Footnotes:
1 Morgan Stanley’s Global Investment Committee, Plan Not to Panic: Navigating Market Volatility with Financial Planning, by Lisa Shalett, Daniel Hunt, Eve Pickhardt, Stephanie Wang, and Thomas v. Caruso, published April 26, 2024.
2 Morgan Stanley’s Global Investment Committee, What’s Your Investment Benchmark? By Lisa Shalett and Patrick Gremban, published June 26, 2024.
Disclosures:
The Global Investment Committee (GIC) is a group of seasoned investment professionals from Morgan Stanley & Co. LLC, Morgan Stanley Investment Management, and Morgan Stanley Wealth Management 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 asset allocation model weightings, as well as produce a suite of strategy, analysis, commentary, portfolio positioning suggestions and other reports and broadcasts. Lisha Ge, Spencer Cavallo and Jason Traum are not members of the Global Investment Committee and any implementation strategies suggested have not been reviewed or approved by the Global Investment Committee. Glossary Drawdown: The peak-to-trough decline during a specifi c period. Mean reversion: The theory suggesting that prices and returns eventually move back toward the mean or average. This mean or average can be the historical average of the price or return, or another relevant average such as the growth in the economy or the average return of an industry. Standard deviation: This statistic quantifi es the volatility associated with a portfolio’s returns by measuring the variation in returns around the mean return. Unlike beta, which measures volatility relative to the aggregate market, standard deviation measures the absolute volatility of a portfolio’s return. Tracking error: A divergence between the price behavior of a position or a portfolio and the price behavior of a benchmark. Volatility: A statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security. For index, indicator and survey defi nitions referenced in this report please visit the following: https://www.morganstanley.com/wealthinvestmentsolutions/ wmir-defi nitions. Hypothetical Performance Charts and graphs are provided for illustrative purposes. The charts and graphs may contain hypothetical performance displays. As such, Morgan Stanley is providing information below regarding the risks and limitations related to such hypothetical performance displays. The inclusion of these displays in this material is in no way a solicitation of advisory services. IMPORTANT: The projections or other information provided in the Report regarding the likelihood of various investment outcomes (including any assumed rates of return and income) are hypothetical in nature, do not refl ect actual investment results, and are not guarantees of future results. Hypothetical investment results have inherent limitations. There are frequently large differences between hypothetical and actual results. Hypothetical results do not represent actual results and are generally designed with the benefi t of hindsight. They cannot account for all factors associated with risk, including the impact of fi nancial risk in actual trading or the ability to withstand losses or to adhere to a particular trading strategy in the face of trading losses. There are numerous other factors related to the markets in general or to the implementation of any specifi c strategy that cannot be fully accounted for in the preparation of hypothetical risk results and all of which can adversely affect actual performance. Any recommendations regarding external accounts/holdings are asset allocation only and do not include security recommendations. Hypothetical performance should not be considered a guarantee of future performance or a guarantee of achieving overall fi nancial objectives. Asset allocation and diversifi cation do not assure a profi t or protect against loss in declining fi nancial markets. Hypothetical performance results have inherent limitations. The performance shown here is simulated performance not investment results from an actual portfolio or actual trading. There can be large differences between hypothetical and actual performance results. Despite the limitations of hypothetical performance, these hypothetical performance results may allow clients and Financial Advisors to obtain a sense of the risk/return trade-off of different asset allocation constructs. Asset Class and Other Risk Considerations Investing in the market entails the risk of market volatility. The value of all types of securities may increase or decrease over varying time periods. This analysis does not purport to recommend or implement an investment strategy. Financial forecasts, rates of return, risk, infl ation, and other assumptions may be used as the basis for illustrations in this analysis. They should not be considered a guarantee of future performance or a guarantee of achieving overall fi nancial objectives. No analysis has the ability to accurately predict the future, eliminate risk or guarantee investment results. As investment returns, infl ation, taxes, and other economic conditions vary from the assumptions used in this analysis, your actual results will vary (perhaps signifi cantly) from those presented in this analysis. The assumed return rates in this analysis are not refl ective of any specifi c investment and do not include any fees or expenses that may be incurred by investing in specifi c products. The actual returns of a specifi c investment may be more or less than the returns used in this analysis. The return assumptions are based on hypothetical rates of return of securities indices, which serve as proxies for the asset classes. Moreover, different forecasts may choose different indices as a proxy for the same asset class, thus infl uencing the return of the asset class. Equity securities may fl uctuate in response to news on companies, industries, market conditions and general economic environment. Investing in small- to medium-sized companies entails special risks, such as limited product lines, markets and fi nancial resources, and greater volatility than securities of larger, more established companies. Investing in foreign markets entails greater risks than those normally associated with domestic markets, such as political, currency, economic and market risks. Investing in currency involves additional special risks such as credit, interest rate fl uctuations, derivative investment risk, and domestic and foreign infl ation rates, which can be volatile and may be less liquid than other securities and more sensitive to the effect of varied economic conditions. In addition, 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 fl uctuations. These risks are magnifi ed in countries with emerging markets and frontier markets, since these countries may have relatively unstable governments and less established markets and economies. 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 fl uctuate, 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 signifi cant 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. Ultrashort-term fi xed income asset class is comprised of fi xed income securities with high quality, very short maturities. They are therefore subject to the risks associated with debt securities such as credit and interest rate risk. Investing in commodities entails signifi cant risks. Commodity prices may be affected by a variety of factors at any time, including but not limited to, (i) changes in supply and demand relationships, (ii) governmental programs and policies, (iii) national and international political and economic events, war and terrorist events, (iv) changes in interest and exchange rates, (v) trading activities in commodities and related contracts, (vi) pestilence, technological change and weather, and (vii) the price volatility of a commodity. In addition, the commodities markets are subject to temporary distortions or other disruptions due to various factors, including lack of liquidity, participation of speculators and government intervention. Physical precious metals are non-regulated products. Precious metals are speculative investments, which may experience short-term and longterm price volatility. The value of precious metals investments may fl uctuate and may appreciate or decline, depending on market conditions. If sold in a declining market, the price you receive may be less than your original investment. Unlike bonds and stocks, precious metals do not make interest or dividend payments. Therefore, precious metals may not be appropriate 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 fi rm’s bankruptcy, other fi nancial diffi culties, or if customers’ assets are missing. SIPC insurance does not apply to precious metals or other commodities. REITs investing risks are similar to those associated with direct investments in real estate: property value fl uctuations, lack of liquidity, limited diversifi cation and sensitivity to economic factors such as interest rate changes and market recessions. Asset allocation and diversifi cation do not assure a profi t or protect against loss in declining fi nancial markets. Growth investing does not guarantee a profi t or eliminate risk. The stocks of these companies can have relatively high valuations. Because of these high valuations, an investment in a growth stock can be more risky than an investment in a company with more modest growth expectations. Value investing does not guarantee a profi t or eliminate risk. Not all companies whose stocks are considered to be value stocks 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. Because of their narrow focus, sector investments tend to be more volatile than investments that diversify across many sectors and companies. Technology stocks may be especially volatile. Risks applicable to companies in the energy and natural resources sectors include commodity pricing risk, supply and demand risk, depletion risk and exploration risk. Health care sector stocks are subject to government regulation, as well as government approval of products and services, which can signifi cantly impact price and availability, and which can also be signifi cantly affected by rapid obsolescence and patent expirations. Nondiversifi cation: For a portfolio that holds a concentrated or limited number of securities, a decline in the value of these investments would cause the portfolio’s overall value to decline to a greater degree than a less concentrated portfolio. Portfolios that invest a large percentage of assets in only one industry sector (or in only a few sectors) are more vulnerable to price fl uctuation than those that diversify among a broad range of sectors. Environmental, social, and governance-aware investments (ESG) in a portfolio may experience performance that is lower or higher than a portfolio not employing such practices. Portfolios with ESG restrictions and strategies as well as ESG investments may not be able to take advantage of the same opportunities or market trends as portfolios where ESG criteria is not applied. There are inconsistent ESG defi nitions and criteria within the industry, as well as multiple ESG ratings providers that provide ESG ratings of the same subject companies and/or securities that vary among the providers. Certain issuers of investments may have differing and inconsistent views concerning ESG criteria where the ESG claims made in offering documents or other literature may overstate ESG impact. As a result, it is diffi cult to compare ESG investment products or to evaluate an ESG investment product in comparison to one that does not focus on ESG. There is no assurance that an ESG investing strategy or techniques employed will be successful. Past performance is not a guarantee or a dependable measure of future results. Before engaging in the purchase or sale of options, clients should understand the nature and extent of their rights and obligations and be aware of the risks involved, including, without limitation, the risks pertaining to the business and fi nancial condition of the issuer of the underlying security/instrument. Options investing, like other forms of investing, involves tax considerations, transaction costs and margin requirements that can signifi cantly affect clients’ potential profi ts and losses. The transaction costs of options investing consist primarily of commissions (which are imposed in opening, closing, exercise and assignment transactions) but may also include margin and interest costs in particular transactions. Transaction costs are especially signifi cant in options strategies calling for multiple purchases and sales of options, such as multiple leg strategies, including spreads, straddles and collars. If a client is considering engaging in options trading, the Financial Advisor and Private Wealth Advisor are required to provide the client with the "Characteristics and Risks of Standardized Options" (ODD) booklet from the Options Clearing Corporation. Clients should not enter into options transactions until they have read and understood the Disclosure Document and discussed transaction costs with the Financial Advisor or Private Wealth Advisor. A copy of the ODD is also available online at: http://www.theocc.com/about/publications/publication-listing.jsp. Any type of continuous or periodic investment plan does not assure a profi t and does not protect against loss in declining markets. Since such a plan involves continuous investment in securities regardless of fl uctuating price levels of such securities, the investor should consider his fi nancial ability to continue his purchases through periods of low price levels. Direct indexing may only be appropriate for people who have a considerable amount to invest in a taxable account and want a level of customization they couldn’t otherwise obtain through a portfolio of funds or individual securities. If you invest in a tax-deferred account, such as a 401(k) or IRA, the tax-harvesting benefi ts of direct indexing may provide no additional benefi t to you. There is no guarantee that you will maximize value by tax-loss selling; holding onto slumping stock may have resulted in value greater than that obtained through tax-loss harvesting via direct indexing. In addition, you will incur asset-based fees and expenses in a direct indexing account that may be higher than those for other investments, as well as transaction costs arising from customization and frequent rebalancing. Artifi cial intelligence (AI) is subject to limitations, and you should be aware that any output from an IA-supported tool or service made available by the Firm for your use is subject to such limitations, including but not limited to inaccuracy, incompleteness, or embedded bias. You should always verify the results of any AI-generated output. Rebalancing does not protect against a loss in declining fi nancial markets. There may be a potential tax implication with a rebalancing strategy. Investors should consult with their tax advisor before implementing such a strategy. 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 specifi c investment. The indices are not subject to expenses or fees and are often comprised of securities and other investment instruments the liquidity of which is not restricted. A particular investment product may consist of securities signifi cantly different than those in any index referred to herein. Comparing an investment to a particular index may be of limited use. The indices selected by Morgan Stanley Wealth Management to measure performance are representative of broad asset classes. Morgan Stanley Wealth Management retains the right to change representative indices at any time. As a diversifi ed global fi nancial services fi rm, Morgan Stanley engages in a broad spectrum of activities including fi nancial advisory services, investment management activities, sponsoring and managing private investment funds, engaging in broker-dealer transactions and principal securities, commodities and foreign exchange transactions, research publication, and other activities. In the ordinary course of its business, Morgan Stanley therefore engages in activities where Morgan Stanley's interests may confl ict with the interests of its clients. Morgan Stanley can give no assurance that confl icts of interest will be resolved in favor of its clients. Global Investment Manager Analysis (GIMA) 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, fi xed income and alternative investment categories. GIMA defi nes the Adverse Active Alpha (AAA) ranking model as follows: Adverse Active Alpha (AAA) Adverse refers to the demonstrated ability to outperform in a variety of market environments and when conditions were diffi cult for active manager relative performance. “Diffi cult” 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 diffi cult relative performance periods in up, down, and fl at markets. We developed a set of factors to help discern which periods were more diffi cult for active managers that we utilize to identify managers that were able to overcome these headwinds and outperformed in the face of adversity. Active refers to managers with portfolios that looked different from the index and had moderate to low tracking error. For all products, r2 is used to measure the degree of differentiation from the benchmark in conjunction with tracking error. The ranking seeks to fi nd managers that were active, but not taking outsized bets, and that had some degree of style consistency. The combination of r2 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 fi nding some of the most profi cient stock pickers. SM SM Risk Score, Value Score and Tax Score Morgan Stanley Wealth Management's proprietary Risk Score methodology gauges managers’ effectiveness in risk management. Based on extensive historical analysis, we evaluate over 18,000 strategies across 54 categories by ranking them according to several quantitative markers. We take a weighted average of these individual rankings to compute each manager’s Risk Score, having found that managers with higher Risk Scores have historically produced more attractive subsequent risk adjusted returns, particularly under adverse conditions. For more information on Risk Score, please see the Risk Score whitepaper. Morgan Stanley Wealth Management's proprietary Value Score methodology considers active investment strategies’ value proposition relative to their costs. We measure perceived benefi t from several quantitative markers and compute (1) “fair value” expense ratios for over 10,000 managers across 40 categories and (2) managers’ perceived “excess value” by comparing the fair value expenses ratios to actual expense ratios. We then rank managers within each category by their excess value to assign a Value Score, having found that greater levels of excess value have historically corresponded to attractive subsequent performance. For more information on Value Score, please see the Value Score whitepaper. Morgan Stanley Wealth Management's proprietary Tax Score methodology evaluates investment strategies’ quality and tax effi ciency. The Tax Score reviews the quality of investment strategies’ after-tax returns by measuring upside opportunity, downside mitigation and consistency, which have tended to correlate with strategies’ subsequent risk-adjusted returns in after-tax terms. For more information on Tax Score, please see the Tax Score whitepaper. Important Considerations Regarding the Adverse Active Alpha, Risk Score, Tax Score and Value Score ranking models: Adverse Active Alpha (AAA) is a patented screening and scoring process designed to help identify high-quality equity and fi xed income managers with characteristics that may lead to future outperformance relative to index and peers. While highly ranked managers performed well as a group in our Adverse Active Alpha model back tests, not all of the managers will outperform. Please note that this data may be derived from back-testing, which has the benefi t of hindsight. In addition, highly ranked managers can have differing risk profi les that might not be appropriate for all investors. Our view is that Adverse Active Alpha is a good starting point and should be used in conjunction with other information. Morgan Stanley Wealth Management’s qualitative and quantitative investment manager due diligence process are equally important factors for investors when considering managers for use through an investment advisory program. Factors including, 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 profi les that might not be appropriate 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. In our view, the Adverse Active Alpha, Risk Score, Tax Score and Value Score manager rankings are an important part of evaluating managers for consideration. However, we do recognize that these ranking models cannot, in and of themselves, 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 refl ect any fees or expenses. Indices are unmanaged and not available for direct investment. GIMA 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 or Value Score ranking. Additionally, highly ranked managers can have differing risk profi les that might not be appropriate for all investors. For more information on the ranking models, please see Adverse Active Alpha 2.0: Scoring Active Managers According to Potential Alpha. This Special Report is available by request from your Financial Advisor or Private Wealth Advisor. ADVERSE ACTIVE ALPHA is a registered service mark of Morgan Stanley and/or its affi liates. U.S. Pat. No. 8,756,098 applies to the Adverse Active Alpha system and/or methodology. *High Adverse Active Alpha is generally defi ned as falling into the top two quintiles (40%) within the ranking model. Separately Managed Account and mutual fund rankings could differ. In some cases where the separately managed account product and mutual fund are substantially similar, the separately managed account rating may be applied to the mutual fund and vice versa. Disclosures Morgan Stanley Wealth Management is the trade name of Morgan Stanley Smith Barney LLC, a registered broker-dealer in the United States. 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 fi nancial instrument or to participate in any trading strategy. 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 Wealth Management 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 Wealth Management has no obligation to provide updated information on the securities/instruments mentioned herein. The securities/instruments discussed in this material may not be appropriate for all investors. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Morgan Stanley Wealth Management 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 Wealth Management 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. 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CRC: 5124621 (01/2026)
