Morgan Stanley Finance LLC disclosed a new structured investment product on July 28, 2026, offering Contingent Income Memory Auto-Callable Securities due August 2, 2029, linked to the performance of Unity Software Inc. common stock. The notes, issued at $1,000 per security, feature a contingent coupon rate of 22.75% annually but carry substantial principal-at-risk characteristics, including potential total loss if the underlying stock declines significantly. The product targets investors willing to accept downside exposure in exchange for potentially above-market income generation.

Key Points

  • NYSE: MS-PQ (Morgan Stanley Finance LLC)
  • Morgan Stanley Finance LLC issued Contingent Income Memory Auto-Callable Securities linked to Unity Software Inc. common stock, with pricing dated July 28, 2026
  • Securities carry a stated principal amount of $1,000 per security, contingent coupon rate of 22.75% annually, and maturity date of August 2, 2029
  • Estimated value on pricing date was approximately $951.30 per security, reflecting the risk premium embedded in the structure

Structural Design and Coupon Mechanics

The disclosure outlines a complex structured product with multiple contingent payment features. The securities will pay a contingent coupon at an annual rate of 22.75%, but only if the closing level of Unity Software's common stock remains at or above a specified coupon barrier level on the related observation date. If the stock price falls below this threshold on any observation date, no interest payment will be made with respect to that period.

The filing indicates that unpaid contingent coupons will accumulate and may be paid on subsequent coupon payment dates, but only if the underlier's closing level meets or exceeds the coupon barrier level on those future dates. The disclosure clarifies that unpaid coupons carry no additional accruing interest beyond the original contingent coupon rate, and investors will receive no payment for any unpaid contingent coupons if the stock remains below the coupon barrier through maturity. This "memory" feature allows for potential recovery of missed payments, but recovery is conditional on the stock's future performance.

Automatic Early Redemption Framework

The securities feature an automatic early redemption mechanism that activates if Unity Software's stock price reaches specified threshold levels. Beginning with the first redemption determination date of January 29, 2027, the notes will be automatically redeemed if the closing level of the underlier is greater than or equal to the call threshold level, which the filing states equals 100% of the initial level. Upon early redemption, investors receive the stated principal amount plus any contingent coupon due with respect to the related interest period and any previously unpaid contingent coupons.

The filing identifies 32 scheduled redemption determination dates spanning from January 29, 2027, through June 29, 2029, subject to postponement for non-trading days and certain market disruption events. Corresponding early redemption dates are listed, with the final early redemption date occurring on July 5, 2029, just before the final observation date. The structure creates a scenario where early redemption at par becomes increasingly likely as the stock price appreciates, effectively capping investor upside participation while preserving downside exposure.

Principal-at-Risk Payment at Maturity

The maturity payment structure presents the most significant risk exposure for investors. If the securities have not been automatically redeemed prior to maturity and the final level—measured on July 30, 2029—is greater than or equal to a downside threshold level, investors will receive the stated principal amount at maturity, plus any applicable contingent coupons. However, if the final level falls below the downside threshold level, the filing states that investors will lose 1% for every 1% decline in the level of the underlier over the term of the securities.

The disclosure emphasizes that under adverse scenarios, the payment at maturity will be significantly less than the stated principal amount and could be zero. This structure means that if Unity Software's stock declines substantially, investors could recover nothing of their initial $1,000 investment. The filing explicitly warns that "investors in the securities must be willing to accept the risk of losing their entire initial investment" and makes clear that investors will not participate in any appreciation of the underlier above the automatic early redemption threshold.

Valuation and Pricing Information

The filing discloses that the issue price is $1,000 per security, with the estimated value on the pricing date of July 29, 2026, stated as approximately $951.30 per security, or within $30.00 of that estimate. This valuation gap of approximately $48.70 per security reflects the embedded cost of the options and the credit risk associated with the product. The disclosure states this valuation methodology and range but does not provide detailed breakdowns of the specific assumptions used in calculating estimated value.

The filing notes that agents and selected dealers will collectively receive commissions and fees, but the specific commission percentages and total aggregate principal amount are not disclosed in the preliminary pricing supplement provided. The company states it will proceed to use proceeds from the offering but does not detail specific use of proceeds beyond cross-referencing the product supplement. The estimated value figure suggests that investors purchasing at par face an immediate economic haircut, consistent with the principal-at-risk nature of the security.

Credit Risk and Unsecured Obligations

The announcement clearly establishes that these securities are unsecured obligations of Morgan Stanley Finance LLC and are fully and unconditionally guaranteed by Morgan Stanley. However, the filing warns investors that "all payments are subject to our credit risk" and that if Morgan Stanley defaults on its obligations, investors could lose some or all of their investment. The securities are not secured obligations and investors will not have any security interest in or access to any underlying reference asset.

The filing includes standard disclaimers that the securities are not deposits or savings accounts and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency. This language underscores that investors are relying entirely on Morgan Stanley's creditworthiness for repayment. The double-layer risk structure—combining both the principal-at-risk feature tied to Unity Software's stock performance and the counterparty credit risk of Morgan Stanley—creates a compounded risk profile for investors.

Unity Software as the Underlying Reference Asset

The securities are structured around the common stock of Unity Software Inc., with the strike date and pricing date both set for July 29, 2026. The initial level of the underlier establishes the baseline for all subsequent performance measurements, including the determination of the call threshold level at 100% of the initial level, the coupon barrier level, and the downside threshold level. While the specific prices and levels are not populated in the preliminary pricing supplement, the filing establishes the observation framework and measurement methodology.

The final observation date is scheduled for July 30, 2029, subject to postponement for non-trading days and certain market disruption events. This three-year observation period creates an extended window during which Unity Software's stock performance will directly affect investor returns. The filing provides monthly redemption determination dates, allowing frequent assessment of whether automatic early redemption will be triggered, but the specific barrier levels and threshold percentages depend on the final pricing parameters not disclosed in this preliminary supplement.

Terms and Registration Framework

The disclosure identifies this offering as part of Morgan Stanley Finance LLC's Series A Global Medium-Term Notes program. The securities are registered under Registration Statement Nos. 333-293641 and 333-293641-01, and the preliminary pricing supplement was filed pursuant to SEC Rule 424(b)(2) on July 28, 2026. The product is governed by the terms described in the accompanying product supplement dated April 8, 2026, tax supplement dated April 8, 2026, and prospectus dated April 8, 2026.

Morgan Stanley & Co. LLC serves as agent for the offering and is identified as an affiliate of MSFL and a wholly owned subsidiary of Morgan Stanley. The filing notes conflicts of interest in the plan of distribution and directs investors to consult supplemental information regarding distribution and conflicts. The regulatory framework indicates that all terms are subject to the comprehensive disclosure documents available through hyperlinks, which investors are advised to review alongside this preliminary pricing supplement.

Risk Factors and Investor Suitability

The filing characterizes these securities as appropriate only for "investors who seek an opportunity to earn interest at a potentially above-market rate in exchange for the risk of losing a significant portion or all of their principal and the risk of receiving no coupons over the entire term of the securities." This language emphasizes that the 22.75% contingent coupon comes with substantial trade-offs, including complete non-payment of interest if the stock remains below coupon barrier levels and unlimited downside exposure if the stock declines significantly.

The announcement explicitly states that "the securities involve risks not associated with an investment in ordinary debt securities" and directs investors to consult risk factors beginning on page 9 of the accompanying documentation. The filing warns that investors will not participate in appreciation of the underlier, effectively capping upside returns at par value plus accumulated coupons, while maintaining full downside exposure. This asymmetric risk profile is central to understanding the product's appeal to specific investor categories and the rationale for the premium coupon rate.

Observation Dates and Coupon Payment Schedule

The securities establish a structured schedule of observation dates and corresponding coupon payment dates, though the preliminary pricing supplement does not fully populate all specific dates within the body text provided. The filing cross-references the section "Observation Dates and Coupon Payment Dates" for complete details and indicates that if any coupon payment date is not a business day, the payment will be made on the next succeeding business day with no additional accruing interest for the delay.

This payment methodology ensures that the 22.75% annual contingent coupon will be distributed on a regular schedule contingent on the stock performance metric, with potential deferrals and accumulation of unpaid amounts subject to future barrier level determinations. The maturity date of August 2, 2029, provides a defined endpoint for all payment obligations, after which no further contingent coupons or principal payments will be made. The structured observation framework creates a transparent schedule for investors to monitor performance and payment eligibility throughout the three-year term.