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PORTFOLIO STRATEGY & RESEARCH GROUP

FEBRU ARY 22, 20 13

Reaching for Yield Intelligently


Fixed Income Strategy

Investment Themes
We have updated our Fixed Income Model Portfolios to reflect our current opinion of the market place and our specific security recommendations. Please see page 4 for links to the Model Portfolios or contact your Financial Advisor for further information. On February 21, 2013, we made a change to our Asset Class High Yield Portfolio. Please click on the link on page 4 for more details on the change or contact your Financial Advisor. TIPS have taken the top spot as the worst-performing asset class to start the year, posting a return of -1.54%, followed by emerging markets with a -1.05% return; High Yield generated the best return over the same time period of 1.41%. While the Treasury Index is only down -0.70% the devil still lies in the details, in our opinion. Looking deeper at the returns, the long end of the Treasury curve, more specifically the 10 & 30 year, are down -1.98% & -5.13%, respectively. In our opinion, investors in long duration, risk-free securities may want to revisit their holdings. While spreads on the HY Index are still historically above the tights of 240bps in 2007, the yield-to-worst continues to sit below 6.00% at 5.82%. Currently, 72% of the Citigroup High Yield Market Index is callable/puttable, which makes price appreciation very challenging due to the negative convexity of the asset class. With a callable bond, as interest rates fall, the incentive for the issuer to call the bond at par increases; therefore, its price will not rise as quickly as the price of a non-callable bond. Due to this call constraint, prices could re-route high yield buyers into other asset classes such as equities, in our view. High Grade spreads continue to be range-bound to start 2013. Currently, the spread on the IG Index is 135 with the index trading between 131 and 135. The two worst-performing IG sectors year to date are Publishing -2.66% and Telecommunications, -2.37%, while the two best-performing sectors are Securities, 1.18%, and Building products, 0.60%.

KEITH E KNOOP
MSSB North America - Morgan Stanley Smith Barney LLC Keith.E.Knoop@mssb.com +1 212 783-3315

DAVID HAIRE
MSSB North America - Morgan Stanley Smith Barney LLC David.Haire@mssb.com +1 212 783-3308

OUR VIEWS FROM THE BLEACHERS


Treasurys - We believe interest rate volatility will continue in 2013 with sovereign debt and policy concerns driving interest rate movements more than the U.S. economic recovery. For investors looking to invest in U.S. Treasuries, we recommend a laddered maturity approach moving out on the curve with 3-, 5-, 7-, and 10-year maturities, rather than being pinned down to low-yielding, shorter-dated securities. Investment Grade - While the search for yield may be tempting, we would not recommend investors drop down in credit quality to reach for higher yields. In this uncertain market, we believe return of capital should be viewed as paramount versus return on capital given the low-yielding interest rate environment. For moderate investors, we continue to see better value in BBBs versus A- and AA-rated non-financials. Preferred - In our opinion, the preferred market place will continue to attract money from investors looking for yield in high credit quality securities, and until we see long-term interest rates moving higher, investors will likely continue to feel comfortable holding these long-duration securities. However, we remind investors that the upward price movement in this asset class could come under pressure if a sell-off were to ensue, though our base case is for preferreds to continue to benefit from investors seeking high current yield with investment grade credit ratings in this challenging, low-yield environment. Moreover, we would be cautious on purchasing new issue preferred syndicate deals with low coupon(i.e., below 6%) in a potentially rising interest rate environment. High Yield - We continue to see a disconnect when looking at BBB and BB rated issuers. While only dropping a few notches in credit quality, investors can pick up significant yield or spread by investing in high BB rated bonds. We have been of the opinion that the biggest contributor to high yield market returns in 2013 will be the clipping of coupons and credit selection. We continue to recommend securities in the 2- to 7-year range for aggressive investors.

This material has been prepared for informational purposes only and is not an offer to buy or sell or a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. This is not a research report and was not prepared by the Research departments of Morgan Stanley Smith Barney LLC, Morgan Stanley & Co. LLC, or Citigroup Global Markets Inc. It was prepared by Morgan Stanley Smith Barney sales, trading or other non-research personnel. Past performance is not necessarily a guide to future performance. Please refer to important information, disclosures, and qualifications at the end of this material.

FIXED INCOME STRATEGY / FEBRUARY 22, 2013

Table of Contents
Fixed Income Model Portfolio Mission Statement Multi-Asset Class Portfolios Single-Asset Class Portfolios Model Portfolio Statistical Overview
Product Breakdown Historical Yield to Worst

Page 3 Page 3 Page 4 Page 5 Page 5 Page 5 Page 6 Page 6 Page 7 Page 7 Page 8 Page 8 Page 8 Page 9 Page 9 Page 9 Page 10 Page 10 Page 10 Page 11 Page 12 Page 13 Page 14 Page 15 Page 16 Page 17 Page 18 Page 18 Page 19 Page 20 Page 20 Page 21 Page 22 Page 24 Page 26 Page 27

Broad Asset Class Breakdown


Yield to Worst Spread Historical Breakdown

Broad Asset Class Breakdown Returns


Year-to-date Returns Month-to-date Returns

US Treasury Yields
Yield Curve U.S. 10-year TIPS Breakeven

US Treasury Yields Returns


US Treasury Curve Year-to-date Returns Range Maturities Year-to-date Returns

Yield and Spread Matrix Investment Grade Sector Breakdown


Historical Metrics Investment Grade Sector Returns

High Yield Sector Breakdown


Historical Metrics High Yield Sector Returns

Emerging Markets Breakdown


Historical Metrics Emerging Markets Returns

U.S. Equities & Commodities Breakdown


Returns

Representative Fixed Income Indices (Graphs) Index Definitions Glossary Fixed Income Risk Considerations Disclosures

Please refer to important information, disclosures and qualifications at the end of this material.

FIXED INCOME STRATEGY / FEBRUARY 22, 2013

Fixed Income Model Portfolio Mission Statement


The goal of the fixed income model portfolios is to provide investment guidance for investors in the fixed income markets. The models are divided into two types: multi-asset class portfolios and single-asset class portfolios.

Multi-Asset Class Portfolios


These model portfolios are actively monitored with the aim of producing a combination of income and total return. The models typically spread bond maturities over time to lessen the impact of interest rate changes on the value of the underlying bonds. Individual security selection is based on the credit and macroeconomic research done by the Fixed Income Strategy Group (FISG) using the resources of MSSBs Global Investment Committee (GIC), Morgan Stanley, Citigroup and outside providers. Implementing asset allocation and security selection, the portfolios aim to outperform their designated benchmark indices. The number of holdings will generally range from a minimum of 20 up to 30 securities. We will have a maximum allocation per credit issuer of 5% of the par amount of the portfolio. We believe that actively monitored model portfolios can help investors who are looking for ongoing guidance in their fixed income investments. The FISG will select securities based on the outlook for interest rates and the yield curve, as well as issuer credit and risk profile. Each portfolio has an allocation to T-Bills. We may use the T-Bill allocation to add securities to the portfolios as opportunities arise in the market. Principal payments from maturing, called, or tendered securities will either be allocated to T-Bills or used to purchase new securities for the portfolios. Interest payments will not be reinvested. We will remove securities from the portfolios if, in our view, they are at risk of significant price declines due to either interest rate or credit risk. We may also remove securities if, in our view, they become fully valued and offer little upside relative to the risk. When we remove a security from a model portfolio we may either reinvest the proceeds into another security or add the proceeds to our TBill allocation. Due to the over-the-counter nature of the bond market, the portfolios and all securities added to the portfolios will be priced on the offer side of the market using Bloombergs Generic Pricing service. All securities sold from the portfolios will be priced on the bid side of the market. We have three multi-asset class portfolios with various risk tolerances: Conservative: The Conservative Portfolio is for investors who are primarily looking for income and principal preservation, with a lower level of risk. The portfolio seeks to maintain a minimum overall credit rating of Baa3/BBB- or higher by Moodys and Standard & Poors (S&P) and may invest in securities including, but not limited to, U.S. Treasuries, government-related enterprises (U.S. agencies), investment grade corporate bonds, high yield corporate bonds and preferred stock/hybrid debt securities. The benchmark is the BofA Merrill Lynch US Corporate/Government Master Index. We will allocate no more than 10% of the portfolio to securities that are rated below investment grade with a minimum credit rating of Ba3/BB-. Moderate: The Moderate Portfolio is for investors who are willing to subject a portion of their principal to increased risk in order to generate a greater rate of return. The goal of this model is a combination of income and total return. The portfolio seeks to maintain a minimum overall credit rating of Baa3/BBB- or higher by Moodys and S&P and may invest in securities including, but not limited to, U.S. Treasuries, government-related enterprises (U.S. agencies), investment grade corporate bonds, high yield corporate bonds, preferred stock/hybrid debt securities, emerging market debt and international non-US dollar securities. The benchmark index is the BofA Merrill Lynch US Corporate/Government Master Index. We will allocate no more than 5% of the portfolio to securities that are rated below B3/B-. Aggressive: The Aggressive Portfolio is for investors who are willing to subject a portion of their principal to increased risk in order to generate a greater rate of return. The primary goal of this model is total return, with a secondary focus on income. This portfolio may invest in securities including, but not limited to, U.S. Treasuries, government-related enterprises (U.S. agencies), investment grade corporate bonds, high yield corporate bonds, preferred stock/hybrid debt securities, emerging market debt and international non-US dollar securities. The benchmark index is the BofA Merrill Lynch US Corporate/Government Master Index. We will allocate no more than 10% of the portfolio to securities that are rated below B3/B-.

Please refer to important information, disclosures and qualifications at the end of this material.

FIXED INCOME STRATEGY / FEBRUARY 22, 2013

Single-Asset Class Portfolios


These model portfolios are actively monitored to provide investors with investment guidance in a single-asset class within the fixed income universe. There are four separate portfolios representing the following asset classes: government, investment grade corporate, high yield corporate, and preferred stock/hybrid debt securities. All securities in the multi-asset class portfolios that fit within these four single asset classes will be included in the single-asset class portfolios. The FISG may also include additional securities in the single-asset class portfolios that are not in the multi-asset class portfolios. The single-asset class portfolios are not designed to track a benchmark index. However, we will remove securities from these portfolios if, in our view, they are at risk of significant price declines due to either interest rate or credit risk. We may also remove securities if, in our view, they become fully valued and offer little upside relative to the risk. Government: This portfolio only contains government securities such as U.S. Treasuries and government-related enterprises (U.S. agencies). Investment Grade Corporate: This portfolio consists of investment grade corporate bonds. All securities in this portfolio must have a minimum rating of Baa3/BBB- or higher by Moodys and S&P. High Yield Corporate: This portfolio consists of high yield corporate bonds that are rated B3/B- or above by Moodys and S&P. We will allocate no more than 10% of the portfolio to securities that are rated below B3/B-. Preferred Stock/Hybrid Debt Securities: This portfolio may include a variety of different investment structures, including, but not limited to, perpetual preferred stock, capital trust securities, $25 par senior unsecured bonds and $1000 hybrid debt securities. Securities in this portfolio may rank anywhere from just above common equity to as high as senior, unsecured debt. All securities in this portfolio must be rated B3/B- or higher by Moodys and S&P.

Please click on the links below to access our most recently published Fixed Income Model Portfolio updates.
Fixed Income Model Portfolio: Conservative Multi-Asset Class Portfolio Fixed Income Model Portfolio: Moderate Multi-Asset Class Portfolio Fixed Income Model Portfolio: Aggressive Multi-Asset Class Portfolio Fixed Income Model Portfolio: Asset Class - Government Fixed Income Model Portfolio: Asset Class Corporate Fixed Income Model Portfolio: Asset Class Preferred

In lieu of our latest Asset Class High Yield full report, please click on the link below to access our most recently published Asset Class High Yield Change note published on February 21, 2013.
Fixed Income Model Portfolio: Change - Asset Class High Yield

Please refer to important information, disclosures and qualifications at the end of this material.

FIXED INCOME STRATEGY / FEBRUARY 22, 2013

Exhibit 1. Model Portfolio Statistical Overview


Average Credit Rating Multi-Asset Class Conservative Moderate Aggressive Single Asset Class Government Corporate Preferred High Yield Aa1 / AA A3 / ABaa1 / BBB Aaa / AA+ A3 / ABaa2 / BBB+ Ba2 / BB Yield To Worst (YTW) 1.35 2.70 3.31 1.09 2.68 3.77 4.09 Current Yield (CY) 3.36 5.05 5.56 3.21 4.51 6.26 6.15 Yield to Maturity (YTM) 1.35 2.70 3.33 1.09 2.68 3.77 4.18 Weighted Average Coupon 3.86 5.78 6.31 3.66 5.19 6.92 6.82 Effective Duration 4.69 4.21 4.15 5.64 5.70 5.37 3.91 Total Par Amount $1,000,000 $1,005,000 $1,005,000 $120,000 $220,000 $140,000 $90,000 Cost $1,125,999 $1,137,820 $1,127,842 $135,311 $241,382 $155,416 $101,692 Estimated Income Per Year $37,494 $56,789 $62,019 $4,300 $10,770 $9,661 $6,133

Source: Morgan Stanley Smith Barney Fixed Income Strategy, as of January 31, 2013

Exhibit 2. Model Portfolio Product Breakdown


Government Related Enterprises (U.S. Agencies)U.S. Agencies) 41.09% 14.91% 68.52% 100.00% 100.00% 100.00% Preferred Stock / Hybrid Debt Securities 12.63% 15.17%

U.S.U.S. Treasury Conservative Moderate Aggressive Government Corporate Preferred High Yield 22.76% 4.45% 4.50% 31.48%

Investment Grade Corporate 36.15% 44.17% 34.72%

High Yield Corporate 19.72% 35.01%

Emerging Markets Debt (USD)

International NON-USD 4.14% 4.18%

6.42%

Source: Morgan Stanley Smith Barney Fixed Income Strategy, as of January 31, 2013

Exhibit 3. Model Portfolio Historical Yield-to-Worst


Conservative January 2013 December 2012 November 2012 October 2012 September 2012 August 2012 July 2012 June 2012 May 2012 April 2012 March 2012 February 2012 January 2012 December 2011 October 2011 1.25 1.18 1.22 1.22 1.34 1.29 1.52 1.52 1.61 1.85 1.65 1.60 1.80 2.03 2.13 Moderate 2.71 2.77 2.70 2.77 3.10 3.15 3.19 3.16 3.11 3.29 3.13 2.95 3.22 3.53 3.52 Aggressive 3.41 3.58 3.48 3.35 3.91 3.82 3.83 3.91 3.81 3.88 3.64 3.38 3.68 4.09 4.18 Government 1.02 0.92 1.00 0.93 1.02 0.95 1.11 1.09 1.24 1.48 1.32 1.24 1.42 1.55 1.75 Corporate 2.55 2.53 2.48 2.52 2.77 2.74 3.11 3.16 3.13 3.38 3.04 2.96 3.28 3.73 3.48 Preferred / Hybrid 4.01 4.00 3.69 3.77 4.09 4.11 4.38 4.76 4.45 4.62 4.53 4.73 4.89 4.98 5.17 High Yield 4.17 4.68 4.53 4.64 5.12 5.59 5.23 5.00 4.50 4.67 4.54 3.99 4.33 4.82 5.21

Source: Morgan Stanley Smith Barney Fixed Income Strategy, as of January 31, 2013 International investing entails greater risk, as well as greater potential rewards compared to U.S. investing. These risks include political and economic uncertainties of foreign countries as well as the risk of currency fluctuations. These risks are magnified in countries with emerging markets, since these countries may have relatively unstable governments and less established markets and economies The majority of preferred securities are "callable" meaning that the issuer may retire the securities at specific prices and dates prior to maturity. Interest/dividend payments on certain preferred issues may be deferred by the issuer for periods of up to 10 years. The investor would still have income tax liability even though payments would not have been received. The initial rate on a floating rate or index-linked preferred security may be lower than that of a fixed-rate security of the same maturity.

Please refer to important information, disclosures and qualifications at the end of this material.

FIXED INCOME STRATEGY / FEBRUARY 22, 2013

Exhibit 4. Broad Asset Class Breakdown Prior Close Data


ASSET CLASS Broad Investment Grade (BIG) Treasury Agency Mortgage Corporate High Yield Emerging Markets CREDIT RATING AAA AA A BBB BB B CCC INVESTMENT GRADE MATURITY IG 1-3 Years IG 3-7 Years IG 7-10 Years IG 10+ Years HIGH YIELD MATURITY HY 1-7 Years HY 7-10 Years HY 7+ Years HY 10+ Years Price 108.055 105.836 109.542 107.221 112.317 105.041 118.069 Price 104.297 106.751 112.429 113.793 107.665 105.804 96.778 Price 105.450 114.071 107.617 119.551 Price 105.092 105.805 104.975 99.747 Coupon 3.52 2.15 2.88 4.31 4.93 7.89 6.95 Coupon 2.31 3.10 4.65 5.66 6.88 8.13 9.47 Coupon 4.00 5.03 4.32 6.06 Coupon 8.36 7.36 7.26 6.64 YTW 1.71 0.91 0.90 2.02 2.75 5.91 4.20 YTW 0.92 1.38 2.44 3.30 4.55 5.94 9.24 YTW 0.99 1.97 3.21 4.61 YTW 5.82 5.96 6.03 6.49 OAS 51 NA 15 50 135 509 252 OAS 25 24 108 180 359 517 860 OAS 71 119 159 183 OAS 536 480 474 430 Eff Dur 5.03 5.17 4.09 3.43 6.95 4.13 7.48 Eff Dur 3.86 4.46 6.85 7.21 4.57 4.00 3.46 Eff Dur 1.91 4.24 7.23 13.62 Eff Dur 2.69 5.60 6.03 8.92

Source: MSSB Fixed Income Strategy; & Bloomberg. 2013 Citigroup Index LLC. All rights reserved. Data as of 2/21/13 and is subject to change at anytime.

Exhibit 5. Broad Asset Class Yield-to-Worst & Effective Duration


8 7 6 Y ie l d T o W o r s t ( Y T W ) 5 4.20 4 3 2 1 0 Broad Investment Grade (BIG) Treasury Agency Mortgage Corporate High Yield Emerging Markets 1.71 0.91 0.90 2.02 2.75
OAS

Exhibit 6. Broad Asset Class Option Adjusted Spread


600

Yield To Worst

Effective Duration 5.91

550 500 450 400 350 300 250 200 150 100 50 0 Broad Investment Grade (BIG) Treasury Agency Mortgage Corporate 51 15 50 135

509

252

High Yield

Emerging Markets

Source: MSSB Fixed Income Strategy; & Bloomberg. 2013 Citigroup Index LLC. All rights reserved. Data as of 2/21/13 and is subject to change at anytime. Asset allocation and diversification do not assure a profit or protect against loss in declining financial markets. Principal is returned on a monthly basis over the life of a mortgage-backed security. Principal prepayment can significantly affect the monthly income stream and the maturity of any type of MBS, including standard MBS, CMOs and Lottery Bonds. Yields and average lives are estimated based on prepayment assumptions and are subject to change based on actual prepayment of the mortgages in the underlying pools. Please refer to important information, disclosures and qualifications at the end of this material. 6

FIXED INCOME STRATEGY / FEBRUARY 22, 2013

Exhibit 7. Historical Broad Asset Class Breakdown


As of 2/14/13 Close Price YTW OAS Duration Broad Investment Grade (BIG) 108.062 1.71 50 5.04 Treasury 105.788 0.92 NA 5.17 Agency 109.509 0.92 15 4.11 Mortgage 107.282 2.01 48 3.42 Corporate 112.328 2.76 135 6.96 High Yield 105.468 5.82 499 4.04 Emerging Markets 118.558 4.12 244 7.38 As of 2/14/13 Close Price YTW OAS Duration AAA 104.376 0.91 23 3.88 AA 106.749 1.39 23 4.46 A 112.396 2.46 109 6.86 BBB 113.886 3.30 178 7.23 BB 108.123 4.45 349 4.45 B 106.218 5.84 505 3.94 CCC 97.115 9.21 861 3.35 As of 2/14/13 Close Price YTW OAS Duration IG 1-3 Years 105.466 1.01 72 1.93 IG 3-7 Years 114.051 1.98 118 4.25 IG 7-10 Years 107.479 3.23 158 7.24 IG 10+ Years 119.724 4.60 181 13.62 As of 2/14/13 Close Price YTW OAS Duration HY 1-7 Years 105.228 5.76 528 2.63 HY 7-10 Years 106.653 5.82 469 5.42 HY 7+ Years 105.786 5.90 462 5.91 HY 10+ Years 100.859 6.37 420 8.84 As of 2/22/12 Close Price YTW OAS 109.245 1.95 61 108.534 1.05 NA 109.923 1.00 24 107.968 2.20 44 112.277 3.27 185 99.478 7.73 698 110.211 5.69 411 As of 2/22/12 Close Price YTW OAS 105.042 1.19 46 108.498 1.57 23 112.037 3.05 168 113.284 3.83 230 104.622 5.91 499 99.254 7.95 728 85.817 13.09 1261 As of 2/22/12 Close Price YTW OAS 106.032 1.43 112 110.873 2.71 189 110.949 3.70 209 120.339 4.90 212 As of 2/22/12 Close Price YTW OAS 99.821 7.78 742 101.109 7.53 624 98.899 7.66 624 89.016 8.33 620 Rolling 3 Year Averages Price YTW OAS 107.864 2.22 52 106.893 1.37 NA 108.518 1.27 26 106.885 2.45 31 110.772 3.54 171 100.883 7.48 619 113.081 5.22 299 Rolling 3 Year Averages Price YTW OAS 105.419 1.68 26 107.895 2.18 60 110.555 3.31 155 112.290 4.07 210 104.515 5.91 449 101.589 7.59 634 90.125 11.51 1047 Rolling 3 Year Averages Price YTW OAS 106.214 1.56 110 112.643 2.42 168 109.894 3.56 205 116.743 5.16 200 Rolling 3 Year Averages Price YTW OAS 101.254 7.44 656 102.363 7.45 559 100.195 7.55 551 91.801 8.02 518 Rolling 3 Year Highs Price YTW OAS 110.885 3.45 79 111.299 2.50 NA 111.203 2.33 42 109.024 4.00 72 116.002 4.57 255 106.265 9.81 882 121.199 6.18 446 Rolling 3 Year Highs Price YTW OAS 108.954 3.15 83 111.256 3.64 137 116.253 4.36 252 117.362 5.06 297 108.920 7.81 644 107.072 10.31 931 98.399 15.87 1528 Rolling 3 Year Highs Price YTW OAS 107.853 2.42 194 115.406 40891.00 260 112.148 40780.00 269 128.493 40350.00 262 Rolling 3 Year Highs Price YTW OAS 105.772 10.07 943 107.734 9.40 802 106.918 9.39 791 102.283 9.39 731 Rolling 3 Year Lows Price YTW OAS 103.657 1.31 37 102.187 0.74 NA 104.172 0.76 15 103.440 0.86 -3 105.705 2.60 128 92.043 5.57 459 107.157 3.89 220 Rolling 3 Year Lows Price YTW OAS 103.012 0.75 5 104.344 0.87 4 105.518 2.30 103 107.246 3.13 161 97.325 4.22 328 91.741 5.57 461 76.150 8.99 760 Rolling 3 Year Lows Price YTW OAS 104.678 0.92 62 107.207 1.89 116 107.138 2.92 149 104.899 4.25 154 Rolling 3 Year Lows Price YTW OAS 93.617 5.49 495 91.304 5.58 403 89.740 5.67 399 82.260 6.18 380

Source: MSSB Fixed Income Strategy; & Bloomberg. 2013 Citigroup Index LLC. All rights reserved. Data as of 2/21/13 and is subject to change at anytime.

Exhibit 8. Historical Asset Class Yield-to-Worst (3 Years)


12 11 10 9 Y ie ld t o W o r s t (Y T W ) 8 7 6 5 4 3 2 1 0 Broad Investment Grade (BIG) Treasury Agency Mortgage Corporate High Yield Emerging Markets High Low Current Average

Exhibit 9. Historical Asset Class Spread (3 Years)


800 700 600 500 OAS 400 300 200 100 0 Broad Investment Grade (BIG) Treasury Agency Mortgage Corporate High Yield Emerging Markets

High

Low

Current

Average

Source: MSSB Fixed Income Strategy; & Bloomberg. 2013 Citigroup Index LLC. All rights reserved. Data as of 2/21/13 and is subject to change at anytime.

Please refer to important information, disclosures and qualifications at the end of this material.

FIXED INCOME STRATEGY / FEBRUARY 22, 2013

Exhibit 10. Broad Asset Class Breakdown Returns


ASSET CLASS Broad Investment Grade (BIG) Treasury TIPS Agency Mortgage Corporate High Yield Emerging Markets CREDIT RATING AAA/AA A BBB BBB/BB BB B CCC INVESTMENT GRADE MATURITY IG Corp 1-3 Years IG Corp 3-7 Years IG Corp 7-10 Years IG Corp 10+ Years HIGH YIELD MATURITY HY 1-7 Years HY 7-10 Years HY 7+ Years HY 10+ Years 1 Week (0.06) (0.09) (0.36) (0.04) 0.03 (0.13) 0.23 0.16 1 Week (0.11) (0.10) (0.14) (0.12) 0.13 0.23 0.48 1 Week 0.01 (0.01) (0.02) (0.43) 1 Week 0.24 0.24 0.21 0.00 MTD 0.02 (0.04) (0.71) 0.05 0.10 0.04 0.12 0.07 MTD (0.01) 0.07 (0.02) (0.46) 0.03 0.14 0.33 MTD 0.11 0.20 0.10 (0.35) MTD 0.35 (0.13) (0.18) (0.47) YTD (0.71) (0.82) (1.54) (0.44) (0.40) (0.94) 1.41 (1.05) YTD (0.82) (0.97) (0.95) (0.45) 0.56 1.50 3.30 YTD 0.23 0.15 (1.20) (2.96) YTD 1.80 0.95 0.90 0.53 1 Year Ago 4.23 1.97 7.18 2.55 2.60 9.97 12.11 12.98 1 Year Ago 5.99 10.07 11.36 14.36 12.74 12.81 15.87 1 Year Ago 3.95 9.55 12.16 13.18 1 Year Ago 11.81 11.63 12.62 18.34 2 Years Ago 7.85 9.61 14.01 5.73 6.38 8.26 5.52 8.46 2 Years Ago 6.81 7.25 9.56 9.04 7.39 5.84 (0.88) 2 Years Ago 1.65 5.33 9.50 16.32 2 Years Ago 4.60 7.02 6.99 6.11 3 Years Ago 6.30 5.81 6.46 5.73 5.50 9.13 14.32 12.01 3 Years Ago 5.99 8.55 10.18 14.62 13.34 13.20 19.57 3 Years Ago 3.95 8.16 10.88 11.60 3 Years Ago 14.09 13.65 14.98 18.75

Source: MSSB Fixed Income Strategy; & Bloomberg. 2013 Citigroup Index LLC. All rights reserved. Data as of 2/21/13 and is subject to change at anytime.

Exhibit 11. Asset Class Year-to-Date Returns

Exhibit 12. Asset Class Month-to-Date Returns

Emerging Markets High Yield Corporate Mortgage Agency TIPS (1.54) Treasury Broad Investment Grade (BIG)

(1.05) 1.41 (0.94) (0.40) (0.44)

Emerging Markets High Yield Corporate Mortgage Agency TIPS (0.71) (0.04)

0.07 0.12 0.04 0.10 0.05

(0.82) (0.71)

Treasury Broad Investment Grade (BIG) -1.00 -0.75 -0.50 -0.25

0.02 0.00 0.25

-1.75 -1.50 -1.25 -1.00 -0.75 -0.50 -0.25 0.00 0.25 0.50 0.75 1.00 1.25 1.50 Total Return (%)

Total Return (%)

Source: MSSB Fixed Income Strategy; & Bloomberg. 2013 Citigroup Index LLC. All rights reserved. Data as of 2/21/13 and is subject to change at anytime. Treasury Inflation Protection Securities (TIPS) coupon payments and underlying principal are automatically increased to compensate for inflation by tracking the consumer price index (CPI). While the real rate of return is guaranteed, TIPS tend to offer a low return. Because the return of TIPS is linked to inflation, TIPS may significantly underperform versus conventional U.S. Treasuries in times of low inflation. Please refer to important information, disclosures and qualifications at the end of this material. 8

FIXED INCOME STRATEGY / FEBRUARY 22, 2013

Exhibit 13. US Treasury Yields


US Interest Rates 3 Month 6 Month 1 Year 2 Year 3 Year 5 Year 7 Year 10 year 30 Year Short Term Rates Federal Reserve Effective US Fed Fund Rate 1 Month LIBOR (USD) 3 Month LIBOR (USD) 3 Month US LIBOR less T-Bills (TED Spread) 3 Month US LIBOR-OIS (Overnight Index Swap) US Inflation Related 5 Year Yields 5 Year US TIPS Breakeven 10 Year Yields 10 Year US TIPS Breakeven 20 Year Yields 20 Year US TIPS Breakeven 30 Year Yields 5Y 5Y Forward Breakeven Consumer Price Index NSA Consumer Price Index (CPI) - (YoY%) CPI ex-Food & Energy (YoY%) Current 0.12 0.13 0.15 0.25 0.39 0.83 1.33 1.97 3.16 Current 0.25 0.16 0.20 0.29 0.17 0.14 Current -1.66 232 -0.58 254 0.17 252 0.59 2.75 231 1.60 1.90 5 Days Ago 0.10 0.12 0.15 0.27 0.41 0.86 1.36 2.00 3.18 5 Days Ago 0.25 0.14 0.20 0.29 0.19 0.15 5 Days Ago -1.64 232 -0.55 255 0.21 252 0.59 2.75 1 Mon Ago 0.06 0.09 0.13 0.24 0.36 0.76 1.24 1.84 3.03 1 Mon Ago 0.25 0.14 0.20 0.30 0.24 0.13 1 Mon Ago -1.60 220 -0.74 253 0.02 251 0.42 3.02 231 1.70 1.90 3 Mon Ago 0.09 0.14 0.17 0.27 0.36 0.68 1.09 1.68 2.82 3 Mon Ago 0.25 0.16 0.21 0.31 0.22 0.15 3 Mon Ago -1.42 201 -0.76 240 -0.01 234 0.38 2.89 232 2.20 2.00 6 Mon Ago 0.10 0.13 0.18 0.26 0.36 0.69 1.13 1.69 2.80 6 Mon Ago 0.25 0.13 0.24 0.43 0.33 0.14 6 Mon Ago -1.22 187 -0.58 227 0.14 222 0.50 2.74 229 1.40 2.10 1 Year Ago 0.08 0.12 0.15 0.30 0.42 0.86 1.40 2.00 3.15 1 Year Ago 0.25 0.10 0.24 0.49 0.41 0.11 1 Year Ago -1.39 205 -0.31 231 0.39 238 0.72 2.52 228 2.90 2.30 2 Years Ago 3 Years Ago 0.10 0.08 0.15 0.18 0.25 0.34 0.69 0.88 1.21 1.48 2.13 2.44 2.83 N/A 3.45 3.80 4.60 4.73 2 Years Ago 3 Years Ago 0.25 0.25 0.15 0.13 0.26 0.23 0.31 0.25 N/A N/A 0.15 0.16 2 Years Ago 3 Years Ago -0.35 0.26 211 184 1.09 1.53 236 226 1.80 2.17 247 242 2.07 2.18 2.42 2.51 221 217 1.60 2.60 1.00 1.60

Source: MSSB Fixed Income Strategy; & Bloomberg. 2013 Citigroup Index LLC. All rights reserved. Data as of 2/21/13 and is subject to change at anytime.

Exhibit 14. US Treasury Yield Curve


5.0 4.5 4.0 Y i 3.0 e 2.5 l 2.0 d 1.5 1.0 0.5 0.0 3.5
280 260 240 220 200 B re a k e v e n 180 160 140 120 100 80 F e b -0 9

Exhibit 15. US 10-Year TIPS Breakeven (5 Years)

Current - 254 Average - 211

Current 1 Month Ago 1 Year Ago 2 Years Ago

M a y -0 9

A u g -0 9

N o v -0 9

F e b -1 0

M a y -1 0

A u g -1 0

N o v -1 0

F e b -1 1

M a y -1 1

A u g -1 1

N o v -1 1

F e b -1 2

M a y -1 2

A u g -1 2

N o v -1 2

F e b -1 3

6 mo 2 yr

5 yr

10 yr

30 yr

Source: MSSB Fixed Income Strategy; & Bloomberg. 2013 Citigroup Index LLC. All rights reserved. Data as of 2/21/13 and is subject to change at anytime. The table above represents an indication of the current US Treasury Yield Curve. The yield curve depicts the relationship between bond yields and maturities. Investors should use the yield curve as a point of reference. The treasury yield curve is widely used as a benchmark for pricing many other fixed income securities. Interest income from zero coupon bonds is subject to annual taxation as ordinary income even though no interest payments will be received by the investor if held in a taxable account.

Please refer to important information, disclosures and qualifications at the end of this material.

FIXED INCOME STRATEGY / FEBRUARY 22, 2013

Exhibit 16. US Treasury Yields Returns


1 Month T-Bill 3 Month T-Bill 6 Month T-Bill 2 Year 5 Year 10 Year 30 Year Treasury 1-3 Years Treasury 3-7 Years Treasury 7-10 Years Treasury 10+ Years Treasury 20+ Years Treasury 1-10 Years 1 Week 0.00 0.00 0.00 0.00 (0.03) (0.14) (0.75) 1 Week 0.00 (0.03) (0.11) (0.57) (0.66) (0.02) MTD 0.00 0.00 0.00 0.02 0.11 0.05 (0.86) MTD 0.01 0.08 0.06 (0.65) (0.79) 0.05 YTD 0.00 0.01 0.01 0.02 (0.54) (1.98) (5.13) YTD 0.03 (0.43) (1.51) (4.18) (4.63) (0.35) 1 Year Ago 0.05 0.08 0.12 0.38 1.78 3.11 2.44 1 Year 0.52 1.78 3.28 3.06 3.15 1.46 2 Years Ago 0.05 0.08 0.14 1.47 9.16 16.99 35.45 2 Years Ago 1.47 7.99 15.54 30.08 33.81 6.33 3 Years Ago 0.12 0.13 0.20 2.29 6.93 8.10 8.71 3 Years Ago 2.33 6.57 9.40 9.44 9.40 5.22

Source: MSSB Fixed Income Strategy; & Bloomberg. 2013 Citigroup Index LLC. All rights reserved. Data as of 2/21/13 and is subject to change at anytime.

Exhibit 17. US Treasury Curve Year-to-Date Returns

Exhibit 18. Range Maturities Year-to-Date Returns

30 Year (5.13)

Treasury 1-10 Years


(1.98)

(0.35)

10 Year

Treasury 20+ Years (4.63)


(0.54)

5 Year

Treasury 10+ Years


2 Year 0.02

(4.18)

Treasury 7-10 Years


6 Month T-Bill 0.01

(1.51)

3 Month T-Bill

0.01

Treasury 3-7 Years

(0.43)

1 Month T-Bill

0.00

Treasury 1-3 Years

0.03

-5.50 -5.00 -4.50 -4.00 -3.50 -3.00 -2.50 -2.00 -1.50 -1.00 -0.50 0.00 0.50 Total Return (%)

-5.00 -4.50 -4.00 -3.50 -3.00 -2.50 -2.00 -1.50 -1.00 -0.50 0.00 0.50 Total Return (%)

Source: MSSB Fixed Income Strategy; & Bloomberg. 2013 Citigroup Index LLC. All rights reserved. Data as of 2/21/13 and is subject to change at anytime.

Please refer to important information, disclosures and qualifications at the end of this material.

10

FIXED INCOME STRATEGY / FEBRUARY 22, 2013

Exhibit 19. Yield and Spread Matrix


Yield to Maturity Treasury CDs Agency AA Rated A Rated BBB Rated BB Rated B Rated Spreads Treasury CDs Agency AA Rated A Rated BBB Rated BB Rated B Rated Spreads - 2 Year Curve Treasury CDs Agency AA Rated A Rated BBB Rated BB Rated B Rated Spreads - 5 Year Curve Treasury CDs Agency AA Rated A Rated BBB Rated BB Rated B Rated Spreads - 10 Year Curve Treasury CDs Agency AA Rated A Rated BBB Rated BB Rated B Rated 3 Month 0.122 0.200 0.161 0.303 0.292 0.673 1.613 4.551 3 Month 0.08 0.04 0.18 0.17 0.55 1.49 4.43 Treasury 0.30 0.05 0.60 0.42 1.03 1.76 4.75 Treasury 0.37 0.17 0.95 0.89 1.61 2.37 5.28 Treasury 6 Month 0.132 0.300 0.163 0.372 0.327 0.742 1.613 4.615 6 Month 0.17 0.03 0.24 0.20 0.61 1.48 4.48 CDs -0.30 -0.25 0.30 0.12 0.73 1.46 4.45 CDs -0.37 -0.20 0.58 0.52 1.25 2.00 4.91 CDs -0.33 -0.08 -0.99 -0.84 -1.45 -2.52 -5.41 1 Year 0.152 0.400 0.190 0.497 0.426 0.924 1.716 4.690 1 Year 0.25 0.04 0.34 0.27 0.77 1.56 4.54 Agency -0.05 0.25 0.55 0.36 0.98 1.71 4.70 Agency -0.17 0.20 0.78 0.72 1.45 2.20 5.11 Agency -0.40 0.08 0.92 0.77 1.37 2.44 5.33 2 Year 0.250 0.550 0.304 0.853 0.666 1.281 2.009 5.000 2 Year 0.30 0.05 0.60 0.42 1.03 1.76 4.75 3 Year 0.394 0.750 0.476 1.157 0.980 1.653 2.435 5.289 3 Year 0.36 0.08 0.76 0.59 1.26 2.04 4.90 AA Rated -0.60 -0.30 -0.55 -0.19 0.43 1.16 4.15 AA Rated -0.95 -0.58 -0.78 -0.07 0.66 1.42 4.33 AA Rated -1.32 0.99 -0.92 -0.15 0.45 1.52 4.41 5 Year 0.831 1.200 1.000 1.783 1.717 2.445 3.199 6.114 5 Year 0.37 0.17 0.95 0.89 1.61 2.37 5.28 A Rated -0.42 -0.12 -0.36 0.19 0.62 1.34 4.33 A Rated -0.89 -0.52 -0.72 0.07 0.73 1.48 4.40 A Rated -1.17 0.84 -0.77 0.15 0.60 1.67 4.56 7 Year 1.330 1.700 1.587 2.475 2.401 3.106 3.871 6.646 7 Year 0.37 0.26 1.15 1.07 1.78 2.54 5.32 BBB Rated -1.03 -0.73 -0.98 -0.43 -0.62 0.73 3.72 BBB Rated -1.61 -1.25 -1.45 -0.66 -0.73 0.75 3.67 BBB Rated -1.78 1.45 -1.37 -0.45 -0.60 1.07 3.96 10 Year 1.971 2.300 2.375 3.293 3.144 3.747 4.817 7.707 10 Year 0.33 0.40 1.32 1.17 1.78 2.85 5.74 BB Rated -1.76 -1.46 -1.71 -1.16 -1.34 -0.73 2.99 BB Rated -2.37 -2.00 -2.20 -1.42 -1.48 -0.75 2.91 BB Rated -2.85 2.52 -2.44 -1.52 -1.67 -1.07 2.89 B Rated -5.74 5.41 -5.33 -4.41 -4.56 -3.96 -2.89 B Rated -5.28 -4.91 -5.11 -4.33 -4.40 -3.67 -2.91 30 Year 3.159 4.857 4.626 4.373 4.806 7.899 8.700 30 Year 1.70 1.47 1.21 1.65 4.74 5.54 B Rated -4.75 -4.45 -4.70 -4.15 -4.33 -3.72 -2.99

0.40 1.32 1.17 1.78 2.85 5.74

Source: MSSB Fixed Income Strategy; & Bloomberg. 2013 Citigroup Index LLC. All rights reserved. Data as of 2/21/13 and is subject to change at anytime. The yields represented herein are fair market yield curves and may not represent levels currently available. Credit ratings are subject to change. Because of their narrow focus, sector investments tend to be more volatile than investments that diversify across many sectors and companies. CD rates may vary due to a clients state of residence. CDs sold prior to maturity are subject to market risk and therefore investors may receive more or less than the amount invested or the face value. Callable CDs are callable at the sole discretion of the issuer.

Please refer to important information, disclosures and qualifications at the end of this material.

11

FIXED INCOME STRATEGY / FEBRUARY 22, 2013

Exhibit 20. Investment Grade Sector Breakdown Prior Close Data


Industrial Aerospace Automotive Manu Building Products Chemicals Cong / Div Manufacturing Electronics Info/Data Tech Machinery Manufacturing Metals/Mining Paper & Forest Products Textiles/Apparel/Shoes Vehicle Parts Service Cable and Media Gaming/Lodging/Leisure Health Care Supply Pharma Publishing Restaurants Retails Stores Food/Drugs Energy Gas Pipelines Oil & Gas Oilfield Services Consumer Beverage Bottling Consumer Products Food Processors Tobacco Transportation Airlines Railroads Utility Electric Telecommunications Natural Gas Distribution Finance Banking Independent Finance Leasing Life Insurance Pty CasualtyInsurance REITs Securities Price 112.138 111.257 110.921 109.591 111.688 111.415 109.010 106.944 107.822 109.882 109.234 120.382 115.190 110.892 Price 112.722 114.835 108.645 109.845 112.153 110.631 114.982 113.442 113.569 Price 114.092 115.523 113.552 115.882 Price 114.459 112.798 113.008 114.985 118.907 115.288 111.151 117.354 Price 115.258 117.226 113.626 112.570 Price 111.074 110.885 112.558 111.693 113.601 117.733 111.076 110.866 YTW 2.81 2.75 3.44 2.47 2.55 2.49 2.46 2.66 1.85 2.71 3.38 3.73 3.57 2.81 YTW 2.83 3.28 3.33 2.25 2.45 3.98 2.69 2.82 3.27 YTW 3.10 3.33 2.92 3.81 YTW 2.35 1.94 2.12 2.71 2.89 2.98 3.47 3.06 YTW 3.14 2.98 3.27 3.21 YTW 2.56 2.31 2.55 3.45 2.97 3.17 2.65 3.00 OAS 131 117 224 146 120 97 126 137 72 134 175 206 153 134 OAS 126 154 242 111 93 243 109 110 162 OAS 150 164 137 197 OAS 103 76 86 127 137 137 237 122 OAS 140 111 168 150 OAS 144 132 119 274 146 162 151 196 Duration 7.44 7.80 5.86 5.12 6.68 7.79 6.10 6.61 5.91 6.83 7.84 7.53 9.69 7.17 Duration 7.81 8.44 4.58 5.78 7.72 7.21 8.08 8.62 7.86 Duration 7.80 8.20 7.58 9.05 Duration 7.10 6.48 6.71 7.60 8.00 8.45 4.74 9.80 Duration 8.53 9.47 7.55 8.53 Duration 5.51 5.05 6.71 3.64 7.51 7.48 5.54 5.01

Source: MSSB Fixed Income Strategy; & Bloomberg. 2013 Citigroup Index LLC. All rights reserved. Data as of 2/21/13 and is subject to change at anytime. The value of fixed income securities will fluctuate and, upon a sale, may be worth more or less than their original cost or maturity value. Bonds are subject to interest rate risk, call risk, reinvestment risk, liquidity risk, and credit risk of the issuer.

Please refer to important information, disclosures and qualifications at the end of this material.

12

FIXED INCOME STRATEGY / FEBRUARY 22, 2013

Exhibit 21. Historical Investment Grade Sector Metrics


As of 2/14/13 Close Price YTW OAS Duration Industrial 112.196 2.82 130 7.45 Aerospace 111.240 2.74 115 7.78 Automotive Manu 109.640 2.49 146 5.14 Building Products 111.131 3.36 214 5.84 Chemicals 111.693 2.56 119 6.68 Cong / Div Manufacturing 111.308 2.51 98 7.80 Electronics 109.064 2.43 122 6.11 Info/Data Tech 107.711 1.89 74 5.92 Machinery 111.240 2.74 115 7.78 Manufacturing 109.926 2.71 133 6.84 Metals/Mining 109.387 3.37 173 7.87 Paper & Forest Products 120.697 3.73 204 7.55 Textiles/Apparel/Shoes 114.987 3.61 156 9.72 Vehicle Parts 110.714 2.84 136 7.17 As of 2/14/13 Close Price YTW OAS Duration Service 112.740 2.83 125 7.82 Cable and Media 114.793 3.29 154 8.44 Gaming/Lodging/Leisure 108.915 3.27 234 4.57 Health Care Supply 109.807 2.28 112 5.79 Pharma 112.186 2.44 91 7.72 Publishing 110.928 3.93 236 7.22 Restaurants 114.954 2.70 109 8.09 Retails Stores 113.422 2.84 110 8.63 Food/Drugs 113.586 3.28 162 7.86 As of 2/14/13 Close Price YTW OAS Duration Energy 114.283 3.10 147 7.82 Gas Pipelines 115.754 3.33 162 8.22 Oil & Gas 113.746 2.91 133 7.60 Oilfield Services 116.067 3.79 193 9.07 As of 2/14/13 Close Price YTW OAS Duration Consumer 114.459 2.35 103 7.10 Beverage Bottling 112.798 1.94 76 6.48 Consumer Products 113.008 2.12 86 6.71 Food Processors 114.985 2.71 127 7.60 Tobacco 118.907 2.89 137 8.00 Transportation 115.288 2.98 137 8.45 Airlines 111.151 3.47 237 4.74 Railroads 117.354 3.06 122 9.80 As of 2/14/13 Close Price YTW OAS Duration Utility 115.269 3.16 141 8.56 Electric 117.261 3.00 112 9.48 Telecommunications 113.603 3.30 169 7.59 Natural Gas Distribution 112.817 3.18 146 8.54 As of 2/14/13 Close Price YTW OAS Duration Finance 111.074 2.56 144 5.51 Banking 110.885 2.31 132 5.05 Independent Finance 112.558 2.55 119 6.71 Leasing 111.693 3.45 274 3.64 Life Insurance 113.601 2.97 146 7.51 Pty CasualtyInsurance 117.733 3.17 162 7.48 REITs 111.076 2.65 151 5.54 Securities 110.866 3.00 196 5.01 As of 2/22/12 Close Price YTW OAS 114.609 2.98 147 112.725 2.84 127 107.863 2.38 135 107.416 4.35 315 114.448 2.58 126 115.587 2.43 108 112.033 2.27 105 110.893 2.57 125 113.993 1.96 80 112.472 2.81 145 111.199 3.63 210 116.916 4.39 268 116.820 3.56 136 110.894 2.88 133 As of 2/22/12 Close Price YTW OAS 115.272 2.95 137 116.794 3.45 173 111.546 3.70 285 111.310 2.47 123 115.451 2.53 99 114.213 3.86 246 117.759 2.92 120 116.092 2.86 114 115.386 3.21 161 As of 2/22/12 Close Price YTW OAS 115.894 3.41 176 115.241 3.81 211 116.223 3.13 152 118.689 3.90 190 As of 2/22/12 Close Price YTW OAS 115.981 2.70 142 115.478 2.21 106 113.887 2.37 110 115.265 3.09 168 120.857 3.38 205 116.368 3.32 178 106.677 5.03 400 119.106 3.28 150 As of 2/22/12 Close Price YTW OAS 116.452 3.41 168 118.225 3.20 135 115.328 3.61 198 112.779 3.63 194 As of 2/22/12 Close Price YTW OAS 104.955 4.15 313 105.367 3.74 268 110.240 3.17 175 105.882 5.54 476 111.668 3.80 229 112.266 3.82 227 109.760 3.59 242 104.375 4.53 350 Rolling 3 Year Averages Price YTW OAS 107.668 4.36 204 110.235 3.84 150 107.416 3.94 243 100.371 5.92 389 107.683 4.09 195 108.583 3.80 160 106.826 3.79 166 105.366 4.05 196 108.146 3.47 159 106.397 4.30 215 104.232 5.17 284 106.833 5.99 360 105.118 5.33 210 102.593 4.69 246 Rolling 3 Year Averages Price YTW OAS 107.934 4.33 194 108.408 4.87 240 101.033 6.07 414 105.881 4.03 193 109.711 3.71 126 106.837 5.20 321 109.114 4.24 173 107.251 4.17 172 109.037 4.42 207 Rolling 3 Year Averages Price YTW OAS 108.195 4.71 220 107.333 5.24 261 108.301 4.45 196 110.264 4.99 234 Rolling 3 Year Averages Price YTW OAS 109.127 3.96 172 108.579 3.58 140 107.866 3.68 149 108.435 4.09 183 113.316 4.85 246 107.602 4.89 238 99.036 7.16 515 109.566 4.59 190 Rolling 3 Year Averages Price YTW OAS 114.512 3.61 162 109.165 4.44 184 108.651 4.74 238 106.500 4.77 253 Rolling 3 Year Averages Price YTW OAS 107.136 3.71 216 106.695 3.45 237 108.689 3.27 160 105.084 5.43 453 109.493 4.09 216 115.991 3.50 206 108.284 3.94 232 106.463 4.30 269 Rolling 3 Year Highs Price YTW OAS 117.189 8.65 584 118.011 7.12 439 114.859 13.59 1165 112.595 12.45 1073 117.126 7.65 504 118.622 7.41 480 115.023 8.06 539 113.772 9.07 675 115.367 7.85 581 114.183 8.90 657 114.344 10.55 855 124.412 11.88 997 123.695 9.95 621 114.300 11.53 975 Rolling 3 Year Highs Price YTW OAS 118.789 8.64 564 120.958 9.96 671 112.443 15.57 1419 114.152 8.68 571 119.698 7.14 371 119.847 11.90 1043 121.389 8.32 519 121.444 8.50 587 118.194 9.16 615 Rolling 3 Year Highs Price YTW OAS 119.433 8.94 606 120.512 9.85 764 119.057 8.53 543 120.922 8.33 574 Rolling 3 Year Highs Price YTW OAS 118.406 7.81 477 117.070 7.81 463 116.327 7.35 439 117.683 8.03 505 127.620 8.92 650 119.403 9.20 616 111.277 14.94 1362 122.038 8.33 509 Rolling 3 Year Highs Price YTW OAS 120.518 4.41 219 123.109 8.37 515 120.185 9.98 711 118.315 9.88 848 Rolling 3 Year Highs Price YTW OAS 112.919 4.78 366 111.844 4.96 393 116.068 4.79 256 112.875 9.85 910 116.220 5.35 338 119.418 4.00 260 113.076 5.56 346 111.547 5.75 456 Rolling 3 Year Lows Price YTW OAS 85.284 2.57 115 95.701 2.38 85 81.456 1.94 92 73.008 3.30 198 89.218 2.26 101 89.979 2.19 81 86.937 2.15 80 84.538 2.30 100 89.835 1.67 63 85.259 2.57 115 77.157 3.24 147 76.807 3.50 198 68.385 3.00 89 74.307 2.36 84 Rolling 3 Year Lows Price YTW OAS 84.268 2.51 129 81.054 2.90 129 66.333 3.01 187 85.395 2.02 94 88.361 2.13 70 78.370 2.95 148 85.244 2.28 76 81.707 2.51 78 85.395 2.83 113 Rolling 3 Year Lows Price YTW OAS 82.881 2.81 123 80.703 3.07 146 82.991 2.62 109 85.549 3.49 132 Rolling 3 Year Lows Price YTW OAS 88.704 2.14 85 87.518 1.72 59 90.672 1.96 71 88.599 2.46 96 84.002 2.62 118 84.485 2.86 125 72.811 3.46 233 85.268 2.88 102 Rolling 3 Year Lows Price YTW OAS 107.620 2.88 125 83.917 2.75 104 81.512 2.99 137 82.081 2.89 129 Rolling 3 Year Lows Price YTW OAS 101.740 2.47 141 99.698 2.30 131 101.362 2.45 102 91.368 3.25 250 101.488 2.88 250 110.674 3.14 159 101.672 2.62 151 98.654 2.88 188

Source: MSSB Fixed Income Strategy; & Bloomberg. 2013 Citigroup Index LLC. All rights reserved. Data as of 2/21/13 and is subject to change at anytime. Please refer to important information, disclosures and qualifications at the end of this material. 13

FIXED INCOME STRATEGY / FEBRUARY 22, 2013

Exhibit 22. Investment Grade Sector Returns


INVESTMENT GRADE SECTORS Industrial Aerospace Automotive Manufacturer Building Products Chemicals Cong / Div Manufacturing Electronics Info/Data Tech Machinery Manufacturing Metals/Mining Paper & Forest Products Textiles/Apparel/Shoes Vehicle Parts Service Cable and Media Gaming/Lodging/Leisure Health Care Supply Pharma Publishing Restaurants Retails Stores Food/Drugs Energy Gas Pipelines Oil & Gas Oilfield Services Consumer Beverage Bottling Consumer Products Food Processors Tobacco Transportation Airlines Railroads Utility Electric Telecommunications Natural Gas Distribution Finance Banking Independent Finance Leasing Life Insurance Pty CasualtyInsurance REITs Securities 1 Week (0.18) (0.21) (0.07) (0.25) (0.13) (0.09) (0.12) (0.15) (0.08) (0.18) (0.39) (0.43) (0.16) 0.53 1 Week (0.19) (0.12) 0.00 (0.10) (0.22) (0.14) (0.13) (0.22) (0.19) 1 Week (0.22) (0.13) (0.25) (0.22) 1 Week (0.14) (0.17) 0.06 (0.22) (0.13) (0.18) 0.11 (0.23) 1 Week (0.22) (0.20) (0.24) (0.17) 1 Week (0.00) 0.08 (0.16) (0.12) (0.19) 0.00 (0.01) 0.12 MTD (0.07) (0.14) 0.12 0.43 (0.17) 0.20 0.08 (0.13) 0.01 (0.04) (0.25) (0.18) (0.21) 0.19 MTD (0.14) (0.04) (0.10) (0.05) (0.16) (1.39) (0.30) (0.24) 0.23 MTD (0.00) 0.22 (0.10) 0.04 MTD (0.11) (0.11) 0.15 (0.35) 0.06 (0.02) 0.29 (0.07) MTD (0.32) 0.24 (0.97) (0.08) MTD 0.37 0.43 0.23 0.04 0.20 0.65 0.53 0.44 YTD (1.38) (1.91) (0.10) 0.60 (1.09) (1.20) (0.64) (1.72) (0.56) (1.07) (1.38) (1.23) (2.23) (0.46) YTD (1.59) (1.89) 0.01 (1.39) (1.52) (2.66) (1.71) (1.79) (0.73) YTD (1.62) (1.37) (1.74) (1.53) YTD (1.16) (1.30) (0.83) (1.37) (0.80) (1.39) 1.08 (2.07) YTD (1.59) (1.01) (2.37) (1.12) YTD 0.08 0.22 (0.80) 1.90 (0.62) 0.09 0.61 1.18 1 Year Ago 4.86 4.86 5.39 9.27 4.39 3.79 2.58 2.50 3.11 4.06 4.29 9.52 3.31 4.06 1 Year Ago 4.79 5.33 7.11 3.92 4.64 5.24 4.31 4.21 4.16 1 Year Ago 6.07 7.85 5.24 6.54 1 Year Ago 4.80 3.85 3.80 5.62 6.69 5.63 9.47 5.34 1 Year Ago 5.11 4.89 5.19 6.72 1 Year Ago 10.30 11.23 7.97 12.77 9.18 10.73 9.08 12.78 2 Years Ago 10.57 10.04 6.71 5.12 10.28 10.76 8.63 10.39 9.03 9.17 6.93 11.39 17.09 11.66 2 Years Ago 11.07 10.49 9.11 10.10 11.02 3.82 13.47 12.93 11.06 2 Years Ago 11.51 10.80 11.91 11.30 2 Years Ago 10.61 9.95 11.34 11.02 10.46 11.83 4.36 14.33 2 Years Ago 12.01 14.30 9.68 12.83 2 Years Ago 3.44 1.65 6.45 (3.42) 7.47 9.93 7.31 1.71 3 Years Ago 9.12 7.80 7.97 7.92 9.25 8.92 9.65 8.02 8.08 9.02 10.22 10.07 9.59 12.80 3 Years Ago 9.24 10.01 12.46 7.90 9.05 10.02 9.58 8.46 8.95 3 Years Ago 8.86 10.03 8.44 8.06 3 Years Ago 9.05 8.63 7.86 8.72 11.72 10.41 15.45 9.67 3 Years Ago 8.62 9.40 7.83 9.98 3 Years Ago 9.35 8.05 11.28 0.00 13.63 10.29 14.82 11.13

Source: MSSB Fixed Income Strategy; & Bloomberg. 2013 Citigroup Index LLC. All rights reserved. Data as of 2/21/13 and is subject to change at anytime.

Please refer to important information, disclosures and qualifications at the end of this material.

14

FIXED INCOME STRATEGY / FEBRUARY 22, 2013

Exhibit 23. High Yield Sector Breakdown Prior Close Data


Aerospace Airlines Auto Mfg / Vehicle Parts Banking Broadband Building Products Cable Capital Goods Chemicals CLEC Consumer Products / Tobacco Containers Diversified Telecom Environmental Services Finance Food / Beverage / Bottling Gaming Healthcare Facilities / Supplies Home Builders Leisure Lodging Metals / Mining Oil Equipment Paper & Forest Products Pharmaceuticals Publishing Restaurants Retail- Food & Drug Retail - Stores Satellite Secondary Oil & Gas Producers Technology Textle / Apparel / Shoe Tower Utilities (Elec/Pwr/Gas) Wireless Price 105.652 105.862 105.402 112.547 109.372 109.472 107.358 Price 108.846 101.263 NA 105.260 106.501 109.573 104.613 101.751 Price 107.300 99.097 106.232 109.250 107.072 107.924 102.679 104.365 Price 100.240 106.528 90.813 105.383 100.863 103.379 108.726 105.989 Price 103.393 103.393 105.201 104.782 100.675 YTW 5.32 5.27 5.41 4.05 5.64 5.97 4.85 YTW 4.80 6.70 NA 5.66 5.51 5.63 5.99 5.38 YTW 4.94 8.06 5.64 4.51 5.13 4.91 6.79 5.55 YTW 6.58 5.43 8.75 6.20 5.91 6.38 4.15 5.85 YTW 6.93 6.93 4.41 6.18 7.07 OAS 449 476 475 292 511 532 408 OAS 414 578 NA 532 475 435 493 459 OAS 427 733 484 362 453 418 587 449 OAS 617 472 928 560 537 554 314 488 OAS 618 618 312 558 487 Eff Dur 4.16 2.48 3.96 5.24 3.13 3.65 4.32 Eff Dur 3.46 4.18 NA 3.33 4.22 5.61 5.43 3.96 Eff Dur 3.53 3.29 3.88 4.41 3.05 3.67 4.10 4.96 Eff Dur 2.59 3.97 4.17 3.02 2.87 4.26 4.66 4.46 Eff Dur 3.90 3.90 5.80 3.97 2.67

Source: MSSB Fixed Income Strategy; & Bloomberg. 2013 Citigroup Index LLC. All rights reserved. Data as of 2/21/13 and is subject to change at anytime. Bonds rated below investment grade may have speculative characteristics and present significant risks beyond those of other securities, including greater credit risk, price volatility, and limited liquidity in the secondary market. High yield bonds should comprise only a limited portion of a balanced portfolio.

Please refer to important information, disclosures and qualifications at the end of this material.

15

FIXED INCOME STRATEGY / FEBRUARY 22, 2013

Exhibit 24. Historical High Yield Sector Metrics


As of 2/14/13 Close As of 2/22/12 Close Price YTW OAS Eff Dur Price YTW OAS Aerospace 105.652 5.32 449 4.16 100.610 6.53 655 Airlines 105.862 5.27 476 2.48 101.977 7.26 675 Auto Mfg / Vehicle Parts 105.402 5.41 475 3.96 108.809 5.16 407 Banking 112.547 4.05 292 5.24 103.551 6.02 463 Broadband 109.372 5.64 511 3.13 105.074 7.88 696 Building Products 109.472 5.97 532 3.65 101.921 7.75 675 Cable 107.358 4.85 408 4.32 108.328 5.24 448 As of 2/14/13 Close As of 2/22/12 Close Price YTW OAS Eff Dur Price YTW OAS Capital Goods 108.941 4.80 414 3.46 106.649 6.87 621 Chemicals 101.307 6.70 578 4.18 106.636 5.55 485 CLEC NA NA NA NA 106.478 6.10 519 Consumer Products / Tobacco 105.232 5.66 532 3.33 103.821 7.15 505 Containers 106.698 5.51 475 4.22 104.397 6.23 537 Diversified Telecom 110.068 5.63 435 5.61 97.986 7.93 657 Environmental Services 105.193 5.99 493 5.43 104.750 5.69 489 Finance 102.008 5.38 459 3.96 93.699 8.31 797 As of 2/14/13 Close As of 2/22/12 Close Price YTW OAS Eff Dur Price YTW OAS Food / Beverage / Bottling 107.300 4.94 427 3.53 103.473 6.88 625 Gaming 99.097 8.06 733 3.29 93.618 10.23 963 Healthcare Facilities / Supplies 106.232 5.64 484 3.88 101.454 7.70 684 Home Builders 109.250 4.51 362 4.41 95.315 7.80 705 Leisure 107.072 5.13 453 3.05 103.013 7.96 715 Lodging 107.924 4.91 418 3.67 105.578 5.11 451 Metals / Mining 102.679 6.79 587 4.10 101.585 7.17 629 Oil Equipment 104.365 5.55 449 4.96 103.232 6.37 511 As of 2/14/13 Close As of 2/22/12 Close Price YTW OAS Eff Dur Price YTW OAS Paper & Forest Products 100.240 6.58 617 2.59 97.632 8.63 812 Pharmaceuticals 106.528 5.43 472 3.97 101.901 6.92 590 Publishing 90.813 8.75 928 4.17 86.929 12.27 1187 Restaurants 105.383 6.20 560 3.02 100.402 8.15 749 Retail- Food & Drug 100.863 5.91 537 2.87 98.664 7.60 687 Retail - Stores 103.379 6.38 554 4.26 96.636 8.17 757 Satellite 108.726 4.15 314 4.66 107.585 5.48 464 Secondary Oil & Gas Producers 105.989 5.85 488 4.46 102.875 6.97 600 As of 2/14/13 Close As of 2/22/12 Close Price YTW OAS Eff Dur Price YTW OAS Technology 103.393 6.93 618 3.90 97.993 8.84 816 Textle / Apparel / Shoe 103.393 6.93 618 3.90 97.993 8.84 816 Tower 105.201 4.41 312 5.80 108.474 4.77 438 Utilities (Elec/Pwr/Gas) 104.782 6.18 558 3.97 94.682 8.81 773 Wireless 100.675 7.07 487 2.67 98.307 9.30 841 Rolling 3 Year Averages Price YTW OAS 96.567 8.07 655 91.621 11.98 1064 91.950 10.17 930 91.586 8.99 790 93.066 11.51 985 90.904 10.49 914 98.568 8.09 693 Rolling 3 Year Averages Price YTW OAS 99.003 8.82 719 95.024 8.92 755 96.137 8.99 755 96.391 9.50 804 98.655 7.98 611 95.520 8.33 630 102.168 6.94 512 84.260 11.83 1133 Rolling 3 Year Averages Price YTW OAS 105.962 5.78 509 85.473 12.36 1171 99.065 8.20 648 91.973 8.82 731 94.813 10.29 923 107.357 4.63 414 96.059 8.61 689 99.235 7.99 622 Rolling 3 Year Averages Price YTW OAS 89.361 10.83 1036 97.536 8.55 673 80.798 12.93 1333 95.828 9.27 924 91.454 9.13 736 91.970 9.50 783 101.559 7.17 551 98.443 8.00 605 Rolling 3 Year Averages Price YTW OAS 89.518 11.21 972 89.518 11.21 972 104.522 6.10 437 91.205 9.66 763 98.653 8.96 803 Rolling 3 Year Highs Price YTW OAS 106.454 14.29 1320 107.458 27.27 2685 110.769 32.04 4599 114.025 35.00 5178 111.360 29.08 2762 111.088 22.56 2605 109.811 19.57 2760 Rolling 3 Year Highs Price YTW OAS 109.653 17.46 2727 110.137 21.19 2258 107.652 20.34 2212 108.024 20.91 2181 108.635 13.47 1191 112.409 15.20 1325 108.092 10.54 841 102.029 29.67 4666 Rolling 3 Year Highs Price YTW OAS 108.422 6.78 608 103.403 27.50 4451 107.519 15.66 1430 109.880 20.25 2104 109.493 22.73 2884 110.691 5.50 512 106.003 16.90 1760 107.313 16.90 1540 Rolling 3 Year Highs Price YTW OAS 101.509 22.29 2814 108.742 15.54 1467 101.858 26.70 4678 108.414 18.79 5236 101.135 16.48 1573 104.476 21.12 2184 111.832 13.83 1291 107.614 16.68 1480 Rolling 3 Year Highs Price YTW OAS 104.966 23.84 2689 104.966 23.84 2689 111.901 9.98 780 105.969 15.42 1348 103.272 11.07 1033 Rolling 3 Year Lows Price YTW OAS 69.190 5.22 371 59.123 5.10 458 31.801 4.68 311 15.514 3.70 257 48.670 4.86 369 45.430 5.32 449 48.659 4.26 362 Rolling 3 Year Lows Price YTW OAS 68.539 4.44 388 50.826 5.18 343 55.494 5.00 384 57.561 5.37 471 76.977 4.91 372 67.365 5.17 360 85.769 5.41 282 35.673 5.32 435 Rolling 3 Year Lows Price YTW OAS 103.247 4.82 416 30.499 7.43 618 70.600 5.23 430 56.862 4.31 334 56.730 4.69 431 104.629 3.48 273 62.627 6.19 419 72.945 3.46 302 Rolling 3 Year Lows Price YTW OAS 46.236 6.06 580 71.262 4.83 342 26.318 8.30 647 58.398 5.17 359 61.623 5.43 497 52.231 6.00 371 73.702 3.80 279 63.718 5.44 370 Rolling 3 Year Lows Price YTW OAS 43.706 6.33 542 43.706 6.33 542 88.051 2.45 244 67.442 5.99 441 92.633 6.49 326

Source: MSSB Fixed Income Strategy; & Bloomberg. 2013 Citigroup Index LLC. All rights reserved. Data as of 2/21/13 and is subject to change at anytime.

Please refer to important information, disclosures and qualifications at the end of this material.

16

FIXED INCOME STRATEGY / FEBRUARY 22, 2013

Exhibit 25. High Yield Sector Returns


HIGH YIELD SECTORS Aerospace Airlines Auto Mfg / Vehicle Parts Banking Broadband Broadcast / Outdoor Building Products Cable Capital Goods Chemicals CLEC Consumer Products / Tobacco Containers Diversified Telecom Environmental Services Finance Food / Beverage / Bottling Gaming Healthcare Facilities / Supplies Home Builders Leisure Lodging Metals / Mining Oil Equipment Paper & Forest Products Pharmaceuticals Publishing Restaurants Retail- Food & Drug Retail - Stores Satellite Secondary Oil & Gas Producers Technology Textle / Apparel / Shoe Tower Utilities (Elec/Pwr/Gas) Wireless 1 Week 0.26 0.29 0.11 (0.06) 0.11 0.67 0.27 0.13 0.22 0.18 0.00 0.23 0.28 (0.09) (0.20) (0.03) 0.10 0.43 0.29 0.09 0.10 0.22 0.08 0.13 0.20 0.20 0.46 0.14 0.17 0.36 0.27 0.25 0.36 0.22 (0.04) 0.58 0.02 MTD 0.18 0.80 (0.23) (0.02) (0.17) 0.19 0.22 (0.12) 0.33 (0.15) 0.00 0.22 0.14 (0.37) (0.75) 0.83 (0.01) 0.26 0.38 (0.05) 0.04 0.38 (0.03) 0.43 0.32 1.08 (0.22) 0.55 0.85 0.55 0.12 0.17 0.29 0.48 (1.45) (0.21) (1.27) YTD 0.92 2.50 1.07 0.55 1.17 2.67 2.08 0.49 1.25 1.06 0.00 1.62 1.43 (0.11) 1.31 2.82 0.78 2.66 1.68 1.47 0.47 1.31 1.56 1.28 2.06 0.69 0.72 2.06 6.02 1.72 0.15 1.18 2.34 0.83 (2.02) 0.54 0.80 1 Year Ago 7.83 14.13 12.83 16.11 14.21 13.60 17.04 8.96 10.30 8.41 5.36 11.81 11.45 20.64 10.03 15.49 10.22 12.20 11.50 18.02 12.12 10.83 7.91 6.40 10.57 12.24 6.79 13.48 9.88 10.95 9.22 9.01 11.16 10.91 4.61 13.35 9.40 2 Years Ago 4.83 (2.56) 7.22 3.14 15.02 2.14 2.52 9.32 8.73 4.54 6.04 5.07 6.67 (0.98) 5.44 3.32 7.34 2.62 5.69 (1.08) 7.56 7.10 7.30 8.78 (4.84) 7.97 (6.31) 9.12 14.29 4.98 10.65 9.61 6.08 7.57 7.31 8.95 3.69 3 Years Ago 12.74 21.96 17.50 33.59 15.20 19.15 11.64 12.42 15.60 16.79 12.98 12.81 12.07 13.75 15.77 23.66 12.58 20.82 11.92 11.54 9.93 12.41 12.74 13.13 15.76 11.02 14.97 15.16 6.73 13.71 11.97 12.75 15.36 12.77 12.28 3.31 16.22

Source: MSSB Fixed Income Strategy; & Bloomberg. 2013 Citigroup Index LLC. All rights reserved. Data as of 2/21/13 and is subject to change at anytime.

Please refer to important information, disclosures and qualifications at the end of this material.

17

FIXED INCOME STRATEGY / FEBRUARY 22, 2013

Exhibit 26. Emerging Markets Breakdown Prior Close Data


Emerging Markets Sovereign Bond Latin America/Carribean Argentina Brazil Colombia Mexico Peru Venezuela Russian Turkey Asia Eastern EuropeEastern Europe Africa/ME Western EuropeWestern Europe South AfricaSouth Africa CREDIT RATING All BBB-Rated All BB-Rated All B-Rated MATURITY 1-5 Years 5-10 Years 10+ Years 20+ Years Price 118.183 119.620 44.521 138.360 128.476 122.255 142.752 103.985 126.682 124.404 123.301 119.060 107.700 108.187 115.227 Price 124.539 122.797 98.076 Price 109.752 116.776 124.734 120.619 YTW 4.17 4.58 12.93 3.14 2.88 2.99 3.44 8.89 3.06 3.64 3.69 3.92 4.58 3.11 3.26 YTW 3.22 3.89 7.53 YTW 3.00 3.83 5.14 4.88 OAS 246 256 1052 94 106 105 105 708 149 186 193 241 326 211 176 OAS 146 209 608 OAS 253 239 250 190 Eff Dur 7.46 8.69 8.82 8.41 8.67 9.79 11.21 6.59 6.31 8.06 8.05 6.47 5.82 4.74 6.74 Eff Dur 7.82 7.96 5.72 Eff Dur 2.74 5.97 11.42 13.72

Source: MSSB Fixed Income Strategy; & Bloomberg. 2013 Citigroup Index LLC. All rights reserved. Data as of 2/21/13 and is subject to change at anytime.

Exhibit 27. Historical Emerging Markets Metrics


As of 2/13/2013 As of 2/21/12 Close Rolling 3 Year Averages Price YTW OAS Eff Dur Price YTW OAS Price YTW OAS Emerging Markets Sovereign Bond 118.165 4.18 244 7.47 112.318 5.26 351 108.992 6.06 343 Latin America/Carribean 119.404 4.61 256 8.69 113.298 5.42 341 107.031 6.36 354 Argentina 44.521 12.92 1050 8.84 48.784 11.52 914 49.263 14.02 1087 Brazil 138.360 3.16 93 8.42 134.064 3.76 165 127.648 4.89 184 Colombia 128.476 2.89 106 8.69 125.890 3.42 177 119.968 4.76 219 Mexico 122.255 3.00 105 9.78 121.863 3.43 172 115.143 4.41 180 Peru 142.752 3.45 104 11.22 131.345 4.01 198 122.183 5.06 207 Venezuela 103.000 9.03 720 6.55 76.418 13.71 1208 76.977 13.42 1088 Russian 126.803 3.07 146 6.34 120.843 4.64 308 119.134 5.33 267 Turkey 124.163 3.68 187 8.05 110.938 5.38 377 112.403 5.61 305 Asia 123.259 3.73 194 8.07 122.025 4.08 228 115.640 5.47 285 Eastern EuropeEastern Europe 119.331 3.89 235 6.49 110.852 5.47 388 111.412 5.89 337 Africa/ME 107.654 4.60 325 5.84 108.724 4.66 333 104.239 5.87 388 Western EuropeWestern Europe 108.106 3.11 210 4.75 95.871 6.97 602 88.180 11.86 1100 South AfricaSouth Africa 115.124 3.29 176 6.76 115.037 3.74 221 110.906 4.23 210 As of 2/13/2013 As of 2/21/12 Close Rolling 3 Year Averages CREDIT RATING Price YTW OAS Eff Dur Price YTW OAS Price YTW OAS All BBB-Rated 124.623 3.22 144 7.83 124.090 4.05 226 118.250 4.97 225 All BB-Rated 122.859 3.89 206 7.97 114.719 4.95 330 108.301 6.40 376 All B-Rated 97.703 7.59 612 5.71 83.002 10.25 883 91.529 8.71 742 As of 2/13/2013 As of 2/21/12 Close Rolling 3 Year Averages MATURITY Price YTW OAS Eff Dur Price YTW OAS Price YTW OAS 1-5 Years 109.780 3.01 253 2.75 107.317 4.29 376 107.049 5.00 378 5-10 Years 116.877 3.82 235 5.99 111.702 5.03 351 109.395 5.73 332 10+ Years 124.564 5.16 249 11.42 115.985 6.01 336 109.808 6.89 338 20+ Years 120.640 4.89 189 13.71 113.817 5.56 257 107.034 6.61 283 Rolling 3 Year Highs Price YTW OAS 121.199 11.40 814 122.576 11.89 862 66.826 37.19 3384 142.946 10.12 670 136.298 10.84 763 129.057 8.97 582 148.257 9.54 612 105.430 22.40 2030 130.996 11.02 857 130.755 13.38 1016 130.177 10.85 819 123.169 12.43 904 113.427 12.24 1019 108.633 39.16 3868 121.606 7.97 636 Rolling 3 Year Highs Price YTW OAS 128.713 9.78 643 127.795 11.86 896 99.456 10.18 915 Rolling 3 Year Highs Price YTW OAS 113.309 12.35 1045 119.730 10.98 847 129.785 11.49 744 128.203 11.72 767 Rolling 3 Year Lows Price YTW OAS 79.554 3.89 216 75.346 4.36 216 19.465 8.50 452 91.588 2.78 75 84.702 2.63 85 86.405 2.73 91 86.330 2.88 88 50.617 8.69 517 87.793 2.61 95 73.011 3.13 111 81.561 3.13 147 78.907 3.52 176 79.399 4.24 217 58.800 3.06 207 91.667 2.66 100 Rolling 3 Year Lows Price YTW OAS 89.467 2.95 123 77.954 3.47 181 83.484 7.37 598 Rolling 3 Year Lows Price YTW OAS 87.526 2.71 204 82.699 3.50 194 73.011 4.82 221 66.248 4.49 166

Source: MSSB Fixed Income Strategy; & Bloomberg. 2013 Citigroup Index LLC. All rights reserved. Data as of 2/21/13 and is subject to change at anytime. Investing in foreign emerging markets entails greater risks than those normally associated with domestic markets, such as political, currency, economic and market risks. Please refer to important information, disclosures and qualifications at the end of this material.

18

FIXED INCOME STRATEGY / FEBRUARY 22, 2013

Exhibit 28. Emerging Markets Returns


REGIONS Emerging Markets Sovereign Bond Latin America/Carribean Argentina Brazil Colombia Mexico Peru Venezuela Russian Turkey Asia Eastern Europe Africa/ME Western Europe South Africa CREDIT RATING Investment Grade Sub-Investment Grade All BB-Rated All B-Rated MATURITY 1-5 Years 5-10 Years 10+ Years 1 Week 0.16 0.19 0.16 0.09 0.09 0.08 0.08 0.63 0.13 0.34 0.27 0.09 0.16 (0.04) 0.27 1 Week 0.09 0.26 0.21 0.32 1 Week 0.09 0.11 0.23 MTD 0.07 0.49 0.53 0.29 0.27 0.26 0.27 1.54 0.27 0.50 (0.98) 0.03 0.05 0.09 0.07 MTD (0.01) 0.20 (0.05) 0.50 MTD 0.08 (0.05) 0.19 YTD (1.05) (0.75) (7.08) (2.11) (1.77) (1.68) (1.90) 4.08 (2.21) (2.24) (2.56) (1.48) 0.13 1.75 (3.19) YTD (1.74) (0.01) (1.55) 1.91 YTD 0.56 (0.62) (2.30) 1 Year Ago 12.98 13.24 (9.38) 8.16 9.09 8.36 11.62 35.32 11.21 17.79 8.48 16.63 7.86 13.00 6.46 1 Year 10.06 17.48 15.39 20.21 1 Year 7.40 13.41 15.79 2 Years Ago 8.46 13.20 (13.96) 12.99 14.48 14.26 15.22 15.04 6.20 1.44 9.71 2.15 6.35 (30.72) 9.93 2 Years Ago 10.84 5.80 5.99 4.91 2 Years Ago 3.04 6.83 13.16 3 Years Ago 12.01 12.83 37.85 9.86 12.07 10.63 11.00 19.35 8.69 12.52 12.59 11.26 10.38 (13.41) 10.01 3 Years Ago 9.78 14.58 13.73 15.32 3 Years Ago 8.34 11.28 14.78

Source: MSSB Fixed Income Strategy; & Bloomberg. 2013 Citigroup Index LLC. All rights reserved. Data as of 2/21/13 and is subject to change at anytime.

Please refer to important information, disclosures and qualifications at the end of this material.

19

FIXED INCOME STRATEGY / FEBRUARY 22, 2013

Exhibit 29. U.S. Equities & Commodities Breakdown


Equities S&P500 DJIA NASDAQ Russell 2000 Commodities VIX Gold Silver Brent Crude Futures WTI Crude Futures Natural Gas Futures Gasoline (Average Regular Unleaded) Current 1502.42 13932.20 3146.03 912.08 Current 15.22 1575.20 28.57 114.20 92.85 3.26 3.78 5 Days Ago 1521.38 13973.39 3198.66 923.76 5 Days Ago 12.66 1610.10 29.80 117.66 97.90 3.16 3.71 1 Mon Ago 1492.56 13712.21 3143.18 899.24 1 Mon Ago 12.43 1692.70 32.24 111.37 97.07 3.56 3.31 3 Mon Ago 1391.03 12836.89 2926.55 798.38 3 Mon Ago 15.31 1729.55 33.35 108.59 89.19 3.90 3.43 6 Mon Ago 1413.49 13172.76 3073.67 812.56 6 Mon Ago 15.11 1654.65 29.84 112.20 98.72 2.83 3.72 1 Year Ago 1357.66 12938.67 2933.17 816.50 1 Year Ago 18.19 1776.22 34.27 114.23 106.48 2.64 3.58 2 Years Ago 1315.45 12212.79 2756.42 812.96 2 Years Ago 20.80 1399.13 33.09 104.00 99.71 3.87 3.17 3 Years Ago 1108.02 10383.38 2242.03 632.25 3 Years Ago 19.94 1114.25 16.24 86.57 86.35 4.90 2.65

Source: MSSB Fixed Income Strategy; & Bloomberg. 2013 Citigroup Index LLC. All rights reserved. Data as of 2/21/13 and is subject to change at anytime.

Exhibit 30. U.S. Equities & Commodities Returns


Equities S&P500 DJIA NASDAQ Russell 2000 Commodities VIX Gold Silver Brent Crude Futures WTI Crude Futures Natural Gas Futures Gasoline (Average Regular Unleaded) Current 1502.42 13932.20 3146.03 912.08 Current 15.22 1575.20 28.57 114.20 92.85 3.26 3.78 5 Days Ago -1.18 -0.24 -1.59 -1.25 5 Days Ago 20.22 -2.17 -4.13 -2.94 -5.16 2.91 1.80 1 Mon Ago 0.91 1.94 0.26 1.52 1 Mon Ago 22.45 -6.94 -11.37 2.54 -4.35 -8.52 14.23 3 Mon Ago 8.67 9.34 8.09 14.67 3 Mon Ago -0.59 -8.92 -14.32 5.17 4.10 -16.60 10.17 6 Mon Ago 7.56 7.25 3.34 13.08 6 Mon Ago 0.73 -4.80 -4.24 1.78 -5.95 15.18 1.75 1 Year Ago 13.24 10.70 8.98 13.36 1 Year Ago -16.33 -11.32 -16.64 -0.03 -12.80 23.16 5.64 2 Years Ago 2.11 8.38 -0.79 -4.17 2 Years Ago -26.83 12.58 -13.65 9.81 -6.88 -15.83 19.24 3 Years Ago 15.06 14.06 18.15 26.86 3 Years Ago -23.67 41.37 75.87 31.92 7.53 -33.50 42.79

Source: MSSB Fixed Income Strategy; & Bloomberg. 2013 Citigroup Index LLC. All rights reserved. Data as of 2/21/13 and is subject to change at anytime. Investing in commodities entails significant risks. Commodity prices may be affected by a variety of factors at any time. 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. Equity securities may fluctuate in response to news on companies, industries, market conditions and general economic environment.

Please refer to important information, disclosures and qualifications at the end of this material.

20

FIXED INCOME STRATEGY / FEBRUARY 22, 2013

Exhibit 31. Citigroup US Broad Investment-Grade (USBIG) Agency Index Option Adjusted Spread
200 180 160 140 120 OAS 100 80 60 40 20 0 M a y -11 F e b -11 N o v -11 M a y -12 F e b -12 N o v -12 F e b -13 F e b -0 8 N o v -0 8 M a y -0 8 F e b -0 9 N o v -0 9 M a y -0 9 M a y -10 F e b -10 N o v -10 A ug -11 A ug -12 A ug -0 8 A ug -0 9 A ug -10

Exhibit 32. Citigroup US Broad Investment-Grade (USBIG) Corporate Index Option Adjusted Spread
600

500

Average - 46

Current - 15

OAS

400

Average - 239
300

Current - 135

200

100 M a y -11 F e b -11 N o v -11 M a y -12 F e b -12 N o v -12


N o v -12

F e b -0 8

M a y -0 8

N o v -0 8

F e b -0 9

M a y -0 9

N o v -0 9

M a y -10

F e b -10

N o v -10

A ug -11

A ug -0 8

A ug -0 9

Exhibit 33. Citigroup US Broad Investment-Grade (USBIG) High Yield Index Option Adjusted Spread
2150 2000 1850 1700 1550 OAS

Exhibit 34. Citigroup Global Emerging Market Sovereign Bond Index (ESBI) Option Adjusted Spread
800 700 600 OAS

A ug -10

1400 1250 1100 950 800 650 500 350

Average - 801 Current - 507

500 400 300 200 100

Average - 343

Current - 254

M a y -11

M a y -11

N o v -11

M a y -12

N o v -11

F e b -11

F e b -11

M a y -12

F e b -12

N o v -12

F e b -12

F e b -13

A ug -12

N o v -0 8

M a y -0 8

M a y -0 8

N o v -0 8

F e b -0 8

N o v -0 9

F e b -0 8

M a y -0 9

M a y -0 9

N o v -0 9

F e b -0 9

F e b -0 9

M a y -10

M a y -10

F e b -10

N o v -10

F e b -10

N o v -10

A ug -11

A ug -12

A ug -11

A ug -0 8

A ug -0 8

A ug -0 9

A ug -0 9

A ug -10

Source: MSSB Fixed Income Strategy; & Bloomberg. 2013 Citigroup Index LLC. All rights reserved. Data as of 2/21/13 and is subject to change at anytime. The indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. The indices selected by Morgan Stanley Smith Barney to measure performance are representative of broad asset classes. Morgan Stanley Smith Barney retains the right to change representative indices at any time.

Please refer to important information, disclosures and qualifications at the end of this material.

A ug -10

A ug -12

F e b -13

F e b -13

21

FIXED INCOME STRATEGY / FEBRUARY 22, 2013

Index Definitions
Citigroup Mortgage Index - This index measures the mortgage component of the USBIG Index, comprising 30-and 15-year GNMA, FNMA, and FHLMC pass-throughs and FNMA and FHLMC balloon mortgages. Citigroup US Treasury Benchmark (On-the-Run) Indexes These indexes measure total returns for the current two-, three-, five-, seven-, ten-, and 30-year on-the-run Treasuries that have been in existence for the entire month. Citigroup US Inflation-Linked Securities Index (US-ILSI) The US-ILSI measures debentures with fixed-rate coupon payments that adjust for inflation as measured by the Consumer Price Index (CPI). This index has a minimum maturity of one year and a minimum amount outstanding of $1 billion for both entry and exit. It is separate and distinct from our Broad Investment-Grade (BIG) Bond Index and currently comprises Treasury securities. Citigroup High-Yield Market Index The index includes cash-pay, deferred-interest, and Rule 144A bonds. The bonds must have a remaining maturity of at least one year, a minimum amount outstanding of $100 million (subject to an entry criteria of $200 million per issue or $400 million per issuer), and a speculative-grade rating by both Moodys Investor Service and Standard & Poors. When an issuer misses or expects to miss an interest payment or enters Chapter 11, the bonds exit the index at month-end. The returns are adjusted for the loss of a coupon payment or accrued interest. Citigroup Global Emerging Market Sovereign Bond Index (ESBI) The index includes Brady bonds and US dollar-denominated emerging market sovereign debt issued in the global, Yankee, and Eurodollar market, excluding loans. The bonds must have a remaining maturity of at least one year, a minimum amount outstanding of $500 million, and a maximum rating of BBB+/Baa1 by S&P or Moodys. Brady bonds, restructured in accordance to the Brady Plan, of countries with no foreign debt or whose foreign debt is not rated by S&P and Moodys are included in the ESBI. We exclude defaulted issues from the ESBI. Investment Grade Corporate Index - is an aggregate index of all outstanding investment grade (BBB and higher) corporate bonds with maturities of 1 through 100 years. AA Corporate Rated Index - option adjusted spread to aggregate Treasuries (1 30 yr maturities). The AA Corporate Rated Index is an aggregate index of all outstanding AA investment grade corporate bonds with maturities of 1 through 100 years. The obligators capacity to meet its financial obligation is verystrong; with very low expectation of credit risk and very strong capacity for timely payment of financial commitments. A Corporate Rated Index - option adjusted spread to aggregate Treasuries (1 30 yr maturities). The A Corporate Rated Index is an aggregate index of all outstanding A investment grade corporate bonds with maturities of 1 through 100 years. The obligors capacity to meet its financial obligation is strong. However, the obligor is more susceptible to economic swings than higher rated issuers. BBB Corporate Rated Index - option adjusted spread to aggregate Treasuries (1 30 yr maturities). The BBB Corporate Rated Index is an aggregate index of all outstanding BBB investment grade corporate bonds with maturities of 1 through 100 years. The obligors capacity to meet its financial obligations are of medium grade. The safety parameters currently appear to be sufficient, but may deteriorate over the long term. BB Corporate Rated Index - option adjusted spread to aggregate Treasuries (1 30 yr maturities). The BB Corporate Rated Index is an aggregate index of all outstanding BB non-investment grade corporate bonds with maturities of 1 through 100 years. Issuers with speculative fundamentals. The obligors capacity to meet its future payments is only moderate.

Please refer to important information, disclosures and qualifications at the end of this material.

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FIXED INCOME STRATEGY / FEBRUARY 22, 2013

B Corporate Rated Index - option adjusted spread to aggregate Treasuries (1 30 yr maturities). The B Corporate Rated Index is an aggregate index of all outstanding B non-investment grade corporate bonds with maturities of 1 through 100 years. There is little assurance that the obligor has the capacity to meet its financial obligation. Investors looking for higher returns often explore this category, but are exposed to high risk. CCC Corporate Rated Index option adjusted spread to aggregate Treasuries (1 30 yr maturities). The CCC Corporate Rated Index is an aggregate index of all outstanding CCC non-investment grade corporate bonds with maturities of 1 through 100 years. The obligor may be in default, or at risk of default. The capacity of meeting its future obligations depends upon favorable business conditions. Issues rated in this category are vulnerable and of poor quality. Emerging Market US$ Index option adjusted spread to aggregate Treasuries (1 100 yr maturities). The Emerging Market US$ Index is an aggregate index of outstanding US$ denominated Emerging Market bonds with maturities of 1 through 100 years. S&P 500 - The Standard & Poors 500 Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The index was developed with a base level of 10 for the 1941-43 base period.

Please refer to important information, disclosures and qualifications at the end of this material.

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FIXED INCOME STRATEGY / FEBRUARY 22, 2013

Glossary
Basis Points (BPS) - A short hand reference to 1/100 of 1 percent (.01%). For example, a bond with a yield of 5.50% is 50 basis points higher than a bond yielding 5.00%. Consumer price index (CPI) - measures changes in the price level of consumer goods and services purchased by households. The CPI is defined by the United States Bureau of Labor Statistics as "a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services." Corporate Bond - A debt security issued by a corporation and sold to investors. The backing for the bond is usually the payment ability of the company, which is typically money to be earned from future operations. In some cases, the company's physical assets may be used as collateral for bonds. Corporate bonds are considered higher risk than government bonds. Cost - Includes principal and accrued interest but does not include management or transaction fees. Crude Oil WTI (West Texas Intermediate) Cushing - A crude stream produced in Texas and southern Oklahoma which serves as a reference or "marker" for pricing Coupon - The annual rate of interest payable on an interest bearing security expressed as a percentage of the principal amount. Credit Risk - The risk that the issuer might be unable to pay interest and/or principal on a timely basis. Widely recognized rating agencies, such at Moody's Investors Service and Standard & Poor's offer their assessment of an issuer's creditworthiness. U.S. Treasury securities are considered the 'safest' investment as they are backed by the 'full faith and credit' of the U.S. Government. On the other side of the scale, high yield corporate bonds are considered to have the greatest credit risk. Current Yield - Annual interest rate paid by a bond, expressed as a percentage of it's current market price. It does not reflect the total return over the life of the bond. Dow Jones Industrial Average (DJIA) - The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928. Effective Duration - An option-adjusted measure of a bond's (or portfolio's) sensitivity to changes in interest rates. The figure is calculated as the average percentage change in a bond's value (price + accrued interest) under Treasury curve shifts of +/- 100 basis points. It incorporates the effect of embedded options for corporate bonds and changes in prepayments for mortgaged-backed securities. Estimated Income Per Year - Income is derived from multiplying the coupon of each individual security within the portfolio by its par amount. This figure does not take into consideration future principal pay down or income lost from matured assets. Federal Funds Rate - The federal funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight. Interest Rate Risk - The risk that the market value of securities might rise or fall, primarily due to changes in prevailing interest rates. All fixed income securities are susceptible to fluctuations in interest rates; if interest rates rise, bond prices will fall and vice versa. LIBOR (London Interbank Offered Rate) - LIBOR is the primary benchmark used by banks, securities houses and investors to fix the cost of borrowing in the money, derivatives and capital markets around the world. The rate is based on rates quoted by British Bankers Association contributor banks. Maturity Date - The date on which the principal of a fixed income security becomes due and payable to the security holder. NASDAQ Composite Index - The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market, and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.

Please refer to important information, disclosures and qualifications at the end of this material.

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FIXED INCOME STRATEGY / FEBRUARY 22, 2013

Overnight indexed swap (OIS) - is an interest rate swap where the periodic floating rate of the swap is equal to the geometric average of an overnight index rate over every day of the payment period. The index rate is typically a central bank rate or equivalent, for example the Federal funds rate in the US. Overnight Index Swaps are instruments that allow financial institutions to swap the interest rates they are paying without having to change the terms of contracts in place with other financial institutions. The fixed rate of OIS is typically an interest rate considered less risky than the corresponding interbank rate (LIBOR), because it is based on a central bank rate and only the net difference in interest rates is paid at maturity of the swap so there is limited counterparty risk. Par Amount - Is the amount of money an investor may receive once a bond matures or is called. Perpetual Preferred Securities - A type of preferred stock that has no maturity date. Issuers of perpetual preferred stock typically will have redemption privileges on such shares. The portfolio analytics tool we use to calculate effective duration and yield to maturity defaults to a 50-year maturity for securities that are perpetual in nature. Prime Rate - The prime rate is the rate that banks use to set rates on many consumer loan products. The prime rate will move up or down in lock-step with the federal funds rate. It is the most widely quoted bank measure at which banks will also lend money to their most favored customers Secondary Market Risk - While a secondary market exists for most fixed income securities, there is no guarantee that a secondary market will exist for a particular fixed income security. Furthermore, if a security is sold prior to maturity, the price received may be more or less than face value, or the amount of the original investment. Spot Gold - Spot gold is the price in U.S. dollars for one ounce of gold bullion. Risk Tolerance - Classes include conservative, moderate and aggressive. Conservative investors are those who emphasize principal preservation over return on investment. Moderate investors are those willing to subject a portion of their principal to increased risk in order to generate a greater rate of return. Aggressive investors are those who emphasize return on investment over principal preservation. They are willing to subject a greater portion of their portfolio to risk in anticipation of a greater return on investment. US TIPS Breakeven - The difference in yield between inflation-linked bonds and conventional bonds, also known as the breakeven inflation rate (BEI), is a rough measure of inflation expectations. Breakeven inflation encompasses both the expected inflation rate and the inflation risk premium, two components of nominal yields that on their own are not always easily quantifiable. US Treasury Bill - A short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-bills commonly have maturities of one month, three months, or six months. T-bills are issued through a competitive bidding process at a discount from par, which means that rather than paying fixed interest payments like conventional bonds, the appreciation of the bond provides the return to the holder. US Treasury Bond - A fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest payments semi-annually and interest is only taxed at the federal level. US Treasury Inflation Protected Security (TIPS) - A treasury security that is indexed to inflation. TIPS are backed by the U.S. government and their par value rises with inflation, as measured by the Consumer Price Index, while their interest rate remains fixed. Interest on TIPS is paid semiannually. US Treasury Notes - A U.S. government debt security with a fixed interest rate and a maturity between one and 10 years. Treasury notes make interest payments semi-annually and interest is only taxed at the federal level. Weighted Average Coupon - The average coupon weighed in proportion to the market value of the individual securities within the portfolio. Yield To Maturity - The yield of a bond if an investor were to buy and hold it until its maturity date. This yield factors in the purchase price, the interest one is set to receive, and the length of time to maturity. Yield To Worst - The lower of yield to maturity and yield to the date of the worst call. The lowest potential yield that can be received on a bond without the issuer actually defaulting.

Please refer to important information, disclosures and qualifications at the end of this material.

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FIXED INCOME STRATEGY / FEBRUARY 22, 2013

Fixed Income Risk Considerations


Call Risk - Some securities may be callable. If the security is called, the investor bears the risk of reinvesting the proceeds at a lower rate of return. Credit Risk - The risk that the issuer might be unable to pay interest and/or principal on a timely basis. Widely recognized rating agencies, such as Moody's Investor Services and Standard & Poors, offer their assessment of an issuers creditworthiness. U.S. Treasury securities are considered the safest investment as they are backed by the full faith and credit of the U.S. Government. On the other end of the scale, high yield corporate bonds are considered to have the greatest credit risk. Interest Rate Risk The risk that the market value of securities might rise or fall, primarily due to changes in prevailing interest rates. All fixed income securities are susceptible to fluctuations in interest rates; generally, if interest rates rise, bond prices will fall, and vice versa. Prepayment Risk - In a CMO or MBS, the risk that an investor's principal will be returned sooner than originally expected, due to principal prepayments made by homeowners on the underlying mortgage loans. Reinvestment Risk - The risk that the income stream from the investment may be reinvested at a lower interest rate. This risk is especially evident during periods of falling interest rates where coupon payments are reinvested at a lower rate than the current instrument. Secondary Market Risk - While a secondary market exists for most fixed income securities, there is no guarantee that a secondary market will exist for a particular fixed income security. Furthermore, if a security is sold prior to maturity, the price received may be more or less than face value, or the amount of the original investment. Index data is based on index total return - Fixed income securities, including municipal bonds, are subject to certain risks including interest rate risk, credit risk, reinvestment and valuation risks. The value of fixed income securities will fluctuate and, upon a sale, may be worth more or less than their original cost or maturity value. Investing in foreign markets entails greater risks than those normally associated with domestic markets, such as political, currency, economic and market risks. Information provided herein has been obtained from outside sources that are deemed to be reliable. However, Morgan Stanley Wealth Management has not independently verified them and we make no guarantees, express or implied, as to their accuracy or completeness or as to whether they are current. Past performance is not a guarantee of future performance. The indices are unmanaged and are shown for illustrative purposes only and do not represent the performance of any specific investment. Investors cannot invest directly in an index.

Please refer to important information, disclosures and qualifications at the end of this material.

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FIXED INCOME STRATEGY / FEBRUARY 22, 2013

Disclosures
This material has been prepared for informational purposes only and is not an offer to buy or sell or a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. This is not a research report and was not prepared by the Research Departments of Morgan Stanley & Co. LLC or Citigroup Global Markets Inc. The views and opinions contained in this material are those of the author(s) and may differ materially from the views and opinions of others at Morgan Stanley Smith Barney LLC or any of its affiliate companies. Past performance is not necessarily a guide to future performance. The author(s) (if any authors are noted) principally responsible for the preparation of this material receive compensation based upon various factors, including quality and accuracy of their work, firm revenues (including trading and capital markets revenues), client feedback and competitive factors. Morgan Stanley Smith Barney is involved in many businesses that may relate to companies, securities or instruments mentioned in this material. This material has been prepared for informational purposes only and is not an offer to buy or sell or a solicitation of any offer to buy or sell any security/instrument, or to participate in any trading strategy. Any such offer would be made only after a prospective investor had completed its own independent investigation of the securities, instruments or transactions, and received all information it required to make its own investment decision, including, where applicable, a review of any offering circular or memorandum describing such security or instrument. That information would contain material information not contained herein and to which prospective participants are referred. This material is based on public information as of the specified date, and may be stale thereafter. We have no obligation to tell you when information herein may change. We make no representation or warranty with respect to the accuracy or completeness of this material. Morgan Stanley Smith Barney has no obligation to provide updated information on the securities/instruments mentioned herein. The securities/instruments discussed in this material may not be suitable for all investors. The appropriateness of a particular investment or strategy will depend on an investors individual circumstances and objectives. Morgan Stanley Smith Barney recommends that investors independently evaluate specific investments and strategies, and encourages investors to seek the advice of a financial advisor. The value of and income from investments may vary because of changes in interest rates, foreign exchange rates, default rates, prepayment rates, securities/instruments prices, market indexes, operational or financial conditions of companies and other issuers or other factors. Estimates of future performance are based on assumptions that may not be realized. Actual events may differ from those assumed and changes to any assumptions may have a material impact on any projections or estimates. Other events not taken into account may occur and may significantly affect the projections or estimates. Certain assumptions may have been made for modeling purposes only to simplify the presentation and/or calculation of any projections or estimates, and Morgan Stanley Smith Barney does not represent that any such assumptions will reflect actual future events. Accordingly, there can be no assurance that estimated returns or projections will be realized or that actual returns or performance results will not materially differ from those estimated herein. This material should not be viewed as advice or recommendations with respect to asset allocation or any particular investment. This information is not intended to, and should not, form a primary basis for any investment decisions that you may make. Morgan Stanley Smith Barney is not acting as a fiduciary under either the Employee Retirement Income Security Act of 1974, as amended or under section 4975 of the Internal Revenue Code of 1986 as amended in providing this material. Morgan Stanley Smith Barney and its affiliates do not render advice on tax and tax accounting matters to clients. This material was not intended or written to be used, and it cannot be used or relied upon by any recipient, for any purpose, including the purpose of avoiding penalties that may be imposed on the taxpayer under U.S. federal tax laws. Each client should consult his/her personal tax and/or legal advisor to learn about any potential tax or other implications that may result from acting on a particular recommendation. International investing entails greater risk, as well as greater potential rewards compared to U.S. investing. These risks include political and economic uncertainties of foreign countries as well as the risk of currency fluctuations. These risks are magnified in countries with emerging markets, since these countries may have relatively unstable governments and less established markets and economies. Investing in commodities entails significant risks. Commodity prices may be affected by a variety of factors at any time, including but not limited to, (i) changes in supply and demand relationships, (ii) governmental programs and policies, (iii) national and international political and economic events, war and terrorist events, (iv) changes in interest and exchange rates, (v) trading activities in commodities and related contracts, (vi) pestilence, technological change and weather, and (vii) the price volatility of a commodity. In addition, the commodities markets are subject to temporary distortions or other disruptions due to various factors, including lack of liquidity, participation of speculators and government intervention. Bonds are subject to interest rate risk. When interest rates rise, bond prices fall; generally the longer a bond's maturity, the more sensitive it is to this risk. Bonds may also be subject to call risk, which is the risk that the issuer will redeem the debt at its option, fully or partially, before the scheduled maturity date. The market value of debt instruments may fluctuate, and proceeds from sales prior to maturity may be more or less than the amount originally invested or the maturity value due to changes in market conditions or changes in the credit quality of the issuer. Bonds are subject to the credit risk of the issuer. This is the risk that the issuer might be unable to make interest and/or principal payments on a timely basis. Bonds are also subject to reinvestment risk, which is the risk that principal and/or interest payments from a given investment may be reinvested at a lower interest rate. Bonds rated below investment grade may have speculative characteristics and present significant risks beyond those of other securities, including greater credit risk and price volatility in the secondary market. Investors should be careful to consider these risks alongside their individual circumstances, objectives and risk tolerance before investing in high-yield bonds. High yield bonds should comprise only a limited portion of a balanced portfolio. Treasury Inflation Protection Securities (TIPS) coupon payments and underlying principal are automatically increased to compensate for inflation by tracking the consumer price index (CPI). While the real rate of return is guaranteed, TIPS tend to offer a low return. Because the return of TIPS is linked to inflation, TIPS may significantly underperform versus conventional U.S. Treasuries in times of low inflation. Equity securities may fluctuate in response to news on companies, industries, market conditions and general economic environment. Asset allocation and diversification do not assure a profit or protect against loss in declining financial markets. The indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. The indices selected by Morgan Stanley Smith Barney to measure performance are representative of broad asset classes. Morgan Stanley Smith Barney retains the right to change representative indices at any time. Because of their narrow focus, sector investments tend to be more volatile than investments that diversify across many sectors and companies.

Please refer to important information, disclosures and qualifications at the end of this material.

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FIXED INCOME STRATEGY / FEBRUARY 22, 2013

CDs are insured by the FDIC, an independent agency of the U.S. Government, up to a maximum amount of $250,000 (including principal and interest) for all deposits held in the same insurable capacity (e.g. individual account, joint account) per CD depository, through December 31, 2013. On January 1, 2014, the maximum insurable amount will return to $100,000 (including principal and interest) for all insurable capacities except IRAs and certain self-directed retirement accounts, which will remain at $250,000 per depository. Investors are responsible for monitoring the total amount held with each CD depository. All deposits at a single depository held in the same insurable capacity will be aggregated for purposes of the applicable FDIC insurance limit, including deposits (such as bank accounts) maintained directly with the depository and CDs of the depository held through Morgan Stanley Smith Barney. A secondary market in CDs may be limited. CDs sold prior to maturity are subject to market risk and therefore investors may receive more or less than the amount invested or the face value. Callable CDs are callable at the sole discretion of the issuer. For more information about FDIC insurance, please visit the FDIC website at www.fdic.gov. Contingent return (e.g. index-linked) CDs are treated as having original issue discount (OID) for tax purposes. Although interest is not received until maturity, the CD is assumed to pay a pre-determined interest rate that will be treated as current income for tax purposes if held in a taxable account. Investors should be made aware that contingent return CDs generally feature an averaging method of return calculation, which averages the changes in value of the relevant index as measured on predetermined dates over the life of the CD. Therefore, the CDs return will not mirror the actual index value or return. If the measured index return using the averaging method is zero or negative, the investor receives no interest. Some contingent return CDs also have a participation rate (the degree to which an investor participates in the measured return of the index) that is less than 100%. Interest on contingent return CDs is not eligible for FDIC insurance before the final valuation date. Principal is returned on a monthly basis over the life of a mortgage-backed security. Principal prepayment can significantly affect the monthly income stream and the maturity of any type of MBS, including standard MBS, CMOs and Lottery Bonds. Yields and average lives are estimated based on prepayment assumptions and are subject to change based on actual prepayment of the mortgages in the underlying pools. The level of predictability of an MBS/CMOs average life, and its market price, depends on the type of MBS/CMO class purchased and interest rate movements. In general, as interest rates fall, prepayment speeds are likely to increase, thus shortening the MBS/CMOs average life and likely causing its market price to rise. Conversely, as interest rates rise, prepayment speeds are likely to decrease, thus lengthening average life and likely causing the MBS/CMOs market price to fall. Some MBS/CMOs may have original issue discount (OID). OID occurs if the MBS/CMOs original issue price is below its stated redemption price at maturity, and results in imputed interest that must be reported annually for tax purposes, resulting in a tax liability even though interest was not received. Investors are urged to consult their tax advisors for more information. Interest income from taxable zero coupon bonds is subject to annual taxation as ordinary income even though no interest payments will be received by the investor if held in a taxable account. Zero coupon bonds may also experience greater price volatility than interest bearing fixed income securities because of their comparatively longer duration. Investing in foreign emerging markets entails greater risks than those normally associated with domestic markets, such as political, currency, economic and market risks. The majority of $25 and $1000 par preferred securities are callable meaning that the issuer may retire the securities at specific prices and dates prior to maturity. Interest/dividend payments on certain preferred issues may be deferred by the issuer for periods of up to 5 to 10 years, depending on the particular issue. The investor would still have income tax liability even though payments would not have been received. Price quoted is per $25 or $1,000 share, unless otherwise specified. Current yield is calculated by multiplying the coupon by par value divided by the market price. The initial rate on a floating rate or index-linked preferred security may be lower than that of a fixed-rate security of the same maturity because investors expect to receive additional income due to future increases in the floating/linked index. However, there can be no assurance that these increases will occur. Some $25 or $1000 par preferred securities are QDI (Qualified Dividend Income) eligible. Information on QDI eligibility is obtained from third party sources. The dividend income on QDI eligible preferreds qualifies for a reduced tax rate. Many traditional dividend paying perpetual preferred securities (traditional preferreds with no maturity date) are QDI eligible. In order to qualify for the preferential tax treatment all qualifying preferred securities must be held by investors for a minimum period 91 days during a 180 day window period, beginning 90 days before the ex-dividend date. Credit ratings are subject to change. This material is disseminated in Australia to retail clients within the meaning of the Australian Corporations Act by Morgan Stanley Smith Barney Australia Pty Ltd (A.B.N. 19 009 145 555, holder of Australian financial services license No. 240813). Morgan Stanley Smith Barney is not incorporated under the People's Republic of China ("PRC") law and the research in relation to this report is conducted outside the PRC. This report will be distributed only upon request of a specific recipient. This report does not constitute an offer to sell or the solicitation of an offer to buy any securities in the PRC. PRC investors must have the relevant qualifications to invest in such securities and must be responsible for obtaining all relevant approvals, licenses, verifications and or registrations from PRC's relevant governmental authorities. 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Please refer to important information, disclosures and qualifications at the end of this material.

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