Global Investment Committee Chart Book - Morgan Stanley€¦ · Global Investment Committee Chart Book ... Regional and global forecast are GDP weighted ... Russell 2000 Index 7.1

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Global Investment CommitteeChart Book

November 2012

GIC Chart Book November 2012


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.

Table of Contents

1

Section Page

Forecasts 2

Performance 5

Equities, Valuation 10

Net EPS Revision 15

Volatility 17

Sentiment 19

Equities - General 20

Style and Capitalization 31

Supply/Demand 42

Fixed Income 45

Currencies 51

Economics 52

Real Asset Prices 66

Secular 72

Asset Allocation 76




2

Economic Forecasts

Source: Morgan Stanley & Co. LLC, Citi Research, Morgan Stanley Smith Barney. Data as of October 2012.

Note: Regional and global forecast are GDP weighted averages, using Purchasing Power Parity estimates. That gives greater weights to developing economies.

2011F 2012F 2013F 2011F 2012F 2013F

Global GDP 3.9 3.1 3.3 Global GDP 3.8 3.1 3.2

Developed Economies 1.4 1.2 0.9 21 Developed Economies 1.4 1.2 0.9 22U.S. 1.8 2.1 1.4 14 U.S. 1.8 2.1 1.8 15Euro Area 1.5 -0.5 0.0 -2 Euro Area 1.5 -0.4 -0.7 0U.K. 0.9 -0.1 1.0 0 U.K. 0.9 -0.3 0.7 0Japan -0.8 2.0 0.6 4 Japan -0.8 2.0 0.9 4

Developing Economies 6.5 4.9 5.4 79 Developing Economies 6.0 4.7 5.3 78Brazil 2.7 1.6 2.8 2 Brazil 2.7 1.4 3.9 1Russia 4.3 4.2 3.7 4 Russia 4.3 3.5 4.0 4India 7.5 5.0 6.0 11 India 6.5 5.4 6.2 12China 9.3 7.5 7.9 38 China 9.3 7.7 7.6 40

Global Inflation 4.4 3.4 3.2 Global Inflation 4.4 3.2 3.3Developed Economies 2.6 2.0 1.9 Developed Economies 2.5 1.9 1.8Developing Economies 6.2 4.8 4.8 Developing Economies 6.1 4.5 4.7U.S. Core 1.7 2.3 2.2 Core PCE Deflator 1.4 1.8 1.6U.S. CPI 3.1 2.2 1.9 PCE Deflator 2.4 1.8 1.9

Global Consumer Prices Global Consumer Prices

2012F 2012F

Morgan Stanley & Co.

(Year-over-Year % Change)

Citi Research % Contribution to 2012 Growth

(Year-over-Year % Change)

% Contribution to 2012 Growth




3

Earnings Per Share

Note: Citi Research estimates are pre-write-offs.Source: Citi Research, Thomson Financial, Standard & Poor’s, FactSet, Morgan Stanley Smith Barney LLC. Data as of November 2012.

Operating EPS ($)

YOY Change (%)

Operating EPS ($)

YOY Change (%)

Operating EPS ($)

YOY Change (%)

Operating EPS ($)

YOY Change (%)

Operating EPS ($)

YOY Change (%)

100.00 2 103.00 5 102.29 6 25.28 5 88.73 4

99.00 -1 108.00 5 112.43 10 28.23 12 100.18 13

52 Week Forward 112.13 27.97 99.21

2012E

S&P 500Citi Research

2013E

ConsensusMSCI AC World MSCI EMS&P 500

Morgan Stanley & Co.




4

Interest Rate Forecasts

*Morgan Stanley’s current and forecast policy rate for China uses the 1 year lending rate;**Citi Research’s current and forecast policy rate for China uses the 1 year deposit rate.

Source: Morgan Stanley & Co. LLC, Citi Research, Bloomberg, Morgan Stanley Smith Barney LLC. Data as of November 2012.

4Q12F 4Q13F 4Q12F 4Q13F

0.00 – 0.25 0.15 0.15 US 0.00 - 0.25 0.25 0.250.75 0.50 0.50 Eurozone 0.75 0.50 0.250.10 0.05 0.05 Japan 0.10 0.10 0.100.50 0.50 0.50 UK 0.50 0.50 0.506.00* 6.00* 6.00* China 3.00** 3.00** 3.25**

1.61 2.05 1.85 US 1.61 1.65 2.551.34 2.00 1.75 Eurozone 1.34 1.50 1.500.73 1.00 1.20 Japan 0.73 0.95 1.301.72 1.50 2.10 UK 1.72 1.80 1.75

10-Year Government Bond Yields (%) 10-Year Government Bond Yields (%)US

EurozoneJapanUK

JapanUKChina

Morgan Stanley Citi ResearchCurrent Rate

USEurozone

Current RatePolicy Rates (%) Policy Rates (%)




5

Global Asset Class Investment Performance

Note: (1) The Barclays Capital U.S. Aggregate Index represents securities that are U.S. domestic, taxable, and dollar denominated, and which cover the U.S. investment-grade, fixed-rate bond market. (2) JPMorgan EMBI+ is used from 1994 to present; JPMorgan EMBI is used for prior periods. (3) Returns for the Thomson Reuters U.S. Private Equity Index for 2011 are revised numbers for January 2011-December 2011. Returns for the Thomson Reuters U.S. Venture Capital Index for 2011 are revised numbers for January 2011 – December 2011. (4) The synthetically constructed Bridgewater Strategic Benchmark U.S. TIPS 8-year duration Index is used for the June 1991 through June 1997 time period; the Barclays Capital TIPS Index is used after June 1997. All indices are expressed in total return terms unless otherwise noted in the description. “Gross” denotes total returns inclusive of gross dividends, “Net” denotes total returns inclusive of dividends net of foreign withholding taxes, and “Price Return” indicates that dividends are not included in the percentage return data. "Free" denotes that portion of the relevant underlying market whose equity securities are freely tradable by non-domestic investors. Standard deviations of annual returns are shown in this table. Past performance is not a guarantee of future results. The indexes are unmanaged. An investor cannot invest directly in an index. The indices are shown for illustrative purposes only and do not represent the performance of any specific investment.Source: Thomson Reuters; Russell Investments, Hedge Fund Research; Barclay Trading Group; U.S. Department of Agriculture; Morgan Stanley & Co. LLC Research; MSCI Barra; Bloomberg; FactSet; Morgan Stanley Smith Barney LLC.

Asset Class Rolling 10-Year Compound Annual Growth Rate, Standard Deviations of Returns, and Correlations of Returns

Nominal Total Returns Expressed in U.S. DollarsRolling 10-Year Compound Annual Growth Rates and Standard Deviation Rolling 10-Year Annual Correlation of Returns with the S&P500

On 12/31/07 On 12/31/08 On 12/31/09 On 12/31/10 On 12/31/11 On 12/31/07 On 12/31/08 On 12/31/09 On 12/31/10 On 12/31/11(1998-2007) (1999-2008) (2000-2009) (2001-2010) (2002-2011) (1998-2007) (1999-2008) (2000-2009) (2001-2010) (2002-2011)

Asset Class Indices CAGR Std Dev CAGR Std Dev CAGR Std Dev CAGR Std Dev CAGR Std Dev 10 Years 10 Years 10 Years 10 Years 10 YearsU.S. Equity IndicesStandard & Poor's 500 Index 5.9% 17.3% -1.4% 20.5% -1.0% 21.1% 1.4% 21.2% 2.9% 21.2% 1.00 1.00 1.00 1.00 1.00

Standard & Poor's 500 Equal-Weighted Index 8.9 14.8 2.4 21.5 5.1 25.2 6.3 25.6 6.3 25.6 0.80 0.92 0.95 0.97 0.97

Standard & Poor's 100 Index 5.8 19.9 -1.5 21.8 -2.3 20.3 0.1 20.2 2.0 20.2 0.97 0.98 0.99 0.99 0.99

Russell 1000 Index 6.2 17.1 -1.1 20.7 -0.5 21.6 1.8 21.8 3.3 21.8 1.00 1.00 1.00 1.00 1.00

Russell 1000 Growth Index 3.8 23.7 -4.3 24.6 -4.0 25.2 0.0 24.5 2.6 24.5 0.96 0.96 0.97 0.98 0.98

Russell 1000 Value Index 7.7 13.4 1.4 19.3 2.5 20.0 3.3 20.3 3.9 20.3 0.84 0.92 0.95 0.97 0.97

Russell 2000 Index 7.1 18.6 3.0 22.8 3.5 23.3 6.3 23.9 5.6 23.9 0.72 0.95 0.95 0.95 0.95



Russell 3000 Index 6.2 16.8 -0.8 20.8 -0.2 21.7 2.2 21.8 3.5 21.8 0.99 1.00 1.00 1.00 1.00



Non-U.S. Equity IndicesMSCI EAFE Net Index 8.7% 20.6% 0.8% 26.3% 1.2% 26.9% 3.5% 26.0% 4.7% 26.0% 0.93 0.98 0.98 0.97 0.95

MSCI Europe Free Net Index 9.5 20.8 0.4 26.7 2.0 28.3 3.3 27.9 4.4 27.9 0.93 0.96 0.98 0.96 0.94

MSCI Pacific (Developed Asia) Net Index 6.8 26.5 1.9 30.2 -0.5 25.3 4.0 23.5 5.5 23.5 0.72 0.88 0.90 0.92 0.90

MSCI Japan Net Index 4.5 28.3 0.5 30.7 -3.7 23.3 1.0 21.7 3.0 21.7 0.71 0.81 0.79 0.81 0.78

MSCI Emerging Markets Free Gross Index 14.5 33.4 9.3 38.3 10.1 40.3 16.2 36.6 14.2 36.6 0.49 0.92 0.92 0.93 0.88

MSCI Emerging Global Free Latin America Gross Index 18.0 38.9 14.7 41.8 17.6 48.2 21.4 46.0 18.9 46.0 0.48 0.96 0.95 0.92 0.87MSCI Emerging Markets Europe, Middle East, and Africa Gross Index

15.5 33.8 9.8 39.1 9.6 38.6 14.6 36.2 14.4 36.2 0.44 0.90 0.91 0.91 0.85

MSCI Emerging Markets Asia Gross Index 14.0 32.8 7.0 39.1 7.3 39.8 15.3 34.5 12.5 34.5 0.53 0.87 0.88 0.91 0.87

Fixed Income IndicesBarclays U.S. Capital Aggregate (Taxable) Bond Index1 6.0% 3.8% 5.6% 3.7% 6.3% 2.9% 5.8% 2.3% 5.8% 2.3% -0.59 -0.58 -0.47 -0.44 -0.38

Barclays Capital U.S. 7-Year Municipal Bond Index 5.0 3.1 4.8 3.1 5.6 2.7 5.1 2.4 5.6 2.4 -0.55 -0.50 -0.24 -0.19 -0.19

Credit Suisse High Yield (Upper/Middle Tier) Index 6.1 9.1 2.9 13.8 7.1 21.1 9.1 20.5 9.1 20.5 0.48 0.82 0.84 0.83 0.84

10-Year U.S. Treasury Note Index 5.5 7.3 6.1 8.4 6.0 8.7 5.4 8.3 6.6 8.3 -0.48 -0.84 -0.86 -0.82 -0.82

JPMorgan Global ex-U.S. Bond Index 5.5 10.3 4.8 9.6 5.7 9.0 6.7 8.5 7.7 8.5 0.36 0.01 0.11 0.05 -0.06

JPMorgan Emerging Markets Bond Index2 10.4 12.4 10.9 11.4 10.9 11.4 10.6 11.3 11.6 11.3 0.06 0.76 0.78 0.81 0.79

Alternative Investments IndicesNAREIT (Real Estate Investment Trusts) 10.5% 20.4% 7.4% 24.3% 10.6% 24.3% 10.8% 24.4% 10.2% 24.4% -0.01 0.60 0.74 0.81 0.84

ThomsonOne U.S. Private Equity Index3 15.0 15.9 10.6 19.9 8.5 18.1 9.8 18.0 11.6 18.0 0.79 0.93 0.86 0.85 0.84

ThomsonOne U.S. Venture Capital Index3 14.7 90.3 10.0 91.6 -3.4 21.6 -4.2 20.7 1.9 20.7 0.42 0.46 0.52 0.65 0.64

HFRI Fund Weighted Composite Hedge Fund Index 9.9 9.4 7.4 13.1 6.4 11.2 6.9 11.3 5.9 11.3 0.61 0.91 0.96 0.96 0.93

HFRI Fund of Funds Index 7.3 8.4 5.3 11.9 4.0 9.8 4.1 9.8 3.3 9.8 0.33 0.86 0.86 0.87 0.85

Commodity Research Bureau Total Return Index 11.0 22.5 9.7 24.1 9.0 23.5 7.8 22.6 9.5 22.6 -0.22 0.49 0.47 0.56 0.50

Barclay CTA (Commodity Trading Advisors) Index 5.1 4.2 5.8 5.0 5.9 4.9 5.8 4.9 5.4 4.9 -0.25 -0.59 -0.60 -0.57 -0.58

Handy & Harman Spot Gold Price 11.2 12.8 11.8 12.3 14.3 11.9 18.0 10.3 18.8 10.3 -0.08 0.18 0.42 0.44 0.37

Barclays Capital TIPS Index/Bridgewater Index4 7.5 5.0 6.8 5.9 7.7 5.8 7.0 5.5 7.6 5.5 -0.63 -0.02 0.17 0.22 0.21

U.S. Cash/Cash Equivalent IndicesCitigroup U.S. Treasury Bill (90-Day) Index 3.6% 1.8% 3.3% 1.8% 2.9% 2.0% 2.3% 1.8% 1.9% 1.8% 0.00 0.08 -0.22 -0.21 -0.11




6

Global Asset Class Investment Performance

Note: (1) Thomson Reuters, U.S. Private Equity and U.S. Venture Capital Index returns are reported on a quarterly basis. Returns for the Thomson Reuters U.S. Private Equity Index and Thomson Reuters U.S. Venture Capital Index 1-, 3-, 5-, and 10- year periods are for September 2011 - September 2012, September 2009 - September 2012, September 2007 – September 2012, and September 2002 – September 2012 respectively. N/A = Not Available. (2) The Barclay CTA Index 1-Month return is based on preliminary estimates by the Morgan Stanley Smith Barney Managed Futures Group. Data are as of September 2012. All indices are expressed in U.S. Dollar total return terms unless otherwise noted in the description. “Gross” denotes total returns inclusive of gross dividends, “Net” denotes total returns inclusive of dividends net of foreign withholding taxes, and “Price Return” indicates that dividends are not included in the percentage return data. "Free" denotes that portion of the relevant underlying equity market whose securities are freely tradable by non-domestic investors. CAGR stands for Compound Annual Growth Rate. Past performance is not a guarantee of future results. The indexes are unmanaged. An investor cannot invest directly in an index. The indices are shown for illustrative purposes only and do not represent the performance of any specific investment.Source: Thomson Reuters , Russell Investments, Hedge Fund Research, Barclay Trading Group, U.S. Department of Agriculture, Morgan Stanley & Co. LLC Research, MSCI Barra, FactSet, Bloomberg Morgan Stanley Smith Barney LLC.

September 2012, YTD 2012, and Multi-Year Time Periods

1 MonthReturn

YTD 2012Return

1‐Year Return

3‐Year CAGR

5‐Year CAGR

10‐Year CAGR

(Sep. 2012) (Dec. 2011 ‐ Sept. 2012) (Sept. 2011 ‐ Sept. 2012) (Sept. 09 ‐ Sept. 12) (Sept. 07 ‐ Sept. 12) (Sept. 02 ‐ Sept. 12)

U.S. Equity IndicesS&P 500 2.6 16.4 30.2 13.2 1.1 8.0S&P 500 Equal Weighted 2.5 14.4 28.7 14.0 3.2 11.1S&P 100 2.8 18.3 32.4 13.3 1.0 7.4Russell 1000 2.6 16.3 30.1 13.3 1.2 8.4Russell 1000 Grow th 2.0 16.8 29.2 14.7 3.2 8.4Russell 1000 Value 3.2 15.7 30.9 11.8 -0.9 8.2Russell 2000 3.3 14.2 31.9 13.0 2.2 10.2Russell 2000 Grow th 3.0 14.1 31.2 14.2 3.0 10.5Russell 2000 Value 3.6 14.4 32.6 11.7 1.3 9.7Russell 3000 2.6 16.1 30.2 13.3 1.3 8.5Russell 3000 Grow th 2.0 16.6 29.3 14.7 3.2 8.6Russell 3000 Value 3.2 15.6 31.1 11.8 -0.7 8.3

Non‐U.S. Equity IndicesMSCI EAFE 3.0 10.1 13.8 2.1 -5.2 8.2MSCI Europe 3.0 11.3 17.3 2.0 -5.7 8.8MSCI Pacif ic 2.9 8.0 7.7 2.6 -4.0 7.0MSCI Japan 2.3 2.3 -1.7 -0.6 -6.5 3.7MSCI EM (Emerging Markets) 6.1 12.3 17.3 6.0 -1.0 17.4MSCI EM Latin America 3.9 4.3 13.5 2.9 0.6 24.8MSCI EMEA 4.6 15.6 18.9 7.7 -1.5 16.8MSCI EM Asia 7.3 14.5 18.2 6.5 -1.4 15.1

Fixed Income indicesBarclays Capital US Aggregate 0.1 4.0 5.2 6.2 6.5 5.3Barclays Capital Municipal Bond 7 Year 0.8 3.8 6.7 5.9 6.5 5.0CSFB High Yield Index 1.3 11.2 17.9 12.6 8.6 10.5Citigroup 10-Year Treasury Benchmark (LOC) -0.6 4.4 5.6 8.4 8.5 5.5JP Morgan GBI Global Ex United States (Traded) 1.8 3.7 3.4 4.7 7.1 7.5JP Morgan EMBI+ 1.4 14.3 20.3 12.3 10.3 13.2

Alternative Investments IndicesFTSE NAREIT / All Equity REITs -INV -1.2 16.1 33.8 20.7 2.3 11.5U.S. Private Equity Index N/A 54.7 46.9 58.7 17.7 41.7U.S. Venture Capital Index N/A 29.5 24.5 39.3 11.9 17.7HFRI Fund Weighted Comp 0.9 4.5 5.4 3.9 1.4 6.8HFRI Fund of Funds Comp 0.7 3.3 2.8 1.5 -1.7 3.6Barclay CTA Index -0.8 -0.2 -2.6 -0.2 2.5 4.0Gold Spot 7.7 13.1 9.6 21.3 19.0 18.6Barclays Capital US Aggregate Government - Treasury Inflation Protected (TIPS) 0.5 6.2 9.1 9.3 7.9 6.6

U.S. Cash/Cash EquivalentCitigroup (3 M) Treasury Bill (LOC) 0.01 0.05 0.05 0.1 0.6 1.7

Total Return %

Asset Class Indices




7

Source: MSCI, Standard & Poor’s, Russell Investments, FactSet, Bloomberg. Data as of January 2012.

Annual Returns for Major Indices (1991 – 2011)Ranked in order of performance (as of 1/5/2012)

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

118.1 MSCI EM

64.8 MSCI EM

184.9 MSCI EM

27.7 MSCI EM

38.4 Russell

1000 Value

23.1 Russell

1000 Growth

35.2 Russell

1000 Value

38.7 Russell

1000 Growth

77.5 MSCI EM

22.8 Russell

2000 Value

14.0 Russell

2000 Value

11.5 BC

Govt/Cr

47.6 Russell

2000 Growth

22.2 Russell

2000 Value

35.8 MSCI EM

28.9 MSCI EM

33.5 MSCI EM

10.4 BC

Intermed Govt/Cr

62.8 MSCI EM

28.3 Russell

2000 Growth

8.6 BC

Govt/Cr

49.6 Russell

2000 Growth

29.1 Russell

2000 Value

29.6 MSCI EAFE

2.6 Russell

1000 Growth

37.8 Russell

1000

23.0 S&P 500

33.4 S&P 500

28.6 S&P 500

42.5 Russell

2000 Growth

12.4 BC

Govt/Cr

8.4 BC

Intermed Govt/Cr

9.6 BC

Intermed Govt/Cr

47.3 Russell

2000

18.3 Russell

2000

29.5 MSCI EAFE

23.5 Russell

2000 Value

11.8 Russell

1000 Growth

8.0 BC

Govt/Cr

37.2 Russell

1000 Growth

26.9 Russell

2000

6.1 BC

Intermed Govt/Cr

46.0 Russell

2000

18.4 Russell

2000

23.8 Russell

2000 Value

1.3 S&P 500

37.6 S&P 500

22.4 Russell

1000

32.9 Russell

1000

27.0 Russell

1000

33.8 MSCI EAFE

10.5 BC

Intermed Govt/Cr

8.3 BC

Govt/Cr

-7.1 MSCI EM

46.7 MSCI EM

16.5 Russell

1000 Value

7.1 Russell

1000 Value

22.2 Russell

1000 Value

8.5 BC

Intermed Govt/Cr

-28.9 Russell

2000 Value

33.5 Russell

2000 Growth

24.5 Russell

2000 Value

2.6 Russell

1000 Growth

41.7 Russell

2000 Value

13.6 Russell

1000 Value

18.9 Russell

2000

0.4 Russell

1000

37.2 Russell

1000 Growth

21.6 Russell

1000 Value

31.8 Russell

2000 Value

15.6 Russell

1000 Value

33.2 Russell

1000 Growth

7.0 Russell

1000 Value

7.9 MSCI EM

-11.4 Russell

2000 Value

46.0 Russell

2000 Value

16.4 MSCI EM

6.3 Russell

1000

18.4 Russell

2000

7.6 BC

Govt/Cr

-33.8 Russell

2000

28.4 Russell

1000

16.7 Russell

1000 Growth

2.1 S&P 500

41.3 Russell

1000 Growth

8.9 Russell

1000

18.1 Russell

1000 Value

-1.5 Russell

2000 Value

30.1 Russell

2000 Growth

21.4 Russell

2000 Value

30.5 Russell

1000 Growth

12.6 MSCI EAFE

21.3 Russell

2000

-3.0 Russell

2000

2.5 Russell

2000

-15.5 Russell

1000 Value

30.0 Russell

1000 Value

13.8 Russell

2000 Growth

5.3 Russell

1000 Growth

16.9 MSCI EAFE

6.5 Russell

2000 Growth

-36.8 Russell

1000 Value

27.2 Russell

2000

16.1 Russell

1000

1.5 Russell

1000

33.0 Russell

1000

7.6 S&P 500

12.5 Russell

2000 Growth

-1.7 BC

Intermed Govt/Cr

28.5 Russell

2000

16.5 Russell

2000

22.4 Russell

2000

9.7 BC

Govt/Cr

21.0 S&P 500

-7.1 MSCI EAFE

-5.6 Russell

1000 Value

-20.5 Russell

2000

29.9 Russell

1000

13.1 MSCI EAFE

4.9 S&P 500

15.8 S&P 500

5.8 Russell

1000

-37.0 S&P 500

26.5 S&P 500

15.5 Russell

1000 Value

0.4 Russell

1000 Value

30.5 S&P 500

7.5 BC

Govt/Cr

10.9 BC

Govt/Cr

-1.8 MSCI EAFE

25.7 Russell

2000 Value

13.5 MSCI EM

13.8 MSCI EAFE

8.5 BC

Intermed Govt/Cr

20.9 Russell

1000

-7.8 Russell

1000

-9.6 Russell

2000 Growth

-21.7 Russell

1000

29.7 Russell

1000 Growth

11.4 Russell

1000

4.7 Russell

2000 Value

15.5 Russell

1000

5.5 S&P 500

-37.6 Russell

1000

25.4 MSCI EAFE

15.1 S&P 500

-3.5 Russell

2000 Growth

24.6 Russell

1000 Value

6.9 BC

Intermed Govt/Cr

10.2 Russell

1000

-1.8 Russell

2000

19.0 BC

Govt/Cr

11.6 MSCI EAFE

12.5 Russell

2000 Growth

0.8 Russell

2000 Growth

7.3 Russell

1000 Value

-9.1 S&P 500

-11.9 S&P 500

-22.1 S&P 500

28.7 S&P 500

10.9 S&P 500

4.6 Russell

2000

12.8 Russell

2000 Growth

4.0 MSCI EAFE

-38.4 Russell

1000 Growth

20.6 Russell

2000 Value

14.4 MSCI EM

-4.2 Russell

2000

15.9 BC

Govt/Cr

6.8 Russell

2000 Growth

10.1 S&P 500

-2.0 Russell

1000 Value

14.4 BC

Intermed Govt/Cr

10.7 Russell

2000 Growth

9.7 BC

Govt/Cr

-2.5 Russell

2000

0.5 BC

Intermed Govt/Cr

-22.4 Russell

1000 Growth

-12.4 Russell

1000

-25.8 MSCI EAFE

20.8 MSCI EAFE

6.3 Russell

1000 Growth

3.6 Russell

2000 Growth

9.1 Russell

1000 Growth

-0.2 Russell

1000 Value

-39.0 Russell

2000 Growth

19.7 Russell

1000 Value

6.1 BC

Govt/Cr

-5.5 Russell

2000 Value

14.1 BC

Intermed Govt/Cr

5.0 Russell

1000 Growth

8.2 BC

Intermed Govt/Cr

-3.1 Russell

2000 Growth

9.8 MSCI EAFE

4.1 BC

Intermed Govt/Cr

7.7 BC

Intermed Govt/Cr

-6.5 Russell

2000 Value

-1.5 Russell

2000 Value

-22.7 Russell

2000 Growth

-16.0 MSCI EAFE

-27.9 Russell

1000 Growth

3.4 BC

Govt/Cr

3.8 BC

Govt/Cr

2.6 BC

Govt/Cr

3.8 BC

Intermed Govt/Cr

-1.6 Russell

2000

-39.9 MSCI EAFE

1.6 BC

Govt/Cr

5.3 MSCI EAFE

-11.7 MSCI EAFE

9.1 MSCI EAFE

-5.8 MSCI EAFE

2.9 Russell

1000 Growth

-3.5 BC

Govt/Cr

0.8 MSCI EM

2.8 BC

Govt/Cr

4.8 MSCI EM

-19.6 MSCI EM

-2.3 BC

Govt/Cr

-25.3 MSCI EM

-20.4 Russell

1000 Growth

-30.7 Russell

2000 Growth

2.3 BC

Intermed Govt/Cr

2.3 BC

Intermed Govt/Cr

1.7 BC

Intermed Govt/Cr

3.7 BC

Govt/Cr

-9.8 Russell

2000 Value

-45.7 MSCI EM

-0.3 BC

Intermed Govt/Cr

5.0 BC

Intermed Govt/Cr

-12.5 MSCI EM




8

Annual Returns for Fixed Income SegmentsRanked in order of performance (as of 10/8/2012)

Source: MSCI, Standard & Poor’s, Russell Investments, FactSet. Data as of October 2012.

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 YTD

10.0US Trsy

24.3Emerging Markets


11.0US Corp

16.7US TIPS

30.6US High

Yield



11.8US High

Yield

11.6US TIPS

13.9US Trsy

55.2US High

Yield

14.3US High

Yield

14.0US TIPS


8.7Barclays US Agg.

2.4US TIPS

13.5US Trsy

8.4Barclays US Agg.



10.8US High

Yield

3.5US Muni


9.2Barclays

Multi-verse

8.5MBS



10.7US Muni

11.7US High

Yield

8.6US Corp

1.8MBS

13.1US TIPS

8.2MBS

11.6US Trsy

13.2Barclays

Multi-verse

9.4Barclays

Multi-verse

2.9US TIPS

6.9Barclays

Multi-verse

9.0US Trsy

5.2Barclays US Agg.

16.1US Corp

8.6US Corp

9.6US Trsy

8.7US Corp

7.0MBS

1.7US High

Yield

11.7US Muni

7.9US TIPS

10.3Barclays US Agg.

8.3US Corp

8.4US TIPS

2.8US Trsy

5.2MBS

7.0MBS

3.8Barclays

Multi-verse

12.9US Muni

6.5Barclays US Agg.

8.5Emerging Markets

6.5US TIPS

6.5US Muni

-0.8Barclays US Agg.

11.6Barclays US Agg.

6.7US Trsy

9.8US Corp

8.3US TIPS

5.5US Corp

2.7MBS

4.8US Muni

7.0Barclays US Agg.

-1.2US TIPS

10.1US TIPS

6.5US TIPS

8.0US Corp

6.1US Muni

3.9US TIPS

-1.6US Corp

11.3MBS

5.4US High

Yield

9.6US Muni

5.3US Muni

4.8MBS

2.4Barclays US Agg.

4.5US Corp

6.2Emerging Markets

-2.5US Muni

8.0Barclays

Multi-verse

5.8Barclays

Multi-verse

7.8Barclays US Agg.

5.1Barclays

Multi-verse

3.6US High

Yield

-2.1US Muni

9.3US Corp

5.1US Muni

8.9MBS

4.1Barclays US Agg.

4.5US Muni

2.2US Corp

4.3Barclays US Agg.

5.2US Corp

-2.9US Corp

5.9Barclays US Agg.

5.8US Trsy

6.4MBS

4.0Barclays US Agg.

-8.7Emerging Markets

-2.4US Trsy

-5.7US High

Yield

1.1Emerging Markets

-1.5US High

Yield

3.1MBS

4.3Barclays US Agg.

2.1US High

Yield

3.1US Trsy

3.4US Muni

-10.5Emerging Markets

5.8MBS

5.5MBS

5.5Barclays

Multi-verse

2.8MBS

2.3US Trsy

3.5US Trsy

-4.1Barclays

Multi-verse

0.4US TIPS

1.8US High

Yield

-25.9US High

Yield

-3.7US Trsy

2.4US Muni

5.5US High

Yield

2.0US Trsy




9

Annual Returns for Global Equity Market SegmentsRanked in order of performance (as of 10/8/3/2012)

Source: MSCI, Standard & Poor’s, Russell Investments, FactSet. Data as of October 2012.

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 YTD

33.9 Europe ex-UK

66.4 MSCI

Emerging Mkts

-7.1 Europe ex-UK

-2.4 MSCI

Emerging Mkts

-5.8 MSCI Pacific

Ex-Japan

56.3 MSCI

Emerging Mkts

29.6 MSCI Pacific

Ex-Japan

34.5 MSCI

Emerging Mkts

36.4 Europe ex-UK

39.8 MSCI

Emerging Mkts

-29.1 MSCI Japan

79.0 MSCI

Emerging Mkts

19.2 MSCI

Emerging Mkts

2.1 S&P 500

17.6 MSCI Pacific

Ex-Japan

28.6 S&P 500

61.8 MSCI Japan

-9.1 S&P 500

-9.4 MSCI Pacific

Ex-Japan

-6.0 MSCI

Emerging Mkts

47.0 MSCI Pacific

Ex-Japan

26.0 MSCI

Emerging Mkts

25.6 MSCI Japan

33.2 MSCI Pacific

Ex-Japan

31.7 MSCI Pacific

Ex-Japan

-37.0 S&P 500

73.0 MSCI Pacific

Ex-Japan

17.1 MSCI Pacific

Ex-Japan

-2.5 MSCI UK

16.4 S&P 500

22.0 MSCI AC

World

43.2 MSCI Pacific

Ex-Japan

-11.5 MSCI UK

-11.9 S&P 500

-10.1 MSCI Japan

43.6 Europe ex-UK

22.4 Europe ex-UK

14.8 MSCI Pacific

Ex-Japan

32.6 MSCI

Emerging Mkts

17.5 Europe ex-UK

-41.8 MSCI AC

World

43.4 MSCI UK

15.6 MSCI Japan

-6.9 MSCI AC

World

13.4 MSCI AC

World

17.8 MSCI UK

26.8 MSCI AC

World

-13.9 MSCI AC

World

-14.0 MSCI UK

-15.2 MSCI UK

36.2 MSCI Japan

19.6 MSCI UK

11.4 MSCI AC

World

30.7 MSCI UK

12.2 MSCI AC

World

-45.0 Europe ex-UK

35.4 MSCI AC

World

15.1 S&P 500

-12.7 MSCI Pacific

Ex-Japan

12.8 Europe ex-UK

5.2 MSCI Japan

21.0 S&P 500

-15.2 MSCI Pacific

Ex-Japan

-15.9 MSCI AC

World

-19.0 MSCI AC

World

34.6 MSCI AC

World

16.0 MSCI Japan

11.3 Europe ex-UK

21.5 MSCI AC

World

8.4 MSCI UK

-48.3 MSCI UK

33.9 Europe ex-UK

13.2 MSCI AC

World

-14.2 MSCI Japan

12.3 MSCI

Emerging Mkts

-6.2 MSCI Pacific

Ex-Japan

17.8 Europe ex-UK

-28.1 MSCI Japan

-22.0 Europe ex-UK

-19.9 Europe ex-UK

32.1 MSCI UK

15.8 MSCI AC

World

7.4 MSCI UK

15.8 S&P 500

5.5 S&P 500

-50.0 MSCI Pacific

Ex-Japan

26.5 S&P 500

8.8 MSCI UK

-14.5 Europe ex-UK

10.7 MSCI UK

-25.3 MSCI

Emerging Mkts

12.5 MSCI UK

-30.6 MSCI

Emerging Mkts

-29.3 MSCI Japan

-22.1 S&P 500

28.7 S&P 500

10.9 S&P 500

4.9 S&P 500

6.3 MSCI Japan

-4.1 MSCI Japan

-53.2 MSCI

Emerging Mkts

6.4 MSCI Japan

2.4 Europe ex-UK

-18.2 MSCI

Emerging Mkts

2.4 MSCI Japan




10

Global Equity Valuation

Data as of September 2012.

Source: MSCI, Thomson Financial, FactSet.

Note: The volatility adjusted yield gap is calculated as the residual from the regression of the Global Earnings Yield Gap on relative Global Stock/Bond volatility. Volatility is calculated as the 60-month rolling standard deviation of the monthly total returns for Stocks and bonds. Data as of September 2012.

Global Dividend Yield Versus Cash, Corporate and Government Bond Yields

Global Risk-Adjusted Earnings Yield Gap and 12-Month Forward Excess Equity Returns (%)

'70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12-3

-2

-1

0

1

2

3

4

-3

-2

-1

0

1

2

3Equities Relatively Expensive

Equities Relatively Cheap

Standard Deviations From Average

Cash Rate/Div idend YieldBond Yield/Div idend Yield

'88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12-60

-40

-20

0

20

40

60

-12

-10

-8

-6

-4

-2

0

2

4

6

8

12M Fwd Rtns (%) Yield Gap (%)

Forward Excess Equi ty Returns (Left) Vol. Adjusted Yield Gap (Right)




11


Source: MSCI, Thomson Financial, FactSet. Data as of October 2012.

Correlation: US & Non-US Equities

Global ex-Japan and US Equity Risk Premium

'08 '09 '10 '11 '12ERP=Equity Risk Premium

-4%

-2%

0%

2%

4%

6%

8%

10%

-4%

-2%

0%

2%

4%

6%

8%

MSCI AC World ex-Japan ERP US ERP

US: Equity Risk Premium (Right)Global ex-Japan: Equity Risk Premium (Lef t)

'76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '120.20.2

0.30.3

0.40.4

0.50.5

0.60.6

0.70.7

0.80.8

0.90.9

1.01.0

Trailing 5 Yr Monthly Correlation (Local and USD Currency)S&P vs EAFE USD S&P vs EAFE LOCAL

Data as of September 2012




12


U.S. Corporations' Domestic and Foreign Investment

Source: Bureau of Economic Analysis, FactSet, Thomson Financials, Citi Research, Morgan Stanley Smith Barney LLC. Data as of October 2012.

COV Model in Negative Territory

'62 '64 '66 '68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12-80-80

-60-60

-40-40

-20-20

00

2020

4040

6060

8080

Expensive

Inexpensive +1 Standard Deviation: 44%

-1 Standard Deviation: 4%

As of 10/31/2012, -41.45

Q1 02 Q1 03 Q1 04 Q1 05 Q1 06 Q1 07 Q1 08 Q1 09 Q1 10 Q1 111,4001,400

1,6001,600

1,8001,800

2,0002,000

2,2002,200

2,4002,400

2,6002,600

2,8002,800

Billions of $s SAAR, 4Q MA




13

US Equity Valuation

Source: Federal Reserve Bank, Bureau of Economic Analysis, FactSet, Morgan Stanley Smith Barney LLC. Data as of September 2012.

S&P 500 Fair Value Model and Actual PE

U.S. Earnings Yield Gap and Forward Excess Equity Return

'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12-100

-67

-33

0

33

67

100

-8

-4

0

4

8

U.S. Excess Equity Returns (6 Mos. Fwd Anualized %) Yield Gap (%)

US Excess ReturnsUS Yield Gap

Source: Bloomberg, Morgan Stanley Smith Barney LLC. Data as of September 2012.

'84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '120

10

20

30

40

50

60

5

10

15

20

25

30

35Std Dev .

From Fair ValueMax

Ov er: +2.3 in 4Q99(Max)

Under: -4.3 in 4Q09

Forward P/E Ratio

Actual Fwd P/E: 12.91 as of 9/28/2012 (Right)S&P 500 Model P/E: 51.00 as of 9/28/2012 (Left)




14

US Stks: Tobin’s Q Ratio

Source: Bloomberg, Haver, US Federal Reserve, Morgan Stanley Smith Barney LLC. Data as of January 2012.

Tobin’s Q Ratio Versus Subsequent 10-Year S&P 500 Annualized Returns(1952 to 2001)

Tobin’s Q Ratio

-5

0

5

10

15

20

30 50 70 90 110 130 150

Total Return (%)

'52 '54 '56 '58 '60 '62 '64 '66 '68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '102020

4040

6060

8080

100100

120120

140140

160160

180180

200200




15

Earnings Revisions

Note: Net earnings revisions are based on individual company analysts forecasts for the next calendar year and are calculated as the number of upgrades minus the number of downgrade divided by the total number of revisions using a three-month sliding window.Source: FactSet, Morgan Stanley Smith Barney LLC. Data as of October 2012.

S&P 500 Net Earnings Revisions and S&P 500 Total Return (YoY%)

'89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12-80

-60

-40

-20

0

20

40

60

-80

-60

-40

-20

0

20

40

60

S&P 500 Net Earnings Revisions (%) S&P 500 Total Return (YoY %)

Total Return (Right)S&P 500 Net Earnings Rev isions (Lef t)

MSCI EAFE Net Earnings Revisions and MSCI EAFE Total Return (YoY%)

'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12-60

-50

-40

-30

-20

-10

0

10

20

30

40

50

-60

-50

-40

-30

-20

-10

0

10

20

30

40

50

MSCI EAFE Net Earnings Revisions (%) MSCI EAFE Total Return (YoY%)

Total Return (Right)MSCI EAFE Net Earn ings Revisions (Left)




16

MSCI EM Net Earnings Revisions and MSCI EM Total Return (YoY%)

'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12-60

-40

-20

0

20

40

60

80

100

-60

-40

-20

0

20

40

60

80

100

MSCI EM Net Earnings Revisions (%) MSCI EM Total Return (YoY%)

Total Return (Right)MSCI EM Net Earnings Rev isions (Lef t)

Global Net Earnings Revisions

'89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12-75-75

-50-50

-25-25

00

2525

5050

World, EAFE, Emerging MarketsNet Earnings Revisions (%) MSCI EAFE MSCI AC World MSCI Emerging Markets

Earnings Revisions

Note: Net earnings revisions are based on individual company analysts forecasts for the next calendar year and are calculated as the number of upgrades minus the number of downgrade divided by the total number of revisions using a three-month sliding window.Source: FactSet, Morgan Stanley Smith Barney LLC. Data as of October 2012.




17

Emerging Market Equity/Developed Market Equity and Equity Volatility

Note: MSCI EM and MSCI World are in USD.Source: The Chicago Board Options Exchange Standard and Poor’s 500 Volatility Index, Bloomberg, FactSet, Morgan Stanley Smith Barney LLC. Data as of October 2012. The yield curve is shown 30 months forward to illustrate its properties as a leading indicator of the VIX Index.

Volatility

'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '120

10

20

30

40

50

60

70

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

VIX Emerging Market Equity/Developed Market Equity

VIXMSCI EM/MSCI World




18

Note: VIX is shown with 3 month moving avg. Yield curve is 10Y Treasury rate minus overnight Fed Funds rate. Source: The Chicago Board Options Exchange Standard and Poor’s 500 Volatility Index, Bloomberg, FactSet, Morgan Stanley Smith Barney LLC. Data as of October 2012. The yield curve as shown is 30 months forward to illustrate its properties as a leading indicator of the VIX Index.

Yield Curve Shown as a Leading Indicator of the VIX

VolatilityStock Market Volatility and Forward One Year S&P 500 Returns

VIX IndexForward 1 Year S&P 500 Returns from Peak

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '1200

1010

2020

3030

4040

5050

6060

7070

8080

909012.44

22.0121.28

37.96 -27.54

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 201410

20

30

40

50

60 -2

-1

0

1

2

3

4

VIX Yield Curve % (Inverted)

VIX (3M MA) Yield Curve (30M Fwd)




19

'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12-1.5-1.2-0.9-0.6-0.30.00.30.60.91.21.51.8

-40

-20

0

20

40

60Euphoria

Panic

The Other PES&P 500

(12-Month Fwd Return)

Forward (Right)The Other PE (Lef t)

Contrarian Equity Market Signals

Consumer Confidence based on data from February 1967 - August 2008 (periods for which consumer confidence and 12-month forward returns are available).Source: The Conference Board, Citi Research – US Equity Strategy, FactSet, Morgan Stanley Smith Barney LLC. Data as of October 2012.

Consumer Confidence and S&P 500 Index 12-Month Forward Returns

The Panic/Euphoria Model(Other P/E)

ConsumerConfidence

Level

S&P 500 Index% of Forward

Returns Positive12 Month Fwd Returns

Average Median Highest Lowest # of Instances

<60 19.1% 18.0% 61.0% -32.6% 63 94%<70 16.6% 15.8% 61.0% -38.1% 101 89%<80 14.3% 13.6% 61.0% -43.3% 142 88%

Average: 16.6% 15.8% 90%

>130 2.5% 6.4% 39.8% -26.6% 63 56%>140 -7.8% -9.1% 14.4% -26.6% 11 18%

Average: -2.7% -1.4% 37%




20

Global Recessions and Equity Returns

*Using Total Return (%) Index. Price Index peaked Oct 31, 2010 at 1,682.4.

MSCI World Stock Market Returns and Earnings Recessions

Source: MSCI Barra, FactSet, Morgan Stanley Smith Barney LLC. Data as of October 2010.Note: MSCI World Trailing Earnings.

MSCI World Peak

MSCI World Trough

MSCI World Peak to Trough Returns (%)

MSCI World Return (%) Fwd 1 Yr From Trough

Days from MSCI World Trough During Recession to Pre-Recession Peak

1/29/1970 7/30/1970 -20% 28% 182

1/30/1973 10/30/1974 -45% 26% 638

8/13/1981 8/12/1982 -20% 50% 364

8/25/1987 12/4/1987 -27% 23% 101

1/3/1990 9/28/1990 -29% 23% 268

7/20/1998 10/8/1998 -24% 40% 80

3/24/2000 3/12/2003 -52% 40% 1083

Average: -31% 33% 388

*Current Cycle Comparison

10/31/2007 3/9/2009 -57% 75% 495




21

US Recessions and Equity ReturnsU.S. Economic Cycles and Equity Market Returns (%) Since 1902

Source: Bloomberg, NBER, Morgan Stanley Smith Barney LLC. Data as of December 2011.

Equity Trough to Prior Recession PeakDuration (Days)

1 Month 6 Months 12 Months

Sep-1902 - Aug-1904 09-Nov-1903 23 10 -43 12 16 57 603

May-1907 - Jun-1908 15-Nov-1907 13 8 -49 8 40 67 461

Jan-1910 - Jan-1912 25-Sep-1911 24 4 -27 7 21 28 465

Jan-1913 - Dec-1914 24-Dec-1914 23 0 -44 9 31 85 471

Aug-1918 - Mar-1919 07-Feb-1919 7 2 -25 9 27 21 549

Jan-1920 - Jul-1921 24-Aug-1921 18 -1 -46 11 34 56 454

May-1923 - Jul-1924 30-Oct-1923 14 9 -18 7 5 19 149

Oct-1926 - Nov-1927 01-Nov-1926 13 13 -12 5 9 21 59

Aug-1929 - Mar-1933 08-Jul-1932 43 9 -85 68 64 171 742

May-1937 - Jun-1938 31-Mar-1938 13 3 -54 15 44 29 268

Feb-1945 - Oct-1945 26-Mar-1945 8 7 -2 9 19 35 52

Nov-1948 - Oct-1949 13-Jun-1949 11 5 -21 9 23 42 251

Jul-1953 - May-1954 14-Sep-1953 10 9 -15 4 18 38 177

Aug-1957 - Apr-1958 22-Oct-1957 8 6 -21 5 10 31 71

Apr-1960 - Feb-1961 25-Oct-1960 10 4 -13 7 25 31 207

Dec-1969 - Nov-1970 26-May-1970 11 6 -35 6 23 44 261

Nov-1973 - Mar-1975 03-Oct-1974 16 6 -48 19 31 38 437

Jan-1980 - Jul-1980 27-Mar-1980 6 4 -11 7 29 37 120

Jul-1981 - Nov-1982 12-Aug-1982 16 4 -27 18 44 58 431

Jul-1990 - Mar-1991 11-Oct-1990 8 6 -20 6 28 29 92

Mar-2001 - Nov-2001 09-Oct-2002 8 -11 -49 15 11 34 526

Dec-2007 - Jun-2009 09-Mar-09 18 4 -56 27 31 69 ??

Apr-2011 - ? ? ? ? ? ? ? ? ?

Mean 15 5 -33 13 26 47 326

Median 13 5 -27 9 26 37 268

Post World War II Mean 11 4 -29 11 25 41 257

Post World War II Median 10 5 -21 7 25 38 229

Peak to Trough

Economic Cycle U.S. Equity Mkt Trough

U.S. Equity Market % Decline U.S. Equity Market % Gain After Trough

Recession Duration (Months)

Market Lead to Cycle Trough

(Months)




22

S&P 500 Bear Markets and Recoveries

Note: Due to the limitations of index data, price return is used before 1990 and total return is used for returns after 1990. The indexes are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. All returns are total returns in U.S. Dollars. Past performance does not guarantee future results. Index returns do not include any expenses, fees or sales charges, which would lower performance. The indexes are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. All returns are total returns in U.S. Dollars. Past performance does not guarantee future results. Index returns do not include any expenses, fees or sales charges, which would lower performance. All returns are in U.S. Dollars. The Compound Annual Growth Rate is the year-over-year growth rate of an investment over a specified period of time. Data are as of December 31, 2011. (1) Price Return data are used before 1987 and Total Return data are used after 1987. For the 1987 bear market, the decline is expressed in price return terms and the recovery is expressed in total return terms. (2) The valuation analysis on the S&P 500 Index peak and trough price/earnings ratio is based on monthly operating earnings.

Source: Ibbotson Associates, Morgan Stanley Smith Barney LLC and Investment Strategy Group. Standard & Poor’s; Bloomberg; Morgan Stanley Smith Barney LLC and Investment Strategy Group. Data as of December 2011.

The following disclosure pertains to Ibbotson Associates’ data on slides 22-26, 47, 74, 75, 77-90:

(c) 2012 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.

Source: Calculated by Morgan Stanley Smith Barney LLC using data provided by Morningstar. (c) 2012 Morningstar, Inc. All rights reserved. Used with permission. This information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.

S&P 500 Index Bear Market Downturns and Recoveries

3 Months 6 Months 12 Months Peak Trough Peak TroughSep 1929 - Jun 1932 -86.2 33 93 53 121 21 8 4 0 Jun 1932 - Sep 1954 267Jul 1933 - Mar 1935 -33.9 20 27 46 77 26 13 1 1 Mar 1935 - Oct 1935 7

Mar 1937 - Apr 1942 -60.0 62 15 25 54 17 8 2 1 Aug 1942 - Jan 1946 45May 1946 - Jun 1949 -29.6 37 16 23 42 21 6 2 1 Jun 1949 - Jun 1950 12Aug 1956 - Oct 1957 -21.6 15 6 10 31 14 12 2 2 Oct 1957 - Sep 1958 11Dec 1961 - Jun 1962 -28.0 6 7 20 33 23 17 2 2 Jul 1962 - Sep 1963 14Feb 1966 - Oct 1966 -22.2 8 12 22 33 18 14 2 2 Oct 1966 - May 1967 7Nov 1968 May 1970 -36.1 18 17 23 44 18 15 2 2 May 1970 Mar 1972 21Jan 1973 - Oct 1974 -48.2 21 14 31 38 18 7 2 1 Oct 1974 - Jul 1980 69Dec 1976 - Mar 1978 -19.1 14 15 21 13 11 8 1 1 Mar 1978 - Aug 1979 17Nov 1980 - Aug 1982 -27.1 21 36 44 58 9 8 1 1 Aug 1982 - Nov 1982 3Aug 1987 - Dec 1987 -33.5 5 21 21 26 20 13 2 2 Dec 1987 - Jul 1989 20Jul 1990 - Oct 1990 -19.2 3 8 30 34 16 13 2 2 Nov 1990 - Feb 1991 4Jul 1998 - Aug 1998 -19.2 2 22 30 40 25 22 4 4 Sep 1998 - Nov 1998 3

Mar 2000 - Oct 2002 -47.4 31 20 13 36 26 18 5 2 Oct 2002 - May 2007 56Oct 2007 - Mar 2009 -55.3 17 40 55 72 18 10 3 2 Mar 2009 - Apr 2011 25Apr 2011 - Oct 2011 -18.6 5 17 ? ? 15 12 2 2 Oct 2011 - ?

Average: -35.6 18.7 22.7 29.2 46.9 18.5 12.0 2.4 1.5 36.3

Recover to Peak S&P 500

Date of Recovery

Price/Earnings Ratio *

Price/Book Ratio * Duration

(Months)Decline

(%)Duration(Months)

Subsequent Return (%)Downturn from Peak S&P 500

Peak to Trough




23

S&P 500 IndexPrice/Earnings Ratio and Price/Book Ratio: Subsequent 10 Year Compound Returns

Note: The indexes are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. All returns are total returns in U.S. Dollars. Past performance does not guarantee future results. Index returns do not include any expenses, fees or sales charges, which would lower performance. The Compound Annual Growth Rate is the year-over-year growth rate of an investment over a specified period of time. Analysis are based on monthly data of the S&P 500 Index 12-month trailing Price/Operating Earnings and S&P 500 total return, from January 1926 through September 2012.

Source: Ibbotson Associates, FactSet, Morgan Stanley Smith Barney LLC. Data as of September 2012.

16.9%

14.5%

13.3%

10.9%

8.7%

5.1% 5.5%

<9x 9x-10x 10x-12x 12x-14x 14x-16x 16x-18x >18x

/ E R a t i o R an g

Price/Operating Earnings Ratio

11.8%

14.4%

9.7%

5.7%

3.0% 3.0%

1.3%

<1.0x 1.0x-1.5x 1.5x-2.0x 2.0x-2.5x 2.5x-3.0x 3.0x-3.5x >3.5x

Price/Bo o k Ra tio

Price/Book Ratio

P/E Ratio Range P/B Ratio Range

<9x 9x-10x 10x-12x 12x-14x 14x-16x 16x-18x >18x <1.0x 1.0x-1.5x 1.5x-2.0x 2.0x-2.5x 2.5x-3.0x 3.0x-3.5x >3.5x

Number of Obs 122 66 119 129 153 198 253 45 351 259 161 106 42 53

Number of Pos Obs 122 66 117 107 123 138 189 45 351 245 113 35 24 26

Min 7.9% 6.5% 0.0% -1.0% -4.2% -3.3% -4.9% 2.7% 0.4% -0.4% -4.2% -2.9% -3.3% -4.9%

Max 21.4% 18.2% 19.2% 19.5% 19.4% 17.7% 17.3% 21.4% 21.4% 19.5% 18.8% 11.8% 9.0% 8.1%




24

S&P 500 Index Periods of Negative 10-Year Returns and Subsequent 5-Year and 10-Year Returns

Note: NA = Not ApplicableSource: Ibbotson Associates, Morgan Stanley Smith Barney LLC. Data as of September 2012.CAGR = Compound Annual Growth Rate

August 1939 -4.95% 9.34% 9.21%May 1940 -4.16% 16.95% 13.79%June 1939 -3.94% 10.26% 8.70%February 2009 -3.43% N/A N/AJuly 1939 -3.37% 7.55% 8.25%April 1939 -3.32% 8.19% 9.06%March 1939 -3.13% 8.35% 9.22%March 2009 -3.00% N/A N/ASeptember 1939 -3.00% 6.00% 7.82%March 1938 -2.88% 13.03% 11.87%January 2009 -2.65% N/A N/AApril 2009 -2.48% N/A N/AMay 1938 -2.41% 12.04% 12.00%May 1939 -2.28% 7.73% 8.00%June 2009 -2.22% N/A N/AJanuary 1939 -2.13% 5.59% 8.05%April 1938 -1.89% 10.10% 10.69%August 2010 -1.81% N/A N/AMarch 1940 -1.78% 8.65% 9.77%February 1939 -1.74% 4.88% 7.32%April 1940 -1.73% 10.60% 10.32%July 1940 -1.72% 13.95% 12.03%May 2009 -1.71% N/A N/AJune 1940 -1.68% 15.13% 12.27%June 2010 -1.59% N/A N/AAugust 1940 -1.52% 14.58% 12.13%December 2008 -1.38% N/A N/ANovember 1938 -1.23% 3.35% 7.32%July 2009 -1.20% N/A N/AFebruary 1940 -1.13% 9.91% 9.83%January 1940 -1.01% 8.75% 9.76%October 1939 -0.96% 6.31% 8.31%October 2009 -0.95% N/A N/ADecember 2009 -0.95% N/A N/ANovember 2008 -0.93% N/A N/ADecember 1938 -0.89% 3.78% 7.26%May 2010 -0.82% N/A N/AJanuary 2010 -0.80% N/A N/AAugust 2009 -0.79% N/A N/AJuly 2010 -0.76% N/A N/AMarch 2010 -0.66% N/A N/AMay 2012 -0.62% N/A N/ANovember 2009 -0.57% N/A N/ASeptember 2010 -0.43% N/A N/AFebruary 1941 -0.37% 18.28% 14.87%September 1938 -0.32% 5.98% 8.17%February 2010 -0.31% N/A N/AAugust 1938 -0.23% 5.78% 8.66%April 2010 -0.20% N/A N/ASeptember 2009 -0.15% N/A N/AApril 2012 -0.06% N/A N/ADecember 1939 -0.06% 7.67% 9.17%November 1939 -0.04% 7.46% 8.94%September 1940 -0.04% 15.28% 12.64%October 2010 -0.02% N/A N/AAverage -1.53% 9.50% 9.84%

10-Year Return (%) Subsequent 5-Year CAGR (%) Subsequent 10-Year CAGR (%)Periods of Rolling Negative 10-Year Returns




25

S&P 500 Recuperative Properties After 10% Plus Quarterly Corrections

Note: The indexes are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. All returns are total returns in U.S. Dollars. Past performance does not guarantee future results. Index returns do not include any expenses, fees or sales charges, which would lower performance. The Compound Annual Growth Rate is the year-over-year growth rate of an investment over a specified period of time. Please note no 5-Year CAGR is available for the period after 4Q2008 and no 10-Year CAGR is available for the period after 3Q2001, 2Q2002 and 4Q2008.

Source: Ibbotson Associates; Morgan Stanley Global Wealth Management Asset Allocation and Investment Strategy Group. Data as of June 2012.

Note: The indexes are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. All returns are total returns in U.S. Dollars. Past performance does not guarantee future results. Index returns do not include any expenses, fees or sales charges, which would lower performance.

Source: Ibbotson Associates, Morgan Stanley Global Wealth Management Asset Allocation and Investment Strategy Group. Data as of December 2011.

Minus 10% Quarter Performance and Subsequent 1 Year, 5 Year, and 10 Year Compound Annual Growth Rates

S&P 500 Index (%)

Effect of Market-TimingThe Effect of Missing the Best One Month’s Return During a Calendar Year Time Period

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

3Q1974 4Q1987 4Q2008 2Q1962 3Q1946 2Q1970 3Q2002 2Q1940 3Q2001 3Q2011

S&P 500 Index Annual TR1940 - 2011* Worst Quarters Return 1 YR CAGR 5 YR CAGR 10 YR CAGR

-50%

-30%

-10%

10%

30%

1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

S&P 500 Index Annual TR 1970 - 2011* Annualized Return Excluding the Best One Month within the Calendar Year Time Period Annual Return




26

S&P 500 Index Rolling 3 Year Compound Annual Growth Rate Distribution1926 – 2012

Note: This analysis is based on 982 Rolling-Three Periods from January 1926 – December 2011. The indexes are unmanaged. An investor cannot invest directly in an index. Indices used for this analysis include: (i) U.S. Large-Cap Stocks: Standard & Poor’s 500 Index Total Return; (ii) U.S. Small-Cap Stocks: Ibbotson Small Company Stocks Index Total Return; (iii) U.S. Bonds: Ibbotson U.S. Long-Term 20-Year Government Bond Index Total Return; Barclay Capital U.S. Aggregate Government Bond Index (Long) and (iv) Treasury Bills: 30-Day U.S. Treasury Bills Index Total Return. They are shown for illustrative purposes only and do not represent the performance of any specific investment. All returns are total returns in U.S. Dollars. Past performance does not guarantee future results. Index returns do not include any expenses, fees or sales charges, which would lower performance. All returns are total returns in U.S. Dollars. Past performance does not guarantee future results. The Rolling 3-Year Compound Annual Growth Rate of monthly returns was used for this analysis. The Compound Annual Growth Rate is the year-over-year growth rate of an investment over a specified period of time. Index returns do not include any expenses, fees or sales charges, which would lower performance.

Source: Ibbotson Associates; Morgan Stanley Smith Barney LLC and Investment Strategy Group. Data as of September 2012

4 5 8 2 525

5869

96

173

213

155

8868

2510

0

50

100

150

200

250

<-35 -35 t o -30 -30 t o -25 -25 t o -20 -20 t o -15 -15 t o -10 -10 t o -5 -5 t o 0 0 t o 5 5 t o 10 10 t o 15 15 t o 20 20 t o 25 25 t o 30 30 t o 35 >35

Importance of Long-Term Returns Compounding1926 – 2012

'26 '28 '30 '32 '34 '36 '38 '40 '42 '44 '46 '48 '50 '52 '54 '56 '58 '60 '62 '64 '66 '68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12

$0.1$0.2

$1.0$2.0

$10.0$20.0

$100.0$200.0

$1000.0$2000.0

$10000.0$20000.0

$12$21

$127

$3,538

$18978

S&P 500 TR (% Total Return) U.S. Small Stk TR (% Total Return) U.S. LT Gov 't TR (% Total Return) U.S. Inf lation (% Price Total) U.S. 30 Day TBill (% Total Return)




United Kingdo m, 5%

Euro pe ex-UK, 28%

Japan, 16%

EM (Emerging M arkets) , 12% A ll Other, 3%

United States36%

27

Global Debt and Equity Regional Market Share

United Kingdo m, 8%

Euro pe ex-UK, 15%

Japan, 7%

EM (Emerging M arkets) , 12% A ll Other, 10%

United States, 47%

Note: May not add to 100% due to rounding.

Source: Bank of International Settlements, FactSet.

Global Market Cap by Region: $33 trillionGlobal Debt Securities by Region: $93.2 trillion

Data as of September 2012.Data as of June 2012.




28

US Stock Market Foreign Exposure

Non-US Sales by Sector (%)Consumer Discretionary 31 Industrials 40

Consumer Staples 49 Information Technology 54

Energy 55 Materials 52

Financials 19 Telecommunications 4

Health Care 39 Utilities 5

S&P 500 35

Note: Rest of World profits are NIPA (Economic Profits)

Source: Standard & Poor’s, FactSet, Bureau of Economic Analysis. Data as of September 2012.

US Corporate Profits

Total Profits Earned Profits Earned Profits Earned

Profits In The U.S. Abroad Abroad

(Annual Percent Change) (% of Total)

1999 7.7 5.4 20.4 17.1

2000 -1.1 -4.3 14.5 19.8

2001 -5.4 -4.3 -9.8 18.9

2002 11.4 11.2 11.9 19.0

2003 14.0 12.1 21.9 20.3

2004 28.4 27.5 31.7 20.8

2005 16.8 16.8 17.0 20.9

2006 11.0 10.5 13.1 21.3

2007 -1.1 -6.1 17.5 25.3

2008 -9.4 -17.4 14.0 31.8

2009 1.2 9.1 -15.7 26.5

2010 27.9 32.2 16.2 24.0

2011 8.9 7.9 11.9 24.7




29

Global Equity Sector and Factor CharacteristicsMSCI World Sector and Factor Characteristics by Quintile

Note: All computations are bottom-up MSCI World data. See Note for Characteristics By Equity Index above. Source: FactSet, Morgan Stanley Smith Barney LLC. Data as of October 2012.

Sector

Consumer Discretionary 10% 14% 37% 12% 16%Consumer Staples 12% 11% 8% 8% 4%Energy 14% 36% 8% 46% 6% 73% 7% 46% 3% 65%Financials 20% Cyclicals 20% Cyclicals 21% Cyclicals 24% Cyclicals 16% CyclicalsHealth care 9% 6% 6% 5% 4%Industrials 7% 14% 19% 15% 21%Information Technology 13% 8% 9% 8% 12%Materials 6% 31% 10% 27% 9% 23% 11% 23% 17% 16%Telecommunications 7% Non Cyclicals 4% Non Cyclicals 3% Non Cyclicals 4% Non Cyclicals 2% Non CyclicalsUtilties 3% 6% 6% 6% 5%

Foreign Sales % - Annual 50% 38% 40% 34% 35%St. Dev. Month TR (3yrs) 5.86 6.94 6.93 7.78 8.69

Effective Tax Rate - QTR -LTM 33% 31% 29% 32% 0%Pre- Tax Profit Margin - QTR 13% 11% 8% 3% 5%Return on Equity - QTR _LTM 26% 30% 14% 16% 7%

Dividend Yield - MONTH 2.88 2.57 2.45 2.89 2.91Payout Ratio - QTR - LTM 33.56 32.59 31.62 31.83 31.52

Price/Earnings -NTM 29.2x 43.4x 66.3x 23.4x 32.2xIBES LTG 10.6% 11.6% 11.4% 13.9% 13.0%PE/G 2.3% 4.2% 12.5% 153.0% 1.8%

Market Cap as a % of Total 65% 17% 9% 6% 3%

Bottom Cap QuintileTop cap Quintile Quintile II Quintile III Quintile IV




30

US Equity Sector and Factor Characteristics

Note: All computations are bottom-up S&P 500 data. See Note for Characteristics By Equity Index above

S&P

Supe

r Com

posi

te a

nd R

usse

ll 10

00

Gro

wth

, Sec

tor,

and

Fact

or C

hara

cter

istic

s

Note: All computations are bottom-up. Earnings stability is the mean absolute percentage deviation of the actual reported earnings from the five-year historical EPS growth trend. Earnings predictability is the standard deviation of the current year's consensus estimates of EPS over the mean estimate, the higher the number, the less stable or predictable the earnings. The effective tax rate is total income taxes/annual pre-tax income. Price/Earnings Ratio is forward-12-month consensus estimates. Thomson Financial LTG EPS growth is forward five years. PE/G is forward 1 year.

S&P

500

Sect

oran

d Fa

ctor

Cha

ract

eris

tics

by Q

uint

ile

Source: FactSet, Morgan Stanley Smith Barney LLC. Data as of October 2012.

Consumer Discretionary 16% 14% 0% 0% 0%Consumer Staples 5% 3% 100% 100% 100%Energy 4% 55% 6% 53% 0% 0% 0% 0% 0% 0%Financials 21% Cyclical 22% Cyclical 0% Cyclical 0% Cyclical 0% CyclicalHealth Care 11% 10% 0% 0% 0%Industrials 16% 16% 0% 0% 0%Information Technology 18% 15% 0% 0% 0%Materials 6% 20% 7% 19% 0% 100% 0% 100% 0% 100%Telecommunications 1% Non-Cyclical 1% Non-Cyclical 0% Non-Cyclical 0% Non-Cyclical 0% Non-CyclicalUtilties 4% 5% 0% 0% 0%

Foreign Sales % - Annual 18% 22% 30% 30% 30%0 0% 0 0% 0 0% 0 0% 0 0%St. Dev. Month TR (3yrs) 0.08 0.07 0.04 0.04 0.04

Effective Tax Rate - QTR -LTM 21.0% 33.6% 30.9% 30.9% 30.9%After Tax Profit Margin - QTR 8.1% 9.2% 7.9% 7.9% 7.9%Return on Equity - QTR _LTM 10.9% 15.0% 77.9% 77.9% 77.9%


0 0 0 0 0Price/Earnings -NTM 16.03x 15.40x 13.81x 13.81x 13.81xIBES LTG 0.14x 0.13x 0.05x 0.05x 0.05xPE/G 1.85x 2.37x 2.94x 2.94x 2.94xMarket Cap as a % of Total 0.0% 0.0% 100.0% 99.9% 100.0%

S&P SmallCap 600 S&P MidCap 400 S&P 500 Russell 1000 Growth S&P Composite

Consumer Discretionary 10% 10% 18% 18% 20%Consumer Staples 14% 10% 6% 12% 3%Energy 12% 44% 11% 36% 8% 51% 7% 51% 8% 60%Financials 14% Cyclical 23% Cyclical 14% Cyclical 13% Cyclical 13% CyclicalHealth Care 12% 8% 15% 9% 6%Industrials 8% 10% 13% 12% 17%Information Technology 24% 9% 16% 16% 13%Materials 2% 31% 7% 30% 3% 28% 6% 28% 10% 20%Telecommunications 4% Non-Cyclical 2% Non-Cyclical 1% Non-Cyclical 0% Non-Cyclical 4% Non-CyclicalUtilties 1% 10% 6% 7% 7%

Foreign Sales % - Annual 47% 27% 25% 34% 25%

St. Dev. Month TR (3yrs) 5.26 5.65 6.75 6.79 8.90Effective Tax Rate - QTR -LTM 24.8% 26.7% 26.1% 21.2% 0.3%After Tax Profit Margin - QTR 13.2% 11.8% 10.1% 10.2% 5.0%Return on Equity - QTR _LTM 36.4% 16.6% 36.1% 16.6% 13.4%


Price/Earnings -NTM 16.0x 20.1x 17.6x 16.9x 17.2xIBES LTG 11.1% 11.5% 11.3% 10.5% 11.5%PE/G 2.6 4.2 4.4 2.2 1.7Market Cap as a % of Total 66% 16% 9% 6% 3%

Bottom Cap QuintileTop Cap Quintile Quintile II Quintile III Quintile IV




31

US Valuation by Style

Note: Percent rank indicates the share of historical observations at or below current P/E ratio levels

Source: Russell Investments, FactSet, Morgan Stanley Smith Barney LLC. Data as of September 2012.

Current and Historical P/Es by Style

Small Value

Small Blend

Small Growth

Mid Value

Mid Blend

Mid Growth

Large Value

Large Blend

Large Growth

Historical Quartiles(20 Yrs)

Min 7.4 8.7 10.9 8.4 9.2 9.9 10.4 11.1 11.7

25% 14.1 16.2 19.6 14.3 16.8 20.4 14.8 17.2 19.6

50% 17.7 22.8 29.1 16.7 19.9 24.4 16.5 19.4 22.0

75% 20.2 25.5 36.7 18.9 22.3 29.7 19.9 22.9 27.8

Max 33.1 42.7 128.2 25.1 30.5 89.4 45.2 32.5 67.3

Current P/E 14.1 16.1 18.9 13.7 15.6 18.4 14.3 16.0 18.1

Average P/E (20 yrs) 17.2 21.8 31.8 16.6 19.9 28.5 17.7 20.6 25.8

Current/Average (%) 81.7 73.8 59.3 82.2 78.4 64.5 81.2 77.8 70.1

Percent Rank (%) 25.1 24.0 22.8 16.6 12.4 13.5 13.9 9.6 12.4




32

US Valuation by Style


Russell 1000 Value/Growth Trailing PE

Russell 2000/1000 Trailing PE

'89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '120.20.2

0.40.4

0.60.6

0.80.8

1.01.0

1.21.2

1.41.4

1.61.6

1.81.8

2.02.0

20 Year Avg. = 0.74

'89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '120.00.0

1.01.0

2.02.0

3.03.0

4.04.0

5.05.0

6.06.0

7.07.0

8.08.0

9.09.0

10.010.0

20 Year Avg. = 1.38




33

MSCI EAFE and All Country World Growth and ValueMSCI EAFE Value/Growth Relative Return

MSCI All-Country World Value/Growth Relative Return

Note: MSCI All Country World represents developed markets.

Source: MSCI Barra, Thomson Reuters, Morgan Stanley Smith Barney LLC. Data as of September 2012.

'76 '77 '78 '79 '80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '120.50.5

1.01.0

1.51.5

2.02.0

2.52.5

3.03.0

3.53.5

4.04.0

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '120.90.9

11

1.11.1

1.21.2

1.31.3

1.41.4

1.51.5




34

Regional Equity Valuations

Note: MSCI All Country World represents developed markets.

Source: MSCI Barra, Thomson Reuters, Morgan Stanley Smith Barney LLC. Data as of September 2012.

MSCI All Country World, EAFE and Emerging Market Forward PE Ratios

MSCI Emerging Markets Index to MSCI World Index Forward PE Ratio

'88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '1200

55

1010

1515

2020

2525

3030

3535

MSCI ACW IDX Fwd PE Ratio MSCI EAFE IDX Fwd PE Ratio MSCI Emerging Market IDX Fwd PE Ratio

'88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '120.20.2

0.40.4

0.60.6

0.80.8

1.01.0

1.21.2

1.41.4

1.61.6

1.81.8

2.02.0

2.22.2

Average




35

Russell Large-Cap Growth and Value


Russell Top 200 Value/Russell Top 200 Growth Relative Return

Russell Large Value PE/Large Growth Forward PE'86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

0.40.4

0.60.6

0.80.8

1.01.0

1.21.2

1.41.4

1.61.6

1.81.8

'79 '80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '120.20.2

0.30.3

0.40.4

0.50.5

0.60.6

0.70.7

0.80.8

0.90.9

1.01.0

Av erage

+1 Std Dev

- 1 Std Dev




36

Russell Mid-Cap Growth and Value


Russell Mid-Cap Value/Mid-Cap Growth Relative Return

Russell Mid-Cap Value PE/Mid-Cap Growth Forward PE

'86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '120.10.1

0.20.2

0.30.3

0.40.4

0.50.5

0.60.6

0.70.7

0.80.8

0.90.9

1.01.0

Av erage

+ 1 SD

- 1 SD

'86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '120.40.4

0.60.6

0.80.8

1.01.0

1.21.2

1.41.4

1.61.6

1.81.8




37

Russell Small-Cap Growth and Value


Russell Small-Cap Value/Small-Cap Growth Relative Return

Russell Small-Cap Value PE/Small-Cap Growth Forward PE

'79 '80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '120.10.1

0.20.2

0.30.3

0.40.4

0.50.5

0.60.6

0.70.7

0.80.8

0.90.9

1.01.0

Average

+ 1 SD

- 1 SD

'79 '80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '120.00.0

0.50.5

1.01.0

1.51.5

2.02.0

2.52.5




38

Russell Small-Cap and Large-Cap

Source: Russell Investments, Kenneth French Data Library, FactSet, Morgan Stanley Smith Barney LLC. Data as of September 2012.

Russell: Small-Cap/Top 200 Relative Return

Russell 2000 PE/Russell Top 200 Forward PE

'79 '80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '120.60.6

0.70.7

0.80.8

0.90.9

1.01.0

1.11.1

1.21.2

1.31.3

1.41.4

Av erage

+ 1 Std Dev

- 1 Std Dev

'52 '54 '56 '58 '60 '62 '64 '66 '68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12-1-1

00

11

22

33

44

55




39

Russell Mid-Cap and Large-Cap


Russell Mid-Cap/Top 200 Relative Return

Russell Mid-Cap PE/Russell Top 200 Forward PE

'79 '80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '120.70.7

0.80.8

0.90.9

1.01.0

1.11.1

1.21.2

Av erage

+ 1 Std Dev

- 1 Std Dev

'52 '54 '56 '58 '60 '62 '64 '66 '68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12-1.0-1.0

0.00.0

1.01.0

2.02.0

3.03.0

4.04.0

5.05.0




40

Russell Mid-Cap and Small-Cap


Russell Mid-Cap/Small-Cap Relative Return

Russell Mid-Cap PE/Russell Small-Cap Forward PE

'79 '80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '120.70.7

0.80.8

0.90.9

1.01.0

1.11.1

1.21.2

Av erage

+ 1 Std Dev

- 1 Std Dev

'52 '54 '56 '58 '60 '62 '64 '66 '68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '120.40.4

0.60.6

0.80.8

1.01.0

1.21.2

1.41.4

1.61.6




'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '120.0

0.5

1.0

1.5

2.0

2.5

3.0

Ratio

US Median Fw d PE: 1.02Japan Median Fw d PE: 0.99Euro Median Fw d PE: 1.07

41

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '120.5

1.0

1.5

2.0

1.08

Ratio

Global and Regional Large-Cap and Mid-Cap

Source: I/B/E/S, Nomura European Strategy. Data as of September 2012.

Note: Chart shows the 12M Fwd P/E multiple on the Nomura Global Size Style Index. This is defined as the relative P/E of the largest and smallest Stks in the FTSE World Index rebalanced quarterly.

Note: Chart shows the 12M Fwd P/E multiple on the Nomura Global Size Style Index. This is defined as the relative P/E of the largest and smallest Stks in the FTSE World Index rebalancing quarterly.

Relative PE Valuation of Large and Mid-Cap Stks Globally

Relative 12-Month Forward PE of Large-Cap to Mid-Cap Stks: U.S., Japan and Europe




42

US Stock and Bond Supply/Demand

Source: Bureau of Economic Analysis, FactSet, Morgan Stanley Smith Barney LLC. Data as of December 2011.

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Household Demand (Billion $) -4 53 10 -48 18 36 -51 -144 -21 -445 -381 -157 51 -111 -326 -570 -582

S&P 500 Total Return (%) 30.5% 7.6% 10.1% 1.3% 37.6% 23.0% 33.4% 28.6% 21.0% -9.1% -11.9% -22.1% 28.7% 10.9% 4.9% 15.8% 5.5%

% Households Owning Equities 25.5 25.8 27.0 27.6 28.4 32.6 35.3 41.9 43.4 47.4 51.7 47.7 47.2 47.8 48.7 49.9 50.6

% Equities Owned By Top 10% By Wealth n/a 81 n/a n/a 84 n/a n/a 61.3 n/a n/a 65.4 n/a n/a 78.8 n/a n/a n/a

Minsky Modified Taylor Rule Calls For Negative Fed Funds;That is Why Extraordinary Policies Need to be Used.

Equities: US Household Demand & Ownership

'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12-6-6

-4-4

-2-2

00

22

44

66

88

1010

Source: Mount Lucas Management Corporation. Data as of September 2012.

Percent (%)

Minsky Fed Funds Rule, -2.95Federal Funds Rate (Ef fectiv e), Nsa - United States, 0.14




43

US Stock and Bond Supply/Demand

Source: Bureau of Economic Analysis, FactSet, Morgan Stanley Smith Barney LLC. Data as of 2Q12.

Non-U.S. Ownership of U.S. Stks and Bonds As Share of U.S. Stock and Bond Market Value

U.S. Ownership of Non-U.S. Stks and Bonds As Share of U.S. Stock and Bond Market Value

1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 20120.50.5

4.64.6

8.78.7

12.812.816.816.820.920.925.025.0

Log Scale

U.S. Share Ownership of Non-local Stocks 16.71U.S. Share Ownership of Non-local Bonds 14.38

1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 20100

10

20

30

40

50

60

0

2

4

6

8

10

12

14

Non-local Share of Wwnership of U .S. Bonds (Lef t)Non-local Share Ownership of U .S. Stock s (Right)




44

U.S. Stock and Bond Supply/Demand

Source: Federal Reserve Bank, Morgan Stanley Smith Barney LLC. Data as of 2Q12.

Net Equity Issuance

Net Bond Issuance1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

-8.0-8.0

-6.0-6.0

-4.0-4.0

-2.0-2.0

0.00.0

2.02.0

4.04.0

Percentage of New Equity Issuance (%)

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010-1.0-1.0

0.00.0

1.01.0

2.02.0

3.03.0

4.04.0

5.05.0

6.06.0

7.07.0

Percentage of Net Bond Issuance (%)




45

Global Yield Curves and Policy Rates

US EZ UKJN

Source: FactSet, Morgan Stanley Smith Barney LLC. Data as of September 2012.

Global Yield Curves Global Policy Rates

'99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '120%0%

1%1%

2%2%

3%3%

4%4%

5%5%

6%6%

7%7%




46

US Breakeven Inflation Rates, Treasury Yields, and TIPS Yields

5-Year Yields: Treasuries, TIPS, Breakevens


Source: FactSet, Morgan Stanley Smith Barney LLC. Data as of November 2012.

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12

-2-2

-1-1

00

11

22

33

44

55


BE Inflation 5Y TIPS 5Y TSY

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12-1-1

00

11

22

33

44

55


BE Inflation 10Y TSY 10Y TIPS




47

US Real Yields

Note: Stock returns are S&P 500; bond returns are Ibbotson long-term government. Cash returns assume one-year Treasury held to maturity. Real yield based on headline CPI prior to 1963 and core CPI post.

Source: Bloomberg, FactSet, Ibbotson Associates, Morgan Stanley Smith Barney LLC. Data as of September 2012.

U.S. Real Bond Yield and Forward One-Year Asset Class Return (%)

(1950-2012)

Real YieldEquity Return

Bond Return

Cash Return

(%) (%) (%) (%)Under 3 127 5.9 2.83 to 4 12.6 8.5 4.24 to 5 17.4 12.4 6.75 to 6 4.7 5.0 7.1Over 6 8.5 3.3 7.3

Real Fed Funds, Yield Curve Slope and Corporate Profits

-8

-6

-4

-2

0

2

4

6

8

10

12 -1,000

-800

-600

-400

-200

0

200

400

600

Note: Real Fed Funds is Fed Funds Target Rate minus US Personal Consumption Expenditures Core

Price; Yield curve Slope is the 30-Year US Treasury minus the

90-Day Treasury Bill

Real Fed Funds Rate (%) Yield curve (Basis Points Inverted)

Real Fed Funds Rate: -1.3Yield Curve Slope: 240.30

'74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12-30

-20

-10

0

10

20

30

40

50 NIPA Corporate Profits: 6.72




48

US High Yield and High Grade Corporate Bond Spreads

Source: DataStream, Federal Reserve Bank of St. Louis, Bloomberg, Morgan Stanley Smith Barney LLC. Data as of September 2012.

US HY Spread and Moody's Speculative Default Rate (%)

Moody's Baa Corporate Bond vs. 10 Year US Treasury Spread

'26 '30 '34 '38 '42 '46 '50 '54 '58 '62 '66 '70 '74 '78 '82 '86 '90 '94 '98 '02 '06 '100.0.

100.100.

200.200.

300.300.

400.400.

500.500.

600.600.

700.700.

800.800.

+2 Std Dev

-2 Std Dev

Average

'87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '120

200400600800

1,0001,2001,4001,6001,8002,000

0

2

4

6

8

10

12

14

US High Yield Spread Moody's Speculative % Default Rate

Moody's Spec. Default Rate (RHS) US High Yld Spread




49

US 6-Month CD Rate: Real and Nominal

Source: Federal Reserve Bank, FactSet, Morgan Stanley Smith Barney LLC. Data as of September 2012.

Real 6-Month Certificate of Deposit Nominal 6-Month Certificate of Deposit

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '120%0%

2%2%

4%4%

6%6%

8%8%

10%10%

12%12%

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12-3%-3%

-2%-2%

-1%-1%

0%0%

1%1%

2%2%

3%3%

4%4%

5%5%

6%6%

7%7%




50

Corporate Bond and Equity Issuance in Emerging Markets by Year

Source: Dealogic, Bloomberg, Morgan Stanley Smith Barney LLC. Data as of September 2012.

'03 '04 '05 '06 '07 '08 '09 '10 '11 '120

10

20

30

40

50

60 -600

-400

-200

0

200

400

600

800

EMDebt

SpreadsTightening

EM Debt SpreadsWidening

EM Debt SpreadsTightening

JPMorgan EMBI Plus Sovereign Spreads (Left Scale) (Right) iShares MSCI Emerging Markets Index (Right Scale)

Corporate Bond and Emerging Markets Debt Spreads and Emerging Markets Equity Performance

Emerging Market Debt

'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '1200

100100

200200

300300

400400

500500

Note: Shaded blue area represents YTD as of Oct 1, 2012.

$ Bil $ Bil

Total Corporate Bond IssuanceTotal Equity Issuance




Dec 05 Dec 06 Dec 07 Nov 08 Nov 09 Oct 10 Oct 11 Oct 127070

8080

9090

100100

110110

120120

130130

Yen per US Dollar

51

Currencies

Source: FactSet, Morgan Stanley Smith Barney LLC. Data as of October 2012.

US Dollar Euro

Japanese Yen British Pound

Dec 05 Dec 06 Dec 07 Nov 08 Nov 09 Oct 10 Oct 11 Oct 121.31.3

1.41.4

1.51.5

1.61.6

1.71.7

1.81.8

1.91.9

2.02.0

2.12.12.22.2

US Dollar per British Pound

Dec 05 Dec 06 Dec 07 Nov 08 Nov 09 Oct 10 Oct 11 Oct 121.11.1

1.21.2

1.31.3

1.41.4

1.51.5

1.61.6

1.71.7

US Dollar per Euro

Apr-06 Jan-07 Oct-07 Jul-08 Apr-09 Jan-10 Oct-10 Jul-11 Apr-127070

7575

8080

8585

9090

9595

U.S. Dollar Index




52

'88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '1100

55

1010

1515

2020

2525

3030

Exports as a Percentage of World GDP(%) (%)

Global Trade and GDP Correlations

Source: IMF, World Economic Outlook Database, April 2012.

Exports as a Percentage of World GDP

Correlation Between Regional and World GDP Growth Rates

0.00.0

0.20.2

0.40.4

0.60.6

0.80.8

1.01.0

1.21.2

1.41.4Correlation Between Regional and World GDP Growth Rates

1982- 1996 1997 - 2011

G7 EM Central & Eastern Europe Developing Asia LATAM




53

US GDP MetricsS&P 500 and Economic Performance Year-over-Year % Change Since 1941

Source: Bloomberg, Morgan Stanley Smith Barney LLC. Data as of January 2012.

Note: Deflation years of 1949 and 1954 had negative CPI (shaded gray). Near-deflation years of 1959, 1963, 1986, 1997 and 2001 had negative PPI and CPI less than 2% (shaded yellow).

S&P 500 Prices CPI Core

CPI PPI Core PPI

Real GDP Growth

Productivity Growth

S&P 500 Prices CPI Core

CPI PPI Core PPI

Real GDP Growth

Productivity Growth

1941 -17.9 9.9 17.1 1976 19.1 4.9 6.1 3.8 5.7 5.4 2.81942 12.4 9.0 18.5 1977 -11.5 6.7 6.5 6.7 6.2 4.6 0.71943 19.4 3.0 16.4 1978 1.1 9.0 8.5 9.3 8.4 5.6 2.61944 13.8 2.3 8.1 1979 12.3 13.3 11.3 12.8 9.4 3.1 -1.51945 30.7 2.2 -1.1 1980 25.8 12.5 12.2 11.8 10.8 -0.3 0.71946 -11.9 18.1 -11.0 1981 -9.7 8.9 9.5 7.1 7.7 2.5 -0.21947 0.0 8.8 -0.9 1982 14.8 3.8 4.5 3.6 4.9 -1.9 0.61948 -0.7 3.0 2.9 4.4 1 1983 17.3 3.8 4.8 0.6 1.9 4.5 5.01949 10.5 -2.1 -4.6 -0.5 4 1984 1.4 3.9 4.7 1.7 2.0 7.2 1.11950 21.7 5.9 10.3 8.7 7.2 1985 26.3 3.8 4.3 1.8 2.7 4.1 2.21951 16.3 6.0 3.0 7.7 2.4 1986 14.6 1.1 3.8 -2.3 2.7 3.5 2.21952 11.8 0.8 -2.3 3.8 1.7 1987 2.0 4.4 4.2 2.2 2.1 3.2 0.91953 -6.6 0.7 0.3 4.6 1.1 1988 12.4 4.4 4.7 4.0 4.3 4.1 1.41954 45.0 -0.7 0.0 -0.6 4 1989 27.3 4.6 4.4 4.9 4.2 3.6 0.61955 26.4 0.4 1.0 7.2 2.2 1990 -6.6 6.1 5.2 5.7 3.5 1.9 1.11956 2.6 3.0 4.2 2.0 0.1 1991 26.3 3.1 4.4 -0.1 3.1 -0.2 2.81957 -14.3 2.9 3.4 2.0 2.5 1992 4.5 2.9 3.3 1.6 2.0 3.4 4.21958 38.1 1.8 1.7 0.3 -0.9 4.1 1993 7.1 2.7 3.2 0.2 0.4 2.9 -0.11959 8.5 1.7 2.0 -0.3 7.2 1.3 1994 -1.5 2.7 2.6 1.7 1.6 4.1 0.81960 -3.0 1.4 1.0 1.8 2.5 -0.2 1995 34.1 2.5 3.0 2.3 2.6 2.5 0.71961 23.1 0.7 1.3 -0.6 2.3 6.5 1996 20.3 3.3 2.6 2.8 0.6 3.7 2.41962 -11.8 1.3 1.3 0.3 6.1 3.5 1997 31.0 1.7 2.2 -1.2 0.0 4.5 2.11963 18.9 1.6 1.6 -0.3 4.4 3.7 1998 26.7 1.6 2.4 0.0 2.5 4.4 3.41964 13.0 1.0 1.2 0.6 5.8 1.4 1999 19.5 2.7 1.9 2.9 0.9 4.8 3.61965 9.1 1.9 1.5 3.3 6.4 5.8 2000 -10.1 3.4 2.6 3.6 1.3 4.1 2.91966 -13.1 3.5 3.3 2.0 6.5 1.5 2001 -13.0 1.6 2.7 -1.6 0.9 1.1 3.51967 20.1 3.0 3.8 1.7 2.5 1.8 2002 -23.4 2.4 1.9 1.2 -0.5 1.8 3.11968 7.7 4.7 5.1 3.1 4.8 3 2003 26.4 1.9 1.1 4.0 1.0 2.5 5.01969 -11.4 6.2 6.2 4.9 3.0 -0.4 2004 9.0 3.3 2.2 4.2 2.3 3.5 1.31970 -0.1 5.6 6.6 2.1 0.2 2.5 2005 3.0 3.4 2.2 5.4 1.4 3.1 1.61971 10.8 3.3 3.1 3.3 3.4 3.4 2006 13.6 2.5 2.6 1.1 2.0 2.7 0.81972 15.8 3.4 3.0 3.9 5.3 4.9 2007 3.5 4.1 2.4 6.2 2.0 1.9 2.51973 -17.4 8.7 4.7 11.7 5.8 0.8 2008 -38.5 0.1 1.8 -0.9 4.5 -0.3 -1.11974 -29.7 12.3 11.1 18.3 17.7 -0.6 -0.6 2009 23.5 2.7 1.8 4.3 0.9 -3.5 5.31975 31.5 6.9 6.7 6.6 6.0 -0.2 3.7 2010 12.8 1.5 0.8 3.8 1.4 3 2.5

2011 -0.003 3.0 2.2 4.8 3.0 3.0 0.9




54

US GDP

Peak (Quarter) Trough (Quarter)GDP % Change Rank

August 1929(III) June 1933 (I) -26.4 1

May 1937(II) August 1938 (II) -3.4 3

February 1945(I) October 1945 (IV) -1.1 12

November 1948(IV) October 1949 (IV) -1.8 8

July 1953(II) May 1954 (II) -2.7 6

August 1957(III) April 1958 (II) -3.7 2

April 1960(II) February 1961 (I) -1.6 11

December 1969(IV) November 1970 (IV) -0.6 14

November 1973(IV) June 1975 (I) -3.1 4

January 1980(I) July 1980 (III) -2.2 7

July 1981(III) November 1982 (IV) -2.9 5

July 1990(III) June 1991(I) -1.3 11

June 2001(I) November 2001 (IV) -0.7 13

December 2007(IV) August 2009 (IV) ? ?

US Recessions Since 1929

Note: Annual GDP figures used before 1947. GDP peaks and troughs near the recession dates were used to measure the deepest peak to trough GDP loss. GDP through 4Q08.

Source: National Bureau of Economic Research, Bureau of Economic Analysis, and Morgan Stanley Smith Barney LLC. Data as of December 2009.

Note: The ratio is a 3-cycle moving average of the duration of contractions relative to expansions since 1900. Ends with last recorded recession in 2001.

Source: NBER, and FactSet. Data as of December 2009.

Ratio of U.S. Economic Contractions to Expansions Since 1900

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 20100.1

0.2

0.3

0.4

0.5

0.6

0.70.80.9

1

2

Log Scale




55

US GDP

1970

2001-1991

-1980

-1973

198219531960

-1957

0

2

4

6

8

10

-4.0-3.5-3.0-2.5-2.0-1.5-1.0-0.50.0

Recessionary Decline in GDP (%)

First Year GDP Recovery (%)

US Contractions and Recoveries: 80 Percent Correlation in Magnitudes

Source: Bloomberg, Morgan Stanley Smith Barney LLC. Data as of December 2011.




56

Real Estate24%

Cash11%Bonds

6%

Equities21%

Other Assets

31%

Tangible Assets

7%

US Household Consumption and Assets

Note: Other Tangible Assets includes consumer durable goods and equipment & software. Other Equities includes security credit, life insurance reserves, pension fund reserves and non-corporate business equity. Numbers may not add up to 100, due to rounding.

Source: Federal Reserve Board, Morgan Stanley Smith Barney LLC. Data as of September 2012.

U.S. Household Assets, 2Q12U.S. Household Income Quintile Share of ConsumptionIncome Quintile % of Consumption

1st 39

2nd 23

3rd 17

4th 13

5th 9Source: Bureau of Labor Statistics Consumer Expenditure Survey, 2007, Morgan Stanley Smith Barney LLC. Data as of October 2009.




'80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '1210101111121213131414151516161717181819192020

Share of home-owning poulat ion rose f rom 64%

to 68% in the 1990's

Source: Federal Reserve Bank, FactSet, Morgan Stanley Smith BarneyData lags by 1 quarter .

Debt Service/DI (%)Financial Obligation Ratio (%)

Financial Obligation Rat io, Current: 15.78Debt Serv ice/Disposable Income, Current: 10.69

57

US Net Worth, Savings, and Financial Obligations to Income

Source: Bureau of Economic Analysis, Morgan Stanley Wealth Management. Data as of September 2012.

The Ratio of Household Net Worth to Disposable Income and Saving Rate

Debt Service and Financial Obligation Ratio to Disposable Income

Note: Financial Obligations Ratio (FOR) adds automobile lease payments, rental payments on tenant-occupied property, homeowners' insurance, and property tax payments to the debt service ratio. US Consensus is for home ownership is through 4Q10. Data as of September 2012

'52 '54 '56 '58 '60 '62 '64 '66 '68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '123.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0 0

2

4

6

8

10

12

14

Ratio of Household Net Worth to Disposable Income Savings Rate % (Inverted)

Household Net Worth to Disposable Income (Lef t)Personal Sav ings Rate (Inv erted) (Right)HH Net Worth to Disosable Income Av g: 5.0




58

US Income, Spending, and Leverage

Source: Haver, Citigroup, Morgan Stanley Smith Barney LLCData as of 3Q12.

Source: Federal Reserve, Morgan Stanley Smith Barney LLC. Data as of 2Q12.

Real Consumer Spending vs. Real Disposable Income (YoY%)

'66 '68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12

-4-4

-2-2

00

22

44

66

88

1010

Real Consumer Spending: 1.91Real Disposable Personal Income: 2.10

'55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '1020

25

30

35

40

45

50

55

0.6

0.8

1

1.2

1.4

1.6

1.8

2

2.2

2.4

Corporate (%) Household (%)

Household Liabilities/AssetsCorporate Liabilit ies/AssetsRecession Periods - United States

Corporate and Household Leveraged




59

US Real Wages and Initial Unemployment Claims

Source: Bloomberg, Morgan Stanley Smith Barney LLC. Data as of September 2012.

Growth in Real US Hourly Wages (YoY%)

Initial Jobless Claims (4-week moving average)

Jan 90 Jan 92 Jan 94 Jan 96 Jan 98 Jan 00 Jan 02 Jan 04 Jan 06 Jan 08 Jan 10 Jan 12200200

250250

300300

350350

400400

450450

500500

550550

600600

650650

700700

Thousands

Jan' 88 Jan' 90 Jan' 92 Jan' 94 Jan' 96 Jan' 98 Jan' 00 Jan' 02 Jan' 04 Jan' 06 Jan' 08 Jan' 10 Jan' 12-3-3

-2-2

-1-1

00

11

22

33

44

55

66




60

'88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12-9%-9%

-6%-6%

-3%-3%

0%0%

3%3%

6%6%

9%9%Average

2.6

Percent Change at Annual Rate

Real GDP Average

Personal Consumption,

66.1%

Business Investment, 10.2%

Residential Investment, 2.6%

Government, 21.1%

US Real GDP and Composition

Source: Bureau of Economic Analysis, Morgan Stanley Smith Barney LLC. Data as of 3Q12.

Composition of US Spending

Real GDP




61

1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

-9

-8

-7

-6

-5

-4

-3

-2

-1

0

1 -15

-10

-5

0

5

10

15

20

25

30

Capital and Labor Cost Spread (% Inverterd) IT Growth YOY% ChangeIT Spending YOY 4.60%Spread -1.00%

US Exports and IT Capex Incentives

Source: Federal Reserve Board, Bureau of Economic Analysis, Morgan Stanley Smith Barney LLC. Data as of 2Q12.

Exports Share of GDP and Trade Weighted Dollar

Capital Goods/Labor Cost Spread and Info Tech Spending

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

6

7

8

9

10

11

12

13

14

15 60

70

80

90

100

110

120

130

140

150

160

Exports/GDP (% Inverted) TW $

Exports/GDP: 14.0TW$: 71.78

Data as of Sept. 2012




62

US Profits

Source: Bureau of Economic Analysis, Morgan Stanley Smith Barney LLC. Data as of 2Q12.

NIPA After-Tax Corporate ProfitsSource: Standard and Poor's, Morgan Stanley smith Barney LLC. Data as of 3Q12.

'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '121010

2020

3030

4040

5050

6060

7070

8080

9090

100100

110110

Earnings Per Share ($)S&P 500 Earnings

(Rolling 4 Quarters)

'62 '64 '66 '68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '1200

200200

400400

600600

800800

1,0001,000

1,2001,200

1,4001,400

1,6001,600

1,8001,800

($ Billion)




63

3.8% 3.8%

3.2%2.9%

3.7%

2.2%

3.3% 3.3%

2.2%

0.8%

2.9%

3.3% 3.3%

1.2%

1.6%1.2%

1.8% 1.8%1.9%

2.5% 2.5%

0%

1%

1%

2%

2%

3%

3%

4%

4%

5%

1961-69 1982-90 1991-01 2001-07 2009-??

F irst 2 Y ears Y ears 3 and 4 Y ears 5 and 6 Y ears 7 and A bo ve

US Labor Costs, Profits, and Productivity

Source: Bureau of Labor Statistics, Morgan Stanley Smith Barney LLC. Data as of 2Q12.

Labor & Corporate Profits Shares of U.S. National Income

Business Cycle U.S. Labor Productivity

Note: Current cycle is 3Q09 – 2Q12.

Data as of 2Q12

'54 '56 '58 '60 '62 '64 '66 '68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '124

6

8

10

12

14

16 60

61

62

63

64

65

66

67

68

69

Profits (%) Labor (%) Iinverted

Labor: 62.Corp Prof its: 15.




64

US Employment and Leading Economic Indicators

Source: Bureau of Labor Statistics, Conference Board, Morgan Stanley Smith Barney LLC. Data as of August 2012.

U.S. Leading Economic Indicator, 6 Month % Change Annualized (1969 - Present)

Private-Sector Employment(Three-month moving average; monthly change; thousands)

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12-30-30

-25-25

-20-20

-15-15

-10-10

-5-5

00

55

1010

1515

2020

6 Month Chg (Annualized)

Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-126060

8080

100100

120120

140140

160160

180180

200200

220220

240240




65

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12-25

-20

-15

-10

-5

0

5

10

15

20

25

-3

-2

-1

0

1

2

3

U.S. Import Price Index and CPI Core Goods(Year-over-Year Percent Change)

Import Price Index (Left Scale)CPI Core Goods (Right Scale)

US Import Prices and Inflation

Source: Bureau of Labor Statistics, FactSet, Morgan Stanley Smith Barney LLC. Data as of August 2012.

U.S. Import Price Index and CPI Core Goods(Year-over-Year Percent Change)

U. S. Inflation

'65 '70 '75 '80 '85 '90 '95 '00 '05 '10-4-4

-2-2

00

22

44

66

88

1010

1212

1414

1616

YoY (%)

Core PCECPI




66

Commodity Prices and Recessions

Source: Commodity Research Bureau/Reuters US Spot Raw Industrials

Peak Date Peak Level Trough Date Trough LevelPeak to Trough

Decline (%)

11/29/74 528.2 08/31/77 333.6 -37

10/31/80 835.6 12/31/81 587.2 -30

10/30/87 1100.1 12/31/87 1069.3 -3

10/31/90 2665.6 12/31/93 2098.2 -21

01/31/97 3507.8 02/26/99 1883.3 -46

11/30/00 4235.2 01/31/02 2735.3 -35

07/03/08 10898.1 2/18/2009 3116.7 -71

Average -34

Note: Last trough as of June 9, 2011.

Source: Bloomberg, GSCI, Morgan Stanley Smith Barney LLC

Commodities Performance in Global Earnings Recessions

Recessions Peak to Trough % Change1953 - 1954 -421957 - 1958 -221960 - 1961 -131969 - 1970 -131980 - 1982 -301973 - 1975 -331980 - 1991 -301996 - 2001 -382007 - 2009 -40

Mean -29Median -30

Commodity Prices in U.S. Recessions

Source: FactSet. Data as of September 2012.

Crude Oil and Gold Prices

'92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '120

25

50

75

100

125

150

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000Crude Oil $/bbl Gold (US$/Troy oz)

Gold YoY%: 5.2Crude YoY%: 6.3




'92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '1250

100

150

200

250

300

15

30

45

60

75

90

105

Economist Commodities ISM Prices PaidEconomist Commodity Price Index YoY%: 0.02ISM Prices Paid Index YoY%: 0.04

67

Commodity Price Metrics

Source: Institute for Supply Management, The Economist, Morgan Stanley Smith Barney LLC. Data as of September 2012.

Source: Reuters, FactSet, Morgan Stanley Smith Barney LLC. Data as of August 2012.

ISM Prices Paid and The Economist Global Commodity Indices

CRB Futures and Raw Industrials

'92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12150

200

250

300

350

400

450

500

550

600

650

700

200

250

300

350

400

450

500

550

600

650

©FactSet Research Systems

CRB Futures CRB Raw Industrials

CRB: Futures Price Index YoY%:1.55CRB: Raw Industrials Iindex YoY%: -1.01




68

Oil, Gold and Real Estate

Source: National Council of Real Estate Investment Fiduciaries, Office of Federal Housing Enterprise Oversight, Morgan Stanley Smith Barney LLC. Data as of 2Q12.

Mortgage Bankers Association Weekly Refi Index

Note: This index is a measure of mortgage loan applications for purchases and refinancing. Data as of September 2012Source: Bloomberg, Morgan Stanley Smith Barney LLC.

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12-25-25

-20-20

-15-15

-10-10

-5-5

00

55

1010

1515

2020

2525

US Residental and Commercial Real Estate

Residential YoY%: -0.62Commercial TR 4Q Mov Avg: 2.88

US Residential and Commercial Real Estate

Jan'09 Apr'09 Jul'09 Oct'09 Jan'10 Apr'10 Jul'10 Oct'10 Jan'11 Apr'11 Jul'11 Oct'11 Jan'12 Apr'12 Jul'12 Oct'12200200

400400

600600

800800

1,0001,000

1,2001,200

1,4001,400




69

Crude Oil

Source: Thomson Financial, Bloomberg, Morgan Stanley Smith Barney LLC. Data as of September 2012.

Crude Oil: Inventories vs. Spot Price (WTI)

Analysts' Consensus Crude Oil Price Forecast versus Spot WTI Crude Oil Prices

'92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

260

280

300

320

340

360

380

40020

40

60

80

100

120

140

160

In Mil. of Barrels (Inverted) $s/BBL

Inv entories Price (Right)

'98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '1400

2020

4040

6060

8080

100100

120120

140140

160160

As of Oct 12, 2012, $91.25

FC Est2012: $93.312013: $91.832014: $95.56

Estimate

Crude Oil Prices ($) Oil Prices (Consensus $)

ActualAnalyst Estimates




70

US Real Estate Prices U.S. Home Price Inflation

U.S. Commercial Real Estate Inflation

'85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12-20-20

-15-15

-10-10

-5-5

00

55

1010

1515

2020

'85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11-30-30

-20-20

-10-10

00

1010

2020

3030

4040

©FactSet Research SystemsSource: NCREIF TBI, Thomson Reuters, Morgan Stanley Smith Barney. Data as of 2Q12

Annual % Change




71

US Housing Affordability

Housing Affordability Index

Median House Price to Disposable Income per Capital

Source: National Association of Realtors, Bureau of Economic Analysis, FactSet, Morgan Stanley Smith Barney LLC. Data as of August 2012.

'72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '124040

6060

8080

100100

120120

140140

160160

180180

200200

220220

Affordability

Average

Non-Affordable

Housing Affordability Index

'68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '123.53.5

4.04.0

4.54.5

5.05.0

5.55.5

6.06.0

6.56.5

7.07.0

7.57.5

8.08.0

Data as of August 2012




72

'60 '62 '64 '66 '68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12-2

0

2

4

6

8

10

12

14

16

-6

-4

-2

0

2

4

6

8

10

12

14

CPI (YoY%) Unit Labor Costs (YoY%)

CPI YoY % ChgUnit Labor Cost (Right)

Trends in Inflation Drivers

US Inflation and Unit Labor Costs

OECD CPI: Energy and Core

Note: Latest data as of 3/08. Correlation between CPI and ULC is 87%.

Source: OECD, BEA, FactSet, Morgan Stanley Smith Barney LLC. Data as of August 2012.

'84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12-30

-20

-10

0

10

20

30

40

0

2

4

6

8

10

12

14

16

18

20Fall of the Berl in

Wall

North AmericanFree Trade Agreement

(NAFTA)Approved

World Trade Organization(WTO)Created

Energy (YoY%) Core (YoY%)

OECD Core CPI 2.11OECD Energy -5.02

Data as of July 2012.




73

Global Equity Bull MarketsBased on Last 15 Years, Investors Should Buy Equities When Bond Yields are Below Nominal GDP Growth and Sell When They are Above…

The Bond Yield Has Been Consistently Above Nominal GDP Growthin Japan for the Last 20 Years

Source: Bloomberg, Bureau of Economic Analysis, Standard & Poor's, Morgan Stanley & Co. LLC Research. Data as of September 2012.

'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12-6

-4

-2

0

2

4

6

8

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Percent (%) S&P 500 Price Index

S&P 500 (Right)US Nominal GDP (YoY) (Lef t)10-y ear US Treasury Bond Yield (Lef t)

'85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12-10

-5

0

5

10

15

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

Percent (YoY%) Nikkei 225 Index

Nikkei 225 Index (Right)Nominal GDP GrowthJapan Gov ernment Bond 10-Year Y ield




74

Bear and Bull Markets & Inflation

Note: Core Inflation is a 5-year moving average; headline inflation prior to 1963.Source: Morgan Stanley Smith Barney, Bloomberg, Ibbotson Associates, and FactSet. Data as of October 2012.

US Secular Stock Bear and Bull Markets and Inflation Since 1946

US Secular Bond Bear and Bull Markets and Inflation Since 1946'46 '48 '50 '52 '54 '56 '58 '60 '62 '64 '66 '68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12

20

30405060

100

200

300400500600

1,000

2,000

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Dec. 1968

Aug.1982

Mar 2000

Mar. 2009

Bull 1946 - 1968Average Annual

Total ReturnNominal = 13%

Real = 10%

Bear 1969 - 1982Average Annual


Real = (2)%

Bull 1982 - 2000Average Annual


Real = 15%

Bear 3/2000 -3/2009Average Annual

Total ReturnNominal = (5)%

Real = (7)%

Cyclical

Bull

S&P 500 (log scale) Core CPI (%)

Core CPIS&P 500 Price

'46 '48 '50 '52 '54 '56 '58 '60 '62 '64 '66 '68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '120

2

4

6

8

10

12

14

16 Sept 1981

Bear 1946 - 1981Average Annual


Real = (5)%

Bull 1981 - 2011Av erage Annual


Real = 9%

LT Bond Yield (%)Core CPI (%)

Long Bond YieldCore CPI




75

Trends in Volatility and Dividend Yields

Note: Stock and bond volatility is the standard deviation of rolling 5-year monthly returns. Earnings volatility is the standard deviation of 5-year quarterly operating EPS.

US Stock to Bond Market and S&P 500 EPS Volatility

Source: Morgan Stanley Smith Barney LLC, Ibbotson Associates. Data as of October 2012.

US Dividend/Bond Yield Ratio

'10 '15 '20 '25 '30 '35 '40 '46 '51 '56 '61 '66 '71 '76 '82 '87 '92 '97 '02 '07 '130.1

0.20.30.40.5

1.0

2.03.04.0

0.1

0.20.30.40.5

1.0

2.03.04.0

Dividend Yield to Bond (Log Scale)

'35 '40 '45 '50 '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '100

1

2

3

4

5

6

7

8

9

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

Stock/Bond Volatility Earnings Volatility

Earnings Volatilit Correlation: 63%Stock/Bond Volatility (Left)

Recession Periods - United States




76

Asset Allocation at US Endowments

Source: National Association of College and University Business Officers (NACUBO). Data as of September 2012.

Note: All data are dollar-weighted otherwise specified. Alternative Strategies are categorized in the NCSE as follows: Private equity (LBOs, mezzanine, M&A funds, and international private equity); Marketable alternative strategies (hedge funds, absolute return, market neutral, long/short, 130/30, and event-driven and derivatives); Venture capital; Private equity real estate (non-campus); Energy and natural resources (oil, gas, timber, commodities and managed futures); and Distressed debt. All data are dollar-weighted otherwise specified

Size of Fund Domestic Equities %

Fixed Income %

International Equities %

Alternative Strategies* %

Short-term Securities / Cash / Other %

Over $1 Billion 12 9 16 60 3$501 Million - $1 Billion 18 11 19 46 6$101 Million - $500 Million 27 15 18 35 5$51 Million - $100 Million 32 20 18 23 7$25 Million to $50 Million 37 22 17 18 6Under $25 Million 41 25 14 10 10

All Public 19 13 18 45 5Public Institutions Only 15 12 18 49 6Institution-Related Foundations 24 15 18 38 5Combined Endowment/Foundation 23 13 18 43 3

Private 15 10 16 56 3

Dollar-weighted Average 16 10 17 53 4Equal-weighted average 31 19 17 27 6




77

US Stocks vs. 50-50 Blended Stock-Bond Portfolios During Bear Markets and Recoveries

Note: Monthly data was used through February 2009. S&P 500 recently trough on June 9, 2009.Source Standard & Poor's, Ibbotson Associates, Morgan Stanley Smith Barney LLC. Data as of September 2011.

S&P 500 IndexPeak to Trough

S&P 500 Decline (%)

Blend Int Gov

Decline (%)

Blend Long Gov

Decline (%)

Blend Corp

Decline (%)

S&P vs Blends' Performance fromPeak to Recovery

Peak Trough Recovery Int Gov Long Gov Corp

Aug-29 Jun-32 Jan-45 -83.4% -53.8% -53.4% -54.7% 63.9% 72.4% 87.2%

Oct-07 Feb-09 Na -50.9% -23.7% -18.8% -30.4% Na Na Na

Aug-00 Sep-02 Oct-06 -44.7% -14.8% -14.2% -12.7% 21.5% 29.2% 34.5%

Dec-72 Sep-74 Jun-76 -42.6% -21.8% -26.0% -27.7% 13.8% 10.6% 10.6%

Aug-87 Nov-87 May-89 -29.5% -14.2% -13.9% -14.3% 10.8% 14.3% 14.7%

Nov-68 Jun-70 Mar-71 -29.2% -14.4% -18.9% -19.7% 10.6% 6.4% 5.8%

Dec-61 Jun-62 Apr-63 -22.3% -10.5% -9.9% -9.8% 4.5% 5.0% 5.8%

May-46 Nov-46 Oct-49 -21.8% -11.2% -11.7% -11.9% 4.6% 5.3% 4.9%

Nov-80 Jul-82 Oct-82 -16.9% 1.4% -0.5% -2.6% 22.0% 23.7% 22.1%

Jan-66 Sep-66 Mar-67 -15.6% -7.4% -8.1% -10.1% 4.6% 3.8% 2.5%

Mean -35.7% -17.0% -17.5% -19.4% 17.4% 19.0% 20.9%

Median -29.4% -14.3% -14.0% -13.5% 10.8% 10.6% 10.6%




78

US Asset Class Nominal and Real Performance: 1926 – Present

Source: Standard & Poor’s, Ibbotson, Morgan Stanley Smith Barney LLC. Data as of September 2012.

Note: *Annualized Returns

S&P 500 Index IbbotsonIntermediate Gov’t

IbbotsonLong Corporate

Nominal Real Nominal Real Nominal Real

Average Return (%) 9.9% 6.7% 5.3% 2.2% 6.1% 3.0%

1 Month* Standard Deviation 19.1% 19.2% 4.5% 4.9% 7.5% 7.8%

Percent > 0 61.8% 59.3% 70.5% 56.4% 66.6% 57.3%

1 Year Standard Deviation 21.8% 22.0% 5.6% 6.7% 8.7% 9.8%

Percent > 0 73.8% 68.5% 90.8% 65.4% 81.3% 66.6%

5 Year* Standard Deviation 8.8% 8.4% 3.4% 4.0% 4.4% 5.4%

Percent > 0 86.8% 74.6% 100.0% 71.7% 96.1% 61.7%

10 Year* Standard Deviation 5.7% 5.6% 3.1% 3.1% 3.7% 4.2%

Percent > 0 94.3% 84.8% 100.0% 72.5% 100.0% 62.6%

20 Year* Standard Deviation 3.4% 3.5% 2.9% 2.2% 3.3% 3.0%Percent > 0 100.0% 100.0% 100.0% 74.3% 100.0% 61.3%




79

US Stock and Bond 50/50 Blended Nominal and Real Performance: 1926 - Present

Source: Standard & Poor’s, Ibbotson, Morgan Stanley Smith Barney LLC. Data as of September 2012

Note: *Annualized Returns

S&P 500 Index / IbbotsonIntermediate Gov’t

S&P 500 Index / Ibbotson Long Corporate

Nominal Real Nominal Real

Average Return (%) 8.0% 4.9% 8.5% 5.3%

1 Month* Standard Deviation 9.9% 10.1% 10.9% 11.1%Percent > 0 64.5% 59.1% 63.1% 58.6%

1 Year Standard Deviation 11.2% 11.7% 12.6% 13.1%

Percent > 0 80.9% 69.3% 78.5% 67.9%5 Year* Standard Deviation 4.7% 4.7% 5.0% 5.3%

Percent > 0 95.1% 82.5% 95.1% 82.3%

10 Year* Standard Deviation 3.2% 3.4% 3.5% 3.9%

Percent > 0 100.0% 87.3% 100.0% 86.8%

20 Year* Standard Deviation 2.3% 2.1% 2.5% 2.5%Percent > 0 100.0% 100.0% 100.0% 97.4%




80

Asset Class Nominal and Real Performance: September 1956 –Present

*Annualized returnNote: **CRB Continuous Commodity Index, adjusted to Total ReturnSource: Standard & Poor's, Ibbotson Associates, Commodity Research Bureau, Morgan Stanley Smith Barney LLC. Data as of September 2012.

S&P 500 IndexIbbotson Ibbotson

Commodities**Intermediate Gov’t Long Corporate

Nominal Real Nominal Real Nominal Real Nominal Real

Average Return (%) 9.7% 5.6% 6.6% 2.6% 7.3% 3.3% 8.1% 4.1%

1 Month*Standard Deviation 14.8% 14.9% 5.3% 5.5% 8.9% 9.2% 11.8% 11.7%

Percent > 0 62.3% 58.7% 68.6% 56.2% 61.8% 56.3% 58.1% 53.9%

1 YearStandard Deviation 16.8% 16.8% 6.3% 6.6% 10.1% 10.7% 14.9% 13.5%

Percent > 0 75.5% 68.5% 90.2% 67.2% 77.8% 63.5% 74.8% 61.3%

5 Year*Standard Deviation 7.4% 7.6% 3.3% 3.4% 4.7% 5.3% 6.1% 4.9%

Percent > 0 90.2% 70.8% 100.0% 82.9% 95.4% 69.4% 99.5% 86.2%


Percent > 0 95.7% 77.8% 100.0% 84.7% 100.0% 67.7% 100.0% 98.4%


Percent > 0 100.0% 100.0% 100.0% 93.3% 100.0% 78.3% 100.0% 100.0%




81

U.S. Domestic Risk and Reward AnalysisRolling One-Year Returns(1)(2)(3)

Note: (1) Rolling one-year returns data are calculated using 1011 sample time periods. (2) Indexes used for this analysis include: (i) Stocks: S&P 500 Index Total Return; (ii) Bonds: Ibbotson U.S. Long-Term 20-Year Government Index Total Return; and (iii) Cash: U.S. 30-Day T-Bill Index Total Return. (3) Historical data shown represent past performance and do not guarantee comparable future results. The indexes are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges, which would lower performance. Data as of September 2012.

Source: Morgan Stanley Smith Barney LLC, Ibbotson Associates

90% U.S. Stks 80% U.S. Stks 70% U.S. Stks 60% U.S. Stks 50% U.S. Stks 40% U.S. Stks 30% U.S. Stks 20% U.S. Stks 10% U.S. Stks 0% U.S. Stks0% U.S. Bonds 10% U.S. Bonds 20% U.S. Bonds 30% U.S. Bonds 40% U.S. Bonds 50% U.S. Bonds 60% U.S. Bonds 70% U.S. Bonds 80% U.S. Bonds 90% U.S. Bonds10% Cash 10% Cash 10% Cash 10% Cash 10% Cash 10% Cash 10% Cash 10% Cash 10% Cash 10% Cash

Portfolio Mix

Year Ending September 2012 27.2 7.3 9.7 12.1 14.5 16.9 19.3 21.7 24.1 26.5

Worst One-Year Return -60.7 -53.9 -47.1 -40.3 -33.5 -26.7 -19.9 -13.1 -12.0 -14.3

Average of One-Year Losses -12.7 -13.2 -13.6 -13.6 -13.7 -14.1 -13.0 -8.8 -0.5 9.8

Average of One-Year Returns 11.3 10.6 10.0 9.4 8.8 8.2 7.6 7.0 6.4 5.8

Median One-Year Return 11.6 10.7 10.4 9.9 9.0 8.0 7.0 6.0 5.1 4.3

Average of One-Year Gains 19.6 19.4 19.1 18.8 18.4 17.6 16.3 14.9 13.5 11.6

Best One-Year Return 146.6 131.4 116.1 100.8 85.6 70.3 55.0 46.4 48.1 49.7

% One-Year Negative Returns 25.8 24.9 23.9 23.3 22.1 20.0 17.2 15.4 16.3 20.0

% One-Year Positive Returns 74.2 74.9 75.8 76.4 77.6 79.7 82.5 84.3 83.4 79.7

St Dev of Annual Returns 19.6 17.6 15.6 13.6 11.8 10.2 8.9 8.1 7.8 8.1

January 1990 – September 2012Returns Expressed in Percentage Terms




82

U.S. Domestic Risk and Reward AnalysisCompound Annual Growth Rate of Rolling Five-Year Returns(1)(2)(3)

Note: (1) Rolling five-year returns data are calculated using 963 sample time periods. (2) Indexes used for this analysis include: (i) Stks: S&P 500 Index Total Return; (ii) Bonds: Ibbotson U.S. Long-Term 20-Year Government Index Total Return; and (iii) Cash: U.S. 30-Day T-Bill Index Total Return. (3) Historical data shown represent past performance and do not guarantee comparable future results. The indexes are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges, which would lower performance. Data as of September 2012.



Portfolio Mix


Worst Five-Year Return -15.5 -13.2 -11.5 -9.2 -7.2 -5.2 -3.2 -1.7 -2.1 -2.4

Average of Five-Year Losses -5.1 -6.1 -6.7 -7.9 -8.8 -8.8 -9.1 -3.0 3.5 9.0

Average of Five-Year Returns 9.3 8.8 8.0 8.0 7.6 7.1 6.7 6.3 5.9 5.5

Median Five-Year Return 9.8 9.2 8.2 7.7 7.1 6.4 5.8 5.3 4.8 4.4

Average of Five-Year Gains 11.3 11.0 10.8 10.6 10.4 10.4 10.1 9.4 9.4 9.3

Best Five-Year Return 32.5 29.5 26.4 23.9 22.7 22.1 22.0 22.4 22.7 23.1

% Five-Year Negative Returns 12.5 10.3 8.9 7.2 6.0 5.9 4.2 1.3 1.5 3.9

% Five-Year Positive Returns 87.5 89.7 91.1 92.8 94.0 94.1 95.8 98.7 98.5 96.1






83

U.S. Domestic Risk and Reward AnalysisCompound Annual Growth Rate of Rolling Ten-Year Returns(1)(2)(3)

Note: (1) Rolling five-year returns data are calculated using 963 sample time periods. (2) Indexes used for this analysis include: (i) Stks: S&P 500 Index Total Return; (ii) Bonds: Ibbotson U.S. Long-Term 20-Year Government Index Total Return; and (iii) Cash: U.S. 30-Day T-Bill Index Total Return. (3) Historical data shown represent past performance and do not guarantee comparable future results. The indexes are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges, which would lower performance. Data as of September 2012.


(4.4) (3.4) (2.3) (1.3) (0.3)

0.6 1.5 1.6 1.4 0.1

9.8 9.4 8.9 8.4 7.9 7.4 6.9 6.4

5.9 5.4

9.9 9.3 8.7 8.2 7.5

6.7 5.8 4.8 4.2 4.3

19.5 17.6 17.1 16.7 16.2 15.9 15.8 15.7 15.6 15.5

-10

-5

0

5

10

15

20

25Worst One-Year Return

Average of One-Year Returns

Median One-Year Return

Best One-Year Return


Portfolio Mix


Worst Ten-Year Return -4.4 -3.4 -2.3 -1.3 -0.3 0.6 1.5 1.6 1.4 0.1

Average of Ten-Year Losses -1.4 -2.0 -2.3 -3.2 -4.0 NA NA NA NA NA

Average of Ten-Year Returns 9.8 9.4 8.9 8.4 7.9 7.4 6.9 6.4 5.9 5.4

Median Ten-Year Return 9.9 9.3 8.7 8.2 7.5 6.7 5.8 4.8 4.2 4.3

Average of Ten-Year Gains 10.5 10.3 10.1 10.0 9.9 9.8 9.8 9.8 9.8 9.8

Best Ten-Year Return 19.5 17.6 17.1 16.7 16.2 15.9 15.8 15.7 15.6 15.5

% Ten-Year Negative Returns 5.1 3.4 2.3 0.9 0.2 0.0 0.0 0.0 0.0 0.0

% Ten-Year Positive Returns 94.9 96.6 97.7 99.1 99.8 100.0 100.0 100.0 100.0 100.0






84

Compounded Annual Growth Rates (%)Rolling 1-Year, 5-Year, 10-Year, 20-Year

Note: The indexes are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. All returns are total returns in U.S. Dollars. Past performance does not guarantee future results. Index returns do not include any expenses, fees or sales charges, which would lower performance.

Source: Ibbotson Associates, Morgan Stanley Smith Barney LLC. Data as of December 2011.

Best and Worst Returns Generated by Different Holding PeriodsS&P 500 Index (January 1926 – December 2011)

(Apr 80-M ar 00)18.25%

(Jun 47-M ay 57)21.43%

(Jun 32-M ay 37)36.12%

(Jul 32-Jun 33)162.89%

(Sep 29-Aug 49)1.89%

(Sep 29-Aug 39)-4.95%(Sep 29-Aug 34)

-17.36%

(Jul 31-Jun 32)-67.56%-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

1 Year 5 Year 10 Year 20 Year

Best Return Worst Return




Global Risk and Reward AnalysisRolling One-Year Returns(1)(2)(3)

85

50% U.S. Stks 45% U.S. Stks 40% U.S. Stks 35% U.S. Stks 30% U.S. Stks 25% U.S. Stks 20% U.S. Stks 15% U.S. Stks 6% U.S. Stks 0% U.S. Stks

40% Non-U.S. Stks 35% Non-U.S. Stks 30% Non-U.S. Stks 25% Non-U.S. Stks 20% Non-U.S. Stks 15% Non-U.S. Stks 10% Non-U.S. Stks 5% Non-U.S. Stks 4% Non-U.S. Stks 0% Non-U.S. Stks

0% U.S. Bonds 8% U.S. Bonds 17% U.S. Bonds 27% U.S. Bonds 36% U.S. Bonds 45% U.S. Bonds 54% U.S. Bonds 63% U.S. Bonds 72% U.S. Bonds 80% U.S. Bonds

0% Non-US Bonds 2% Non-US Bonds 3% Non-US Bonds 3% Non-US Bonds 4% Non-US Bonds 5% Non-US Bonds 6% Non-US Bonds 7% Non-US Bonds 8% Non-US Bonds 10% Non-US Bonds

10% Cash 10% Cash 10% Cash 10% Cash 10% Cash 10% Cash 10% Cash 10% Cash 10% Cash 10% Cash

Year Ending September 2012 -0.3 0.1 0.6 1.1 1.6 2.1 2.6 3.1 3.5 3.9

Worst One-Year Return -42.1 -36.8 -31.3 -25.7 -20.2 -14.7 -9.2 -5.5 -7.0 -10.9

Average of One-Year Losses -13.7 -15.0 -16.2 -16.6 -16.9 -17.5 -14.9 -2.9 11.9 16.2

Average of One-Year Returns 8.0 8.0 8.0 8.1 8.1 8.2 8.2 8.2 8.2 8.2

Median One-Year Return 11.5 11.3 10.5 9.6 9.1 8.3 8.4 7.9 7.6 8.1

Average of One-Year Gains 15.2 14.7 14.3 14.1 13.3 12.3 10.4 9.0 7.6 6.9

Best One-Year Return 51.9 46.6 41.1 35.4 29.9 26.9 27.6 28.2 27.8 28.0

% One-Year Negative Returns 25.5 23.1 21.2 20.4 18.0 14.9 9.8 9.0 9.8 11.4

% One-Year Positive Returns 76.9 79.2 81.2 82.0 84.3 87.5 92.5 93.3 92.5 91.0


Portfolio Mix


Note: (1) Rolling one-year returns data are calculated using 243 sample time periods. (2) Indexes used for this analysis include: (i) U.S. Stks: S&P 500 Index Total Return; (ii) Non-U.S. Stks: MSCI All Country World ex US Index Total Return ($US); (iii) U.S. Bonds: Ibbotson U.S. Long-Term 20-Year Government Index; (iv) Non-U.S. Bonds: JPMorgan Global ex-U.S. Government Bond Index Total Return ($US); and (v) Cash: U.S. 30-Day T-Bill Index Total Return. (3) Historical data shown represent past performance and do not guarantee comparable future results. The indexes are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges, which would lower performance. Data as September 2012.






Global Risk and Reward AnalysisCompound Annual Growth Rate of Rolling Five-Year Returns(1)(2)(3)

86






Year Ending September 2012 -5.6 -4.3 -3.0 -1.6 -0.3 1.0 2.4 3.7 4.9 6.2

Worst Five-Year Return -5.7 -4.3 -3.0 -1.6 -0.3 1.0 2.4 3.1 3.7 4.0

Average of Five-Year Losses -1.7 -2.8 -3.6 -4.5 -5.6 NA NA NA NA NA

Average of Five-Year Returns 7.1 7.1 7.2 7.3 7.4 7.5 7.6 7.6 7.6 7.7

Median Five-Year Return 6.5 6.6 6.7 7.0 7.2 7.4 7.3 7.0 7.4 7.7

Average of Five-Year Gains 9.5 8.3 7.9 7.4 7.1 7.1 7.1 7.1 7.1 7.1

Best Five-Year Return 20.0 18.8 17.6 16.5 15.3 14.1 12.9 12.7 12.3 12.2

% Five-Year Negative Returns 22.1 11.3 7.0 2.8 0.5 0.0 0.0 0.0 0.0 0.0

% Five-Year Positive Returns 77.9 88.7 93.0 97.2 99.5 100.0 100.0 100.0 100.0 100.0


Portfolio Mix






Global Risk and Reward AnalysisCompound Annual Growth Rate of Rolling Ten-Year Returns(1)(2)(3)

87







Worst Ten-Year Return -1.3 -0.4 0.4 1.3 2.2 3.1 3.9 4.6 5.1 5.2

Average of Ten-Year Losses -0.8 -1.1 NA NA NA NA NA NA NA NA

Average of Ten-Year Returns 6.4 6.6 6.7 6.9 7.0 7.1 7.3 7.4 7.5 7.6

Median Ten-Year Return 7.5 7.5 7.5 7.5 7.5 7.5 7.4 7.4 7.2 7.4

Average of Ten-Year Gains 6.6 6.5 6.4 6.4 6.4 6.4 6.4 6.4 6.4 6.4

Best Ten-Year Return 14.1 13.6 13.2 12.7 12.3 11.8 11.4 11.0 10.2 9.7

% Ten-Year Negative Returns 2.7 1.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

% Ten-Year Positive Returns 97.3 98.7 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0


Portfolio Mix







88

US Stocks: Longer Holding Periods Increase the Probability of Positive Returns

0%

20%

40%

60%

80%

100%

1 Month 1 Year 5 Year 10 Year 20 Year

Nominal Real

S&P 500 Frequency of Positive Returns (%)(1926 – Present)

Source: Standard & Poor’s, Morgan Stanley Smith Barney LLC, Ibbotson Associates. Data as of December 2011.




89

S&P 500 Index Annual Total Return by Year

Source: Ibbotson, Morgan Stanley Smith Barney LLC. Data as of December 2011.Total Return %

-50 to -40 -40 to -30 -30 to -20 -20 to -10 -10 to 0 0 to 10 10 to 20 20 to 30 30 to 40 40 to 50 50 to 60

1931 1937

2008

1930

1974

2002

1941

1957

1966

1973

2001

1929

1932

1934

1939

1940

1946

1953

1962

1969

1977

1981

1990

2000

1947

1948

1956

1960

1970

1978

1984

1987

1992

1993

1994

2005

2007

1926

1944

1949

1952

1959

1964

1965

1968

1971

1972

1979

1986

1988

2004

2006

1942

1943

1951

1961

1963

1967

1976

1982

1983

1996

1998

1999

2003

1927

1936

1938

1945

1950

1955

1975

1980

1985

1989

1991

1995

1997

1928

1935

1958

1933

1954

0

2

4

6

8

10

12

14

16

Great Depression

"Mid-30S" Recession

Tightening of bank reserve requirements

Smoot-Hawley Tariff

"Nifty-Fifty"Bear Market

OPEC Oil Embargo

Enron Bankruptcyand TerroristAttacks on U.S. Soil

Iraq Invades Kuwait

Initial rally after the

2000-2002 Bear Market

End of the1980-1991

recession

End of theVietnam

War

End of WW II

Bear Market

Rally

2009

2010

18

2011

Barack Obama is sworn in as the 44th President of the USA and the nation’s first African-American president




90

Frequency of Beating Inflation by 0%, 3%, and 5%: 1926 - Present

S&P 500Index

IntrmdGov’tBonds

Lg CorpBonds

Blend: S&P 500 / Intermediate Gov’t Blend: S&P 500 / Long Corp

10/90 20/80 30/70 40/60 50/50 60/40 70/30 80/20 90/10 10/90 20/80 30/70 40/60 50/50 60/40 70/30 80/20 90/10

Average Annualized Return 6.75% 2.22% 3.07% 2.79%3.37%3.91%4.41%4.88%5.32%5.71%6.07% 6.39%

3.54% 4.04% 4.50%4.92%5.30%5.65%5.96%6.24%6.47%

Rolling 1 Year% of Returns > 0% 69% 65% 67% 72% 72% 71% 69% 69% 69% 69% 69% 69% 69% 70% 71% 69% 68% 68% 68% 68% 68%% of Returns > 3% 62% 42% 50% 50% 54% 55% 58% 59% 59% 60% 61% 62% 56% 59% 59% 58% 59% 60% 60% 61% 61%% of Returns > 5% 57% 31% 41% 34% 39% 44% 47% 51% 54% 54% 56% 57% 44% 48% 51% 52% 53% 55% 56% 56% 57%





Source: FactSet, Standard & Poor's, Ibbotson Associates, Morgan Stanley Smith Barney LLC. Data as of September 2012.

Note: The hypothetical blend performance is based on monthly rebalancing.




91

Asset Class Correlation Matrix (1990 – 2010)

Source: Citi Research, Morgan Stanley Smith Barney LLC. Bloomberg, Barclays, Hedge Fund Research, Inc. Data as of December 2011.




92

0%

10%

20%

30%

40%

50%

60%

70%

80%

1952 1955 1958 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009

Equities

Bonds

Global Pension Asset Allocation

Note: Mutual fund weightings in-line with equity/bond allocation across the rest of the fund was pro-rated

US Private Sector Pension Asset Weights (%)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

Equities

Bonds

UK Pension Asset Weights (%)

Source: Towers Watson: 2010 Global Pension Asset Study, Morgan Stanley Smith Barney LLC. Data as of January 2012.




93

2011 Pension Fund Asset Weights (%)

Pension Fund Equity Weights (%)

Source: Towers Watson: 2010 Global Pension Asset Study. Data as of January 2012.

Global Pension Asset Allocation

0%

20%

40%

60%

80%

100%

120%

140%

UK US Australia Canada Japan Netherlands Switzerland Total

2001 2011

0%

10%

20%

30%

40%

50%

60%

70%

UK US Australia Canada World/Global Japan Netherlands Switzerland

Equity Bonds Alternative




14% 16% 18% 20% 22% 24%Risk

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

Ret

urn

Russell 2000 Growth

Russell Midcap GrowthRussell 2000

Russell 1000 Growth

Russell Midcap

Russell 2000 ValueRussell Midcap Value

Russell 1000

Russell 1000 Value

Actual Relationship

94

Note: 20 years ended 12/31/2008Source: Russell Investments, FactSet, Morgan Stanley Smith Barney LLC. Data as of September 2012.

Actual Versus Theoretical Risk and Returns

13% 14% 15% 16% 17% 18% 19% 20% 21% 22% 23% 24% 25% 26%

Risk

9.0%

9.5%

10.0%

10.5%

11.0%

Ret

urn

Russell 2000 Growth

Russell Midcap Growth

Russell 2000

Russell 1000 Growth

Russell Midcap

Russell 2000 Value

Russell Midcap Value

Russell 1000

Russell 1000 Value

Theoretical Relationship




95

Glossary of Indices90-Day T-Bill

Short-term obligations issued by the United States government. T-Bills are purchased at a discount to the full face value, and the investor receives the full value when they mature. The difference or "discount" is the interest earned. T-Bills are issued in denominations of $10,000 (auction) and $1,000 increments thereafter.

AMEX

Covers approximately 850 American stock exchange companies and represents less than 5% of the market value of all U.S. Stks. The AMEX is a value-weighted index calculated on price change only and does not include income.

Baltic Exchange Dry Index

The Baltic Exchange Dry Index is a daily index made up of 26 key dry bulk routes. This index is calculated by Baltic Exchange Information Services, Ltd.

Barclays Capital Municipal Index

The composite measure of the total return performance of the municipal bond market. The municipal market contains over 2 million different bond issues. The market is divided into 7 major sectors: state general obligation debt, pre-refunded bonds, revenue debt..

Barclays Capital Long Municipal Index

The municipal bond index began in January 1980. The indices are broad market performance benchmarks for the long-term tax-exempt bond market. The Municipal Indices are rules-based and market-value weighted. The Municipal Index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds (including all insured bonds with a Aaa/AAA rating) and pre-refunded bonds. Comprised of all bonds covered in the Municipal index with maturities of 10 years or longer.

Barclays Capital Government/Credit Index

Created in 1979, the U.S. Government/Credit Index is the oldest macro index published by Barclays Capital. It is the combination of the U.S. Treasury, U.S. Government-Related, and U.S. Corporates Indices and is equivalent to the union of the U.S. Government and U.S. Credit Indices.

Barclays Capital Long Government/Credit Index

Created in 1979, the U.S. Government/Credit Index is the oldest macro index published by Barclays Capital. It is the combination of the U.S. Treasury, U.S. Government-Related, and U.S. Corporates Indices and is equivalent to the union of the U.S. Government and U.S. Credit Indices. Comprised of all bonds covered in the Government/Credit index with maturities of 10 years or longer.

Barclays Capital U.S Corporate High Yield Index

2% Issuer Cap Index: The Barclays Capital High Yield 2% Issuer Constrained Index is an unmanaged, market value-weighted index that tracks the performance of non-investment grade, fixed rate, publicly placed, dollar-denominated, and non-convertible debt registered with the SEC. The index limits the maximum exposure to any one issuer to 2%. Consumer Price Index

Note: Investors cannot invest directly in an index. The performance of unmanaged indices reflects no deductions for fees, expenses or taxes which would affect performance of actively managed assets.




96

Glossary of Indices


CPIIn economics, a Consumer Price Index (CPI, also retail price index) is a statistical measure of a weighted average of prices of a specified set of goods and

services purchased by wage earners in urban areas. It is a price index which tracks the prices of a specified set of consumer goods and services, providing a measure of inflation. The CPI is a fixed quantity price index and a sort of cost-of-living index. The CPI can be used to track changes in prices of all goods and services purchased for consumption by urban households. User fees (such as water and sewer service) and sales and excise taxes paid by the consumer are also included. Income taxes and investment items (like Stks, bonds, life insurance, and homes) are not included.

Dow Jones AIG Commodity Total Return IndexThe Dow Jones - AIG Commodity Total Return Index is based on the Dow Jones AIG Commodity Index, which is composed of futures contracts on 19 physical commodities. The commodities in the index are traded on U.S. exchanges, with the exception of aluminum, nickel and zinc, which trade on the London Metal Exchange (LME). The Total Return Index reflects the return on fully collateralized positions in the underlying commodity future.

Dow Jones Industrial Average

The most widely used indicator of the overall condition of the stock market, a price-weighted average of 30 actively traded blue chip Stks, primarily industrials. The 30 Stks are chosen by the editors of the Wall Street Journal (which is published by Dow Jones & Company), a practice that dates back tothe beginning of the century. The Dow was officially started by Charles Dow in 1896, at which time it consisted of only 11 Stks. The Dow is computed using a price-weighted indexing system, rather than the more common market cap-weighted indexing system. Simply put, the editors at WSJ add up the prices of all the Stks and then divide by the number of Stks in the index. (in actuality, the divisor is much higher today in order to account for stock splits that have occurred in the past.)

Dow Jones Wilshire 5000

Consists of nearly 5000 common equity securities, covering all Stks in the U.S. for which daily pricing is available. The value-weighted total return index is adjusted for cash dividends which are reinvested at the end of each month. The Wilshire 5000 total market index measures the performance of all U.S. headquartered equity securities with readily available price data. Over 7,000 capitalization-weighted security returns are used to adjust the index.

Dow Jones Wilshire Small Value

Measures small cap Stks that exhibit value characteristics. This is a float adjusted, market cap-weighted index including a selection of securities from the Dow Jones Wilshire U.S. Small-Cap index that meet the Dow Jones Wilshire criteria for value. The index is an excellent way to evaluate this sector of the market and to gauge the performance of managers focusing on this particular style. An equal weighting of this index, along with the Dow Jones Wilshire U.S. Small-Cap Growth index, results in approximately the same return as the Dow Jones Wilshire U.S. Small-Cap index.

Dow Jones Wilshire Large Growth

Measures large cap Stks that exhibit growth characteristics. This is a float adjusted, market cap weighted index including a selection of securities from the Dow Jones Wilshire U.S. Large-Cap index that meet the Dow Jones Wilshire criteria for growth. The index is an excellent way to evaluate this sector of the market and to gauge the performance of managers focusing on this particular style. An equal weighting of this index, along with the Dow Jones Wilshire U.S. Large-Cap Value Index, results in approximately the same return as the Dow Jones Wilshire U.S. Large-Cap Index.




97

Glossary of Indices


Dow Jones Wilshire Large Value

Measures large cap Stks that exhibit value characteristics. This is a float adjusted, market cap-weighted index including a selection of securities from the Dow Jones Wilshire U.S. Large-Cap Index that meet the Dow Jones Wilshire criteria for value.

Dow Jones Wilshire Small Growth

Measures small cap Stks that exhibit growth characteristics. This is a float adjusted, market cap weighted index including a selection of securities from the Dow Jones Wilshire U.S. Small-Cap Index that meet the Dow Jones Wilshire criteria for growth. The index is an excellent way to evaluate this sector of the market and to gauge the performance of managers focusing on this particular style. An equal weighting of this index, along with the Dow Jones Wilshire U.S. Small-Cap Value Index, results in approximately the same return as the Dow Jones Wilshire U.S. Small-Cap Index

Hedge Fund Research Index – Equity Hedge Index (Hfri)

HFRI Equity Hedge Index represents performance of a universe of hedge funds that employ core holding strategies of long equities hedged at all times with short sales of Stks and/or stock index options. The hedge funds in this index commonly employ a variety of strategies and some employ leverage. Relatively conservative funds mitigate market risk by maintaining market exposure from zero to 100 percent. Relatively aggressive funds may magnify market risk by exceeding 100 percent exposure and, in some instances, maintain a short exposure. In addition to equities, some funds in this index may have limited assets invested in other types of securities

Ibbotson Long Government

The total returns from 1977-present are constructed with data from The Wall Street Journal. The data from 1926-1976 are obtained from the Government Bond File at the Center for Research in Security Prices (CRSP) at the University of Chicago Graduate School of Business. To the greatest extent possible, a one bond portfolio with a term of approximately 20 years and a reasonably current coupon-whose returns did not reflect potential tax benefits, impaired negotiability, or special redemption or call privileges-was used each year. Where "flower" bonds (tenderable to the Treasury at par in payment of estate taxes) had to be used, the term of the bond was assumed to be a simple average of the maturity and the first call dates minus the current date. The bond was "held" for the calendar year and returns were computed.

"Source: ©2012 Morningstar, Inc. All rights reserved. Used with permission. This information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.“ "Source: Calculated by Morgan Stanley Smith Barney group Global Markets Inc. using data provided by Morningstar. ©2012 Morningstar, Inc. All rights reserved. Used with permission. This information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information."




98

Glossary of Indices


Ibbotson Small Company

The Small Company Stock return series is the total return achieved by the Dimensional Fund Advisors (DFA) Small Company 9/10 (for ninth and tenth deciles) Fund. The Fund invests in a broadly diversified cross section of small companies. Portfolios are fully invested: Dimensional keeps cash levels below 5%, and generally under 2%. Portfolio turnover averages 20-25% annually.

"Source: ©2012 Morningstar, Inc. All rights reserved. Used with permission. This information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.“ "Source: Calculated by Morgan Stanley Smith Barney group Global Markets Inc. using data provided by Morningstar. ©2012 Morningstar, Inc. All rights reserved. Used with permission. This information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.“

Lipper Growth

Funds that invest at least 75% of their equity assets in companies with market capitalizations (on a three-year weighted basis) greater than 300% of the dollar-weighted median market capitalization of the middle 1,000 securities of the S&P Super Composite 1500 Index. Large-cap growth funds typically have an above-average price-to-earnings ratio, price-to-book ratio, and three-year sales-per-share growth value, compared to the S&P 500 Index.

MSCI AC World IndexThe MSCI ACWI Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. The MSCI ACWI consists of 45 country indices comprising 24 developed and 21 emerging market country indices. The developed market country indices included are: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States. The emerging market country indices included are: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey

MSCI AC(All Country) Pacific IndexThe MSCI AC (All Country) Pacific Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the developed and emerging markets in the Pacific region. The MSCI AC Pacific Free Index consists of the following 12 developed and emerging market countries: Australia, China, Hong Kong, Indonesia, Japan, Korea, Malaysia, New Zealand, Philippines, Singapore, Taiwan, and Thailand

MSCI EAFE

The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the US & Canada.




99

Glossary of Indices


MSCI Emerging Markets Index

The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. The MSCI Emerging Markets Index consists of the following 21 emerging market country indices: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.

MSCI Europe ex U.K. IndexThe MSCI Europe Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the developed markets in Europe. The MSCI Europe Index consists of the following 16 developed market country indices: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland.

MSCI Japan Index

The MSCI Japan Index is a free-float adjusted market capitalization weighted index that is designed to track the equity market performance of Japanese securities listed on Tokyo Stock Exchange, Osaka Stock Exchange, JASDAQ and Nagoya Stock Exchange. The MSCI Japan Total Return Index takes into account both price performance and income from dividend payments. The MSCI Japan Index is constructed based on the MSCI Global Investable Market Indices Methodology, targeting a free-float market capitalization coverage of 85%. The index has a base date of December 31, 1987.

MSCI UK IndexThe MSCI UK Index is based on the Global Investable Market Indices (GIMI) Methodology—a comprehensive and consistent approach to index construction that facilitates both index segmentation and the creation of meaningful index composites. This methodology aims to provide exhaustive coverage of the relevant investment opportunity set with a strong emphasis on index liquidity, investability and replicability. The index is reviewed in February, May, August and with the objective of reflecting change in the underlying equity markets in a timely manner, while minimizing index turnover. During the May and November semi-annual reviews, the equity universe is rebalanced and the large, mid, small and micro capitalization cutoff points are recalculated

MSCI World IndexThe MSCI World Index is a free float-adjusted market capitalization index that is designed to measure global developed market equity performance. As of May 2005 the MSCI World Index consisted of the following 23 developed market country indices: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States. An investment cannot be made directly in a market index.

Nasdaq Composite

The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common Stks listed on the NASDAQ Stock Market. The Index is market-value weighted. This means that each company's security affects the Index in proportion to it's market value. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index. Today the NASDAQ Composite includes over 5,000 companies, more than most other stock market indexes. Because it is so broad-based, the Composite is one of the most widely followed and quoted major market indexes.




100

Glossary of Indices


Russell 1000

Russell 1000 Index measures the performance of the 1,000 largest companies in the Russell 3000 Index, which represents approximately 89% of the total capitalization of the Russell 3000 Index.

Russell 1000 Growth

Measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values.

Russell 1000 Value

Measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values.

Russell 2000

Measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represents approximately 11% of the total market capitalization of the Russell 3000 Index.

Russell 2000 Growth

Measures the performance of those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values.

Russell 2000 Value

Measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values.

S&P 500

Widely regarded as the best single gauge of the U.S. equities market, this world-renowned index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. Although the S&P 500 focuses on the large-cap segment of the market, with over 80% coverage of U.S. equities, it is also an ideal proxy for the total market.

S&P 500 Principle

Widely regarded as the best single gauge of the U.S. equities market, this world-renowned index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. Although the S&P 500 focuses on the large-cap segment of the market, with over 80% coverage of U.S. equities, it is also an ideal proxy for the total market. This index does not include income.




101

Important Disclosures

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 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.

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. Morgan Stanley Smith Barney is 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. Morgan Stanley Smith Barney has 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. Morgan Stanley Smith Barney recommends 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 Morgan Stanley Smith Barney does 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 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 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 uncertainties 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.




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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 Stks, 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.

Interest on municipal bonds is generally exempt from federal income tax; however, some bonds may be subject to the alternative minimum tax (AMT). Typically, state tax-exemption applies if securities are issued within one's state of residence and, if applicable, local tax-exemption applies if securities are issued within one's city of residence.

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 performance of any specific investment.

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.

CDs are insured by the FDIC, an independent agency of the U.S. Government, up to a maximum amount of $250,000 (including principal and interest) for all deposits held in the same insurable capacity (e.g. individual account, joint account) per CD depository, through December 31, 2013. On January 1, 2014, the maximum insurable amount will return to $100,000 (including principal and interest) for all insurable capacities except IRAs and certain self-directed retirement accounts, which will remain at $250,000 per depository. Investors are responsible for monitoring the total amount held with each CD depository. All deposits at a single depository held in the same insurable capacity will be aggregated for purposes of the applicable FDIC insurance limit, including deposits (such as bank accounts) maintained directly with the depository and CDs of the depository held through Morgan Stanley Smith Barney. A secondary market in CDs may be limited. CDs sold prior to maturity are subject to market risk and therefore investors may receive more or less than the amount invested or the face value. Callable CDs are callable at the sole discretion of the issuer. For more information about FDIC insurance, please visit the FDIC website at www.fdic.gov.

Contingent return (e.g. index-linked) CDs are treated as having original issue discount (OID) for tax purposes. Although interest is not received until maturity, the CD is assumed to pay a pre-determined interest rate that will be treated as current income for tax purposes if held in a taxable account. Investors should be made aware that contingent return CDs generally feature an “averaging” method of return calculation, which averages the changes in value of the relevant index as measured on predetermined dates over the life of the CD. Therefore, the CD’s return will not

Important Disclosures




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Important Disclosuresmirror the actual index value or return. If the measured index return using the averaging method is zero or negative, the investor receives no interest. Some contingent return CDs also have a participation rate (the degree to which an investor participates in the measured return of the index) that is less than 100%. Interest on contingent return CDs is not eligible for FDIC insurance before the final valuation date.

Principal is returned on a monthly basis over the life of a mortgage-backed security. Principal prepayment can significantly affect the monthly income stream and the maturity of any type of MBS, including standard MBS, CMOs and Lottery Bonds. Yields and average lives are estimated based on prepayment assumptions and are subject to change based on actual prepayment of the mortgages in the underlying pools. The level of predictability of an MBS/CMO’s average life, and its market price, depends on the type of MBS/CMO class purchased and interest rate movements. In general, asinterest rates fall, prepayment speeds are likely to increase, thus shortening the MBS/CMO’s average life and likely causing its market price to rise. Conversely, as interest rates rise, prepayment speeds are likely to decrease, thus lengthening average life and likely causing the MBS/CMO’s market price to fall. Some MBS/CMOs may have “original issue discount” (OID). OID occurs if the MBS/CMO’soriginal issue price is below its stated redemption price at maturity, and results in “imputed interest” that must be reported annually for tax purposes, resulting in a tax liability even though interest was not received. Investors are urged to consult their tax advisors for more information.

Interest income from taxable zero coupon bonds is subject to annual taxation as ordinary income even though no interest payments will be received by the investor if held in a taxable account. Zero coupon bonds may also experience greater price volatility than interest bearing fixed income securities because of their comparatively longer duration.

Investing in foreign emerging markets entails greater risks than those normally associated with domestic markets, such as political, currency, economic and market risks.

Investing in foreign markets entails greater risks than those normally associated with domestic markets, such as political, currency, economic and market risks.

Growth investing does not guarantee a profit or eliminate risk. The Stks 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.

Value investing does not guarantee a profit or eliminate risk. Not all companies whose Stks are considered to be value Stks are able to turn their business around or successfully employ corrective strategies which would result in stock prices that do not rise as initially expected.

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 there from. 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.

This material is disseminated in Australia to “retail clients” within the meaning of the Australian Corporations Act by Morgan Stanley Smith Barney Australia Pty Ltd (A.B.N. 19 009 145 555, holder of Australian financial services license No. 240813).

Morgan Stanley Smith Barney 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 is not acting as a municipal advisor and the opinions or views contained herein are not intended to be, and do not constitute, advice within the meaning of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

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