Morgan Stanley Issues Auto-Callable Securities Tied to KLA Corporation Stock with 39.20% Contingent Coupon Rate

Structured Investment Design and Contingent Coupon Mechanics

The securities issued by Morgan Stanley Finance LLC represent a structured investment product that ties investor returns directly to the price performance of KLA Corporation's common stock. The instruments are designed to provide investors with an opportunity to earn a 39.20% annual contingent coupon, which represents an above-market interest rate compared to traditional fixed-income securities. However, this higher potential yield comes with substantial risk exposure to the underlying stock's price movements and the possibility of losing a significant portion or all of the initial principal investment.

The contingent coupon structure operates on specific observation dates throughout the securities' term. Payments are made only if the closing level of KLA stock on a given observation date meets or exceeds the coupon barrier level of $109.519, which represents 50% of the initial stock price established on the strike date of July 16, 2026. If the stock closes below this threshold on any observation date, investors receive no coupon payment for that period. The filing discloses that unpaid coupons may be carried forward and paid on subsequent coupon payment dates, but only if the stock then meets the coupon barrier level. Critically, if the stock never recovers to the coupon barrier level on any remaining observation date through maturity, investors will receive no coupon payments whatsoever for those periods.

Automatic Early Redemption Framework and Call Threshold Conditions

Morgan Stanley has built an automatic early redemption feature into these securities, enabling potential redemption before the stated maturity date of August 3, 2027. The automatic redemption mechanism becomes operative starting with the first redemption determination date of October 29, 2026. If on any redemption determination date the closing level of KLA stock equals or exceeds the call threshold level of $219.038—which the filing indicates represents 100% of the initial level—the securities will automatically be redeemed on the corresponding early redemption date.

Three redemption determination dates are specified in the disclosure: October 29, 2026, January 29, 2027, and April 29, 2027. Upon automatic redemption, investors receive a payment equal to the stated principal amount plus the contingent coupon for the related interest period and any previously unpaid contingent coupons. The filing emphasizes that no further payments will be made once the securities are automatically redeemed. This structure provides investors with the possibility of early exit with full principal recovery plus accumulated coupons if KLA stock performs strongly, but eliminates participation in any further stock appreciation beyond the call threshold level.

Principal-at-Risk Maturity Payment Structure and Downside Threshold

At maturity on August 3, 2027, assuming the securities have not been automatically redeemed beforehand, investors will receive payment based on KLA stock's final closing level compared to 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 the stated principal amount plus any applicable contingent coupons from the final observation date and any previously unpaid contingent coupons. However, the disclosure does not specify the numerical value of the downside threshold level in the excerpt provided.

The critical risk articulated in the disclosure is that if the final level falls below the downside threshold level, investors face a loss structure where they lose 1% of principal for every 1% decline in the stock price over the term of the securities. The filing explicitly warns that under these circumstances, the maturity payment could be significantly less than the stated principal amount and could theoretically equal zero. This structure means investors bear full downside exposure to KLA stock price declines once the stock falls below the downside threshold, with no floor protection other than what the threshold provides.

Pricing Details and Agent Commission Structure

The securities were priced at $1,000 per security on the pricing date of July 17, 2026, with an original issue date of July 22, 2026. However, the disclosure indicates an estimated value on the pricing date of $984.20 per security, reflecting a $15.80 discount to the stated principal amount. This valuation discount reflects the option-embedded nature of the securities and the risk-adjusted value at pricing. The filing discloses that Morgan Stanley & Co. LLC, an affiliate of MSFL and a wholly owned subsidiary of Morgan Stanley, acts as the agent for the offering.

The commission and fee structure shows that the price to public is $1,000 per security, with agent commissions and fees of $10 per security, resulting in net proceeds to the issuer of $990 per security. On the total $1,000,000 aggregate principal amount, total commissions amount to $10,000. The disclosure also notes that J.P. Morgan Securities LLC and JPMorgan Chase Bank, N.A. serve as placement agents and will forgo fees for sales to certain fiduciary accounts, with the placement agent fee not exceeding $10 per $1,000 stated principal amount from other account types.

Observation Dates and Coupon Payment Schedule

The securities establish specific observation dates that determine both contingent coupon payments and automatic early redemption eligibility. The final observation date is scheduled for July 29, 2027, subject to postponement for non-trading days and certain market disruption events. Coupon payment dates correspond to the observation dates, with payments made on the next succeeding business day if any observation date is not a business day. The filing states that if any coupon payment date falls on a non-business day, the payment will be made on the next succeeding business day without adjustment to the coupon amount.

The redemption determination dates—October 29, 2026, January 29, 2027, and April 29, 2027—establish the windows during which automatic redemption could occur. All dates are subject to postponement for non-trading days and certain market disruption events, giving Morgan Stanley flexibility to adjust observation dates if trading in KLA stock is disrupted. The contingent coupon payment on the final observation date shall be made on the maturity date itself, consolidating the final coupon payment with any maturity payment due to investors.

Guarantor Credit Risk and Unsecured Obligation Status

The disclosure emphasizes that these securities are unsecured obligations of Morgan Stanley Finance LLC, with a full and unconditional guarantee from Morgan Stanley. However, all payments on the securities remain subject to Morgan Stanley's credit risk. The filing explicitly warns investors that if Morgan Stanley defaults on its obligations, investors could lose some or all of their investment. The disclosure further clarifies that these securities are not secured obligations and investors will not have any security interest in or access to any underlying reference asset or related assets.

This credit risk layering means investors face dual risks: first, the structural risk inherent in the contingent coupon and principal-at-risk design based on KLA stock performance; and second, the credit risk of Morgan Stanley Finance LLC and its guarantor Morgan Stanley. The filing characterizes the securities as unsecured notes issued as part of Morgan Stanley Finance LLC's Series A Global Medium-Term Notes program. While a Morgan Stanley guarantee provides credit support superior to an unsecured obligation of MSFL alone, investors are nonetheless exposed to counterparty risk from one of the largest global financial institutions.

Investment Suitability Profile and Risk Disclosure

Morgan Stanley's disclosure indicates these securities are designed for investors who seek an opportunity to earn interest at a potentially above-market rate in exchange for accepting substantial risks. The filing states that investors in the securities must be willing to accept the risk of losing their entire initial investment. The disclosure explicitly warns that the securities do not guarantee repayment of principal and do not provide for regular payment of interest; instead, all coupon payments are contingent on KLA stock meeting specified price thresholds.

The filing further notes that investors will not participate in any appreciation of the underlier beyond the automatic redemption call threshold of $219.038. This means that if KLA stock rises substantially above that level before the first redemption determination date, the securities will be called away, and investors forgo the opportunity to benefit from additional stock appreciation. The risk disclosure describes the securities as suitable only for investors with a strong risk tolerance who understand and accept the possibility of receiving no coupon payments over the entire term and losing a significant portion or all of their principal investment.

Regulatory Status and Securities Classification

The pricing supplement was filed pursuant to Rule 424(b)(2) under the Securities Act, with registration statement numbers 333-293641 and 333-293641-01. The document is dated July 17, 2026, corresponding to the pricing date. The filing includes explicit disclaimers that the Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities, nor have they determined whether the offering documents are truthful or complete. The disclosure further clarifies that the securities are not deposits or savings accounts and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.

The securities are classified as principal-at-risk structured investments, a category distinct from ordinary debt securities. Investors should review the accompanying product supplement dated April 8, 2026, the tax supplement dated April 8, 2026, and the prospectus dated April 8, 2026, which provide additional terms and conditions. The filing directs investors to review risk factors and supplemental information regarding the plan of distribution and conflicts of interest, noting that Morgan Stanley & Co. LLC's role as agent presents potential conflicts as an affiliate of both the issuer and guarantor.

Market Disruption and Valuation Considerations

The disclosure incorporates provisions for market disruption events that may affect observation and redemption determination dates. All dates are subject to postponement if non-trading days occur or if certain market disruption events affecting KLA stock trading take place. This contractual flexibility acknowledges that extraordinary market circumstances may necessitate date adjustments to ensure fair determination of stock closing levels.

The estimated value of $984.20 per security at pricing on July 17, 2026, compared to the $1,000 stated principal amount, reflects the valuation impact of the embedded options and contingent coupon structure. The discount captures the risk-adjusted present value of the expected cash flows, incorporating both the probability of coupon payments at the contingent 39.20% rate and the potential for principal loss based on KLA stock price scenarios. Investors evaluating these securities should understand that the estimated value differs from the issue price due to the option features and credit spread embedded in the structure.