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Quantitative Evaluation Report · 10,000 Monte-Carlo Paths · USD Denominated

MSAMP5 Step-Up Jump Notes with Auto-Callable Feature — Evaluation

Issuer: Morgan Stanley Finance LLC (guaranteed by Morgan Stanley) CUSIP: 61781L5L0
Term: up to 7 years (pricing 27-Oct-2026, maturity 1-Nov-2033) Currency: USD Stated principal: $1,000 per note

14.77%

Expected Annualized Return

Structured product simulation

0.00%

Probability of Negative Annualized Return

Principal protected at maturity

0.00%

99% Confidence VaR (1 Year)

No loss at the 99th percentile

+20.43%

Expected Total Return

Over the realized holding period

~1.5 yrs

Expected Holding Period

≈ 18 months

97.3%

Paths Auto-Called

78.1% after year 1 · 11.4% after year 2

1. Headline Simulation Results

Metric	Structured Product	Underlying Benchmark (Total Return)
Expected annualized return	14.77%	12.39%
Probability of negative annualized return	0.00%	1.05%
99% confidence VaR (1 year)	0.00%	-0.13%
Expected annualized volatility	2.52%	6.94%

Expected total return over the realized holding period: +20.43%, over an expected holding period of ~1.5 years (≈18 months).
The note is auto-called in 97.3% of simulated paths (78.1% after year 1, 11.4% after year 2, and a long tail thereafter). Only ~2.7% of paths run the full 7 years to maturity.
Because the note returns at least par at maturity and every call level is positive, the simulated nominal loss probability is 0% — the "worst case" is simply getting the $1,000 principal back (a 0% total return, occurring in ~1.9% of paths).

The note is modelled at its $1,000 stated principal with no fees or costs. The term sheet's own estimated value of $874.80 per note implies an embedded issuance cost of ≈12.5%; real-money returns to an investor subscribing at $1,000 would therefore be lower than the figures above.

2. Basic Product Information & Mechanics (Plain Language)

What it is. A principal-protected, auto-callable "step-up" note linked to a single proprietary index (the Morgan Stanley Amplitude Index). It pays no periodic interest; all return comes from a single redemption payment.

How it works, step by step:

You invest $1,000 per note.
Annual auto-call check. On each anniversary (years 1–6) the note checks whether the index level is at or above a slowly rising trigger (100.75% of the start after year 1, 101.50% after year 2, … 104.50% after year 6). If it is, the note is automatically redeemed early and pays a fixed step-up amount equal to 15.5% per year held — i.e., $1,155 after 1 year, $1,310 after 2 years, … up to $1,930 after 6 years.
If it is never called, at maturity (7 years) you receive $1,000 × (1 + index return) — full 1-for-1 (uncapped) upside — but if the index is down, you still get your $1,000 principal back (the downside is floored at par).
There is no barrier / knock-in and no coupon.

In short: you give up interest income and the more generous compounding of a direct investment, and in exchange you receive a fixed 15.5% annualized "step-up" if the index merely ticks up, plus par protection if it doesn't.

3. Simulation Outcome — Scatter of Product vs Underlying

Each dot is one of 10,000 simulated paths. The x-axis is the underlying's price-index return and the y-axis the note's return at the month the note exited; colour shows how many years the note was held. The clustering of dots on the flat line at ~15.5% shows the large majority of paths being called at year 1.

Scatter of product return vs underlying return

4. Return Distributions

Structured product annualized return. The distribution is concentrated just below +15.5% (the fixed per-annum step-up earned by the vast majority of paths called in years 1–2), with a small left tail of paths that ran to maturity and returned par (0%).

Histogram of structured product annualized returns

Underlying benchmark annualized total return. A wide bell-shaped distribution (roughly -15% to +45%), reflecting genuine equity-like market risk that the note largely neutralizes.

Histogram of underlying annualized total returns

5. Scenario Probabilities

Worst case (total return ≤ 0%): 1.91% — these are paths that were never called and finished at or below the starting level, so the investor simply receives par back.
Best case (annualized return > 10%): 97.30% — reached whenever the note is called at the 15.5% step-up.
Outperform the risk-free rate (3.79%): 97.31%.

6. Risk vs Return

Plotted on the same scale, the note sits far to the upper-left of the underlying: a higher expected return with markedly lower volatility, thanks to its par floor and the fixed step-up call. The risk-free rate anchors the bottom-left.

The box plot below contrasts the tight, almost fixed return of the note (spanning 0%–15.5%) with the much wider dispersion of the underlying benchmark.

7. Holding-Period Profile

Because the note auto-calls as soon as the index is marginally above its start, it is short-dated in most cases: ~78% of paths end after just one year, and the number of paths surviving each year falls quickly.

A practical consequence: because the typical holding period is only ~1.5 years, annualized figures are computed from short compounding windows. The expected total return (+20.43%) and the expected holding period (~1.5 years) should be read together; the headline 14.77% annualized rate is best interpreted as the fixed step-up earned per year of holding, not as a long-horizon compound growth rate.

8. Investment Commentary

Strengths

Principal protection at maturity. The worst simulated outcome is receiving par; the note returned par or better in every one of the 10,000 paths.
High, fixed step-up. A 15.5%-per-annum step-up is attractive relative to the underlying benchmark's ~12.4% expected annualized total return.
Low trigger hurdle. The index needs to be only 0.75% above its starting level in year 1, rising to 4.50% by year 6 to trigger the step-up, so the payout is realized in the large majority of scenarios.

Considerations

Return is capped by the call. Once called, the note pays the fixed step-up and stops — any further index upside is forgone (the "+60% → $1,600" upside only matters in the small minority of paths that run to maturity).
Short expected life / reinvestment. With an expected life of ~1.5 years, the investor faces reinvestment risk: the appealing 15.5% step-up applies only while the note is outstanding.
Embedded cost. The issuer's estimated value of $874.80 versus the $1,000 issue price represents a ~12.5% upfront gap. This simulation deliberately excludes costs, so the modelled returns overstate what an investor paying full price would realize.
New, proprietary index. The underlier was established on 5-Jan-2026 and has essentially no track record; it embeds its own costs and uses momentum/volatility-targeting rules that may not reproduce historical behaviour.

This evaluation is a quantitative simulation and does not constitute financial advice or a suitability assessment.

9. Benchmark & Methodology Note

The Underlier is a proprietary, multi-asset, momentum- and volatility-targeted index that is not publicly quoted and has negligible history. To produce the analysis it is therefore approximated by a broad, balanced multi-asset (≈60/40) index, dividend yield ≈2.5%. The risk-free rate is the 1-year average 1-year U.S. Treasury bill yield (3.79%). Paths are simulated monthly out to 84 months with a drift of risk-free + 4.0% (≈7.8% p.a.) and GARCH-based volatility, and the note's payoff is applied strictly on its annual observation dates.