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June
2019
Preliminary
Terms No. 2,164
Registration
Statement No. 333-221595
Dated
June 20, 2019
Filed
pursuant to Rule 433
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Fixed to Floating Rate Notes due 2025
Based on the 10-Year Constant Maturity Treasury
Rate
As further described below, interest will accrue and be
payable on the notes quarterly, in arrears, (i)
from the original issue date to June 28, 2020
: at a rate of 3.00% per annum
and (ii)
from June 28, 2020 to maturity
: at a variable rate per annum equal to the 10-Year Constant Maturity Treasury Rate,
subject to the minimum interest rate of 0.00% per annum.
All payments are subject to the credit risk of Morgan
Stanley. If Morgan Stanley defaults on its 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.
SUMMARY
TERMS
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Issuer:
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Morgan Stanley
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Aggregate principal amount:
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$ . May be increased prior to the original issue date but we are not required to do so.
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Issue price:
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$1,000 per note
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Stated principal amount:
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$1,000 per note
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Pricing date:
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June , 2019
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Original issue date:
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June 28, 2019 (2 business days after the pricing date)
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Maturity date:
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June 28, 2025
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Interest accrual date:
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June 28, 2019
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Payment at maturity:
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The payment at maturity per note will be the stated principal amount plus accrued and unpaid interest, if any
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Reference rate:
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The 10-Year Constant Maturity Treasury Rate
(10CMT).
Please see “Additional Provisions—Reference
Rate” below.
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Interest rate:
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From and including the original issue date
to but excluding June 28, 2020:
3.00% per annum
From and including June 28, 2020 to but
excluding the maturity date (the “floating interest rate period”):
Reference rate; subject to the minimum
interest rate.
For the purpose of determining the level
of the reference rate applicable to an interest payment period, the level of the reference rate will be determined two (2) U.S.
government securities business days prior to the related interest reset date at the start of such interest payment period (each,
an “interest determination date”).
Interest for each interest payment period
during the floating interest rate period is subject to the minimum interest rate of 0.00% per annum.
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Interest payment period:
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Quarterly
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Interest payment period end dates:
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Unadjusted
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Interest payment dates:
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Each March 28, June 28, September 28 and December 28, beginning September 28, 2019;
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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Interest reset dates:
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Each March 28, June 28, September 28 and December 28, beginning June 28, 2020;
provided
that such interest reset dates shall not be adjusted for non-business days.
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Day-count convention:
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30/360
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Minimum interest rate:
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0.00% per annum during the floating interest rate period
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Maximum interest rate:
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Not applicable
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Redemption:
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Not applicable
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Specified currency:
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U.S. dollars
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CUSIP / ISIN:
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61760QMP6 / US61760QMP62
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Book-entry or certificated note:
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Book-entry
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Business day:
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New York
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Agent:
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Morgan Stanley & Co. LLC (“MS & Co.”), a wholly owned subsidiary of Morgan Stanley. See “Supplemental Information Concerning Plan of Distribution; Conflicts of Interest.”
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Calculation agent:
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Morgan Stanley Capital Services LLC
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Trustee:
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The Bank of New York Mellon
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Estimated value on the pricing date:
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Approximately $955.50 per note, or within $20.50 of that estimate. See “The Notes” on page 2.
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Commissions and issue price:
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Price to public
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Agent’s commissions
(1)
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Proceeds to issuer
(2)
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Per note
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$1,000
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$
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$
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Total
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$
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$
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$
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(1)
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Morgan Stanley
or one of our affiliates will pay varying discounts and commissions to dealers, including
Morgan Stanley Wealth Management (an affiliate of the agent) and their financial advisors,
of up to $ per note depending on market conditions. See “Supplemental Information
Concerning Plan of Distribution; Conflicts of Interest.” For additional information,
see “Plan of Distribution (Conflicts of Interest)” in the accompanying prospectus
supplement.
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(2)
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See “Use
of Proceeds and Hedging” on page 6.
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You should read this document together
with the related prospectus supplement and prospectus,
each of which can be accessed via the hyperlinks below, before you decide to invest.
Prospectus Supplement dated November 16, 2017
Prospectus dated November 16, 2017
The notes 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.
The issuer has filed a registration statement (including a prospectus)
with the SEC for the offering to which this communication relates. Before you invest, you should read the prospectus in that registration
statement and other documents the issuer has filed with the SEC for more complete information about the issuer and this offering.
You may get these documents for free by visiting EDGAR on the SEC Web site at
.
www.sec.gov. Alternatively,
the issuer, any underwriter or any dealer participating in this offering will arrange to send you the prospectus if you request
it by calling toll-free 1-800-584-6837.
Fixed to Floating Rate Notes due 2025
Based on the 10-Year Constant Maturity Treasury Rate
The Notes
The notes offered are debt securities of Morgan Stanley. From
the original issue date until June 28, 2020, interest on the notes will accrue and be payable on the notes quarterly, in arrears,
at 3.00% per annum, and thereafter, during the floating interest rate period, interest on the notes will accrue and be payable
on the notes quarterly, in arrears, at a variable rate per annum equal to 10CMT
,
subject to the minimum interest rate of
0.00% per annum. We describe the basic features of these notes in the sections of the accompanying prospectus called “Description
of Debt Securities—Floating Rate Debt Securities” and prospectus supplement called “Description of Notes,”
subject to and as modified by the provisions described below. All payments on the notes are subject to the credit risk of Morgan
Stanley.
The stated principal amount and issue price of each note is $1,000.
This price includes costs associated with issuing, selling, structuring and hedging the notes, which are borne by you, and, consequently,
the estimated value of the notes on the pricing date will be less than the issue price. We estimate that the value of each note
on the pricing date will be approximately $955.50, or within $20.50 of that estimate. Our estimate of the value of the notes as
determined on the pricing date will be set forth in the final pricing supplement.
What goes into the estimated value on the pricing date?
In valuing the notes on the pricing date, we take into account
that the notes comprise both a debt component and a performance-based component linked to 10CMT. The estimated value of the notes
is determined using our own pricing and valuation models, market inputs and assumptions relating to 10CMT, instruments based on
10CMT, 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 notes?
In determining the economic terms of the notes, including the
interest rate and the minimum interest rate applicable to each interest payment period during the floating interest rate period,
we use an internal funding rate, which is likely to be lower than our secondary market credit spreads and therefore advantageous
to us. If the issuing, selling, structuring and hedging costs borne by you were lower or if the internal funding rate were higher,
one or more of the economic terms of the securities would be more favorable to you.
What is the relationship between the estimated value on the
pricing date and the secondary market price of the notes?
The price at which MS & Co. purchases the notes in the secondary
market, absent changes in market conditions, including those related to interest rates and 10CMT, may vary from, and be lower than,
the estimated value on the pricing date, because the secondary market price takes into account our secondary market credit spread
as well as the bid-offer spread that MS & Co. would charge in a secondary market transaction of this type, the costs of unwinding
the related hedging transactions and other factors.
MS & Co. may, but is not obligated to, make a market in the
notes and, if it once chooses to make a market, may cease doing so at any time.
Additional Provisions
Reference Rate
“CMT rate” as defined in the accompanying prospectus
in the section called “Description of Debt Securities—Floating Rate Debt Securities” and “—Base Rates”
with a Designated CMT Maturity Index of 10 years, as displayed on Bloomberg page “H15T10Y <Index>,” which page
shall replace all references in the accompanying prospectus to Designated CMT Reuters Page.
Fixed to Floating Rate Notes due 2025
Based on the 10-Year Constant Maturity Treasury Rate
Historical Information
The following graph sets forth the historical percentage levels
of the reference rate for the period from January 1, 2009 to June 18, 2019. The historical levels of the reference rate should
not be taken as an indication of its future performance. We obtained the information in the graph below from Bloomberg Financial
Markets, without independent verification.
*
The red line in the graph above represents the minimum interest rate of 0.00% per annum applicable to each interest payment period
during the floating interest rate period.
Fixed to Floating Rate Notes due 2025
Based on the 10-Year Constant Maturity Treasury Rate
Risk Factors
The notes involve risks not associated with an investment
in ordinary floating rate notes. An investment in the notes entails significant risks not associated with similar investments in
a conventional debt security, including, but not limited to, fluctuations in the reference rate, and other events that are difficult
to predict and beyond the issuer’s control. This section describes the most significant risks relating to the notes. For
a complete list of risk factors, please see the accompanying prospectus supplement and prospectus. You should carefully consider
whether the notes are suited to your particular circumstances before you decide to purchase them. Accordingly, prospective investors
should consult their financial and legal advisers as to the risks entailed by an investment in the notes and the suitability of
the notes in light of their particular circumstances.
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§
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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 notes. Changes in the levels of the reference rate will affect the trading price of the notes, but it is impossible to predict
whether such levels will rise or fall. There can be no assurance that the reference rate will be positive.
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§
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Investors are subject to our credit risk, and any actual or anticipated changes to our credit
ratings or credit spreads may adversely affect the market value of the notes.
Investors are dependent on our ability to pay
all amounts due on the notes on interest payment dates and at maturity and therefore investors are subject to our credit risk and
to changes in the market’s view of our creditworthiness. The notes are not guaranteed by any other entity. If we default
on our obligations under the notes, your investment would be at risk and you could lose some or all of your investment. As a result,
the market value of the notes 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 value of the notes.
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§
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The price at which the notes may be sold prior to maturity will depend on a number of factors
and may be substantially less than the amount for which they were originally purchased.
Some of these factors include, but
are 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. Generally, the longer the time remaining to maturity and the more tailored the exposure, the
more the market price of the notes will be affected by the other factors described in the preceding sentence. This can lead to
significant adverse changes in the market price of securities like the notes. Depending on the actual or anticipated level of the
reference rate, the market value of the notes is expected to decrease and you may receive substantially less than 100% of the issue
price if you are able to sell your notes prior to maturity.
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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 notes in the original issue
price reduce the economic terms of the notes, cause the estimated value of the notes to be less than the original issue price and
will adversely affect secondary market prices.
Assuming no change in market conditions or any other relevant factors, the prices,
if any, at which dealers, including MS & Co., are willing to purchase the notes in secondary market transactions will likely
be significantly lower than the original issue price, because secondary market prices will exclude the issuing, selling, structuring
and hedging-related costs that are included in the original issue price and borne by you and because the secondary market prices
will reflect our secondary market credit spreads and the bid-offer spread that any dealer would charge in a secondary market transaction
of this type, the costs of unwinding the related hedging transactions as well as other factors.
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The
inclusion of the costs of issuing, selling, structuring and hedging the notes in the original issue price and the lower rate we
are willing to pay as issuer make the economic terms of the notes less favorable to you than they otherwise would be.
Fixed to Floating Rate Notes due 2025
Based on the 10-Year Constant Maturity Treasury Rate
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§
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The estimated value of the notes 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 notes than those generated by others, including other dealers
in the market, if they attempted to value the notes. In addition, the estimated value on the pricing date does not represent a
minimum or maximum price at which dealers, including MS & Co., would be willing to purchase your notes in the secondary market
(if any exists) at any time. The value of your notes at any time after the date of this pricing supplement will vary based on many
factors that cannot be predicted with accuracy, including our creditworthiness and changes in market conditions.
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§
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The notes will not be listed on any securities exchange and secondary trading may be limited.
The notes will not be listed on any securities exchange. Therefore, there may be little or no secondary market for the
notes. MS & Co. may, but is not obligated to, make a market in the notes and, if it once chooses to make a market, may cease
doing so at any time.
When it does make a market, it will generally do so for transactions
of routine secondary market size at prices based on its estimate of the current value of the notes, taking into account its bid/offer
spread, our credit spreads, market volatility, the notional size of the proposed sale, the cost of unwinding any related hedging
positions, the time remaining to maturity and the likelihood that it will be able to resell the notes. Even if there is a
secondary market, it may not provide enough liquidity to allow you to trade or sell the notes easily. Since other broker-dealers
may not participate significantly in the secondary market for the notes, the price at which you may be able to trade your notes
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 notes, it is likely that there would be no secondary market for the notes. Accordingly, you
should be willing to hold your notes to maturity.
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§
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Morgan Stanley & Co. LLC, which is a subsidiary of the issuer,
has determined the estimated value on the pricing date.
MS & Co. has determined the estimated value of the notes on the
pricing date.
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§
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The issuer, its subsidiaries or affiliates may publish research that
could affect the market value of the notes. They also expect to hedge the issuer’s obligations under the notes.
The issuer
or one or more of its 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 and may express
opinions or provide recommendations that are inconsistent with purchasing or holding the notes. Any of these activities may affect
the market value of the notes. In addition, the issuer’s subsidiaries expect to hedge the issuer’s obligations under
the notes 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 notes or in any secondary market transaction.
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§
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The calculation agent, which is a subsidiary of the issuer, will make determinations with
respect to the notes.
Any of these determinations made by the calculation agent may adversely affect the payout to investors.
Moreover, certain determinations made by the 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
on the notes. For further information regarding these types of determinations, see “Description of Debt Securities―Base
Rates—CMT Rate Debt Securities” and related definitions in the accompanying prospectus.
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Fixed to Floating Rate Notes due 2025
Based on the 10-Year Constant Maturity Treasury Rate
Use of Proceeds and Hedging
The proceeds we receive from the sale of the notes will be used
for general corporate purposes. We will receive, in aggregate, $1,000 per note issued, because, when we enter into hedging transactions
in order to meet our obligations under the notes, our hedging counterparty will reimburse the cost of the Agent’s commissions.
The costs of the notes borne by you and described on page 2 above comprise the Agent’s commissions and the cost of issuing,
structuring and hedging the notes.
Supplemental Information Concerning Plan of Distribution;
Conflicts of Interest
Morgan Stanley or one of our affiliates will
pay varying discounts and commissions to dealers, including Morgan Stanley Smith Barney LLC (“Morgan Stanley Wealth Management”)
and their financial advisors, of up to $ per note depending on market conditions. The agent may distribute the notes through Morgan
Stanley Wealth Management, as selected dealer, or other dealers, which may include Morgan Stanley & Co. International plc (“MSIP”)
and Bank Morgan Stanley AG. Morgan Stanley Wealth Management, MSIP and Bank Morgan Stanley AG are affiliates of Morgan Stanley.
MS & Co. is our wholly owned subsidiary
and it and other subsidiaries of ours expect to make a profit by selling, structuring and, when applicable, hedging the notes.
When MS & Co. prices this offering of notes, it will determine the economic terms of the notes such that for each note the
estimated value on the pricing date will be no lower than the minimum level described in “The Notes” on page 2.
MS & Co. will conduct this offering in
compliance with the requirements of FINRA Rule 5121 of the Financial Industry Regulatory Authority, Inc., which is commonly referred
to as FINRA, regarding a FINRA member firm’s distribution of the securities of an affiliate and related conflicts of interest.
MS & Co. or any of our other affiliates may not make sales in this offering to any discretionary account.
Acceleration Amount in Case of an Event of Default
In case an event of default with respect to the notes shall have
occurred and be continuing, the amount declared due and payable per note upon any acceleration of the notes shall be an amount
in cash equal to the stated principal amount plus accrued and unpaid interest.
Contact Information
Morgan Stanley Wealth Management clients may contact their local
Morgan Stanley branch office or our principal executive offices at 1585 Broadway, New York, New York 10036 (telephone number (866)
477-4776). All other clients may contact their local brokerage representative.
Fixed to Floating Rate Notes due 2025
Based on the 10-Year Constant Maturity Treasury Rate
Tax Considerations
In the opinion of our counsel, Davis Polk & Wardwell LLP,
the notes will be treated as “variable rate debt instruments” for U.S. federal tax purposes.
Based on market conditions as of June 19, 2019, we expect to
treat the notes as providing for a single fixed rate followed by a single qualified floating rate (“QFR”), as described
in the sections of the accompanying prospectus supplement called “United States Federal Taxation—Tax Consequences to
U.S. Holders—Notes—Floating Rate Notes—General” and “—Floating Rate Notes that Provide for
Multiple Rates.” Unless otherwise stated, the following discussion in this paragraph is based on the treatment of each note
as described in the preceding sentence. Under applicable Treasury Regulations, in order to determine the amount of qualified stated
interest (“QSI”) and original issue discount (“OID”) in respect of the notes, an equivalent fixed rate
debt instrument must be constructed. The equivalent fixed rate debt instrument is constructed in the following manner: (i) first,
the initial fixed rate is converted to a QFR that would preserve the fair market value of the notes, and (ii) second, each QFR
(including the QFR determined under (i) above) is converted to a fixed rate substitute (which will generally be the value of that
QFR as of the issue date of the notes). The rules under “United States Federal Taxation—Tax Consequences to U.S. Holders—Notes—Discount
Notes—General” must be applied to the equivalent fixed rate debt instrument to determine the amounts of QSI and OID
on the notes. Under this method, the notes may be issued with OID.
Alternatively, if the fixed rate is within 0.25% of the floating
rate on the issue date, the notes will instead be treated as “variable rate debt instruments” providing for a single
QFR. In such case, the notes will not be treated as issued with OID and all of the interest paid on the notes will be treated as
QSI.
A U.S. holder is required to include any QSI in income in accordance
with the U.S. holder’s regular method of accounting for U.S. federal income tax purposes. U.S. holders will be required to
include OID in income for U.S. federal income tax purposes as it accrues, in accordance with a constant yield method based on a
compounding of interest. QSI allocable to an accrual period must be increased (or decreased) by the amount, if any, which the interest
actually accrued or paid during an accrual period (including the fixed rate payments made during the initial period) exceeds (or
is less than) the interest assumed to be accrued or paid during the accrual period under the equivalent fixed rate debt instrument.
For the QSI and the amount of OID (if any) on a note, please contact Morgan Stanley at StructuredNotesTaxInfo@morganstanley.com.
If you are a non-U.S. holder, please read the section of the
accompanying prospectus supplement called “United States Federal Taxation—Tax Consequences to Non-U.S. Holders.”
Both U.S. and non-U.S. holders should read the section of the
accompanying prospectus supplement entitled “United States Federal Taxation.” As discussed therein, withholding rules
commonly referred to as “FATCA” apply to certain financial instruments (including the notes) with respect to payments
of amounts treated as interest and to any payment of gross proceeds of a disposition (including retirement) of such an instrument.
However, recently proposed regulations (the preamble to which specifies that taxpayers are permitted to rely on them pending finalization)
eliminate the withholding requirement on payments of gross proceeds of a taxable disposition.
You should consult your tax adviser regarding all aspects
of the U.S. federal tax consequences of an investment in the notes, as well as any tax consequences arising under the laws of any
state, local or non-U.S. taxing jurisdiction. Moreover, neither this document nor the accompanying prospectus supplement addresses
the consequences to taxpayers subject to special tax accounting rules under Section 451(b) of the Internal Revenue Code of 1986,
as amended.
The discussion in the preceding paragraphs under “Tax
Considerations,” and the discussion contained in the section entitled “United States Federal Taxation” in the
accompanying prospectus supplement, insofar as they purport to describe provisions of U.S. federal income tax laws or legal conclusions
with respect thereto, constitute the full opinion of Davis Polk & Wardwell LLP regarding the material U.S. federal tax consequences
of an investment in the notes.
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