Morgan Stanley Issues Five-Year Structured Notes Linked to Stock Market Indices with Auto-Callable Feature

Structured Investment Framework and Index-Linked Performance Mechanics

The securities issued by Morgan Stanley Finance LLC represent a multi-index structured investment product designed to provide investors with exposure to equity market performance while incorporating protective features and early redemption provisions. The notes track three major stock market benchmarks simultaneously: the Dow Jones Industrial Average, Nasdaq-100 Index, and S&P 500 Index, with returns determined by the worst-performing of these three indices. This approach ensures that investors benefit from upside participation when all indices appreciate, but face concentrated downside risk if any single index declines significantly relative to its starting level.

The performance measurement begins on the strike date of July 24, 2026, establishing baseline levels for each of the three underlying indices. Returns are calculated by comparing the final closing levels on July 24, 2031 to these initial strike date levels. The use of the worst-performing index as the basis for payment calculations means that strong performance in one or two indices does not offset weakness in the third, creating a scenario where diversified index exposure does not provide portfolio diversification benefits to security holders. This structural feature concentrates risk exposure to the index experiencing the largest percentage decline from its initial level.

Automatic Early Redemption Conditions and Payment Timing

The securities incorporate an automatic early redemption feature that activates if specific market conditions are satisfied on the first determination date, scheduled for July 27, 2027. For this early redemption to occur, all three underlying indices must simultaneously achieve closing levels at or above 95% of their respective initial strike date levels on that single determination date. If this threshold is met, investors will receive an early redemption payment of $1,180 per security on July 30, 2027, representing an 18% return on the $1,000 stated principal amount, with no further payments made on the securities thereafter.

The calculation of the 95% call threshold level is designed to trigger early redemption in a relatively constructive market environment where declines have been moderate. The filing indicates that specific numerical values for these 95% threshold levels were redacted from the publicly available disclosure, with the percentage notation serving as the disclosed parameter. If the early redemption condition is not satisfied on the first determination date, the securities will continue to accrue value and will pay according to the maturity payment structure on July 29, 2031, five years after the original issue date.

Maturity Payment Structure Based on Final Index Performance

At maturity on July 29, 2031, investors will receive payment determined by how the worst-performing index has moved relative to its initial July 24, 2026 level. If all three indices have appreciated from their initial levels, investors receive the stated principal amount of $1,000 plus an upside payment calculated by multiplying the stated principal amount by a 125% participation rate and the percentage change of the worst-performing index. For example, if the worst-performing index appreciated 10% from its initial level, the upside payment would equal $1,000 × 125% × 10%, or $125 per security, resulting in a total payment of $1,125 per security.

If the worst-performing index has declined but remains at or above its 80% buffer level (representing a maximum 20% decline from the initial level), investors receive only the stated principal amount of $1,000 with no upside participation and no downside loss. However, if the worst-performing index falls below the 80% buffer level, investors face losses calculated using a 1.25 downside factor applied to the percentage decline beyond the 20% buffer threshold. Specifically, the payment formula applies a 1.25 multiplier to losses, meaning that a 25% total decline in the worst-performing index (5% beyond the buffer) would result in a loss of 6.25%, reducing the payment to $937.50 per security. The disclosure explicitly states that payments under this adverse scenario could be "significantly less" than the stated principal amount and could theoretically be zero.

Risk Factors and Principal Loss Scenarios for Investors

The securities carry substantial risks that investors must fully understand before committing capital. As principal at risk securities, these notes do not guarantee the repayment of the full $1,000 stated principal amount and do not provide regular interest payments. Instead, investors forgo traditional fixed-income benefits in exchange for the possibility of receiving payments exceeding the principal amount if market conditions are favorable. The securities explicitly are designed for investors "willing to risk their principal and forgo current income," indicating that capital preservation is not a primary objective of this investment product.

The use of the worst-performing index as the sole determinant of investor returns creates concentrated downside exposure that cannot be mitigated by strong performance in the other two indices. If the Dow Jones Industrial Average, Nasdaq-100, or S&P 500 declines sharply while the others perform well, the entire security's return will be determined by the weakest performer. Furthermore, the 1.25 downside factor amplifies losses beyond the 20% buffer level, meaning that investors lose 1.25% for every 1% the worst-performing index declines past its 80% buffer level. Under severe market stress scenarios, investors could lose their entire initial investment of $1,000 per security if the worst-performing index declines more than approximately 80% from its initial level, which would result in a payment of zero or near-zero.

Credit Guarantee by Morgan Stanley and Unsecured Obligation Status

The securities are issued by Morgan Stanley Finance LLC as unsecured obligations and are fully and unconditionally guaranteed by Morgan Stanley, the parent company. This guarantee means that principal and all scheduled payments depend entirely on Morgan Stanley's creditworthiness and ability to meet its obligations when due. The securities do not have collateral backing, do not provide any security interest in underlying reference assets, and do not offer investors any claims on specific assets held by Morgan Stanley. If Morgan Stanley were to experience financial distress or default on its obligations, security holders could lose some or all of their investment despite the structured nature of the product.

The filing emphasizes that all payments, including early redemption payments and maturity payments, are "subject to our credit risk," underscoring the primary risk exposure that investors assume. The securities are not insured by the Federal Deposit Insurance Corporation or any other governmental insurance program, nor are they bank deposits or savings accounts. Investors should carefully evaluate Morgan Stanley's financial condition and credit profile before purchasing these securities, as the issuer's financial health directly determines whether promised payments will be made in full and on schedule. The unconditional guarantee by Morgan Stanley means that the credit risk of the issuer and guarantor are effectively identical.

Distribution Channel and Fee Structure for Fee-Based Advisory Accounts

The securities are distributed exclusively to investors holding fee-based advisory accounts, restricting access to investors who maintain ongoing advisory relationships with financial advisors rather than transaction-based brokerage accounts. Morgan Stanley & Co. LLC, a wholly owned subsidiary of Morgan Stanley, serves as the agent for the offering and will distribute the securities through a dealer network to qualifying fee-based advisory accounts. The offering structure involves MS & Co. purchasing the entire issuance from Morgan Stanley Finance LLC and subsequently selling the securities to an unaffiliated dealer at a price to be determined, for further distribution to fee-based advisory account holders at the $1,000 public price.

The commission and fee arrangements include potential structuring fees of up to $6.25 per security paid to selected dealers and their financial advisors by the agent or its affiliates. Additionally, MS & Co. may pay a third-party data analytics provider a fee of $0.50 per security at the request of the third-party dealer involved in the offering, with that dealer designated as a permitted user of the relevant analytics. The issuer and MS & Co. disclaim any representations or warranties regarding the use or fitness of the analytics and specifically disclaim liability related to the analytics provider's services. MS & Co. will not receive sales commissions directly with respect to the securities, though the affiliate arrangement and potential data analytics costs reflect the structured nature of the distribution process.

Pricing and Estimated Value at Inception

The securities are issued at $1,000 per unit stated principal amount, with the stated principal and issue price being identical. The filing indicates that the aggregate principal amount and specific dollar amounts for commissions, fees, and proceeds to the issuer were redacted from this preliminary pricing supplement, which was dated July 20, 2026. The pricing date is scheduled for July 24, 2026, the same date as the strike date that establishes the initial levels for all three underlying indices, with the original issue date occurring five days later on July 29, 2026.

The estimated value of the securities on the pricing date was disclosed as approximately $978.90 per security, or within a $40.00 range of that estimate. This valuation, which is less than the $1,000 stated principal amount, reflects the value attributable to the option features embedded in the securities, including the upside participation rate, the buffer protection, and the early redemption feature. The $21.10 estimated discount from principal reflects the cost to investors of acquiring these embedded options, representing compensation to Morgan Stanley for providing the structured investment features. The estimate provided represents an approximation and carries uncertainty, as actual market conditions and volatility levels on the precise pricing date may affect the final valuation.

Tax Treatment and Supplemental Documentation Requirements

The securities are issued as part of Morgan Stanley Finance LLC's Series A Global Medium-Term Notes program and are governed by a comprehensive set of underlying documents and supplements that establish their complete legal and financial terms. Investors are required to read the preliminary pricing supplement together with the related product supplement, index supplement, tax supplement, and prospectus, each of which can be accessed through hyperlinks provided in the offering materials. The tax supplement dated April 8, 2026 addresses the federal, state, local, and foreign tax treatment of the securities, which may include complex tax consequences that vary based on individual investor circumstances.

The registration statement numbers for the securities offering are 333-293641 and 333-293641-01, indicating that the offering is registered with the Securities and Exchange Commission under the required securities registration provisions. The preliminary nature of this pricing supplement dated July 20, 2026 indicates that final terms, including commissions, aggregate principal amount, and specific numerical values for index levels, would be confirmed in a final pricing supplement prior to or on the pricing date. Investors should carefully review all supplemental documentation and tax considerations before committing funds, as the tax treatment of structured products can be complex and may result in ordinary income treatment rather than capital gain treatment in certain circumstances.

Market Conditions and Index Basis for Security Returns

The three underlying indices selected for these securities represent the broadest benchmarks for U.S. equity market performance, encompassing large-capitalization stocks across different market segments and trading venues. The Dow Jones Industrial Average consists of 30 large-cap stocks and represents the most traditional market benchmark, while the Nasdaq-100 Index includes 100 large-cap and mid-cap stocks weighted toward technology and growth sectors, and the S&P 500 Index comprises 500 large-cap stocks representing approximately 80% of the U.S. equity market capitalization. The decision to link the securities to the worst-performing index across a five-year period extends from July 29, 2026 through July 29, 2031, encompassing a complete market cycle and full range of potential economic conditions.

The use of worst-performer methodology creates an inverse relationship to typical diversified portfolio theory, where exposure to multiple assets reduces risk. In this case, adding two additional indices to the security rather than using a single index actually increases downside risk exposure, as weakness in any single index will determine final returns regardless of strength in the other two. Investors purchasing these securities should understand that market dynamics affecting any one of the three indices—whether related to sector rotation, monetary policy, earnings growth, valuation compression, or volatility spikes—will directly impact the security's return profile. The filing does not provide specific information regarding the historical performance, volatility characteristics, or correlation patterns of these indices over the five-year projection period.

Investor Suitability and Intended Use Profile

Morgan Stanley has designed these securities specifically for investors meeting two critical conditions: a willingness to accept the risk of losing their entire initial investment and an intention to forgo current income in exchange for potential capital appreciation and the buffer protection feature. The target investor profile differs substantially from traditional bond investors seeking regular coupon payments and principal repayment, as these securities provide no current income and subject principal to market risk. The securities are most appropriate for investors with a five-year investment horizon who believe one or more of the three equity indices will appreciate significantly over that period and who can afford to lose their entire investment if market conditions prove adverse.

The early redemption feature at 95% of initial levels may appeal to investors seeking defined outcomes and the possibility of exiting the investment early with an 18% gain, while the buffer protection appeals to investors concerned about moderate market declines but willing to accept larger losses if declines exceed 20%. The 125% participation rate on upside returns provides enhanced exposure to bull market scenarios, but this benefit is reduced by the 1.25 downside multiplier that amplifies losses in bear market scenarios. Investors should carefully assess their risk tolerance, investment objectives, and time horizon before purchasing these securities, considering whether the risk-return profile aligns with their overall portfolio strategy and financial situation.