Morgan Stanley Issues Contingent Income Auto-Callable Securities Linked to Micron Technology Stock

Structure and Key Terms of the Micron-Linked Securities

Morgan Stanley Finance LLC has structured these securities as principal-at-risk notes with returns contingent upon the performance of Micron Technology Inc. common stock over a three-year period ending August 8, 2029. The securities were priced on August 3, 2026, with an original issue date of August 6, 2026. Each security has a stated principal amount of $1,000 and an estimated value on the pricing date of approximately $967.00 per security, or within $30.00 of that estimate. The disclosure states that the securities do not guarantee the repayment of principal and do not provide for the regular payment of interest unless specific performance conditions tied to Micron Technology's stock price are met.

The product is structured as an auto-callable note, meaning that under certain conditions, the securities may be automatically redeemed before maturity, allowing investors to receive their principal plus any applicable coupon payment and cease further exposure to the underlier. The securities are issued as part of Morgan Stanley Finance LLC's Series A Global Medium-Term Notes program and are secured only by the full and unconditional guarantee of Morgan Stanley, meaning they are unsecured obligations of MSFL with no access to any underlying reference asset.

Contingent Coupon Payment Structure and Observation Dates

The securities will pay a contingent coupon at an annual rate of 40.15% on each coupon payment date, but only if the closing level of Micron Technology stock is greater than or equal to the coupon barrier level on the related observation date. The coupon barrier level is set at 60% of the initial level. The filing discloses that if the closing level of the underlier falls below the coupon barrier level on any observation date, no interest will be paid with respect to that interest period, creating a scenario where investors may receive zero coupons over the entire three-year term of the securities.

Coupon payment dates follow specific observation dates established throughout the term of the securities. The filing states that if any coupon payment date is not a business day, the coupon payment, if any, will be made on the next succeeding business day with no adjustment made to the payment amount. The final observation date is set for August 3, 2029, subject to postponement for non-trading days and certain market disruption events, with the corresponding coupon payment made on the maturity date of August 8, 2029. This structure means investors will not know until each observation date whether they will receive a coupon payment for that period.

Automatic Early Redemption Mechanism and Call Threshold

The securities are not subject to automatic early redemption until the first redemption determination date of February 3, 2027. If on any redemption determination date thereafter the closing level of Micron Technology stock is greater than or equal to the call threshold level (100% of the initial level), the securities will be automatically redeemed for the early redemption payment on the related early redemption date. Once automatically redeemed, no further payments will be made on the securities, effectively ending the investor's exposure to any additional upside or coupon potential.

The filing establishes redemption determination dates occurring monthly from February 3, 2027 through July 3, 2029, with corresponding early redemption dates approximately five business days later. This frequent redemption schedule creates multiple opportunities for automatic early redemption if Micron Technology's stock price remains above or recovers to its initial level. The disclosure emphasizes that the securities will not be redeemed on any early redemption date if the closing level of the underlier is less than the call threshold level on the related redemption determination date, meaning investors remain locked into their position unless the stock price performance triggers the automatic redemption.

Principal-at-Risk Downside Provisions and Maturity Payoff

At maturity, the payment investors receive depends critically on where Micron Technology's stock price closes on the final observation date of August 3, 2029. If the securities have not been automatically redeemed prior to maturity and the final level is greater than or equal to the downside threshold level, investors will receive the stated principal amount in addition to any contingent coupon with respect to the final observation date if payable. However, if the final level falls below the downside threshold level, the filing discloses that investors will lose 1% of their principal for every 1% decline in the level of the underlier over the term of the securities, meaning the payment at maturity will be significantly less than the stated principal amount and could be zero.

This structure creates substantial principal-at-risk exposure for investors. The disclosure explicitly states that under these circumstances, investors must be willing to accept the risk of losing their entire initial investment. Unlike traditional debt securities that guarantee return of principal at maturity, these securities offer no downside protection and provide no participation in any appreciation of Micron Technology stock. The filing emphasizes that investors will not participate in any appreciation of the underlier, meaning any gains from Micron stock price increases above the initial level are retained by Morgan Stanley through the auto-call mechanism, while investors bear the full downside risk if the stock price declines.

Estimated Value, Pricing, and Commission Structure

The securities carry an estimated value on the pricing date of approximately $967.00 per security, or within $30.00 of that estimate, which represents a discount to the stated principal amount of $1,000. The issue price to the public is $1,000 per security, with the pricing supplement filed July 29, 2026. The filing discloses that the securities will be sold only to investors purchasing the securities in fee-based advisory accounts, limiting the distribution to a specific investor category.

Regarding commissions and fees, the filing states that Morgan Stanley & Co., the agent and an affiliate of both MSFL and a wholly owned subsidiary of Morgan Stanley, expects to sell all of the securities it purchases from MSFL to an unaffiliated dealer at a specified price per security for further sale to certain fee-based advisory accounts at the public price of $1,000 per security. The filing notes that Morgan Stanley & Co. will not receive a sales commission with respect to the securities. The specific commission amounts and proceeds to the issuer were not disclosed in the pricing supplement provided.

Credit Risk and Guarantee Characteristics

Although the securities are fully and unconditionally guaranteed by Morgan Stanley, the filing explicitly states that all payments are subject to Morgan Stanley's credit risk. If Morgan Stanley defaults on its obligations, investors could lose some or all of their investment. The securities are not secured obligations, meaning investors will not have any security interest in or access to any underlying reference asset or assets. This credit risk is particularly significant given that the securities have no backing other than Morgan Stanley's corporate obligation.

The disclosure further notes 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 in any depositary capacity. This clarification distinguishes these structured securities from traditional bank savings products and underscores that investors are exposed to Morgan Stanley's creditworthiness as their sole source of recovery in the event of default. The filing emphasizes that these securities are designed for investors who understand and accept these risks.

Underlier Selection and Monitoring Requirements

The underlier for these securities is Micron Technology, Inc. common stock, a publicly traded company whose performance directly drives all cash flows to investors. The strike date and pricing date were both August 3, 2026, establishing the initial level against which all subsequent performance will be measured. The filing establishes that the original issue date is August 6, 2026, with the final observation date of August 3, 2029, subject to postponement for non-trading days and certain market disruption events. This means investors must monitor Micron Technology's stock price performance throughout the three-year period to understand their coupon eligibility and redemption likelihood.

The multiple observation dates and redemption determination dates scattered throughout the securities' term require ongoing surveillance of Micron Technology's stock price. Investors will need to track whether the stock closes above or below the coupon barrier level of 60% of the initial level on each observation date to determine coupon payment eligibility, and whether the stock reaches or exceeds the call threshold level of 100% of the initial level on each redemption determination date to assess automatic redemption risk. The filing notes that all dates are subject to postponement for non-trading days and certain market disruption events, adding an element of timing uncertainty to the payment schedule.

Target Investor Profile and Risk Acknowledgment

The filing clearly identifies the target investor for these securities as those who seek an opportunity to earn interest at a potentially above-market rate in exchange for accepting substantial risks. The 40.15% annual contingent coupon rate is designed to compensate investors for the principal-at-risk structure and the uncertainty of coupon payments. However, the disclosure emphasizes that this potential above-market coupon is available only if Micron Technology's stock remains above 60% of its initial level on the observation dates, and even then, investors receive no upside participation if the stock appreciates significantly due to the automatic early redemption feature.

The filing explicitly states that investors in these securities must be willing to accept the risk of losing their entire initial investment, representing a comprehensive acknowledgment of the product's principal-at-risk nature. This statement appears multiple times throughout the disclosure, underscoring Morgan Stanley's intent to ensure investors understand the severity of downside exposure. The product is described as suitable only for investors who fully comprehend that they are exchanging principal safety for the possibility of higher coupon income and who understand that all potential upside from Micron Technology stock appreciation above the initial level will be captured by the automatic redemption mechanism.

Distribution and Advisory Account Restrictions

The securities are being distributed exclusively through fee-based advisory accounts, a distribution restriction designed to ensure they reach investors receiving ongoing professional financial advice. The filing discloses that Morgan Stanley & Co. serves as the agent and will sell the securities to an unaffiliated dealer for further distribution to fee-based advisory accounts. This restricted distribution model suggests Morgan Stanley's intent to place these complex structured products only with investors who have professional advisors evaluating their appropriateness.

The use of an unaffiliated dealer as an intermediary in the distribution chain further insulates the distribution process, though Morgan Stanley retains ultimate responsibility through its guarantee. The filing notes that Morgan Stanley & Co. will not receive a sales commission with respect to the securities, indicating that compensation flows through alternative channels rather than traditional sales commission structures. This distribution approach reflects regulatory and business practices intended to ensure these principal-at-risk securities reach sophisticated investors with appropriate advisory support.