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Morgan Stanley Finance LLC has submitted a preliminary pricing supplement for a new structured product featuring fixed income auto-callable securities, each with a stated principal of $1,000. These securities, maturing on July 31, 2031, are tied to the S&P 500 Futures 40% Intraday 4% Decrement VT Index and offer a fixed annual coupon of 7.60%. Investors should be aware of principal-at-risk exposure, with potential losses up to 100% if the underlying index falls significantly below a 60% downside threshold.
Key Points
- NYSE ticker: MS-PQ
- Morgan Stanley Finance LLC issues fixed income auto-callable securities fully guaranteed by Morgan Stanley, featuring a 7.60% fixed annual coupon
- Securities mature on July 31, 2031, with the initial redemption determination date on January 27, 2027
- Investors face full principal loss risk if the S&P 500 Futures Index declines more than 40% below its initial level at observation dates
Structure and Coupon Details
These securities are fixed income auto-callable notes issued by Morgan Stanley Finance LLC and fully guaranteed by Morgan Stanley. Each unit has a stated principal and issue price of $1,000. The notes provide a fixed coupon rate of 7.60% annually, payable monthly on the last calendar day of each month or the next business day if that date is a non-business day. This coupon rate is described as potentially above-market, compensating investors for accepting principal-at-risk exposure.
The estimated value per security on the pricing date was approximately $915.10, reflecting a risk premium embedded in the product. These unsecured obligations carry no collateral backing, and all payments depend on Morgan Stanley's creditworthiness. In the event of default by Morgan Stanley Finance LLC or Morgan Stanley, investors could lose some or all of their investment.
Early Redemption and Call Features
The securities include automatic early redemption provisions triggered if the S&P 500 Futures Index closes at or above 100% of its initial level on redemption determination dates, starting January 27, 2027. If triggered, the securities are redeemed on the corresponding early redemption date, with investors receiving the principal plus the fixed coupon for that interest period. No further payments are made after early redemption.
Nineteen redemption determination dates are scheduled between January 27, 2027, and April 25, 2031, with early redemption dates about one month later. No early redemption can occur before January 27, 2027. If the index closes below the call threshold on a determination date, the securities remain outstanding, and investors do not benefit from any index appreciation beyond the call threshold due to automatic redemption.
Downside Risk and Final Payment Terms
At maturity, if the securities have not been called, investors face significant downside risk. If the final index level on the observation date (July 28, 2031) is at least 60% of the initial level, investors receive the principal plus the final coupon. However, if the index closes below 60% of the initial level, investors receive the fixed coupon but incur principal losses proportional to the index decline—losing 1% of principal for every 1% the index falls below the threshold.
This could result in a total loss of the $1,000 principal if the index drops more than 40% from the initial strike level set on July 28, 2026. The maturity payment is calculated by multiplying the final index level by the initial level ratio, linking principal repayment directly to index performance. Investors must be prepared to accept the risk of losing their entire initial investment.
Underlying Index and Important Dates
The securities reference the S&P 500 Futures 40% Intraday 4% Decrement VT Index, with the strike and pricing date set on July 28, 2026. The original issue date is July 31, 2026, and the observation date for maturity calculations is July 28, 2031, subject to adjustments for non-trading days or market disruptions.
The initial index level is the closing value on the strike date, and all index levels used for calculations are rounded to three decimal places. The five-year maturity period offers monthly coupon payments but exposes investors to extended downside risk if the index underperforms.
Credit Risk and Guarantee Structure
The securities are fully and unconditionally guaranteed by Morgan Stanley, ensuring payment obligations if Morgan Stanley Finance LLC defaults. However, this guarantee does not eliminate credit risk; investors remain exposed to Morgan Stanley's creditworthiness. These notes are not bank deposits, are not FDIC insured, and lack traditional bank guarantees.
Investors must rely solely on Morgan Stanley’s financial strength for payment assurances, as these structured notes do not provide federal insurance protections.
Coupon Payment and Redemption Schedule
Coupon payments are scheduled monthly on the last calendar day of each month from August 31, 2026, through maturity on July 31, 2031, with adjustments for non-business days. Redemption determination dates occur approximately quarterly from January 27, 2027, through April 25, 2031, providing investors with periodic opportunities for early redemption if index performance criteria are met.
Registration and Market Details
The securities are registered under SEC Registration Statement Nos. 333-293641 and 333-293641-01. The preliminary pricing supplement was filed on July 23, 2026, under Rule 424(b)(2), facilitating issuance under an effective shelf registration.
Identified by CUSIP 61781GZ46 and ISIN US61781GZ468, these notes will not be listed on any exchange and will trade over-the-counter through Morgan Stanley & Co. LLC. Secondary market liquidity may be limited compared to exchange-listed securities.
Distribution and Compensation
Morgan Stanley & Co. LLC, a wholly owned subsidiary and affiliate of Morgan Stanley Finance LLC, acts as agent for the offering. Selected dealers and financial advisors will receive fixed sales commissions per security sold, though exact amounts are not disclosed in the preliminary supplement.
The filing acknowledges potential conflicts of interest as Morgan Stanley & Co. serves both as agent and as a subsidiary of the guarantor. Additional details on conflicts are available in the "Plan of Distribution (Conflicts of Interest)" section of the product supplement, ensuring transparency regarding distribution incentives.
Risk Profile and Investor Suitability
These securities carry risks beyond traditional debt instruments, including lack of participation in index gains beyond the call threshold and full exposure to downside losses below the 60% level. They are suitable only for investors seeking potentially above-market fixed income and willing to accept significant principal risk.
While the 7.60% fixed coupon is attractive, investors must accept that a severe index decline could result in total principal loss, making these notes appropriate for sophisticated investors with specific risk tolerance and return objectives.
Use of Proceeds and Hedging Strategy
Although the preliminary supplement does not specify, proceeds from the offering are typically used by Morgan Stanley to purchase or hedge underlying assets or derivatives linked to the S&P 500 Futures Index. These hedging activities influence issuer profitability and indirectly affect pricing for investors.
The aggregate principal amount of the offering will be finalized at pricing based on investor demand, allowing Morgan Stanley to adjust the size of the issuance accordingly. Final pricing and issuance are scheduled for July 31, 2026.
