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For Exclusive Use at the Ideas 2013 Conference – February 26th, 2013

Cyril Moullé-Berteaux, Head of Global Asset Allocation

Investing in a Time of (Financial) Repression

2For Exclusive Use at the Ideas 2013 Conference – February 26th, 2013

Overview

Positioning for the long-term

The growing Yield Bubble

Europe outperformance may just be starting

Global impact of China’s growth de-rating

Forecasts / estimates are subject to change and may not necessarily come to pass.


Winners of One Decade Rarely Winners of the Next

1970’s Winners: Gold and Energy Stocks

2000’s Winners: Commodities, Metals and Mining1990’s Winner: Technology Stocks

1980’s Winner: Japanese Equities

Source:MSIM Global Asset Allocation Team analysis. Data as of December 31, 2012. For illustrative purposes only. Past performance is not indicative of future results. It is not possible to invest directly in an index

0100

200300400500600700

Jan-72Jan-73

Jan-74Jan-75

Jan-76Jan-77

Jan-78Jan-79

Jan-80Jan-81

Jan-82Jan-83

Jan-84

U.S. Energy Stocks Index Gold

0500

1,0001,5002,0002,5003,0003,500

Jan-7

9Ja

n-80

Jan-8

1Ja

n-82

Jan-8

3Ja

n-84

Jan-8

5Ja

n-86

Jan-8

7Ja

n-88

Jan-8

9Ja

n-90

Jan-9

1Ja

n-92

Jan-9

3Ja

n-94

Jan-9

5

Japanese Equities: Topix Index

0

1,000

2,000

3,000

4,000

5,000

6,000

Jan-90Jan-91

Jan-92Jan-93

Jan-94Jan-95

Jan-96Jan-97

Jan-98Jan-99

Jan-00Jan-01

Jan-02Jan-03

NASDAQ

0

100

200

300

400

500

600

700Ja

n-98

Jan-9

9Ja

n-00

Jan-0

1Ja

n-02

Jan-0

3Ja

n-04

Jan-0

5Ja

n-06

Jan-0

7Ja

n-08

Jan-0

9Ja

n-10

Jan-1

1Ja

n-12

GSCI Global Metals and Mining


All About Fundamentals: The Price You Pay Drives Returns

Subsequent 10-Year Returns Based on Starting P/E Quintiles (1900 – 2012)

Source:MSIM Global Asset Allocation Team analysis. Data as of December 31, 2012. For illustrative purposes only. Past performance is not indicative of future resultsNote: Historical average ten-year real return: 8.5% per annum.Quintile is ten year fwd average returns to each 20% of data sorted by starting P/E.

1.2

4.2

8.7

10.0

11.2

0.0

2.0

4.0

6.0

8.0

10.0

12.0

5x – 10x 10x – 12x 12x – 15x 15x – 18x 18x – 42x

Annualized Subsequent 10-Year Real Returns (%)

Normalized P/E Quintile “The Price Paid”

We Are Here


All About Fundamentals: The (Bond) Yield at Which You Buy Drives Returns

Subsequent Bond Real Returns Based on Starting Real Bond Yields (1871 – 2007)

Source:MSIM Global Asset Allocation Team analysis. For illustrative purposes only. Past performance is not indicative of future resultsNote: Long-term average real return: 2.5%. Real Yield average ten year fwd returns to each 20% of data sorted by beginning real bond yield.

(1) Current 10-year Real Yield: 0.14% as of December 31, 2012.

6.0

4.5

0.90.80.3

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

-18.1 to 0.4 0.4 to 2.2 2.2 to 3.4 3.4 to 4.9 4.9 to 20.2

Annualized Subsequent 5-Year Real Returns (%)

Real Yield Quintiles “The Price Paid”

We Are

Here (1)

Range


U.S. Equity Returns: Where Did They and Where Will They Come From?

Source:Morgan Stanley Investment Management. Please refer to Disclosures page for Long-Term Expected Returns Methodology and Calculation . Data as of December 31, 2012. For illustrative purposes only. Past performance is not indicative of future results. Forecasts / estimates are subject to change and may not necessarily come to pass. Also define real vs. nominal returns.

0.11.8

6.8

2.2

4.4

2.1

2.2

3.2

(4.3)(2.4)

2.4 1.7

(6.0)

(4.0)

(2.0)

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Past 100 Years Past 10 Years Next 5 Years (Base Case)

(%)

Inflation Multiple Expansion Real Earnings Growth Dividend Yield

+9.8 % Nominal (+6.6% Real) +6.8%

Nominal (+4.4% Real)

+3.6% Nominal (+1.9% Real)


Long-Term Expected Returns

Source:Morgan Stanley Investment Management Global Asset Allocation Team analysis. Data as of December 31, 2012. Please refer to Disclosures page for Long-Term Expected Returns Methodology and Calculation. For informational purposes only. Forecasts / estimates are subject to change and may not necessarily come to pass

(1) Excludes Manager Alpha.(2) Hedged back to U.S. Dollar.(3) U.S.REITs.

Five-Year Expected Nominal Returns (1)

(%)

Japanese Gov’t Bonds (2)

U.S. TIPS Eurozone Gov’t Bonds (2)

EM Debt U.S. Equities EM Equities Real Estate (3) Hedge Funds

(2)

(2)

1.2

3.6

7.7 8.0

(0.5)

2.5 2.6

3.63.2

2.52.12.0

1.20.90.70.7

(2.0)

0.0

2.0

4.0

6.0

8.0

10.0

U.S. Cash U.S. Treasuries U.S. AACorporates

U.S. High Yield Japan Equities EuropeanEquities

Commodities Private Equity


Stocks Below Fair Value Based on Tactical Metrics and…

Source:MSIM Global Asset Allocation Team analysis, Global Insight. Data through December 31, 2012. For illustrative purposes only. Past performance is not indicative of future results

(1) As of December 31, 2012.

S&P 500 12-Month Forward P/E Ratio

S&P 500 12-Month Forward P/E Ratio

Average 14.8

12.8x (1)

1986 1988 1990 1992 1994 1996 1998 2002 2004 2006 2008 2010 20122000 2014

24

22

20

18

16

14

12

10


…Stocks Cheap Relative to Bonds: 1935 – 2013, But…

Source:Datastream, MSIM Global Asset Allocation Team analysis. For illustrative purposes only. Past performance is not indicative of future results. Stocks = S&P Total Return Index; Bonds = U.S. 10-year Treasuries. Normalized EPS = 8-year moving average of S&P 500 EPS / nominal GDP x 3-year average nominal GDP. Yield Gap: the ratio of the dividend yield of an equity and the yield of a long-term government bond. Typically equities have a higher yield (as a percentage of the market price of the equity, thus reflecting the higher risk of holding an equity. Stock / Bond Returns = S&P 500 vs. 10-Year Treasury returns

(1) Data as of January 28, 2013.

Stock-Bond Yield Gap

3.6 (1)

Yield Gap (Using Normalized Earnings Yield)Stock / Bond Return

Earnings Yield Less Bond Yield

Period Average

Index Level


...Mostly Because of Bond Overvaluation As…

Source:Datastream, MSIM Global Asset Allocation Team analysis. Long-term bond yield = 30-year/Long Term Bond Yield. Data as of January 28, 2013. For illustrative purposes only. Past performance is not indicative of future results

U.S. Long-Term Bond Yield

2.7%200 Year Low

U.S. Long-Term Bond Yield


…Stocks Are Still Not Cheap on Absolute Basis

Source:Datastream, MSIM Global Asset Allocation Team analysis. Data as of January 28, 2013. For illustrative purposes only. Past performance is not indicative of future resultsNote: Normalized EPS based on operating EPS, normalized margins and GDP. Earning Per Share (EPS): the portion of a company’s profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company’s profitability. Gross Domestic Product (GDP): the monetary value of all the finished goods and services produced within a country’s borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory. Normalized Earnings: Earnings adjusted for cyclical ups and downs in the economy.

U.S. Price to Normalized Earnings

16.1xMedian: 13.5

1970 1985 1995 2005U.S. Price to Normalized Earnings

35

30

25

20

15

10

51930 1935 1940 1945 1950 1955 1960 1965 1975 1980 1990 2000 2010 2015 2020


Why EMU Has High Expected Returns

EMU Return on Equity

EMU Total Return Index in EurosEMU Normalized Price to Earnings

EMU Nominal Earnings per Share

Source:Datastream, MSIM Global Asset Allocation Team analysis. Data as of January 28, 2013. For illustrative purposes only. Past performance is not indicative of future results

(1) Fair value estimated to be at a 17.5% discount to U.S. long-term average of 14.25x. Forecasts / estimates are subject to change and may not necessarily come to pass.

(2) Forecast growth of the dashed lines.

Long-term Avg: 11.010.5% (2)

Normalized Normalized

+1.8% (2)

40

30

20

10Fair Value (1)

+7.5% (2)

1980 2000 20201990 2010


Private Equity’s Best Days Appear Behind It

Private Equity Acquisition Multiples vs. S&P 500 Private Equity Vintage Year Returns (1985 – 2010)

Source:Datastream, Standard & Poor’s Leveraged Commodity & Data, MSIM Global Asset Allocation Team analysis. Data as of January 28, 2013. For illustrative purposes only. Past performance is not indicative of future resultsEBITDA is Earnings Before Interest, Taxes, Depreciation & Amortization.EV/EBITDA: a financial ratio that measures a company's return on investment. The EV/EBITDA ratio may be preferred over other measures of return because it is normalized for differences between companies. Using EBITDA normalizes for differences in capital structure, taxation and fixed asset accounting. Meanwhile, using enterprise value also normalizes for differences in a company’s capital structure.Vintage Year = The year in which the first influx of investment capital is delivered to a project or company. This marks when capital is contributed by venture capital, private equity fund or a partnership drawing down from its investors.Private Equity Acquisition Multiples = Purchase Price Multiples used to compare purchase prices in mergers and acquisitions.

EV / EBITDA Annualized Return

Acquisition Multiple – EV/EBITDAS&P 500 EV/EBITDA


Hedge Funds Losing Their Edge?

Source:Datastream, MSIM Global Asset Allocation Team analysis. Data as of January 31, 2013. For illustrative purposes only. The S&P 500 is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe. Past performance is not indicative of future resultsNote: Hedge Fund Return Index (HFRI) excess return (1990-2012: 2.3% – correlation/Beta to SPX 0.44/0.24). Compound Annual Growth Rate (CAGR): the year-over-year growth rate of an investment over a specified period of time. The compound annual growth rate is calculated by taking the nth root of the total percentage growth rate, where n is the number of years in the period being considered.The HFRI Fund Weighted Composite Index is a global, equal-weighted index of over 2,000 single-manager funds that report to HFR Database.

Hedge Fund Returns vs. S&P 500 Total ReturnsIndex Level Index Level

HFRI Index / S&P 500HFRI Index (11.0% CAGR, 7.0% vol)S&P 500 Total Return Index (8.9% CAGR, 12.8% vol)


Long-Term Real Price Appreciation of Commodities = 0%!

Source:Global Insight, The Economist, MSIM Global Asset Allocation Team analysis. Data as of January 23, 2013. The Economist All-Commodity Index tracks a basket of commodities to measure performance. For illustrative purposes only. It is not possible to invest directly in an index. Past performance is not indicative of future results

Real Prices: Economist All-Commodity Index

Trend ± 1 SD

Trend ± 1 SD

Trend


Big Shifts in Pension Funds’ Allocations

Source:Pensions & Investments (P&I), Goldman Sachs, MSIM Global Asset Allocation Team analysis. Data as of December 31, 2011. For illustrative purposes only and should not be deemed a recommendation to buy or sell any security. Data shown is most recent available

(1) Other includes: hedge funds, private equity, managed futures, real assets, etc.

U.S. Corporate Pension Asset Allocation

5963 64 63 62

56

4548 47

40

3127 28 28 28

32

41

35 3538

6 6 5 6 68 9

14 1517

4 4 3 3 4 4 53 3

50

10

20

30

40

50

60

70

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

(%)

Equity Debt Other (1) Real Estate


Most Portfolios Appear to Be Below the Efficient Frontier

Source:Bloomberg, MSIM Global Asset Allocation Team analysis. Please refer to Disclosures page for Long-Term Expected Returns Methodology and Calculation. Data as of December 31, 2012. For illustrative purposes only. Past performance is not indicative of future resultsEfficient Frontier a set of optimal portfolios that offers the highest expected return for a defined level of risk or the lowest risk for a given level of expected return. Portfolios that lie below the efficient frontier are sub-optimal, because they do not provide enough return for the level of risk. Portfolios that cluster to the right of the efficient frontier are also sub-optimal, because they have a higher level of risk for the defined rate of return.

Efficient Frontier AnalysisExpected Return (%)

Efficient Frontier Typical Portfolio

3.0

4.0

5.0

6.0

7.0

4.0 5.0 6.0 7.0 8.0 9.0 10.0 11.0 12.0

Expected Standard Deviation (%)


Optimal Allocation Can Improve Returns But Not to Hurdle Rate

Source:MSIM Global Asset Allocation Team analysis. Hedged for EMU/Japan, USD for others. Includes alpha. Covariance matrix based on December 1998 to 2012 correlation matrix. Please refer to Disclosures page for Long-Term Expected Returns Methodology and Calculation. Data as of December 31, 2012. For illustrative purposes only. Past performance is not indicative of future results. Note there is no guarantee that the optimal allocation will achieve the returns indicated Hurdle Rate is the minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, the riskier the project, the higher the hurdle rate. Standard Deviation: a statistical measurement that illustrates historical volatility. For example, a volatile stock will have a high standard deviation while the deviation of a stable blue chip stock will be lower. A large dispersion tells us how much the return on the fund is deviating from the expected normal returns.Expected Return: The amount one would anticipate receiving on an investment that has various known or expected rates of return. Information Ratio – IR: A ratio of portfolio returns above the returns of a benchmark (usually an index) to the volatility of those returns. The information ratio (IR) measures a portfolio manager's ability to generate excess returns relative to a benchmark, but also attempts to identify the consistency of the investor.

0%2%Commodities2%5%Real Estate

12%21%Alternatives

3%8%Private Equity

2%3%Emerging Market Debt

Asset Class Typical Pension Plan Optimal AllocationEquities 40% 48%

U.S. Large-Cap Equity 20% 10%European Union Equity 10% 25%Japan Equity 5% 2%Emerging Market Equity 5% 12%

Fixed Income 38% 40%U.S. Government Bonds 20% 17%U.S. TIPS 0% 0%U.S. Corporate Bonds 11% 2%U.S. High Yield 4% 2%EMU Government Bonds 0% 10%Japan Government Bonds 0% 0%

Hedge Funds 6% 12%Cash 1% 1%Expected Return 3.7% 5.0%Expected Standard Deviation 8.4% 9.0%Expected Information Ratio 0.44 0.55


Key Implications for Strategic Policy

Expect lower benefits to diversification (though still essential in low-return world)

Expect low real returns (below long-term averages)

In a world of financial repression, may need to increase exposure to riskier asset classes to attempt to generate sufficient returns: Increase Equity (EMU and EM +; U.S. and Japan – ) Lower Fixed Income (EMD +; HY, U.S. and Japan government – ) Lower Alternatives (HF +; P.E., R.E. and Commodities – )

Consider hedging currency for allocations to non-U.S. developed market asset classes

Focus active management in inefficient asset classes – portable alpha

Consider increasing focus on tactical asset allocation opportunities (Beware of the siren song of risk parity

Risks: debt-deflation, stagflation

Forecasts / estimates are subject to change and may not necessarily come to pass. The views herein are those of the investment management team as of the date of this presentation and are subject to change at any time due to changes in the market, economic, or other conditions. EMU – European Monetary Union; EM = Emerging Markets; EMD – Emerging Markets Debt; HY – High Yield; HF = Hedge Fund; PE = Private Equity; RE = Real Estate


Deleveraging After the Debt Supercycle Just Starting

Source:Datastream, MSIM Global Asset Allocation Team analysis. Data as of October 31, 2012. For illustrative purposes only

Total Non-Financial U.S. Debt Outstanding(%GDP)

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

20

40

60

80

100

140

160

180

200

220

240264%

90%

83%77%

120

Federal + S&L Gov Sector

HouseholdBusiness Sector

Total ex-Financial


Low Growth and Excess Money Creating a Yield Bubble

U.S. Bond Yield

U.S. NAREIT Dividend Yield Minus MSCI USA Dividend YieldMSCI World High Dividend vs. Standard Index

Speculative Grade Bond Yields (1980 – 2012)

Source:Datastream, MSIM Global Asset Allocation Team analysis. Data as of January 10, 2013. For illustrative purposes only. Past performance is not indicative of future results. U.S Bond Yield represents Long-term bond yields (maturity 10 – 30 year). Standard Index represents S&P 500 Index. It is not possible to invest directly in an index. Price to Earnings (P/E): a valuation ratio of a company’s current share price compared to its per-share earnings. Price to Book Value (P/BV): a ratio used to compare a stock’s market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter’s book value per share. Price to Cash Earnings is is a measure of financial performance that looks at the cash flow generated by a company on a per share basis. NAREITis the National Association of Real Estate Investment Trusts. Standard Index is the Valuation Composite (PE,PCE,PBV Avg. Relative Discount)Speculative Grade Bond Yields = Merrill Lynch High Yield Cash U.S. Bond Yield = Long -term Growth Bond Yield

2.7%

1800 1838 1857 19521819 1895 1914 1933 19711876 1990 2013

14

6

4

10

12

2

8

0

Valuation Composite (PE,PCE,PBV Avg Relative Discount)

(20)

(35)

(40)

(45)

(70)

(25)

(15)

1996 2000 2002 20101998 2004 2006 2008 2012

Discount

2

4

6

8

10

12

14

1975 1995 19901980 1995 2000 2005 2010

1985 1995 20001990 2005 2010

20

18

16

14

12

10

8


End of China Investment Boom Will Lower GDP Growth

China GDP from 1980 vs. Japan GDP from 1955 China’s Investment Boom Unprecedented

Source:MSIM Global Asset Allocation Team analysis. For illustrative purposes only. Past performance is not indicative of future results. Forecasts/estimates are subject to change and may not necessarily come to pass. Provided for illustrative purposes only and should not be deemed a recommendation to buy or sell any securities

(Japan GDP Led by 37 Years, i.e., 1975=2012) Gross Fixed Capital Formation % of GDP

China GDP Japan GDP (Led 37 years)

Data as of September 30, 2012.

1980 1990 2000 2010 2020 2030 2040

(5)

0

5

10

15China 9.6%

Japan 1990 – 08: 1%

Japan 1955 – 73: 9.3%

Japan 1973 – 90: 4.5%

China 3.5%?

China 5.0%?

1960 1970 1980 1990 2000 201015

20

25

30

35

40

45

50

Taiwan: 1975 – 31% China: 2009 – 46%Korea: 1991 – 37% Japan: 1974 – 37%

Data as of November 26, 20012.


EU Periphery Improving Under the Surface

EU Periphery Current Account Balances Two-Year Peripheral Government Bonds

Source:MSIM Global Asset Allocation Team analysis, MSCI. Data as of January 31, 2013 (top charts), February 19 (bottom chart) For illustrative purposes only. Periphery = Italy, Spain, Ireland, Portugal and Greece

IrelandGreeceSpain

SpainItaly

Periphery

EU Purchasing Manager Indices


Watch Out for the Potential Fiscal Hit

Source:Congressional Budget Office (CBO) with Morgan Stanley estimates for 2012, and MSIM Global Asset Allocation Team estimates for 2013. Data as of December 12, 2012. For illustrative purposes only. Forecasts/estimates are subject to change and may not necessarily come to pass

Change in U.S. Structural BudgetPercentage Points of Potential GDP

(4.5)

(4.0)

(3.5)(3.0)

(2.5)(2.0)(1.5)

(1.0)(0.5)

0.0

0.51.0

1.52.0

2.5

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12

Fiscal Restraint (+)

Fiscal Stimulus (-)

Fiscal Years

For Exclusive Use at the Ideas 2013 Conference – February 26th, 2013

Appendix


Expected Returns Including Alpha

Source:MSIM Global Asset Allocation Team analysis. Hedged for EMU/Japan, USD for others. Includes alpha. Please refer to Disclosures page for Long-Term Expected Returns Methodology and Calculation. Data as of December 31, 2012. For illustrative purposes only. Forecasts / estimates are subject to change and may not necessarily come to pass. Alpha: a measure of performance on a risk-adjusted basis. Alpha takes the volatility (price risk) of a mutual fund and compares its risk-adjusted performance to a benchmark index. The excess return of the fund relative to the return of the benchmark index is a fund's alpha.Standard Deviation: a statistical measurement that illustrates historical volatility. For example, a volatile stock will have a high standard deviation while the deviation of a stable blue chip stock will be lower. A large dispersion tells us how much the return on the fund is deviating from the expected normal returns5-Year Expected Total Return = 5-Year Expected Return + Alpha.

13.90.00.5(0.5)Commodities19.63.30.82.5Real Estate16.63.61.02.6Private Equity 9.14.40.83.6Hedge Funds

Alternatives

Asset Class5-Year Expected Return

(%)Alpha

(%)

5-Year Expected Total Return

(%)

Expected Standard Deviation

(%)EquitiesU.S. Large Cap Equity 3.6 0.5 4.1 14.0European Union Equity 7.7 0.8 8.5 16.3Japan Equity 1.2 0.8 2.0 18.3Emerging Market Equity 8.0 0.8 8.8 24.2Fixed IncomeU.S. Government Bonds 0.9 0.3 1.2 7.8U.S. TIPS 1.2 0.3 1.5 6.2U.S. Corporate Bonds 2.0 0.3 2.3 5.7U.S. High Yield 2.5 0.5 3.0 10.0EMU Government Bonds 2.1 0.5 2.6 2.8Japan Government Bonds 0.7 0.5 1.2 4.3Emerging Market Debt 3.2 0.5 3.7 9.7

Cash 0.7 0.0 0.7 0.6


A More Aggressive Allocation Could Yield 5.6% Nominal Returns

Source:MSIM Global Asset Allocation Team analysis. Hedged for EMU/Japan, USD for others. Include alpha. Please refer to Disclosures page for Long-Term Expected Returns Methodology and Calculation. Data as of December 31, 2012. For illustrative purposes only. Past performance is not indicative of future results. Forecasts and estimates are subject to change and may not necessarily come to pass

0%2%Commodities2%5%Real Estate

19%21%Alternatives

5%8%Private Equity

5%3%Emerging Market Debt

Asset Class Typical Pension Plan Optimal AllocationEquities 40% 70%

U.S. Large-Cap Equity 20% 31%European Union Equity 10% 25%Japan Equity 5% 2%Emerging Market Equity 5% 13%

Fixed Income 38% 10%U.S. Government Bonds 20% 0%U.S. TIPS 0% 0%U.S. Corporate Bonds 11% 2%U.S. High Yield 4% 3%EMU Government Bonds 0% 0%Japan Government Bonds 0% 0%

Hedge Funds 6% 12%Cash 1% 1%Expected Return 3.7% 5.6%Expected Standard Deviation 8.4% 12.7%Expected Information Ratio 0.44 0.44


Important Disclosures

For Business and Professional Investors Only and Not To Be Used With The General Public

This presentation (the “Presentation”) was issued and approved in the UK by Morgan Stanley Investment Management Limited, 25 Cabot Square, Canary Wharf, London E14 4QA, authorized and regulated by the Financial Services Authority, for distribution to Professional Clients or Eligible Counterparties only and must not be relied upon or acted upon by Retail Clients (each as defined in the UK Financial Services Authority’s rules).

The information in this presentation is provided solely for informational and educational purposes and for the exclusive use at The Ideas Conference 26th February 2013 and does not constitute an offer or a recommendation to buy or sell any particular security or to adopt any specific investment strategy. The material contained herein has not been based on a consideration of any individual client circumstances and is not investment advice, nor should it be construed in any way as tax, accounting, legal or regulatory advice. To that end, investors should seek independent legal and financial advice, including advice as to tax consequences, before making any investment decision.

Any views expressed are those of the presenter as of the date of the presentation and are subject to change at any time due to changes in market or economic conditions. The views expressed does not reflect the opinions of all portfolio managers at MSIM or the views of the firm as a whole, and may not be reflected in the strategies and products that the Firm offers.

The information in this presentation (the “Presentation”) is not a product of Morgan Stanley’s Research Department and should not be regarded as a research recommendation. The information contained herein has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

Information regarding expected market returns and market outlook is based on the research, analysis, and opinions of the presenter. They are based on current market conditions and subject to change. In addition, these conclusions are speculative in nature, may not come to pass, and are not intended to predict the future of any specific Morgan Stanley investment. No representation or warranty can be given with respect to the accuracy or completeness of the information.

This communication is only intended for and will be only distributed to persons resident in jurisdictions where such distribution or availability would not be contrary to local laws or regulations.

Any index referred to herein is the intellectual property (including registered trademarks) of the applicable licensor. Any product based on an index is in no way sponsored, endorsed, sold orpromoted by the applicable licensor and it shall not have any liability with respect thereto.

Charts and graphs provided herein are for illustrative purposes only. Forecasts/estimates are based on current market conditions subject to change, and may not necessarily come to pass. Past performance is not indicative of future results.

All information contained herein is proprietary and is protected under copyright law.

Risk Warnings

Past performance is not a guarantee of future performance. The value of the investments and the income from them can go down as well as up and an investor may not get back the amount invested.There can be no assurance that the Fund will achieve its investment objectives.

Long Term Expected Returns: MSIM investment teams have built proprietary models to construct projections of the returns on key indexes within the Equity, Fixed Income and Alternatives asset classes.

The Equity and Fixed Income 5‐year projections (which combine to form the basis of the 5‐year Alternatives projections) are based on longer‐term projections for nominal GDP growth (decomposed into real potential growth and an inflation assumption). Based on those projections, the Equity returns infer earnings‐per‐share growth and a terminal valuation. The Fixed Income component infers a terminal real yield (and credit spread when appropriate).

In the Alternatives asset class, Hedge Fund returns are projected from a multifactor model based on the Equity & Fixed Income projections along with the alpha generated from the hedge‐fund industry. The alpha projection is derived using shrinkage techniques which combine historical estimates of alpha with prior estimates. Private Equity and Private Real Estate are estimated by combining Equity returns with an illiquidity premium. The liquidity premium is generated via a risk‐adjusted analysis of the historical spread to liquid investments.

Index returns do not include any expenses, fees or sales charges, which would lower performance. Indexes are unmanaged and should not be considered an investment. It is not possible to invest directly in an index.

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