Morgan Stanley Finance Launches Buffered Participation Securities Linked to Dow Jones and S&P 500 Performance

Dual Index Exposure and Worst-Performing Index Return Structure

These securities link returns to both the Dow Jones Industrial Average and the S&P 500 Index, with payouts based on the worst performing index over the investment term. Unlike traditional diversified products, this structure concentrates risk on the underperforming index, meaning a significant decline in either index beyond the buffer reduces investor returns regardless of the other index's performance.

The filing clarifies that returns depend solely on the worst performing index. For instance, if the Dow Jones falls sharply while the S&P 500 rises, returns will be based on the Dow Jones decline. This bear-sensitive design disadvantages investors when either major index weakens. The observation date for final index levels is November 11, 2027, subject to postponements for non-trading days or market disruptions, with maturity five business days later on November 16, 2027.

Buffer Protection and Downside Risk Mechanics

The securities include an 85% buffer level for each index, shielding investors from losses up to a 15% decline from initial levels. If the worst performing index falls below this buffer, investors incur a 1% loss for every 1% drop beyond the buffer. Full principal is preserved only if both indices remain above their 85% thresholds at maturity.

If the worst performing index declines past the buffer, maturity payments can be substantially reduced but will not fall below 15% of principal, capping maximum losses at 85%. This structure limits downside exposure while maintaining significant risk within that range.

Upside Participation and Conditional Returns

Upside participation occurs only if both indices close above their initial levels on the observation date. The participation rate is 100.50%, allowing investors to capture slightly more than the full gain of the worst performing index. For example, a 10% gain in the worst performing index results in a payout of principal plus 10.05% of principal, provided both indices finish higher.

If either index ends at or below its initial level, investors receive only their principal, assuming the worst performing index stays above the buffer. This contingent return structure creates multiple scenarios based on market performance and is designed for investors willing to accept principal risk and forego current income in exchange for buffer protection.

Pricing, Valuation, and Cost Disclosure

Each security is issued at $1,000 and sold to fee-based advisory accounts. The estimated value on pricing date is approximately $985.20, reflecting a $14.80 difference attributable to issuance, selling, structuring, and hedging costs borne by investors. The preliminary pricing supplement indicated an estimated value range within $35 of this central estimate.

Valuation incorporates a debt component plus a performance-based component linked to the two indices. Morgan Stanley uses proprietary pricing models, market data, and assumptions on volatility, interest rates, and credit spreads. The $1,000 issue price includes all issuance costs, making the effective net purchase price closer to the estimated value, highlighting embedded non-recoverable costs.

Distribution Agents, Fees, and Advisory Account Focus

Morgan Stanley & Co. LLC, an affiliate and wholly owned subsidiary of Morgan Stanley Finance LLC, acts as agent, purchasing securities for resale to fee-based advisory accounts. Selected dealers and advisors may receive structuring fees up to $6.25 per security. Additionally, a third-party data analytics provider may be paid $0.50 per security sold, requested by involved dealers.

Notably, Morgan Stanley & Co. will not earn sales commissions on these securities, distinguishing this offering from traditional commission-based sales. The filing discloses conflicts of interest due to Morgan Stanley’s dual role as issuer affiliate, distribution agent, and potential purchaser, with disclaimers regarding analytics services liability.

Credit Risk and Guarantee Details

Though issued by Morgan Stanley Finance LLC, the securities are fully and unconditionally guaranteed by Morgan Stanley. Investors rely on Morgan Stanley’s creditworthiness for repayment of principal and contingent payments. The filing warns that payments are subject to Morgan Stanley’s credit risk, with potential loss if Morgan Stanley defaults.

The securities are unsecured obligations with no collateral or security interest in the underlying indices. Investors have no recourse to the Dow Jones or S&P 500 components themselves. This unsecured, principal-at-risk structure exposes investors to both market and issuer credit risk. These securities are not deposits, savings accounts, or FDIC-insured products.

Investor Suitability and Risk Considerations

Morgan Stanley targets investors seeking exposure to the worst performing index and willing to risk principal and forego income for buffer protection. The filing stresses that investors must accept significant potential losses linked to either index’s performance and possess sophisticated understanding and risk tolerance for structured products.

The filing highlights that linking to two indices does not provide diversification; a decline in either index beyond the buffer adversely affects returns, even if the other performs well. This concentration risk is a key feature investors must understand. These securities are unsuitable for those seeking capital preservation, income, or traditional equity or debt exposure.

Index Selection and Market Disruption Provisions

The securities track the Dow Jones Industrial Average (30 large-cap stocks) and the S&P 500 Index (500 large-cap stocks). Strike and pricing dates are August 11, 2026, setting initial reference levels. The observation date for final index levels is November 11, 2027, subject to postponement for non-trading days or market disruptions as defined in the product and index supplements.

Market disruption provisions address scenarios such as market stress or technology failures that impede normal index closing. These allow postponement of observation dates and are detailed in accompanying supplements, which investors should review to understand adjustment triggers and procedures.

Regulatory Filing and Documentation

The preliminary pricing supplement was filed with the SEC on July 21, 2026, under Rule 424(b)(2), referencing registration statements 333-293641 and 333-293641-01. These securities are part of Morgan Stanley Finance LLC’s Series A Global Medium-Term Notes program. Final terms, commissions, and values are subject to change in the final pricing supplement, which must be provided before purchase.

Investors are directed to review related documents including the Product Supplement for Principal at Risk Securities, Index Supplement, Tax Supplement, and Prospectus, all dated April 8, 2026. Together, these form a comprehensive disclosure package governing terms, payments, index adjustments, tax treatment, and use of proceeds.

Series Classification and CUSIP Information

Classified as Principal at Risk Securities, these notes expose principal to loss based on market performance, differing from traditional medium-term notes with principal protection. They are not exchange-listed and will trade over-the-counter, limiting liquidity and pricing transparency.

Each security carries CUSIP 61781GT76 and ISIN US61781GT768 for identification and settlement. With a maturity on November 16, 2027, the term spans just over 15 months from the August 14, 2026 issue date, shorter than typical medium-term notes.