Morgan Stanley Launches Auto-Callable Securities Linked to IBM Stock Offering 13.85% Contingent Coupon Rate

Auto-Callable Notes Structure and Coupon Payment Details

Issued by Morgan Stanley Finance LLC, these unsecured securities have a stated principal of $1,000 each and an original issue date of August 5, 2026. Unlike traditional fixed-income instruments, coupon payments depend on IBM's closing stock price meeting or exceeding a coupon barrier on observation dates. The contingent coupon rate is 13.85% annually, payable only if IBM's stock closes at or above the coupon barrier on each relevant observation date.

If IBM's stock falls below the coupon barrier on any observation date, no coupon is paid for that period, introducing reinvestment and income uncertainty over the 13-month term. The coupon barrier is set at 57% of IBM's initial stock price as of the strike date, July 31, 2026. This structure requires investors to tolerate substantial declines before losing coupon eligibility, differing significantly from conventional debt where coupons are contractually guaranteed regardless of market conditions.

Automatic Early Redemption Terms and Trigger Dates

The securities include an automatic early redemption feature triggered if IBM's stock price equals or exceeds 100% of the initial level on any redemption determination date. These dates are January 29, 2027; February 26, 2027; March 31, 2027; April 30, 2027; May 28, 2027; June 30, 2027; and July 30, 2027. Upon meeting the redemption condition, investors receive principal plus the contingent coupon for that period, and the securities terminate immediately with no further payments.

Early redemption dates occur shortly after each determination date, with the first on February 3, 2027, contingent on the January 29, 2027 determination. This caps upside participation, meaning investors do not benefit from IBM stock appreciation beyond the initial level. The structure represents a trade-off: investors accept principal risk and contingent income in exchange for a potential early exit if IBM's stock remains at or above its initial price.

Downside Threshold and Principal Repayment at Maturity

The downside threshold is established at 57% of IBM's initial stock price, critical for determining final payment at maturity on September 3, 2027. If IBM's closing price on the final observation date, August 31, 2027, is at or above this threshold, investors receive full principal plus any contingent coupon due. This allows for up to a 43% decline in IBM stock price without principal loss.

If the final stock price falls below 57% of the initial level, investors face principal loss. The maturity payment equals the stated principal multiplied by the performance factor (final level divided by initial level), potentially resulting in a payment significantly less than principal or zero. A decline of 57% or more could cause investors to lose most or all of their $1,000 investment, exposing them to substantial downside risk over the 13-month term.

Estimated Value and Pricing Information

Morgan Stanley estimated the value per security on July 31, 2026, at approximately $970.10, with a possible variance of $35.00. The public offering price is $1,000 per security. The filing does not specify agent commissions, fees, or total proceeds, leaving these fields blank. The roughly $30 discount per security reflects embedded risks, including contingent coupons and principal loss potential.

These securities are issued under Morgan Stanley Finance LLC's Series A Global Medium-Term Notes program (registration numbers 333-293641 and 333-293641-01). Morgan Stanley & Co. LLC, an affiliate and wholly owned subsidiary of Morgan Stanley, acts as distribution agent. The aggregate principal amount offered is undisclosed. The CUSIP is 61781GR45 and ISIN US61781GR457. The securities will not be listed on any exchange.

Credit Risk and Guarantee Details

The securities are unsecured obligations of Morgan Stanley Finance LLC, fully and unconditionally guaranteed by Morgan Stanley as the parent company. This guarantee means investor claims are backed by Morgan Stanley's full faith and credit if MSFL defaults. However, all payments depend on Morgan Stanley's creditworthiness; default could result in partial or total loss of investment. There is no security interest in IBM stock or collateral, so investors have no claim to underlying assets if Morgan Stanley fails to meet obligations.

These securities are not bank deposits or savings accounts, are not FDIC insured, nor guaranteed by any government agency or bank. This distinction is important for investors used to federally insured bank products, as these notes carry no federal insurance protection. Investors must assess both Morgan Stanley's credit risk and IBM stock performance when evaluating overall risk.

Investor Risk Profile and Suitability

Morgan Stanley targets investors seeking above-market interest rates in exchange for significant principal risk and the possibility of receiving no coupons during the 13-month term. The 13.85% contingent coupon rate exceeds typical yields on unsecured corporate debt from investment-grade issuers, reflecting higher risk. Investors do not participate in IBM stock appreciation beyond the call threshold, creating an asymmetrical risk-reward profile with limited upside and substantial downside.

The filing stresses that investors must be willing to risk losing their entire initial investment, highlighting the principal-at-risk nature of the product. This contrasts with traditional fixed-income securities where principal repayment is guaranteed. The product is suited for sophisticated investors with high risk tolerance and yield objectives who understand structured products and can model IBM stock scenarios. Retail investors unfamiliar with contingent income and principal-at-risk structures should carefully consider alignment with their investment goals before investing.

IBM Stock as Underlying Reference Asset

The securities’ performance depends entirely on IBM stock price measured on specified observation dates through August 31, 2027. IBM’s technology and cloud infrastructure businesses influence its market valuation and shareholder returns. The supplement does not provide IBM-specific financial data or outlook, focusing solely on the structured product mechanics.

Investors should independently analyze IBM’s fundamentals, earnings, competitive position, and technology sector dynamics before investing. Stock price volatility directly impacts coupon payments, early redemption, and principal recovery. Technology sector challenges or corporate changes could pressure IBM’s stock below the 57% downside threshold, risking principal loss.

Observation Dates and Coupon Payment Schedule

The pricing supplement specifies observation and coupon payment dates when IBM’s stock price is assessed for coupon eligibility and maturity payments. Observation dates may be postponed due to non-trading days or market disruptions at Morgan Stanley’s discretion. Coupon payments correspond to observation dates, with the final coupon payable on maturity, September 3, 2027, if conditions are met.

If a coupon payment date falls on a non-business day, payment is made on the next business day without coupon adjustment. Investors must monitor IBM stock prices on each observation date relative to the coupon barrier, as missing coupon payments reduces overall yield. The supplement does not provide a full observation schedule, directing investors to additional documentation for complete details.

Regulatory Status and Disclosure Requirements

The Securities and Exchange Commission and state regulators have neither approved nor disapproved these securities or verified the completeness of the pricing supplement, product supplement, tax supplement, or prospectus. Morgan Stanley filed the preliminary pricing supplement under SEC Rule 424(b)(2), relying on existing shelf registration statements. Final terms and pricing remain subject to SEC review and approval before offering.

Investors should review the product supplement, tax supplement, and prospectus dated April 8, 2026, referenced but not included in this filing. These documents provide comprehensive risk factors, terms, tax guidance, and distribution plans. Reading all materials together is essential for understanding the full legal and financial framework before investing.