.
Coupon Payments on the Securities.
Under the characterization described above under “—General,” only a portion of the coupon payments on the Securities
will be attributable to the Yield on the Deposit. The remainder of the coupon payments will represent payments attributable to
the Option Premium. The Deposit will be treated as a “short-term obligation” for U.S. federal income tax purposes.
Accordingly, to the extent attributable to the Yield on the Deposit, coupon payments on the Securities will generally be taxable
to a U.S. Holder as ordinary interest income. A U.S. Holder who is a cash-method taxpayer will not be required to include the Yield
on the Deposit currently in income for U.S. federal income tax purposes prior to receipt of such amounts unless the holder elects
to do so. A U.S. Holder who is a cash-method taxpayer and does not make such election should include the Yield on the Deposit as
income upon receipt. An accrual-method U.S. Holder will be required to include the Yield on the Deposit in income as it accrues
on a straight-line basis, unless the holder makes an election to accrue the Yield on the Deposit according to a constant yield
method based on daily compounding.
Additionally, a cash-method U.S. Holder who
does not elect to accrue the Yield on the Deposit will be required to defer deductions for interest paid on indebtedness incurred
to purchase or carry the Securities until the Yield on the Deposit is included in income. The amount of deductions required to
be deferred should not exceed the amount of the Yield on the Deposit the U.S. Holder would have taken into income under an election
to accrue such amounts.
The Option Premium will not be taxable to a
U.S. Holder upon receipt but will be accounted for as described below.
Tax Basis.
Based on our determination
set forth above, the U.S. Holder’s initial tax basis in the Deposit will be 100% of the issue price. The determination of
gain or loss with respect to the Option is described below.
Taxation of the Securities at Maturity
Receipt of Stated Principal Amount in
Cash upon Maturity of the Securities.
If a U.S. Holder receives the stated principal amount of a Security in cash (excluding
cash attributable to coupon payments on the Security, which would be taxed as described above under “—Coupon Payments
on the Securities”), the Option will be deemed to have expired
unexercised. In such case, the U.S. Holder will not recognize
any gain upon the return of the Deposit, but will recognize the total amount of Option Premium received by the U.S. Holder over
the term of the Securities (including Option Premium received upon maturity) as gain at such time. See below under “—Character
of Gain or Loss at Maturity” regarding the uncertain character of such gain.
Receipt of a Cash Amount Based on the
Performance of the Reference Rate upon Maturity of the Securities.
If a U.S. Holder receives an amount of cash (excluding cash
attributable to coupon payments on the Securities, which would be taxed as described above under “—Coupon Payments
on the Securities”) that is less than the stated principal amount of the Securities, the Option will be deemed to have been
exercised and the U.S. Holder will be deemed to have applied the Deposit toward the cash settlement of the Option. In such case,
the U.S. Holder will not recognize any gain or loss in respect of the Deposit, but will recognize gain or loss in an amount equal
to the difference between (i) the amount of cash received by the U.S. Holder at maturity (excluding cash attributable to coupon
payments on the Securities), plus the total Option Premium received by the U.S. Holder over the term of the Securities (including
the Option Premium received at maturity) and (ii) the Deposit. See below under “—Character of Gain or Loss at Maturity”
regarding the uncertain character of such gain or loss.
Character of Gain or Loss at Maturity.
Because of the lack of authority addressing the tax treatment of the Securities, there is significant uncertainty regarding
whether gain or loss recognized with respect to the Option at the maturity of a Security should be treated as capital gain or loss
or as ordinary income or loss. Our counsel believes it would be reasonable to treat any such gain or loss as short-term capital
gain or loss. However, the IRS may assert that any gain or loss recognized by a U.S. Holder upon maturity of the Securities should
be treated as ordinary income or loss. In the event of an ordinary loss to certain non-corporate U.S. Holders, any deduction arising
from the loss may be treated as a non-deductible “miscellaneous itemized deduction.”
You should consult your tax
adviser regarding the character of gain or loss recognized upon maturity of the Securities.
Sale or Exchange of the Securities Prior
to Maturity.
For the purpose of determining gain or loss on the Deposit and the Option upon sale or exchange of the Securities
prior to maturity, a U.S. Holder should apportion the amount realized between the Deposit and the Option based on their respective
values on the date of such sale or exchange. The amount of gain or loss on the Deposit will equal the amount realized that is attributable
to the Deposit, less the U.S. Holder’s adjusted tax basis in the Deposit. Such gain will be treated as ordinary interest
income to the extent of any accrued but unpaid Yield on the Deposit not previously included in income, and any remaining gain will
be treated as short-term capital gain. Loss on the Deposit will be treated as short-term capital loss. The amount realized that
is attributable to the Option, together with the total Option Premium received by the U.S. Holder over the term of the Security,
should be treated as short-term capital gain.
If the value of the Deposit on the date of
such sale or exchange exceeds the total amount realized on the sale or exchange of the Security, the U.S. Holder will be treated
as having (i) sold or exchanged the Deposit for an amount equal to its value on that date and (ii) made a payment (the “Option
Assumption Payment”) to the purchaser of the Security equal to the amount of such excess, in exchange for the purchaser’s
assumption of the U.S. Holder’s rights and obligations under the Option. In such a case, the U.S. Holder should recognize
short-term capital gain or loss in respect of the Option in an amount equal to the total Option Premium received by the U.S. Holder
over the term of the Security, less the amount of the Option Assumption Payment deemed to be made by the U.S. Holder.
Possible Alternative Tax Treatments of
an Investment in the Securities
Due to the absence of authorities that directly
address the proper characterization of the Securities, no assurance can be given that the IRS will accept, or that a court will
uphold, the treatment described above. If the IRS were successful in asserting an alternative treatment, the timing and/or character
of income, gain or loss with respect to the Securities would be materially and adversely affected.
Under one alternative characterization, the
IRS could seek to treat a Security as a unit consisting of a deposit and a “notional principal contract” instead of
an option. In that event, because there are no currently effective regulations that comprehensively address the treatment of income
and deductions on a notional principal contract providing for contingent payments, the timing and character of income and deductions
on the notional principal contract would be unclear. A U.S. Holder would likely be required to recognize income during the term
of the Securities with respect to the notional principal contract, in an amount that could differ from the portion of the coupon
payments that is attributable to the notional principal contract. In addition, any income or loss recognized by a U.S. Holder at
maturity of the Securities would likely be ordinary income or loss (which, in the case of loss, might be treated as a non-deductible
“miscellaneous itemized deduction”).
Alternatively, the IRS could assert that a
Security is a short-term debt instrument, with the result that the timing and character of income or loss on the Securities might
differ from the tax treatment described above. The risk that financial instruments providing for buffers, triggers or similar downside
protection features, such as the Securities, would be
recharacterized as debt is greater than the risk of recharacterization
for comparable financial instruments that do not have such features.
Other alternative U.S. federal income tax characterizations
or treatments of the Securities are also possible, which if applied could significantly affect the timing and character of income
or loss with respect to the Securities. It is possible, for example, that a Security could be treated as constituting an “open
transaction” with the result that the coupon payments on the Securities might not be accounted for separately as giving rise
to income to U.S. Holders until the sale, exchange or settlement of the Securities. Alternatively, the entire amount of each coupon
payment on the Securities could be required to be included in income by a U.S. Holder at the time received or accrued. Accordingly,
prospective purchasers should consult their tax advisers regarding the U.S. federal income tax consequences of an investment in
the Securities.
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. While it is not clear whether the Securities would be viewed as similar to the prepaid forward contracts described
in the notice, it is possible that any Treasury regulations or other guidance promulgated after consideration of these issues could
materially and adversely affect the tax consequences of an investment in the Securities, possibly with retroactive effect. The
notice focuses on a number of issues, the most relevant of which for U.S. Holders of the Securities is the character and timing
of income or loss realized with respect to these instruments (including whether the Option Premium might be required to be included
currently as ordinary income). Accordingly, prospective investors should consult their tax advisers regarding all aspects of the
U.S. federal income tax consequences of an investment in the Securities, including the possible implications of this notice.
Backup Withholding and Information Reporting
Backup withholding may apply in respect of
payments on the Securities and the payment of proceeds from a sale, exchange or other disposition of the Securities, 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 will be filed with the IRS in connection with payments
on the Securities and the payment of proceeds from a sale, exchange or other disposition of the Securities, 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 Security 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 trust or estate.
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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 Securities 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 Securities.
General
Assuming the treatment of the Securities as
set forth above is respected and subject to the discussion below regarding FATCA, payments with respect to a Security, and gain
realized on the sale, exchange or other disposition of such Security, should not be subject to U.S. federal income or withholding
tax under current law, 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 our stock entitled to vote;
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the Non-U.S. Holder is not a controlled foreign corporation related,
directly or indirectly, to us 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 Security (or a financial institution
holding a Security 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.
Possible Alternative Tax Treatments of
an Investment in the Securities
As described above under “—Tax
Consequences to U.S. Holders—Possible Alternative Tax Treatments of an Investment in the Securities,” the IRS may seek
to apply a different characterization and tax treatment from the treatment described herein. Moreover, among the issues addressed
in the IRS notice described in “—Tax Consequences to U.S. Holders” is the degree, if any, to which income realized
by Non-U.S. Holders should be subject to withholding tax. It is possible that any Treasury regulations or other guidance issued
after consideration of this issue could materially and adversely affect the withholding tax consequences of ownership and disposition
of the Securities, possibly with retroactive effect.
There is substantial uncertainty regarding the proper tax treatment of
the Securities. Accordingly, prospective investors should consult their tax advisers regarding all aspects of the U.S. federal
income tax consequences of an investment in the Securities, including the possible implications of the notice discussed above.
Prospective investors should note that we currently do not intend to withhold on any of the payments made with respect to the Securities
to Non-U.S. Holders (subject to compliance by such holders with the certification requirement described above and to the discussion
below regarding FATCA). However, it is possible in light of the uncertain treatment of the Securities that an applicable withholding
agent will withhold on payments made with respect to the Securities to Non-U.S. Holders.
Furthermore, 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 Securities to Non-U.S. Holders and we will not be required to pay any additional amounts with respect
to amounts withheld.
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 Securities 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 Securities.
Backup Withholding and Information Reporting
Information returns will be filed with the
IRS in connection with any coupon payment and may be filed with the IRS in connection with the payment at maturity on the Securities
and the payment of proceeds from a sale, exchange or other disposition of the Securities. 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 under “—General—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”). Withholding (if applicable) applies to payments
of U.S.-source FDAP income and to payments of gross proceeds of the disposition (including upon retirement) of certain financial
instruments treated as providing for U.S.-source interest or dividends. Under recently 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.
While the treatment of the Securities is unclear, you should assume that the yield on the Deposit will be subject to the FATCA
rules. It is also possible in light of this uncertainty that an applicable withholding agent will treat
the entire amount of the coupon payments as being subject to
the FATCA rules. If withholding applies to the Securities, we will 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 Securities.
The discussion in the preceding paragraphs,
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 tax consequences of an investment in the
Securities.
The reference rate is LIBOR with an index maturity of 3 months
and an index currency of U.S. dollars. See the information set forth under “Additional Terms of the Securities—LIBOR”
below.
Historical Information
The following graph sets forth the historical performance of
the Reference Rate based on the percentage level of the Reference Rate from January 1, 2009 through May 30, 2019. The Reference
Rate on May 30, 2019 was 2.52175%.
You should not take the historical values of the Reference Rate
as an indication of its future performance. No assurance can be given as to the level of the Reference Rate, including on the Final
Valuation Date. We obtained the information in the graph below from Bloomberg Financial Markets, without independent verification.
When reviewing the historical performance of the Reference Rate
in the below graph, it is important to understand that a very small absolute percentage point change in the Reference Rate can
result in a significant loss on the Securities.
You will lose all of your principal at maturity if the Final Reference Rate
is zero or negative.
* The dashed line indicates the
hypothetical Downside Threshold, assuming the Reference Rate on May 30, 2019 were its Initial Reference Rate.
Past performance is not indicative of future results.
Additional Terms of the Securities
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LIBOR
Notwithstanding the provisions set forth in the accompanying
prospectus under “Description of Debt Securities—Base Rates—LIBOR Debt Securities,” “Reference Rate”
or “3-Month USD LIBOR” mean, for any day with respect to which the level of such rate must be determined (each, an
“interest determination date”), the arithmetic mean of the offered rates for deposits in U.S. dollars having a 3 month
maturity, commencing on the second London banking day immediately following that interest determination date that appear on the
Designated LIBOR Page as of approximately 11:00 a.m., London time, on that interest determination date, if at least two offered
rates appear on the Designated LIBOR Page, provided that if the specified Designated LIBOR Page, as defined below, by its terms
provides only for a single rate, that single rate will be used.
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If (i) fewer than two offered rates appear or (ii) no rate appears and the Designated LIBOR Page by its terms provides only
for a single rate, then the Calculation Agent will request the principal London offices of each of four major reference banks in
the London interbank market, as selected by the Calculation Agent, after consultation with the Issuer, to provide the Calculation
Agent with its offered quotation for deposits in U.S. dollars for a 3 month period commencing on the second London banking day
immediately following the interest determination date to prime banks in the London interbank market at approximately 11:00 a.m.,
London time, on that interest determination date and in a principal amount that is representative of a single transaction in U.S.
dollars in that market at that time. If at least two quotations are provided, LIBOR determined on that interest determination date
will be the arithmetic mean of those quotations.
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If fewer than two quotations are provided, as described in the prior paragraph, LIBOR will be determined for the applicable
interest determination date as the arithmetic mean of the rates quoted at approximately 11:00 a.m., New York City time, on that
interest determination date, by three major banks in New York City selected by the Calculation Agent, after consultation with the
Issuer, for loans in U.S. dollars to leading European banks, having a 3 month maturity and in a principal amount that is representative
of a single transaction in U.S. dollars in that market at that time.
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If the banks so selected by the calculation agent are not quoting as set forth above, LIBOR for that interest determination
date will be determined by the Calculation Agent in good faith and in a commercially reasonable manner.
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Notwithstanding the terms set forth
elsewhere in this free writing prospectus and the provisions set forth above, if LIBOR has been permanently discontinued, the Calculation
Agent will use, as a substitute for LIBOR and for each future interest determination date, the alternative reference rate selected
by the central bank, reserve bank, monetary authority or any similar institution (including any committee or working group thereof)
in the jurisdiction of the applicable index currency that is consistent with accepted market practice (the “alternative rate”).
As part of such substitution, the Calculation Agent will, after consultation with us, make such adjustments to the alternative
rate or the spread thereon, as well as the business day convention, interest determination dates and related provisions and definitions,
in each case that are consistent with accepted market practice for the use of such alternative rate for obligations such as the
Securities.
Postponement of Final Valuation Date and Maturity Date
If the scheduled Final Valuation Date is not a London banking
day, the Final Valuation Date will be postponed to the immediately following London banking day.
If the Final Valuation Date is postponed so that it falls less
than two business days prior to the scheduled Maturity Date, the Maturity Date will be postponed to the second business day following
the Final Valuation Date, as postponed.
Acceleration Amount in case of an Event of Default
In case an event of default with respect to the Securities shall
have occurred and be continuing, the amount declared due and payable per Security upon any acceleration of the Securities shall
be an amount in cash equal to the value of such Security on the day that is two business days prior to the date of such acceleration,
as determined by the Calculation Agent (acting in good faith and in a commercially reasonable manner) by reference to factors that
the Calculation Agent considers relevant, including, without limitation: (i) then-current market interest rates; (ii) our credit
spreads as of the pricing date, without adjusting for any subsequent changes to our creditworthiness; and (iii) the then-current
value of the performance-based component of such Security. Because the Calculation Agent will take into account movements in
market interest rates, any increase in market interest rates
since the Trade Date will lower the value of your claim in comparison to if such movements were not taken into account.
Notwithstanding the foregoing, if a voluntary or involuntary
liquidation, bankruptcy or insolvency of, or any analogous proceeding is filed with respect to the Issuer, then depending on applicable
bankruptcy law, your claim may be limited to an amount that could be less than the default amount.
Trustee
The “Trustee” for each offering of notes issued under
our Senior Debt Indenture, including the Securities, will be The Bank of New York Mellon, a New York banking corporation (as successor
Trustee to JPMorgan Chase Bank, N.A. (formerly known as JPMorgan Chase Bank)).
Agent
The “agent” is MS & Co.
Calculation Agent and Calculations
The “Calculation Agent” for the Securities will be
MSCS. As Calculation Agent, MSCS will determine, among other things, the Initial Reference Rate, the Coupon Rate, the Final Reference
Rate and the Payment at Maturity.
All determinations made by the Calculation Agent will be at the
sole discretion of the Calculation Agent and will, in the absence of manifest error, be conclusive for all purposes and binding
on you, the Trustee and us.
All
calculations with respect to the Payment at Maturity will be rounded to the nearest one hundred-thousandth, with five one-millionths
rounded upward (e.g., .876545 would be rounded to .87655); all dollar amounts related to the determination of the amount of cash
payable per Security will be rounded to the nearest ten-thousandth, with five one hundred-thousandths rounded upward (e.g., .76545
would be rounded up to .7655); and all dollar amounts paid on the aggregate number of Securities will be rounded to the nearest
cent, with one-half cent rounded upward
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Form of Securities
The Securities will be issued in the form of one or more fully
registered global securities which will be deposited with, or on behalf of, the Depositary and will be registered in the name of
a nominee of the Depositary. The Depositary’s nominee will be the only registered holder of the Securities. Your beneficial
interest in the Securities will be evidenced solely by entries on the books of the securities intermediary acting on your behalf
as a direct or indirect participant in the Depositary. In this free writing prospectus, all references to payments or notices to
you will mean payments or notices to the Depositary, as the registered holder of the Securities, for distribution to participants
in accordance with the Depositary’s procedures. For more information regarding the Depositary and book entry notes, please
read “Form of Securities—The Depositary” in the accompanying prospectus supplement and “Securities Offered
on a Global Basis Through the Depositary” in the accompanying prospectus.
Use of Proceeds and Hedging
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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 on page 2 above comprise the Agent’s commissions and
the cost of issuing, structuring and hedging the Securities. See also “Use of Proceeds” in the accompanying prospectus.
Benefit Plan Investor Considerations
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Each fiduciary of a pension, profit-sharing or other employee
benefit plan subject to Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) (a “Plan”),
should consider the fiduciary standards of ERISA in the context of the Plan’s particular circumstances before authorizing
an investment in the Securities. Accordingly, among other factors, the fiduciary should consider whether the investment would satisfy
the prudence and diversification requirements of ERISA and would be consistent with the documents and instruments governing the
Plan.
In addition, we and certain of our affiliates, including MS &
Co., may each be considered a “party in interest” within the meaning of ERISA, or a “disqualified person”
within the meaning of the Internal Revenue Code of 1986, as amended (the “Code”), with respect to many Plans, as well
as many individual retirement accounts and Keogh plans (such accounts and plans, together with other plans, accounts and arrangements
subject to Section 4975 of the Code, also “Plans”). ERISA
Section 406 and Code Section 4975 generally prohibit transactions
between Plans and parties in interest or disqualified persons. Prohibited transactions within the meaning of ERISA or the Code
would likely arise, for example, if the Securities are acquired by or with the assets of a Plan with respect to which MS &
Co. or any of its affiliates is a service provider or other party in interest, unless the Securities are acquired pursuant to an
exemption from the “prohibited transaction” rules. A violation of these “prohibited transaction” rules
could result in an excise tax or other liabilities under ERISA and/or Section 4975 of the Code for those persons, unless exemptive
relief is available under an applicable statutory or administrative exemption.
The U.S. Department of Labor has issued five prohibited transaction
class exemptions (“PTCEs”) that may provide exemptive relief for direct or indirect prohibited transactions resulting
from the purchase or holding of the Securities. Those class exemptions are PTCE 96-23 (for certain transactions determined by in-house
asset managers), PTCE 95-60 (for certain transactions involving insurance company general accounts), PTCE 91-38 (for certain transactions
involving bank collective investment funds), PTCE 90-1 (for certain transactions involving insurance company separate accounts)
and PTCE 84-14 (for certain transactions determined by independent qualified professional asset managers). In addition, ERISA Section
408(b)(17) and Code Section 4975(d)(20) provide an exemption for the purchase and sale of securities and the related lending transactions,
provided that neither the Issuer of the securities nor any of its affiliates has or exercises any discretionary authority or control
or renders any investment advice with respect to the assets of the Plan involved in the transaction and provided further that the
Plan pays no more, and receives no less, than “adequate consideration” in connection with the transaction (the so-called
“service provider” exemption). There can be no assurance that any of these class or statutory exemptions will be available
with respect to transactions involving the Securities.
Because we may be considered a party in interest with respect
to many Plans, the Securities may not be purchased, held or disposed of by any Plan, any entity whose underlying assets include
“plan assets” by reason of any Plan’s investment in the entity (a “Plan Asset Entity”) or any person
investing “plan assets” of any Plan, unless such purchase, holding or disposition is eligible for exemptive relief,
including relief available under PTCEs 96-23, 95-60, 91-38, 90-1, 84-14 or the service provider exemption or such purchase, holding
or disposition is otherwise not prohibited. Any purchaser, including any fiduciary purchasing on behalf of a Plan, transferee or
holder of the Securities will be deemed to have represented, in its corporate and its fiduciary capacity, by its purchase and holding
of the Securities that either (a) it is not a Plan or a Plan Asset Entity and is not purchasing such Securities on behalf of or
with “plan assets” of any Plan or with any assets of a governmental, non-U.S. or church plan that is subject to any
federal, state, local or non-U.S. law that is substantially similar to the provisions of Section 406 of ERISA or Section 4975 of
the Code (“Similar Law”) or (b) its purchase, holding and disposition of these Securities will not constitute or result
in a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code or violate any Similar Law.
Due to the complexity of these rules and the penalties that may
be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that fiduciaries or other
persons considering purchasing the Securities on behalf of or with “plan assets” of any Plan consult with their counsel
regarding the availability of exemptive relief.
The Securities are contractual financial instruments. The financial
exposure provided by the Securities is not a substitute or proxy for, and is not intended as a substitute or proxy for, individualized
investment management or advice for the benefit of any purchaser or holder of the Securities. The Securities have not been designed
and will not be administered in a manner intended to reflect the individualized needs and objectives of any purchaser or holder
of the Securities.
Each purchaser or holder of any Securities acknowledges and agrees
that:
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(i)
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the purchaser or holder or its fiduciary has made and shall make all investment decisions for the purchaser or holder and the
purchaser or holder has not relied and shall not rely in any way upon us or our affiliates to act as a fiduciary or adviser of
the purchaser or holder with respect to (A) the design and terms of the Securities, (B) the purchaser or holder’s investment
in the Securities, or (C) the exercise of or failure to exercise any rights we have under or with respect to the Securities;
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(ii)
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we and our affiliates have acted and will act solely for our own account in connection with (A) all transactions relating to
the Securities and (B) all hedging transactions in connection with our obligations under the Securities;
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(iii)
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any and all assets and positions relating to hedging transactions by us or our affiliates are assets and positions of those
entities and are not assets and positions held for the benefit of the purchaser or holder;
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(iv)
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our interests are adverse to the interests of the purchaser or holder; and
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(v)
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neither we nor any of our affiliates is a fiduciary or adviser of the purchaser or holder in connection with any such assets,
positions or transactions, and any information that we or any of our affiliates may provide is not intended to be impartial investment
advice.
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Each purchaser and holder of the Securities has exclusive responsibility
for ensuring that its purchase, holding and disposition of the Securities do not violate the prohibited transaction rules of ERISA
or the Code or any Similar Law. The sale of any Securities to any Plan or plan subject to Similar Law is in no respect a representation
by us or any of our affiliates or representatives that such an investment meets all relevant legal requirements with respect to
investments by
plans generally or any particular plan, or that such an investment
is appropriate for plans generally or any particular plan. In this regard, neither this discussion nor anything provided in this
document is or is intended to be investment advice directed at any potential Plan purchaser or at Plan purchasers generally and
such purchasers of these Securities should consult and rely on their own counsel and advisers as to whether an investment in these
Securities is suitable.
However, individual retirement accounts, individual retirement
annuities and Keogh plans, as well as employee benefit plans that permit participants to direct the investment of their accounts,
will not be permitted to purchase or hold the Securities if the account, plan or annuity is for the benefit of an employee of Morgan
Stanley or Morgan Stanley Wealth Management or a family member and the employee receives any compensation (such as, for example,
an addition to bonus) based on the purchase of the Securities by the account, plan or annuity.
Supplemental Plan of Distribution; Conflicts of Interest
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MS & Co. will act as the agent for this offering. We will
agree to sell to MS & Co., and MS & Co. will agree to purchase, all of the Securities at the issue price less the underwriting
discount indicated on the cover of this document. UBS Financial Services Inc., acting as dealer, will receive from MS & Co.
a fixed sales commission of $15 for each Security it sells.
MS & Co. is our affiliate and a wholly owned subsidiary of
Morgan Stanley, and it and other affiliates of ours expect to make a profit by selling, structuring and, when applicable, hedging
the Securities. When MS & Co. prices this offering of Securities, it will determine the economic terms of the Securities, including
the Downside Threshold, such that for each Security the estimated value on the Trade Date will be no lower than the minimum level
described in “Additional Information about Morgan Stanley, MSFL and the Securities” on page 2.
MS & Co. will conduct this offering in compliance with the
requirements of Rule 5121 of the Financial Industry Regulatory Authority, Inc. (“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.
Morgan Stanley Depository Shares Representing 1/1000TH Preferred Series 1 Fixed TO Floating Non (Cum) (NYSE:MSPI)
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Morgan Stanley Depository Shares Representing 1/1000TH Preferred Series 1 Fixed TO Floating Non (Cum) (NYSE:MSPI)
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From Jul 2023 to Jul 2024