Morgan Stanley : Finance II Limited – Annual Report - 31 December 2025

Published: 2026-04-23 05:47:09 ET MS

Published on 04/23/2026 at 05:47 am EDT

Registered office:

47 Esplanade St. Helier JE1 0BD

Jersey

Directors' report 1

Directors' responsibility statement 9

Independent auditor's report 10

Statement of comprehensive income 13

Statement of changes in equity 14

Statement of financial position 15

Statement of cash flows 16

Notes to the financial statements 17

‌The Directors present their report and financial statements (which comprise the statement of comprehensive income, the statement of changes in equity, the statement of financial position, the statement of cash flows, and the related notes, 1 to 22) for Morgan Stanley Finance II Ltd (the "Company") for the year ended 31 December 2025.

The profit for the year, after tax, was $755,000 (2024: $682,000). During the year, no dividends were paid or proposed (2024: $nil).

The principal activity of the Company is the issuance of financial instruments and the hedging of the obligations arising pursuant to such issuances.

The Company's ultimate parent undertaking and controlling entity is Morgan Stanley, which, together with the Company and Morgan Stanley's other subsidiary undertakings, form the "Morgan Stanley Group".

There have not been any significant changes in the Company's principal activity in the year under review and no significant change in the Company's principal activity is expected.

Exposure to risk factors and the current business environment in which it operates may impact business results of the Company's operations.

Risk taking is an inherent part of the Company's business activities. The Company seeks to identify, assess, monitor and manage each of the various types of risk involved in its business activities, in accordance with defined policies and procedures.

The Morgan Stanley Group Risk Appetite Statement articulates the aggregate level and type of risk that the Group is willing to accept in order to execute its business strategy and protect its capital and liquidity resources.

The Morgan Stanley Group has an established Risk Management Framework, to support the identification, monitoring and management of risk.

A description of the material risks and how these risks are managed is outlined in the 'Risk Management' section.

The economic environment demonstrated resilience in 2025 as client and investor confidence and market sentiment improved and markets rebounded from early-year uncertainty. The year was characterised by increased momentum in capital markets activity and lower interest rates. The rate of economic growth, elevated geopolitical uncertainty, as well as the timing and direction of any further central bank actions have impacted and could continue to impact capital markets. There has been limited impact on the results and financial condition of the Company to the extent the business environment continues to remain uncertain, it could adversely impact client confidence and related activity.

The issued structured notes expose the Company to the risk of changes in market prices of the underlying securities, interest rate risk and, where denominated in currencies other than US dollar, the risk of changes in exchange rates between the US dollar and the other relevant currencies. The Company enters into derivative transactions with Morgan Stanley to hedge the market price, interest rate and foreign currency risks associated with the issuance of the structured notes.

The statement of comprehensive income is set out on page 13. The profit after tax for the year is $755,000 which primarily represents interest income from intercompany funding balances (2024: $682,000). The increase from 2024 is driven by increase in the average funding amounts due from Morgan Stanley. The net trading income and the net expense on other financial instruments held at fair value through profit and loss for the year is $nil (2024: $nil), which is consistent with the Company's principal activity.

The statement of financial position is set out on page 15. Total assets as at 31 December 2025 were

$976,730,000 (2024: $648,637,000). The increase in total assets is due to increase in proceeds of structured notes lent to Morgan Stanley, classified as loans and advances. Total liabilities as at 31 December 2025 were

$964,025,000 (2024: $636,687,000). The increase in total liabilities is due to increase in the net issuance of structured notes, classified as debts and other borrowings offset by decrease in fair value of related hedging instruments classified as trading financial liabilities.

The performance of the Company is included in the results of the Morgan Stanley Group. The Company's Directors believe that providing further performance indicators for the Company itself would not enhance an understanding of the development, performance or position of the business of the Company.

The risk management section below sets out the Company's and the Morgan Stanley Group's policies for the management of liquidity and cash flow risk and other significant business risks.

Risk is an inherent part of the Company's business activity and effective risk management is vital to the success of the Company. The Company is managed as part of the policies and procedures of the Morgan Stanley Group's risk management policy framework. The risk management policy framework includes escalation to the appropriate senior management personnel when necessary.

Set out below is an overview of the Morgan Stanley Group's policies for the management of financial risk and other significant business risks. More detailed qualitative and quantitative disclosures about the Company's management of and exposure to financial risks are included in note 17 to the financial statements.

Market risk

Market risk refers to the risk that a change in the level of one or more market prices, rates, spreads, indices, implied volatilities, correlations or other market factors, such as market liquidity, will result in losses for a position or portfolio.

The Company's market risk associated with its trading activities at a legal entity, trading division and at an individual product level is managed as part of the Morgan Stanley Group's market risk management policy framework.

The Morgan Stanley Group's market risk management policy framework ensures transparency of material market risks, monitors compliance with established limits, and escalates risk concentrations to appropriate senior management when necessary.

It is the policy and objective of the Company not to be exposed to net market risk.

Credit risk

Credit risk refers to the risk of loss arising when a borrower, counterparty or issuer does not meet its financial obligations to the Company. Credit risk includes country risk, which is further described below.

The Morgan Stanley Group's credit risk management policies and procedures, of which the Company is a part, includes escalation to the appropriate senior management personnel when necessary.

Credit risk exposure is managed on a global basis and in consideration of each significant legal entity within the Morgan Stanley Group. The credit risk management policies and procedures establish the framework for identifying, measuring, monitoring and controlling credit risk whilst ensuring transparency of material credit risks and compliance with established limits and escalating risk concentrations to appropriate senior management.

Additional information on the primary credit exposures, credit risk management and mitigation, exposure to credit risk, including the maximum exposure to credit risk by credit rating is presented in note 17.

Country risk exposure

Country risk is the risk that events in, or affecting, a foreign country might adversely affect the Company. "Foreign country" means any country other than Jersey. Sovereign Risk, by contrast, is the risk that a government will be unwilling or unable to meet its debt obligations or will renege on the debt that it guarantees. Sovereign risk is single-name risk for a sovereign government, its agencies and guaranteed entities.

The Company enters into the majority of its financial asset transactions with the parent entity, Morgan Stanley, in the United States of America ("USA"). As a result of the implicit support that would be provided by Morgan Stanley, the Company's country risk is considered a component of the Morgan Stanley Group's credit risk.

Country risk exposure is measured in accordance with the Morgan Stanley Group's internal risk management standards and includes obligations from sovereign governments, corporations, clearing houses and financial institutions. The Morgan Stanley Group actively manages country risk exposure through a comprehensive risk management framework that combines credit and other market fundamentals and allows the Morgan Stanley Group to effectively identify, monitor and limit country risk.

The Morgan Stanley Group's obligor credit evaluation process defines country of risk as the country that has the largest economic impact on the obligor and may be different from the obligor's country of jurisdiction. Examples where this applies may include corporations that are incorporated in one country but that derive the bulk of their revenue from another and mutual funds incorporated in one jurisdiction but with a concentration of investments in a different country.

Stress testing is one of the Morgan Stanley Group's principal risk management tools, used to identify and assess the impact of severe stresses on its portfolios. A number of different scenarios are used to measure the impact on credit risks and market risks stemming from negative economic and political scenarios, including possible contagion effects where appropriate. The results of the stress tests may result in the amendment of limits or exposure mitigation.

Disclaimer

Morgan Stanley published this content on April 23, 2026, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on April 23, 2026 at 09:46 UTC.