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MORGAN STANLEY — Capital/Financing Update 2020
Aug 11, 2020
29766_prs_2020-08-11_dae2ef1f-21bf-4fa2-94ba-d4869eafa6dc.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 | $3,625,000 | $470.53 |
August 2020
Pricing Supplement No. 4,721
Registration Statement Nos. 333-221595; 333-221595-01
Dated August 7, 2020
Filed pursuant to Rule 424(b)(2)
M organ S tanley F inance LLC
Structured Investments
Opportunities in Commodities
Enhanced Trigger Jump Securities Based on the Value of the iShares ® Silver Trust due August 25, 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 the return of any of the principal amount at maturity and have the terms described in the accompanying prospectus supplement and prospectus. At maturity, you will receive for each security that you hold an amount in cash that will vary depending on the arithmetic average of the closing prices of the iShares ® Silver Trust on each of the five averaging dates (the “final share price”). If the final share price, as measured on the five averaging dates, is greater than or equal to 70% of the initial share price, which we refer to as the downside threshold level, you will receive for each security that you hold at maturity the upside payment of $143 per security in addition to the stated principal amount. However, if the final share price is less than the downside threshold level, meaning that the underlying commodity shares have depreciated by more than 30% from their initial value, the payment due at maturity will be significantly less than the stated principal amount of the securities by an amount that is proportionate to the full percentage decrease in the final share price from the initial share price. Under these circumstances, the payment at maturity per security will be less than $700 and could be zero. Accordingly, you may lose your entire initial investment in the securities. The securities are for investors who seek a commodity-based return and who are willing to risk their principal and forgo current income and upside returns above the upside payment in exchange for the upside payment feature that applies to a limited range of performance of the underlying commodity shares. 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 (see “Commissions and issue price” below) |
| Stated principal amount: | $1,000 per security |
| Pricing date: | August 7, 2020 |
| Original issue date: | August 12, 2020 (3 business days after the pricing date) |
| Maturity date: | August 25, 2021 |
| Aggregate principal amount: | $3,625,000 |
| Interest: | None |
| Underlying commodity shares: | Shares of the iShares ® Silver Trust |
| Payment at maturity: | · If the final share price is greater than |
| or equal to the downside threshold level: $1,000 + the upside payment · If the final share price is less than the | |
| downside threshold level, meaning the value of the underlying commodity shares has declined by more than 30% from the initial | |
| share price: $1,000 × share performance factor 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 30%, and possibly | |
| all, of your investment. | |
| Upside payment: | $143 per security (14.30% of the stated principal amount) |
| Downside threshold level: | $18.333, which is 70% of the initial share price |
| Share performance factor: | final share price / initial share price |
| Initial share price: | $26.19, which is the closing price of the underlying commodity shares on the pricing date |
| Final share price: | The arithmetic average of the closing prices of the underlying commodity shares on each of the five averaging dates, each as multiplied by the adjustment factor on such averaging date |
| Adjustment factor: | 1.0, subject to adjustment in the event of certain events affecting the underlying commodity shares |
| Averaging dates: | August 16, 2021, August 17, 2021, August 18, 2021, August 19, 2021 and August 20, 2021, subject to postponement for non-trading days and certain market disruption events |
| CUSIP: | 61771BE26 |
| ISIN: | US61771BE267 |
| 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: | $939.60 per security. See “Investment Summary” beginning 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 | $10 | $990 |
| Total | $3,625,000 | $36,250 | $3,588,750 |
(1) J.P. Morgan Securities LLC and JPMorgan Chase Bank, N.A. will act as placement agents for the securities. The placement agents will forgo fees for sales to certain fiduciary accounts. The total fees represent the amount that the placement agents receive from sales to accounts other than such fiduciary accounts. The placement agents will receive a fee from the Issuer or one of its affiliates that will not exceed $10 per $1,000 stated principal amount of securities.
(2) Please see “Supplemental information regarding plan of distribution; conflicts of interest” in this pricing supplement for information about fees and commissions.
(3) See “Use of proceeds and hedging” on page 21.
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 prospectus supplement for Jump Securities 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 prospectus supplement for Jump Securities 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.
As used in this document, “we,” “us” and “our” refer to Morgan Stanley or MSFL, or Morgan Stanley and MSFL collectively, as the context requires.
Prospectus Supplement for Jump Securities dated June 20, 2018 Prospectus dated November 16, 2017
Morgan Stanley
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Investment Summary
Enhanced Trigger Jump Securities
Principal at Risk Securities
The Enhanced Trigger Jump Securities Based on the Value of the iShares ® Silver Trust due August 25, 2021 (the “securities”) can be used:
§ As an alternative to direct exposure to the underlying commodity shares that provides a fixed return of 14.30% if the final share price, as measured on the five averaging dates, is greater than or equal to the downside threshold level;
§ To potentially outperform the underlying commodity shares 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 commodity shares over the term of the securities, but only if the final share price is greater than or equal to the downside threshold level .
If the final share price, as measured on the five averaging dates, is less than the downside threshold level, the securities are exposed on a 1:1 basis to the percentage decline of the final share price from the initial share price. Accordingly, investors may lose their entire initial investment in the securities.
| Maturity: | Approximately 54 weeks |
|---|---|
| Upside payment: | $143 per security (14.30% of the stated principal amount) |
| Downside threshold level: | 70% of the initial share price |
| Minimum payment at maturity: | None. Investors may lose their entire initial investment in the securities. |
| 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 $939.60.
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 commodity shares. The estimated value of the securities is determined using our own pricing and valuation models, market inputs and assumptions relating to the underlying commodity shares, instruments based on the underlying commodity 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 level, 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 commodity 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 commodity 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
This 54-week investment does not pay interest but offers a fixed positive return of 14.30% if the final share price, as measured on the five averaging dates, is greater than or equal to the downside threshold level and limited protection against a decline in the underlying commodity shares of up to 30%. However, if, as of the averaging dates, the value of the underlying commodity shares has declined by more than 30% from the initial share price, the payment at maturity per security will be less than $700, and could be zero.
| Upside Scenario | If the final share price, as measured on the five averaging dates, is greater than or equal to the downside threshold level , the payment at maturity for each security will be equal to $1,000 plus the upside payment of $143. |
|---|---|
| Downside Scenario | If the final share price, as measured on the five averaging dates, is less than the downside threshold level , which means that the underlying commodity shares have depreciated by more than 30% from their initial share price , you will lose 1% for every 1% decline in the value of the underlying commodity shares from the initial share price ( e.g. , a 50% depreciation in the underlying commodity shares will result in a payment at maturity of $500 per security). |
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How the Trigger Jump Securities Work
Payoff Diagram
The payoff diagram and table below illustrate the payout on the securities at maturity for a range of hypothetical percentage changes in the closing price of the underlying commodity shares. The diagram is based on the following terms:
| Stated principal amount: | $1,000 per security |
|---|---|
| Upside payment: | $143 per security (14.30% of the stated principal amount) |
| Downside threshold level: | 70% of the initial share price (-30% change in final share price compared with initial share price) |
Trigger Jump Securities Payoff Diagram
How it works
§ Upside Scenario. If the final share price, as measured on the five averaging dates, is greater than or equal to the downside threshold level, the investor would receive $1,000 plus the upside payment of $143.
§ Downside Scenario. If the final share price, as measured on the five averaging dates, is less than the downside threshold level, the payment at maturity would be less than the stated principal amount of $1,000 by an amount that is proportionate to the full percentage decrease of the underlying commodity shares.
o For example, if the final share price declines by 50% from the initial share price, the payment at maturity would be $500 per security (50% of the stated principal amount).
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Payoff Table
The “Return on Securities” as used in this pricing supplement is the number, expressed as a percentage, that results from comparing the payment at maturity per $1,000 principal amount security to $1,000. The hypothetical returns set forth below reflect the upside payment of $143 per security and the downside threshold level of 70% of the initial share price and assume an initial share price of $25.00. The actual initial share price is set forth on the cover hereof. The hypothetical returns set forth below are for illustrative purposes only and may not reflect the actual returns applicable to a purchaser of the securities.
| Final Share Price | Underlying Commodity Shares Return | Return on Securities |
|---|---|---|
| $35.00 | 40.00% | 14.30% |
| $32.50 | 30.00% | 14.30% |
| $30.00 | 20.00% | 14.30% |
| $28.75 | 15.00% | 14.30% |
| $27.50 | 10.00% | 14.30% |
| $26.25 | 5.00% | 14.30% |
| $25.00 | 0.00% | 14.30% |
| $23.75 | -5.00% | 14.30% |
| $22.50 | -10.00% | 14.30% |
| $21.25 | -15.00% | 14.30% |
| $20.00 | -20.00% | 14.30% |
| $18.75 | -25.00% | 14.30% |
| $17.50 | -30.00% | 14.30% |
| $17.4975 | -30.01% | -30.01% |
| $15.00 | -40.00% | -40.00% |
| $12.50 | -50.00% | -50.00% |
| $10.00 | -60.00% | -60.00% |
| $5.00 | -80.00% | -80.00% |
| $0.00 | -100.00% | -100.00% |
Hypothetical Examples of Amounts Payable at Maturity
Example 1: The value of the underlying commodity shares increases from the initial share price of $25.00 to a final share price of $30.00. Because the final share price is greater than the downside threshold level of 70% of the initial share price, the investor receives $1,000 plus the upside payment of $143, a return on the securities of 14.30%, but does not participate in the appreciation of the underlying commodity shares.
Example 2: The value of the underlying commodity shares decreases from the initial share price of $25.00 to a final share price of $15.00. Because the final share price is less than the downside threshold level of 70% of the initial share price, the investor receives a payment at maturity that is less than the stated principal amount of $1,000 by an amount proportionate to the full percentage decrease of the underlying commodity shares, calculated as follows:
$1,000 × share performance factor
$1,000 × ($15.00 / $25.00) = $600.00
Example 3: The value of the underlying commodity shares decreases from the initial share price of $25.00 to a final share price of $23.75. Because the final share price is greater than the downside threshold level of 70% of the initial share price, the investor receives $1,000 plus the upside payment of $143, a return on the securities of 14.30%.
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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 prospectus supplement for Jump Securities and prospectus. We also urge you to 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 any return of principal. The terms of the securities differ from those of ordinary debt securities in that the securities do not pay interest or guarantee payment of any of the principal amount 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. If the final share price, as measured on the five averaging dates, is less than the downside threshold level, 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 value of the underlying commodity shares from the initial share price to the final share price, and 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. See “How the Trigger Jump Securities Work” above.
§ The appreciation potential is fixed and limited. Where the final share price is greater than or equal to the downside threshold level, the appreciation potential of the securities is limited to the upside payment of $143 per security (14.30% of the stated principal amount), even if the final share price is significantly greater than the initial share price.
§ 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. We expect that generally the level of interest rates available in the market and the price of the underlying commodity shares on any day, including in relation to the downside threshold level, will affect the value of the securities more than any other factor. Other factors that may influence the value of the securities include:
o the trading price and volatility (frequency and magnitude of changes in value) of the underlying commodity shares and the commodity constituting the underlying commodity shares,
o geopolitical conditions and economic, financial, political, regulatory or judicial events that affect the underlying commodity shares or markets generally and which may affect the price of the underlying commodity shares,
o the time remaining until the securities mature,
o interest and yield rates in the market,
o the availability of comparable instruments,
o the occurrence of certain events affecting the underlying commodity shares that may or may not require an adjustment to the adjustment factor,
o the composition of the underlying commodity shares and changes in the constituents of the underlying commodity shares, and
o any actual or anticipated changes in our credit ratings or credit spreads.
Some or all of these factors will influence the price that you will receive if you sell your securities prior to maturity. For example, you may have to sell your securities at a substantial discount from the stated principal amount of $1,000 per security if the price of the underlying commodity shares at the time of sale is near or below the downside threshold level or if market interest rates rise.
You cannot predict the future performance of the underlying commodity shares based on their historical performance. If the final share price is less than the downside threshold level, you will be exposed on a 1-to-1 basis to the full decline in the final share price from the initial share price. There can be no assurance that the final share price will be greater than or equal to the downside threshold level so that you will receive at maturity an
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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. See “ iShares ® Silver Trust Overview ” below .
§ Single commodity prices tend to be more volatile than, and may not correlate with, the prices of commodities generally. The iShares ® Silver Trust is linked exclusively to the price of silver and not to a diverse basket of commodities or a broad-based commodity index. The price of silver may not correlate with, and may diverge significantly from, the prices of commodities generally. Because the securities are linked to underlying commodity shares which reflect the performance of the price of a single commodity, they carry greater risk and may be more volatile than a security linked to the prices of multiple commodities or a broad-based commodity index. The price of silver may be, and has recently been, highly volatile, and we can give you no assurance that such volatility will lessen.
§ The securities are subject to risks associated with silver. The iShares ® Silver Trust seeks to reflect generally the performance of the price of silver, less the iShares ® Silver Trust’s expenses and liabilities. The price of silver is primarily affected by global demand for and supply 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 (as 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, China and Peru. The demand for and supply of silver affect silver prices, but not necessarily in the same manner as supply and demand affect the prices of other commodities. 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 major end-uses for silver include industrial applications, jewelry and silverware. It is not possible to predict the aggregate effect of any or all of these factors.
§ There are risks relating to trading of commodities on the London Bullion Market Association. The investment objective of the iShares ® Silver Trust is to reflect generally the performance of the price of silver, less the iShares ® Silver Trust’s expenses and liabilities. The price of silver is determined by the LBMA or an independent service-provider appointed by the LBMA. The LBMA is a self-regulatory association of bullion market participants. Although all market-making members of the LBMA are supervised by the Bank of England and are required to satisfy a capital adequacy test, the LBMA itself is not a regulated entity. If the LBMA should cease operations, or if bullion trading should become subject to a value added tax or other tax or any other form of regulation not currently in place, the role of LBMA prices as a global benchmark for the value of silver may be adversely affected. The LBMA is a principals’ market that operates in a manner more closely analogous to an over-the-counter physical commodity market than a regulated futures markets, and certain features of U.S. futures contracts are not present in the context of LBMA trading. For example, there are no daily price limits on the LBMA that would otherwise restrict fluctuations in the prices of LBMA contracts. In a declining market, it is possible that prices would continue to decline without limitation within a trading day or over a period of trading days. The LBMA may alter, discontinue or suspend calculation or dissemination of the LBMA silver price, which could adversely affect the value of the securities. The LBMA, or an independent service-provider appointed by the LBMA, will have no obligation to consider your interests in calculating or revising LBMA prices.
§ 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 amount payable on the securities is not linked to the value of the underlying commodity shares at any time other than the averaging dates. The final share price will be the arithmetic average of the closing prices of the underlying commodity shares on each of the five averaging dates, subject to adjustment for non-trading days and certain market disruption events. Even if the value of the underlying commodity shares appreciates prior to the averaging dates but then drops by the averaging dates, the payment at maturity may be significantly less than it would have been had the payment at maturity been linked to the value of the underlying commodity shares prior to such drop. Although the actual value of the underlying commodity shares on the stated maturity date or at other times during the term of the securities may be higher than the final share price, the payment at maturity will be based solely on the final share price, as determined on the five averaging dates.
§ The antidilution adjustments the calculation agent is required to make do not cover every event that could affect the underlying commodity shares. MS & Co., as calculation agent, will adjust the adjustment factor for certain events affecting the underlying commodity shares. However, the calculation agent will not make an adjustment for every event that can affect the underlying commodity shares. If an event occurs that does not require the calculation agent to adjust the adjustment factor, the market price of the securities may be materially and adversely affected.
§ Suspensions or disruptions of market trading in commodity and related futures markets could adversely affect the price of the securities. The commodity markets are subject to temporary distortions or other disruptions due to various factors, including the lack of liquidity in the markets, the participation of speculators and government regulation and intervention. In addition, U.S. futures exchanges and some foreign exchanges have regulations that limit the amount of fluctuation in futures contract prices which may occur during a single business day. These limits are generally referred to as “daily price fluctuation limits” and the maximum or minimum price of a contract on any given day as a result of these limits is referred to as a “limit price.” Once the limit price has been reached in a particular contract, no trades may be made at a different price. Limit prices have the effect of precluding trading in a particular contract or forcing the liquidation of contracts at disadvantageous times or prices. These circumstances could adversely affect the value of the commodity that constitutes the underlying commodity shares, and, therefore, the value of the securities.
§ The rate we are willing to pay for securities of this type, maturity and issuance size is likely to be lower than the rate implied by our secondary market credit spreads and advantageous to us. Both the lower rate and the inclusion of costs associated with issuing, selling, structuring and hedging the securities in the original issue price reduce the economic terms of the securities, cause the estimated value of the securities to be less than the original issue price and will adversely affect secondary market prices. Assuming no change in market conditions or any other relevant factors, the prices, if any, at which dealers, including MS & Co., may be willing to purchase the securities in secondary market transactions will likely be significantly lower than the 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
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the underlying commodity 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.
§ The performance and market price of the underlying commodity shares, particularly during periods of market volatility, may not correlate with the performance of their commodity or the net asset value per share of the underlying commodity shares. The underlying commodity shares do not fully replicate the performance of their underlying commodity due to the fees and expenses charged by the underlying commodity shares or by restrictions on access to the underlying commodity due to other circumstances. The underlying commodity shares do not generate any income, and as the underlying commodity shares regularly sell their underlying commodity to pay for ongoing expenses, the amount of their underlying commodity represented by each share gradually declines over time. The underlying commodity shares sell their underlying commodity to pay expenses on an ongoing basis irrespective of whether the trading price of the shares rises or falls in response to changes in the price of their underlying commodity. The sale by the underlying commodity shares of their underlying commodity to pay expenses at a time of relatively low prices for their underlying commodity could adversely affect the value of the securities. Additionally, there is a risk that part or all of the holdings of the underlying commodity shares in their underlying commodity could be lost, damaged or stolen due to war, terrorism, theft, natural disaster or otherwise. Finally, because the underlying commodity shares are traded on an exchange and are subject to market supply and investor demand, the market price of the underlying commodity shares may differ from the net asset value per share of such underlying commodity shares.
In particular, during periods of market volatility, or unusual trading activity, the underlying commodity underlying the underlying commodity shares may be disrupted or limited, or such underlying commodity may be unavailable in the secondary market. Under these circumstances, the liquidity of the underlying commodity shares may be adversely affected, market participants may be unable to calculate accurately the net asset value per share of the underlying commodity shares, and their ability to create and redeem shares of the underlying commodity shares may be disrupted. Under these circumstances, the market price of shares of the underlying commodity shares may vary substantially from the net asset value per share of the underlying commodity shares or the performance of their underlying commodity.
For all of the foregoing reasons, the performance of the underlying commodity shares may not correlate with the performance of their underlying commodity or the net asset value per share of such underlying commodity shares. Any of these events could materially and adversely affect the price of the underlying commodity shares and, therefore, the value of the securities. Additionally, if market volatility or these events were to occur on the averaging dates, the calculation 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 solely on the published closing price per share of the underlying commodity shares on the averaging dates, even if the underlying commodity shares are underperforming their underlying commodity and/or trading below the net asset value per share of such underlying commodity shares.
§ 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 make a market, it will generally do so for transactions of routine secondary market size at prices based on its
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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.
§ Investing in the securities is not equivalent to investing in the underlying commodity shares or in the commodity composing the underlying commodity shares. Investing in the securities is not equivalent to investing in the underlying commodity shares or in the commodity that constitutes the underlying commodity shares. Investors in the securities will not have voting rights or rights to receive distributions or any other rights with respect to the underlying commodity that constitutes the underlying commodity shares.
§ 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 price, the downside threshold level, the final share price, the share performance factor, if applicable, the payment that you will receive at maturity, if any, whether a market disruption event has occurred and whether to make any adjustments to the adjustment factor. 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 or calculation of the closing price in the event of a market disruption event. These potentially subjective determinations may adversely affect the payout to you at maturity, if any. For further information regarding these types of determinations, see “Additional Terms of the Securities” below. 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 commodity shares and the underlying commodity), including trading in the underlying commodity shares. 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 averaging dates approach. Some of our affiliates also trade the underlying commodity shares and other financial instruments related to the underlying commodity shares and the underlying commodity 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, and, therefore, the value at or above which the underlying commodity shares must close on the averaging dates so that investors do not suffer a significant loss on their initial investment in the securities. Additionally, such hedging or trading activities during the term of the securities, including on the averaging dates, could adversely affect the value of the underlying commodity shares on the averaging dates, and, accordingly, the amount of cash an investor will receive at maturity, if any.
§ 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 prospectus 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 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 prospectus 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
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proceeds of a taxable disposition (other than amounts treated as “FDAP income,” as defined in the accompanying prospectus 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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iShares ® Silver Trust Overview
The iShares ® Silver Trust (the “Silver Trust”) is an investment trust sponsored by iShares ® Delaware Trust Sponsor LLC, which seeks to provide investment results that reflect the performance of the price of silver, less the iShares ® Silver Trust’s expenses and liabilities. The assets of the iShares ® Silver Trust consists primarily of silver held by a custodian on behalf of the iShares ® Silver Trust. Information provided to or filed with the Securities and Exchange Commission (the “Commission”) by the iShares ® Silver Trust pursuant to the Securities Act of 1933 can be located by reference to Commission file number 001-32863 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 iShares ® Silver Trust is accurate or complete.
All information contained in this document regarding the iShares ® Silver Trust (the “Silver Trust”), has been derived from publicly available information, without independent verification. This information reflects the policies of, and is subject to change by, iShares ® Delaware Trust Sponsor LLC, a subsidiary of BlackRock, Inc., the sponsor of the Silver Trust. The Bank of New York Mellon is the trustee of the Silver Trust, and JPMorgan Chase Bank, N.A. is the custodian of the Silver Trust. Shares of the Silver Trust trades under the ticker symbol “SLV” on NYSE Arca, Inc.
The Silver Trust seeks to reflect generally the performance of the price of silver, less the Silver Trust’s expenses and liabilities. The assets of the Silver Trust consist primarily of silver held by a custodian on behalf of the Silver Trust. The Silver Trust issues shares in exchange for deposits of silver and distributes silver in connection with the redemption of shares. The shares of the Silver Trust are intended to constitute a simple and cost-effective means of making an investment similar to an investment in silver.
The Silver Trust does not engage in any activity designed to derive a profit from changes in the price of silver. The Silver Trust’s only ordinary recurring expense is expected to be the sponsor’s fee, which accrues daily at an annualized rate equal to 0.50% of the net asset value of the Silver Trust and is payable monthly in arrears. The trustee of the Silver Trust will, when directed by the sponsor of the Silver Trust, and, in the absence of such direction, may in its discretion, sell silver in such quantity and at such times as may be necessary to permit payment of the Silver Trust sponsor’s fee and of Silver Trust expenses or liabilities not assumed by the sponsor. As a result of the recurring sales of silver necessary to pay the Silver Trust sponsor’s fee and the Silver Trust expenses or liabilities not assumed by the Silver Trust sponsor, the net asset value of the Silver Trust will decrease over time.
Information as of market close on August 7, 2020:
| Bloomberg Ticker Symbol: | SLV UP |
|---|---|
| Current Share Price: | $26.19 |
| 52 Weeks Ago: | $15.97 |
| 52 Week High (on 8/6/2020): | $26.88 |
| 52 Week Low (on 3/18/2020): | $11.21 |
The following graph sets forth the daily closing prices of the underlying commodity shares for the period from January 1, 2015 through August 7, 2020. The related table sets forth the published high and low closing prices, as well as end-of-quarter closing prices, of the underlying commodity shares for each quarter in the same period. The closing price of the underlying commodity shares on August 7, 2020 was $26.19. We obtained the information in the graph and table below from Bloomberg Financial Markets, without independent verification. The underlying commodity shares have at times experienced periods of high volatility, and you should not take the historical values of the underlying commodity shares as an indication of their future performance.
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iShares ® Silver Trust Daily Closing Prices January 1, 2015 to August 7, 2020
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| iShares ® Silver Trust (CUSIP 46428Q109) | High ($) | Low ($) | Period End ($) |
|---|---|---|---|
| 2015 | |||
| First Quarter | 17.61 | 14.84 | 15.93 |
| Second Quarter | 16.89 | 15.03 | 15.03 |
| Third Quarter | 14.99 | 13.56 | 13.87 |
| Fourth Quarter | 15.42 | 13.06 | 13.19 |
| 2016 | |||
| First Quarter | 15.16 | 13.17 | 14.68 |
| Second Quarter | 17.87 | 14.20 | 17.87 |
| Third Quarter | 19.60 | 17.62 | 18.20 |
| Fourth Quarter | 17.87 | 14.91 | 15.11 |
| 2017 | |||
| First Quarter | 17.44 | 15.44 | 17.25 |
| Second Quarter | 17.53 | 15.30 | 15.71 |
| Third Quarter | 17.10 | 14.73 | 15.74 |
| Fourth Quarter | 16.41 | 14.85 | 15.99 |
| 2018 | |||
| First Quarter | 16.56 | 15.28 | 15.41 |
| Second Quarter | 16.26 | 15.07 | 15.15 |
| Third Quarter | 15.17 | 13.23 | 13.73 |
| Fourth Quarter | 14.52 | 13.15 | 14.52 |
| 2019 | |||
| First Quarter | 15.07 | 14.07 | 14.18 |
| Second Quarter | 14.46 | 13.46 | 14.33 |
| Third Quarter | 18.34 | 14.05 | 15.92 |
| Fourth Quarter | 16.92 | 15.48 | 16.68 |
| 2020 | |||
| First Quarter | 17.40 | 11.21 | 13.05 |
| Second Quarter | 17.10 | 13.02 | 17.01 |
| Third Quarter (through August 7, 2020) | 26.88 | 16.71 | 26.19 |
This document relates only to the securities referenced hereby and does not relate to the underlying commodity shares. We have derived all disclosures contained in this document regarding the Silver 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 Silver Trust. Neither we nor the agent makes any representation that such publicly available documents or any other publicly available information regarding the Silver 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 underlying commodity shares (and therefore the price of the underlying commodity 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 Silver 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 underlying commodity shares.
We and/or our affiliates may presently or from time to time engage in business with the Silver Trust. In the course of such business, we and/or our affiliates may acquire non-public information with respect to the Silver 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 underlying commodity 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 Silver Trust as in your judgment is appropriate to make an informed decision with respect to an investment linked to the underlying commodity shares.
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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 prospectus supplement or prospectus, the terms described herein shall control.
| Denominations: | $1,000 and integral multiples thereof |
|---|---|
| Underlying commodity: | Silver |
| Postponement of maturity date: | If any scheduled averaging date is not a trading day or if a market disruption event occurs on any averaging date so that the final averaging date is postponed and falls less than two business days prior to the scheduled maturity date, the maturity date of the securities will be postponed to the second business day following that final averaging date as postponed. |
| Postponement of averaging dates: | If a market disruption event occurs on any scheduled averaging date or if any scheduled averaging date is a non-trading day, the closing price for the averaging date will be the closing price on the next trading day on which no market disruption event occurs. Each succeeding averaging date will be the next trading day on which no market disruption event occurs following that averaging date as postponed. The closing price for any averaging date will not be determined on a date later than the fifth scheduled trading day following such averaging date and if such date is not a trading day or if there is a market disruption event on such date, the calculation agent will determine the closing price for such averaging date as the arithmetic mean of the bid prices for the underlying commodity shares for such date obtained from as many recognized dealers in such underlying commodity shares, but not exceeding three, as will make such bid prices available to the calculation agent. Bids of MS & Co. or any of its affiliates may be included in the calculation of such mean, but only to the extent that any such bid is the highest of the bids obtained. If no bid prices are provided from any third-party dealers, the closing price will be determined by the calculation agent in its sole and absolute discretion (acting in good faith) taking into account any information that it deems relevant. |
| Closing price: | The closing price on any trading day means: (i) if the underlying commodity shares (or any such other |
| security) are listed on a national securities exchange (other than the Nasdaq), the last reported sale price, regular way, of the | |
| principal trading session on such day on the principal national securities exchange registered under the Securities Exchange Act | |
| of 1934, as amended (the “Exchange Act”), on which the underlying commodity ETF shares (or any such other security) | |
| are listed, (ii) if the underlying commodity shares (or any such other | |
| security) are securities of Nasdaq, the official closing price published by Nasdaq on such day, or (iii) if the underlying commodity shares (or any such other | |
| security) are not listed on any national securities exchange but are included in the OTC Bulletin Board Service (the “OTC | |
| Bulletin Board”) operated by the Financial Industry Regulatory Authority, Inc. (“FINRA”), the last reported sale | |
| price of the principal trading session on the OTC Bulletin Board on such day. If the underlying commodity shares (or any such other security) | |
| are listed on any national securities exchange but the last reported sale price or the official closing price published by Nasdaq, | |
| as applicable, is not available pursuant to the preceding sentence, then the closing price for one underlying commodity share (or | |
| one unit of any such other security) on any trading day will mean the last reported sale price of the principal trading session | |
| on the over-the-counter market as reported on Nasdaq or the OTC Bulletin Board on such day. If a market disruption event (as defined | |
| below) occurs with respect to the underlying commodity shares (or any such other security) or the last reported sale price or the | |
| official closing price published by Nasdaq, as applicable, for the underlying commodity shares (or any such other security) is | |
| not available pursuant to the two preceding sentences, then the closing price for any trading day will be the mean, as determined | |
| by the calculation agent, of the bid prices for the underlying commodity shares (or any such other security) for such trading day | |
| obtained from as many recognized dealers in such security, but not exceeding three, as will make such bid prices available to the | |
| calculation agent. Bids of MS & Co. and its successors or any of its affiliates may be included in the calculation of such | |
| mean, but only to the extent that any such bid is the highest of the bids obtained. If no bid prices are provided from any third | |
| party dealers, the closing price will be determined by the calculation agent in its sole and absolute discretion (acting in good | |
| faith) taking into account any information that it deems relevant. The term “OTC Bulletin Board Service” will include | |
| any successor service thereto. See “Discontinuance of the underlying commodity shares; alteration of method of calculation” | |
| below. | |
| Business day: | Any day other than a Saturday or Sunday which is neither a legal holiday nor a day on which banking institutions are required or authorized by law or regulation to close in New York, New York or the city and state of our principal place of business or a day on which transactions in U.S. dollars are not conducted. |
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| Trading day: | Trading day means a day, as determined by the calculation agent, on which NYSE Arca (or if NYSE Arca is no longer the principal exchange or trading market for the underlying commodity shares, such exchange or principal trading market for the underlying commodity shares that serves as the price-source for the underlying commodity shares) is open for trading during its regular session, notwithstanding such exchange or principal trading market closing prior to its scheduled closing time. |
|---|---|
| Market disruption event: | With respect to the underlying commodity shares, market disruption |
| event means: (i) the occurrence of existence of any of: a. a suspension, absence or material limitation of trading | |
| of the underlying commodity shares on the primary market for the underlying commodity shares for more than two hours of trading | |
| or during the one-half hour period preceding the close of the principal trading session in such market; or a breakdown or failure | |
| in the price and trade reporting systems of the primary market for the underlying commodity shares as a result of which the reported | |
| trading prices for the underlying commodity shares during the last one-half hour preceding the close of the principal trading session | |
| in such market are materially inaccurate; or the suspension, absence or material limitation of trading on the primary market for | |
| trading in futures or options contracts related to the underlying commodity shares, if available, during the one-half hour period | |
| preceding the close of the principal trading session in the applicable market; or b. a suspension, material limitation or absence of trading | |
| on any major U.S. securities market for trading in futures or options contracts related to the underlying commodity shares for | |
| more than two hours of trading or during the one-half hour period preceding the close of the principal trading session on such | |
| market, in each case as determined by the calculation agent | |
| in its sole discretion, and (ii) a determination by the calculation agent in its sole | |
| discretion that any event described in clause (i) above materially interfered with our ability or the ability of any of our affiliates | |
| to unwind or adjust all or a material portion of the hedge position with respect to the securities. For the purpose of determining whether a market disruption event | |
| in respect of the underlying commodity shares has occurred: (1) a limitation on the hours or number of days of trading will not | |
| constitute a market disruption event if it results from an announced change in the regular business hours of the market, (2) a | |
| decision to permanently discontinue trading in the underlying commodity shares or in the relevant futures or options contract will | |
| not constitute a market disruption event, (3) a suspension of trading in futures or options contracts on the underlying commodity | |
| shares by the primary securities market trading in such contracts by reason of (a) a price change exceeding limits set by such | |
| securities exchange or market, (b) an imbalance of orders relating to such contracts or (c) a disparity in bid and ask quotes relating | |
| to such contracts will constitute a suspension, absence or material limitation of trading in futures or options contracts related | |
| to the underlying commodity shares and (4) a “suspension, absence or material limitation of trading” on the primary | |
| market on which futures or options contracts related to the underlying commodity shares are traded will not include any time when | |
| such securities market is itself closed for trading under ordinary circumstances. | |
| Discontinuance of the underlying commodity shares; alteration of method of calculation: | If trading in the underlying commodity shares on every applicable national securities exchange is permanently discontinued or the underlying commodity shares are liquidated or otherwise terminated (a “discontinuance or liquidation event”), the securities will be deemed accelerated to the fifth business day following the date notice of such liquidation event is provided to holders of the underlying commodity shares under the terms of the underlying commodity shares (the date of such notice, the “liquidation announcement date” and the fifth business day following the liquidation announcement date, the “acceleration date”), and the payment to you on the acceleration date will be equal to the fair market value of the securities on the trading day immediately following the liquidation announcement date as determined by the calculation agent in its sole discretion based on its internal models, which will take into account the reasonable costs incurred by us or any of our affiliates in unwinding any related hedging arrangements. |
| Antidilution adjustments: | If the underlying commodity shares are subject to a share split |
| or reverse share split, then once such split has become effective, the adjustment factor for the underlying commodity shares will | |
| be adjusted by the calculation agent to equal the product of the prior adjustment factor and the number of shares issued in such | |
| share split or reverse share split with respect to one share of the underlying commodity shares. No adjustment to an adjustment factor pursuant to the paragraph | |
| above will be required unless such adjustment would require a change of at least 0.1% in the amount being adjusted as then in effect. | |
| Any number so adjusted will be rounded to the nearest one hundred-thousandth with five one-millionths being rounded upward. The calculation agent will be solely responsible for the determination | |
| and calculation of any adjustments to the adjustment factors or method of calculating the adjustment factors and of any related | |
| determinations, and its determinations and calculations with respect thereto will be conclusive in the absence of manifest |
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| error. | |
|---|---|
| Alternate exchange calculation in case of an event of default: | If an event of default with respect to the securities shall have |
| occurred and be continuing, the amount declared due and payable upon any acceleration of the securities (the “Acceleration | |
| Amount”) will be an amount, determined by the calculation agent in its sole discretion, that is equal to the cost of having | |
| a qualified financial institution, of the kind and selected as described below, expressly assume all our payment and other obligations | |
| with respect to the securities as of that day and as if no default or acceleration had occurred, or to undertake other obligations | |
| providing substantially equivalent economic value to you with respect to the securities. That cost will equal: · the | |
| lowest amount that a qualified financial institution would charge to effect this assumption or undertaking, plus · the | |
| reasonable expenses, including reasonable attorneys’ fees, incurred by the holders of the securities in preparing any documentation | |
| necessary for this assumption or undertaking. During the default quotation period for the securities, which | |
| we describe below, the holders of the securities and/or we may request a qualified financial institution to provide a quotation | |
| of the amount it would charge to effect this assumption or undertaking. If either party obtains a quotation, it must | |
| notify the other party in writing of the quotation. The amount referred to in the first bullet point above will equal | |
| the lowest—or, if there is only one, the only—quotation obtained, and as to which notice is so given, during the default | |
| quotation period. With respect to any quotation, however, the party not obtaining the quotation may object, on reasonable | |
| and significant grounds, to the assumption or undertaking by the qualified financial institution providing the quotation and notify | |
| the other party in writing of those grounds within two business days after the last day of the default quotation period, in which | |
| case that quotation will be disregarded in determining the Acceleration Amount. Notwithstanding the foregoing, if a voluntary or involuntary | |
| liquidation, bankruptcy or insolvency of, or any analogous proceeding is filed with respect to MSFL or Morgan Stanley, then depending | |
| on applicable bankruptcy law, your claim may be limited to an amount that could be less than the Acceleration Amount. If the maturity of the securities is accelerated because of an | |
| event of default as described above, we shall, or shall cause the calculation agent to, provide written notice to the trustee at | |
| its New York office, on which notice the trustee may conclusively rely, and to the depositary of the Acceleration Amount and the | |
| aggregate cash amount due, if any, with respect to the securities as promptly as possible and in no event later than two business | |
| days after the date of such acceleration. Default quotation period The default quotation period is the period beginning on the day | |
| the Acceleration Amount first becomes due and ending on the third business day after that day, unless: · no | |
| quotation of the kind referred to above is obtained, or · every | |
| quotation of that kind obtained is objected to within five business days after the due date as described above. If either of these two events occurs, the default quotation period | |
| will continue until the third business day after the first business day on which prompt notice of a quotation is given as described | |
| above. If that quotation is objected to as described above within five business days after that first business day, | |
| however, the default quotation period will continue as described in the prior sentence and this sentence. In any event, if the default quotation period and the subsequent | |
| two business day objection period have not ended before the last averaging date, then the Acceleration Amount will equal the principal | |
| amount of the securities. Qualified financial institutions For the purpose of determining the Acceleration Amount at any | |
| time, a qualified financial institution must be a financial institution organized under the laws of any jurisdiction in the United | |
| States or Europe, which at that time has outstanding debt obligations with a stated maturity of one year or less from the date | |
| of issue and rated either: · A-2 | |
| or higher by Standard & Poor’s Ratings Services or any successor, or any other comparable rating then used by that rating | |
| agency, or · P-2 | |
| or higher by Moody’s Investors Service or any successor, or any other comparable rating then used by that rating agency. | |
| 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 of the securities is postponed |
| due to a postponement of the final averaging 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 |
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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 final averaging date as postponed. The issuer shall, or shall cause the calculation agent to, (i) provide written notice to the trustee, upon which notice the trustee may conclusively rely, and to the depositary of the amount of cash, if any, to be delivered with respect to each stated principal amount of 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 due with respect to the securities, if any, to the trustee for delivery to the depositary, as holder of the securities, on or prior to 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 | |
| prospectus 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. 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 prospectus 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 prospectus 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 beginning on page 2 above comprise
the agent’s commissions and the cost of issuing, structuring and hedging the securities. On or prior to the pricing date, we will 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 commodity shares and in futures and/or options contracts
on the underlying commodity shares or the underlying commodity or positions in any other available securities or instruments that
they may wish to use in connection with such hedging. Such purchase activity could potentially increase the price of
the underlying commodity shares on the pricing date, and, therefore, could increase the price at or above which the underlying
commodity shares must close on the averaging dates so that investors do not suffer a significant loss on their initial investment
in the securities. In addition, through our affiliates, we are likely to modify our hedge position throughout the term
of the securities, including on the averaging dates, by purchasing and selling the underlying commodity shares, futures or options
contracts on the underlying commodity shares 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 averaging dates approach. We cannot give any assurance that our hedging activities will not affect the value
of the underlying commodity shares, and, therefore, adversely affect the value of the securities or the payment you will receive
at maturity, if any. For further information on our use of proceeds and hedging, see “Use of Proceeds and Hedging”
in the accompanying prospectus 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 |
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| | “plan assets” of any Plan or with any assets of a
governmental, non-U.S. or church plan that is subject to any federal, state, local or non-U.S. law that is substantially similar
to the provisions of Section 406 of ERISA or Section 4975 of the Code (“Similar Law”) or (b) its purchase, holding
and disposition of these securities will not constitute or result in a non-exempt prohibited transaction under Section 406 of ERISA
or Section 4975 of the Code or violate any Similar Law. Due to the complexity of these rules and the penalties that may
be imposed upon persons involved in non-exempt prohibited transactions, it is particularly important that fiduciaries or other
persons considering purchasing the securities on behalf of or with “plan assets” of any Plan consult with their counsel
regarding the availability of exemptive relief. The securities are contractual financial instruments. The
financial exposure provided by the securities is not a substitute or proxy for, and is not intended as a substitute or proxy for,
individualized investment management or advice for the benefit of any purchaser or holder of the securities. The securities
have not been designed and will not be administered in a manner intended to reflect the individualized needs and objectives of
any purchaser or holder of the securities. Each purchaser or holder of any securities acknowledges and agrees
that: (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, 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 : | JPMorgan Chase Bank, N.A., J.P. Morgan Securities LLC and its
affiliates will act as placement agents for the securities and will receive a fee from the Issuer or one of its affiliates that
will not exceed $10 per $1,000 stated principal amount of securities, but will forgo any fees for sales to certain fiduciary accounts. 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 |
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| “Plan of Distribution (Conflicts of Interest)” and “Use of Proceeds and Hedging” in the accompanying prospectus 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 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 prospectus supplement for Jump Securities) 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 prospectus supplement for Jump Securities 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, MSFL, any underwriter | |
| or any dealer participating in the offering will arrange to send you the prospectus supplement for Jump Securities and prospectus | |
| if you so request by calling toll-free 1-(800)-584-6837. You may access these documents on the SEC web site at . www.sec.gov | |
| as follows: Prospectus Supplement for Jump Securities dated June 20, 2018 Prospectus | |
| dated November 16, 2017 Terms used but not defined in this document are defined in the | |
| prospectus supplement for Jump Securities or in the prospectus. |
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