Morgan Stanley Finance Issues Callable Contingent Income Securities Linked to European and Tech Equities

Structured Product Design and Contingent Payment Features

Morgan Stanley Finance LLC has designed these callable contingent income securities to provide investors with the opportunity to earn interest at a potentially above-market rate in exchange for accepting principal-at-risk exposure. The securities offer a contingent coupon paid at an annual rate of 11.50%, but only if the closing level of each underlier remains at or above its coupon barrier level on each observation date. The filing discloses that if the closing level of any underlier falls below its coupon barrier level on any observation date, investors will receive no interest with respect to the related interest period.

The contingent payment structure creates a binary outcome for coupon distribution. The disclosure indicates that investors must monitor all three underliers simultaneously, as the failure of even a single underlier to meet the coupon barrier threshold will result in zero coupon payments for that period. This structure means that the potential for above-market returns comes paired with the risk of receiving no coupons over the entire two-year-and-eight-month term of the securities, even if two of the three underliers perform well.

Multi-Underlier Tracking and Worst-Performer Risk

The securities are linked to three distinct underliers: the EURO STOXX 50 Index, the iShares Expanded Tech-Software Sector ETF (IGV Fund), and the State Street Real Estate Select Sector SPDR ETF (XLRE Fund). The document emphasizes that investors are exposed to the worst-performing underlier among these three, which means a significant decline in any single underlier will determine the overall payoff at maturity, regardless of how the other two perform. This structure provides no asset diversification benefits; instead, it concentrates risk on whichever underlier underperforms most significantly.

The filing explicitly states that the value of the securities is based on the worst performing underlier, creating a scenario where decline in the level of any underlier beyond its coupon barrier level and downside threshold level will adversely affect investor returns, even if the other underliers have appreciated or declined less substantially. This multi-underlier structure exposes investors to geographic and sector-specific risks across European equities, technology software holdings, and real estate equities simultaneously, with the worst outcome determining the final result.

Principal Repayment Structure and Downside Threshold Protection

At maturity, if the securities have not been redeemed prior to February 2, 2029, investors will receive the stated principal amount of $1,000 per security only if the final level of each underlier is greater than or equal to its downside threshold level. The disclosure indicates that if the final level of any underlier falls below 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. Under these circumstances, the payment at maturity will be significantly less than the stated principal amount and could be zero.

The document emphasizes that investors in the securities must be willing to accept the risk of losing their entire initial investment based on the performance of any single underlier. This structure means that principal repayment is contingent upon all three underliers staying above their respective thresholds, and any breach by the worst performer will result in proportional principal erosion. An investor could see their $1,000 investment reduced substantially or eliminated entirely if the worst-performing underlier declines significantly from its initial level.

Early Redemption Features and Risk Neutral Valuation Model

Morgan Stanley has structured the securities with a call feature allowing early redemption beginning on the first redemption date of November 4, 2026. The disclosure states that early redemption, in whole but not in part, will occur on a redemption date if and only if the output of a risk neutral valuation model indicates that redeeming on such date is economically rational for Morgan Stanley as compared to not redeeming. The redemption dates are scheduled monthly through January 4, 2029, giving Morgan Stanley multiple opportunities to exercise the call option.

The risk neutral valuation model uses as input prevailing reference market levels, volatilities, correlations as of the determination date, and Morgan Stanley's credit spreads as of the pricing date. The filing clarifies that an early redemption of the securities will not automatically occur based on the performance of the underliers; rather, it occurs when the model determines it is economically beneficial for Morgan Stanley. If the securities are redeemed early, investors will receive the stated principal amount plus any contingent coupon otherwise due with respect to the related interest period, and no further payments will be made thereafter.

Issuer Credit Risk and Guarantee Structure

The securities are unsecured obligations of Morgan Stanley Finance LLC and are fully and unconditionally guaranteed by Morgan Stanley, the parent company. However, the disclosure emphasizes that all payments are subject to Morgan Stanley's credit risk, and if Morgan Stanley defaults on its obligations, investors could lose some or all of their investment. The securities are not secured obligations, meaning investors will not have any security interest in or access to any underlying reference asset or assets.

The filing explicitly 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. This clarification distinguishes these structured products from traditional bank deposits and indicates that investors are relying entirely on Morgan Stanley's creditworthiness for repayment. Any deterioration in Morgan Stanley's credit quality could negatively impact the securities' value in secondary market trading.

Distribution Structure and Fee-Based Advisory Account Limitation

The securities will be sold only to investors purchasing the securities in fee-based advisory accounts. The disclosure indicates that Morgan Stanley & Co., an affiliate of Morgan Stanley Finance LLC and wholly owned subsidiary of Morgan Stanley, expects to sell all securities it purchases from Morgan Stanley Finance LLC to an unaffiliated dealer at an undisclosed price for further sale to certain fee-based advisory accounts at the public price of $1,000 per security. Morgan Stanley & Co. will not receive a sales commission with respect to the securities, creating a specific distribution channel targeted exclusively at advisory clients.

The filing notes that specific commission amounts, proceeds to the issuer, and the dealer purchase price were not disclosed in this preliminary pricing supplement. The restriction to fee-based advisory accounts limits the distribution channel and suggests these securities are designed for investors receiving ongoing financial advisory services rather than retail direct purchasers. This distribution approach aligns with the complexity of the security and the need for investors to understand the contingent payment features and downside risks.

Valuation and Pricing Details

The stated principal amount for each security is $1,000, issued at a price of $1,000 per security. However, the estimated value on the pricing date of July 30, 2026, was approximately $980.70 per security, or within $35.00 of that estimate, according to the disclosure. This approximately $19.30 discount per security reflects the value of Morgan Stanley's embedded call option and the risk premium associated with the contingent coupon and principal-at-risk structure.

The filing indicates that the aggregate principal amount of the offering was not disclosed in this preliminary pricing supplement, suggesting the size of the offering would be finalized at the pricing stage. The strike date and pricing date were both scheduled for July 30, 2026, with the original issue date scheduled for August 4, 2026. The final observation date for determining whether the downside threshold has been breached is January 30, 2029, subject to postponement for non-trading days and certain market disruption events.

Investment Suitability and Risk Considerations

The disclosure emphasizes that these securities are designed 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. Investors will not participate in any appreciation of any underlier; they can only receive coupons if conditions are met or their principal back if thresholds are not breached. The structure creates a situation where investors receive the contingent coupon benefit only if underlying indices and funds remain stable, but suffer losses if they decline significantly.

The document repeatedly emphasizes that investors in these securities must be willing to accept the risk of losing their entire initial investment based on the performance of any single underlier. The fact that the securities are linked to more than one underlier does not provide asset diversification benefits; instead, it means that a decline in the level of any underlier beyond specified thresholds will adversely affect investor returns. Investors should recognize that the 11.50% contingent coupon rate compensation is offered specifically because of these substantial embedded risks.

Observation Dates and Coupon Payment Schedule

The observation dates, which determine whether each underlier meets the coupon barrier level for the payment of contingent coupons, are set forth in the accompanying product supplement and are subject to postponement for non-trading days and certain market disruption events. The filing indicates that coupon payments will be made on specified payment dates if conditions are satisfied, with the final observation date falling on January 30, 2029. The maturity date is February 2, 2029.

The document discloses that the contingent 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. This means investors must track the performance of three separate indices and funds on each observation date to determine whether they will receive their coupon payment for that period. The filing states that the specific observation dates and coupon payment dates are provided in the additional terms and index supplement but does not enumerate all dates in this preliminary pricing supplement.

Registration and Filing Status

The preliminary pricing supplement was filed pursuant to Rule 424(b)(2) under the Securities Act of 1933 on July 20, 2026. The securities are issued under Registration Statement Nos. 333-293641 and 333-293641-01. The securities are notes issued as part of Morgan Stanley Finance LLC's Series A Global Medium-Term Notes program, indicating they are part of an established shelf registration allowing the company to issue various structured products on an ongoing basis.

The disclosure includes references to accompanying product supplement, index supplement, tax supplement, and prospectus documents dated April 8, 2026, which contain additional detailed information about the securities' terms and risks. Investors are advised to read the preliminary pricing supplement together with these related documents to fully understand the security structure, the specific underlier definitions, tax implications, and comprehensive risk factors. The Securities and Exchange Commission has not approved or disapproved these securities or determined whether the disclosure documents are truthful or complete, as is standard for securities offerings.