Morgan Stanley Issues Five-Year Buffered Equity-Linked Securities with Auto-Callable Redemption Feature

Product Structure and Maturity Payment Mechanics

The filing discloses that these structured securities employ a three-tier maturity payment framework depending on where the underlying index closes on the final determination date of August 4, 2031. If the final level of the S&P U.S. Equity Momentum 40% VT 4% Decrement Index equals or exceeds the call threshold level of 90% of the initial level, investors receive a fixed payment of $1,705.00 per security, representing approximately 70.5% total return over the five-year period. This outcome provides upside capping, meaning investors forgo any appreciation of the index beyond the call threshold level.

The second maturity scenario applies when the final level falls below the call threshold but remains at or above the buffer level of 85% of the initial level. In this range, investors receive only their stated principal amount of $1,000 per security, with no additional gain or loss. The third scenario, triggered when the final level declines below the 85% buffer level, exposes investors to losses calculated as $1,000 multiplied by the performance factor (final level divided by initial level) plus the 15% buffer amount. The filing specifies that such payments may be substantially less than the stated principal amount, though the minimum payment floor is set at 15% of stated principal, or $150 per security. This structure creates downside protection that extends to a 15% decline in the underlying index before investor capital begins to erode beyond that threshold.

Automatic Early Redemption Mechanics and Call Threshold Mechanics

The disclosure outlines an automatic early redemption feature commencing on the first determination date of August 4, 2027, with subsequent determination dates occurring monthly thereafter through the maturity period. If the closing level of the underlying index reaches or exceeds the 90% call threshold level on any determination date prior to final maturity, the securities will automatically redeem and investors will receive an early redemption payment amount specified for that particular determination date. The filing indicates that the early redemption payment corresponds to an approximate return of 14.10% per annum, with specific dollar amounts increasing incrementally across the redemption schedule.

According to the terms table disclosed in the filing, the first determination date on August 4, 2027, carries an early redemption payment of $1,141.00 per security. Subsequent determination dates show escalating redemption payments, with the schedule progressing through December 4, 2028, and beyond. The filing emphasizes that once the securities are automatically redeemed on any early redemption date, no further payments will be made, and investors cease holding the securities. This feature transforms the product into a callable instrument from the investor's perspective, capping potential returns at the specified redemption payment amounts while eliminating participation in further index appreciation following early redemption.

Underlying Index Composition and Performance Tracking

The securities are linked to the S&P U.S. Equity Momentum 40% VT 4% Decrement Index, which the filing states was developed by S&P Dow Jones Indices LLC in coordination with Morgan Stanley and established on March 14, 2022. The index designation suggests an allocation methodology incorporating momentum-based equity selection with specific weightings and decrement provisions built into its construction. The filing indicates that detailed information about the index composition, calculation methodology, and historical performance is available in the accompanying index supplement, though those specifics are not fully reproduced in this preliminary pricing document.

The filing discloses that the initial level, which serves as the strike price reference point for determining call thresholds, buffer levels, and performance calculations, equals the closing level of the underlying index on the strike date of August 3, 2026. All subsequent determinations of whether the securities qualify for early redemption or final maturity payments, as well as calculations of investor gains or losses below the buffer level, depend on comparing subsequent index closing levels to this August 3, 2026, reference point. The index supplement documentation provides additional transparency regarding index composition, rebalancing procedures, and any restrictions on index usage.

Pricing and Estimated Value Disclosure

The filing sets forth the issue price at $1,000 per security, representing par value. However, the pricing supplement discloses that the estimated value on the pricing date was approximately $904.30 per security, with a range specified as within $54.30 of that estimate. This $95.70 gap between par value and estimated market value reflects the value of the built-in features embedded in the security, including the call feature, buffer protection, and automatic redemption mechanics. The filing notes specific blank spaces where agent commissions and final pricing details would be completed in the final prospectus supplement once the securities are formally priced.

The disclosure indicates that Morgan Stanley & Co. LLC, identified as the agent and an affiliate of Morgan Stanley Finance LLC, will distribute the securities through selected dealers who will receive a fixed sales commission per security. The filing specifies that specific commission amounts, proceeds to the issuer, and pricing details remain to be determined at final pricing. This estimated value reporting serves to communicate to prospective investors that the structured security's intrinsic and time value, when discounted against the $1,000 par amount, reflects the cost of the embedded derivative features and guarantees included in the product.

Credit Risk and Guarantor Obligations

The filing emphasizes that the securities are unsecured obligations of Morgan Stanley Finance LLC and are fully and unconditionally guaranteed by Morgan Stanley, the parent company. This guarantee structure means that if Morgan Stanley Finance LLC, the direct issuer, were unable to meet its payment obligations, the investor would have recourse to Morgan Stanley itself to seek performance. The disclosure explicitly states that all payments on the securities remain subject to Morgan Stanley's credit risk, and in the event of default by either entity, investors could lose some or all of their investment.

The filing clarifies that the securities are not secured obligations and investors have no security interest in, nor access to, any underlying reference assets or collateral. This unsecured status distinguishes these notes from secured debt instruments backed by specific asset pools. The disclosure further confirms that the securities are not deposits or savings accounts and receive no insurance protection from the Federal Deposit Insurance Corporation or any other governmental agency or instrumentality, nor are they obligations of or guaranteed by any bank entity. This risk disclosure alerts investors that their recovery rights depend entirely on the creditworthiness of Morgan Stanley and Morgan Stanley Finance LLC.

Principal at Risk and Investor Suitability Considerations

The filing explicitly identifies these securities as principal-at-risk investments unsuitable for investors seeking capital preservation or current income. The disclosure states that the securities do not provide for regular payment of interest and are designed for investors willing to forgo current income in exchange for the buffer feature and the possibility of receiving an early redemption payment or payment at maturity exceeding the stated principal amount. The filing emphasizes that investors will not participate in any appreciation of the underlier beyond the call threshold level, creating a fundamental trade-off wherein upside return is capped.

The preliminary prospectus supplement notes that the securities involve risks not associated with ordinary debt securities, and investors must be willing to accept the risk of losing a significant portion of their initial investment. The buffer feature provides protection only against declines exceeding 15%, meaning that a 16% decline in the underlying index results in investor capital loss that extends beyond the protected zone. The filing's repetition of risk warnings and suitability statements underscores that these structured products demand sophisticated investors with specific risk-return objectives and the financial capacity to withstand potential principal erosion aligned with index declines below the 85% buffer threshold.

Issue Date Timeline and Determination Date Schedule

The filing establishes a precise timeline for the security's life cycle, beginning with the strike date of August 3, 2026, which sets the reference level for all subsequent performance calculations. The original issue date occurs three days later on August 6, 2026, marking when the securities are formally issued to investors. The first determination date follows approximately one year later on August 4, 2027, after which determination dates occur monthly with specific early redemption payment amounts escalating throughout the schedule. The filing discloses determination dates continuing through at least December 2028, with the early redemption payment schedule showing consistent monthly increments of $11.75 per security across the disclosed portion of the schedule.

The final determination date is scheduled for August 4, 2031, subject to postponement for non-trading days and certain market disruption events, with maturity following three days later on August 7, 2031. This five-year term allows for exactly 60 monthly determination dates from August 4, 2027, through August 4, 2031, during which the automatic early redemption feature can be triggered. The filing notes that under no circumstances will the securities be redeemed prior to the first determination date, meaning all investors holding the securities are guaranteed to retain them for at least one year from issuance. The systematic monthly structure provides regular opportunities for early redemption if index performance reaches the 90% call threshold level on scheduled determination dates.

Registration and Regulatory Framework

The filing discloses that these securities are issued pursuant to Registration Statement Nos. 333-293641 and 333-293641-01, filed with the Securities and Exchange Commission under the Securities Act of 1933. The preliminary pricing supplement is filed pursuant to Rule 424(b)(2), the standard SEC regulation governing the filing of final or preliminary pricing information for registered securities. The securities are notes issued as part of Morgan Stanley Finance LLC's Series A Global Medium-Term Notes program, indicating they represent one component of an ongoing registered debt program under which Morgan Stanley Finance LLC periodically issues structured and conventional debt securities.

The filing includes cross-references to the product supplement for principal-at-risk securities dated April 8, 2026, the index supplement dated April 8, 2026, the tax supplement dated April 8, 2026, and the prospectus dated April 8, 2026. These related documents, accessible via hyperlinks embedded in the filing, provide detailed information regarding the securities' terms, tax consequences, index methodology, and use of proceeds. The SEC and state securities regulators have not approved or disapproved the securities or determined whether the disclosure documents are truthful or complete, a standard regulatory disclaimer that underscores the preliminary nature of this pricing supplement and the ongoing review process before the securities are finalized and distributed.

Investor Participation Constraints and Yield Mechanics

A fundamental structural feature disclosed in the filing is that investors will not participate in any appreciation of the underlying index beyond the 90% call threshold level, creating a ceiling on returns regardless of how strongly the index performs. If the index appreciates to 100% or beyond its strike date level by the final determination date, investors receive only the fixed $1,705.00 maturity payment rather than a return proportional to index growth. Conversely, if the index declines to 85% of strike value, investors recover their full $1,000 principal with no gain or loss. This asymmetric payoff structure—full downside exposure below 85%, full upside participation between 85% and 90%, and capped upside above 90%—reflects the economic cost of the buffer protection embedded in the security's pricing.

The early redemption feature, carrying an approximate annualized return of 14.10%, effectively locks in this yield level if index performance triggers redemption on any determination date from August 4, 2027, onward. For investors whose index performance reaches the call threshold early in the five-year term, this annualized yield compounds across the remaining unrealized term, creating an economically attractive outcome compared to holding lower-yielding conventional debt. However, if index performance remains below the 90% call threshold throughout the five-year term but above the 85% buffer level, investors receive zero incremental return despite five years of principal commitment, creating an opportunity cost relative to fixed-income alternatives available at the time of investment.