Morgan Stanley Market-Linked Notes due February 4, 2031

Linked to the S&P 500^® Futures Excess Return Index — Simulation Analysis

Monte-Carlo simulation report | 10,000 simulated paths | 60-month term

Headline Simulation Results

6.40%

Expected annualized return (mean per-simulation CAGR)

0.00%

Probability of negative return — the note is hard principal-protected

0.00%

99% confidence VaR (1 year)

57.42%

Probability of beating the risk-free rate (3.76%)

41.19%

Expected total return over the fixed 5-year holding period

The product behaves like a zero-coupon bond with a built-in call option: capital is returned in full at maturity, and any equity appreciation is captured at a leveraged participation rate with no cap.

Product at a Glance

Feature	Detail
Type	Market-Linked Note, principal-protected
Term	5 years (fixed)
Underlying	S&P 500^® Futures Excess Return Index (single index)
Coupon	None
Upside participation	125% (base case; range 125%–135%)
Cap	None (uncapped upside)
Downside	Principal fully protected at maturity

How it works (in plain terms)

You invest $1,000 for five years and collect no interest along the way.
At maturity, look at the index. If the index is higher, you receive your $1,000 plus 125% of the index gain (e.g., a +10% index move pays $1,125).
If the index is flat or lower, you simply receive your $1,000 back.
Because the participation rate exceeds 100% and there is no cap, strong equity markets are amplified — while the investor does not participate in any index decline.

Key Statistics (Annualized over the 5-year term)

Metric	Structured Product	Underlying (index)	Underlying total return*	Risk-free rate
Expected annualized return	6.40%	3.86%	7.63%	3.76%
Expected annualized volatility	6.20%	7.35%	7.35%	0.00%
Probability of loss	0.00%	28.18%	14.79%	0.00%
99% confidence VaR (1 year)	0.00%	-15.43%	-11.66%	+3.76%

*Underlying total return = the excess-return index plus the cash (risk-free) return — the equivalent of a fully-collateralised "total return" equity position.

Conventions

All return statistics are computed on each path's annualized 5-year return, so "annualized volatility" is the dispersion of that annualized figure (which is smaller than a single year's volatility), and the "99% VaR" is the 1st percentile of the annualized return distribution. On the note, a 0.00% return and "loss" are the same event as the underlying ending below its initial level, because the note floors at par — this is why the index's 28.18% loss probability equals the note's 28.18% chance of returning only principal.

Reading the numbers

The structured note sits between the raw index and the total-return equity benchmark. It beats the raw index (6.40% vs 3.86%) because principal protection removes the downside and it captures more than 100% of the gains. It gives up some return relative to a fully-invested total-return position (7.63%) — the price of the downside protection and the absence of income. Its volatility (6.20%) is the lowest of any equity-linked alternative, and VaR is zero.

Simulation Charts

Outcome Map — Product vs Underlying (5-year, fixed hold)

Every point is one of 10,000 simulated scenarios. Points hugging the 1:1 line in the positive region show the participation uplift; the flat band at 0% on the product axis is the principal-protection floor absorbing all index declines.

Distribution of Annualized Returns

Structured product — a large spike at 0.00% (all scenarios where the index ends flat or down → par returned) and a right-skewed tail of positive outcomes.

Underlying total return — a roughly symmetric distribution with a meaningful left tail into losses.

Scenario Probabilities

Worst case (par returned, 0.00% return): 28.18%
Best case (>10% p.a.): 28.33%
Outperform risk-free (3.76%): 57.42%

Risk vs Return

The note offers a higher expected return than the underlying index at lower volatility, and clearly out-returns cash — the classic "protected equity upside" profile.

Annualized Return Distribution — Box Plot

The product's distribution is truncated at 0% (no losses) and skewed upward, versus the symmetric, wider spread of the underlying total return.

Participation-Rate Sensitivity

Participation rate	Expected annualized return	Expected 5-year total return	P(beat risk-free)	P(>10% p.a.)
125% (base)	6.40%	41.19%	57.42%	28.33%
130%	6.60%	42.84%	57.99%	29.60%
135%	6.80%	44.48%	58.62%	30.80%

The economics improve modestly as the participation rate rises across the 125%–135% range.

Investment Commentary

Strengths

Hard principal protection. Across all 10,000 simulations the note never returns less than par; there is no adverse path that produces a capital loss (99% VaR = 0.00%). This is a genuinely defensive equity exposure.
Leveraged, uncapped upside. A participation rate above 100% with no cap means bull-market participation is magnified rather than clipped.
High hit rate versus cash. The note beats the risk-free rate in ~57% of scenarios, and roughly 28% of paths deliver a strong result (>10% p.a.).
Favourable asymmetry. Because the investor does not participate in declines, the return profile is positively skewed — you keep the equity upside while truncating the downside.

Considerations (factual, not advice)

Opportunity cost / no income. With no coupons, if the index is flat or down the note returns exactly par, i.e. a 0.00% nominal return over five years — less than a cash deposit over the same period.
~28% "dead" outcomes. Roughly one in four scenarios returns only the principal, producing zero nominal return despite locking up capital for five years.
Issuer credit risk. All payments depend on Morgan Stanley / MSFL; the protection is only as good as the issuer.
Embedded cost. The estimated value at pricing (~$969.90 vs $1,000 issue price) reflects an upfront structuring cost borne by the investor.

All figures are model outputs from 10,000 Monte-Carlo simulations (GJR-GARCH(1,1), Student-t innovations) over the 60-month term, using a single USD risk-free reference rate. Past or simulated performance is not a guide to future results.