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MORGAN STANLEY — Capital/Financing Update 2020
Nov 5, 2020
29766_prs_2020-11-05_b984553c-cce6-4c28-b7d7-6718fff7f5c9.zip
Capital/Financing Update
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CALCULATION OF REGISTRATION FEE
| Title of Each Class of Securities Offered | Maximum Aggregate Offering Price | Amount of Registration Fee |
|---|---|---|
| Enhanced Trigger Jump Securities due 2021 | $372,000 | $40.59 |
November 2020
Pricing Supplement No. 5,189
Registration Statement Nos. 333-221595; 333-221595-01
Dated November 3, 2020
Filed pursuant to Rule 424(b)(2)
M organ S tanley F inance LLC
Structured Investments
Opportunities in U.S. Equities
Enhanced Trigger Jump Securities Based on the Value of the Worst Performing of the VanEck Vectors ® Gold Miners ETF and the Energy Select Sector SPDR ® Fund due December 8, 2021
Fully and Unconditionally Guaranteed by Morgan Stanley
Principal at Risk Securities
The Enhanced Trigger Jump Securities, which we refer to as the securities, are unsecured obligations of Morgan Stanley Finance LLC (“MSFL”) and are fully and unconditionally guaranteed by Morgan Stanley. The securities will pay no interest, do not guarantee any return of principal at maturity and have the terms described in the accompanying product supplement for Jump Securities, index supplement and prospectus, as supplemented and modified by this document. If the final share price of each of the underlying shares is greater than or equal to 60% of its respective initial share price, which we refer to as the respective downside threshold value, you will receive the stated principal amount for each security that you hold at maturity plus the upside payment of $113 per security. However, if the final share price of either of the underlying shares is less than its respective downside threshold value, the payment at maturity will be significantly less than the stated principal amount of the securities by an amount proportionate to the percentage decrease in the final share price of the worst performing of the underlying shares from its initial share price. Under these circumstances, the payment at maturity will be less than $600 per security and could be zero. Accordingly, you could lose your entire initial investment in the securities. Because the payment at maturity on the securities is based on the worst performing underlying shares, a decline in either final share price below 60% of its respective initial share price will result in a significant loss on your investment, even if the other underlying shares have appreciated or have not declined as much. Investors will not participate in any appreciation of either of the underlying shares. The securities are for investors who seek an equity-based return and who are willing to risk their principal, risk exposure to the worst performing of two underlying shares and forgo current income and returns above the fixed upside payment in exchange for the upside payment feature that applies only if the final share price of each of the underlying shares is greater than or equal to its respective downside threshold value. The securities are notes issued as part of MSFL’s Series A Global Medium-Term Notes Program.
All payments are subject to our credit risk. If we default on our obligations, you could lose some or all of your investment. These 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.
| FINAL TERMS — Issuer: | Morgan Stanley Finance LLC | ||
|---|---|---|---|
| Guarantor: | Morgan Stanley | ||
| Issue price: | $1,000 per security | ||
| Stated principal amount: | $1,000 per security | ||
| Pricing date: | November 3, 2020 | ||
| Original issue date: | November 6, 2020 (3 business days after the pricing date) | ||
| Maturity date: | December 8, 2021 | ||
| Aggregate principal amount: | $372,000 | ||
| Interest: | None | ||
| Underlying shares: | The VanEck Vectors ® Gold Miners ETF (the “GDX Shares”) and the Energy Select Sector SPDR ® Fund (the “XLE Shares”) | ||
| Payment at maturity: | If the final share price of each of | ||
| the underlying shares is greater than or equal to its respective downside threshold value: $1,000 + the upside payment If the final share price of either of | |||
| the underlying shares is less than its respective downside threshold value, meaning the share price of either of | |||
| the underlying shares has declined by more than 40% from its respective initial share price to its respective final share price: $1,000 × performance factor | |||
| of the worst performing underlying shares Under these circumstances, the payment at maturity will be | |||
| significantly less than the stated principal amount of $1,000 and will represent a loss of more than 40%, and possibly all, of | |||
| your investment. | |||
| Upside payment: | $113 per security (11.30% of the stated principal amount) | ||
| Performance factor: | With respect to each of the underlying shares, final share price / initial share price | ||
| Worst performing underlying shares: | The underlying shares that has declined the most, meaning that it has the lowest performance factor | ||
| Initial share price: | With respect to the GDX Shares, $39.37, which is the closing | ||
| price of such underlying shares on the pricing date With respect to the XLE Shares, $29.53, which is the closing | |||
| price of such underlying shares on the pricing date | |||
| Downside threshold value: | With respect to the GDX Shares, $23.622, which is 60% of the | ||
| initial share price for such underlying shares With respect to the XLE Shares, $17.718, which is 60% of the | |||
| initial share price for such underlying shares | |||
| Final share price: | With respect to each of the underlying shares, the closing share price of such underlying shares on the valuation date | ||
| Closing share price: | With respect to each of the underlying shares, on any trading day, the closing price of one share of such underlying shares on such day times the adjustment factor for such underlying shares on such day | ||
| Valuation date: | December 3, 2021, subject to postponement for non-trading days and certain market disruption events | ||
| Adjustment factor: | With respect to each of the underlying shares, 1.0, subject to adjustment in the event of certain events affecting such underlying shares | ||
| CUSIP / ISIN: | 61771EGP7 / US61771EGP79 | ||
| Listing: | The securities will not be listed on any securities exchange. | ||
| Agent: | Morgan Stanley & Co. LLC (“MS & Co.”), an affiliate of MSFL and a wholly owned subsidiary of Morgan Stanley. See “Supplemental information regarding plan of distribution; conflicts of interest.” | ||
| Estimated value on the pricing date: | $952.80 per security. See “Investment Summary” on page 2. | ||
| Commissions and issue price: | Price to public (1) | Agent’s commissions and fees (2) | Proceeds to us (3) |
| Per security | $1,000 | $0 | $1,000 |
| Total | $372,000 | $0 | $372,000 |
(1) The securities will be sold only to investors purchasing the securities in fee-based advisory accounts.
(2) MS & Co. expects to sell all of the securities that it purchases from us to an unaffiliated dealer at a price of $1,000 per security, for further sale to certain fee-based advisory accounts at the price to public of $1,000 per security. MS & Co. will not receive a sales commission with respect to the securities. See “Supplemental information regarding plan of distribution; conflicts of interest.” For additional information, see “Plan of Distribution (Conflicts of Interest)” in the accompanying product supplement for Jump Securities.
(3) See “Use of proceeds and hedging” on page 22.
The securities involve risks not associated with an investment in ordinary debt securities. See “Risk Factors” beginning on page 7.
The Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities, or determined if this document or the accompanying product supplement, index supplement and prospectus is truthful or complete. 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.
You should read this document together with the related product supplement, index supplement and prospectus, each of which can be accessed via the hyperlinks below. Please also see “Additional Terms of the Securities” and “Additional Information About the Securities” at the end of this document.
References to “we,” “us” and “our” refer to Morgan Stanley or MSFL, or Morgan Stanley and MSFL collectively, as the context requires.
Product Supplement for Jump Securities dated November 16, 2017 Index Supplement dated November 16, 2017 Prospectus dated November 16, 2017
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Morgan Stanley Finance LLC
Enhanced Trigger Jump Securities Based on the Value of the Worst Performing of the VanEck Vectors ® Gold Miners ETF and the Energy Select Sector SPDR ® Fund due December 8, 2021
Principal at Risk Securities
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Investment Summary
Principal at Risk Securities
The Enhanced Trigger Jump Securities Based on the Value of the Worst Performing of the VanEck Vectors ® Gold Miners ETF and the Energy Select Sector SPDR ® Fund due December 8, 2021 (the “securities”) can be used:
§ As an alternative to direct exposure to the underlying shares that provides a fixed return of 11.30% if the final share price of each of the underlying shares is greater than or equal to its respective downside threshold value;
§ To potentially outperform the worst performing of the VanEck Vectors ® Gold Miners ETF and the Energy Select Sector SPDR ® Fund in a moderately bullish or moderately bearish scenario;
§ To obtain limited protection against the loss of principal in the event of a decline of the underlying shares as of the valuation date, but only if the final share price of each of the underlying shares is greater than or equal to its respective downside threshold value.
If the final share price of either of the underlying shares is less than its respective downside threshold value, the securities are exposed on a 1-to-1 basis to the percentage decline of the final share price of the worst performing underlying shares from its respective initial share price. Accordingly, investors may lose their entire initial investment in the securities.
| Maturity: | Approximately 13 months |
|---|---|
| Upside payment: | $113 per security (11.30% of the stated principal amount), payable only if the final share price of each of the underlying shares is greater than or equal to its respective downside threshold value. |
| Downside threshold value: | For each of the underlying shares, 60% of the respective initial share price |
| Interest: | None |
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The original 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 pricing date is less than $1,000. We estimate that the value of each security on the pricing date is $952.80.
What goes into the estimated value on the pricing date?
In valuing the securities on the pricing date, we take into account that the securities comprise both a debt component and a performance-based component linked to the underlying shares. The estimated value of the securities is determined using our own pricing and valuation models, market inputs and assumptions relating to the underlying shares, instruments based on the underlying shares, 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 upside payment and the downside threshold values, 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 securities?
The price at which MS & Co. purchases the securities in the secondary market, absent changes in market conditions, including those related to the underlying shares, may vary from, and be lower than, the estimated value on the pricing date, because the secondary market price takes into account our secondary market credit spread as well as the bid-offer spread that MS & Co. would charge in a secondary market transaction of this type and other factors. However, because the costs associated with issuing, selling, structuring and hedging the securities are not fully deducted upon issuance, for a period of up to 6 months following the issue date, to the extent that MS & Co. may buy or sell the securities in the secondary market, absent changes in market conditions, including those related to the underlying shares, and to our secondary market credit spreads, it would do so based on values higher than the estimated value. We expect that those higher values will also be reflected in your brokerage account statements.
MS & Co. may, but is not obligated to, make a market in the securities, and, if it once chooses to make a market, may cease doing so at any time.
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Key Investment Rationale
The securities provide a return based on the performance of the worst performing of the VanEck Vectors ® Gold Miners ETF and the Energy Select Sector SPDR ® Fund. If the final share price of each of the underlying shares is greater than or equal to its respective downside threshold value, you will receive the stated principal amount for each security that you hold at maturity plus the upside payment of $113 per security. However, if, as of the valuation date, the share price of either of the underlying shares is less than its respective downside threshold value, the payment due at maturity will be less than $600 per security and could be zero.
| Upside
Scenario | If the final share price of each of the underlying shares is greater than or equal to its respective downside threshold value , the payment at maturity for each security will be equal to $1,000 plus the upside payment of $113. You will not participate in any appreciation of either of the underlying shares. |
| --- | --- |
| Downside
Scenario | If the final share price of either of the underlying
shares is less than its respective downside threshold value, you will lose 1% for every 1% decline in the value of the
worst performing underlying shares from its initial share price, without any buffer (e.g., a 50% depreciation in the worst performing
underlying shares from the respective initial share price to the respective final share price will result in a payment at maturity
of $500 per security). Because the payment at maturity of the securities is based on
the worst performing of the underlying shares, a decline in either of the underlying shares below its respective
downside threshold value will result in a loss of a significant portion or all of your investment, even if the other underlying
shares have appreciated or have not declined as much. |
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Hypothetical Examples
The following hypothetical examples illustrate how to calculate the payment at maturity on the securities. The following examples are for illustrative purposes only. The payment at maturity on the securities is subject to our credit risk. The below examples are based on the following terms. The actual initial share prices and downside threshold values are set forth on the cover of this document.
| Stated
principal amount: | $1,000 per security |
| --- | --- |
| Hypothetical
initial share price: | With respect to the GDX Shares: $40 With respect to the XLE Shares: $30 |
| Hypothetical
downside threshold value: | With respect to the GDX Shares: $24, which is 60% of its hypothetical
initial share price With respect to the XLE Shares: $18, which is 60% of its hypothetical
initial share price |
| Upside
payment: | $113 (11.30% of the stated principal amount) |
| Interest: | None |
EXAMPLE 1: Both underlying shares appreciate substantially, and investors therefore receive the stated principal amount plus the upside payment.
| Final share price | GDX Shares: $80 | |
|---|---|---|
| XLE Shares: $52.50 | ||
| Performance factor | GDX Shares: $80 / $40 = 200% XLE Shares: $52.50 / $30 = 175% | |
| Payment at maturity | = | $1,000 + upside payment |
| = | $1,000 + $113 | |
| = | $1,113 |
In example 1, the final share price for the GDX Shares has increased from its initial share price by 100% and the final share price for the XLE Shares has increased from its initial share price by 75%. Because the final share price of each underlying shares is at or above its respective downside threshold value, investors receive at maturity the stated principal amount plus the upside payment of $113. Investors receive $1,113 per security at maturity and do not participate in the appreciation of either of the underlying shares. Although both underlying shares have appreciated substantially, the return on the securities is limited to the stated principal amount plus the fixed upside payment of $113.
EXAMPLE 2: The final share price of each of the underlying shares is at or above its respective downside threshold value, and investors therefore receive the stated principal amount plus the upside payment.
| Final share price | GDX Shares: $46 | |
|---|---|---|
| XLE Shares: $27 | ||
| Performance factor | GDX Shares: $46 / $40 = 115% XLE Shares: $27 / $30 = 90% | |
| Payment at maturity | = | $1,000 + upside payment |
| = | $1,000 + $113 | |
| = | $1,113 |
In example 2, the final share price for the GDX Shares has increased from its initial share price by 15% and the final share price for the XLE Shares has decreased from its initial share price by 10%. Because the final share price of each of the underlying shares is at or above its respective downside threshold value, investors receive at maturity the stated principal amount plus the upside payment of $113. Investors receive $1,113 per security at maturity.
EXAMPLE 3: The final share price of one of the underlying shares is less than its respective downside threshold value. Investors are therefore exposed to the full decline in the worst performing underlying shares from its initial share price.
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| Final share price | GDX Shares: $48 | |
|---|---|---|
| XLE Shares: $15 | ||
| Performance factor | GDX Shares: $48 / $40 = | |
| 120% XLE Shares: $15 / $30 = | ||
| 50% | ||
| Payment at maturity | = | $1,000 × performance factor of the worst performing underlying shares |
| = | $1,000 × 50% | |
| = | $500 |
In example 3, the final share price for the GDX Shares has increased from its initial share price by 20% and the final share price for the XLE Shares has decreased from its initial share price by 50%. Because one of the underlying shares has declined below its respective downside threshold value, investors lose the benefit of the upside payment and instead are exposed to the full negative performance of the XLE Shares, which is the worst performing underlying shares in this example. Under these circumstances, investors lose 1% of the stated principal amount for every 1% decline in the value of the worst performing underlying shares from its initial share price. In this example, investors receive a payment at maturity equal to $500 per security, resulting in a loss of 50%.
EXAMPLE 4 : The final share price of each of the underlying shares is less than its respective downside threshold value. Investors are therefore exposed to the full decline in the worst performing underlying shares from its initial share price.
| Final share price | GDX Shares: $8 | |
|---|---|---|
| XLE Shares: $12 | ||
| Performance factor | GDX Shares: $8 / $40 = | |
| 20% XLE Shares: $12 / $30 = | ||
| 40% | ||
| Payment at maturity | = | $1,000 × performance factor of the worst performing underlying shares |
| = | $1,000 × 20% | |
| = | $200 |
In example 4, the final share price for the GDX Shares has decreased from its initial share price by 80% and the final share price for the XLE Shares has decreased from its initial share price by 60%. Because one or both of the underlying shares have declined below their respective downside threshold values, investors lose the benefit of the upside payment and instead are exposed to the full negative performance of the GDX Shares, which is the worst performing underlying shares in this example. Under these circumstances, investors lose 1% of the stated principal amount for every 1% decline in the value of the worst performing underlying shares from its initial share price. In this example, investors receive a payment at maturity equal to $200 per security, resulting in a loss of 80%.
If the final share price of either of the underlying shares is less than its respective downside threshold value, you will receive an amount in cash that is significantly less than the $1,000 stated principal amount of each security by an amount proportionate to the full decline in the closing share price of the worst performing underlying shares from its initial share price over the term of the securities, and you will lose a significant portion or all of your investment.
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Risk Factors
The following is a non-exhaustive list of certain key risk factors for investors in the securities. For further discussion of these and other risks, you should read the section entitled “Risk Factors” in the accompanying product supplement, index supplement and prospectus. You should also consult with your investment, legal, tax, accounting and other advisers in connection with your investment in the securities.
§ The securities do not pay interest or guarantee the return of any principal. The terms of the securities differ from those of ordinary debt securities in that the securities do not pay interest or guarantee the payment of any principal at maturity. At maturity, you will receive for each $1,000 stated principal amount of securities that you hold an amount in cash based upon the final share price of each of the underlying shares. If the final share price of either of the underlying shares is less than 60% of its respective initial share price, you will lose the benefit of the upside payment and you will receive at maturity an amount in cash that is significantly less than the $1,000 stated principal amount of each security by an amount proportionate to the full decline in the final share price of the worst performing underlying shares from its initial share price over the term of the securities. Under these circumstances, you will lose a significant portion or all of your investment. There is no minimum payment at maturity on the securities, and, accordingly, you could lose your entire investment.
§ You are exposed to the price risk of each of the underlying shares. Your return on the securities is not linked to a basket consisting of each of the underlying shares. Rather, it will be based upon the independent performance of each of the underlying shares. Unlike an instrument with a return linked to a basket of underlying assets, in which risk is mitigated and diversified among all the components of the basket, you will be exposed to the risks related to each of the underlying shares. Poor performance by either of the underlying shares over the term of the securities will negatively affect your return and will not be offset or mitigated by any positive performance by the other underlying shares. If the final share price of either of the underlying shares declines to below 60% of its respective initial share price, you will be fully exposed to the negative performance of the worst performing underlying shares at maturity, even if the other underlying shares have appreciated or have not declined as much. Accordingly, your investment is subject to the price risk of each of the underlying shares.
§ Because the securities are linked to the performance of the worst performing underlying shares, you are exposed to greater risk of sustaining a significant loss on your investment than if the securities were linked to just one of the underlying shares. The risk that you will suffer a significant loss on your investment is greater if you invest in the securities as opposed to substantially similar securities that are linked to the performance of just one of the underlying shares. With two underlying shares, it is more likely that the final share price of either of the underlying shares will decline to below its respective downside threshold value than if the securities were linked to only one of the underlying shares. Therefore, it is more likely that you will suffer a significant loss on your investment.
§ Appreciation potential is fixed and limited. Where the final share price of each underlying shares is greater than or equal to its respective downside threshold value, the appreciation potential of the securities is limited to the fixed upside payment of $113 per security (11.30% of the stated principal amount), even if both underlying shares have appreciated substantially.
§ The amount payable on the securities is not linked to the share prices of the underlying shares at any time other than the valuation date. The final share prices will be the closing share prices on the valuation date, subject to postponement for non-trading days and certain market disruption events. Even if the share price of the worst performing underlying shares appreciates prior to the valuation date but then drops by the valuation date, the payment at maturity may be significantly less than it would have been had the payment at maturity been linked to the share price of the worst performing underlying shares prior to such drop. Although the actual share price of the worst performing underlying shares on the stated maturity date or at other times during the term of the securities may be higher than its respective final share price, the payment at maturity will be based solely on the final share price of the worst performing underlying shares on the valuation date.
§ 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. Morgan Stanley & Co. LLC, which we refer to as MS & Co., may, 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. When it does
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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 securities, 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 securities. Even if there is a secondary market, it may not provide enough liquidity to allow you to trade or sell the securities easily. Since other broker-dealers may not 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.
§ 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 in the secondary market and the price at which MS & Co. may be willing to purchase or sell the securities in the secondary market, including:
o the values of the underlying shares at any time (including in relation to their initial share prices and downside threshold values),
o the volatility (frequency and magnitude of changes in value) of each of the underlying shares and of the stocks composing the NYSE Arca Gold Miners Index and the Energy Select Sector Index ,
o dividend rates on the securities underlying the NYSE Arca Gold Miners Index and the Energy Select Sector Index ,
o interest and yield rates in the market,
o geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the component stocks of the underlying shares or securities markets generally and which may affect the share prices of the underlying shares,
o the time remaining until the maturity of the securities,
o the composition of the underlying shares and changes in the constituent stocks of the NYSE Arca Gold Miners Index and the Energy Select Sector Index ,
o the occurrence of certain events affecting the underlying shares that may or may not require an adjustment to an adjustment factor, and
o any actual or anticipated changes in our credit ratings or credit spreads.
Some or all of these factors will influence the price you will receive if you sell your securities prior to maturity. In particular, you may have to sell your securities at a substantial discount from the stated principal amount if at the time of sale the value of either of the underlying shares is near, at or below its respective downside threshold value.
You cannot predict the future performance of either of the underlying shares based on their historical performance. If the final share price of either of the underlying shares is less than 60% of its respective initial share price, you will be exposed on a 1-to-1 basis to the full decline in the final share price of the worst performing underlying shares from its respective initial share price. There can be no assurance that the final share price of each of the underlying shares will be greater than or equal to its respective downside threshold value so that you will receive at maturity an amount that is greater than the $1,000 stated principal amount for each security you hold, or that you will not lose a significant portion or all of your investment.
§ The securities are subject to our credit risk, and any actual or anticipated changes to our credit ratings or credit spreads may adversely affect the market value of the securities. You are dependent on our ability to pay all amounts due on the securities 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.
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§ 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.
§ The rate we are willing to pay for securities of this type, maturity and issuance size is likely to be lower than the rate implied by our secondary market credit spreads and advantageous to us. Both the lower rate and the inclusion of costs associated with issuing, selling, structuring and hedging the securities in the original issue price reduce the economic terms of the securities, cause the estimated value of the securities to be less than the original issue price and will adversely affect secondary market prices. 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 securities 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 as well as other factors.
The inclusion of the costs of issuing, selling, structuring and hedging the securities in the original 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.
However, because the costs associated with issuing, selling, structuring and hedging the securities are not fully deducted upon issuance, for a period of up to 6 months following the issue date, to the extent that MS & Co. may buy or sell the securities in the secondary market, absent changes in market conditions, including those related to the underlying shares, and to our secondary market credit spreads, it would do so based on values higher than the estimated value, and we expect that those higher values will also be reflected in your brokerage account statements.
§ 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 pricing 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 document 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.
§ Investing in the securities exposes investors to risks associated with investments in securities with a concentration in the gold and silver mining industry. The securities are subject to certain risks applicable to the gold and silver mining industry. The stocks included in the NYSE Arca Gold Miners Index and that are generally tracked by the GDX Shares are stocks of companies primarily engaged in the mining of gold or silver. The underlying shares may be subject to increased price volatility as they are linked to a single industry, market or sector and may be more susceptible to adverse economic, market, political or regulatory occurrences affecting that industry, market or sector.
Because the GDX Shares primarily invest in stocks, American Depositary Receipts (“ADRs”) and Global Depositary Receipts (“GDRs”) of companies that are involved in the gold mining industry, they are subject to certain risks associated with such companies.
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Competitive pressures may have a significant effect on the financial condition of companies in the gold mining industry. Also, gold mining companies are highly dependent on the price of gold. Gold prices are subject to volatile price movements over short periods of time and are affected by numerous factors. These include economic factors, including, among other things, the structure of and confidence in the global monetary system, expectations of the future rate of inflation, the relative strength of, and confidence in, the U.S. dollar (the currency in which the price of gold is generally quoted), interest rates and gold borrowing and lending rates, and global or regional economic, financial, political, regulatory, judicial or other events. Gold prices may also be affected by industry factors such as industrial and jewelry demand, lending, sales and purchases of gold by the official sector, including central banks and other governmental agencies and multilateral institutions which hold gold, levels of gold production and production costs, and short-term changes in supply and demand because of trading activities in the gold market.
The GDX Shares invest to a lesser extent in stocks, ADRs and GDRs of companies involved in the silver mining industry. Silver mining companies are highly dependent on the price of silver. Silver prices can fluctuate widely and may be affected by numerous factors. These include general economic trends, technical developments, substitution issues and regulation, as well as specific factors including industrial and jewelry demand, expectations with respect to the rate of inflation, the relative strength of the U.S. dollar (the currency in which the price of silver is generally quoted) and other currencies, interest rates, central bank sales, forward sales by producers, global or regional political or economic events, and production costs and disruptions in major silver producing countries such as Mexico and Peru. The supply of silver consists of a combination of new mine production and existing stocks of bullion and fabricated silver held by governments, public and private financial institutions, industrial organizations and private individuals. In addition, the price of silver has on occasion been subject to very rapid short-term changes due to speculative activities. From time to time, above-ground inventories of silver may also influence the market.
§ The prices of the GDX Shares are subject to currency exchange risk. Because the prices of the GDX Shares are related to the U.S. dollar value of stocks underlying the NYSE Arca Gold Miners Index, holders of the securities will be exposed to currency exchange rate risk with respect to the currencies in which such component securities trade. Exchange rate movements for a particular currency are volatile and are the result of numerous factors including the supply of, and the demand for, those currencies, as well as relevant government policy, intervention or actions, but are also influenced significantly from time to time by political or economic developments, and by macroeconomic factors and speculative actions related to the relevant region. An investor’s net exposure will depend on the extent to which the currencies of the component securities strengthen or weaken against the U.S. dollar and the relative weight of each currency. If, taking into account such weighting, the dollar strengthens against the currencies of the component securities represented in the NYSE Arca Gold Miners Index, the price of the relevant underlying shares will be adversely affected.
§ Investing in the securities exposes investors to risks associated with investments in securities with a concentration in the energy sector. The stocks included in the Energy Select Sector Index and that are generally tracked by the XLE Shares are stocks of companies whose primary business is directly associated with the energy sector, including the following sub-sectors: (i) oil, gas and consumable fuels and (ii) energy equipment and services. Because the value of the securities is linked to the performance of the XLE Shares, an investment in the securities exposes investors to risks associated with investments in securities with a concentration in the energy sector.
Energy companies develop and produce crude oil and natural gas and/or provide drilling and other energy resources production and distribution related services. Stock prices for these types of companies are mainly affected by the business, financial and operating condition of the particular company, as well as changes in prices for oil, gas and other types of fuels, which in turn largely depend on supply and demand for various energy products and services. Some of the factors that may influence supply and demand for energy products and services include: general economic conditions and growth rates, weather conditions, the cost of exploring for, producing and delivering oil and gas, technological advances affecting energy efficiency and energy consumption, the ability of the Organization of the Petroleum Exporting Countries (OPEC) to set and maintain production levels of oil, currency fluctuations, inflation, natural disasters, civil unrest, acts of sabotage or terrorism and other regional or global events. The profitability of energy companies may also be adversely affected by existing and future laws, regulations, government actions and other legal requirements relating to protection of the environment, health and safety matters and others that may increase the costs of conducting their business or
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may reduce or delay available business opportunities. Increased supply or weak demand for energy products and services, as well as various developments leading to higher costs of doing business or missed business opportunities, would adversely impact the performance of companies in the energy sector. The value of the securities may be subject to greater volatility and be more adversely affected by a single economic, political or regulatory occurrence affecting the energy sector or one of the sub-sectors of the energy sector than a different investment linked to securities of a more broadly diversified group of issuers.
§ Investing in the securities is not equivalent to investing in the underlying shares or the stocks composing the share underlying indices. Investing in the securities is not equivalent to investing in either of the underlying shares, the share underlying indices or the stocks that constitute the share underlying indices. Investors in the securities will not have voting rights or rights to receive dividends or other distributions or any other rights with respect to the underlying shares or the stocks that constitute the share underlying indices.
§ Adjustments to the underlying shares or the indices tracked by the underlying shares could adversely affect the value of the securities. The investment advisor to each of the underlying shares, VanEck Associates Corporation for the GDX Shares and BlackRock Fund Advisors for the XLE Shares, seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the relevant share underlying index. Pursuant to its investment strategy or otherwise, the investment advisor may add, delete or substitute the stocks composing the respective underlying shares. Any of these actions could adversely affect the price of the respective underlying shares and, consequently, the value of the securities. The publisher of each of the share underlying indices is responsible for calculating and maintaining the respective share underlying index. It may add, delete or substitute the securities constituting the share underlying indices or make other methodological changes that could change the value of the share underlying indices, and, consequently, the price of the underlying shares and the value of the securities. The publisher of each of the share underlying indices may discontinue or suspend calculation or publication of a share underlying index at any time. In these circumstances, the calculation agent will have the sole discretion to substitute a successor index that is comparable to the discontinued share underlying index and will be permitted to consider indices that are calculated and published by the calculation agent or any of its affiliates.
§ The performance and market price of either of the underlying shares, particularly during periods of market volatility, may not correlate with the performance of its respective share underlying index, the performance of the component securities of such share underlying index or the net asset value per share of such underlying shares. The underlying shares do not fully replicate their respective share underlying indices, and each may hold securities that are different than those included in its respective share underlying index. In addition, the performance of each of the underlying shares will reflect additional transaction costs and fees that are not included in the calculation of the share underlying indices. All of these factors may lead to a lack of correlation between the performance of each of the underlying shares and its respective share underlying index. In addition, corporate actions (such as mergers and spin-offs) with respect to the equity securities underlying each of the underlying shares may impact the variance between the performance of each of the underlying shares and its respective share underlying index. Finally, because the shares of each of the underlying shares are traded on an exchange and are subject to market supply and investor demand, the market price of one share of each of the underlying shares may differ from the net asset value per share of such underlying shares.
In particular, during periods of market volatility, or unusual trading activity, trading in the securities underlying each of the underlying shares may be disrupted or limited, or such securities may be unavailable in the secondary market. Under these circumstances, the liquidity of each underlying shares may be adversely affected, market participants may be unable to calculate accurately the net asset value per share of each of the underlying shares, and their ability to create and redeem shares of each of the underlying shares may be disrupted. Under these circumstances, the market price of shares of each of the underlying shares may vary substantially from the net asset value per share of each underlying shares or the level of its respective share underlying index.
For all of the foregoing reasons, the performance of each of the underlying shares may not correlate with the performance of its respective share underlying index, the performance of the component securities of such share underlying index or the net asset value per share of such underlying shares. Any of these events could materially and adversely affect the prices of each of the underlying shares and, therefore, the value of the securities. Additionally, if market volatility or these events were to occur on the relevant date of calculation, the calculation
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agent would maintain discretion to determine whether such market volatility or events have caused a market disruption event to occur, and such determination would affect the payment at maturity of the securities. If the calculation agent determines that no market disruption event has taken place, the payment at maturity would be based on the published closing price per share of each of the underlying shares on the valuation date, even if either of the underlying shares is underperforming its respective share underlying index or the component securities of such share underlying index and/or trading below the net asset value per share of such underlying shares.
§ The antidilution adjustments the calculation agent is required to make do not cover every event that can affect either of the underlying shares. MS & Co., as calculation agent, will adjust the adjustment factor for either of the underlying shares for certain events affecting such underlying shares, such as stock splits and stock dividends. However, the calculation agent will not make an adjustment for every event or every distribution that could affect either of the underlying shares. If an event occurs that does not require the calculation agent to adjust the relevant adjustment factor, the market price of the securities may be materially and adversely affected. The determination by the calculation agent to adjust, or not to adjust, an adjustment factor may materially and adversely affect the value of the securities.
§ The calculation agent, which is a subsidiary of Morgan Stanley and an affiliate of MSFL, will make determinations with respect to the securities. As calculation agent, MS & Co. will determine the initial share prices, the downside threshold values, the final share prices and the performance factors, if applicable, and the payment that you will receive at maturity, if any. Moreover, certain determinations made by MS & Co., in its capacity as calculation agent, may require it to exercise discretion and make subjective judgments, such as with respect to the occurrence or non-occurrence of market disruption events and the selection of a successor index or calculation of the closing value or closing price, as applicable, in the event of a market disruption event or discontinuance of the NYSE Arca Gold Miners Index or the Energy Select Sector Index. These potentially subjective determinations may adversely affect the payout to you at maturity, if any. For further information regarding these types of determinations, see “Description of Securities—Postponement of Valuation Date(s),” “—Discontinuance of Any Underlying Index or Basket Index; Alteration of Method of Calculation,” “—Discontinuance of Any ETF Shares and/or Share Underlying Index; Alteration of Method of Calculation,” “—Alternate Exchange Calculation in case of an Event of Default” and “—Calculation Agent and Calculations” in the accompanying product supplement. In addition, MS & Co. has determined the estimated value of the securities on the pricing date.
§ Hedging and trading activity by our affiliates could potentially adversely affect the value of the securities . One or more of our affiliates and/or third-party dealers expect to carry out hedging activities related to the securities (and to other instruments linked to the underlying shares or the share underlying indices), including trading in the underlying shares, the stocks that constitute the share underlying indices as well as in other instruments related to the underlying shares or the share underlying indices. As a result, these entities may be unwinding or adjusting hedge positions during the term of the securities, and the hedging strategy may involve greater and more frequent dynamic adjustments to the hedge as the valuation date approaches. Some of our affiliates also trade the underlying shares and the stocks that constitute the share underlying indices and other financial instruments related to the share underlying indices on a regular basis as part of their general broker-dealer and other businesses. Any of these hedging or trading activities on or prior to the pricing date could potentially increase the initial share price of either of the underlying shares, and, therefore, could increase the price at or above which such underlying shares must close on the valuation date so that you do not suffer a significant loss on your initial investment in the securities (depending also on the performance of the other underlying shares). Additionally, such hedging or trading activities during the term of the securities, including on the valuation date, could adversely affect the closing price of either of the underlying shares, and, accordingly, the amount of cash an investor will receive at maturity, if any (depending also on the performance of the other underlying shares).
§ The U.S. federal income tax consequences of an investment in the securities are uncertain. Please read the discussion under “Additional Information—Tax considerations” in this document and the discussion under “United States Federal Taxation” in the accompanying product supplement for Jump Securities (together, the “Tax Disclosure Sections”) concerning the U.S. federal income tax consequences of an investment in the securities. If the Internal Revenue Service (the “IRS”) were successful in asserting an alternative treatment, the timing and character of income on the securities might differ significantly from the tax treatment described in the Tax
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Disclosure Sections. For example, under one possible treatment, the IRS could seek to recharacterize the securities as debt instruments. In that event, U.S. Holders would be required to accrue into income original issue discount on the securities every year at a “comparable yield” determined at the time of issuance and recognize all income and gain in respect of the securities as ordinary income. Additionally, as discussed under “United States Federal Taxation—FATCA” in the accompanying product supplement for Jump Securities, the withholding rules commonly referred to as “FATCA” would apply to the securities if they were recharacterized as debt instruments. 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 (other than amounts treated as “FDAP income,” as defined in the accompanying product supplement for Jump Securities). 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. 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 in the Tax Disclosure Sections.
In 2007, the U.S. Treasury Department and the IRS released a notice requesting comments on the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments. The notice focuses in particular on whether to require holders of these instruments to accrue income over the term of their investment. It also asks for comments on a number of related topics, including the character of income or loss with respect to these instruments; whether short-term instruments should be subject to any such accrual regime; the relevance of factors such as the exchange-traded status of the instruments and the nature of the underlying property to which the instruments are linked; the degree, if any, to which income (including any mandated accruals) realized by non-U.S. investors should be subject to withholding tax; and whether these instruments are or should be subject to the “constructive ownership” rule, which very generally can operate to recharacterize certain long-term capital gain as ordinary income and impose an interest charge. While the notice requests comments on appropriate transition rules and effective dates, any Treasury regulations or other guidance promulgated after consideration of these issues could materially and adversely affect the tax consequences of an investment in the securities, possibly with retroactive effect. 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 this notice and any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
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VanEck Vectors ® Gold Miners ETF Overview
The VanEck Vectors ® Gold Miners ETF is an exchange-traded fund managed by VanEck, a registered investment company that seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the NYSE Arca Gold Miners Index. The VanEck Vectors ® Gold Miners ETF is managed by VanEck Vectors ® ETF Trust (the “Trust”), a registered investment company that consists of numerous separate investment portfolios, including the VanEck Vectors ® Gold Miners ETF. Information provided to or filed with the Securities and Exchange Commission by the Trust pursuant to the Securities Act of 1933 and the Investment Company Act of 1940 can be located by reference to Commission file numbers 333-123257 and 811-10325, respectively, through the Commission’s website at www.sec.gov. In addition, information may be obtained from other publicly available sources. Neither the issuer nor the agent makes any representation that any such publicly available information regarding the VanEck Vectors ® Gold Miners ETF is accurate or complete.
Information as of market close on November 3, 2020:
| Bloomberg Ticker Symbol: | GDX UP |
|---|---|
| Current Price: | $39.37 |
| 52 Weeks Ago: | $27.52 |
| 52 Week High (on 8/5/2020): | $44.53 |
| 52 Week Low (on 3/13/2020): | $19.00 |
The following graph sets forth the daily closing prices of the GDX Shares for the period from January 1, 2015 through November 3, 2020. The related table sets forth the published high and low closing prices, as well as end-of-quarter closing prices, of the GDX Shares for each quarter in the same period. The closing price of the GDX Shares on November 3, 2020 was $39.37. We obtained the information in the graph and table below from Bloomberg Financial Markets, without independent verification. The GDX Shares have at times experienced periods of high volatility, and you should not take the historical values of the GDX Shares as an indication of future performance.
GDX Shares Daily Closing Prices January 1, 2015 to November 3, 2020
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| VanEck Vectors ® Gold Miners ETF (CUSIP 92189F106) | High ($) | Low ($) | Period End ($) |
|---|---|---|---|
| 2015 | |||
| First Quarter | 22.94 | 17.67 | 18.24 |
| Second Quarter | 20.82 | 17.76 | 17.76 |
| Third Quarter | 17.85 | 13.04 | 13.74 |
| Fourth Quarter | 16.90 | 13.08 | 13.72 |
| 2016 | |||
| First Quarter | 20.86 | 12.47 | 19.98 |
| Second Quarter | 27.70 | 19.53 | 27.70 |
| Third Quarter | 31.32 | 25.45 | 26.43 |
| Fourth Quarter | 25.96 | 18.99 | 20.92 |
| 2017 | |||
| First Quarter | 25.57 | 21.14 | 22.81 |
| Second Quarter | 24.57 | 21.10 | 22.08 |
| Third Quarter | 25.49 | 21.21 | 22.96 |
| Fourth Quarter | 23.84 | 21.42 | 23.24 |
| 2018 | |||
| First Quarter | 24.60 | 21.27 | 21.98 |
| Second Quarter | 23.06 | 21.81 | 22.31 |
| Third Quarter | 22.68 | 17.57 | 18.52 |
| Fourth Quarter | 21.09 | 18.39 | 21.09 |
| 2019 | |||
| First Quarter | 23.36 | 20.31 | 22.42 |
| Second Quarter | 26.17 | 20.17 | 25.56 |
| Third Quarter | 30.95 | 24.58 | 26.71 |
| Fourth Quarter | 29.49 | 26.19 | 29.28 |
| 2020 | |||
| First Quarter | 31.05 | 19.00 | 23.04 |
| Second Quarter | 37.21 | 24.03 | 36.68 |
| Third Quarter | 44.53 | 36.17 | 39.16 |
| Fourth Quarter (through November 3, 2020) | 40.96 | 36.52 | 39.37 |
This document relates only to the securities referenced hereby and does not relate to the GDX Shares. We have derived all disclosures contained in this document regarding the Trust from the publicly available documents described above. In connection with the offering of the securities, neither we nor the agent has participated in the preparation of such documents or made any due diligence inquiry with respect to the Trust. Neither we nor the agent makes any representation that such publicly available documents or any other publicly available information regarding the Trust is accurate or complete. Furthermore, we cannot give any assurance that all events occurring prior to the date hereof (including events that would affect the accuracy or completeness of the publicly available documents described above) that would affect the trading price of the GDX Shares (and therefore the price of the GDX Shares at the time we priced the securities) have been publicly disclosed. Subsequent disclosure of any such events or the disclosure of or failure to disclose material future events concerning the Trust could affect the value received with respect to the securities and therefore the value of the securities.
Neither we nor any of our affiliates makes any representation to you as to the performance of the GDX Shares.
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We and/or our affiliates may presently or from time to time engage in business with the Trust. In the course of such business, we and/or our affiliates may acquire non-public information with respect to the Trust, and neither we nor any of our affiliates undertakes to disclose any such information to you. In addition, one or more of our affiliates may publish research reports with respect to the GDX Shares. The statements in the preceding two sentences are not intended to affect the rights of investors in the securities under the securities laws. As a purchaser of the securities, you should undertake an independent investigation of the Trust as in your judgment is appropriate to make an informed decision with respect to an investment linked to the GDX Shares.
Market Vectors SM is a service mark of Van Eck Associates Corporation (“Van Eck”). The securities are not sponsored, endorsed, sold, or promoted by Van Eck. Van Eck makes no representations or warranties to the owners of the securities or any member of the public regarding the advisability of investing in the securities. Van Eck has no obligation or liability in connection with the operation, marketing, trading or sale of the securities.
The NYSE Arca Gold Miners Index. The NYSE Arca Gold Miners Index is a modified market capitalization weighted index comprised of publicly traded companies involved primarily in the mining of gold and silver. The NYSE Arca Gold Miners Index includes common stocks, ADRs or GDRs of selected companies involved in the mining for gold and silver ore and are listed for trading and electronically quoted on a major stock market that is accessible by foreign investors. For additional information about the NYSE Arca Gold Miners Index, please see the information set forth under “NYSE Arca Gold Miners Index” in the accompanying index supplement.
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Energy Select Sector SPDR ® Fund Overview
The Energy Select Sector SPDR ® Fund is an exchange-traded fund that seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of publicly traded equity securities of companies included in the S&P ® Oil & Gas Exploration & Production Select Industry ® Index. The Energy Select Sector SPDR ® Fund is managed by SPDR ® Series Trust (the “Trust”), a registered investment company that consists of numerous separate investment portfolios, including the Energy Select Sector SPDR ® Fund. Information provided to or filed with the Securities and Exchange Commission by the Trust pursuant to the Securities Act of 1933 and the Investment Company Act of 1940 can be located by reference to Commission file numbers 333-57791 and 811-08837, respectively, through the Commission’s website at www.sec.gov. In addition, information may be obtained from other publicly available sources. Neither the issuer nor the agent makes any representation that any such publicly available information regarding the Energy Select Sector SPDR ® Fund is accurate or complete.
Information as of market close on November 3, 2020:
| Bloomberg Ticker Symbol: | XLE UP |
|---|---|
| Current Price: | $29.53 |
| 52 Weeks Ago: | $61.21 |
| 52 Week High (on 12/23/2019): | $61.99 |
| 52 Week Low (on 3/23/2020): | $23.57 |
The following graph sets forth the daily closing prices of the XLE Shares for the period from January 1, 2015 through November 3, 2020. The related table sets forth the published high and low closing prices, as well as end-of-quarter closing prices, of the XLE Shares for each quarter in the same period. The closing price of the XLE Shares on November 3, 2020 was $29.53. We obtained the information in the graph and table below from Bloomberg Financial Markets, without independent verification. The XLE Shares have at times experienced periods of high volatility, and you should not take the historical values of the XLE Shares as an indication of future performance.
XLE Shares Daily Closing Prices January 1, 2015 to November 3, 2020
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| Energy Select Sector SPDR ® Fund (CUSIP 81369Y506 ) | High ($) | Low ($) | Period End ($) |
|---|---|---|---|
| 2015 | |||
| First Quarter | 82.29 | 72.86 | 77.58 |
| Second Quarter | 82.94 | 74.64 | 75.16 |
| Third Quarter | 74.54 | 59.22 | 61.20 |
| Fourth Quarter | 71.40 | 58.78 | 60.55 |
| 2016 | |||
| First Quarter | 63.75 | 51.80 | 61.92 |
| Second Quarter | 69.50 | 60.18 | 68.24 |
| Third Quarter | 71.80 | 65.27 | 70.61 |
| Fourth Quarter | 77.83 | 67.77 | 75.32 |
| 2017 | |||
| First Quarter | 76.17 | 68.24 | 69.90 |
| Second Quarter | 70.90 | 63.95 | 64.92 |
| Third Quarter | 68.49 | 62.00 | 68.48 |
| Fourth Quarter | 72.60 | 67.08 | 72.26 |
| 2018 | |||
| First Quarter | 78.03 | 66.02 | 67.41 |
| Second Quarter | 78.91 | 66.06 | 75.94 |
| Third Quarter | 77.37 | 71.91 | 75.74 |
| Fourth Quarter | 77.79 | 53.84 | 57.35 |
| 2019 | |||
| First Quarter | 67.29 | 57.90 | 66.12 |
| Second Quarter | 68.61 | 58.77 | 63.71 |
| Third Quarter | 64.44 | 55.85 | 59.20 |
| Fourth Quarter | 61.99 | 55.90 | 60.04 |
| 2020 | |||
| First Quarter | 60.87 | 23.57 | 29.06 |
| Second Quarter | 46.86 | 27.62 | 37.85 |
| Third Quarter | 38.58 | 29.95 | 29.95 |
| Fourth Quarter (through November 3, 2020) | 31.29 | 27.71 | 29.53 |
This document relates only to the securities referenced hereby and does not relate to the XLE Shares. We have derived all disclosures contained in this document regarding the Trust from the publicly available documents described above. In connection with the offering of the securities, neither we nor the agent has participated in the preparation of such documents or made any due diligence inquiry with respect to the Trust. Neither we nor the agent makes any representation that such publicly available documents or any other publicly available information regarding the Trust is accurate or complete. Furthermore, we cannot give any assurance that all events occurring prior to the date hereof (including events that would affect the accuracy or completeness of the publicly available documents described above) that would affect the trading price of the XLE Shares (and therefore the price of the XLE Shares at the time we priced the securities) have been publicly disclosed. Subsequent disclosure of any such events or the disclosure of or failure to disclose material future events concerning the Trust could affect the value received with respect to the securities and therefore the value of the securities.
Neither we nor any of our affiliates makes any representation to you as to the performance of the XLE Shares.
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We and/or our affiliates may presently or from time to time engage in business with the Trust. In the course of such business, we and/or our affiliates may acquire non-public information with respect to the Trust, and neither we nor any of our affiliates undertakes to disclose any such information to you. In addition, one or more of our affiliates may publish research reports with respect to the XLE Shares. The statements in the preceding two sentences are not intended to affect the rights of investors in the securities under the securities laws. As a purchaser of the securities, you should undertake an independent investigation of the Trust as in your judgment is appropriate to make an informed decision with respect to an investment linked to the XLE Shares.
“Standard & Poor’s ® ”, “S&P ® ”, “S&P 500 ® ”, “SPDR ® ”, “Select Sector SPDR” and “Select Sector SPDRs” are trademarks of Standard & Poor’s Financial Services LLC (“S&P”), an affiliate of The McGraw-Hill Companies, Inc. (“MGH”). The securities are not sponsored, endorsed, sold, or promoted by S&P, MGH or the Trust. S&P, MGH and the Trust make no representations or warranties to the owners of the securities or any member of the public regarding the advisability of investing in the securities. S&P, MGH and the Trust have no obligation or liability in connection with the operation, marketing, trading or sale of the securities.
The Energy Select Sector Index. The Energy Select Sector Index is calculated and disseminated by S&P and is designed to provide an effective representation of the energy sector of the S&P 500 ® Index. The Energy Select Sector Index includes companies in the following industries: (i) oil, gas and consumable fuels and (ii) energy equipment and services. See “Energy Select Sector Index” in the accompanying index supplement.
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Additional Terms of the Securities
Please read this information in conjunction with the summary terms on the front cover of this document.
| Additional Terms: | |
|---|---|
| If the terms described herein are inconsistent with those described in the accompanying product supplement, index supplement or prospectus, the terms described herein shall control. | |
| Share | |
| underlying index: | With respect to the GDX Shares, NYSE Arca Gold Miners Index. With respect to the XLE Shares, the Energy Select Sector Index. |
| Share | |
| underlying index publisher: | With respect to the GDX Shares, ICE Data Indices, LLC With respect to the XLE Shares, S&P Dow Jones Indices LLC, |
| or any successor thereof. | |
| Trustee: | The Bank of New York Mellon |
| Calculation | |
| agent: | Morgan Stanley & Co. LLC (“MS & Co.”) |
| Issuer | |
| notice to registered security holders, the trustee and the depositary: | In the event that the maturity date is postponed due to postponement |
| of the valuation date, the issuer shall give notice of such postponement and, once it has been determined, of the date to which | |
| the maturity date has been rescheduled (i) to each registered holder of the securities by mailing notice of such postponement by | |
| first class mail, postage prepaid, to such registered holder’s last address as it shall appear upon the registry books, (ii) | |
| to the trustee by facsimile confirmed by mailing such notice to the trustee by first class mail, postage prepaid, at its New York | |
| office and (iii) to The Depository Trust Company (the “depositary”) by telephone or facsimile, confirmed by mailing | |
| such notice to the depositary by first class mail, postage prepaid. Any notice that is mailed to a registered holder of the securities | |
| in the manner herein provided shall be conclusively presumed to have been duly given to such registered holder, whether or not | |
| such registered holder receives the notice. The issuer shall give such notice as promptly as possible, and in no case later than | |
| (i) with respect to notice of postponement of the maturity date, the business day immediately preceding the scheduled maturity | |
| date, and (ii) with respect to notice of the date to which the maturity date has been rescheduled, the business day immediately | |
| following the actual valuation date. The issuer shall, or shall cause the calculation agent to, (i) | |
| provide written notice to the trustee and to the depositary of the amount of cash, if any, to be delivered with respect to the | |
| securities, on or prior to 10:30 a.m. (New York City time) on the business day preceding the maturity date, and (ii) deliver the | |
| aggregate cash amount, if any, due with respect to the securities to the trustee for delivery to the depositary, as holder of the | |
| securities, on the maturity date. |
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Additional Information About the Securities
| Additional Information: | |
|---|---|
| Minimum | |
| ticketing size: | $1,000 / 1 security |
| Tax | |
| considerations: | Although there is uncertainty |
| regarding the U.S. federal income tax consequences of an investment in the securities due to the lack of governing authority, in | |
| the opinion of our counsel, Davis Polk & Wardwell LLP, under current law, and based on current market conditions, a security | |
| should be treated as a single financial contract that is an “open transaction” for U.S. federal income tax purposes. Assuming this treatment | |
| of the securities is respected and subject to the discussion in “United States Federal Taxation” in the accompanying | |
| product supplement for Jump Securities, the following U.S. federal income tax consequences should result based on current law: § A | |
| U.S. Holder should not be required to recognize taxable income over the term of the securities prior to settlement, other than | |
| pursuant to a sale or exchange. § Upon | |
| sale, exchange or settlement of the securities, a U.S. Holder should recognize gain or loss equal to the difference between the | |
| amount realized and the U.S. Holder’s tax basis in the securities. Such gain or loss should be long-term capital gain or | |
| loss if the investor has held the securities for more than one year, and short-term capital gain or loss otherwise. In 2007, | |
| the U.S. Treasury Department and the Internal Revenue Service (the “IRS”) released a notice requesting comments on | |
| the U.S. federal income tax treatment of “prepaid forward contracts” and similar instruments. The notice focuses in | |
| particular on whether to require holders of these instruments to accrue income over the term of their investment. It also asks | |
| for comments on a number of related topics, including the character of income or loss with respect to these instruments; whether | |
| short-term instruments should be subject to any such accrual regime; the relevance of factors such as the exchange-traded status | |
| of the instruments and the nature of the underlying property to which the instruments are linked; the degree, if any, to which | |
| income (including any mandated accruals) realized by non-U.S. investors should be subject to withholding tax; and whether these | |
| instruments are or should be subject to the “constructive ownership” rule, which very generally can operate to recharacterize | |
| certain long-term capital gain as ordinary income and impose an interest charge. While the notice requests comments on appropriate | |
| transition rules and effective dates, any Treasury regulations or other guidance promulgated after consideration of these issues | |
| could materially and adversely affect the tax consequences of an investment in the securities, possibly with retroactive effect. As discussed | |
| in the accompanying product supplement for Jump Securities, Section 871(m) of the Internal Revenue Code of 1986, as amended, and | |
| Treasury regulations promulgated thereunder (“Section 871(m)”) generally impose a 30% (or a lower applicable treaty | |
| rate) withholding tax on dividend equivalents paid or deemed paid to Non-U.S. Holders with respect to certain financial instruments | |
| linked to U.S. equities or indices that include U.S. equities (each, an “Underlying Security”). Subject to certain | |
| exceptions, Section 871(m) generally applies to securities that substantially replicate the economic performance of one or more | |
| Underlying Securities, as determined based on tests set forth in the applicable Treasury regulations (a “Specified Security”). | |
| However, pursuant to an IRS notice, Section 871(m) will not apply to securities issued before January 1, 2023 that do not have | |
| a delta of one with respect to any Underlying Security. Based on our determination that the securities do not have a delta of one | |
| with respect to any Underlying Security, our counsel is of the opinion that the securities should not be Specified Securities and, | |
| therefore, should not be subject to Section 871(m). Our determination | |
| is not binding on the IRS, and the IRS may disagree with this determination. Section 871(m) is complex and its application may | |
| depend on your particular circumstances, including whether you enter into other transactions with respect to an Underlying Security. | |
| If withholding is required, we will not be required to pay any additional amounts with respect to the amounts so withheld. You | |
| should consult your tax adviser regarding the potential application of Section 871(m) to the securities. Both U.S. | |
| and non-U.S. investors considering an investment in the securities should read the discussion under “Risk Factors” | |
| in this document and the discussion under “United States Federal Taxation” in the accompanying product supplement for | |
| Jump Securities and consult their tax advisers regarding all aspects of the U.S. federal income tax consequences of an investment | |
| in the securities, including possible alternative treatments, the issues presented by the aforementioned notice and any tax consequences | |
| arising under the laws of any state, local or non-U.S. taxing jurisdiction. The discussion | |
| in the preceding paragraphs under “Tax considerations” and the discussion contained in the section entitled “United | |
| States Federal Taxation” in the accompanying product supplement for Jump Securities, 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 securities. |
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| Use
of proceeds and hedging: | 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 3 above comprise the cost of issuing, structuring and
hedging the securities. On or prior to the pricing date, we expect to hedge our anticipated
exposure in connection with the securities by entering into hedging transactions with our affiliates and/or third-party dealers.
We expect our hedging counterparties to take positions in the underlying shares or any component stocks of the share underlying
indices and in futures and options contracts on the underlying shares and any component stocks of the underlying shares listed
on major securities markets. Such purchase activity could potentially increase the initial share price of either of the underlying
shares, and, therefore, could increase the share price at or above which such underlying shares must close on the valuation date
so that you do not suffer a significant loss on your initial investment in the securities (depending also on the performance of
the other underlying shares). In addition, through our affiliates, we are likely to modify our hedge position throughout the term
of the securities, including on the valuation date, by purchasing and selling the underlying shares, futures or options contracts
on the underlying shares or its component stocks listed on major securities markets or positions in any other available securities
or instruments that we may wish to use in connection with such hedging activities. As a result, these entities may be unwinding
or adjusting hedge positions during the term of the securities, and the hedging strategy may involve greater and more frequent
dynamic adjustments to the hedge as the valuation date approaches. We cannot give any assurance that our hedging activities will
not affect the value of either of the underlying shares, and, therefore, adversely affect the value of the securities or the payment
you will receive at maturity, if any (depending also on the performance of the other underlying shares). For further information
on our use of proceeds and hedging, see “Use of Proceeds and Hedging” in the accompanying product supplement. |
| --- | --- |
| Benefit
plan investor considerations: | 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) of the Code 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 |
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| | 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: (i) 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; (ii) 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; (iii) 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; (iv) our
interests are adverse to the interests of the purchaser or holder; and (v) 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. 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. |
| --- | --- |
| Additional
considerations: | Client accounts over which Morgan Stanley, Morgan Stanley Wealth Management or any of their respective subsidiaries have investment discretion are not permitted to purchase the securities, either directly or indirectly. |
| Supplemental
information regarding plan of distribution; conflicts of interest: | MS & Co. expects to sell all of the securities that it purchases
from us to an unaffiliated dealer at a price of $1,000 per security, for further sale to certain fee-based advisory accounts at
the price to public of $1,000 per security. MS & Co. will not receive a sales commission with respect to the securities. MS & Co. is an affiliate of MSFL and a wholly owned subsidiary
of Morgan Stanley, and it and other affiliates of ours expect to make a profit by selling, structuring and, when applicable, hedging
the securities. 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. See “Plan of Distribution (Conflicts
of Interest)” and “Use of Proceeds and Hedging” in the accompanying product supplement. |
| Validity
of the securities: | In the opinion of Davis Polk & Wardwell LLP, as special counsel to MSFL and Morgan Stanley, when the securities offered by this pricing supplement have been executed and issued by MSFL, authenticated by |
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| the trustee pursuant to the MSFL Senior Debt Indenture (as defined in the accompanying prospectus) and delivered against payment as contemplated herein, such securities will be valid and binding obligations of MSFL and the related guarantee will be a valid and binding obligation of Morgan Stanley, enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally, concepts of reasonableness and equitable principles of general applicability (including, without limitation, concepts of good faith, fair dealing and the lack of bad faith), provided that such counsel expresses no opinion as to (i) the effect of fraudulent conveyance, fraudulent transfer or similar provision of applicable law on the conclusions expressed above and (ii) any provision of the MSFL Senior Debt Indenture that purports to avoid the effect of fraudulent conveyance, fraudulent transfer or similar provision of applicable law by limiting the amount of Morgan Stanley’s obligation under the related guarantee. This opinion is given as of the date hereof and is limited to the laws of the State of New York, the General Corporation Law of the State of Delaware and the Delaware Limited Liability Company Act. In addition, this opinion is subject to customary assumptions about the trustee’s authorization, execution and delivery of the MSFL Senior Debt Indenture and its authentication of the securities and the validity, binding nature and enforceability of the MSFL Senior Debt Indenture with respect to the trustee, all as stated in the letter of such counsel dated November 16, 2017, which is Exhibit 5-a to the Registration Statement on Form S-3 filed by Morgan Stanley on November 16, 2017. | |
|---|---|
| Where | |
| you can find more information: | Morgan Stanley and MSFL have filed a registration statement (including |
| a prospectus, as supplemented by the product supplement for Jump Securities and the index supplement) with the Securities and Exchange | |
| Commission, or SEC, for the offering to which this communication relates. You should read the prospectus in that registration statement, | |
| the product supplement for Jump Securities, the index 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 without cost by visiting EDGAR on the SEC web site at www.sec.gov. Alternatively, Morgan Stanley, any underwriter | |
| or any dealer participating in the offering will arrange to send you the prospectus, the product supplement for Jump Securities | |
| and the index supplement if you so request by calling toll-free 800-584-6837. You may access these documents on the SEC web site at www.sec.gov | |
| as follows: Product | |
| Supplement for Jump Securities dated November 16, 2017 Index | |
| Supplement dated November 16, 2017 Prospectus | |
| dated November 16, 2017 Terms used but not defined in this document are defined in the | |
| product supplement for Jump Securities, in the index supplement or in the prospectus. |
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