Morgan Stanley Issues Alphabet-Linked Auto-Callable Securities with 15.72% Contingent Coupon Rate

Morgan Stanley Finance LLC Structures Alphabet-Linked Investment Securities

Morgan Stanley Finance LLC, guaranteed by Morgan Stanley, issued the Contingent Income Memory Buffered Auto-Callable Securities as part of the firm's Series A Global Medium-Term Notes program. The securities are unsecured obligations with a stated principal amount of $1,000 per unit and were issued at par pricing on August 5, 2026. The disclosure indicates that the aggregate principal amount was not specified in the preliminary pricing supplement. The underlier is Alphabet Inc. Class A Common Stock, with the strike date and pricing date both set for July 31, 2026. The maturity date is August 18, 2027, subject to potential early redemption based on automatic call features triggered by specified Alphabet stock price performance.

The securities are fully and unconditionally guaranteed by Morgan Stanley, meaning that payments depend on both MSFL's ability to perform and Morgan Stanley's creditworthiness. Investors bear full credit risk exposure to both entities, and the offering materials explicitly state that if either entity defaults on its obligations, investors could lose some or all of their investment. The securities are not secured obligations, and investors have no security interest in or access to any underlying reference assets. This structural feature distinguishes these notes from secured debt instruments and places investors in the unsecured creditor category in any insolvency scenario.

Contingent Coupon Mechanism and Memory Feature

The securities feature a contingent coupon structure with a memory element, meaning that unpaid coupons accumulate and become payable at later dates if underlying performance conditions are satisfied. The contingent coupon rate is set at least 15.72% annually, with the actual rate to be determined on the pricing date of July 31, 2026. Coupon payments are conditional on the closing level of Alphabet stock being greater than or equal to the coupon barrier level on the related observation date. The coupon barrier level is set at 85% of the initial level of Alphabet stock.

If the Alphabet stock closing price falls below the coupon barrier level on any observation date, no coupon payment is made for that period. However, the unpaid coupon is not forfeited; instead, it remains in memory and becomes payable on a subsequent coupon payment date if the stock price then meets or exceeds the coupon barrier level. Critically, the filing states that investors will not receive payment for any unpaid contingent coupons if the closing level of the underlier remains below the coupon barrier level on each subsequent observation date through maturity. Coupon observation dates and payment dates are specified in a separate section of the full prospectus, with coupon payments made on business days, or on the next succeeding business day if a scheduled date falls on a non-business day.

Automatic Early Redemption Framework and Call Thresholds

The securities incorporate automatic early redemption provisions tied to Alphabet stock performance. The first redemption determination date is November 13, 2026, meaning the securities cannot be redeemed early prior to this date under any circumstance. Subsequent redemption determination dates are scheduled for February 16, 2027 and May 13, 2027. On each redemption determination date, if the closing level of Alphabet stock is greater than or equal to the call threshold level, the securities will be automatically redeemed on the corresponding early redemption date.

The call threshold level is set at 100% of the initial level of Alphabet stock on the strike date. This means if Alphabet stock returns to or exceeds its strike price on any of the three redemption determination dates, investors will receive an early redemption payment equal to the stated principal amount of $1,000 plus the contingent coupon (if earned) with respect to the related interest period and any previously unpaid contingent coupons from earlier periods. The early redemption dates are November 18, 2026, February 19, 2027, and May 18, 2027. Once automatically redeemed, the securities cease to exist and no further payments are made, regardless of subsequent Alphabet stock performance.

Maturity Payment Structure and Downside Factor Protection

If the securities have not been automatically redeemed prior to maturity on August 18, 2027, investors will receive payment based on the final level of Alphabet stock as measured on the final observation date of August 13, 2027. If the final level is greater than or equal to the buffer level, investors receive the stated principal amount of $1,000 plus any contingent coupon earned on the final observation date and any previously unpaid contingent coupons from earlier periods that have not been paid. However, if the final stock level falls below the buffer level, investors begin to experience principal loss.

The filing specifies that if the final level is less than the buffer level, investors will lose 1.1765% for every 1% decline in Alphabet stock price beyond the specified buffer amount. Under these circumstances, the payment at maturity will be less than the stated principal amount and could be zero. The exact buffer level percentage is not numerically disclosed in the preliminary pricing supplement, although the filing indicates it will be specified in the complete offering documents. This downside factor means that losses accelerate once the buffer threshold is breached, making the securities increasingly risky as stock prices decline significantly below the initial strike level.

Risk Profile and Principal Loss Scenarios

The offering materials explicitly emphasize that these securities are principal at risk investments designed for investors willing to accept the possibility of losing their entire initial investment. The filing states that investors will not participate in any appreciation of Alphabet stock, meaning the upside is capped at the coupon payments and principal return. This creates an asymmetric risk-return profile in which investors have limited upside but substantial downside exposure. Investors bear the risk that Alphabet stock could decline significantly from the strike price, resulting in catastrophic principal loss at maturity.

Additional risks include the possibility that contingent coupons may never be paid if Alphabet stock remains below the coupon barrier level throughout the entire term. Memory coupons will eventually expire if not paid by maturity, and investors lose any uncollected coupon payments if the coupon barrier condition is never satisfied. The securities are also subject to credit risk tied to Morgan Stanley and MSFL, and investors have no recourse to any underlying assets if either entity fails. The disclosure notes that these securities are not deposits, savings accounts, or insured by the Federal Deposit Insurance Corporation or any other governmental agency.

Pricing, Distribution, and Estimated Value

The securities were issued at par value of $1,000 per unit, with a stated issue price equal to the principal amount. However, the preliminary pricing supplement indicates that the estimated value on the pricing date was approximately $984.50 per security, or within $25.00 of that estimate. This means the market value of these securities at issuance is expected to trade below par, reflecting the market's valuation of the embedded options and contingent coupon structures. The difference between par value and estimated market value represents the value of the downside protection and automatic redemption features relative to the contingent coupon payments and credit risk.

The agent is Morgan Stanley & Co. LLC, a wholly owned subsidiary of Morgan Stanley and an affiliate of MSFL. JPMorgan Securities LLC and JPMorgan Chase Bank, N.A. are acting as placement agents for the securities. The commission structure shows a $10 per $1,000 stated principal amount commission paid to the agent, with proceeds to the issuer of $990 per unit. The placement agents will forgo fees for sales to certain fiduciary accounts, though the total fees reported represent amounts received from non-fiduciary account sales. Maximum placement agent fees do not exceed $10 per $1,000 stated principal amount of securities sold.

Observation Dates, Coupon Payment Schedule, and Timeline

The securities follow a structured observation and payment schedule tied to specific calendar dates. The strike date and pricing date are both July 31, 2026, with the original issue date set for August 5, 2026. The final observation date for determining the maturity payment is August 13, 2027, subject to postponement in cases of non-trading days or certain market disruption events. Specific observation dates and coupon payment dates are referenced in the accompanying product supplement but the numerical dates are not fully enumerated in this preliminary pricing supplement.

Observation dates are subject to postponement for non-trading days and certain market disruption events, meaning that if a scheduled observation date falls on a non-trading day or during a market disruption, that date will be pushed forward to the next available trading day. Similarly, coupon payment dates will be made on the next succeeding business day if a scheduled date is not a business day, with no adjustment made to any coupon payment made on that succeeding business day. The final contingent coupon payment with respect to the final observation date shall be made on the maturity date of August 18, 2027, or the next business day thereafter if the maturity date is not a business day.

Regulatory Status and Disclosure Framework

The securities were filed pursuant to Securities and Exchange Commission Rule 424(b)(2) and are registered under Registration Statement Nos. 333-293641 and 333-293641-01. The preliminary pricing supplement was dated July 28, 2026 and filed on that same date. The SEC has neither approved nor disapproved these securities, nor has it determined whether the prospectus, product supplement, tax supplement, or pricing supplement is truthful or complete. The preliminary nature of this filing indicates that terms remain subject to change before final pricing and issuance.

The complete terms of the securities are described in the accompanying product supplement, tax supplement, and prospectus, each of which investors should review in conjunction with this preliminary pricing supplement. The offering materials reference "Additional Terms of the Securities" and "Additional Information About the Securities" contained at the end of the complete prospectus, suggesting that material additional disclosures beyond the preliminary supplement are available in the full registration statement. Investors are advised to read all related documents to fully understand the security's terms, conditions, and risk factors before making any investment decision.

Use of Proceeds and Hedging Considerations

The filing indicates that details regarding use of proceeds and hedging activities are contained in the accompanying product supplement. The disclosure notes that proceeds to Morgan Stanley Finance LLC after commissions are $990 per $1,000 stated principal amount of securities sold. The specific allocation of these proceeds and any hedging strategies Morgan Stanley may employ to manage its risks from these securities are not detailed in the preliminary pricing supplement itself but are referenced for review in the complete product supplement documentation.

Hedging activities by Morgan Stanley may involve purchases or sales of Alphabet stock, options, or other derivatives to offset the firm's exposure to the contingent coupon and automatic redemption obligations embedded in these securities. Such hedging activities could influence Alphabet stock market dynamics during the term of the securities, though the magnitude and timing of any such hedging is not disclosed in the preliminary supplement. Investors should be aware that Morgan Stanley's hedging could affect Alphabet stock price movements and that the firm may benefit from certain price movements regardless of whether investors in these securities benefit.

Tax and Credit Risk Considerations

The securities are issued with an accompanying tax supplement dated April 8, 2026, indicating that tax treatment of these instruments has been separately addressed in supplemental disclosure materials. Tax treatment of contingent coupons, memory features, and principal loss scenarios may differ from ordinary bond investments, and investors should consult with tax advisors regarding their specific tax situation before investing. The preliminary pricing supplement does not provide tax advice, and tax consequences are expected to be detailed in the separate tax supplement referenced in the prospectus.

Credit risk analysis should focus on both Morgan Stanley Finance LLC and Morgan Stanley, as the securities are guaranteed by the parent company but issued through the finance subsidiary. Any deterioration in either entity's creditworthiness could affect the value and ultimate repayment of these securities. Investors should monitor credit rating agencies' ratings of Morgan Stanley and any announcements of credit events or financial stress affecting either entity. Unlike government-backed securities or highly rated corporate debt, these securities carry substantial credit risk alongside the market risk tied to Alphabet stock performance and the embedded downside factor at maturity.