Morgan Stanley Finance LLC Issues Jump Notes With Auto-Callable Feature Linked to S&P Equity Momentum Index

Structured Note Design and Principal Protection Features

Morgan Stanley Finance LLC's Jump Notes represent a hybrid investment structure combining debt and performance-based components. The notes are issued as unsecured obligations of MSFL and carry an unconditional guarantee from Morgan Stanley, providing investors with exposure to credit risk commensurate with the parent company's financial standing. The fundamental design protects stated principal at maturity under all circumstances, with the filing stating that "under no circumstances will the payment at maturity be less than the stated principal amount."

The investment structure specifically targets investors who prioritize capital preservation while remaining open to surrendering current income in exchange for enhanced upside potential. The disclosed terms indicate that if the final level of the underlier equals or falls below the initial level at maturity, investors receive only their stated principal amount of $1,000. This mechanism creates a floor that eliminates downside risk below the initial investment, distinguishing these notes from conventional equity securities where principal can fluctuate freely based on market performance.

Automatic Early Redemption Mechanics and Call Threshold Levels

The notes incorporate an automatic early redemption feature triggered when the underlier reaches specified performance thresholds on designated determination dates. The filing discloses that the call threshold level is set at 100% of the initial level, meaning the notes will be automatically redeemed if the closing level of the underlier is greater than or equal to this threshold. The first determination date is scheduled for August 12, 2027, with subsequent determination dates occurring annually through August 12, 2032, with a final observation date on August 12, 2033.

Early redemption payments increase systematically across the six potential determination dates. The disclosure shows early redemption payments beginning at no less than $1,102.50 per note at the first determination date (August 12, 2027) and escalating to at least $1,615.00 per note at the sixth determination date (August 12, 2032). These payments correspond to annualized returns of at least approximately 10.25% per annum, as stated in the filing. Once notes are automatically redeemed on any early redemption date, no further payments are made and the investment terminates.

Underlier Construction and Index Specifications

The notes are linked to the S&P U.S. Equity Momentum 40% VT 4% Decrement Index, which the filing identifies as having been developed by S&P Dow Jones Indices LLC in coordination with Morgan Stanley and established on March 14, 2022. The use of a customized index rather than a broad-based benchmark reflects the structured nature of these notes and Morgan Stanley's involvement in index design. Detailed information about the index methodology, constituent selection, and rebalancing procedures is referenced as being available in the accompanying index supplement, which the filing directs readers to consult for comprehensive underlier information.

The strike date and pricing date are both set for August 12, 2026, with the original issue date following five days later on August 17, 2026. The initial level—the closing level of the underlier on the strike date—establishes the baseline against which all subsequent performance is measured. The final level is defined as the closing level of the underlier on the observation date of August 12, 2033, subject to postponement for non-trading days and certain market disruption events. This seven-year measurement period provides investors with an extended timeframe for the underlier to potentially appreciate and trigger early redemption provisions or generate upside payments at maturity.

Upside Participation and Maturity Payment Structure

If the notes remain unredeemed at maturity and the final level exceeds the initial level, investors receive the stated principal amount plus an upside payment calculated using a 100% participation rate. The upside payment formula disclosed in the filing is: stated principal amount × participation rate × underlier percent change, where underlier percent change equals (final level – initial level) / initial level. This structure allows investors to capture appreciation in the underlying index proportionally, with no ceiling or cap limiting upside potential, provided the notes have not been called for early redemption.

The filing emphasizes that the maturity payment structure provides asymmetric payoff characteristics. While downside exposure below the initial level is eliminated through the principal protection floor, upside exposure above the initial level is preserved on a one-to-one basis through the 100% participation rate. This design appeals to investors with neutral to moderately bullish outlooks who seek to avoid losses while maintaining exposure to index appreciation.

Pricing, Commissions, and Estimated Value Considerations

The notes are issued at $1,000 per note, representing the full stated principal amount. However, the filing discloses that the estimated value on the pricing date is approximately $922.70 per note, with a permitted variance of plus or minus $55.00 from this estimate. This significant discount between issuance price and estimated value reflects what the filing describes as "costs associated with issuing, selling, structuring and hedging the notes, which are borne by you." These embedded costs reduce the actual economic value investors receive at inception relative to the stated principal amount paid.

The filing provides transparency regarding commission structures, though specific dollar amounts are not disclosed in this preliminary pricing supplement. The disclosure states that "selected dealers and their financial advisors will collectively receive from the agent, MS & Co., a fixed sales commission" for each note sold, with details to be provided in the final pricing supplement. Morgan Stanley & Co. serves as the agent for the offering and is identified as an affiliate of MSFL and a wholly owned subsidiary of Morgan Stanley. This arrangement creates potential conflicts of interest that the filing acknowledges investors should consider when evaluating the offering.

Valuation Methodology and Internal Pricing Assumptions

The filing explains that Morgan Stanley employs its own proprietary pricing and valuation models to determine note values, incorporating market inputs and assumptions specific to the underlier, volatility expectations, and current and expected interest rate conditions. The valuation approach also incorporates "an interest rate related to our secondary market credit spread, which is the implied interest rate at which our conventional fixed rate debt trades in the secondary market." This methodology enables the company to translate complex multi-component instruments into comparable economic values.

Notably, the filing discloses that Morgan Stanley uses "an internal funding rate, which is likely to be lower than our secondary market credit spreads and therefore advantageous to us." This disclosure indicates that the economic terms offered to investors are determined using more favorable assumptions for the issuer than would apply to external financing. The filing further states that "if the issuing, selling, structuring and hedging costs borne by you were lower or if the internal funding rate were higher, one or more of the economic terms of the notes would be more favorable to you," explicitly acknowledging the trade-offs embedded in the offering structure.

Credit Risk, Guarantee Structure, and Unsecured Status

The notes are issued as unsecured obligations of Morgan Stanley Finance LLC, meaning they are not backed by collateral or specific assets. All payments depend entirely on the creditworthiness of MSFL and the guarantor, Morgan Stanley. The filing emphasizes this credit dependence prominently, stating: "All payments are subject to our credit risk. If we default on our obligations, you could lose some or all of your investment." The unconditional guarantee by Morgan Stanley extends MSFL's obligations to Morgan Stanley's credit profile, but does not provide additional security beyond the parent company's general obligation to stand behind its subsidiary.

The filing explicitly clarifies that "these notes are not secured obligations and you will not have any security interest in, or otherwise have any access to, any underlying reference asset or assets." Investors have no claim to the S&P Equity Momentum Index or any tradeable instruments based on it; they hold only contractual claims against MSFL and Morgan Stanley. This unsecured status distinguishes the notes from asset-backed securities and creates greater credit risk exposure than might be assumed from the index-linked structure.

Registration, Listing, and Trading Characteristics

The offering is filed pursuant to Rule 424(b)(2) and is based on registration statement numbers 333-293641 and 333-293641-01, indicating that Morgan Stanley had previously registered a shelf registration statement covering these instruments. The notes are issued as part of Morgan Stanley Finance LLC's Series A Global Medium-Term Notes program, suggesting this is one offering within a broader, established program of structured note issuances. The filing dated July 28, 2026, represents the preliminary pricing supplement, with a final pricing supplement to follow prior to the original issue date of August 17, 2026.

The notes will not be listed on any securities exchange, as explicitly stated in the disclosure. This unlisted status means investors cannot expect to liquidate positions through major exchange markets but must rely on any secondary market activity Morgan Stanley or dealers may facilitate. The absence of exchange listing reduces pricing transparency and liquidity compared to exchange-traded instruments, potentially creating wider bid-ask spreads and less frequent trading opportunities for investors seeking to exit positions prior to maturity or early redemption.

Target Investor Profile and Risk Considerations

The filing identifies the target investor as someone "concerned about principal risk and who is willing to forgo current income in exchange for the repayment of principal at maturity and the possibility of receiving an early redemption payment or payment at maturity that exceeds the stated principal amount." This characterization suggests the notes are designed for conservative investors seeking to eliminate downside risk while retaining upside exposure, which contrasts sharply with conventional bonds that pay periodic interest but offer no equity-linked upside participation.

The filing explicitly warns that "the notes involve risks not associated with an investment in ordinary debt securities," directing investors to review detailed risk factors beginning on page 8 of the accompanying product supplement. These risks extend beyond traditional credit risk to encompass index-specific risks, early redemption consequences, and the structural complexities inherent in derivative-linked instruments. The disclosure also clarifies that "the notes 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," distinguishing the notes from bank products with deposit insurance protection.

Regulatory Status and Investor Disclosures

The filing includes the standard regulatory disclaimer that "the Securities and Exchange Commission and state securities regulators have not approved or disapproved these notes, or determined if this document or the accompanying product supplement, index supplement, tax supplement and prospectus is truthful or complete." This language clarifies that SEC review does not constitute endorsement or approval of the offering terms or suitability for any particular investor. The offering proceeds under a registered shelf framework, but regulatory approval of the registration statement does not mean regulators have assessed whether these specific notes represent a sound investment for any particular class of investors.

The filing directs investors to review multiple supplemental documents including the product supplement, index supplement, tax supplement, and base prospectus dated April 8, 2026, all of which are incorporated by reference and provide additional detail beyond what appears in the pricing supplement itself. This multi-document structure reflects the complexity of structured notes, where different components of risk and economics are addressed across different regulatory documents.