Morgan Stanley Finance Launches $1.375 Million Dual Directional Trigger PLUS Notes Linked to Nasdaq-100 and S&P 500

Investment Structure and Dual Index Exposure

The Dual Directional Trigger PLUS notes are complex structured products aimed at sophisticated investors seeking equity market exposure with defined risk-reward profiles. The notes are linked to the worst-performing of the Nasdaq-100 Index and the S&P 500 Index, meaning investors’ returns depend on the weaker index's performance. This structure eliminates diversification benefits, as a decline in either index beyond the downside threshold negatively impacts returns, even if the other index performs better. Thus, exposure to two major indices simultaneously introduces concentrated downside risk rather than hedging advantages.

Initial index levels were set on the strike date, July 23, 2026, with the Nasdaq-100 closing at 28,454.81 and the S&P 500 at 7,408.30. These serve as baselines for calculating percentage changes over the three-year term. Final index levels will be determined on the observation date, July 23, 2029, subject to postponements for non-trading days or market disruptions, ensuring returns are based on official closing values.

Leveraged Upside Payment Mechanism

The notes offer a leveraged upside feature to amplify gains when both indices appreciate. If both final index levels exceed their initial levels, investors receive the $1,000 principal plus a leveraged upside payment. This payment equals the principal multiplied by a 112% leverage factor and the percentage change of the worst-performing index. The 112% leverage means investors earn 1.12 times the gain of the weaker index when both indices finish higher.

This leverage applies only if both indices close above their initial levels. If either index fails to surpass its starting level, a different payment structure applies depending on whether indices remain above or fall below the downside thresholds.

Absolute Return Participation and Downside Protection

If the final level of either index is at or below its initial level but both remain above their 70% downside thresholds, the notes provide absolute return participation. Investors receive the principal plus a positive return equal to the absolute value of the worst-performing index’s percentage decline multiplied by 100%. For example, a 5% decline in the index results in a 5% positive return. This feature converts moderate losses into gains within the protected range, allowing returns even amid modest market declines.

The downside thresholds are 70% of initial levels: 19,918.367 for Nasdaq-100 and 5,185.81 for S&P 500. Within this 0-30% decline range, the absolute return participation caps losses, effectively cushioning investors from full market declines up to 30% on the worst-performing index. However, ultimate returns depend on which index performs worse.

Principal Risk and Potential Loss Scenarios

Significant principal risk exists if either index falls below its 70% downside threshold. In such cases, investors incur a one-to-one loss for every 1% decline in the worst-performing index over the term. Payments at maturity could be substantially less than principal or even zero. The loss factor is calculated by dividing final by initial index levels, so a 70% decline results in a $700 payment per $1,000 invested, with further declines reducing payments proportionally.

This risk is critical: a 30% decline negates absolute return participation benefits and starts eroding principal. For instance, a 40% decline yields only $600 per note, a $400 loss per $1,000 invested. The filing stresses that investors must be prepared to lose their entire investment based on either index’s performance, highlighting that one index’s poor performance can trigger catastrophic losses regardless of the other’s results.

Pricing Details and Estimated Value Gap

Priced at $1,000 per note, Morgan Stanley Finance LLC issued $1.375 million aggregate principal. The estimated value on pricing date was $980.40 per note, reflecting a $19.60 discount or approximately 1.96% below issue price. This difference accounts for issuance, sales, structuring, and hedging costs borne by investors. The issue price includes these embedded costs, meaning investors start with a built-in loss.

Commissions paid to Morgan Stanley & Co. LLC totaled $7.50 per note, or $10,312.50 overall. Morgan Stanley & Co. purchased notes from MSFL at $992.50 and sold them to fee-based advisory accounts at $1,000 without additional sales commissions. The estimated value was derived using Morgan Stanley’s internal pricing models, market inputs, volatility, interest rates, and credit spreads, and may differ from secondary market prices.

Credit Risk and Guarantee Information

The notes are unsecured obligations of Morgan Stanley Finance LLC, fully and unconditionally guaranteed by Morgan Stanley. While the guarantee provides recourse if MSFL defaults, all payments depend on Morgan Stanley’s creditworthiness. Investors face the risk of losing some or all investment if Morgan Stanley defaults. The notes are not secured by any collateral or underlying assets, ranking as general unsecured creditors in default scenarios.

Although Morgan Stanley is a major financial institution, the filing highlights inherent credit risk in corporate obligations. Unlike FDIC-insured deposits, these structured notes carry counterparty risk linked to Morgan Stanley’s financial health. The estimated value discount likely incorporates credit spread considerations. Investors must assess Morgan Stanley’s credit strength before investing in these principal-at-risk securities.

Issue Timeline and Maturity Terms

The strike and pricing dates were both July 23, 2026, with the original issue date on July 28, 2026, reflecting a standard five-day settlement period. The maturity date is July 26, 2029, providing a three-year investment term. The observation date for final index levels is July 23, 2029, subject to postponement for non-trading days or market disruptions, allowing time for payment processing before maturity.

The filing does not specify conditions for postponement or define qualifying market disruption events; investors should consult the product and index supplements for details. The notes pay no interest during the term; all returns derive solely from index-linked payment structures.

Investor Profile and Suitability

These securities target investors seeking returns based on the worst-performing index and willing to risk principal loss and forego current income in exchange for upside leverage, absolute return participation, and limited downside protection. The filing states suitability only for investors prepared to accept full loss risk, excluding conservative or income-focused investors. Sales are limited to fee-based advisory accounts, indicating a focus on institutional or high-net-worth investors with advanced market knowledge and risk tolerance.

The complex derivative structure requires investors to simultaneously bet that both indices will appreciate to gain leverage, or that the worst-performing index will not decline more than 30% to preserve principal, or at worst, not fall below 70% of initial levels to avoid total loss. This multi-layered risk profile makes the notes appropriate primarily for sophisticated investors.

Regulatory Filings and Documentation

The pricing supplement was filed under Rule 424(b)(2) with the SEC, linked to registration numbers 333-293641 and 333-293641-01. It includes standard SEC disclaimers that the SEC and state regulators have not approved or disapproved the securities nor confirmed the completeness of offering documents. The notes are not bank deposits, are not FDIC insured, and are not bank obligations despite being issued by a Morgan Stanley affiliate.

Supporting documents include a product supplement, index supplement, tax supplement, and prospectus all dated April 8, 2026, incorporated by reference. These provide further details on terms, index calculations, tax treatment, and offering conditions. Investors should review all related materials for comprehensive understanding. The securities’ identifiers are CUSIP 61781GQ61 and ISIN US61781GQ616 for trading and settlement purposes.