Morgan Stanley Finance Issues Trigger PLUS Structured Notes Linked to S&P 500 and Semiconductor ETF

Dual Underlier Structure and Worst-Performing Measurement

The Trigger PLUS securities are linked to two distinct underliers: the S&P 500 Index and the VanEck Semiconductor ETF. The critical feature of this structure is that returns and risk are determined by the worst-performing of the two underliers rather than by an average or equal-weighted calculation. The disclosure states that "the fact that the securities are linked to more than one underlier does not provide any asset diversification benefits," emphasizing that investors receive exposure to whichever underlier delivers the weakest percentage return from its initial level to its final level on the observation date of July 28, 2028.

This worst-performing underlier measurement mechanism has significant implications for investors. If the S&P 500 Index appreciates 10 percent while the VanEck Semiconductor ETF appreciates only 5 percent, the 5 percent return becomes the reference point for calculating the security's payoff. Conversely, if one underlier declines while the other appreciates, the declining underlier will determine the overall payment. The filing emphasizes that investors "must be willing to accept the risk of losing their entire initial investment based on the performance of either underlier," underscoring the concentration risk inherent in this structure.

Leveraged Upside Payment Structure and Conditions

The Trigger PLUS notes offer a leveraged upside payment when specific conditions are met at maturity. If the final level of each underlier is greater than its initial level, investors receive the stated principal amount of $1,000 plus a leveraged upside payment. The leveraged upside payment is calculated as the stated principal amount multiplied by the leverage factor of 239 percent multiplied by the underlier percent change of the worst-performing underlier. This 239 percent leverage means that for every 1 percent appreciation of the worst-performing underlier, investors receive approximately 2.39 percent additional return on their principal.

The disclosure clarifies the conditions under which the full principal amount is returned without any upside payment. If the final level of either underlier is equal to or less than its initial level, but the final level of each underlier is greater than or equal to its downside threshold level, investors receive only the stated principal amount at maturity. The downside threshold level is set at 75 percent of the initial level for both the S&P 500 Index and the VanEck Semiconductor ETF. This means there is protection against losses as long as neither underlier declines more than 25 percent from its initial level.

Principal-at-Risk Features and Loss Scenarios

The securities carry substantial principal-at-risk characteristics that distinguish them from conventional debt instruments. If the final level of either underlier falls below its downside threshold level of 75 percent of its initial level, investors lose 1 percent for every 1 percent decline in the worst-performing underlier. The filing warns that "under these circumstances, the payment at maturity will be significantly less than the stated principal amount and could be zero." This means that if the worst-performing underlier declines 100 percent or more, investors could lose their entire initial investment.

The structured nature of these securities means they combine elements of debt and equity-linked instruments. The filing explains that the securities "comprise both a debt component and a performance-based component linked to the underliers." The debt component provides the stated principal amount, while the performance-based component delivers the upside leverage or downside loss depending on underlier performance. This hybrid structure exposes investors to credit risk of Morgan Stanley in addition to market risk tied to the underliers, as the payment of principal and interest at maturity depends on Morgan Stanley Finance LLC's ability to satisfy its obligations.

Pricing, Valuation, and Estimated Value

The Trigger PLUS securities were issued at a stated principal amount of $1,000 per security on July 31, 2026, with pricing and strike dates both set at July 28, 2026. However, the estimated value on the pricing date was approximately $953.20 per security, representing a discount of approximately $46.80 per security or 4.68 percent from the stated principal amount. The disclosure explicitly states that "this price includes costs associated with issuing, selling, structuring and hedging the securities, which are borne by you," meaning investors bear these costs through the reduced estimated value rather than through separate fees.

The valuation methodology relies on proprietary Morgan Stanley pricing and valuation models that take into account the debt component and performance-based component of the securities. The filing notes that "the estimated value of the securities is determined using our own pricing and valuation models, market inputs and assumptions relating to the underliers, instruments based on the underliers, volatility and other factors including current and expected interest rates." The valuation also incorporates an interest rate related to Morgan Stanley's secondary market credit spread, which is the implied interest rate at which the bank's conventional debt trades in the secondary market. The filing indicates that the internal funding rate used in determining economic terms is "likely to be lower than our secondary market credit spreads and therefore advantageous to us," suggesting that if costs were lower or funding rates higher, terms would be more favorable to investors.

Full Guarantee by Morgan Stanley and Credit Risk Implications

The Trigger PLUS securities are unsecured obligations of Morgan Stanley Finance LLC and are fully and unconditionally guaranteed by Morgan Stanley. This guarantee extends to all payments at maturity, whether those payments represent the full stated principal amount, a leveraged upside payment, or a reduced amount reflecting downside losses. The guarantee is critical to understanding the credit structure of these securities, as it means investors have recourse to Morgan Stanley in the event Morgan Stanley Finance LLC cannot satisfy its obligations.

However, the filing emphasizes that "all payments are subject to our credit risk" and warns that "if we default on our obligations, you could lose some or all of your investment." The securities are not secured obligations, meaning investors have no security interest in any underlying reference assets and would be unsecured creditors in a bankruptcy scenario. The filing further clarifies 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 language underscores that while Morgan Stanley guarantees the securities, the guarantee itself depends on Morgan Stanley's creditworthiness and is not backed by government insurance or bank deposit protections.

Terms, Dates, and Observation Mechanics

The securities have a two-year term with an original issue date of July 31, 2026, and a maturity date of August 2, 2028. The observation date, on which final levels of the underliers will be determined, is July 28, 2028. The filing notes that the observation date is "subject to postponement for non-trading days and certain market disruption events," meaning the actual observation could occur on a different date if July 28, 2028 falls on a non-trading day or if market disruption events occur. Initial levels for both the S&P 500 Index and the VanEck Semiconductor ETF were established on the strike date of July 28, 2026, and these initial levels serve as the reference points for calculating all performance metrics and payoff amounts.

The final level for each underlier is defined as the closing level on the observation date. The filing defines "closing level" and "adjustment factor" with reference to the accompanying product supplement, indicating that these terms may be subject to adjustments for corporate actions, dividends, or other events affecting the underliers. The "underlier percent change" is calculated as the difference between the final level and the initial level, divided by the initial level, and expressed as a percentage. As necessary, calculated levels are rounded to three decimal places, ensuring precision in determining which underlier performs worst and calculating any resulting payments.

Target Investor Profile and Risk Acceptance Requirements

The filing clearly articulates the intended investor profile for these securities. According to the disclosure, the securities are "for investors who seek a return based on the performance of the worst performing underlier and who are willing to risk their principal and forgo current income in exchange for the upside leverage feature and the limited protection against loss of principal." This language indicates that the securities appeal to investors seeking leveraged equity exposure rather than income-oriented investors, as the securities pay no interest and provide no guaranteed return of principal at maturity.

The risk tolerance required to invest in these securities is substantial. The filing repeatedly warns investors that they "must be willing to accept the risk of losing their entire initial investment based on the performance of either underlier." The inclusion of two underliers rather than one does not reduce risk but rather amplifies it, as a decline in either underlier beyond the 75 percent downside threshold will trigger losses. Investors must understand that the leverage factor of 239 percent operates bidirectionally—while it amplifies gains when both underliers appreciate, it also means that declines are magnified beyond the point of the downside threshold. The filing emphasizes that investors are "willing to risk their principal and forgo current income," acknowledging that these securities are unsuitable for conservative investors or those relying on stable income streams.

Regulatory Status and Registration Information

The Trigger PLUS securities are being offered pursuant to a preliminary pricing supplement filed under Rule 424(b)(2) of the Securities Act of 1933. The securities are registered under Registration Statement Nos. 333-293641 and 333-293641-01, indicating that Morgan Stanley Finance LLC has registered a shelf offering program from which multiple tranches of structured notes may be issued. The preliminary pricing supplement is dated July 28, 2026, and was filed with the Securities and Exchange Commission on the same date. The final pricing supplement will replace this preliminary document once final terms, including the aggregate principal amount and specific initial levels of the underliers, are established.

The disclosure includes the standard SEC disclaimer that "the Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities, or determined if this document or the accompanying product supplement, index supplement, tax supplement and prospectus is truthful or complete," and that "any representation to the contrary is a criminal offense." The securities carry CUSIP number 61781DDP0 and ISIN US61781DDP06 for identification and trading purposes. The filing confirms that "the securities will not be listed on any securities exchange," meaning they are only available in the primary offering and, if secondary market activity develops, would trade over-the-counter through Morgan Stanley and other dealers.

Secondary Market Considerations and Distribution

Morgan Stanley & Co. LLC, a wholly owned subsidiary of Morgan Stanley and an affiliate of Morgan Stanley Finance LLC, is the agent for distribution of the securities. The filing notes that selected dealers and their financial advisors will collectively receive from the agent "a fixed sales commission" for each security they sell, although the specific dollar amount of this commission is not disclosed in the preliminary pricing supplement. The use of a fixed commission structure rather than a percentage-based commission is typical for structured notes, as the embedded costs are already reflected in the difference between the stated principal amount and the estimated value.

The disclosure addresses the secondary market pricing of the securities, noting that "the price at which MS & Co. purchases the securities in the secondary market, absent chan[ge]" indicates that Morgan Stanley intends to make a market in these securities post-issuance. However, the filing does not commit to specific secondary market pricing or liquidity. Investors should recognize that secondary market prices may differ significantly from the estimated value on the pricing date, particularly as the underliers' performance changes and the maturity date approaches. The filing also references "Use of Proceeds and Hedging" in the accompanying product supplement, indicating that details regarding how Morgan Stanley uses the proceeds and hedges its exposure to the underliers are contained in supplemental documentation.

Documentation and Compliance Framework

The Trigger PLUS offering is supported by a comprehensive set of regulatory and product documents that investors must review in conjunction with the pricing supplement. These documents include a Product Supplement for Principal at Risk Securities dated April 8, 2026, which contains detailed terms and conditions; an Index Supplement dated April 8, 2026, providing specifications for the S&P 500 Index and VanEck Semiconductor ETF; a Tax Supplement dated April 8, 2026, addressing tax treatment of the securities; and a base Prospectus dated April 8, 2026. The filing directs investors to "read this document together with the related product supplement, index supplement, tax supplement and prospectus," emphasizing that the pricing supplement should not be viewed as a standalone disclosure document.

The filing includes references to additional terms and information at the end of the document, including sections titled "Additional Terms of the Securities" and "Additional Information About the Securities." These sections and the supporting documents contain important information regarding the mechanics of adjustment factors, treatment of corporate actions, settlement procedures, and other operational details that affect how the securities function. The complexity of structured notes like Trigger PLUS means that investors must carefully review all supporting documentation and, in many cases, seek professional advice regarding their suitability and tax implications before committing capital.