Morgan Stanley Issues $2.18 Million in Callable Contingent Income Securities Linked to Russell 2000 and Technology Sector ETF

Structure and Core Features of the Callable Contingent Income Securities

The securities issued by Morgan Stanley Finance LLC are structured as principal-at-risk notes with a maturity date of January 27, 2028. The disclosure states that the securities do not guarantee the repayment of principal and do not provide for the regular payment of interest in the traditional sense. Instead, they offer a contingent coupon that is paid only under specified conditions related to the performance of the two underlying reference assets: the Russell 2000 Index and the State Street Technology Select Sector SPDR ETF. The securities are fully and unconditionally guaranteed by Morgan Stanley, though this guarantee is subject to Morgan Stanley's credit risk and does not secure the underlying reference assets.

The stated principal amount per security is $1,000, with the aggregate principal amount of the offering totaling $2.183 million. The original issue date was July 29, 2026, following the pricing date of July 24, 2026, which the filing identifies as the strike date. The securities were issued as part of Morgan Stanley Finance LLC's Series A Global Medium-Term Notes program and were offered exclusively to investors purchasing through fee-based advisory accounts, with zero agent commissions reflected in the public offering price.

Contingent Coupon Payment Terms and Barriers

According to the disclosure, the securities will pay a contingent coupon only if the closing level of each underlying asset is greater than or equal to its coupon barrier level on the related observation date. The filing emphasizes that if the closing level of either underlier falls below its coupon barrier level on any observation date, no interest will be paid with respect to that interest period. This structure creates a binary payment scenario for each coupon period: investors receive the specified contingent coupon or receive nothing, with no intermediate payment outcomes.

The use of the "worst performing" underlier as the basis for payment determination means that a decline in either the Russell 2000 Index or the XLK Fund beyond its coupon barrier will prevent coupon payment, even if the other underlying asset has appreciated or performed better. The filing explicitly states that "the fact that the securities are linked to more than one underlier does not provide any asset diversification benefits." This design concentrates risk on whichever reference asset performs most poorly relative to its predetermined thresholds.

Early Redemption and Call Feature Mechanics

The securities incorporate a call feature under which Morgan Stanley may redeem the notes early if certain economic conditions are met. The filing discloses that early redemption will not occur prior to the first redemption date of October 29, 2026. Beginning on that date, early redemption may occur on any of sixteen scheduled redemption dates through December 30, 2027, provided that a risk-neutral valuation model indicates such redemption is economically rational for the issuer.

The determination of whether to exercise the call option relies on a risk-neutral valuation model run on a business day no earlier than three business days before the observation date preceding the scheduled redemption date and no later than that observation date. This model takes as input prevailing reference market levels, volatilities, correlations, and Morgan Stanley's credit spreads as of the pricing date. The filing notes that "an early redemption of the securities will not automatically occur based on the performance of the underliers," meaning that even strong performance alone does not trigger redemption. If the securities are called, investors receive the stated principal amount plus any contingent coupon otherwise due, and no further payments are made thereafter.

Principal Risk and Maturity Payment Structure

The filing emphasizes that these securities carry substantial principal risk, with loss of capital a real possibility. If the securities have not been redeemed prior to maturity and the final level of each underlying asset is greater than or equal to its downside threshold level, investors will receive the stated principal amount at maturity, plus any contingent coupon due on the final observation date if conditions are met. However, if the final level of either underlier is less than its downside threshold level, the payment structure provides for loss of principal on a one-to-one basis relative to the decline of the worst-performing underlier.

Specifically, the disclosure states that if the downside threshold is breached, "investors will lose 1% for every 1% decline in the level of the worst performing underlier over the term of the securities." Under such circumstances, the maturity payment can be "significantly less than the stated principal amount and could be zero." The filing makes clear that investors will not participate in any appreciation of either underlying asset—the contingent coupon and potential return of principal represent the only upside available to holders, while downside risk is substantial and symmetric with declines below the downside threshold.

Estimated Value and Pricing Details

The filing discloses that the estimated value of the securities on the pricing date of July 24, 2026, was $984.60 per security, while the public offering price was $1,000 per security. This $15.40 difference per security reflects the embedded cost of the structured features and the valuation adjustments inherent in the product design. The aggregate principal amount of $2.183 million represented the total offering size, with all proceeds going to Morgan Stanley Finance LLC as the issuer, as no agent commissions or fees were charged to the public.

The disclosure notes that Morgan Stanley & Co. expected to purchase all securities from the issuer at $1,000 per security and resell them to unaffiliated dealers at the same price for distribution to fee-based advisory accounts. Selected dealers and their financial advisors were eligible to receive a structuring fee of up to $6.25 per security from the agent or its affiliates. Additionally, Morgan Stanley & Co. was compensated for engaging a third-party data analytics provider at a rate of $0.50 per security sold, paid at the request of the third-party dealer involved with the offering.

Underliers: Russell 2000 Index and Technology Sector ETF

The securities are linked to two distinct underlying reference assets: the Russell 2000 Index and the State Street Technology Select Sector SPDR ETF (XLK Fund). The filing treats the Russell 2000 Index as an underlying index and the XLK Fund as an underlying fund. Both assets serve as reference points for determining contingent coupon payments, early redemption eligibility, and final maturity payments. The strike date for both underliers was July 24, 2026, establishing the baseline levels against which subsequent performance would be measured.

The structure linking the securities to the "worst performing" of these two underliers means that investors face a mathematical disadvantage when one asset significantly underperforms the other. The filing explicitly warns that the multi-underlier structure provides no diversification benefit; instead, it concentrates downside risk by making the entire security vulnerable to weakness in whichever asset performs most poorly. This design is particularly relevant given the different economic exposures of a broad small-cap index and a technology sector ETF, which may behave differently under various market conditions.

Credit Risk and Unsecured Status of the Obligations

The filing emphasizes that all payments on the securities are subject to Morgan Stanley's credit risk. While the securities are fully and unconditionally guaranteed by Morgan Stanley, the disclosure clarifies that this guarantee does not extend to securing the underlying reference assets or providing access to any underlying investment. If Morgan Stanley defaults on its obligations, investors could lose some or all of their investment. The securities are explicitly identified as unsecured obligations of Morgan Stanley Finance LLC with no security interest in any underlying asset.

The filing further 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. They are not obligations of or guaranteed by a bank in the traditional sense; rather, they represent direct unsecured obligations of a finance subsidiary guaranteed by the parent company. This structure means investors bear both the structured product risk related to underlier performance and the credit risk of Morgan Stanley as both guarantor and issuer.

Target Investor Profile and Risk Disclosure

According to the disclosure, the securities are designed for investors who seek an opportunity to earn interest at a potentially above-market rate in exchange for accepting significant risks. The filing explicitly states that these securities are intended for investors willing to accept the risk of losing a significant portion or all of their principal, receiving no coupons over the entire term, and experiencing early redemption based on the output of a risk-neutral valuation model. The disclosure notes that investors will not participate in any appreciation of either underlying asset, limiting upside potential to the contingent coupon and potential return of principal.

The offering was restricted to investors purchasing through fee-based advisory accounts, which the filing suggests implies a particular investor sophistication and account structure. The filing emphasizes that investors in the securities "must be willing to accept the risk of losing their entire initial investment based on the performance of either underlier." This language reflects the gravity of the principal-at-risk structure and the lack of downside protection below the downside threshold levels established for each underlying asset.

Observation and Maturity Timeline

The final observation date for determining maturity-level underlier performance is scheduled for January 24, 2028, subject to postponement for non-trading days and certain market disruption events. This observation date occurs three business days before the maturity date of January 27, 2028. The observation dates throughout the life of the security—used to determine contingent coupon payments—are referenced in the filing but the complete schedule is noted as being set forth in a separate section of the product documentation not reproduced in the pricing supplement.

The redemption dates span from October 29, 2026, through December 30, 2027, providing Morgan Stanley with sixteen potential opportunities to exercise the call feature. The timing of these redemption dates relative to the final observation date and maturity means that early redemption could occur at any point through the penultimate month of the security's life, after which the security would run to maturity unless called previously. Notice of any redemption would be provided no later than the observation date preceding the redemption date specified in the notice.

Regulatory Status and Disclosure Framework

The pricing supplement is filed pursuant to Rule 424(b)(2) under the Securities Act of 1933 and references registration statement numbers 333-293641 and 333-293641-01. The document is dated July 24, 2026, and was filed on July 28, 2026. The securities offering relies on an accompanying product supplement dated April 8, 2026, an index supplement dated April 8, 2026, a tax supplement dated April 8, 2026, and a prospectus dated April 8, 2026, all of which are incorporated by reference as part of the complete offering documentation.

The filing includes the standard SEC disclaimer that the Securities and Exchange Commission and state securities regulators have not approved or disapproved the securities or determined whether the offering document or prospectus is truthful or complete. The offering document explicitly references that readers should review the related product supplement, index supplement, tax supplement, and prospectus in their entirety to understand all terms, conditions, and risk factors associated with the securities. Additional information regarding the plan of distribution and conflicts of interest is addressed in the product supplement section referenced in the pricing supplement.