XLK Memory Autocallable

Key product details

• Instrument: 3 Year USD Autocallable Conditional Coupon Barrier Reverse Convertible Note
• ISIN: XS3427973006
• Issuer: Morgan Stanley Europe SE (S&P: A+, Moody's: Aa3, Fitch: AA). The notes themselves are not rated.
• Underlying: Technology Select Sector SPDR Fund (XLK UP Equity)
• Currency: USD
• Denomination: USD 1,000 per note
• Issue price: 100%
• Trade and strike date: 30 July 2026
• Issue date: 6 August 2026
• Determination date: 30 July 2029
• Maturity: 6 August 2029
• Initial reference price: the official closing price of XLK on the strike date
• Coupon: 16.728% p.a., observed monthly at 1.394%, with memory
• Coupon barrier: 100% of the initial reference price
• Autocall level: 100% of the initial reference price, observed monthly from the 6th observation (29 January 2027)
• Capital barrier: 65% of the initial reference price, European: observed on the determination date only
• Settlement: Cash

How it works

• Coupon, every month: if XLK closes at or above its initial level, the investor receives 1.394% for that month plus every coupon missed before it. If XLK closes below, no coupon is paid on that date; it is kept in memory and paid at the next observation that meets the condition.
• Early redemption, every month from the 6th: if XLK closes at or above its initial level, the note terminates and the investor receives 100% of capital, together with the coupon for that month and any coupons in memory.
• At maturity, XLK at or above 65% of its initial level: the investor receives 100% of capital.
• At maturity, XLK below 65% of its initial level: the investor receives par multiplied by the final reference price divided by the initial reference price, so the loss matches the full fall in XLK.

The coupon barrier and the autocall level are the same. From the sixth observation onwards, the first month in which a coupon is paid is therefore also the month in which the note redeems. If XLK finishes between 65% and 100% of its initial level without ever having met the condition, capital is returned in full but no coupons are paid.

Principal is not protected. The potential loss is 100% of the capital invested should the underlying lose all of its value, and all payments are subject to the credit risk of the issuer.

Worked examples

• XLK down 30% on the determination date: inside the 35% barrier, so 100% of capital is returned.
• XLK down 40% on the determination date: the barrier is breached, so 60% of capital is returned.
• XLK below its initial level for 12 observations, then at or above it on the 13th: 18.122% is paid (13 x 1.394%) and the note redeems at 100%.

Why XLK

• Scale: over $120 billion in assets under management, one of the largest sector funds in the world.
• Long-run return: 12.2% annualised over the 25 years to July 2026, against 12.65% for the Nasdaq and 9.49% for the S&P 500.
• Cost: an expense ratio of 0.08%.
• Liquidity: heavy trading volume and tight bid-ask spreads.
• Recovery: over the last 15 years its deepest drawdown was 34%. It rebounded within a year of the low and set a new all-time high within 21 months.

Historical analysis

Alpha Quantum tested the structure against roughly 6,300 daily start dates over the 25 years to July 2026, asking what would have happened to a note struck on each day and held for three years.

• Capital loss: no instances. The worst three-year outcome for XLK was a fall of 30.58%, for a start date in August 2001, which is inside the 35% barrier.
• All coupons missed: 244 start dates, or 3.87% of the total: 73 in 2001, 48 in 2002, 121 in 2007 and 2 in 2008.
• Start dates from 2011 onwards: every one returned 100% of capital with coupons paid.
• Since 2008: no start date has ended with the coupons missed.

These results are simulations based on historical data, not the actual performance of this product. Past performance is not indicative of future results.

Observation schedule

• Observation 1, 31 August 2026: paid 8 September 2026. Coupon 1.394% at a 100% barrier; no autocall.
• Observation 2, 30 September 2026: paid 7 October 2026. Coupon 1.394% at a 100% barrier; no autocall.
• Observation 3, 30 October 2026: paid 6 November 2026. Coupon 1.394% at a 100% barrier; no autocall.
• Observation 4, 30 November 2026: paid 7 December 2026. Coupon 1.394% at a 100% barrier; no autocall.
• Observation 5, 30 December 2026: paid 7 January 2027. Coupon 1.394% at a 100% barrier; no autocall.
• Observation 6, 29 January 2027: paid 5 February 2027. Coupon 1.394% at a 100% barrier; autocall at 100%.
• Observation 7, 26 February 2027: paid 5 March 2027. Coupon 1.394% at a 100% barrier; autocall at 100%.
• Observation 8, 30 March 2027: paid 6 April 2027. Coupon 1.394% at a 100% barrier; autocall at 100%.
• Observation 9, 30 April 2027: paid 7 May 2027. Coupon 1.394% at a 100% barrier; autocall at 100%.
• Observation 10, 28 May 2027: paid 7 June 2027. Coupon 1.394% at a 100% barrier; autocall at 100%.
• Observation 11, 30 June 2027: paid 8 July 2027. Coupon 1.394% at a 100% barrier; autocall at 100%.
• Observation 12, 30 July 2027: paid 6 August 2027. Coupon 1.394% at a 100% barrier; autocall at 100%.
• Observation 13, 30 August 2027: paid 7 September 2027. Coupon 1.394% at a 100% barrier; autocall at 100%.
• Observation 14, 30 September 2027: paid 7 October 2027. Coupon 1.394% at a 100% barrier; autocall at 100%.
• Observation 15, 29 October 2027: paid 5 November 2027. Coupon 1.394% at a 100% barrier; autocall at 100%.
• Observation 16, 30 November 2027: paid 7 December 2027. Coupon 1.394% at a 100% barrier; autocall at 100%.
• Observation 17, 30 December 2027: paid 6 January 2028. Coupon 1.394% at a 100% barrier; autocall at 100%.
• Observation 18, 31 January 2028: paid 7 February 2028. Coupon 1.394% at a 100% barrier; autocall at 100%.
• Observation 19, 29 February 2028: paid 7 March 2028. Coupon 1.394% at a 100% barrier; autocall at 100%.
• Observation 20, 30 March 2028: paid 6 April 2028. Coupon 1.394% at a 100% barrier; autocall at 100%.
• Observation 21, 28 April 2028: paid 5 May 2028. Coupon 1.394% at a 100% barrier; autocall at 100%.
• Observation 22, 30 May 2028: paid 6 June 2028. Coupon 1.394% at a 100% barrier; autocall at 100%.
• Observation 23, 30 June 2028: paid 10 July 2028. Coupon 1.394% at a 100% barrier; autocall at 100%.
• Observation 24, 31 July 2028: paid 7 August 2028. Coupon 1.394% at a 100% barrier; autocall at 100%.
• Observation 25, 30 August 2028: paid 7 September 2028. Coupon 1.394% at a 100% barrier; autocall at 100%.
• Observation 26, 29 September 2028: paid 6 October 2028. Coupon 1.394% at a 100% barrier; autocall at 100%.
• Observation 27, 30 October 2028: paid 6 November 2028. Coupon 1.394% at a 100% barrier; autocall at 100%.
• Observation 28, 30 November 2028: paid 7 December 2028. Coupon 1.394% at a 100% barrier; autocall at 100%.
• Observation 29, 29 December 2028: paid 8 January 2029. Coupon 1.394% at a 100% barrier; autocall at 100%.
• Observation 30, 30 January 2029: paid 6 February 2029. Coupon 1.394% at a 100% barrier; autocall at 100%.
• Observation 31, 28 February 2029: paid 7 March 2029. Coupon 1.394% at a 100% barrier; autocall at 100%.
• Observation 32, 29 March 2029: paid 5 April 2029. Coupon 1.394% at a 100% barrier; autocall at 100%.
• Observation 33, 30 April 2029: paid 7 May 2029. Coupon 1.394% at a 100% barrier; autocall at 100%.
• Observation 34, 30 May 2029: paid 6 June 2029. Coupon 1.394% at a 100% barrier; autocall at 100%.
• Observation 35, 29 June 2029: paid 9 July 2029. Coupon 1.394% at a 100% barrier; autocall at 100%.
• Observation 36, 30 July 2029 (determination date): paid 6 August 2029 (maturity). Coupon and autocall at 100%; capital barrier at 65%.

If the note redeems early, the coupon due on that date is calculated in the usual way and paid on the early redemption payment date.

About the issuer

Morgan Stanley Europe SE is based in Frankfurt am Main and is authorised by the European Central Bank, under the direct supervision of the ECB, BaFin and the Deutsche Bundesbank. Issuer credit ratings shown on the term sheet: S&P A+, Moody's Aa3, Fitch AA. The notes are senior, unsecured obligations of the issuer and are listed on the Global Exchange Market in Ireland.

Under normal market conditions Morgan Stanley & Co. International plc will use reasonable efforts to quote bid and offer prices for the notes, but is not legally obliged to do so. A sale before maturity may be at a price below the amount invested.