Morgan Stanley Finance LLC Launches Principal-At-Risk Structured Notes Linked to S&P 500 Performance

Structured Investment Framework and Underlying Index Mechanics

Morgan Stanley Finance LLC issued these Enhanced Trigger Jump Securities as part of its Series A Global Medium-Term Notes program, with the S&P 500 Index serving as the underlying reference asset. The initial level of the index was established at 7,572.40, calculated as the closing level on the strike date of July 15, 2026. The downside threshold level was set at 6,436.54, representing exactly 85 percent of the initial level, which establishes the boundary between scenarios where investors receive the full stated principal plus upside payment versus scenarios involving principal loss.

The observation date for determining the final level is scheduled for August 16, 2027, subject to postponement for non-trading days and certain market disruption events, with maturity occurring three calendar days later on August 19, 2027. This approximately one-year investment horizon creates a defined time window during which investors are exposed to movements in the S&P 500 Index. The pricing date of July 16, 2026, and original issue date of July 21, 2026, mark the formal commencement of the investment term, establishing the reference points from which all performance calculations and payment determinations will be derived.

Upside Payment Structure and Protected Scenarios

If the final level of the S&P 500 Index on the observation date closes at or above the downside threshold level of 6,436.54, investors will receive the full stated principal amount of $1,000 per security plus an additional upside payment of $100.40 per security. This $100.40 payment represents 10.04 percent of the stated principal amount and functions as the maximum return investors can achieve regardless of how significantly the underlying index appreciates over the term of the securities. According to the hypothetical examples disclosed in the pricing supplement, if the underlier were to appreciate 100 percent from the initial level, investors would still receive only the stated principal plus this fixed upside payment, yielding a 10.04 percent total return rather than capturing the full appreciation of the index.

The pricing supplement indicates that this upside payment structure is designed for investors who seek a return based on the performance of the underlier and who are willing to forgo current income and returns above the upside payment in exchange for the upside payment feature and limited protection against loss of principal within a certain range of performance. This capped return mechanism reflects the trade-off built into the security's design, where investors accept a limited profit potential in exchange for the protection afforded by the 15 percent downside buffer.

Downside Risk and Principal Loss Mechanism

If the final level of the S&P 500 Index is less than the downside threshold level of 6,436.54 at maturity, investors will experience principal loss according to a performance factor calculation. The payment at maturity in this scenario is calculated as the stated principal amount multiplied by the performance factor, where the performance factor equals the final level divided by the initial level. This structure means that for every 1 percent decline in the index level below the downside threshold, investors lose 1 percent of their principal investment on a proportional basis.

The pricing supplement explicitly warns that under these downside scenarios, "the payment at maturity will be significantly less than the stated principal amount and could be zero." This indicates that if the S&P 500 Index were to decline sufficiently far below the initial level of 7,572.40 during the investment term, investors could theoretically receive nothing at maturity despite having invested the full $1,000 per security. The 15 percent buffer provided by the downside threshold offers limited protection, applying only to index declines between zero and 15 percent; declines greater than 15 percent expose investors to cumulative principal losses that increase with the magnitude of the index decline.

Issuance Terms, Aggregate Principal Amount, and Distribution Structure

The aggregate principal amount offered in this pricing supplement totaled $1,050,000, representing 1,050 securities at the stated principal amount of $1,000 per security. The issue price to the public was $1,000 per security, with agent commissions and fees totaling $10.42 per $1,000 stated principal amount, resulting in total commissions of $10,941 across the entire offering. Net proceeds to the issuer were $1,039,059 after deducting these commissions, meaning approximately 1 percent of the gross offering proceeds were retained by placement agents and the issuing entity's distribution partners.

Morgan Stanley & Co. LLC, an affiliate of MSFL and a wholly owned subsidiary of Morgan Stanley, served as the agent for the distribution of these securities. The pricing supplement discloses that J.P. Morgan Securities LLC and JPMorgan Chase Bank, N.A. acted as placement agents, with an arrangement whereby these placement agents would forgo fees for sales to certain fiduciary accounts. The total fees disclosed represent the amount that placement agents receive from sales to accounts other than such fiduciary accounts, and placement agents could receive fees from the issuer or its affiliates not exceeding the stated $10.42 per $1,000 principal amount. The securities are not listed on any securities exchange, indicating they are sold directly through the issuing entity's distribution network.

Estimated Value Determination and Pricing Model Considerations

The estimated value of the securities on the pricing date was $986.40 per security, which is $13.60 below the $1,000 public offering price. This valuation discount reflects the costs associated with issuing, selling, structuring, and hedging the securities, all of which are borne by investors at the point of purchase. The pricing supplement discloses that in determining the estimated value, Morgan Stanley takes into account that the securities comprise both a debt component and a performance-based component linked to the S&P 500 Index. The valuation employs the issuer's own pricing and valuation models, market inputs and assumptions relating to the underlier, instruments based on the underlier, and volatility factors, as well as current and expected interest rates and an interest rate related to Morgan Stanley's secondary market credit spread.

The pricing supplement reveals that Morgan Stanley uses an internal funding rate for determining the economic terms of the securities, which is described as "likely to be lower than our secondary market credit spreads and therefore advantageous to us." This disclosure indicates that if the issuing, selling, structuring and hedging costs borne by investors were lower or if the internal funding rate were higher, one or more of the economic terms would be more favorable to investors. The disclosure further notes that the secondary market price at which Morgan Stanley & Co. purchases the securities in the secondary market may vary from and be lower than the estimated value on the pricing date, taking into account Morgan Stanley's secondary market credit spread and the bid-offer spread that would be charged in a secondary market transaction, among other factors.

Credit Guarantee Structure and Unsecured Obligation Status

The securities are unsecured obligations of Morgan Stanley Finance LLC and are fully and unconditionally guaranteed by Morgan Stanley. The pricing supplement 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 disclosure further states that "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." This structure means that investors have no claim on the S&P 500 Index itself or any assets underlying that index; their recourse is limited to Morgan Stanley's general obligation to pay, subordinated to any secured creditors and senior creditors in Morgan Stanley's capital structure.

The guarantee by Morgan Stanley, while providing an additional layer of credit support beyond the issuing subsidiary MSFL, is nevertheless contingent on Morgan Stanley's financial stability and creditworthiness. Investors bear the full credit risk of both the issuer and guarantor, meaning that deterioration in either entity's credit quality or default could result in partial or total loss of invested capital. 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 any bank, establishing that these instruments fall outside traditional deposit protection frameworks.

Investor Profile and Risk Tolerance Requirements

The pricing supplement explicitly identifies the targeted investor profile for these securities. According to the disclosure, the securities are intended for "investors who seek a return based on the performance of the underlier and who are willing to risk their principal and forgo current income and returns above the upside payment in exchange for the upside payment feature and the limited protection against loss of principal, each of which applies to a certain range of performance of the underlier over the term of the securities." This characterization indicates that Morgan Stanley considers these instruments appropriate only for investors with specific risk tolerance parameters and investment objectives aligned with the security's structural features.

The pricing supplement contains a stark and repeated warning: "Investors in the securities must be willing to accept the risk of losing their entire initial investment." This language appears prominently in multiple sections of the disclosure, underscoring the gravity of the principal-at-risk nature of the investment. The securities offer no interest payments and do not guarantee any return of principal at maturity, creating a zero-coupon structure where returns depend entirely on index performance relative to defined threshold levels. The combination of capped upside potential (10.04 percent maximum return), significant downside risk (up to 100 percent loss of principal), and the absence of income payments restricts the appeal of these securities to a narrowly defined subset of investors.

Secondary Market Considerations and Liquidity Profile

Morgan Stanley & Co. may, but is not obligated to, make a market in the securities, and if it chooses to make a market, it may cease doing so at any time. This discretionary approach to secondary market support indicates that investors cannot rely on continuous liquidity if they wish to exit their positions prior to maturity. The pricing supplement discloses that "to the extent that MS & Co. may buy or sell the securities in the secondary market during the amortization period specified herein, absent changes in market conditions, including those related to the underlier, and to our secondary market credit spreads, it would do so based on values higher than the estimated value." The presence of an amortization period during which secondary market values would be higher than the pricing date estimate reflects the embedding of costs at the point of issuance.

Investors seeking to liquidate positions in the secondary market would face potential challenges related to bid-offer spreads and pricing that incorporates Morgan Stanley's secondary market credit spread. The non-listing of the securities on any securities exchange further constrains liquidity options, as trading would occur only through direct transactions with Morgan Stanley & Co. or other market makers if they choose to participate. These secondary market dynamics may result in significant costs to investors who need to exit before maturity, potentially exceeding the $13.60 per security discount already built into the original issue price.

Registration and Regulatory Framework for Structured Investment Program

The securities are issued pursuant to Registration Statement Numbers 333-293641 and 333-293641-01, with this pricing supplement filed pursuant to Rule 424(b)(2) under the Securities Act of 1933. The pricing supplement is dated July 16, 2026, establishing the reference date for all pricing and valuation disclosures contained therein. The securities are issued as part of Morgan Stanley Finance LLC's Series A Global Medium-Term Notes program, which provides a framework under which multiple tranches of debt securities with varying terms can be issued. The accompanying product supplement, index supplement, tax supplement, and prospectus provide additional terms and conditions governing the securities, with all documents incorporated by reference into the pricing supplement.

The pricing supplement includes standard regulatory disclaimers noting that the Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities or determined if the disclosure documents are truthful or complete, with any contrary representation constituting a criminal offense. This language reflects the regulatory status of structured notes under the Securities Act framework, where securities issued by MSFL pursuant to an effective registration statement do not require pre-approval from the SEC regarding their terms or fairness to investors. The regulatory framework assumes that disclosure of all material terms and risks, rather than regulatory approval of the product itself, provides the primary investor protection mechanism.

Use of Proceeds and Hedging Activities by the Issuer

The pricing supplement references "Use of Proceeds and Hedging" in the accompanying product supplement but does not disclose the specific allocation of the $1,039,059 net proceeds to the issuer beyond indicating that such funds will be used in connection with issuing, selling, structuring and hedging the securities. Standard practice for structured notes programs involves the issuer using proceeds to purchase hedging instruments, typically options or other derivatives on the underlying index, that offset the issuer's exposure to the performance component embedded in the securities. This hedging allows the issuer to manage its financial risk associated with the capped upside payment obligation and the potential principal loss liability.

The pricing supplement indicates that costs associated with issuing, selling, structuring and hedging are borne by investors through the $13.60 per security discount between the public offering price and estimated value. These embedded costs reduce the net proceeds available for actual investment or capital allocation by the issuer, but they also reflect the economic reality that the issuer must incur costs to manage the financial risks associated with offering principal-at-risk securities. The specifics of the hedging strategy, including which derivative instruments are employed, the notional amounts involved, and the rebalancing frequency, are not disclosed in the pricing supplement itself but would typically be contained in the referenced product supplement.