INVESTMENT MANAGEMENT NOVEMBER 2015 FOR PROFESSIONAL CLIENTS ONLY Morgan Stanley Saudi Equity Fund ( MSSEF ) List of Questions and Answers 1. What is the name of the Fund? The name of the Fund is Morgan Stanley Saudi Equity Fund ( MSSEF ). This is an open ended collective investment scheme managed by Morgan Stanley Saudi Arabia ( MSSA ). 2. Who may this Fund be suitable for? The Fund is suitable for investors looking for the potential of high returns from investing in equities and seeking exposure to the Saudi Arabian growth story by investing in equities listed on the Saudi stock exchange, Tadawul. 3. Who is the Fund Manager? The Fund Manager is Morgan Stanley Saudi Arabia (MSSA), a Saudi joint stock company based in Riyadh, Saudi Arabia. 4. Does Morgan Stanley have expertise in Saudi Arabia? Yes, Morgan Stanley has a team on the ground in Riyadh comprised of investment analysts and fund managers. The team has a combined investment experience over 30 years and is composed of seasoned investors with expertise in developed and emerging markets complemented by talented young professionals with strong background in finance. 5. Who is the Regulator? The Fund is regulated by the Capital Market Authority CMA which is the regulator for the fund management business in the Kingdom of Saudi Arabia. The CMA was established by the Capital Market Law, issued by Royal Decree No. (M/30) dated 2/6/1424 H (16th June, 2003). The CMA is a government organization with financial, legal and administrative independence. It reports directly to the Prime Minister. The CMA functions are to regulate and develop the Saudi Arabian Capital Market. It issues the required rules and regulations for the implementation of the provisions of Capital Market Law aimed at creating an appropriate investment environment. 6. Who can invest in the Fund? Are there any restrictions? The Fund is open to investors from Saudi Arabia only. 7. What is the Fund s investment objective and policy? The Fund s investment objective is to provide long-term capital appreciation through investment in Saudi Stocks and upcoming IPOs in the Saudi market. 8. What strategies will the Fund employ? MSSEF is an actively managed fund. The Fund Manager may hold concentrated positions in securities which in its view offer strong earnings growth and potential for price performance. As we employ an active investment strategy, the allocation of the fund may be substantially different from that of the benchmark, which is described in #12 below. 9. Will the Fund employ leverage or long-short strategies? No. The Fund will not utilize leverage. As short-selling is not permissible in Saudi Arabia, the Fund will not short-sell.
INVESTMENT MANAGEMENT 10. What is the benchmark for the Fund? Tadawul All Share Index ( TASI ), which is the most widely used index on the Saudi market will the Fund s benchmark. TASI is a free float based all share index. 11. How many stocks are listed in Saudi Arabia? Can you tell me something about the market there? Saudi Arabia is GCC s largest market in terms of capitalization with around 155 stocks listed on Tadawul, the Saudi Stock market. There are several upcoming IPOs in the pipeline as well. Tadawul with a market capitalization of around US$350 bn is one of the largest emerging markets and has sector representation from banks, petrochemicals, telecoms, real estate and cement, to name a few of the 15 listed sectors. Tadawul is a rapidly-growing market with an evolving regulatory structure. Currently only GCC investors can directly buy into Saudi stocks, while there is no restriction on global investors buying into the market through mutual funds. 12. What is the currency of the Fund? The Fund will be denominated in the Saudi Riyal (SAR). The exchange rate between the Saudi Riyal and the U.S. dollar is pegged at 1Us$ = 3.75SAR. 13. What is the minimum investment amount? The minimum initial investment amount is SAR50,000 (c.us$13,333). 14. What is the distribution policy of the Fund? The Fund normally will reinvest its income and this will be reflected in the price of the units, i.e., its NAV. Dividends may be paid at the sole discretion of the Fund Manager, but these cannot be guaranteed. 15. What is the subscription and management fee of the Fund? Subscription Fee - 1.50% of the NAV of the Units Subscribed. Management Fee - 1.75% p.a. of the Net Asset Value. Dilution Charge - 0.50% of Net Asset Value (only if redeemed within 30 Calendar days of investment). Other Charges-Custodian and Admin Fees 0.25%. 16. Who are the Administrator and Custodian of the Fund and their role? The Administrator and Custodian of the Fund is SABB Securities Limited, a leading brokerage as well as a custody and management company based in Riyadh, Saudi Arabia. SABB Securities is a subsidiary of the Saudi British Bank, an associate of the HSBC group. The key responsibilities of the Administrator are: Calculation of the NAV; Managing the distribution of reports to the Unitholders; Accounting of the Fund. As a custodian of the Fund, SABB s responsibility is to ensure that the assets are held safely for the benefit of the unit holders. 17. How many stocks will typically be in the Fund s portfolio? Although there is no fixed number, typically the Fund may hold between 25-35 stocks to achieve appropriate levels of diversification. 18. What are the audit fees and who is the Auditor Maximum audit fees budgeted for the Fund is SAR 40,000 per annum to be paid by the Fund. The designated auditor of the Fund is Ernst &Young. According to the Investment Fund Regulations issued by CMA, the first audited financial statements will be made available upon completion of a calendar year of operations. 19. What are the risks of investing on MSSEF? Investing in MSSEF carries risks typically associated with investing in equities and the risks associated with such a fund are considered high. Please refer to section 10 in the Information Memorandum which discusses the possible risks of investing in the Fund. 2
MORGAN STANLEY SAUDI EQUITY FUND ( MSSEF ) 20. What are the expected returns of investing on MSSEF? An investment in this Fund is considered to carry a high amount of risk consistent with investing in equities in emerging and frontier markets. However, no guarantee can be provided on the returns that one could expect. 21. Is there a similar fund to MSSEF in Saudi Arabia? GCC? Yes, there are other Saudi Equity investment funds available for investors in Saudi Arabia. It is worth noting that Morgan Stanley is one of the first bulge bracket firms to set up operations in Saudi Arabia with an investment management business. Morgan Stanley s global expertise as well as on the ground investment team provides investors with a greater degree of confidence that they are investing with a reliable partner. 22. What was the selection process of the Board of Directors? Who are on the Fund s Board? The Board of Directors was selected based on a combination of factors, including credibility, experience and investment knowledge. The Fund s board consists of two independent directors while two directors are nominated by the Fund Manager. All directors have been appointed by the Fund Manager after approval by the CMA. The current board consists of the following members: Paul Price, Managing Director, Morgan Stanley Inverstment Management has been appointed as the Chairman of the Fund s board of directors; Amr Al-Dhobaib, CPA, Vice President, Morgan Stanley Saudi Arabia; Hesham Tashkandi (independent director) - Board Member and the ex-chairman of Al Me awiyah Fund; Tarek Sakka (independent director) - founder and CEO of Ajeej Capital, a MENA-focused asset management company. 23. What is the responsibility of board of directors? The Fund s board has a fiduciary responsibility to ensure that the Fund is managed in the best interests of Unitholders. The Fund board will meet at least twice annually to oversee the Fund s compliance with all regulations, and approval of all material contracts and of the Fund s investment in IPOs. 24. Reporting to the Unitholders? Monthly statement showing the status of their investment and valuations; Six months reviewed accounts to be prepared by E&Y; Annual audited reports to be prepared by E&Y. These reports will be sent via email / or hard copy, as required. 25. What is the process for subscription to units of the Fund? Investor will have to send a completed subscription agreement to the Fund Manager/Administrator along with the payment proceeds; After confirming all legal and compliance requirements, the Fund Manager/Administrator will provide the Investor with a confirmation regarding their investment into the Fund. 26. What are the Dealing Days for Fund? Each Sunday and Tuesday which is a Business day will be a Dealing Day for the Fund. Subscription and redemption requests will be accepted on each dealing day till 12 noon. Business day is a day on which banks in Saudi Arabia are open for business which generally is from Saturday to Wednesday. Banks and other business are normally closed on Thursday and Friday in Saudi Arabia. 27. How can I get my money back? The Fund is structured as an open-end fund and there are no capital control restrictions in Saudi Arabia. Investors can redeem at their own option by filing a redemption request. Payment for redemptions would be made within four business days after the relevant dealing day. However, any redemption within 30 days of investment will attract a 0.50% dilution charge on the NAV of the units. 3
INVESTMENT MANAGEMENT 28. How long does it take to process a redemption request? Payment for redemption would be made within four business days after the relevant dealing day. 29. What is the size of the Initial Offer? What is the commitment of the Fund Manager? A minimum amount of SAR 10 million must be raised through Unitholder contributions before the Fund starts to make investments. Morgan Stanley International has invested seed money that may gradually be decreased over time. 30. How can I check the Fund Prices? Fund prices will be updated on Tadawul s website at 2:00 p.m. Riyadh time on each Publication Day, i.e., each Monday and Wednesday on which the Tadawul is open. Tadawul s website address is www.tadawul.com.sa 31. How can I contact the fund team at MSSA? Investors can contact the fund team through the fund email address msimsa@morganstanley.com 32. Is the fund Shari a-compliant? This fund is currently a non-sharia compliant; however a Sharia compliant version of this fund will be available soon. 33. What are the key selling points for this fund? Fundamental-based investment approach; On the ground Investment Team; Risk management and investing discipline; Performance. 34. How is this fund any different from the other Saudi equity funds available? What we can say about Morgan Stanley is that we have built a significant asset management presence over the past few years. Few international firms have the capability, track record or set up to rival ours. We have a well-established team of portfolio managers and analysts on the ground. Our Approach: The Saudi Investment Team, including myself, is based in Riyadh. We are fundamental investors and do our own research, modeling and analysis of the economy, the sectors and listed companies. In terms of the Investment Process, the Team employs an active investment strategy by selecting securities which it believes will appreciate in value based on an analysis of sector, the expected return and growth of individual securities. When selecting security investments for this Fund, we adopt a long-term approach, focusing on the market price of a company s securities relative to our evaluation of the company s potential long-term earnings, asset value and cash flow potential. The lack of comprehensive sell-side research provides further opportunities for fundamentals-oriented portfolio managers. Our investment philosophy is based on the belief that fundamentals-based investing when carried out within the context of broad Saudi Arabian macroeconomic themes can be successful in creating value for investors. Furthermore, the current investor mix between retail and institutional investors may create intrinsic price anomalies that, if properly exploited, can be a potential source of additional returns. Add to these potential anomalies that exist from market dislocations and we believe we can best exploit these anomalies by applying a top-down sector allocation and bottom-up stock selection approach. We have a very strong and robust Risk Management process for managing the Fund. Risk management is an integral part of the investment process, conducted at stock, sector and portfolio levels. At the stock level, the team focuses on developing a comprehensive understanding of company s fundamentals to minimize exposure to high risk or speculative stocks. At a sector level, the team monitors sector and industry allocations, with benchmark deviations confined to a defined range. At a portfolio level, tracking error is monitored. 4
MORGAN STANLEY SAUDI EQUITY FUND ( MSSEF ) 35. Why should I invest in this Fund? a. Access to the Morgan Stanley Brand; b. Well-knit team and experienced management; c. Access to Morgan Stanley s global emerging markets expertise and experience; access to global sector trends and analysis; d. Risk management systems and analytics; e. Increased diversification; f. Access to the Saudi Growth Story. 36. What is your investment philosophy? We believe in adding value by integrating both top-down and bottom-up stock selection with a growth bias; We utilize a rigorous research based approach with a focus on Sector and Company fundamentals, Key Drivers, Price and Earnings Dynamics, Quality of Disclosure and Sentiment with a contrarian bias; We like to own under-penetrated and overlooked assets with strong growth prospects while avoiding stocks with low liquidity and mediocre growth potential; Based on internal fundamental research and proprietary valuation, we seek to invest in securities, which we believe offer strong growth potential over a complete market cycle. 5
Investment in the Morgan Stanley Saudi Equity Fund The Morgan Stanley Saudi Equity Fund is authorized and regulated by the Capital Market Authority in the Kingdom of Saudi Arabia (KSA). Units in the Fund are only available in accordance with all relevant local laws and regulations to qualifying KSA nationals domiciled in the KSA. For further information, please contact: Najmul Hasnain MSIM Saudi Arabia Najmul.Hasnain@morganstanley.com IMPORTANT INFORMATION FOR PROFESSIONAL CLIENTS ONLY This financial promotion was issued and approved for use in Saudi Arabia by Morgan Stanley Saudi Arabia, Al-Rashed Tower, Al- Maather Street, Riyadh, Saudi Arabia, authorized and regulated by the Capital Market Authority. This communication is only intended for and will be only distributed to persons resident in jurisdictions where such distribution or availability would not be contrary to local laws or regulations. Applications for units in The Morgan Stanley Saudi Equity Fund should not be made without first consulting the current Prospectus and offering documents which are available free of charge at the address above. There will be no offering of any interests (or solicitation of an offer to buy) in any jurisdiction in which such offer or solicitation would be unlawful. The investment performance of the Morgan Stanley Saudi Equity Fund is calculated on a total return basis (i.e., with cash dividend reinvested), while the investment performance of the benchmark is provided on price return basis (i.e., it does not include dividends). The dividend yield as per Bloomberg for TASI was 3.6% as of 31 August 2015. This communication is a marketing communication; it has been prepared solely for information purposes and does not constitute an offer or a recommendation to buy or sell any particular security or to adopt any specific investment strategy. The material contained herein has not been based on a consideration of any individual client circumstances and is not investment advice, nor should it be construed in any way as tax, accounting, legal or regulatory advice. To that end, investors should seek independent legal and financial advice, including advice as to tax consequences, before making any investment decision. Except as otherwise indicated herein, the views and opinions expressed herein are those of Morgan Stanley Investment Management, are based on matters as they exist as of the date of preparation and not as of any future date, and will not be updated or otherwise revised to reflect information that subsequently becomes available or circumstances existing, or changes occurring, after the date hereof. The CMA has approved the establishment of The Morgan Stanley Saudi Equity Fund on 16 August 2008. The CMA has not endorsed the accuracy or adequacy of this Presentation. The Presentation may have been sent to you in an electronic form. Documents transmitted via this medium may be altered or changed during the process of electronic transmission and consequently none of MSSA or any of its respective directors, officers, partners, employees or advisers accept any liability or responsibility whatsoever in respect of any difference between the Presentation distributed in electronic format and the hard copy version available on request from MSSA. Risk Warning Past performance is not a guarantee of future performance. The value of the investments and the income from them can go down as well as up and an investor may not get back the amount invested. There are special risk considerations associated with investing in emerging country securities including (1) restrictions on foreign investment, (2) currency fluctuations, (3) potential price volatility and lesser liquidity of shares, (4) political and economic risks, (5) settlement systems may be less well organized and less developed. There are also varying levels of government supervision and regulation of exchanges, financial institutions and issuers in various countries. In addition, accounting, auditing, financial and other reporting standards are not equivalent to those of more developed countries, and therefore less information may be available than in more developed countries. Funds that specialize in a particular region or market sector are more risky than those which hold a very broad spread of investments. Where portfolio concentration is in one sector it is subject to greater risk and volatility than other portfolios that are more diversified and the value of its shares may be more substantially affected by economic events. These investments are designed for investors who understand and are willing to accept these risks. Performance may be volatile, and an investor could lose all or a substantial portion of his or her investment. www.morganstanley.com/im 2015 Morgan Stanley CRC-1366144 Exp. 12/11/2016 LN01740 8434677_CH_1215