GIC Changes

Global Investment CommitteeStrategic and Tactical Asset Allocation Change

global investment committee march 8, 2013

analysis authors

Moving Toward a Barbell Approach • Dueprimarilytoourassumptionforsome

interestratenormalizationoverthenextsevenyears,weareincreasingourStrategicallocationtoequitiesattheexpenseoffixedincome,whilekeepingcashandalternativeallocationsroughlythesame.

•Werecommendamodifiedbarbellapproachthatfavorsshorter-durationfixedincome(onetofiveyears),cashandequitieswhilede-emphasizingintermediate-andlong-termfixedincomesecurities.

•Withinequities,werecommendashiftto-wardinternationalequitiesincludingJapan,Europeandemergingmarkets.TheUShasledtheglobalrecovery,butnowotherequitymarketsappeartooffersimilarormoreupsidewhileprovidinggreaterdiversification.

•Withinalternatives,werecommendamovefromhedgedstrategiestocommodities.

•Tactically,werecommendonlyapartialshifttowardourhigherequityweightingsasweseektobeopportunisticwiththereallocation.

•Wehavechangedourstrategichorizontosevenyearsfrom20yearsbecausewebe-lieveitismorepracticalformostinvestors.Inaddition,wenowhaverecommendationsforonlytwowealthlevels,with$25millionbeingthebreakpoint.

Follow us on Twitter @MSWM_GIC

michael wilson Chief Investment Officer Morgan Stanley Wealth Management

david m. darst, cfa Chief Investment Strategist Morgan Stanley Wealth Management

martin l. leibowitz Global Research Strategy Morgan Stanley & Co.

adam s. parker Chief US Equity Strategist Morgan Stanley & Co.

andrew slimmon Head of Applied Equity Investors Morgan Stanley Wealth Management

Morgan Stanley Wealth Management Global InvestmentCommittee as of March 8, 2013

Strategic Changes for Broad Asset Categories

Category Decrease No Change Increase

Cash •

Global Equities •Global Fixed Income •

Global Alternatives •

2MorGAn StAnlEy | march 8, 2013Please refer to important information, disclosures and qualifications at the end of this material.

Asmanyofyouknow,werecentlyformedanewGlobalInvestmentCommittee(GIC).Ourprimaryfunctionremainstoproviderecommendationsforassetallocationonbothastrategicandtac-ticalbasis.However,wehaverevisedsomeoftheparametersunderwhichweoperate.First,wehaveshiftedourstrategictimehorizonfrom20yearstosevenyearsbecausewebelievethatitisamorepracticallong-terminvestmenthorizonformostinvestors.What’smore,mostmarketstendtomeanrevertoversevenratherthan20years.Second,wenowonlyproviderecommendationsfortwowealthlevelsinsteadofthree,with$25millionbeingthebreakpoint.

Todaywearemakingsomechangestoourrecommendationsbasedonourfundamentalanalysisandtherelativeattractivenessoftheassetcategories.Duetotoday’sunusualenvironment,a

majorfactorofassetallocationremainscentral-bankactivityanditsimpactonmarkets.Inmakingourrecommen-dations,weassumesomepolicyandinterestratenormalizationduringthestrategictimehorizon.Thisassump-tionhasameaningfulimpactonourstrategicrecommendations.

WhilemuchhashappenedsincethefinancialcrisisandtheGreatRecessionof2008-2009,suchoutcomeswerenotunprecedented.Infact,marketsmightbebehavingasexpectedgiventheeventsandreactionbypolicymakers.Equitymarketstendtoexhibitaverydistinctpatternofperformancefollowingsuchfinancialcrises,andthistimeisnodif-ferent(seePositioning,Feb.28,2013).Specifically,equitymarketsrallysharplyfromtheiroversoldconditionandthentradeinawiderangeforalongperiodoftime.Sincethiswasaglobalfinancial

crisis,virtuallyeveryfinancialmarketaroundtheworldhasbeenaffected.

However,globalmarkets’recoverieshavevariedwidelymainlybecauseofpoliciesenactedandhowcompanieshaverespondedtothem.Towit,theUSequitymarkethasledthedevelopedandmuchoftheundevelopedmarketssincethelowsofthecrisis(seeFigure1).Therearemanyreasonsforthis,butthemostimportantdriveristhattheearningsre-coveryhasbeenstrongerintheUSthaninotherregions.

USfixedincomeassetshavealsoper-formedquitewelloverthisperiod,whichissurprisinggiventherelativelystrongergrowth.Thiscanbeattributedtotwothings:theFederalReserve’smassiveinterven-tionintheUSfixedincomemarkets;andtheobservationthatearningsgrowthhasbeenmuchbetterthaneconomicgrowth,thekeydriverforinterestrates.Earnings

Source: FactSet as of Feb. 22, 2013

Asset Category Representative Index Total Return Since Cyclical Lowus dollar date local currency date

Equity

large-Cap Growth MSCI US large Cap Growth 137% 3/9/09 137% 3/9/09

large-Cap Value MSCI US large Cap Value 139 3/5/09 139 3/5/09

Mid-Cap Growth MSCI US Mid Growth 192 11/20/08 192 11/20/08

Mid-Cap Value MSCI US Mid Value 203 3/9/09 203 3/9/09

Small-Cap Growth MSCI US Small Growth 198 3/9/09 198 3/9/09

Small-Cap Value MSCI US Small Value 222 3/9/09 222 3/9/09

Europe MSCI Europe 113 3/9/09 94 3/9/09

Japan Equity MSCI Japan 59 3/10/09 51 3/12/09

Asia Pacific ex Japan Equity MSCI Pacific ex Japan 194 3/9/09 106 3/9/09

Emerging Markets Equity MSCI Emerging Markets IMI 165 10/27/08 137 10/27/08

Fixed Income

US Fixed Income BC US Aggregate Bond 35 10/31/08 35 10/31/08

International Fixed Income BC Global Aggregate ex US (hedged) 28 6/13/08 32 10/28/08

Inflation-linked Securities BC Universal Inflation-linked (unhedged) 60 11/21/08 54 11/24/08

High yield BC Global High yield (hedged) 147 11/24/08 147 11/24/08

Emerging Market Fixed Income JP Morgan Emerging Markets (unhedged) 95 10/27/08 76 10/27/08

Alternative Investments

rEIts FtSE EPrA/nArEIt Global 219 3/9/09 207 03/09/09

Commodities Dow Jones-UBS Commodity 35 3/2/09 35 03/02/09

Hedged Strategies HFrI Fund of Funds 19 1/21/09 19 01/21/09

Figure 1: Major Market Returns Since the Cyclical Lows

US equities have generally outpaced non-US equities, both in US dollars and local currencies, since the markets bottomed in late 2008 and early 2009.

strategic and tactical asset allocation change / global investment committee



growthhasoutpacedeconomicgrowthbecausecompanieshaverespondedtotheenvironmentwithfrugality—especiallywithhiring.Thisimpliesthatbondsandstocksmightbetradingabovewheretheywouldbewithoutgovernmentinterven-tion,especiallyintheUS.

Rethinking the FutureFollowingintensiveanalysisanddiscus-sion,wehaverecentlyupdatedourannualreturnforecastsforallofthemajorequityandfixedincomemarkets(seeFigure2).Theforecastsaresignificantlydifferentthanlastyear’s(seeStrategic Asset Allo-cation: Annual Update of Capital Market Assumptions,March2013)Thesereturnforecastsaffectourstrategicassetalloca-tionsattheboththebroadassetcategoryandregionallevels.Fromtheseforecasts,wesurmisedthatcashmightbeabetterplacetobethanbonds,assumingsomedegreeofinterest-ratenormalizationoverthenextsevenyears.Thatmayrep-resentanewinsightformanywhohaveassumedthat“cashistrash”inaworldoffinancialrepressionandnegativerealrates.Tobeclear,cashwilllikelyhavenegativerealreturns,too,butwithmuchlessriskthanbonds.

Anotherimportantimplicationofouranalysisisthatabnormallylowre-turnsinbondsdonotnecessarilymeanthatreturnsinequitiesarelikelytobehigherthannormal.Infact,wethinkreturnsarelikelytobelowerthannormalacrosstheentirecapitalstructureovertheseven-yearstrategichorizon.Suchisthecostofthemonetarypoliciesthathavebeenpursuedtoeasethepainofdeleveraging.Ofcourse,thissaysnoth-ingaboutthereturnsinanygivenyear,whichcouldbemeaningfullyaboveorbelowtheexpectedstrategicreturns.

The end result is that on a strategic basis, we have decided to increase our allocation to equities at the expense of fixed income, keeping cash and alter-native allocations roughly the same. Whilethisappearstoreflecta“GreatRotation”move,wewanttoemphasizethatweexpectreturnstobeloweracrossthecapitalstructureonastrategicba-sis(sevenyears)andinlinewithour

forecasts.Infact,ifratesnormalizefullyormorequicklythanweassume,manyfixedincomeinvestmentscouldproducenegativenominalreturns,somethingmanyinvestorsarenotpreparedtoaccept.

Inadditiontotheshifttowardequi-tiesfromfixedincome,wehavetwoothersignificantchangesinthestrategicallocations:Withinfixedincome,wearenowemphasizingshorter-durationsecurities(onetofiveyears)thanprevi-ously.Thisalsofitswithourforecastforratenormalizationoverthenextsevenyearsandrepresentsabarbellapproach—(morecash,short-durationfixedincomeandequities,andlesslongdurationfixedincome).Thispositioningaffordsustheopportunitytobemoretacticalwithequitiesandalternativeswhileseekingtoaddperformancetoourlowexpectedpassivereturns.Italsohelpstohedgeagainstthemovetowardhigherinterestratesthatweanticipateduringthenextsevenyears.

Wearealsoshiftingourstrategicequityallocationstowardinternationalmarkets.Muchofthismovereflectsourstrategicreturnforecasts,combinedwithassump-tionsabouttherelativeratesofchangeofgrowthandpolicybetweenregions.BecausetheUShasledtheglobalrecov-ery,returnshavebeenbetter.ThatalsoexplainswhyequityvaluationsarehigherintheUSandsomightofferlessreturnpotentialoverthestrategictimehorizon.Somewilldisagreewiththislogic,butthe

empiricaldataunderlyingourstrategicreturnforecastsarequitecompelling.What’smore,AdamParker,MorganStanley’schiefUSequitystrategist,hasdoneex-tensiveanalysisthatclearlyillustratesUScompaniesarecurrentlyoperatingnearpeakmarginsandreturnonequity.Webelievethesemarginswilleventu-allyreverttothemean,whichsuggestsUSequitiesarerelativelyexpensive.Ataminimum,moreinternationalexposureprovidesthebenefitofdiversification.

Tactically SpeakingFromatacticalstandpoint,ourmessageisdirectionallythesamebutnotasassertivelyso(seeFigure3).Risk-assetmarketshaverecentlyreactedtoconcernsaboutthe

Source: thomson reuters, oECD, Consensus Economics, Morgan Stanley Smith Barney as Dec. 31, 2012

Figure 2: Estimating Strategic Equity Returns

To determine a strategic equity return, we start with the 10-year government bond return and add in the equity risk premium and the valuation adjustment.

Strategic Cash Return

Strategic 10-yr. Govt. Bond Return

Equity Risk Premium

Valuation Adjustment

Strategic Equity Return

US 1.1% 1.1% 4.2% -1.0% 4.3%

Canada 1.6 0.9 4.2 -0.9 4.2

UK 1.7 1.4 4.2 0.2 5.8

Euro Zone 1.0 2.5 4.2 0.8 7.5

Japan 0.7 0.4 4.2 0.7 5.3

Australia 3.4 2.6 4.2 -2.4 4.4

Emerging Markets n/A 4.8 4.2 0.1 9.1

Morgan Stanley Wealth Management Global Investment Committee as of March 8, 2013

Figure 3: Tactical Positioning for Broad Asset Categories

CategoryUnder- weight

MarketWeight

Over- weight

Cash •Global Equities •

Global Fixed Income •

Global Alternatives •



FedmakinganearlyexitfromitsthirdroundofQuantitativeEasing,USandItalianpoliticalgridlockandpotentialmonetarytighteninginChina.Theseconcernscouldlingerintothespringandsummer,soweprefertobepatient.Thispartialmoveisconsistentwithourphilosophytobemoreopportunisticwithourtacticalrecommendationsasweseektoenhancereturnsinwhatisexpectedtobealow,passive-returnenvironment.

MorganStanley’sproprietary“equityriskindex,”asummationofsentiment,positioningandfundamentalmetricsfortheUSequitymarket,showswhywethinkitistooearlytobefullyinvestedonatacticalbasis.A“highrisk”signalwasrecentlytrig-geredandwhenthathappens,ittypicallymakessensetowaitforamorefavorablesignal,whichusuallycomesafteramarketpullbackorconsolidation(seeFigure4).MostofourtacticalequityunderweightisintheUS,reflectingourdesiretoshifttowardinternationalmarkets.Thereisalsoacasetobemadethatearningsgrowthorrateofchangeofgrowthismoreat-tractiveinsomeinternationalmarketsthanintheUS,furthersupportingthisdecision(seeFigure5).

Forfixedincome,thetacticalrecom-mendationsemphasizeshorter-durationinvestmentgradeevenmorethanourstrategicmodel.Specifically,wefavortheone-to-five-yeardurationarea.Wealsofavorinvestmentgradeoverhighyield.Withininvestmentgrade,wepre-fercorporateandsecuritized/agencydebttoTreasuries.Alloftheseprefer-encesareconsistentwiththeviewsofMorganStanleySmithBarneyfixedincomestrategistsKevinFlanaganandJonathanMackay.Fornow,inflation-linkedse-curitieshavebeeneliminatedfromthetacticalportfoliogiventheirrecordhighvaluations.Wethinkshorter-durationfixedincomepositioning,combinedwithequitiesandcommodities,offersamoreeffectiveandmoreattractivelypricedwaytoseekaninflationhedge.

AlternativesFromabroadperspective,wehavenotmeaningfullychangedourstrategicortacticalallocationstoalternatives.

Figure 4: US Equity Risk Indicator Climbs Into High-Risk Zone

Morgan Stanley’s proprietary equity risk indicator—a summation of sentiment, positioning and fundamental metrics—suggests the S&P 500 is high risk at the moment.

Equity Risk Indicator (left scale) S&P 500 (right scale)

Aug ’�� Feb ’�� Aug ’��Feb ’�� Feb ’��-�.�-�.�-�.�-�.�-�.��.��.��.��.��.�

��

�,��

�,��

�,��

�,��

�,��

�,��High Risk

Low Risk

Aug ’�� Feb ’��

Source: Morgan Stanley research as of Feb. 22, 2013

Specifically,wehavea20%weightinginbothframeworks,stillamuchhigh-erpercentagethanwhatmostclientscurrentlyhold.Wethinkclientsneedtocontinuetomoveassetstowardour20%alternativesallocationtargetasameansofdiversification.Inalow-returnenvironment,clientsneedtoholdmorehigher-returnriskassets.Usingalternativesshouldallowthemtodothiswhilekeep-ingtheiroverallportfoliorisktolerable.

Withinalternatives,werecommendapartialshifttocommoditiesfromhedgedstrategiesandmanagedfutures.Therationaleisthatmanycommoditypriceshavecorrectedasrealrateshavemovedhigherdespitemoreaggressivemonetary

policybeingimplementedglobally.Webelievethesepolicychoicesinjectasig-nificantamountofupsiderisktoinflationexpectations.Thisriskisexacerbatedbymostcentralbankers’statedwillingnesstoallowinflationtomovebeyondtheirlong-termtargets.

Commoditiesandpreciousmetalsinparticularreflectwaystohedgesuchrisk.Inouropinion,preciousmetalsalsorepresentanotherdefensiveportionoftheallocationthatcanbeopportunisti-callydeployedwhenappropriate.Webelievetheshiftawayfromhedgefundsandmanagedfuturesprovidesamuchmorebalancedexposuretoalternativesthanthepriorrecommendation.

*next 12 months **last 12 months Source: FactSet, IBES as of Feb. 26, 2013

Figure 5: Equity Valuations Are More Attractive Outside the US

There is a case to be made that earnings growth and valuation ratios suggest that international equities are more attractive than those in the US.

consensus eps growth ratios index 2013 2014 price/earnings* price/book price/sales**

S&P 500 7.3% 8.5% 13.0 2.2 1.3

MSCI Europe -3.4 8.9 11.7 1.6 0.9

MSCI Japan 39.1 38.2 13.7 1.2 0.6MSCI Emerging Markets 1.7 13.6 10.7 1.6 1.0


The GIC’s Asset Allocation Models shown on the following pages represent its best thinking on strategic and tactical asset allocation. In these portfolios, the strategic equity allocations are in proportion to their share of global market capitalization based on the MSCI All Country World Investable Market Index. As such, the strategic allocation to non-US stocks is more than 50% of the total equity allocation.

There are two sets of models designed to provide guidance for investors with less than $25 million (Level 1), and more than $25 million in investable assets (Level 2). Accordingly, the portfolio sets have varying levels of allocations to traditional asset classes, liquid alternative investments and illiquid investments. The GIC constructs each set of portfolios on a scale of increasing risk—that is,

expected volatility—and expected return. Each set consists of eight risk-tolerance levels. In each case, model 1 is the least risky and is composed mostly of bonds. As the model numbers increase, the models introduce higher allocations to equities and, thus, become riskier. Alternative/absolute return investments are present in all models and provide increased asset-class diversification.

The GIC has also created and maintains strategic and tactical allocations for several other model portfolios used in various advisory programs. Most of these model portfolios incorporate a home-country bias toward the US. Under this subjective constraint, the strategic equity allocations have a 70%/30% split between US and non-US markets, and the strategic fixed income allocations have an 80%/20% split.

Global Investment Committee Asset Allocation Modelsthe Global Investment Committee (GIC) is made up of senior professionals from Morgan Stanley & Co. llC research and Morgan Stanley Wealth Management. the committee provides guidance on investment allocation decisions through the creation and maintenance of various model portfolios.



Global Fixed Income Global Equities, Global Fixed Income and Alternative Investments

Global Equities and Alternative Investments

Model Portfolios Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8Strategic Tactical Strategic Tactical Strategic Tactical Strategic Tactical Strategic Tactical Strategic Tactical Strategic Tactical Strategic Tactical

Cash 30% 32% 15% 17% 10% 12% 5% 8% 3% 7% 2% 6% - 5% - 5%Global EquitiesUS large-Cap Equity - - 6 5 10 8 12 9 14 11 18 15 20 16 12 9

Growth - - 3 3 5 5 6 5 7 7 9 9 10 10 6 5Value - - 3 2 5 3 6 4 7 4 9 6 10 6 6 4

US Mid-Cap Equity 2 2 2 2 4 4 4 4 4 4 6 5 6 5Growth - - 1 1 1 1 2 2 2 2 2 2 3 3 3 3Value - - 1 1 1 1 2 2 2 2 2 2 3 2 3 2

US Small-Cap Equity 2 1 2 2 2 2 4 3 4 3 4 4 6 5Growth - - 1 1 1 1 1 1 2 2 2 2 2 2 3 3Value - - 1 0 1 1 1 1 2 1 2 1 2 2 3 2

Europe Equity - - 6 6 8 8 10 10 12 12 15 15 17 17 19 19Developed Asia Equity - - 4 4 5 5 7 7 9 9 10 10 11 11 12 12

Japan Equity - - 3 3 4 4 5 5 6 6 7 7 8 8 10 10Asia Pacific ex Japan Equity - - 1 1 1 1 2 2 3 3 3 3 3 3 2 2

Emerging Markets Equity - - 5 5 8 8 10 10 13 13 15 15 17 17 20 20

Total Equity - - 25 23 35 33 45 42 56 52 66 62 75 70 75 70total US Equity - - 10 8 14 12 18 15 22 18 26 22 30 25 24 19total International Equity - - 10 10 13 13 17 17 21 21 25 25 28 28 31 31

total Emerging Markets Equity - - 5 5 8 8 10 10 13 13 15 15 17 17 20 20

Global Fixed IncomeInvestment Grade Fixed Income 51 57 36 42 29 33 22 26 14 17 6 7 - - - -

Short term Fixed Income 23 32 16 24 13 19 10 15 6 10 2 4 - - - -

US Fixed Income 22 20 16 15 13 11 10 9 6 6 3 2 - - - -International Fixed Income 6 5 4 3 3 3 2 2 2 1 1 1 - - - -

Inflation-linked Securities 5 1 3 0 2 0 2 0 1 0 - - - - - -

High yield 9 5 7 4 5 3 4 2 3 1 1 0 - - - -Emerging Markets Fixed Income 5 5 3 3 3 3 2 2 1 1 1 1 - - - -

Total Fixed Income 70 68 49 49 39 39 30 30 19 19 8 8 - - - -Alternative InvestmentsrEIts - - 2 2 2 2 3 3 3 3 3 3 3 3 3 3Commodities Diversified - - 3 3 5 5 6 6 7 7 8 8 8 8 8 8

Ex Precious Metals - - 1 1 2 2 3 2 3 2 4 3 4 3 4 3Precious Metals - - 2 2 3 3 3 4 4 5 4 5 4 5 4 5

Hedged Strategies - - 5 5 7 7 9 9 10 10 11 11 11 11 11 11Managed Futures - - 1 1 2 2 2 2 2 2 2 2 3 3 3 3Private real Estate - - - - - - - - - - - - - - - -Private Equity - - - - - - - - - - - - - - - -Total Alternative Investments - - 11 11 16 16 20 20 22 22 24 24 25 25 25 25

Global Investment Committee Asset Allocation Models for Investors With Less Than $25 Million in Investable Assets (Level 1) Effective March 8, 2013



Global Fixed Income Global Equities, Global Fixed Income and Alternative Investments

Global Equities and Alternative Investments

Model Portfolios Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8Strategic Tactical Strategic Tactical Strategic Tactical Strategic Tactical Strategic Tactical Strategic Tactical Strategic Tactical Strategic Tactical

Cash 30% 32% 15% 17% 10% 12% 5% 8% 3% 7% 2% 6% - 5% - 5%Global EquitiesUS large-Cap Equity - - 6 4 8 7 10 8 14 11 16 14 18 15 12 9

Growth - - 3 2 4 4 5 5 7 7 8 8 9 9 6 5Value - - 3 2 4 3 5 3 7 4 8 6 9 6 6 4

US Mid-Cap Equity 2 2 2 2 4 3 4 3 4 3 6 4 6 5Growth - - 1 1 1 1 2 2 2 2 2 2 3 2 3 3Value - - 1 1 1 1 2 1 2 1 2 1 3 2 3 2

US Small-Cap Equity - - 2 1 2 2 2 2 4 3 4 4 6 5Growth - - - - 1 1 1 1 1 1 2 2 2 2 3 3Value - - - - 1 0 1 1 1 1 2 1 2 2 3 2

Europe Equity - - 5 5 7 7 9 9 11 11 13 13 16 16 18 18Developed Asia Equity - - 3 3 4 4 6 6 8 8 10 10 11 11 11 11

Japan Equity - - 2 2 3 3 4 4 6 6 7 7 8 8 9 9Asia Pacific ex Japan Equity - - 1 1 1 1 2 2 2 2 3 3 3 3 2 2

Emerging Markets Equity - - 4 4 7 7 9 9 11 11 13 13 15 15 17 17

Total Equity - - 20 18 30 28 40 37 50 46 60 56 70 65 70 65total US Equity - - 8 6 12 10 16 13 20 16 24 20 28 23 24 19total International Equity - - 8 8 11 11 15 15 19 19 23 23 27 27 29 29

total Emerging Markets Equity - - 4 4 7 7 9 9 11 11 13 13 15 15 17 17

Global Fixed IncomeInvestment Grade Fixed Income 51 57 36 42 29 33 22 26 14 17 6 7 - - - -

Short term Fixed Income 23 32 16 24 13 19 10 15 6 10 2 4 - - - -

US Fixed Income 22 20 16 15 13 11 10 9 6 6 3 2 - - - -International Fixed Income 6 5 4 3 3 3 2 2 2 1 1 1 - - - -

Inflation-linked Securities 5 1 3 0 2 0 2 0 1 0 - - - - - -

High yield 9 5 7 4 5 3 4 2 3 1 1 0 - - - -Emerging Markets Fixed Income 5 5 3 3 3 3 2 2 1 1 1 1 - - - -

Total Fixed Income 70 68 49 49 39 39 30 30 19 19 8 8 - - - -Alternative InvestmentsrEIts - - 2 2 2 2 3 3 3 3 3 3 3 3 3 3Commodities Diversified - - 3 3 5 5 6 6 7 7 8 8 8 8 8 8

Ex Precious Metals - - 1 1 2 2 3 2 3 2 4 3 4 3 4 3Precious Metals - - 2 2 3 3 3 4 4 5 4 5 4 5 4 5

Hedged Strategies - - 4 4 4 4 4 4 5 5 6 6 5 5 5 5Managed Futures - - 1 1 2 2 2 2 2 2 2 2 3 3 3 3Private real Estate - - 6 6 5 5 5 5 4 4 3 3 3 3 2 2Private Equity - - - - 3 3 5 5 7 7 8 8 8 8 9 9Total Alternative Investments - - 16 16 21 21 25 25 28 28 30 30 30 30 30 30

Global Investment Committee Asset Allocation Models for Investors With More Than $25 Million in Investable Assets (Level 2) Effective March 8, 2013




1.Thestrategicallocationreferstothelong-terminvestmentweightingsforthemajorassetclassesthatbestfitaninvestor’sspecificcircumstances,ariskprofileincludingtheirabilityandwillingnesstotoleraterisk,andreturnobjectives,andthattakeintoaccounttheassetreturns,standarddevia-tionsofreturns,andcor-relationsofreturnsundervaryingeconomicandfinancialconditions.

2.Thetacticalalloca-tionincorporatesactivedecisionstooverweightortounderweightassetclassesinthenear-termrelativetotheirstrategicallocationbasedon:(i)thecurrentandprojectedfinancialandeconomicenvironment;(ii)evalua-tionsofriskinglobalassetmarkets;and(iii)otherfundamental,valuation,andpsychological,techni-cal,liquidityfactors.

3.Theeightportfoliosdisplayedintheaccompa-nyingmatrixarearrangedfromlefttorightinageneralprogressionfromconservativethroughmoderatetoaggressiveriskprofiles.

4.Aconservativeassetallocationriskprofiletendstoencompass:(i)relativelylower,orinsomecaseszero,levelsofexposuretoequitiesandtoinvestmentsoutsidetheinvestor’shomecountryandcurrency;and(ii)

relativelyhigherlevelsofexposuretocash,fixedincome,andinvestmentsinsidetheinvestor’shomecountryandcurrency.Aconservativeassetallocationriskprofilestylemaygenerallybeexpectedtoexhibitlowerpricevolatilityasmeasuredbythestandarddeviationsofannualreturnsfromtheportfolioandgenerallyseekstogenerateasomewhatgreaterproportionofitsreturnsfromincomeascomparedwithcapitalgains.

5.Amoderateassetallocationriskprofiletendstoencompass:(i)relativelymoderatelevelsofexposuretoequitiesandtoinvestmentsout-sidetheinvestor’shomecountryandcurrency;and(ii)relativelymoder-atelevelsofexposuretocash,tofixedincomeandinvestmentsinsidetheinvestor’shomecoun-try,andtocurrency.Amoderateassetallocationriskprofilemaygenerallybeexpectedtoexhibitmoderatepricevolatilityasmeasuredbythestan-darddeviationsofannualreturnsfromtheportfolioandgenerallyseekstogenerateasomewhatbalancedproportionofitsreturnsfromincomeaswellasfromcapitalgains.

6.Anaggressiveassetallocationriskprofiletendstoencompass:(i)relativelyhigherlevelsofexposuretoequitiesandtoinvestmentsoutsidetheinvestor’shomecountryandcurrency;and(ii)relativelylower,orincomecaseszero,levelsofexposuretocash,tofixedincomeandinvestmentsinsidetheinvestor’shomecountry,andtocurrency.Anaggressiveassetallocationriskprofilemaygenerallybeexpectedtoexhibithigherpricevolatilityasmeasuredbythestandarddeviationsofannualreturnsfromtheportfolioandgenerallyseekstogenerateasomewhatlowerproportionofitsreturnsfromincomeascomparedwithcapitalgains.

7.Thecash/cashequivalentassetclassmayincludeUSdollar-basedshort-terminvestmentsaswellasnon-USdollar-basedshort-terminvestments,and/orExchange-TradedFunds(ETFs)orotherinstrumentsdedicatedtoUSand/ortonon-UScashandcashequivalents.InarisingUSdollarenvironment,thereturntoUSdollar-basedinvestorsfromunhedgednon-USdollarinvestmentswillbelowerthanUSdollarreturns.InafallingUSdollarenvironment,thereturntoUSdollar-basedinvestorsfromunhedgednon-USdollarinvestmentswillbehigherthanUSdollarreturns.

8.Fixedincomeholdingsmaybeeithertaxableortaxexempt,dependingontheinstrumentand/ortheinvestor’scurrentandfu-turetaxstatus.Asamatterofpractice,manyinvestorstendtoholdcertaintypesofinvestmentsintheirtaxableaccounts,suchas:(i)tax-exemptmunicipalbonds;and(ii)assetsthatgenerateasignificantproportionoftheirtotalreturnfromlong-termcapitalgains.Similarly,manyinvestorstendtoholdcertainothertypesofinvestmentsintheirtax-deferred,tax-exempt,orlow-taxaccounts,suchas:(i)taxablebonds;(ii)as-setsthatgenerateasignifi-cantproportionoftheirtotalreturnintheformofdividends,taxableinterestincome,accreditedincomeand/orshort-termtradingprofits.Itmaythusbehelpfulforinvestorstomentallyand/orcomputa-tionallycombinetheassetsheldintheirtaxableandtheirtax-exemptaccountstogainperspectiveontheoverallassetallocationoftheirinvestments.

9.Durationisameasureoftheaveragecash-weightedterm-to-maturityofabond.Itisafrequentlyusedmeasureofthesen-sitivityofabond’spriceandthepresentvalueofitscashflowsrelativetointerestratemovements.

Thespecificdesireddura-tionofinvestmentgrade,highyieldandemergingmarketsbondholdingswillusuallybeinfluencedbytheinvestor’sinter-estrateexpectations.Inarisinginterestrateenvironment,investorsmaychoosetogener-allyshortenthedurationoftheirfixedincomeholdings,andinafallinginterestrateenvironment,investorsmaychoosetogenerallylengthenthedurationoftheirfixedincomeholdings.

10.Dependingontheinterestrateenvironmentandotherfactors,certainfixedincomesecurities,suchaspreferredstocksandconvertiblesecuritiestradingneartheirbondequivalentvalue,maybeincludedwithinthefixedincomeassetcategory.

11.Investmentgradefixedincomeincludes:(i)USdollardenominatedornon-USdollarde-nominatedUSTreasurysecurities;(ii)USdollardenominatedornon-USdollardenominatedUSFederalAgencyandotherGovernment-relatedsecu-rities;(iii)manyUSdollardenominatedornon-USdollardenominatedsecu-ritizedand/ormortgage-backedsecuritiescarryinginvestmentgradequalityratingsfromthemajorcreditratingservices;(iv)USdollardenominatedornon-USdollardenomi-natedcorporateand/ormunicipalbondscarryinginvestmentgradequalityratingsfromthemajorcreditratingservices;and(v)certainotherUSdollardenominatedornon-USdollardenomi-natedinstruments.Fortax-relatedand/orotherreasons,someinvestorsmayimplementtheirinvestmentgradebondexposurethroughtax-exemptsecurities.Inperi-odsofdeterioratingcreditconditions,investorsmaychoosetoimprovethecreditqualityoftheirbondholdingsbyfocusingonhigher-ratedsectorsoftheglobalinvestmentgradebonduniverse,and

inperiodsofimprovingcreditmarketconditions,investorsmaychoosetolessenthecreditqualityoftheirbondholdingsbyfo-cusingonabroaderrangeofcreditratings,possiblyincludinglower-ratedissues,withintheglobalinvestmentgradebonduniverse.Non-USdollarFixedIncomeSecuritiesholdingsareconsideredtobehedgedintoUSdollars,unlessotherwisenoted.InarisingUSdollaren-vironment,thereturntoUSdollar-basedinvestorsfromunhedgednon-USdollarinvestmentswillbelowerthanUSdollarreturns.InafallingUSdollarenvironment,thereturntoUSdollar-basedinvestorsfromunhedgednon-USdollarinvest-mentswillbehigherthanUSdollarreturns.

12.TheUSTreasuryformofinflation-linkedsecuri-ties(knownasTreasuryInflation-ProtectedSecurities,orTIPS)isgenerallyexemptfromstateandlocalincometaxes.Eachsemiannualinterestpayment,includ-ing:(i)thecoupon;and(ii)theaccruedinflationadjustmentamount,issubjecttofederaltaxesonordinaryincomeeachyear.Ordinaryincometaxesaredueontheinflationad-justmentsoftheprincipalcomponentofthesecurity,eventhoughtheinflationadjustmentportionisnotrealizeduntilmaturityoruntilthesecurityissold.Thetaxationofthis“phantomincome”maycauseamisalignmentbetweentheinvestor’staxliabilitiesandactualcashcouponpaymentsreceivedfromtheinvestment.MorganStanleySmithBarneydoesnotoffertaxadviceforinvestors.Investorsshouldcon-sulttheirtaxcounselforspecificadviceregardingtaxmatters.InvestmentexposuretoUSortonon-USinflation-linkedsecuritiescanbeimple-mentedonanindividualinstrumentbasisand/orthroughExchange-TradedFunds(ETFs)specializinginsuchassets.

Endnotes



13.Certainequityindustrygroupsandtheirspecificcomponentcompaniesmayentailexposuretotheforcesandfactorsaffect-ingalternative/absolutereturninvestments,in-cluding:(i)realestateand/orenergyinfrastructureassets,suchaspipelinesandstoragefacilities;(ii)commodities(includingenergy,agriculturals,basemetals,andpreciousmet-als);and(iii)directowner-shipintimberand/oroilandgasproperties.Suchequityindustrygroupsmaybeincludedwithintheequityassetcategory.

14.Forinvestorswithinvestableassetsgreaterthan$1million,theabsoluteequityweight-ing,aswellastherelativedegreeoftacticalversusstrategicequityexposure,maybesomewhatlowerthantotalequityweight-ingsforthoseinvestorswithinvestableassetsoflessthan$1million.Thisisprimarilyduetothegreaterdegreeofacces-sibilitythatinvestorswithinvestableassetsgreaterthan$1millionmayhavetothealternative/absolutereturninvestmentsassetclasses,whichtendtobecharacterizedbyhighinvestmentminimums,possiblylowerliquidity,andspecialcapitalentryandexitprovisions.

15.Currencyexposureforthenon-USequityandnon-USalternative/abso-lutereturninvestmentsassetclassesisgener-allynothedgedintoUSdollarsunlessotherwisenoted.InarisingUSdollarenvironment,thereturntoUSdollar-basedinvestorsfromunhedgednon-USdollarinvestmentswillbelowerthanUSdollarreturns.InafallingUSdollarenvironment,thereturntoUSdollar-basedinvestorsfromunhedgednon-USdollarinvestmentswillbehigherthanUSdol-larreturns.

16.Asanalternativetoinvestinginspecificnon-UScountries,investmentstyles,marketcapitaliza-tionlevelsandcompanies,

investorswithinvestableassetsoflessthan$1mil-lionmaychoosetoimple-mentnon-USequityassetclassexposurethroughinvestmentvehicleslinkedtoanon-USbroadmarketindex.InarisingUSdollarenvironment,thereturntoUSdollar-basedinvestorsfromunhedgednon-USdollarinvestmentswillbelowerthanUSdollarreturns.InafallingUSdollarenvironment,thereturntoUSdollar-basedinvestorsfromunhedgednon-USdollarinvestmentswillbehigherthanUSdol-larreturns.

17.Forsomeinvestors,smallpercentagealloca-tionstocertainassetclass-esmayentailinefficientconsiderationsofcost,monitoringandliquidity;insuchcases,investorsmaychoosetoaggregatethesesmall-percentageallocationswithsimilarassetclasseswithinthesameassetcategory.

18.Thealternativeinvest-mentsassetcategoryisconsideredheretoincludeassetclassesthattendtorespondtoarangeofinfluencesinadditiontoand/orinsteadofthefundamentalunderlyingforcessuchasinterestrates,economiccondi-tions,andcorporateprofit-abilityaffectingequities,fixedincomesecurities,andcashassetcategories.Suchinfluencesinclude:(i)supply-demandconsid-erationsfortheunderly-ingasset(s);(ii)investorpreferencesrelatingtostore-of-valueconsider-ations;(iii)unconventionalinvestmenttechniquesinvolvingshortselling,theborrowingorlendingofsecuritiesand/orinvest-mentcapital;(iv)theuseofswaps,options,futuresandotherderivatives;and/or(v)investmentmanagerskill.Withinanassetallocationcontext,alternativeinvestmentsareintendedtoprovidesomedegreeofexposuretoreturnsandstandarddeviationsofreturnsthattendgenerallynottobehighlycorrelatedwiththeinvestmentperformance

oftheequity,fixedincomeandcashassetcategories.Duetothefactthatmanyalternativeinvestmentsmayhave,comparedtoconventionalassetclasses:(i)lessliquidity;(ii)higherinvestmentvehicleminimums;(iii)uncon-ventionalfrequencyandmethodologyofpricing;(iv)extendedinvestmenttimeframesand/orlockupperiods;(v)unusualrisk/rewardprofiles;(vi)lesspredictabletimingforcap-italinflowsandoutflows;(vii)higherfeestructures;(viii)greaterorfewerregulatory,taxreport-ing,and/orcompliancerequirements;and(ix)moreleverage,investorsshouldconsidertheassetallocationssetforthhereinlightof:(a)theirownspecificcircumstances,riskprofileincludingtheirabilityandwillingnesstotoleraterisk,andreturnobjectives;(b)theirshort-termandlong-terminvestmentoutlook;and(c)theuniverseofinvest-mentsthataresuitableforandappropriatetotheirinvestmenttemperamentandwealthlevel.

19.Owingtothecharacter-isticsofalternativeinvest-ments,manyassetclasseswithinthisassetcategorymaynotbeavailabletoinvestorsatallwealthlevels.Assetclassesthatmaygenerallybeunavail-abletocertaininvestorwealthlevelsbecauseofminimuminvestorassetrequirementsand/ormini-muminstrumentpurchaserequirementshaveblankpercentageallocationweightings.

20.Theglobalrealestateinvestmenttrust(REIT)assetclass,whichtendsto-wardinvestmentexposuretocommercialrealestateproperties(including,butnotlimitedto,officebuild-ings,apartmentbuild-ings,hotelsandshoppingcenters),mayalsoincludepubliclytradedcompaniesengagedintheowner-ship,developmentand/ormanagementofrealestate,andisconsideredheretoexcludeaninvestor’sprimaryresidence(s).

21.Realestateinvestmentexposuremaybeachievedthroughprivateequityrealestateinterests.Theprivateequityrealestateassetclassmayinvolvespecialinvestmentconsid-erations,including:(i)in-vestornetassetminimumcriteria;(ii)investmentvehicleentryandexitconditions;(iii)regulatory,taxreportingand/orcom-pliancerequirements;(iv)suitabilityguidelines;and(v)otherriskfactors.

22.Thecommoditiesassetclassisconsideredheretoincludepreciousmetals,basemetals,agriculturals,energyand/orpartnershipordirectownershipinterestsinoil-,gas-andtimber-relatedproperties.CommoditiesexposuremayalsobeimplementedthroughholdingsofEquitysecuritiesofpreciousmetals-,basemetals-,agricultural-,energy-and/oroil-,gas-andtimber-relatedcompanies.

23.Theprivateequityassetclassisconsideredheretoincludeseveralsubcategories,suchas:(i)leveragedbuyoutandmanagementbuyoutactivity;(ii)directowner-shipofequitystakesinprivatelyheldfirms;and(iii)venturecapitalinvest-ing.Fortheprivateequityassetclass,specialinvest-mentconsiderationsmayinclude:(i)investornetassetminimumcriteria;(ii)investmentvehicleentryandexitcondi-tions;(iii)regulatory,taxreportingand/orcompli-ancerequirements;(iv)suitabilityguidelines;and(v)otherriskfactorsthatmayvarybyprivateequitysubcategory.

24.Managedfuturesfundstypicallyareoperatedbycommoditytradingadvisorsutilizingcommodityandfinancial(equity,interestrate,foreignexchange)futurescontracts,forwards,andoptions.Forthemanagedfuturesassetclass,specialinvestmentconsiderationsinclude:(i)investornetassetminimumcriteria;(ii)managerfees;and(iii)

regulatory,tax,reportingand/orcompliancerequirements.Managedfuturesfundsmaynotbeappropriateforallinvestors.Inviewoftherelativelyhighstandarddeviationsofreturnsthatmaybeassociatedwithanysinglemanagedfuturesmanager,investorsmaychoosetoimplementtheirallocationtomanagedfuturesusingafundoffundsapproachand/orabroadlydiversifiedgroupofmanagedfuturesmanagersandstrategies.

25.Forthehedgedstrategiesassetclass,includingfundsofhedgefunds,specialinvestmentconsiderationsinclude:(i)investornetassetminimumcriteria;(ii)investmentvehicleentryandexitconditions;(iii)regulatory,taxreportingand/orcompliancerequirements;(iv)suitabilityguidelines;and(v)otherriskfactorsthatmayvarybyinvestorcategory.Hedgefundsmaynotbesuitableforallinvestors.Inviewofthepotentiallyhighstandarddeviationsofreturnsthatmaybeassociatedwithanysinglehedgefundmanager,investorsmaychoosetoimplementtheirallocationtohedgefundsusingafundoffundsapproachand/orabroadlydiversifiedgroupofhedgefundmanagersandstrategies.Fundsoffundsgenerallyhavehigherfeestructuresthansinglehedgefundmanagerstrategies.CertainFX/currencymanagersthatemployafundamentallydriveninvestmentprocessmaybeviewedasasubsetofthehedgefund(globalmacro)assetclass.CertainFX/currencymanagersthatemploytrend-following,quantitatively-driventechniquesmaybeviewedasasubsetofthemanagedfuturesassetclass.



Index Definitions

msci us large cap growth index Thisfree-float-adjusted,capitalization-weightedindexisasubsetoftheMSCIUSLargeCap300Index,whichrepresentstheuniverseoflarge-capitalizationcompaniesintheUSequitymarket.MSCIusesthefollowingfivevariablestodefinegrowthcharacteristics:long-termforwardearningspersharegrowthrate;short-termforwardEPSgrowthrate;currentinternalgrowthrate;long-termhistoricalEPSgrowthtrend;andlong-termhistoricalsalespersharegrowthtrend.

msci us large cap value indexThisfree-float-adjusted,capitalization-weightedindexisasubsetoftheMSCIUSLargeCap300Index,whichrepresentstheuniverseoflarge-capitalizationcompaniesintheUSequitymarket.MSCIusesthefollowingthreevariablestodefinevaluecharacteristics:book-value-to-priceratio;12-monthforwardearnings-to-priceratio;anddividendyield.

msci us mid cap growth indexThisfree-float-adjusted,capitalization-weightedindexisasubsetoftheMSCIUSMidCap450Index,whichrepresentstheuniverseofmediumcapitalizationcompaniesintheUSequitymarket.

MSCIusesthefollowingfivevariablestodefinegrowthcharacteristics:long-termforwardearningspersharegrowthrate;short-termforwardEPSgrowthrate;currentinternalgrowthrate;long-termhistoricalEPSgrowthtrend;andlong-termhistoricalsalespersharegrowthtrend.

msci us mid cap value index Thisfree-float-adjusted,capitalization-weightedindexisasubsetoftheMSCIUSMidCap450Index,whichrepresentstheuniverseofmediumcapitalizationcompaniesintheUSequitymarket.MSCIusesthefollowingthreevariablestodefinevaluecharacteristics:book-value-to-priceratio;12-monthforwardearnings-to-priceratio;anddividendyield.

msci us small growth indexThisfree-float-adjusted,capitalization-weightedindexisasubsetoftheMSCIUSSmallCap1750Index,whichrepresentstheuniverseofsmall-capitalizationcompaniesintheUSequitymarket.MSCIusesthefollowingfivevariablestodefinegrowthcharacteristics:long-termforwardearningspersharegrowthrate;short-termforwardEPSgrowthrate;currentinternalgrowthrate;long-termhistoricalEPSgrowthtrend;

long-termhistoricalsalespersharegrowthtrend.

msci us small cap value index Thisfree-float-adjusted,capitalization-weightedindexisasubsetoftheMSCIUSSmallCap1750Index,whichrepresentstheuniverseofsmall-capitalizationcompaniesintheUSequitymarket.MSCIusesthefollowingthreevariablestodefinevaluecharacteristics:book-value-to-priceratio;12-monthforwardearnings-to-priceratio;anddividendyield.

msci europe index Thisfree-float-adjusted,capitalization-weightedindexisdesignedtomeasuretheperformanceof16developedEuropeanmarkets.

msci japanThisfree-float-adjusted,capitalization-weightedindexisdesignedtomeasuretheperformanceofJapaneseequities.

msci pacific ex japanThisfree-float-adjusted,capitalization-weightedisdesignedtomeasuretheperformanceofequitiesinAustralia,HongKong,NewZealandandSingapore.

msci emerging markets indexThisindexmeasurestheperformanceofequitiesissuedbycompaniesdomiciledintheemergingmarkets.

barclays capital us aggregate bond index Thisindexprovidesabroad-basedmeasureoftheUSinvestmentgrade,fixed-ratedebtmarket.

barclays capital global aggregate ex us bond index (hedged) Thisindexprovidesacurrency-hedged,broad-basedmeasureofthenon-USglobalinvestmentgrade,fixed-ratedebtmarket.

barclays capital universal inflation-linked bond index Thisindexmeasurestheperformanceofthemajordevelopedandemergingmarketinflation-linkedbondmarkets.

barclays capital global high yield (hedged) Thisindexprovidesacurrency-hedged,broad-basedmeasureoftheglobalhighyieldfixedincomemarkets.

jp morgan emerging markets bond index Thisindextrackstotalreturnsfortradedforeign-currency-denominateddebtinstrumentsissuedintheemergingmarkets.Securitiesmusthaveaminimumfacevalueoutstandingof$500millionandmustmeetstrictcriteriaforsecondarymarketliquidity.

ftse epra/nareit global index Thisindexreflectsgeneraltrendsinrealestateequitiesworldwide.Relevantrealestateactivitiesaredefinedastheownership,disposureanddevelopmentofincome-producingrealestate.

dow jones-ubs commodity index Thisindexcomprisesfuturescontractson19physicalcommodities.Theseincludeenergy,industrialmetals,preciousmetalsandagriculturalcommodities.

hfri fund of funds index Thisisanequal-weightedindexof650hedgefundswithatleast$50millioninassetsand12-monthsofreturns.ReturnsarereportedinUSdollarsandarenetoffees.

s&p 500 index WidelyregardedasthebestsinglegaugeoftheUSequitiesmarket,thiscapitalization-weightedindexincludesarepresentativesampleof500leadingcompaniesinleadingindustriesoftheUSeconomy.

11MorGAn StAnlEy | march 8, 2013

DisclosuresThis material has been prepared for informational purposes only and is not an offer to buy or sell or a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. This is not a research report and was not prepared by the Research Departments of Morgan Stanley & Co. LLC or Citigroup Global Markets Inc. The views and opinions contained in this material are those of the author(s) and may differ materially from the views and opinions of others at Morgan Stanley Smith Barney LLC or any of its affiliate companies. Past performance is not necessarily a guide to future performance. Please refer to important information, disclosures and qualifications at the end of this material.The author(s) (if any authors are noted) principally responsible for the preparation of this material receive compensation based upon various factors, including quality and accuracy of their work, firm revenues (including trading and capital markets revenues), client feedback and competitive factors. We are involved in many businesses that may relate to companies, securities or instruments mentioned in this material.This material has been prepared for informational purposes only and is not an offer to buy or sell or a solicitation of any offer to buy or sell any security/instrument, or to participate in any trading strategy. Any such offer would be made only after a prospective investor had completed its own independent investigation of the securities, instruments or transactions, and received all information it required to make its own investment decision, including, where applicable, a review of any offering circular or memorandum describing such security or instrument. That information would contain material information not contained herein and to which prospective participants are referred. This material is based on public information as of the specified date, and may be stale thereafter. We have no obligation to tell you when information herein may change. We make no representation or warranty with respect to the accuracy or completeness of this material. We have no obligation to provide updated information on the securities/instruments mentioned herein.The securities/instruments discussed in this material may not be suitable for all investors. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. We recommend that investors independently evaluate specific investments and strategies, and encourages investors to seek the advice of a financial advisor. The value of and income from investments may vary because of changes in interest rates, foreign exchange rates, default rates, prepayment rates, securities/instruments prices, market indexes, operational or financial conditions of companies and other issuers or other factors. Estimates of future performance are based on assumptions that may not be realized. Actual events may differ from those assumed and changes to any assumptions may have a material impact on any projections or estimates. Other events not taken into account may occur and may significantly affect the projections or estimates. Certain assumptions may have been made for modeling purposes only to simplify the presentation and/or calculation of any projections or estimates, and we do not represent that any such assumptions will reflect actual future events. Accordingly, there can be no assurance that estimated returns or projections will be realized or that actual returns or performance results will not materially differ from those estimated herein. This material should not be viewed as advice or recommendations with respect to asset allocation or any particular investment. This information is not intended to, and should not, form a primary basis for any investment decisions that you may make. Morgan Stanley Smith Barney LLC is not acting as a fiduciary under either the Employee Retirement Income Security Act of 1974, as amended or under section 4975 of the Internal Revenue Code of 1986 as amended in providing this material. Morgan Stanley Smith Barney LLC and its affiliates do not render advice on tax and tax accounting matters to clients. This material was not intended or written to be used, and it cannot be used or relied upon by any recipient, for any purpose, including the purpose of avoiding penalties that may be imposed on the taxpayer under U.S. federal tax laws. Each client should consult his/her personal tax and/or legal advisor to learn about any potential tax or other implications that may result from acting on a particular recommendation.International investing entails greater risk, as well as greater potential rewards compared to U.S. investing. These risks include political and economic uncer-tainties of foreign countries as well as the risk of currency fluctuations. These risks are magnified in countries with emerging markets, since these countries may have relatively unstable governments and less established markets and economies. Alternative investments which may be referenced in this report, including private equity funds, real estate funds, hedge funds, managed futures funds, and funds of hedge funds, private equity, and managed futures funds, are speculative and entail significant risks that can include losses due to leveraging or other speculative investment practices, lack of liquidity, volatility of returns, restrictions on transferring interests in a fund, potential lack of diversification, absence and/or delay of information regarding valuations and pricing, complex tax structures and delays in tax reporting, less regulation and higher fees than mutual funds and risks associated with the operations, personnel and processes of the advisor.Investing in commodities entails significant risks. Commodity prices may be affected by a variety of factors at any time, including but not limited to, (i) changes in supply and demand relationships, (ii) governmental programs and policies, (iii) national and international political and economic events, war and terrorist events, (iv) changes in interest and exchange rates, (v) trading activities in commodities and related contracts, (vi) pestilence, technological change and weather, and (vii) the price volatility of a commodity. In addition, the commodities markets are subject to temporary distortions or other disruptions due to various factors, including lack of liquidity, participation of speculators and government intervention.

Physical precious metals are non-regulated products. Precious metals are speculative investments, which may experience short-term and long term price volatility. The value of precious metals investments may fluctuate and may appreciate or decline, depending on market conditions. If sold in a declining market, the price you receive may be less than your original investment. Unlike bonds and stocks, precious metals do not make interest or dividend payments. Therefore, precious metals may not be suitable for investors who require current income. Precious metals are commodities that should be safely stored, which may impose additional costs on the investor. The Securities Investor Protection Corporation (“SIPC”) provides certain protection for customers’ cash and securities in the event of a brokerage firm’s bankruptcy, other financial difficulties, or if customers’ assets are missing. SIPC insurance does not apply to precious metals or other commodities.Bonds are subject to interest rate risk. When interest rates rise, bond prices fall; generally the longer a bond’s maturity, the more sensitive it is to this risk. Bonds may also be subject to call risk, which is the risk that the issuer will redeem the debt at its option, fully or partially, before the scheduled maturity date. The market value of debt instruments may fluctuate, and proceeds from sales prior to maturity may be more or less than the amount originally invested or the maturity value due to changes in market conditions or changes in the credit quality of the issuer. Bonds are subject to the credit risk of the issuer. This is the risk that the issuer might be unable to make interest and/or principal payments on a timely basis. Bonds are also subject to reinvestment risk, which is the risk that principal and/or interest payments from a given investment may be reinvested at a lower interest rate.Bonds rated below investment grade may have speculative characteristics and present significant risks beyond those of other securities, including greater credit risk and price volatility in the secondary market. Investors should be careful to consider these risks alongside their individual circumstances, objectives and risk tolerance before investing in high-yield bonds. High yield bonds should comprise only a limited portion of a balanced portfolio. Treasury Inflation Protection Securities’ (TIPS) coupon payments and underlying principal are automatically increased to compensate for inflation by tracking the consumer price index (CPI). While the real rate of return is guaranteed, TIPS tend to offer a low return. Because the return of TIPS is linked to inflation, TIPS may significantly underperform versus conventional U.S. Treasuries in times of low inflation.Equity securities may fluctuate in response to news on companies, industries, market conditions and general economic environment.Investing in smaller companies involves greater risks not associated with investing in more established companies, such as business risk, significant stock price fluctuations and illiquidity.Stocks of medium-sized companies entail special risks, such as limited product lines, markets, and financial resources, and greater market volatility than securities of larger, more-established companies.Asset allocation and diversification do not assure a profit or protect against loss in declining financial markets.The indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the perfor-mance of any specific investment. The indices selected by Morgan Stanley Smith Barney LLC to measure performance are representative of broad asset classes. Morgan Stanley Smith Barney LLC retains the right to change representative indices at any time.REITs investing risks are similar to those associated with direct investments in real estate: property value fluctuations, lack of liquidity, limited diversification and sensitivity to economic factors such as interest rate changes and market recessions.Because of their narrow focus, sector investments tend to be more volatile than investments that diversify across many sectors and companies.Certain securities referred to in this material may not have been registered under the U.S. Securities Act of 1933, as amended, and, if not, may not be offered or sold absent an exemption therefrom. Recipients are required to comply with any legal or contractual restrictions on their purchase, holding, sale, exercise of rights or performance of obligations under any securities/instruments transaction. Investing in foreign emerging markets entails greater risks than those normally associated with domestic markets, such as political, currency, economic and market risks. Value investing does not guarantee a profit or eliminate risk. Not all companies whose stocks are considered to be value stocks are able to turn their busi-ness around or successfully employ corrective strategies which would result in stock prices that do not rise as initially expected. Growth investing does not guarantee a profit or eliminate risk. The stocks of these companies can have relatively high valuations. Because of these high valuations, an investment in a growth stock can be more risky than an investment in a company with more modest growth expectations. Asset-backed securities generally decrease in value as a result of interest rate increases, but may benefit less than other fixed-income securities from declin-ing interest rates, principally because of prepayments.Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.This material is disseminated in Australia to “retail clients” within the meaning of the Australian Corporations Act by Morgan Stanley Wealth Management Australia Pty Ltd (A.B.N. 19 009 145 555, holder of Australian financial services license No. 240813).Morgan Stanley Smith Barney LLC is not incorporated under the People’s Republic of China (“PRC”) law and the research in relation to this report is conducted outside the PRC. This report will be distributed only upon request of a specific recipient. This report does not constitute an offer to sell or the solicitation of an offer to buy any securities in the PRC. PRC investors must have the relevant qualifications to invest in such securities and must be responsible for obtaining all relevant approvals, licenses, verifications and or registrations from PRC’s relevant governmental authorities.Morgan Stanley Private Wealth Management Ltd, which is authorized and regulated by the Financial Services Authority, approves for the purpose of section 21 of the Financial Services and Markets Act 2000, content for distribution in the United Kingdom.Morgan Stanley Smith Barney LLC is not acting as a municipal advisor and the opinions or views contained herein are not intended to be, and do not consti-tute, advice within the meaning of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.This material is disseminated in the United States of America by Morgan Stanley Smith Barney LLC.Third-party data providers make no warranties or representations of any kind relating to the accuracy, completeness, or timeliness of the data they provide and shall not have liability for any damages of any kind relating to such data.This material, or any portion thereof, may not be reprinted, sold or redistributed without the written consent of Morgan Stanley Smith Barney LLC.

© 2013 Morgan Stanley Smith Barney LLC. Member SIPC. CS 7475895 MSWM 03/13

Documents

GIC Changes