Morgan Stanley Finance LLC Introduces Three-Year Callable Contingent Income Securities Linked to Worst-Performing Index

Three-Underlier Structure with Worst-Performer Determination

The securities issued by Morgan Stanley Finance LLC are structured around three distinct market-linked underliers rather than a single index or fund. The S&P 500 Index serves as the broad equity market reference, while the Financial Select Sector SPDR ETF and Technology Select Sector SPDR ETF provide targeted exposure to two critical economic sectors. The disclosure states that the output of returns and payment calculations depends on the worst-performing underlier across the three options, meaning a significant decline in any single asset will determine the overall return profile for all investors holding the securities.

This multi-underlier approach creates a structural asymmetry in investor outcomes. The disclosure emphasizes that holding multiple underliers provides no asset diversification benefits; instead, weakness in any single underlier adversely affects the return independent of the performance of the other two assets. Investors receive no upside participation from appreciation in any underlier, only downside risk exposure through the worst performer. The filing states that if any underlier declines below its coupon barrier level on an observation date, no interest payments are made for that period, regardless of how the other underliers have performed.

Contingent Coupon Payment Structure and Interest Risk

The securities feature a contingent coupon mechanism that ties interest payments directly to the closing levels of all three underliers against defined barrier levels. According to the disclosure, coupon payments occur only if the closing level of each underlier is greater than or equal to its coupon barrier level on the related observation date. The filing does not specify the exact coupon rates or barrier level percentages, stating instead that these terms are described in the accompanying product supplement and related documents.

The contingent nature of these payments introduces significant interest-rate risk for investors. If the closing level of any single underlier falls below its coupon barrier level on any observation date, the disclosure states that no interest is paid with respect to the related interest period. This means investors could hold the securities for extended periods without receiving any coupon payments, even if two of the three underliers remain above their respective barriers. The document makes clear that investors must be willing to accept the risk of receiving no coupons over the entire three-year term of the securities in exchange for the potential opportunity to earn interest at potentially above-market rates.

Principal-at-Risk Maturity Provisions and Downside Threshold Mechanics

At maturity on July 27, 2029, investors face asymmetric payoff outcomes determined by the worst-performing underlier's final level relative to a downside threshold level. The disclosure states that if the final level of each underlier is greater than or equal to its downside threshold level, investors will receive the stated principal amount of $1,000 plus any contingent coupon due with respect to the final observation date. However, the filing specifies downside threshold levels without quantifying them numerically in this document, referring instead to supplementary materials.

Conversely, if the final level of any underlier is less than its downside threshold level, investors face principal erosion calculated as a 1:1 ratio to declines in the worst-performing underlier. The disclosure explicitly warns that investors will lose 1 percent of principal for every 1 percent decline in the level of the worst performing underlier over the term of the securities under these circumstances. The filing emphasizes that the payment at maturity will be significantly less than the stated principal amount and could be zero, representing a total loss of the initial investment. The final observation date is scheduled for July 24, 2029, subject to postponement for non-trading days and certain market disruption events.

Early Redemption Through Risk-Neutral Valuation Model

The securities incorporate an early redemption feature controlled by Morgan Stanley Finance LLC, exercisable beginning on July 30, 2027, the first redemption date. The disclosure states that early redemption occurs on any 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 filing specifies that the determination date for this model assessment must fall no earlier than three business days before the observation date preceding the redemption date and no later than such observation date itself.

The calculation agent uses prevailing reference market levels, volatilities, correlations, and Morgan Stanley's credit spreads as of the pricing date as inputs to the risk-neutral valuation model. The disclosure clarifies that an early redemption of the securities will not automatically occur based on the performance of the underliers themselves; rather, it is driven by the valuation model's assessment of Morgan Stanley's economic interests. Redemption dates are scheduled monthly beginning July 30, 2027, through the maturity date. The document states that if the securities are called, Morgan Stanley will provide notice no later than the observation date preceding the redemption date specified in the notice, and no further payments will be made on the securities once they have been redeemed.

Credit Guarantee from Morgan Stanley and Unsecured Status

The securities are fully and unconditionally guaranteed by Morgan Stanley, the parent company of Morgan Stanley Finance LLC, the issuer. The disclosure clarifies that the securities are unsecured obligations of Morgan Stanley Finance LLC and are not secured by any underlying reference assets. This guarantee extends Morgan Stanley's credit exposure to all principal and contingent coupon payments, but does not eliminate the principal-at-risk structure tied to underlier performance. The document emphasizes that all payments remain subject to Morgan Stanley's credit risk, meaning that if Morgan Stanley defaults on its obligations, investors could lose some or all of their investment.

The filing states that investors will not have any security interest in, or otherwise have any access to, any underlying reference asset or assets. The disclosure warns that these 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 in the traditional deposit sense. While Morgan Stanley's guarantee reduces counterparty risk relative to an unsecured issue by an unrated entity, it does not protect against the principal erosion and interest payment risks inherent in the structure itself.

Issue Price, Estimated Value, and Investor Targeting

The securities are being offered at a stated issue price of $1,000 per security, with the official original issue date set for July 29, 2026. However, the estimated value on the pricing date of July 24, 2026, is approximately $975.20 per security, or within $30.00 of that estimate. This $24.80 gap between the stated price and estimated value reflects the embedded cost of the structured product's features, including the options pricing and distribution-related expenses. The disclosure states that this estimated value is described further in a section titled "Estimated Value of the Securities" on page 5 of the pricing supplement.

The offering is restricted to investors purchasing the securities in fee-based advisory accounts. Morgan Stanley & Co. is the distribution agent and expects to sell all securities it purchases from Morgan Stanley Finance LLC to unaffiliated dealers at a specified price for further sale to fee-based advisory accounts at the public price of $1,000 per security. Selected dealers and their financial advisors may receive a structuring fee of up to $6.25 per security from the agent or its affiliates. The disclosure notes that Morgan Stanley & Co. may pay a third-party data analytics provider a fee of $0.50 per security sold in the offering at the request of the third-party dealer involved in the distribution.

Sector Exposure Through ETF Underliers and Market-Linked Risk Factors

Two of the three underliers—the Financial Select Sector SPDR ETF (XLF) and the Technology Select Sector SPDR ETF (XLK)—provide concentrated exposure to specific economic sectors rather than broad market diversification. The Financial Select Sector SPDR ETF tracks the financial services industry, which includes banks, insurance companies, and investment firms, making it sensitive to interest rate changes, credit conditions, and regulatory developments. The Technology Select Sector SPDR ETF, conversely, tracks the technology sector, which includes software, semiconductors, and internet companies, and is subject to different cyclical and structural factors including innovation cycles, competitive dynamics, and macroeconomic sensitivity.

The combination of these two sector-specific funds with the broad S&P 500 Index creates a portfolio-like structure, yet the worst-performer mechanism negates traditional diversification. If the Financial Select Sector declines sharply due to rising interest rates while Technology remains stable and the S&P 500 moderates, investors would suffer coupon losses and potential principal erosion based on the Financial Select Sector's performance alone. The filing emphasizes 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 downside threshold level will adversely affect investor returns.

Risk Acknowledgment and Target Investor Profile

The disclosure identifies the securities as intended for investors who seek an opportunity to earn interest at a potentially above-market rate in exchange for accepting substantial risks. The filing explicitly states that the securities are for investors willing to accept the risk of losing a significant portion or all of their principal, the risk of receiving no coupons over the entire term of the securities, and the risk of an early redemption based on the output of a risk-neutral valuation model controlled by Morgan Stanley. The document notes that investors will not participate in any appreciation of any underlier, limiting upside potential regardless of positive market performance.

The document further 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 underlier. The filing notes that the securities involve risks not associated with an investment in ordinary debt securities, distinguishing them from traditional fixed-income products. This risk characterization aligns with the product's classification as "principal at risk securities" rather than conventional debt. The securities are part of Morgan Stanley Finance LLC's Series A Global Medium-Term Notes program, reflecting their status as structured investment vehicles within a broader product platform.

Registration and Distribution Framework

The pricing supplement is filed as a 424(b)(2) document pursuant to Securities and Exchange Commission regulations, with registration statement numbers 333-293641 and 333-293641-01. The filing is preliminary in nature, dated July 20, 2026, and is accompanied by product supplement, index supplement, tax supplement, and prospectus documents. The disclosure states that these related documents can be accessed via hyperlinks and should be read together with the pricing supplement to obtain complete information about the securities' terms, risks, and tax implications.

Morgan Stanley & Co., an affiliate of Morgan Stanley Finance LLC and a wholly owned subsidiary of Morgan Stanley, serves as the distribution agent. The filing includes disclosures regarding conflicts of interest given that the agent is affiliated with both the issuer and guarantor. The disclosure notes that certain dealers and their financial advisors may receive structuring fees while the agent itself does not receive a traditional sales commission with respect to the securities, reflecting the fee-based advisory account structure through which they are being distributed. The SEC and state securities regulators have not approved or disapproved the securities or determined the truthfulness or completeness of the disclosure documents.