Euro Bond Fund

NOT FOR DISTRIBUTION OR USE WITH HONG KONG GENERAL PUBLIC Morgan Stanley Investment Funds Euro Bond Fund

GLOBAL FIXED INCOME TEAM | MONTHLY COMMENTARY | 31 AUGUST 2021

Performance Review In the one month period ending 31 August 2021, the Fund’s I shares returned -0.31% (net of fees)1, while the benchmark returned -0.50%. Overall, the Fund’s allocation to credit had a small positive impact this month. European investment grade credit spreads were wider across the risk spectrum in August. The allocation to government-related bonds had a positive impact on performance. Interest rate and currency positioning had a neutral impact on performance. Positioning within European government bonds had a negative impact on performance this month, driven by the overweight to Austria. M arket Review Credit spreads moved slightly wider in Europe and the U.S. over the month. Risk-free yields moved higher globally, with the 10- year government bonds marginally underperforming. The main fundamental news in August was the increase in cases of the delta variant causing economic data to plateau and expectations for the economic reopening and a macro rebound to be dialled back. Secondly, market expectations for the U.S. Federal Reserve’s Jackson Hole Economic Symposium were for guidance on the tapering of policy with the potential to reduce easy financial conditions, while it actually messaged for a dovish taper that markets viewed as supportive of economic growth and risk assets. Sector and corporate news in the month was limited post the strong second quarter reporting. Merger and acquisition activity and cost inflation were the two dominant focus points for corporates in a quiet summer month. Equity market strength with lower volatility supported credit markets broadly. Supply in Europe saw €28 billion of issuance in August, which was heavily weighted to the last 10 days of the month as investors returned from holidays. Low yields and tight credit spreads encouraged issuers to take advantage, with financials issuing €18.5 billion, notably weighing on secondary spreads. In the U.S., new issues amounted to approximately $109 billion, with volumes mostly taking place during the first half of the month. The Bloomberg U.S. Corporate Index closed 1 basis point (bp) wider to end the month at 87 bps over government bonds. Utilities (+3 bps) underperformed versus industrials and financials. The Bloomberg European Aggregate Corporate Index also widened 1 bp, finishing the month at 84 bps. Across the curve, longer-dated paper (10 years and longer) underperformed versus shorter maturities. P ortfolio Activity There were no material changes in overall credit positioning of the portfolio. S trategy and Outlook Strategy: In the portfolio, we continue our overweight position to credit risk, as we remain constructive on credit from a fundamentals perspective, while recognising valuations are full. We therefore prefer to take this position through default risk (duration times spread) rather than general market beta (spread duration). We remain biased towards financials over non-financials. Financials continue to present strong fundamentals and attractive valuations relative to non-financial credits. We remain underweight industrials on concerns over continued downward ratings migration into BBBs, increased merger and acquisition risk, shareholder-interest focused activity (dividends and buybacks),

1 Source: Morgan Stanley Investment Management Limited. Data as of 31 August 2021.

This document constitutes a commentary and does not constitute investment advice nor a recommendation to invest. The value of investments may rise as well as fall. Independent advice should be sought before any decision to invest. technological disruption and increasing idiosyncratic news. We thematically prefer regulated business models over unregulated (i.e., utilities) to hedge these risks. We also remain selective in off-benchmark holdings of high yield and convertible bonds. In terms of interest rate risk, we remain underweight in duration terms. We also continue to look for new issues to take advantage of new opportunities in the primary market, amid a market context of rich valuations. Outlook: We remain fundamentally constructive on credit, and although valuations look fully priced, we expect spreads to consolidate at these levels. Valuations will likely be supported by expectations for financial conditions to remain easy, which will support the continued rebound in economic activity and low corporate default rates. We expect corporates to maintain profitability, with conservative balance sheet strategies as overall macro uncertainty remains high. Finally, there is likely continued demand for credit in general, as risk-free assets offer negative real and absolute yields, and excess liquidity looks to be invested. For further information, please contact your Morgan Stanley Investment Management representative.

FUND FACTS Launch date Base currency Index 01 December 1998 Euro Blended Benchmark

12 Month Performance Periods to Latest Month End (%) AUGUST '20 AUGUST '19 AUGUST '18 AUGUST '17 AUGUST '16 - AUGUST '21 - AUGUST '20 - AUGUST '19 - AUGUST '18 - AUGUST '17 MS INVF Euro Bond Fund - I Shares 0.57 -0.93 9.30 -0.17 -1.06 Blended Benchmark 0.06 -1.51 8.49 0.51 -1.97 Past performance is not a reliable indicator of future results. Returns may increase or decrease as a result of currency fluctuations. All performance data is calculated NAV to NAV, net of fees, and does not take account of commissions and costs incurred on the issue and redemption of units. The sources for all performance and Index data is Morgan Stanley Investment Management. Please visit our website www.morganstanley.com/im to see the latest performance returns for the fund’s other share classes.

Share Class I Risk and Reward Profile Issuers may not be able to repay their debts, if this happens the value of your investment will decrease. This Lower Risk Higher Risk risk is higher where the fund invests in a bond with a lower credit rating. The fund relies on other parties to fulfill certain services, Potentially Lower Potentially Higher investments or transactions. If these parties become Rewards Rewards insolvent, it may expose the fund to financial loss. The risk and reward category shown is based on historic data. There may be an insufficient number of buyers or sellers which may affect the funds ability to buy or sell securities. Historic figures are only a guide and may not be a reliable indicator of what may happen in the future. Past performance is not a reliable indicator of future results. Returns may increase or decrease as a result of As such this category may change in the future. currency fluctuations. The value of investments and the The higher the category, the greater the potential reward, income from them can go down as well as up and but also the greater the risk of losing the investment. investors may lose all or a substantial portion of his or her Category 1 does not indicate a risk free investment. investment. The fund is in this category because it invests in fixed The value of the investments and the income from them income securities and the fund's simulated and/or realised will vary and there can be no assurance that the Fund will return has experienced medium rises and falls historically. achieve its investment objectives. The fund may be impacted by movements in the exchange Investments may be in a variety of currencies and therefore rates between the fund's currency and the currencies of changes in rates of exchange between currencies may the fund's investments. cause the value of investments to decrease or increase. This rating does not take into account other risk factors Furthermore, the value of investments may be adversely which should be considered before investing, these include: affected by fluctuations in exchange rates between the The value of bonds are likely to decrease if interest rates investor’s reference currency and the base currency of the rise and vice versa. investments. The value of financial derivative instruments are highly sensitive and may result in losses in excess of the amount Please refer to the Prospectus for full risk disclosures. All invested by the Sub-Fund. data as of 31 August 2021 and subject to change daily. EU Cross Border Distribution of Funds Important with a maturity of 1 year and above are eligible. Disclosure DISTRIBUTION This is a marketing communication. Applications for shares in This communication is only intended for and will only be the Fund should not be made without first consulting the distributed to persons resident in jurisdictions where such current Prospectus and the Key Investor Information distribution or availability would not be contrary to local Document (“KIID”), which are available in English and in the laws or regulations. In particular, the Shares are not for official language of your local jurisdiction at distribution to US persons. morganstanleyinvestmentfunds.com or free of charge from the Registered Office of Morgan Stanley Investment Funds, Ireland: MSIM Fund Management (Ireland) Limited. European Bank and Business Centre, 6B route de Trèves, L- Registered Office: The Observatory, 7-11 Sir John Rogerson's 2633 Senningerberg, R.C.S. Luxemburg B 29 192. A summary Quay, Dublin 2, D02 VC42, Ireland. 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The Blended Index performance shown is calculated using the Dubai: Morgan Stanley Investment Management Limited MSCI Euro Debt Index from inception through 30 April (Representative Office, Unit Precinct 3-7th Floor-Unit 701 2007, the Euro-Aggregate Index to 31 December 2014 and and 702, Level 7, Gate Precinct Building 3, Dubai the Bloomberg Euro-Aggregate A- or Better Index International Financial Centre, Dubai, 506501, United Arab thereafter. Emirates. Telephone: +97 (0)14 709 7158). Germany: MSIM The Bloomberg Euro Aggregate Bond index is a broad- Fund Management (Ireland) Limited Niederlassung based flagship benchmark that measures the investment Deutschland, Grosse Gallusstrasse 18, 60312 Frankfurt am grade, euro-denominated, fixed-rate bond market, including Main, Germany (Gattung: Zweigniederlassung (FDI) gem. § treasuries, government-related, corporate and securitized 53b KWG). Italy: MSIM Fund Management (Ireland)Limited, issues. Inclusion is based on currency denomination of a bond Milan Branch (Sede Secondaria di Milano) is a branch of and not a country of risk of the issuer. The Euro Aggregate is MSIM Fund Management (Ireland) Limited, a company a component of other flagship indices, such as the multi- registered in Ireland, regulated by the Central Bank of currency Global Aggregate index and Pan-European Aggregate Ireland and whose registered office is at The Observatory, Index. 7-11 Sir John Rogerson's Quay, Dublin 2, D02 VC42, Ireland. MSIM Fund Management (Ireland) Limited Milan Branch The MSCI Euro Debt Index is a broad-based benchmark for (Sede Secondaria di Milano) with seat in Palazzo Serbelloni the sovereign and credit bond markets. It includes fixed rate Corso Venezia, 16 20121 Milano, Italy, is registered in Italy debt denominated in the euro, or the various European with company number and VAT number 11488280964. The Economic and Monetary Union (EMU) currencies, and rates as Netherlands: MSIM Fund Management (Ireland) Limited, investment grade. Rembrandt Tower, 11th Floor Amstelplein 1 1096HA, The Bloomberg Euro Aggregate A- or Better Index is a Netherlands. Telephone: 31 2-0462-1300. Morgan Stanley benchmark that measures the investment grade, euro- Investment Management is a branch office of MSIM Fund denominated, fixed- rate bond market, including treasuries, Management (Ireland) Limited. MSIM Fund Management government-related, corporate and securitized issues. (Ireland) Limited is regulated by the Central Bank of Ireland. Inclusion is based on currency denomination of a bond and France: MSIM Fund Management (Ireland) Limited, Paris not country of risk of the issuer. Only bonds with a credit Branch is a branch of MSIM Fund Management (Ireland) rating of A- or better are included. 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