Investment management

The Case for Diversification: equity securities Indexes

Perf

orm

ance

%Lo

wes

tHi

ghes

t

Large-CapGrowth-38.44

International-43.38

Mid-Cap-41.46

S&P 500-37.00

Large-CapValue

-36.85

Small-Cap-33.79

2008

Source: Lipper Inc. The above table is presented for information purposes only and is not meant to depict past performance or predict future performance of any particular Morgan Stanley investment. Performance of all cited indexes is calculated on a total return basis with dividends reinvested. The indexes do not include any expenses, fees or charges and are unmanaged and should not be considered investments. Past performance is no guarantee of future results. Foreign securities investments involve risks in addition to those associated with domestic securities, including currency, political, economic and market risks. Investing in small- and mid-size companies involves risks in addition to those associated with large-size companies. International is represented by the Morgan Stanley Capital International (MSCI) EAFE Index, which measures the performance for a diverse range of global stock markets within Europe, Australasia and the Far East. The performance of the index is listed in U.S. dollars and assumes reinvestment of net dividends. “Net dividends” reflects a reduction in dividends after taking into account withholding of taxes by certain foreign countries represented in the index. The Standard and Poor’s 500 Index (S&P 500®) is a broad-based index, the performance of which is based on the performance of 500 widely held common stocks chosen for market size, liquidity and industry group representation. Small-Cap is represented by the Russell 2000® Index, a capitalization-weighted index, which is comprised of the 2,000 smallest stocks included in the Russell 3000® Index. Mid-Cap is represented by the Russell Midcap® Index, a capitalization-weighted index, which is comprised of the 800 smallest stocks included in the Russell 1000® Index, representing approximately 24 percent of the total market capitalization of the Russell 1000® Index. Large-Cap Growth is represented by the Russell 1000® Growth Index, which measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. Large-Cap Value is represented by the Russell 1000® Value Index, which measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values.

NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT

n Large-Cap Value n Large-Cap Growth n Small-Cap n Mid-Cap n International n S&P 500

Large-CapValue35.18

S&P 50033.36

Large-CapGrowth30.49

Mid-Cap29.01

Small-Cap22.36

International1.78

Large-CapGrowth33.16

International26.96

Small-Cap21.26

S&P 50021.04

Mid-Cap18.23

Large-CapValue7.35

Large-CapGrowth38.71

S&P 50028.57

International20.00

Large-CapValue15.63

Mid-Cap10.09

Small-Cap–2.55

Mid-Cap8.25

Large-CapValue7.02

Small-Cap–3.02

S&P 500–9.12

International–14.17

Large-CapGrowth–22.42

Small-Cap2.49

Large-CapValue–5.59

Mid-Cap–5.62

S&P 500–11.88

Large-CapGrowth–20.42

International–21.44

Large-CapValue

–15.52

International–15.94

Mid-Cap–16.19

Small-Cap–20.48

S&P 500–22.09

Large-CapGrowth–27.88

Small-Cap47.25

Mid-Cap40.06

International38.59

Large-CapValue30.03

Large-CapGrowth29.75

S&P 50028.68

International20.25

Mid-Cap20.22

Small-Cap18.33

Large-CapValue16.49

S&P 50010.88

Large-CapGrowth6.30

International26.34

Large-CapValue22.25

Small-Cap18.37

S&P 50015.79

Mid-Cap15.26

Large-CapGrowth9.07

International13.54

Mid-Cap12.65

Large-CapValue7.05

Large-CapGrowth5.26

S&P 5004.91

Small-Cap4.55

1997 19991998 2000 2001 2002 2003 2004 20062005

Large-CapGrowth11.81

International11.17

Mid-Cap5.60

S&P 5005.49

Large-CapValue–0.17

Small-Cap–1.57

2007

The Case for Diversification: Fixed Income securities IndexesPe

rfor

man

ce %

Low

est

High

est

Source: Lipper Inc. This example is for illustrative purposes only and does not represent the performance of any Morgan Stanley investment. Past performance is no guarantee of future results. The securities represented in each category involve investment risks, including default and loss of principal. Only U.S. Treasury securities and certain securities issued by the U.S. government are guaranteed by the full faith and credit of the United States. As interest rates rise, bond prices fall. Corporate Bond is represented by Barclays Capital U.S. Corporate Index, which includes publicly issued U.S. corporate and specified foreign debentures and secured notes that meet the specified maturity, liquidity and quality requirements; Government Bond is represented by Barclays Capital U.S. Government Index, which is composed of the Barclays Capital Treasury Bond Index (all public obligations of the U.S. Treasury, except flower bonds and foreign-targeted issues) and the Lehman Agency Bond Index (all publicly issued debt of U.S. government agencies, quasi-federal corporations, and corporate debt issued or guaranteed by the U.S. government); High Yield is represented by Barclays Capital Corporate High-Yield Index, which includes noninvestment-grade securities which have at least $150 million in outstanding issuance, a maturity greater than one year and are issued in fixed-rate U.S. dollar denominations; Municipal Bond is represented by Barclays Capital Municipal Bond Index, which includes municipal bonds with a credit rating of at least Baa and have a maturity of at least two years; Mortgage is represented by Barclays Capital Fixed Rate MBS Index, which is composed of fixed-rate securities backed by mortgage pools of Ginnie Mae, Freddie Mac and Fannie Mae. Senior Loan is represented by the average of fund returns in the Lipper Loan Participation category, which includes funds that invest primarily in participation interests in collateralized senior corporate loans that have floating or variable rates. As of December 31, 2008, there were 45 funds in the Loan Participation category. Short-Term Treasury is represented by Merrill Lynch 1-3 Year U.S. Treasury Index, which represents all U.S. Treasury notes and bonds with maturities greater than or equal to one year and less than three years. Indexes are unmanaged and do not include sales charges or fees that would be paid by an investor purchasing the securities they represent. Such costs would lower performance. It is not possible to invest directly in an index.

When comparing asset-allocation strategies to your personal financial situation, you should consider your time frame and all of your personal savings and investments, in addition to your retirement assets and risk tolerance level. Your financial advisor can help you assess your individual situation before you make any decisions. Diversification does not protect against a loss.

© 2009 Morgan Stanley. Morgan Stanley Distributors Inc.

n Senior Loan n Short-Term Treasury n High Yield n Mortgage n Corporate Bond n Government Bond n Municipal Bond

High Yield12.76

CorporateBond10.23

GovernmentBond9.59

Mortgage9.49

MunicipalBond9.19

Senior Loan6.35

Short-Term Treasury

3.06

High Yield2.39

Mortgage1.86

CorporateBond–1.96

GovernmentBond9.85

CorporateBond8.57

Short-Term Treasury

7.00

Mortgage6.96

Senior Loan6.76

GovernmentBond13.24

MunicipalBond11.68

Mortgage11.16

CorporateBond9.08

Short-Term Treasury

8.00

CorporateBond10.31

Short-Term Treasury

8.30

Mortgage8.22

GovernmentBond7.23

High Yield5.28

GovernmentBond11.50

CorporateBond10.12

MunicipalBond9.60

Mortgage8.75

Short-Term Treasury

5.76

High Yield28.97

Senior Loan14.94

CorporateBond8.24

MunicipalBond5.31

Mortgage3.07

High Yield11.13

Senior Loan6.70

CorporateBond5.39

Mortgage4.70

MunicipalBond4.48

High Yield11.85

Senior Loan7.95

Mortgage5.22

MunicipalBond4.84

CorporateBond4.30

Senior Loan5.45

MunicipalBond3.51

High Yield2.74

GovernmentBond2.65

Mortgage2.61

Senior Loan7.73

MunicipalBond–2.06

MunicipalBond6.48

Senior Loan4.85

MunicipalBond5.13

Senior Loan0.13

GovernmentBond2.36

GovernmentBond3.48

Short-Term Treasury

3.96

CorporateBond1.68

1997 19991998 2000 2001 2002 2003 2004 20062005

Short-Term Treasury

6.66

GovernmentBond–2.23

High Yield1.87

High Yield–5.86

Senior Loan0.34

High Yield–1.41

Short-Term Treasury

1.90

Short-Term Treasury

0.91

GovernmentBond 8.66

Short-Term Treasury

7.32

Mortgage6.90

CorporateBond4.56

MunicipalBond3.36

High Yield1.87

2007

Senior Loan0.02

GovernmentBond3.48

Short-Term Treasury

1.67

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GovernmentBond 12.39

Short-Term Treasury

6.59

Mortgage8.34

CorporateBond-4.94

MunicipalBond-2.47

High Yield-26.16

2008

Senior Loan-43.32