Morgan Stanley Launches Structured Notes Tied to Costco, JPMorgan, and Microsoft Stock Performance

Structured Note Design and Underlying Reference Assets

Morgan Stanley Finance LLC, fully and unconditionally guaranteed by Morgan Stanley, has structured these notes to track the performance of three major U.S. equities: Costco Wholesale Corporation, JPMorgan Chase & Co., and Microsoft Corporation. The critical design feature ties all returns to the worst-performing stock among the three, eliminating any diversification benefit an investor might otherwise expect from holding multiple underlying assets. This worst-of structure means that even if two of the three stocks appreciate significantly, a decline in any single stock's performance directly and negatively affects the notes' returns.

The notes are unsecured obligations issued as part of Morgan Stanley Finance LLC's Series A Global Medium-Term Notes program. They carry a stated principal amount of $1,000 per note, with a total aggregate issuance of $291,000. The pricing date and strike date were both July 16, 2026, with the original issue date set for July 21, 2026. These structured investments do not provide for regular payment of interest in the traditional sense; instead, they offer a contingent income structure based on specified barrier levels and observation dates.

Contingent Coupon Mechanics and Payment Conditions

The notes will pay a contingent coupon at an annual rate of 7.60% on each coupon payment date, but only if every underlying stock closes at or above its respective coupon barrier level on the related observation date. The coupon barrier levels are set at 75% of each stock's initial level: $709.178 for Costco Wholesale Corporation, $257.363 for JPMorgan Chase & Co., and $300.825 for Microsoft Corporation. If any single underlier closes below its coupon barrier level on any observation date, investors will receive no coupon payment for that interest period, regardless of the performance of the other two stocks.

This all-or-nothing coupon structure creates binary outcomes where investors either receive the full 7.60% annual coupon or receive nothing for a given period. The contingent nature of the coupon means investors assume significant downside risk in exchange for the potentially above-market rate if barrier conditions are satisfied. Because the coupon depends on the worst-performing stock remaining above 75% of its initial level, investors must monitor the performance of all three underlying equities continuously throughout the five-year term.

Automatic Early Redemption Triggers and Call Threshold Levels

The notes incorporate automatic early redemption provisions that become operative on the first redemption determination date of July 16, 2027, and continue monthly thereafter through June 17, 2031. On any redemption determination date, if the closing level of each underlier is greater than or equal to its respective call threshold level, the notes will be automatically redeemed for the early redemption payment on the related early redemption date. The call threshold levels are set at 100% of each stock's initial level on the strike date: $945.57 for Costco Wholesale Corporation, $343.15 for JPMorgan Chase & Co., and $401.10 for Microsoft Corporation.

If the notes are automatically redeemed early, investors receive the stated principal amount plus the contingent coupon with respect to the related interest period, and no further payments will be made on the notes. This redemption feature benefits Morgan Stanley if all three stocks appreciate to or above their initial levels but limits upside participation for investors, who cannot participate in any appreciation of the underlying stocks beyond the early redemption payment. The requirement that all three stocks remain above their call thresholds simultaneously means that early redemption is not guaranteed, even if individual stocks perform well, because the success of the feature depends on collective performance across all three underliers.

Maturity Provisions and Final Observation Date

If the notes have not been automatically redeemed prior to the maturity date of July 21, 2031, investors will receive the stated principal amount plus the contingent coupon with respect to the final observation date, if that coupon is payable. The final observation date is July 16, 2031, subject to postponement for non-trading days and certain market disruption events. This structure means that at maturity, investors' returns are determined by whether the worst-performing stock has remained above the 75% coupon barrier level on the final observation date. If the barrier condition is not satisfied, investors receive only their principal back with no coupon payment for the final period.

The five-year term from July 21, 2026 to July 21, 2031 represents a medium-term commitment during which investors forgo the ability to participate in stock appreciation. The maturity provisions ensure that even if investors hold the notes to the end of their term without early redemption, their total return is limited to the cumulative contingent coupons paid plus principal recovery, with no equity upside capture.

Pricing, Issue Price, and Commission Structure

The notes were priced at $1,000 per note to the public, with Morgan Stanley & Co. LLC serving as the agent for the offering. The estimated value on the pricing date of July 16, 2026 was $968.70 per note, indicating an initial markdown from the stated principal amount. Agent commissions and fees totaled $2.50 per note, resulting in net proceeds to Morgan Stanley Finance LLC of $997.50 per note. The total aggregate principal amount of $291,000 generated gross proceeds of $291,000 with total agent commissions of $727.50 and net proceeds of $290,272.50.

The notes were sold only to investors purchasing in fee-based advisory accounts. Morgan Stanley & Co. expected to sell all notes purchased from Morgan Stanley Finance LLC to an unaffiliated dealer at $997.50 per note for further sale to fee-based advisory accounts at the public price of $1,000 per note. Selected dealers and their financial advisors could receive a structuring fee of up to $6.25 per note from the agent or its affiliates. Additionally, Morgan Stanley & Co. would pay a third-party data analytics provider $0.50 per note for each note sold in the offering, with the data analytics used at the request of the third-party dealer involved.

Worst-of Structure and Absence of Diversification Benefits

A central and critical feature of these notes is that their value depends on the worst-performing underlier among the three stocks. The disclosure explicitly states that the fact the notes are linked to more than one underlier does not provide any asset diversification benefits; instead, it means that a decline in any single underlier beyond its initial level adversely affects returns on the notes, even if the other underliers have appreciated or declined less. This worst-of structure concentrates risk rather than distributing it across multiple equities.

Investors in these notes will not participate in any appreciation of any underlier. The structured design caps upside participation at the early redemption payment if all thresholds are met, while downside risk is borne in full if any stock declines below barrier levels. The absence of equity upside combined with the worst-of linkage creates an asymmetric risk-return profile where investors assume significant downside exposure without corresponding upside participation.

Credit Risk and Guarantor Obligations

All payments on the notes are subject to the credit risk of Morgan Stanley, the unconditional guarantor of the obligations issued by Morgan Stanley Finance LLC. The disclosure states that if Morgan Stanley defaults on its obligations, investors could lose some or all of their investment. These notes are not secured obligations, meaning investors do not have any security interest in or otherwise have any access to any underlying reference asset. The investor's claim on payment is solely against Morgan Stanley's general creditworthiness and willingness to honor its guarantee.

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 any bank. This means that unlike bank deposits, there is no government safety net protecting investors against loss if Morgan Stanley or Morgan Stanley Finance LLC experiences financial distress. The full credit exposure to Morgan Stanley represents a material risk factor distinct from the market risk associated with the underlying stocks.

Target Investor Profile and Risk Considerations

According to the disclosure, the notes are designed for investors concerned about principal risk who seek repayment of principal and an opportunity to earn interest at a potentially above-market rate in exchange for the risk of receiving no coupons over the entire term. This investor profile suggests a cautious approach where principal preservation is a priority, but the 7.60% contingent coupon offers enhanced yield relative to traditional debt securities. However, achieving that enhanced yield requires satisfying stringent conditions: all three underlying stocks must remain above their respective coupon barrier levels on every single observation date.

The notes involve risks not associated with an investment in ordinary debt securities, as explicitly stated in the disclosure. These risks include the contingent nature of coupon payments, the worst-of structure linking returns to the worst-performing stock, the inability to participate in stock appreciation, the requirement for all three stocks to perform above thresholds simultaneously, and the full credit exposure to Morgan Stanley. Investors considering these structured notes should carefully evaluate whether the potentially above-market coupon rate sufficiently compensates them for these layered risks and constraints.

Redemption Determination Dates and Observation Schedule

The notes feature a monthly redemption determination schedule beginning with the first redemption determination date on July 16, 2027, continuing through June 17, 2031. This frequent check schedule means that opportunities for early redemption arise monthly if all three stocks remain at or above their respective call thresholds. The redemption determination dates are subject to postponement for non-trading days and certain market disruption events, introducing scheduling flexibility while maintaining the intended frequency of redemption opportunity assessments.

For investors, this monthly redemption schedule creates ongoing uncertainty about whether their notes will be called early if all three stocks appreciate above their starting levels. The frequent observation windows mean that the outcome of the investment could be decided on any given monthly redemption date rather than being held to maturity. This unpredictability in investment term length, combined with the monthly contingent coupon observations, requires investors to actively monitor the performance of all three underlying stocks throughout the five-year period.