Morgan Stanley Finance Issues $394,000 Auto-Callable Structured Notes Linked to Tech, Russell 2000 and Regional Banking Indices

Structured Note Terms and Principal-at-Risk Features

The disclosure outlines a principal-at-risk structured investment product designed for investors willing to accept exposure to significant capital loss in exchange for potentially above-market coupon payments. The stated principal amount per security is $1,000, with an issue price of $1,000 per security and an aggregate principal amount of $394,000. The securities were priced on July 23, 2026, with an original issue date of July 28, 2026, and a maturity date of June 28, 2028. The filing states that the estimated value on the pricing date was $967.80 per security, indicating a pricing discount to par.

Investors will not receive a guaranteed return of principal at maturity. Rather, the filing indicates that if the final level of any underlier is less than its downside threshold level, investors will lose 1% for every 1% decline in the level of the worst performing underlier over the term of the securities. The filing explicitly states that under these circumstances, "the payment at maturity will be significantly less than the stated principal amount and could be zero." This structure means investors face potential total loss of their initial investment based on the performance of whichever underlying asset performs worst during the term.

Contingent Coupon Mechanism and Observation Dates

The securities offer a contingent coupon at an annual rate of 13.32%, but the filing emphasizes that this coupon will be paid on each coupon payment date only if the closing level of each underlier is greater than or equal to its coupon barrier level on the related observation date. If the closing level of any single underlier falls below its coupon barrier level on any observation date, the filing states that no coupon will be paid with respect to the applicable interest period. This all-or-nothing coupon structure means investors receive the full 13.32% annual rate or nothing, with no partial coupon payments.

The coupon barrier levels are set at 70% of the initial levels of each underlying asset. Specifically, the filing discloses that the IGV Fund coupon barrier level is $60.97, the RTY Index coupon barrier level is 2,058.114, and the KRE Fund coupon barrier level is $52.6. The final observation date is scheduled for June 23, 2028, subject to postponement for non-trading days and certain market disruption events. Coupon payment dates correspond to observation dates as further detailed in the accompanying product supplement, with the final coupon payment, if payable, to be made on the maturity date.

Automatic Early Redemption and Call Mechanics

The filing discloses that the securities will be automatically redeemed if the closing level of each underlier is greater than or equal to its call threshold level on any redemption determination date. The call threshold levels are set at 100% of the initial levels of each underlying asset: $87.10 for the IGV Fund, 2,940.163 for the RTY Index, and $75.15 for the KRE Fund. Early redemption will occur only if all three underliers simultaneously meet or exceed their respective call thresholds on the same redemption determination date. If early redemption occurs, investors will receive an early redemption payment equal to the stated principal amount plus the contingent coupon with respect to the related interest period.

The first redemption determination date is January 25, 2027, and the filing states that "under no circumstances will the securities be redeemed prior to the first redemption determination date." Subsequent redemption determination dates are scheduled for the 23rd or 24th/25th of each month through May 23, 2028, subject to postponement for non-trading days and certain market disruption events. Early redemption dates follow the redemption determination dates by approximately three business days. Once the securities are automatically redeemed, the filing specifies that "no further payments will be made on the securities once they have been automatically redeemed."

Three-Way Underlying Asset Structure and Worst-Performer Mechanics

The securities are linked to three distinct underlying assets: the iShares Expanded Tech-Software Sector ETF (ticker IGV), the Russell 2000 Index (ticker RTY), and the State Street SPDR S&P Regional Banking ETF (ticker KRE). The filing emphasizes that "the value of the securities is based on the worst performing underlier," meaning that investor returns depend on the performance of whichever of the three assets performs most poorly during the relevant measurement period. This structure provides no diversification benefit; rather, it concentrates risk on the weakest performer.

The filing explicitly warns that "the fact that the securities are linked to more than one underlier does not provide any asset diversification benefits and instead means that a decline in the level of any underlier beyond its coupon barrier level and/or downside threshold level will adversely affect your return on the securities, even if the other underliers have appreciated or have not declined as much." The strike date and pricing date for all three underliers was July 23, 2026. Investors will not participate in any appreciation of any underlier; gains are capped at the early redemption payment or final coupon plus principal (if applicable), while losses are uncapped.

Downside Threshold and Maturity Payment Structure

At maturity, if the securities have not been automatically redeemed prior to that date, the payment to investors depends on whether the final level of each underlier is greater than or equal to its downside threshold level. The filing does not explicitly disclose the specific downside threshold levels in the portion of the document provided, but it states that if "the final level of any underlier is less than its downside threshold level, investors will lose 1% for every 1% decline in the level of the worst performing underlier over the term of the securities." This leveraged loss structure means investors experience one-to-one downside participation in the worst-performing underlying asset.

Conversely, if the final level of each underlier is greater than or equal to its downside threshold level, investors will receive, in addition to the contingent coupon with respect to the final observation date (if payable), the stated principal amount at maturity. The filing underscores that investors "will not participate in any appreciation of any underlier," meaning that even if all three underlying assets appreciate significantly, investors' maximum recovery is their initial stated principal amount plus any contingent coupons earned. This asymmetric payoff structure offers limited upside capture but unlimited downside exposure below the downside threshold.

Issuance Terms, Pricing, and Distribution

Morgan Stanley Finance LLC is the issuer of the securities, and the securities are fully and unconditionally guaranteed by Morgan Stanley, the parent company. The filing states that the price to public is $1,000 per security, with agent commissions and fees of $22 per security, yielding proceeds to the issuer of $978 per security. On a total basis, the filing discloses that the aggregate principal amount is $394,000, with total agent commissions and fees of $8,668 and proceeds to the issuer of $385,332.

Morgan Stanley & Co. LLC, an affiliate of MSFL and a wholly owned subsidiary of Morgan Stanley, serves as the agent for the offering. The filing indicates that selected dealers and their financial advisors will collectively receive from the agent a fixed sales commission of $22 for each security they sell. The securities are issued as part of MSFL's Series A Global Medium-Term Notes program and are unsecured obligations of MSFL backed by the guarantee of Morgan Stanley. The filing notes that the securities are not secured obligations and investors will not have any security interest in or access to any underlying reference asset.

Credit Risk and Investor Suitability Considerations

The filing emphasizes that "all payments are subject to our credit risk. If we default on our obligations, you could lose some or all of your investment." Investors in these securities bear the credit risk of both Morgan Stanley Finance LLC and, implicitly, Morgan Stanley as guarantor. The filing notes that the securities are not secured obligations, meaning they rank as unsecured debt of the issuer and guarantor. In the event of financial distress or insolvency of Morgan Stanley or MSFL, investors would have no priority claim on assets and would compete with other unsecured creditors.

The filing explicitly states that the securities "are 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." The filing further warns that "investors in the securities must be willing to accept the risk of losing their entire initial investment based on the performance of any underlier." The 13.32% contingent coupon is offered as compensation for these substantial risks, but the filing makes clear that the coupon is never guaranteed and depends on all three underlying assets remaining above their respective coupon barriers.

Federal Deposit Insurance and Regulatory Status

The filing contains explicit disclaimers regarding the nature and regulatory status of the securities. It states 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." Although Morgan Stanley is a diversified financial services company with substantial banking operations, these particular securities do not carry FDIC insurance or the protections associated with bank deposits.

The filing notes that the SEC and state securities regulators have not approved or disapproved the securities and have not determined whether the pricing supplement or accompanying documentation is truthful or complete. The filing warns that any representation to the contrary would constitute a criminal offense. Investors are directed to read the pricing supplement together with the related product supplement, index supplement, tax supplement, and prospectus, each dated April 8, 2026, which contain additional terms, tax implications, and risk factors not fully detailed in the pricing supplement itself.

Market-Linked Risks and No Dividend or Interest Protection

The underlying assets selected for this note—a technology-focused ETF, a small-cap index, and a regional banking ETF—expose investors to distinct market segments. The filing does not provide forward-looking commentary on these sectors, but the selection of these three underliers means investors collectively face technology sector risk, small-cap equities risk, and regional banking sector risk. The worst-performer mechanic ensures that any significant decline in any single sector will reduce returns, regardless of performance in the other two sectors.

Importantly, the filing does not indicate that the securities will participate in any dividend payments or interest income generated by the underlying ETFs or indices during the term of the securities. All investor returns depend solely on price appreciation of the underlying assets relative to the coupon barriers and call thresholds, and on the contingent coupon payments if applicable. The filing makes clear that investors will receive no coupons if any underlier closes below its coupon barrier on any observation date, and will receive no principal appreciation or recovery beyond the stated principal amount at maturity or the early redemption payment.