Morgan Stanley Finance Issues $251 Million Market-Linked Notes Tied to S&P 500 Futures Index

Issuance Details and Guarantor Structure

Morgan Stanley Finance LLC (MSFL), a subsidiary of Morgan Stanley, issued the notes as part of its Series A Global Medium-Term Notes program. The notes are unsecured obligations of MSFL and carry a full and unconditional guarantee from Morgan Stanley, meaning investors' repayment rights extend to the parent company. The aggregate principal amount issued was $251 million, consisting of 251,000 notes at $1,000 per note. The original issue date was July 23, 2026, following a pricing date of July 20, 2026, with a strike date also set for July 20, 2026. The notes will mature on July 24, 2031, creating a five-year investment horizon for purchasers.

Morgan Stanley & Co. LLC served as the agent for the offering and purchased the notes for resale to fee-based advisory accounts. The agent paid $995 per note and sold them to an unaffiliated dealer at the same price, which then distributed the notes to fee-based advisory accounts at the public price of $1,000 per note. The pricing structure resulted in commissions and fees of $5 per note, totaling $1,255 on the aggregate issuance, with net proceeds to MSFL of $249,745 thousand.

Index-Linked Return Structure and Participation Terms

The notes' returns are linked to the S&P 500 Futures Excess Return Index, with performance measured from the strike date of July 20, 2026, to an observation date of July 21, 2031, subject to postponement for non-trading days and market disruption events. The initial level of the underlying index was 595.63, representing the closing level on the strike date. At maturity, investors will receive payment based on whether the final level, defined as the closing level of the underlier on the observation date, exceeds the initial level.

If the final level is greater than the initial level, investors receive the stated principal amount plus an upside payment calculated as the stated principal amount multiplied by the participation rate of 150 percent multiplied by the underlier percent change. The filing provides a hypothetical example: if the underlier appreciates 5 percent, investors would receive $1,075 per note, representing 107.50 percent of the stated principal amount. Conversely, if the final level is equal to or less than the initial level—for instance, if the underlier depreciates 15 percent—investors receive only the stated principal amount of $1,000 per note with no positive return.

Principal Protection and Downside Risk Management

A defining feature of these notes is their principal protection mechanism. Under no circumstances will the payment at maturity be less than the stated principal amount of $1,000 per note. This structure provides investors with a floor on their investment: even if the S&P 500 Futures Excess Return Index declines significantly over the five-year term, investors will recover their full principal investment at maturity. The notes pay no interest, distinguishing them from conventional debt instruments and reflecting their design as performance-linked instruments that forgo current income in exchange for potential capital appreciation.

The disclosure notes that this structure is designed for investors who are concerned about principal risk but seek a return based on the performance of the underlying index and who are willing to forgo current income in exchange for principal repayment and the potential to receive a positive return. However, all payments remain subject to Morgan Stanley's credit risk. The filing explicitly warns that if Morgan Stanley defaults on its obligations, investors could lose some or all of their investment. The notes are not secured obligations, meaning investors have no security interest in any underlying assets, and there is no access to reference assets that could be liquidated in a default scenario.

Estimated Value, Pricing Methodology, and Embedded Costs

The estimated value of the notes on the pricing date was $975.50 per note, which is $24.50 less than the $1,000 issue price. This discount reflects costs associated with issuing, selling, structuring, and hedging the notes, all of which are borne by the investor. Morgan Stanley disclosed that its valuation takes into account both a debt component and a performance-based component linked to the underlier. The estimated value was determined using Morgan Stanley's own pricing and valuation models, market inputs, assumptions relating to the underlier and instruments based on it, volatility assumptions, and factors including current and expected interest rates.

The valuation incorporates an interest rate related to Morgan Stanley's secondary market credit spread, which represents the implied interest rate at which Morgan Stanley's conventional fixed-rate debt trades in the secondary market. The filing notes that in determining the economic terms of the notes, Morgan Stanley used an internal funding rate that is likely lower than its secondary market credit spreads and therefore advantageous to the issuer. The disclosure states that if issuing, selling, structuring, and hedging costs were lower or if the internal funding rate were higher, one or more of the economic terms would have been more favorable to investors. This transparency highlights the value transfer inherent in the pricing structure.

Secondary Market Pricing and Liquidity Considerations

The filing discloses that the price at which Morgan Stanley & Co. purchases notes in the secondary market may vary from and be lower than the estimated value on the pricing date, as the secondary market price accounts for Morgan Stanley's secondary market credit spread and the bid-offer spread that the agent would charge in secondary market transactions. However, because the costs associated with issuance, structuring, and hedging are not fully deducted upon issuance, secondary market prices during the amortization period are expected to be higher than the estimated value, absent changes in market conditions and credit spreads.

Morgan Stanley & Co. may, but is not obligated to, make a market in the notes, and if it elects to do so, it may cease market-making at any time. This discretionary liquidity provision means investors should not assume continuous secondary market trading will be available. The notes are not listed on any securities exchange, further limiting liquidity options. Investors should be prepared for the possibility of holding the notes to maturity if secondary market opportunities become unavailable or are priced unfavorably.

CUSIP Identifier and Regulatory Disclosures

The notes carry CUSIP number 61781G5U1 and ISIN US61781G5U16, enabling electronic tracking and settlement through standard financial infrastructure. The pricing supplement was filed pursuant to Rule 424(b)(2) on July 22, 2026, and references underlying registration statements numbered 333-293641 and 333-293641-01. The offering documentation supplements the product supplement 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.

The Securities and Exchange Commission and state securities regulators have not approved or disapproved the notes, nor have they determined whether the documentation is truthful or complete. The notes are not deposits or savings accounts and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency. They are not obligations of, or guaranteed by, a bank, despite the involvement of Morgan Stanley, which operates a bank holding company.

Investor Target Market and Use of Proceeds

The notes are designed specifically for investors purchasing through fee-based advisory accounts. This restriction limits distribution to clients in fee-based relationships, excluding commission-based or other account structures. The product supplement states that the notes are for investors concerned about principal risk who seek a return based on underlier performance and are willing to forgo current income in exchange for principal repayment and potential positive returns. This profile suggests the notes may appeal to advisory clients seeking equity exposure with downside protection.

Morgan Stanley disclosed that the net proceeds from the offering, totaling $249.745 million, would be used for purposes described in the product supplement, which would typically include funding the hedge positions and costs associated with the guarantee and structuring. The issuer also noted that secondary market credit spreads and other market factors determine how the issuer funds and hedges these obligations.

Risk Warnings and Investor Considerations

The disclosure emphasizes multiple risks inherent in these instruments. If the final level of the S&P 500 Futures Excess Return Index is equal to or less than the initial level, investors receive only the stated principal amount and no positive return, effectively losing any potential appreciation over the five-year period. The notes do not pay interest, meaning investors sacrifice current income entirely. All payments remain subject to Morgan Stanley's credit risk; in a default scenario, investors could lose some or all of their investment despite the principal protection structure at the fund level.

Because the notes are unsecured and uninsured, investors should carefully evaluate Morgan Stanley's creditworthiness and their own risk tolerance for principal at stake. The filing directs investors to consult with investment, legal, tax, accounting, and other advisers before investing. The notes involve risks not associated with ordinary debt securities, stemming from the combination of derivative-like payoff structures with unsecured debt status.

Tax and Accounting Implications

The offering includes a tax supplement dated April 8, 2026, addressing the federal income tax treatment of the notes. Investors should review this document carefully, as the tax characterization of market-linked notes can be complex. Generally, such notes may be treated as debt instruments with embedded derivatives for tax purposes, potentially triggering mark-to-market accounting rules or derivative forward contract treatment for certain investor classes. The timing and character of income recognition may differ from conventional debt or equity investments.

The filing advises investors to consult with tax advisers regarding the specific tax consequences of purchasing and holding the notes based on their individual circumstances, including their tax classification, holding period intentions, and other portfolio factors. Tax treatment may vary significantly depending on whether the investor is a U.S. citizen, foreign investor, tax-exempt entity, or corporation, and may affect the notes' after-tax return profile relative to alternative investments.