Morgan Stanley Issues $888,000 Auto-Callable Structured Notes Linked to IBM Stock Performance

Structured Investment Terms and Underlying Reference Asset

Morgan Stanley Finance LLC has issued the Contingent Income Auto-Callable Securities as part of its Series A Global Medium-Term Notes program. The securities are backed by a full and unconditional guarantee from Morgan Stanley, though they remain unsecured obligations with no security interest in any underlying reference asset. The stated principal amount is $1,000 per security, with an aggregate principal amount of $888,000 and an original issue date of July 21, 2026. The underlier for these securities is the capital stock of International Business Machines Corporation, with a strike date and pricing date of July 16, 2026. The securities will mature on July 19, 2029, subject to potential early automatic redemption on any of 32 specified redemption determination dates beginning January 19, 2027.

The design of these structured notes creates a three-year investment opportunity with multiple potential outcomes. The strike price was established at $219.05, representing the initial level of IBM stock on the pricing date. This baseline level serves as the reference point for determining whether contingent coupons will be paid and whether the securities will be automatically redeemed before maturity. Investors must understand that these securities do not provide regular interest payments like conventional bonds; instead, they offer contingent income only when specific conditions tied to IBM stock performance are met.

Contingent Coupon Structure and Payment Conditions

The securities feature a contingent coupon at an annual rate of 16.00%, but payment is conditional on IBM stock performance. The filing states that coupon payments will be made on each coupon payment date only if the closing level of the underlier is greater than or equal to the coupon barrier level on the related observation date. The coupon barrier level is set at $109.525, which represents 50% of the initial level of $219.05. This means investors will receive the full 16.00% annual coupon only if IBM stock maintains a closing price at or above approximately one-half of the strike price on each observation date.

If on any observation date the closing level of IBM stock falls below the $109.525 coupon barrier level, the company will pay no coupon with respect to that interest period. The observations occur on a monthly basis across the life of the securities, with coupon payment dates established accordingly. This structure means investors face the risk of receiving no interest income over the entire term of the securities if IBM stock declines significantly. The contingent coupon design creates a scenario where investors could experience extended periods without income while simultaneously holding a security that is declining in value due to the underlying stock performance.

Automatic Early Redemption Provisions

The securities incorporate an automatic early redemption feature that becomes active beginning January 19, 2027. On any redemption determination date, if the closing level of IBM stock is greater than or equal to the call threshold level of $219.05 (representing 100% of the initial level), the securities will be automatically redeemed for an early redemption payment equal to the stated principal amount plus the contingent coupon with respect to the related interest period. The filing specifies 32 redemption determination dates occurring monthly from January 19, 2027, through June 18, 2029, with corresponding early redemption dates approximately three business days later.

The automatic redemption feature limits the upside participation for investors, as they will not benefit from appreciation of IBM stock beyond the strike price. Once the securities are automatically redeemed on any early redemption date, no further payments will be made, and investors' principal will be returned along with the accrued contingent coupon for that period. This structure is beneficial to investors in rising market scenarios where IBM stock remains above the strike price, as they will receive their full principal and accumulated contingent coupons without further market exposure. However, this also means investors forfeit any participation in potential significant gains in IBM stock beyond the initial level.

Principal at Risk and Downside Threshold Protection Mechanism

At maturity, if the securities have not been automatically redeemed prior to that date, the payment structure depends on whether the final level of IBM stock is above or below the downside threshold level. The filing indicates that if the final level is greater than or equal to the downside threshold level, investors will receive (in addition to the contingent coupon with respect to the final observation date, if payable) the stated principal amount at maturity. This represents the base case scenario where IBM stock either appreciates or declines modestly, allowing investors to recover their initial investment.

Conversely, if the final level is less than the downside threshold level, investors will lose 1% for every 1% decline in the level of the 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 filing emphasizes that investors in these securities must be willing to accept the risk of losing their entire initial investment. This downside structure creates a scenario where investors face leveraged losses in a declining IBM stock environment, with the potential to lose not just the appreciation they might have earned but also a substantial portion or all of their principal.

Pricing, Commissions, and Distribution Strategy

The securities were issued at a price to public of $1,000 per security on the pricing date of July 16, 2026. The agent, Morgan Stanley & Co. LLC, received commissions and fees of $2.50 per security, or a total of $2,220 on the aggregate principal amount of $888,000. This results in net proceeds to Morgan Stanley Finance LLC of $997.50 per security, or $885,780 in total. The estimated value on the pricing date was $985.40 per security, indicating a difference between the public offering price and the disclosed estimated value.

The filing states that these securities will be sold only to investors purchasing the securities in fee-based advisory accounts. Morgan Stanley & Co. expects to sell all of the securities that it purchases from the issuer to an unaffiliated dealer at a price of $997.50 per security for further sale to certain fee-based advisory accounts at the public price of $1,000 per security. Notably, Morgan Stanley & Co. will not receive a sales commission with respect to the securities. The distribution structure is designed to channel these structured investments specifically to fee-based advisory accounts, which have a different fee arrangement than traditional commission-based advisory relationships.

Credit Risk and Guarantee Structure

Although these securities are fully and unconditionally guaranteed by Morgan Stanley, all payments remain subject to the credit risk of both Morgan Stanley Finance LLC and Morgan Stanley. The filing discloses that if Morgan Stanley or its affiliate defaults on its obligations, investors could lose some or all of their investment. These securities are not secured obligations, and investors will not have any security interest in or otherwise have any access to any underlying reference asset or assets. The guarantee structure means that investors have recourse to Morgan Stanley in the event of a default, but investors do not have access to any collateral backing the securities.

The unsecured nature of these obligations means investors are relying entirely on the creditworthiness and ability to pay of Morgan Stanley. In a scenario where Morgan Stanley faces financial distress, the value of the guarantee could be significantly diminished. Investors must evaluate Morgan Stanley's credit quality as part of their investment analysis, separate from the performance of IBM stock. The filing does not provide Morgan Stanley's current credit ratings or other credit metrics, leaving investors to conduct independent research on the guarantor's financial condition.

Risk Profile and Suitability Considerations

The filing characterizes these securities as appropriate 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 and the risk of receiving no coupons over the entire term of the securities. The 16.00% contingent coupon rate is substantially higher than prevailing interest rates on conventional fixed-income securities, reflecting the additional risks embedded in the structure. However, investors will not participate in any appreciation of IBM stock beyond the strike price due to the automatic redemption provision, limiting potential returns in a strong equity market environment.

The document emphasizes multiple times that investors must be willing to accept the risk of losing their entire initial investment. This risk arises from two principal sources: first, the contingent coupon structure means investors could receive no income if IBM stock declines below the coupon barrier level; and second, the principal repayment at maturity depends on IBM stock performance relative to the downside threshold level. The combination of these risks creates an investment vehicle substantially different in risk profile from conventional corporate or government bonds, requiring investors to have significant risk tolerance and conviction about IBM stock performance remaining at or above specified levels.

Registration and Regulatory Framework

The securities have been registered under Registration Statement Nos. 333-293641 and 333-293641-01 and are being offered pursuant to a Pricing Supplement filed under Rule 424(b)(2). The offering is based on a Product Supplement for Principal at Risk Securities dated April 8, 2026, a Tax Supplement dated April 8, 2026, and a Prospectus dated April 8, 2026. The Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities, or determined if the offering documents are truthful or complete, as disclosed in the standard regulatory notice in the filing.

Investors should note 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. The regulatory structure governing structured investments places primary responsibility on investors to understand the terms, risks, and performance mechanics of these securities. The filing references accompanying product supplements, tax supplements, and prospectuses that provide additional detail on risk factors and other material information that investors should review before making an investment decision.

Market Observations and Investment Considerations for Monitoring

The aggregate principal amount of $888,000 represents a moderate-sized issuance of these specific structured securities. Investors who purchase these securities should monitor IBM stock performance relative to the specified barrier levels, particularly the coupon barrier level of $109.525 and the call threshold level of $219.05. The first redemption determination date of January 19, 2027, will be an important milestone in determining whether these securities will be called early or will continue through additional redemption determination dates.

Investors should also track Morgan Stanley's credit metrics and any material changes in the guarantor's financial condition, given that the value of the guarantee depends on Morgan Stanley's continued ability to meet its obligations. The structure of these securities means that IBM stock performance will be the primary driver of investment returns, while the embedded leverage in the downside loss mechanism means investors face disproportionate losses in adverse scenarios. Those who purchased these securities should establish a monitoring plan to track both the underlying IBM stock price relative to the barrier levels and any significant credit developments affecting Morgan Stanley.