Morgan Stanley Finance LLC has issued Contingent Income Auto-Callable Securities due August 10, 2029, with performance tied to Apple Inc. common stock. The securities, fully guaranteed by Morgan Stanley, offer a contingent annual coupon of 9.20% but expose investors to the risk of significant principal loss if Apple's stock declines below specified thresholds. The offering, priced on August 7, 2026, is designed for investors in fee-based advisory accounts seeking potentially higher returns in exchange for accepting principal-at-risk exposure.

Key Points

  • NYSE: MS-PQ
  • Morgan Stanley Finance LLC issued auto-callable notes with a stated principal amount of $1,000 per security, maturing August 10, 2029, linked to Apple Inc. stock performance
  • Securities offer a 9.20% contingent annual coupon, payable only if Apple's closing stock price remains at or above 70% of the strike price on observation dates; automatic early redemption triggered if Apple stock reaches or exceeds 100% of initial level on any redemption determination date
  • Investors face full principal loss risk; payment at maturity depends on final Apple stock level relative to the downside threshold, with losses of 1% for every 1% the stock declines below that threshold

Security Structure and Principal Protection Features

Morgan Stanley Finance LLC disclosed the issuance of Contingent Income Auto-Callable Securities backed by Apple Inc. common stock performance. The securities carry a stated principal amount of $1,000 per unit and are fully and unconditionally guaranteed by Morgan Stanley. However, the filing states that these are principal-at-risk securities, meaning investors do not have a guarantee of receiving their full initial investment at maturity. The securities do not provide for regular interest payments, and all returns are contingent upon Apple's stock performance relative to predetermined thresholds established on the pricing date of August 7, 2026.

The filing indicates that investors purchasing these securities must be prepared to accept the risk of losing their entire initial investment. The securities are unsecured obligations of Morgan Stanley Finance LLC and do not provide investors with any security interest in underlying reference assets. Additionally, all payments made on the securities remain subject to Morgan Stanley's credit risk, meaning that should the guarantor default on its obligations, investors could lose some or all of their investment. These securities are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.

Contingent Coupon Mechanism and Payment Conditions

The disclosure reveals that the securities offer a contingent coupon at an annual rate of 9.20%, which will be paid on each coupon payment date only if specific performance conditions are met. The filing specifies that on each observation date, if the closing level of Apple's stock is greater than or equal to the coupon barrier level, investors will receive the coupon payment for that interest period. However, if the closing level falls below the coupon barrier level on any observation date, the filing states that no coupon will be paid with respect to that interest period. The coupon barrier level is set at 70% of the initial level of Apple stock as established on the strike date of August 7, 2026.

Coupon payments are scheduled on regular observation dates running through the final observation date of August 7, 2029. The filing indicates that if any coupon payment date is not a business day, payment will be made on the next succeeding business day without adjustment to the coupon amount. Investors should note that the filing states they will not participate in any appreciation of the underlier, meaning that even if Apple's stock rises significantly, investors receive only the contingent coupon and stated principal, with no upside participation beyond those fixed terms.

Automatic Early Redemption and Call Threshold Conditions

The filing discloses an automatic early redemption feature that allows the securities to be called back by Morgan Stanley under specific market conditions. The securities are not subject to early redemption until the first redemption determination date of August 10, 2027. Starting on that date and continuing through July 9, 2029, the filing lists 25 scheduled redemption determination dates when Morgan Stanley will assess whether the call threshold has been reached. If on any redemption determination date the closing level of Apple's stock is greater than or equal to the call threshold level, the securities will be automatically redeemed on the corresponding early redemption date.

When automatic early redemption occurs, investors receive an early redemption payment equal to the stated principal amount plus the contingent coupon for the related interest period, and no further payments will be made on the securities. The filing indicates that the call threshold level is set at 100% of the initial level of Apple's stock. This means that if Apple's stock remains at or rises above its initial pricing level on any redemption determination date, the securities will be called away from investors. The early redemption dates follow the redemption determination dates by several business days and are listed in the filing for investor reference.

Principal Loss Mechanics and Downside Threshold Protection

The filing establishes a specific mechanism for calculating potential principal loss at maturity if the securities are not called early. If the final level of Apple's stock on the final observation date of August 7, 2029 is greater than or equal to the downside threshold level, investors will receive the stated principal amount at maturity, in addition to any contingent coupon payable on the final observation date. However, the filing states that if the final level is less than the downside threshold level, investors will lose 1% for every 1% decline in the level of Apple's stock over the term of the securities.

Under these loss conditions, the filing explicitly states that the payment at maturity will be significantly less than the stated principal amount and could be zero. For example, if Apple's stock declines 50% below the downside threshold level, investors would receive only 50% of their stated principal amount at maturity. The downside threshold level is set at a percentage of the initial level, though the filing does not explicitly state this percentage in the disclosure reviewed. Investors must understand that this feature exposes them to substantial capital loss, and the filing emphasizes that investors must be willing to accept the risk of losing their entire initial investment.

Pricing and Estimated Value on Issuance Date

The filing indicates that the securities were issued at a price of $1,000 per security to the public, representing the stated principal amount. However, the disclosure reveals that the estimated value of the securities on the pricing date of August 7, 2026 was approximately $970.40 per security, with a range of within $45.00 of that estimate. This estimated value reflects the risk-adjusted worth of the securities based on their structured features and contingencies, and the filing notes that this valuation does not represent a guarantee of secondary market pricing.

The filing discloses that the securities are sold only to investors purchasing in fee-based advisory accounts. Morgan Stanley & Co. LLC, acting as agent, expects to sell all securities purchased from Morgan Stanley Finance LLC to an unaffiliated dealer at a specified price for further distribution to fee-based advisory accounts. The filing states that Morgan Stanley & Co. will not receive a sales commission with respect to the securities, indicating a specific distribution arrangement designed to limit conflicts of interest in the placement of these principal-at-risk products.

Underlier Performance Tracking and Observation Mechanics

The filing specifies that the securities' performance is tracked through the closing level of Apple Inc. common stock on designated observation and redemption determination dates. The strike date for establishing the initial level is August 7, 2026, the same date as the pricing date. All closing levels are measured against this initial level to determine whether contingent coupons will be paid, whether automatic early redemption will occur, and the ultimate payment at maturity. The filing indicates that observation dates are subject to postponement for non-trading days and certain market disruption events, providing some flexibility in measurement timing.

The filing notes that the final observation date of August 7, 2029 determines the final level used to calculate maturity payments. If this date is not a business day or if market disruption events occur, the observation may be postponed. This three-year observation period from August 2026 through August 2029 means investors bear Apple stock risk throughout this entire period. The filing does not disclose the aggregate principal amount of securities issued, stating only that this figure should be inserted in the pricing supplement at finalization.

Issuer Guarantee and Credit Risk Considerations

Morgan Stanley Finance LLC has issued the securities, and Morgan Stanley serves as the guarantor, providing an unconditional full guarantee of MSFL's obligations. The filing emphasizes, however, that this guarantee does not eliminate credit risk from the investor perspective. All payments on the securities, including the stated principal amount and contingent coupons, remain subject to Morgan Stanley's ability to meet its obligations. Should Morgan Stanley default, investors could lose some or all of their investment, despite the guarantee structure.

The filing explicitly states that these securities are not secured obligations and investors will not have any security interest in or access to any underlying reference assets. This means that in a default scenario, investors would be unsecured creditors of Morgan Stanley with no preference or lien against any specific assets. The disclosure also clarifies that the securities are not deposits or savings accounts and are not insured by the Federal Deposit Insurance Corporation, removing any perception that federal insurance protections might apply to these structured investments.

Distribution and Investor Suitability Restrictions

The filing specifies that these securities are designed exclusively for investors purchasing through fee-based advisory accounts. This restriction limits distribution to a particular investor class and reflects the complex nature of the product. Morgan Stanley & Co. LLC, the distribution agent and affiliate of both the issuer and guarantor, will manage the placement of these securities. The filing discloses this relationship and notes potential conflicts of interest, indicating that investors should carefully review supplemental information regarding the plan of distribution detailed in the accompanying product supplement.

The filing characterizes these securities as appropriate for investors who seek the opportunity to earn interest at a potentially above-market rate—the 9.20% contingent coupon being above typical fixed-income rates in many market environments—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 disclosure indicates that potential investors in these products should understand they will not participate in any appreciation of Apple's stock and must accept principal-at-risk exposure as a fundamental condition of ownership.

Documentation and Regulatory Filings

The filing is designated as Preliminary Pricing Supplement No. 17,738 and is filed pursuant to Rule 424(b)(2) under the Securities Act of 1933. The document references related filings including 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 filing indicates that these documents can be accessed via hyperlinks and should be reviewed together with the pricing supplement to obtain complete information about the securities' terms and conditions.

The disclosure notes that the Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities or determined whether the pricing supplement, product supplement, tax supplement, and prospectus are truthful or complete. The filing includes the standard SEC disclaimer that any representation to the contrary would constitute a criminal offense. Investors are advised to read all related documents carefully before making investment decisions, as the pricing supplement should be reviewed in conjunction with the underlying product supplement, tax supplement, and prospectus to understand all applicable terms, conditions, risks, and tax implications.