Morgan Stanley Wealth Management. Insights to Customize Your Portfolio

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1 Morgan Stanley Wealth Management Insights to Customize Your Portfolio

2 Overview: Institutional-caliber advice for individual clients STRENGTH OF A LARGE, GLOBAL FINANCIAL INSTITUTION As an advisor to institutions and individuals worldwide, Morgan Stanley has a pulse on capital markets and a vast network of industry contacts. LEADING THINKERS The intellectual capital of Morgan Stanley s most experienced investment professionals is put to work in your portfolio. INTENSIVE MANAGER ANALYSIS Extensive analyses are conducted on hundreds of investment managers to verify they meet the high hurdles required for inclusion on our platform. AWARD-WINNING ADVICE Morgan Stanley & Co. s acclaimed analysts and strategists cover more than 3,000 companies. Proprietary models help you implement ideas. PORTFOLIOS TAILORED TO YOUR NEEDS Research and recommendations across a wide range of asset classes, themes, models and investment managers is customized for your portfolio. All information as of May 2015 and subject to change. 2 MORGAN STANLEY WEALTH MANAGEMENT

3 A large global firm, committed to wealth management For 80 years, Morgan Stanley has been a been a trusted partner for businesses and institutions in over 1,200 locations around the globe. Business units that serve institutions INSTITUTIONAL SECURITIES GROUP Provides investment banking, sales, trading, prime brokerage and financing solutions to public and private institutions seeking access to capital markets. Wealth management clients benefit from the firm s scale and depth of institutional knowledge, delivered through Financial Advisors. WEALTH MANAGEMENT Provides comprehensive wealth management services to individuals, families and their foundations and small- to medium-size businesses: Access to leading thinkers Innovation Pioneers in creating innovative wealth management solutions INVESTMENT MANAGEMENT Delivers investment management services Including equity, fixed income, alternatives and liquidity management to corporations, central banks, sovereign funds, pensions and other institutions. Investment advisory Brokerage Wealth planning services Annuity and insurance products Access to banking and lending services Retirement plan services Trust services Ideas on economies, sectors, securities, asset allocation All information as of May 2015 and subject to change. 3 MORGAN STANLEY WEALTH MANAGEMENT

4 Your Financial Advisor has access to global thought leaders Global Investment Committee 7 leading thinkers A wealth management dedicated investment committee Establish general allocation guidelines based on our forecasting Asset class recommendations to help financial advisors guide you Strategy, Research & Manager Analysis Morgan Stanley & Co. analysts 60+ strategists, research & manager analysts Develop opportunistic trade ideas Facilitate implementation ideas via model portfolios Assess investment manager fitness 300+ research analysts Analysts in 21 countries Cover over 3,000 securities Support the flow of ideas Intellectual capital from third party investment managers 1,000+ managers Wide selection of third-party investment managers All information as of May 2015 and subject to change. 4 MORGAN STANLEY WEALTH MANAGEMENT

5 Our portfolio advice keeps looking ahead We generate ideas to capitalize on current opportunities and we examine market cycles to give you a foundation for a long-term investment plan Short term months Ideas for capitalizing on opportunities arising from marginal changes in investment outlook Medium term 7-year horizon Recommended allocations based on valuations, volatility and correlations across asset classes Long term 20-year horizon Long-term averages with adjustments for changing circumstances, given that markets mean revert, i.e. fear and greed even out Proprietary forecasting and continually refreshed assumptions across all horizons 5 MORGAN STANLEY WEALTH MANAGEMENT

6 Ideas are channeled into a portfolio customized for you You and your Financial Advisor will discuss your requirements Client goals Risk profile Time horizon Liquidity needs 1. Capital preservation Willingness Need Ability 2. Income Determine your When do you need Assess cash flow 3. Balanced growth 4. Market growth risk appetite and suitability. to meet your goal? requirements. 5. Opportunistic growth The Result: A portfolio calibrated to your specific needs 6 MORGAN STANLEY WEALTH MANAGEMENT

7 You and your Financial Advisor decide how to implement For each asset class, you and your Financial Advisor choose from several different methods of implementation to craft your unique portfolio based on suitability and risk tolerance ILLUSTRATIVE PORTFOLIO ASSET ALLOCATION? YOUR EQUITY ASSET ALLOCATION IMPLMENTATION CHOICES For illustrative purposes only. Individual security selection Recommended by Financial Advisor Investment Managers (Mutual Fund, ETF, SMA, etc.) recommended by Financial Advisor Model Portfolios Used by Financial Advisor as a source of ideas 7 MORGAN STANLEY WEALTH MANAGEMENT

8 Investment manager analysis is critical to our process DISTINGUISHING FEATURES EXTENSIVE UNIVERSE Team engages with a broad array of investment managers, narrowing down a list of 14,000 investments to ~1,000 1,300 1 RIGOROUS ANALYSIS Four key areas of evaluation: Research capabilities Investment process and implementation Personnel and firm Business operations 45+ ANALYSTS DEDICATED TO MANAGER ANALYSIS 450+ ONSITE VISITS / YEAR STRONG GOVERNANCE Decisions are governed by an experienced eight-member committee that meets twice weekly ONGOING MONITORING Investment products undergo continual review; multiple contacts with managers to reaffirm conviction in the manager 1 EXTENSIVE LIBRARY OF ANALYSES Team maintains a library of manager analyses that are available to Financial Advisors and clients PATENTED METHODOLOGY Patented scoring tool Adverse Active Alpha SM to improve prospects of identifying managers that can add alpha to your portfolio All information as of May 2015 and subject to change. 1 The functions of manager analysis and review are available only through advisory accounts. 2 Includes private equity 8 MORGAN STANLEY WEALTH MANAGEMENT. ETF STRATEGIES 450+ MUTUAL FUNDS 500+ SEPARATELY MANAGED ACCOUNTS ALTERNATIVE STRATEGIES 2

9 A patented ranking process helps identify strong managers An exclusive approach... In 2014, Morgan Stanley Wealth Management received a patent grant on the Adverse Active Alpha investment manager ranking process. Adverse Historic outperform in market environments when conditions were difficult for active managers Adverse Active Alpha SM characteristics Active High active share conviction-based portfolios that look + = different from index Alpha Difference between expected and actual returns i.e., the value added by active management... that is compelling in our view Highly-ranked strategies outperformed both benchmarks and peers since implementation, despite difficult environment for active management. Outperformance of Adverse Active Alpha strategies* Annualized performance since implementation December 31, 2012 March 31, % 3.6% Excess return vs. benchmark indices Excess return vs. peer managers *Does not reflect advisory fees. Light blue bar: Performance is relative to each product s appropriate style benchmark. Dark blue bar: Performance is relative to Morningstar equity universe peers. Source: Performance analytics, Morgan Stanley Wealth Management as of March 31, Includes only equity mutual funds and separately managed account (SMA) strategies on the GIMA Focus List that also rank in the top two quintiles according to the Adverse Active Alpha ranking process. The number of products meeting the criteria is currently approximately 130 out of the approximately 1,300 products covered by GIMA and is subject to change. Includes mutual fund performance net of expense ratio but gross of advisory fee and gross of advisory fee SMA performance. Please note that the ranking analysis is derived from historical performance which has the benefit of hindsight. The performance that the ranking analysis is based on would have been lower if advisory fees were included and would have had a different outcome. Past performance is not a guarantee of future results. Indices are unmanaged and not available for direct investment. 9 MORGAN STANLEY WEALTH MANAGEMENT

10 We seek to identify high-quality investment managers Out of a universe of 14,000 investment managers, we make available on our advisory platform only the 1,000 1,300 that meet our rigorous quantitative and qualitative standards. The output of the this analysis are the three lists below: APPROVED LIST Responsive to client needs and industry trends Meets our qualitative and quantitative standards FOCUS LIST Higher level of conviction Explicit focus on identifying potential to add value over time Intensive due diligence process Detailed reporting, including portfolio and performance analysis TACTICAL OPPORTUNITIES LIST Draws from both the Approved and Focus lists Based on potential short-term performance ~ 700 products ~ 300 products ~ products All information as of May 2015 and subject to change The function of manager analysis are available only through advisory accounts. 10 MORGAN STANLEY WEALTH MANAGEMENT

11 Extensive selection of managers in alternative asset classes Real Estate: For potential inflation hedge Private investments in real estate that may offer diversification and risk-adjusted returns, while potentially serving as a hedge against inflation Exclusive access * to more than 100 strategies some of which are otherwise available only to institutional investors Private Equity: For long-term return potential Unique investment opportunities in privately held companies through single manager or fund of funds Managed Futures: Currencies, commodities and other assets Professionally managed investments in global currencies, interest rates, equities, metals, energy and agricultural markets Fund of Hedge Funds: To access a diverse group of hedge funds Professionally managed portfolio of individual hedge funds or other alternative investments that may offer diversification across managers, strategies or sectors Single Manager Hedge Funds: For diverse sources of return Professionally managed investment funds that use strategies to potentially offset losses during a market downturn *For advisory clients only. 11 MORGAN STANLEY WEALTH MANAGEMENT

12 Models: Providing some of the firm s top investible ideas INTELLECTUAL INPUTS Industry and economic expertise Analysts, strategists and economists from across the firm provide in-depth analysis Intelligence from trading flows Security picks are reviewed in context of trading activity Strategic and tactical views from the top Global Investment Committee provides general asset allocation and guidance MODEL PORTFOLIOS The model portfolio team brings together ideas from various groups, seeking to add further value through security selection Model portfolios, underpinned by the firm s intellectual capital, offer guidance Equity Model Portfolios Multi-Asset Model Portfolios* Fixed Income Model Portfolios* US MODEL PORTFOLIO TOP-RANKED IN BARRON S 2014 BEST STOCK PICKS** *Please ask your Financial Advisor who has access to these models for more information. **Source: Barron s Best Stock Picks From Wall Street Brokerage Firms. The US Model Portfolio earned top honors in the 2014 Barron's-Zacks ranking of focus-list stock selections. The ranking is based on a calculation of the performance of the brokerage "model portfolios" it tracks, on an equal-weighted basis. Total return performance figures include stock price changes, and dividends for each addition and deletion to the model portfolios. Commissions are not included. Neither Morgan Stanley nor any of its affiliates pay a fee to Barron s or Zack s in exchange for the ranking. These models are from the Model Portfolio Solutions Group. Please see disclosures for a description of this group. 12 MORGAN STANLEY WEALTH MANAGEMENT

13 Sample model: A portfolio of dividend-paying stocks Equity Model Portfolios represent Morgan Stanley Wealth Management s selection of securities based on the Morgan Stanley & Co. Research Team s published, highest-conviction ideas Hypothetical Profile of Model Portfolio stocks 30 50% annual turnover Market-related risk Beta generally < 1.0 Utilities Telecom Services 8% 2% Cash 5% 11% Consumer Discretionary 10% Consumer Samples Portfolio reports In-depth portfolio review reports and change rationale notes provide transparency Industrials 12% 12% Energy Information Technology 10% Healthcare 13% 17% Finance No Tax Advice: Morgan Stanley Smith Barney LLC and its affiliates do not render advice on tax and legal matters to clients. 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. These models are from the Model Portfolio Solutions Group. Please see disclosures for a description of this group. 13 MORGAN STANLEY WEALTH MANAGEMENT

14 Vast amount of advice, easily accessible Actionable ideas delivered exclusively to Morgan Stanley clients INVESTMENT OUTLOOK GLOBAL PERSPECIVES SECTORS MANAGER ANALYSIS THEMATICS MUNICIPALS ETFs and CLOSED-END FUNDS CAPITAL MARKETS 14 MORGAN STANLEY WEALTH MANAGEMENT

15 Additional Resources 15 MORGAN STANLEY WEALTH MANAGEMENT

16 Seven industry experts, leaders in their fields The Global Investment Committee Michael Wilson, Chair and Chief Investment Officer 23 years of experience; Former Head of Content Distribution for North American Equities at MS & Co.; MBA, Kellogg School of Management at Northwestern University Lisa Shalett, Head of Investment & Portfolio Strategies 25 years of experience; Former CEO, Sanford Bernstein; MBA, Harvard Business School Martin Leibowitz, Global Research Strategy 45 years of experience; Former Vice Chairman and Chief Investment Officer at TIAA-CREF; M.S. Univ. of Chicago; Ph.D., NYU Adam Parker, Chief US Equity Strategist 15 years of experience; Former Chief Investment Strategist at Sanford C. Bernstein; M.S. Univ. of North Carolina and Univ. of Michigan; Ph.D., Boston University Andrew Slimmon, Head of Applied Equity Advisors 25 years of experience; Former portfolio manager, Brown Brothers Harriman; MBA, Univ. of Chicago Leading minds including seven of the Firm s most prolific thinkers Strategic direction for portfolio allocation Andrew Sheets, Chief Global Cross-Asset Strategist 11 years of experience; Ranked by Institutional Investor; ScB, Brown University David Darst, CFA, Senior Advisor 40 years of experience; Former Chief Investment Strategist of Morgan Stanley Wealth Management; MBA, Harvard Business School All information as of May 2015 and subject to change. Follow us on MS_CIOWilson 16 MORGAN STANLEY WEALTH MANAGEMENT

17 Awards & accolades Morgan Stanley & Co. Top Three Research firm in 2014 All- America Research team survey October 2014 Morgan Stanley Wealth Management Best Wirehouse ETF Offering 2014 as well as Best ETF Research Team 2014 January 2015 Morgan Stanley Wealth Management s US Model Portfolio earned first place in the latest ranking of focus-list stock for 2014 January 2015 Financial Advisors in Morgan Stanley s Wealth Management business led the industry in the Financial Times 400 Top Advisers list for 2015, earning 88 spots. March 2015 Morgan Stanley Wealth Management Best Research Analyst for Exchange Traded Funds 2014 March 2015 Morgan Stanley Wealth Management s exceptionally strong showing in Barron's 2015 ranking of the top 100 Financial Advisors, claiming the top four spots and 32 overall. April 2015 Morgan Stanley Wealth Management had 15 Financial Advisors recognized in Barron s 2015 Top 100 Women Financial Advisors list, including the No. 1 position. June MORGAN STANLEY WEALTH MANAGEMENT

18 Global Investment Committee: Leading insights In addition to a library of recurring publications, the team is also a prolific generator of intellectual capital 2015: THE REVIVAL OF GLOBAL DIVERSIFICATION The GIC believes strongly that investors who presume the approach built around global diversification and broad asset allocation is broken are misreading the situation. In this report, the GIC discuss how now is exactly the wrong time to be abandoning globally diversified portfolios VOLATILITY IT S BACK The GIC continues to see an important role for alterative strategies in portfolios. The key is in choosing strategies that complement and diversity core portfolio risks and selecting the proper set of performance benchmarks to measure success. 18 MORGAN STANLEY WEALTH MANAGEMENT

19 Specialized research on ETFs and closed-end funds The research team for ETFs and closed-end funds operates like a traditional sell-side group publishing research and recommendations for financial advisors and their clients Best Research Analyst for Exchange Traded Products in2014 Capital Link ETF RESEARCH Team covers 357 of the nearly 1,600 US-listed ETFs, typically the largest and most liquid Cover Equity, Fixed Income and Alternative ETFs Best Wirehouse ETF Offering in 2014 ETF.com Best ETF Research Team in2014 ETF.com CLOSED-END FUND RESEARCH Team rates ~100 of nearly 600 US-listed CEFs Cover Municipal, Taxable Fixed Income and Equity CEFs All information as of May 2015 and subject to change. 19 MORGAN STANLEY WEALTH MANAGEMENT

20 We help you design an intelligent muni strategy Municipal research can be used to tailor a muni strategy specific to your tax circumstances, personal risk tolerances and investment profiles TRACKING THE MUNICIPAL MARKET Strategists continually monitor the relative attractiveness of municipals vs US Treasury bonds ASSESSING CREDIT RISK Analyzing yield spreads between AAA-rated and lower-rated munis helps determine when and where we believe credit risk is worth taking ANALYZING MATURITIES Examining yields across maturities, experts identify a maturity range they believe offers an efficient risk-reward tradeoff Hypothetical Illustration: Muni yields as % of Treasuries Hypothetical Illustration: Credit spreads: AAA vs A- and BBB-rated Hypothetical Illustration: Relative value: Municipal Bond Yield Curve No Tax Advice: Morgan Stanley Smith Barney LLC and its affiliates do not render advice on tax and legal matters to clients. 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.. 20 MORGAN STANLEY WEALTH MANAGEMENT

21 Technical analysts identify directional trends Analysts track major markets in an effort to identify key levels and inflection points ANALYSTS TRACK KEY LEVELS Including support, resistance, 50- and 200- day moving averages, combined with various momentum and Relative Strength analysis. GOAL: IMPROVE PERFORMANCE through greater profit potential or risk mitigation. Hypothetical Illustrations: Dow Jones Industrial Average S&P 500 DJIA 50-day average 200-day average S&P day average 200-day average NASDAQ NASDAQ 50-day average 200-day average 21 MORGAN STANLEY WEALTH MANAGEMENT

22 Disclosures Morgan Stanley Smith Barney LLC, its affiliates, and Morgan Stanley Financial Advisors and employees are not in the business of providing tax or legal advice, and these materials and any statements contained herein should not be construed as tax or legal advice. Individuals are urged to consult their personal tax advisor or attorney for matters involving taxation and tax planning and their personal attorney for matters involving trust and estate planning and other legal matters 2015 Morgan Stanley Smith Barney LLC. Member SIPC Global Investment Committee The Global Investment Committee is a group of seasoned investment professionals who meet regularly to discuss the global economy and markets. The committee determines the investment outlook that guides our advice to clients. They continually monitor developing economic and market conditions, review tactical outlooks and recommend model portfolio weightings, as well as produce a suite of strategy, analysis, commentary, portfolio positioning suggestions and other reports and broadcasts. Model Portfolio Solutions The securities in Equity Model Portfolios are selected and monitored on an ongoing basis by members of the Equity Model Portfolio Solutions team and may be purchased in a single transaction as individual stocks. Periodically, changes to the portfolios are recommended; clients then decide whether the recommendation makes sense for their particular financial situation. After a client purchases a portfolio, the same stocks will remain in his or her account unless individual stocks are bought or sold in response to subsequent changes in the portfolio or as otherwise individually determined by the client. Such transactions will incur applicable commission charges. Clients should seek advice from their financial advisor as to the suitability of investing in any of the securities or investment strategies discussed in this report. Financial Advisors and Private Wealth Advisors may use Equity Model Portfolios as a resource in formulating investment advice for their advisory clients, provided that they consider all other relevant factors and sources of information in tailoring their advice to a particular client, taking into consideration the client's investment objectives, risk tolerance and investment horizons. ETF Research Morgan Stanley Wealth Management Research does not provide individually tailored investment advice. Morgan Stanley Wealth Management Research has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Morgan Stanley Wealth Management recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial advisor. The appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives. The securities, instruments, or strategies discussed in Morgan Stanley Wealth Management Research may not be suitable for all investors, and certain investors may not be eligible to purchase or participate in some or all of them. 22 MORGAN STANLEY WEALTH MANAGEMENT

23 Award Disclosures Disclosure for the Barron s Top 100 FAs award: Source: Barron's Top 100 Financial Advisors, April 20, Barron s Top 100 Financial Advisors bases its ratings on qualitative criteria: professionals with a minimum of seven years of financial services experience, acceptable compliance records, client retention reports, customer satisfaction, and more. Financial Advisors are quantitatively rated based on varying types of revenues and assets advised by the financial professional, with weightings associated for each. Because individual client portfolio performance varies and is typically unaudited, this rating focuses on customer satisfaction and quality of advice. The rating may not be representative of any one client s experience because it reflects a sample of all of the experiences of the Financial Advisor s clients. The rating is not indicative of the Financial Advisor s future performance. Neither Morgan Stanley Smith Barney LLC nor its Financial Advisors or Private Wealth Advisors pays a fee to Barron's in exchange for the rating. Barron s is a registered trademark of Dow Jones & Company, L.P. All rights reserved. Disclosure for the Barron s Top Women FAs award: Source: Barron s Top 100 Women Financial Advisors, June 8, Barron s Top 100 Women Financial Advisors bases its ratings on qualitative criteria: professionals with a minimum of seven years financial services experience, acceptable compliance records, client retention reports, customer satisfaction, and more. Financial Advisors are quantitatively rated based on varying types of revenues and assets advised by the financial professional, with weightings associated for each. Because individual client portfolio performance varies and is typically unaudited, this rating focuses on customer satisfaction and quality of advice. The rating may not be representative of any one client s experience because it reflects a sample of all of the experiences of the Financial Advisor s clients. The rating is not indicative of the Financial Advisor s future performance. Neither Morgan Stanley Smith Barney LLC nor any of its Financial Advisors pay a fee to Barron s in exchange for the rating. Barron s is a registered trademark of Dow Jones & Company, L.P. All rights reserved. Disclosure for the Financial Times award: Source: The Financial Times Top 400 Financial Advisors is an independent listing produced by the Financial Times (March, 2015). The FT 400 is based in large part on data gathered from and verified by broker-dealer home offices, and, as identified by the Financial Times, reflected each advisor s performance in six primary areas, including assets under management, asset growth, compliance record, experience, credentials and accessibility. The rating may not be representative of any one client s experience and is not indicative of the Financial Advisor s future performance. Neither Morgan Stanley Smith Barney LLC nor its Financial Advisors or Private Wealth Advisors pays a fee to the Financial Times in exchange for the rating. Disclosures for the Capital Links award: Capital Link s Best Research Analyst for Closed-End Funds in 2014 awarded to the Analyst that had the best research coverage & contributions to the ETP/ETF sector in Committee from various fund sponsors nominate the analysts who are independent from Capital Links. Disclosures for the ETF.com award ETF.com Award winners are selected in a three-part process designed to leverage the insights and opinions of leaders throughout the ETF industry. Best ETF Offering: Wirehouse Category awarded to the wirehouse that offer its reps and advisors the best total offering in the ETF space, including research, data, tools, trading capabilities and education. Disclosures for the Institutional Investor award The 2014 All-America Research Team reflects the opinions of more than 3,600 individuals at firms, including more than 90 of the 100 biggest U.S. equity managers. The respondents manage an estimated $10.86 trillion in U.S. equities. Disclosures for the US Model Portfolio award Barron s Best Stock Picks From Wall Street Brokerage Firms. The US Model Portfolio earned top honors in the 2014 Barron's-Zacks ranking of focus-list stock selections. The ranking is based on a calculation of the performance of the brokerage "model portfolios" it tracks, on an equal-weighted basis. Total return performance figures include stock price changes, and dividends for each addition and deletion to the model portfolios. Commissions are not included. Neither Morgan Stanley nor any of its affiliates pay a fee to Barron s or Zack s in exchange for the ranking. 23 MORGAN STANLEY WEALTH MANAGEMENT

24 Disclosures Morgan Stanley Smith Barney LLC ( Morgan Stanley Wealth Management ) This material was not prepared by the research departments of Morgan Stanley & Co. LLC or Morgan Stanley Smith Barney LLC. The sole purpose of this material is to inform, and it in no way is intended to be an offer or solicitation to purchase or sell any security, other investment or service, or to attract any funds or deposits. Investments mentioned may not be suitable for all clients. Any product discussed herein may be purchased only after a client has carefully reviewed the offering memorandum and executed the subscription documents. Morgan Stanley Wealth Management has not considered the actual or desired investment objectives, goals, strategies, guidelines, or factual circumstances of any investor in any fund(s). Before making any investment, each investor should carefully consider the risks associated with the investment, as discussed in the applicable offering memorandum, and make a determination based upon their own particular circumstances, that the investment is consistent with their investment objectives and risk tolerance. Sources of Data Information in this material in this report has been obtained from sources that we believe to be reliable, but we do not guarantee its accuracy, completeness or timeliness. Third-party data providers make no warranties or representations relating to the accuracy, completeness or timeliness of the data they provide and are not liable for any damages relating to this data. Asset Class and Other Risks Investing in stocks, mutual funds and exchange-traded funds ( ETFs ) entails the risks of market volatility. The value of all types of investments may increase or decrease over varying time periods. Alternative investments often are speculative and include a high degree of risk. Investors could lose all or a substantial amount of their investment. Alternative investments are suitable only for eligible, long-term investors who are willing to forgo liquidity and put capital at risk for an indefinite period of time. They may be highly illiquid and can engage in leverage and other speculative practices that may increase the volatility and risk of loss. Alternative Investments typically have higher fees than traditional investments. Investors should carefully review and consider potential risks before investing. Certain of these risks may include but are not limited to: Loss of all or a substantial portion of the investment due to leveraging, short-selling, or other speculative practices; Lack of liquidity in that there may be no secondary market for a fund; Volatility of returns; Restrictions on transferring interests in a fund; Potential lack of diversification and resulting higher risk due to concentration of trading authority when a single advisor is utilized; Absence 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 manager. Interests in alternative investment products are offered pursuant to the terms of the applicable offering memorandum, are distributed by Morgan Stanley Smith Barney LLC and certain of its affiliates, and (1) are not FDIC-insured, (2) are not deposits or other obligations of Morgan Stanley or any of its affiliates, (3) are not guaranteed by Morgan Stanley and its affiliates, and (4) involve investment risks, including possible loss of principal. Morgan Stanley Smith Barney LLC is a registered broker-dealer, not a bank. 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, other commodities, or traditional alternative investments. Diversification does not assure a profit or protect against loss in a declining market. Indexes are unmanaged, and it is not possible to invest directly in an index. Past performance is no guarantee of future results. Actual results may vary. Global Investment Manager Analysis (GIMA) defines Adverse Active Alpha (AAA) as follows: Adverse refers to the demonstrated ability to outperform in a variety of market environments and when conditions were difficult for active manager relative performance. Difficult periods were times when active management did not perform well relative to the index, as opposed to down market periods. At various times, active management has experienced difficult relative performance periods in up, down, and flat markets. We developed a set of factors to help discern which periods were more difficult for active managers that we utilize to identify managers that were able to overcome these headwinds and outperformed in the face of adversity. 24 MORGAN STANLEY WEALTH MANAGEMENT

25 Disclosures Morgan Stanley Smith Barney LLC ( Morgan Stanley Wealth Management ) (Continued) Active refers to managers with high active share i.e., managers whose portfolios looked different from the index and had moderate to low tracking error. In this way, the ranking seeks to find managers that were active, but not taking outsized factor bets, such as large sector or industry bets and that had some degree of style consistency. The combination of high active share and low tracking error is fairly uncommon among active managers, but we believe these traits may point toward managers with strong stock picking skills. Alpha refers to the demonstrated ability to add value relative to an index and/or peers. Back tests indicate that highly ranked managers as a group outperformed the index and style peer group over subsequent periods and relative to active share alone. By combining the adverse component with the active component, we believe we increase the odds of finding some of the most proficient stock pickers. Important Considerations Regarding the Adverse Active Alpha Ranking Process: Global Investment Manager Analysis, formerly Consulting Group Investment Advisor Research (CG IAR), provides comprehensive manager analysis for Morgan Stanley s investment advisory platforms on a wide range of investment products, including separately managed accounts, mutual funds and exchange-traded funds in the equity, fixed income and alternative investment categories. In our view, the Adverse Active Alpha manager ranking model is an important part of evaluating managers for consideration. However, we do recognize that AAA cannot, in and of itself, tell us which managers strategies to invest in or when to buy or sell the strategies. While highly ranked managers historically performed well as a group in our analysis, past performance is not a guarantee of future results for any manager or strategy. Index returns assume reinvestment of dividends and, unlike fund or strategy returns, do not reflect any fees or expenses. Indices are unmanaged and not available for direct investment. It is also important to keep in mind that just because a manager has high active share, a portfolio that looks different than the index (benchmark) doesn t necessarily mean the portfolio had or will have better performance than the index. Being different than the index does not consider factors such as: the timeliness of data provided by the manager, the appropriateness of the benchmark used for comparison to the portfolio, the relevancy of the period(s) being analyzed between the portfolio and the benchmark, knowing the difference between the securities and their concentration in a manager s portfolio vs. the benchmark and the potential that the data provided by the manager looked significantly different in periods before and after the performance snapshot(s) used for analysis. While the preceding considerations are not part of the AAA ranking model, GIMA s strives to evaluate other material and forward looking factors as part of the overall manager evaluation process. Factors such as but not limited to manager turnover and changes to investment process can partially or fully negate a positive Adverse Active Alpha ranking. Additionally, highly ranked managers can have differing risk profiles that might not be suitable for all investors. For more information on AAA, please see the Adverse Active Alpha Ranking Model and Selecting Managers with Adverse Active Alpha whitepapers. The whitepaper are available from your Financial Advisor or Private Wealth Advisor. ADVERSE ACTIVE ALPHA is a registered service mark of Morgan Stanley and/or its affiliates. U.S. Pat. No. 8,756,098 applies to the Adverse Active Alpha system and/or methodology. The Global Investment Manager Analysis (GIMA) Services Only Apply to Certain Investment Advisory Programs GIMA evaluates certain investment products for the purposes of some but not all of Morgan Stanley Smith Barney LLC s investment advisory programs (as described in more detail in the applicable Form ADV Disclosure Document for Morgan Stanley Wealth Management). If you do not invest through one of these investment advisory programs, Morgan Stanley Wealth Management is not obligated to provide you notice of any GIMA status changes even though it may give notice to clients in other programs. Focus List, Approved List and Tactical Opportunities List; Watch Policy GIMA uses two methods to evaluate investment products in applicable advisory programs: Focus (and investment products meeting this standard are described as being on the Focus List) and Approved (and investment products meeting this standard are described as being on the Approved List). In general, Focus entails a more thorough evaluation of an investment product than Approved. Sometimes an investment product may be evaluated using the Focus List process but then placed on the Approved List instead of the Focus List. 25 MORGAN STANLEY WEALTH MANAGEMENT

26 Disclosures Morgan Stanley Smith Barney LLC ( Morgan Stanley Wealth Management ) (Continued) Investment products may move from the Focus List to the Approved List, or vice versa. GIMA may also determine that an investment product no longer meets the criteria under either process and will no longer be recommended in investment advisory programs (in which case the investment product is given a Not Approved status). GIMA has a Watch policy and may describe a Focus List or Approved List investment product as being on Watch if GIMA identifies specific areas that (a) merit further evaluation by GIMA and (b) may, but are not certain to, result in the investment product becoming Not Approved. The Watch period depends on the length of time needed for GIMA to conduct its evaluation and for the investment manager or fund to address any concerns. GIMA may, but is not obligated to, note the Watch status in this report with a W or Watch next to the Status on the cover page. Certain investment products on either the Focus List or Approved List may also be recommended for the Tactical Opportunities List based in part on tactical opportunities existing at a given time. The investment products on the Tactical Opportunities List change over time. For more information on the Focus List, Approved List, Tactical Opportunities List and Watch processes, please see the applicable Form ADV Disclosure Document for Morgan Stanley Wealth Management. Your Financial Advisor or Private Wealth Advisor can also provide upon request a copy of a publication entitled Manager Selection Process. Strategy May Be Available as a Separately Managed Account or Mutual Fund Strategies are sometimes available in Morgan Stanley Wealth Management investment advisory programs both in the form of a separately managed account ( SMA ) and a mutual fund. These may have different expenses and investment minimums. Your Financial Advisor or Private Wealth Advisor can provide more information on whether any particular strategy is available in more than one form in a particular investment advisory program. the compounding effect of the fees will result in a net performance of approximately 3.93% after one year, 12.25% after three years, and 21.23% after five years. Conflicts of Interest GIMA s goal is to provide professional, objective evaluations in support of the Morgan Stanley Wealth Management investment advisory programs. We have policies and procedures to help us meet this goal. However, our business is subject to various conflicts of interest. For example, ideas and suggestions for which investment products should be evaluated by GIMA come from a variety of sources, including our Morgan Stanley Wealth Management Financial Advisors and their direct or indirect managers, and other business persons within Morgan Stanley Wealth Management or its affiliates. Such persons may have an ongoing business relationship with certain investment managers or mutual fund companies whereby they, Morgan Stanley Wealth Management or its affiliates receive compensation from, or otherwise related to, those investment managers or mutual funds. For example, a Financial Advisor may suggest that GIMA evaluates an investment manager or fund in which a portion of his or her clients assets are already invested. While such a recommendation is permissible, GIMA is responsible for the opinions expressed by GIMA. See the conflicts of interest section in the applicable Form ADV Disclosure Document for Morgan Stanley Wealth Management for a discussion of other types of conflicts that may be relevant to GIMA s evaluation of managers and funds. In addition, Morgan Stanley Wealth Management, MS&Co., managers and their affiliates provide a variety of services (including research, brokerage, asset management, trading, lending and investment banking services) for each other and for various clients, including issuers of securities that may be recommended for purchase or sale by clients or are otherwise held in client accounts, and managers in various advisory programs. Morgan Stanley Wealth Management, managers, MS&Co., and their affiliates receive compensation and fees in connection with these services. Morgan Stanley Wealth Management believes that the nature and range of clients to which such services are rendered is such that it would be inadvisable to exclude categorically all of these companies from an account. In most Morgan Stanley Wealth Management investment advisory accounts, fees are deducted quarterly and have a compounding effect on performance. For example, on an advisory account with a 3% annual fee, if the gross annual performance is 6.00%, CRC# / MORGAN STANLEY WEALTH MANAGEMENT