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Morgan Stanley Finance LLC has introduced a new structured investment product that provides exposure to the worst-performing index between the Russell 2000 and the S&P 500, maturing on August 3, 2029. These securities, fully guaranteed by Morgan Stanley, feature principal-at-risk characteristics and are priced at $1,000 each, with an estimated value around $962.80 at pricing. The offering is aimed at investors willing to sacrifice current income for potential upside returns and limited downside protection within defined performance parameters.
Key Points
- NYSE ticker: MS-PQ
- Morgan Stanley Finance LLC issued Dual Directional Trigger Jump Securities linked to the Russell 2000 and S&P 500 Indices, each with a stated principal of $1,000 and maturity on August 3, 2029
- Strike and pricing dates set for July 31, 2026; original issue date August 5, 2026; observation date July 31, 2029
- Upside payment of $295 per security (29.50% of principal) if both indices close above initial levels; downside threshold at 80% of initial levels with losses of 1% for every 1% decline beyond threshold
Structure and Payoff Details
These securities represent a sophisticated structured product by Morgan Stanley Finance LLC, offering exposure to the performance of two equity indices simultaneously. The dual-directional structure bases final returns on the worst-performing index between the Russell 2000 and the S&P 500 over a three-year term. Each security has a stated principal of $1,000, matching the original issue price, though the estimated value at pricing is approximately $962.80, reflecting issuance and hedging costs.
At maturity, if both indices finish above their initial levels, investors receive the principal plus the higher of either the percentage return of the worst-performing index or a fixed $295 upside payment (29.50% of principal). This payoff design provides defined participation in positive market conditions while offering a guaranteed upside payment that may exceed index-based returns in some scenarios, appealing to investors accepting principal risk.
Downside Protection and Loss Scenarios
The securities include a tiered downside protection mechanism. If either index closes below its initial level but remains at or above 80% of that level, investors receive the principal plus a positive return based on the absolute decline of the worst-performing index, capped effectively at 20%. This feature offers meaningful protection against moderate market declines.
If either index falls below 80% of its initial level, investors lose $1 for every $1 decline in the worst-performing index, potentially resulting in a total loss of principal. This unlimited downside exposure constitutes the principal-at-risk element investors must accept, as no protection exists below the 80% threshold for either index.
Indices and Diversification Insights
Linked to the Russell 2000 (small-cap stocks) and the S&P 500 (large-cap stocks), these securities do not provide diversification benefits. Instead, returns are driven solely by the worst-performing index, meaning strong performance in one index cannot offset poor performance in the other. The initial levels are established on July 31, 2026, with final levels determined on July 31, 2029, subject to market disruptions.
This structure exposes investors to volatility across both indices over three years, with returns constrained by the weaker index’s performance.
Credit Risk and Guarantee
The securities are unsecured obligations of Morgan Stanley Finance LLC, fully and unconditionally guaranteed by Morgan Stanley. This guarantee serves as credit support, but investors remain exposed to Morgan Stanley’s credit risk. The securities are not secured by any underlying assets and are not insured by the FDIC or any government agency. In default scenarios, investors would be unsecured creditors with no priority claims.
Pricing and Estimated Value
Priced at $1,000 each, the securities include issuance, structuring, and hedging costs, resulting in an estimated value of approximately $962.80 at pricing, within a $45 range. Morgan Stanley employs proprietary models incorporating volatility, interest rates, and credit spreads to value the securities, which combine debt and equity derivative components. The estimated value does not reflect secondary market fluctuations post-issuance.
Investor Suitability
Designed for investors willing to risk principal and forego current income, these securities offer an upside payment and limited downside protection. They are unsuitable for risk-averse individuals or those seeking income, as no interest is paid and principal return is not guaranteed. Investors must accept the possibility of losing their entire investment based on index performance and the initial value discount of approximately $37.20 per security at issuance.
These securities suit sophisticated investors with specific market views and the ability to hold to maturity without liquidity needs before August 3, 2029.
Registration and Distribution
Issued under Morgan Stanley Finance LLC’s Series A Global Medium-Term Notes program, the securities are registered under Registration Statement Nos. 333-293641 and 333-293641-01. The preliminary pricing supplement dated June 23, 2026, was filed under Rule 424(b)(2) of the Securities Act of 1933. Morgan Stanley & Co. LLC acts as agent, distributing through selected dealers who receive fixed commissions per security sold.
The securities will not be exchange-listed and will trade over-the-counter if sold before maturity. The CUSIP is 61781GY21 and ISIN US61781GY214. Lack of exchange listing may limit liquidity and widen bid-ask spreads.
Important Dates and Terms
Strike and pricing dates are July 31, 2026; original issue date August 5, 2026; observation date July 31, 2029 (subject to postponement); maturity date August 3, 2029. Initial and final index levels are based on closing prices on strike and observation dates, respectively. The 80% downside threshold marks the boundary between limited protection and full principal loss.
Offering Size and Fees
The preliminary pricing supplement does not disclose the aggregate principal amount or dealer fees, which will be finalized at pricing. Dealer compensation is fixed per security sold and scales with offering size. The estimated value reflects commissions, structuring, hedging, and bid-ask spread costs borne by investors.
Risks and Considerations
These principal-at-risk securities carry risks beyond standard debt instruments, including potential total loss if either index declines more than 20%. Investors bear Morgan Stanley’s credit risk, with no government insurance or guarantees. The initial value discount requires favorable index performance to realize gains. The three-year term exposes investors to market volatility, and the worst-performer structure limits offsetting gains from the better-performing index.
Prospective investors should thoroughly review the full product supplement, index supplement, and prospectus, as the preliminary pricing supplement summarizes key terms only.
