Morgan Stanley Finance Launches Dual-Index Auto-Callable Securities With Principal at Risk Through August 2029

Dual Index Structure Tied to European and U.S. Equity Performance

The securities are linked to two underlying indices: the EURO STOXX 50 Index (SX5E Index) and the S&P 500 Index (SPX Index). The investment value depends on the worst-performing index, meaning a significant decline in either European or U.S. equities will negatively impact the security's return. The filing explicitly states that "the fact that the securities are linked to more than one underlier does not provide any asset diversification benefits and instead means that a decline in the level of either underlier beyond its coupon barrier level and/or downside threshold level will adversely affect your return on the securities, even if the other underlier has appreciated or has not declined as much."

The strike date for both indices was set at July 30, 2026, establishing the baseline performance levels against which subsequent measurements are made. Investors receive no participation in any appreciation of either index, which represents a fundamental structural limitation of this investment. The securities function as linked instruments where the underperforming index determines the eventual payment outcome, creating concentrated exposure to the weaker of the two equity markets during the security's three-year term.

Contingent Coupon Payments Subject to Barrier Level Conditions

The securities provide contingent coupon payments rather than traditional fixed interest. The filing discloses that contingent coupons will be paid on coupon payment dates but only if "the closing level of each underlier is greater than or equal to its coupon barrier level on the related observation date." This means both indices must maintain positions at or above their respective coupon barrier levels for investors to receive any interest payment. If either index falls below its coupon barrier on any observation date, no coupon is paid for that period.

The structure includes a memory feature for unpaid coupons. According to the disclosure, "if the contingent coupon is not paid on any coupon payment date (because the closing level of either underlier is less than its coupon barrier level on the related observation date), such unpaid contingent coupon will be paid on a later coupon payment date but only if the closing level of each underlier is greater than or equal to its coupon barrier level on the related observation date." However, investors will receive no payment for unpaid coupons if both indices remain below their respective coupon barriers through subsequent observation dates. The filing notes that "no additional interest shall accrue or be payable in respect of such unpaid contingent coupon from and after the end of the original interest period."

Automatic Early Redemption Contingent on Index Performance Thresholds

The securities incorporate automatic early redemption provisions beginning with the first redemption determination date of January 29, 2027. The filing states that "if, on any redemption determination date, the closing level of each underlier is greater than or equal to its call threshold level, the securities will be automatically redeemed for the early redemption payment on the related early redemption date." The call threshold level is set at 100% of the initial level for both the SX5E Index and the SPX Index, meaning both indices must maintain at or above their initial levels for redemption to occur.

Early redemption dates are scheduled quarterly through May 8, 2029, with redemption determination dates on January 29, 2027, April 30, 2027, July 30, 2027, October 29, 2027, January 31, 2028, April 28, 2028, July 31, 2028, October 30, 2028, January 30, 2029, and April 30, 2029. If automatic early redemption is triggered, investors receive the stated principal amount plus the contingent coupon for the related interest period and any previously unpaid coupons. However, "the securities will not be redeemed on any early redemption date if the closing level of either underlier is less than its call threshold level on the related redemption determination date," meaning any decline in either index below its initial level prevents early redemption.

Principal at Risk and Downside Loss Mechanism

The most significant feature of these securities is the principal-at-risk structure. The filing explicitly states that "the securities do not guarantee the repayment of principal" and that "investors in the securities must be willing to accept the risk of losing their entire initial investment based on the performance of either underlier." If the final level of either underlying index falls below its downside threshold level at maturity, the loss mechanism activates, where "investors will lose 1% for every 1% decline in the level of the worst performing underlier over the term of the securities."

The filing provides a stark warning about potential outcomes: "Under these circumstances, the payment at maturity will be significantly less than the stated principal amount and could be zero." This means if the worst-performing index declines by 100% from its initial level, investors receive zero return of principal. If the worst-performing index declines by 50%, investors lose 50% of their principal. Conversely, if both indices maintain or exceed their downside threshold levels at final observation on July 30, 2029, investors receive their full principal amount plus any applicable contingent coupons paid during the term.

Guaranty Structure and Credit Risk Considerations

Morgan Stanley provides a full and unconditional guarantee of the securities issued by Morgan Stanley Finance LLC. The filing states that "the securities are unsecured obligations of Morgan Stanley Finance LLC ("MSFL") and are fully and unconditionally guaranteed by Morgan Stanley." However, the guarantee does not eliminate credit risk. The disclosure emphasizes that "all payments are subject to our credit risk. If we default on our obligations, you could lose some or all of your investment."

The securities maintain unsecured status, meaning investors have no security interest in any underlying reference assets. The filing explicitly states that investors "will not have any security interest in, or otherwise have any access to, any underlying reference asset or assets." Additionally, the document clarifies that "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." This structure means investors bear both the structural performance risk tied to index movements and the credit risk of Morgan Stanley and Morgan Stanley Finance LLC.

Pricing, Commissions, and Distribution Framework

The securities were priced at $1,000 per security on the pricing date of July 30, 2026, with an original issue date of August 4, 2026. Morgan Stanley & Co. LLC acts as the agent for distribution and receives commissions from dealers. The filing discloses that "selected dealers and their financial advisors will collectively receive from the agent, MS & Co., a fixed sales commission of $20 for each security they sell." This means the net proceeds to Morgan Stanley Finance LLC from each security sold at the issue price is $980 per security after commissions are deducted.

The filing includes an estimated value for the securities on the pricing date. The disclosure states "Estimated value on the pricing date: Approximately $970.90 per security, or within $45.00 of that estimate." This estimated value reflects the theoretical fair value based on the terms and conditions, though investors purchasing at the $1,000 issue price would be paying a premium to this estimated value. The aggregate principal amount of the offering is not disclosed in the filing reviewed.

Interest Period Structure and Observation Mechanics

The securities feature a structured schedule of observation dates and interest periods. The final observation date is established as July 30, 2029, "subject to postponement for non-trading days and certain market disruption events." This same date marks the strike date for initial index level determination. The observation dates align with the redemption determination dates, creating synchronized measurement points for both early redemption eligibility and coupon payment eligibility.

Coupon payment dates correspond to early redemption dates, creating quarterly payment intervals beginning February 5, 2027. The memory feature allows unpaid coupons to accumulate and potentially be paid on subsequent coupon payment dates if coupon barrier conditions are satisfied. However, the filing makes clear that "you will not receive payment for any unpaid contingent coupons if the closing level of either underlier is less than its coupon barrier level on each subsequent observation date," meaning investors face the risk of losing all accumulated unpaid coupons if neither index recovers above its barrier level before final observation.

Investment Profile and Risk Acknowledgment

Morgan Stanley describes the target investor for these securities explicitly in the filing: "The securities are for investors who seek an opportunity to earn interest at a potentially above-market rate in exchange for the risk of losing a significant portion or all of their principal and the risk of receiving no coupons over the entire term of the securities." This characterization emphasizes that the higher potential coupon payments are compensation for accepting extreme downside risk. Investors receive no upside participation in index appreciation, meaning the risk-reward profile is asymmetrical.

The filing contains multiple warnings about risk concentration tied to the worst-performing index mechanism. The disclosure states that "the value of the securities is based on the worst performing underlier," and this design choice fundamentally disadvantages investors by creating a scenario where negative performance in either market drives the outcome regardless of positive performance in the other. An investor facing this structure must be comfortable with the possibility that strong U.S. equity performance could be completely offset by European equity weakness, or vice versa, resulting in principal loss despite one underlying index performing well.

Registration, Tax, and Supplemental Documentation

The securities are registered under Registration Statement Nos. 333-293641 and 333-293641-01. The preliminary pricing supplement was filed pursuant to Securities and Exchange Commission Rule 424(b)(2) on July 17, 2026. The full terms of the securities are incorporated by reference to accompanying documents including a product supplement for principal at risk securities dated April 8, 2026; an index supplement dated April 8, 2026; a tax supplement dated April 8, 2026; and a prospectus dated April 8, 2026.

Investors are instructed to "read this document together with the related product supplement, index supplement, tax supplement and prospectus," indicating that the preliminary pricing supplement alone does not contain comprehensive terms and conditions. The tax supplement addresses tax implications, which may be complex given the contingent nature of coupon payments and the potential for total principal loss. The index supplement provides detailed specifications for how the EURO STOXX 50 Index and S&P 500 Index are measured and adjusted for market disruption events, including provisions allowing postponement of observation dates for non-trading days and certain market disruption events.