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Consulting Group Capabilities

The Biederman Group at Morgan Stanley

Dan Biederman, CIMA® – Senior Vice President, Senior Investment Management Consultant

Blake Bainou – Financial Advisor

Jeannie Balmes – Portfolio Associate

Elaine Hughes Connelly – Senior Client Service Associate

May 2014

2 CONSULTING GROUP CAPABILITIES

One of the nation’s most experienced investment consultants

Provides investment consulting to over $695 billion in client assets in advisory programs1

• Foundations and endowments

• Family offices and private individuals

• Retirement plans

• State and local government funds

Proprietary manager research process

• Research and evaluate investment managers and products

• Evaluate using both quantitative and qualitative criteria

• Proprietary database with over 7,700 investment products screened, representing more than 1,100 monitored on an ongoing basis

• Quarterly performance attribution on selected investment products

• Provide ongoing performance and portfolio analysis

270+ Consulting Group professional staff2

Consulting Group

1. Cerulli Associates. 4Q 2013 Summary, Managed Account Research. Please see the disclosures at the end of this presentation for additional information. 2. As of May 20, 2013.


EXPERIENCE Consulting Group has been assisting individual and institutional investors since 1973

COLLABORATION We strive to be academically inquisitive and share our intellectual capital with our colleagues and clients

INTEGRITY We commit to the highest standards of ethical behavior and seek to avoid potential conflicts of interest

TRANSPARENCY We use asset-based fees to cover our consulting services

RESOURCES We maintain individual competence through training, education and by leveraging the resources of Morgan Stanley

Why Consulting Group?


Consulting Group Leads the Pack

TOP MANAGED ACCOUNT PROGRAM SPONSORS ACROSS ALL INDUSTRY SEGMENTS First Quarter 2013

Source: Consulting Group, based on Cerulli Associates 1Q 2013 Summary, Managed Account Research. Please see Important Disclosures at the end of this presentation for additional information about the Cerulli Associates report.

The managed account programs at Morgan Stanley’s Consulting Group leads the industry in assets under management.

Morgan Stanley Wealth Management

20.3%


A leading presence for investment advice

#1 Managed Account Program Sponsor Across All Industry Segments by assets

#1 Rep-as-Portfolio-Manager program by assets

#1 Unified Managed Account (UMA) program by assets

#2 Rep-as-Advisor program by assets

#2 by number of defined benefit plan clients2

#2 by number of foundation and endowment clients2

#1 Separately Managed Account (SMA) manager due diligence3

Consulting Group National Recognition1

1. Unless otherwise noted, the source for these statistics is Cerulli Associates, 1Q 2013 Summary, Managed Account Research. Please see the Important Disclosures at the end of this presentation for additional information.

2. Plan Sponsor Magazine, 2011 Consultants Survey 3. FundFire Survey, February 11, 2011


• In-depth review of investment objectives

• Personalized asset allocation advice

• Assistance in investment manager evaluation and selection

• Periodic review of performance against benchmarks

• Ongoing evaluation of investment managers

Consulting Group Services

• Regular economic and market analysis and advice

• Quarterly economic analysis and market commentary

• Extensive analytic tools

• Rebalancing advice and other portfolio optimization strategies

• Personalized local service and support from your Financial Advisor


• Investment decisions made today could shape the rest of an investor’s life

• Long-term investing is one of the keys to financial success

• Today’s financial markets are both highly complex and fast-paced, with tens of thousands of investment options available – uncertainty rules

• Investors can be their own worst enemies when making investment decisions

Why Professional Investment Management?


The Investor Experience

Indexes are unmanaged and not available for direct investment. Index returns consist of income and capital appreciation (or depreciation) and do not take into account fees, taxes or other charges. Such fees and charges would reduce performance. See the Index Glossary at the end of this presentation for index definitions and other information. Past performance is no guarantee of future results. Source: Dalbar Associates 2013 Quantitative Analysis of Investor Behavior and Consulting Group

• Equity Mutual Fund Investors = Dalbar Associates Estimate

• Bonds = BC Aggregate Bond Index

• Inflation = Consumer Price Index

• T-Bills = 90-Day Treasury Bill

• Stocks = S&P 500 Index

Investing without professional advice may not lead to the investment returns that individual investors hope to achieve.

Annual Returns (1993 – 2012)


OVERCONFIDENCE Investor assumes that he or she knows more than he or she does; can lead to aggressive trading

MENTAL ACCOUNTING Investor divides wealth into arbitrary, uncoordinated “pots” and makes decisions accordingly

ANCHORING Investor fixates on certain price levels – such as the price paid for a particular stock

FRAMING Investor makes decisions based on how choices are presented to him or her

EXCESSIVE LOSS AVERSION Investor puts more importance on avoiding losses than the potential for making gains

Sources of Common Investment Errors


Importance of Asset Allocation

1. Roger G. Ibbotson. “Does Asset Allocation Policy Explain 10, 90 or 100 Percent of Performance?” Financial Analyst Journal, January/February 2000; Brinson, Singer and Beebower. “Determination of Performance II: An Update,” Financial Analyst Journal, May/June 1991. Based on US pension-fund data from 1977 to 1987.

Note: Studies that employ different statistical interpretations produce different results. Real results may vary. Asset allocation does not assure a profit or protect against loss.

SOURCES OF PORTFOLIO PERFORMANCE1 Asset allocation strategy is one of the most important factors affecting the variability of investment returns.

11 DIVERSIFICATION

Effective Diversification

• Covers a range of major asset classes

• Bases model allocations on expected risks and returns

• Combines asset classes that have different risk and return characteristics

• Looks at both past performance and the outlook for future market conditions

12 DIVERSIFICATION

Asset Class Performance From 2003–2013

It is hard to predict which asset classes will outperform from year to year. Asset allocation and diversification may help investors take advantage of asset classes that are doing well and help diminish the effects of those that are per- forming poorly. An appropriately diversified portfolio has the potential to increase overall returns while reducing volatility.

Indexes are unmanaged and are not available for direct investment. Index returns consist of income and capital appreciation (or depreciation) and do not take into account fees, taxes or other charges. Such fees and charges would reduce performance. Diversification does not assure a profit or protect against loss. Past performance is no guarantee of future results. Source: Consulting Group

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Emerging Markets 56.3%





Non-US Bonds 10.1%


Small Cap Growth 29.1%

Investment Grade Bonds 7.8%

Mid Cap Value 18.5%



Mid Cap Value 23.7%

International Equity 13.5%


Large Cap Growth 11.8%


High Yield 58.2%

Mid Cap Growth 26.4%

High Yield 5.0%



Small Cap Value 46.0%


Mid Cap Value 12.6%



Treasury Bills 1.3%


Mid Cap Value 24.8%

Non-US Bonds 4.1%






Large Cap Value 22.3%


High Yield -26.2%









Mid Cap Value 20.2%


Small Cap Value -28.9%

Mid Cap Value 34.2%


Large Cap Core 2.1%


Mid Cap Value 33.5%

Mid Cap Value 38.1%



Large Cap Core 15.8%


Large Cap Value -36.9%








Large Cap Core 4.9%


Large Cap Core 5.5%

Large Cap Core -37.0%



Treasury Bills 0.1%

High Yield 15.8%



Non-US Bonds 12.1%


High Yield 11.9%

Non-US Bonds 4.9%

Large Cap Growth -38.4%


High Yield 15.5%

Mid Cap Value -1.4%



High Yield 29.0%

High Yield 11.1%



Treasury Bills 4.4%

Mid Cap Value -38.4%



Mid Cap Growth -1.7%


High Yield 7.4%



Treasury Bills 3.3%


High Yield 1.9%

Small Cap Growth -38.5%



Small Cap Growth -2.9%


Non-US Bond 1.4%

Non-US Bonds 18.5%


High Yield 2.7%

Treasury Bills 4.7%

Large Cap Value -0.2%

International Equity -43.4%




Non-US Bond 5.5%

Treasury Bills 0.05%





Mid Cap Value -1.4%

Mid Cap Growth -44.3%

Non-US Bonds 4.4%

Non-US Bonds 3.4%

International Equity -13.8%


Investment Grade Bonds -2.0%

Treasury Bills 1.0%

Treasury Bills 1.4%

Non-US Bonds -9.2%

Non-US Bonds 3.1%


Emerging Markets -53.2%

Treasury Bills 0.2%

Treasury Bills 0.1%


Treasury Bills 0.1%


HIG

HE

R P

ER

FO

RM

ING

LO

WE

R P

ER

FO

RM

ING

As this “quilt chart” shows, asset class performance can vary significantly from year to year.

Russell Midcap Value

MSCI Emerging Markets

Russell 2000 Value

Russell 1000 Value

MSCI EAFE

S&P 500 Index

BC US High Yield

Russell Midcap Growth

Russell 1000 Growth

Russell 2000 Growth

Citigroup Non-US Gov’t

BC Aggregate Bond

90-Day Treasury Bills

13 DIVERSIFICATION

Risk and Return

Various asset classes tend to have different risk and return characteristics relative to one another. Typically, the higher the expected risk, the higher the expected return for an asset class, and the lower the risk, the lower the expected return.

The above is presented for illustration purposes only and in no way is intended to predict or guarantee the future performance of any particular asset class. Past performance is no guarantee of future results. Source: Consulting Group

Increasing Risk

Small Cap US Stocks International Stocks

Large Cap US Stocks

High Yield Bonds

Intermediate Bonds

T Bills

Incr

easi

ng

Ret

urn

14 DIVERSIFICATION

Correlation and Volatility (SAMPLE)

For illustration purposes only. The above charts do not represent any specific index or asset class. Actual results will vary. Diversification does not assure a profit or protect against loss. Source: Consulting Group

Performance for asset classes A and B are volatile

but uncorrelated

15 DIVERSIFICATION

Correlation and Volatility (SAMPLE)

For illustration purposes only. The above charts do not represent any specific index or asset class. Actual results will vary. Diversification does not assure a profit or protect against loss. Source: Consulting Group

Combining asset classes with lower correlations may reduce volatility over time.


DEFINE INVESTMENT STRATEGY

Based on your investment policy, your Financial Advisor recommends an asset allocation strategy designed to provide proper diversification.

The Consulting Group Investment Process

EVALUATE & SELECT NVESTMENTS

Your Financial Advisor works with you to help identify the investment product(s) that may be most appropriate given your asset allocation strategy.

4

SET FINANCIAL OBJECTIVES

Your Financial Advisor helps you develop an investment policy based on your goals, time horizon and risk tolerance.

1

3

2

ONGOING REVIEW PROCESS

Your Financial Advisor consults with you periodically to determine whether short- or long-term changes are needed in the asset allocation strategy or investment products in your portfolio.


ASSET ALLOCATION The work of the Morgan Stanley Wealth Management Global Investment Committee acts as the basis for Consulting Group’s wide range of asset allocation models.

• In addition to customized asset allocation, Consulting Group offers tactical and strategic asset allocation models diversified across asset classes and investment styles, from conservative to aggressive, for both taxable and nontaxable investors

INVESTMENT PRODUCTS Consulting Group Investment Advisor Research provides comprehensive evaluation and due diligence on more than 1,100 investment products. • Separately managed accounts • Mutual funds • Exchange-traded funds • Alternative investments1

PORTFOLIO CONSTRUCTION Guidance on portfolio construction, risk management, overlay portfolio management, asset transitions, tax management and other subjects is available.

INVESTMENT ADVISORY PROGRAMS Consulting Group’s programs cover a broad range of discretionary and non-discretionary options and many types of investment products.

Consulting Group Cornerstones

1. Alternative investments are not suitable for all investors. Please see the Important Disclosures at the end of this presentation for more information on the alternative strategies available in Consulting Group programs.


Consists of seasoned investment professionals from Morgan Stanley with deep levels of expertise spanning the global spectrum of asset classes, instruments and investment techniques.

Dynamic asset allocation analysis from the Global Investment Committee may provide:

• Ability to take advantage of the best investment ideas from one of the world’s preeminent investment organizations

• Stability of a long-term investment strategy coupled with the potential to benefit from compelling near-term opportunities

• Cutting-edge, proprietary approach to incorporating alternative investments in qualifying portfolios

• Published monthly investment strategy newsletters, quarterly capital markets materials and ongoing thematic reports

The Global Investment Committee (GIC)


• Global Investment Committee: 5 senior investment professionals

1

• Strategic and tactical asset allocation models for clients with different levels of investable assets

• Regular review of asset allocation recommendations, with periodic adjustments as needed

• Ability to tailor recommendations to meet clients’ needs

The Global Investment Committee

1. As of April 16, 2013


Historical relationships between asset classes help determine the relative weights with what we believe to have the most potential to maximize returns for given levels of portfolio risk

Typically Reviewed Annually Time Horizon: 7 years

Strategic vs. Tactical: Asset Allocation Advice

Strategic Allocation Advice

For illustration purposes only. Actual results may differ from forecast returns. When an asset class is over-weighted, other asset classes are underweighted by a compensating percentage so that the total allocation remains 100%. Change in market risk can also result in strategic and tactical changes. Source: Consulting Group

The Global Investment Committee at Morgan Stanley formulates short- and long-term economic forecasts, financial and real-asset market outlooks, and recommends asset allocations. This work acts as the basis of a series of strategic and tactical asset allocation models from Consulting Group.

Tactical Allocation Advice

Further adjustments are made based on short-term insights from the Global Investment Committee

Reviewed Continuously Time Horizon: 6 - 12 months

Tactical Underweight Strategic

Overweight


• We seek to offer clients a diverse selection of independent, third-party investment managers and products who meet or exceed our quality standards

• We seek to provide practical, actionable advice that will enable clients to select appropriate managers and effectively monitor their on-going performance

• Where appropriate, we seek to help clients take advantage of shorter-term market trends that may favor specific managers or strategies

Consulting Group Investment Advisor Research

INFORMATION

ANALYSIS

RECOMMENDATIONS

ADVICE


Manager Research Fundamentals

Consulting Group Investment Advisor Research evaluates asset managers and investment products on a number of key characteristics.

PERSONNEL AND FIRM

• Credentials and expertise of key professionals

• Ownership Structure

• Compensation and / or incentives for key professionals

• Personnel turnover

• Depth of experience and history of success

INVESTMENT PROCESS AND IMPLEMENTATION

• Idea generation

• Portfolio construction methodology

• Sector and / or industry concentration or exposure

• Volatility guidelines and other constraints

• Style consistency

RESEARCH CAPABILITIES

• Depth of research analysts

• Industry expertise

• Databases, technology and analytical tools

• Number of companies covered

BUSINESS OPERATIONS

• Assets under management

• Growth or stability of personnel

• Legal or regulatory issues

• Other business and management results and strategies


FOCUS LIST Meets Qualitative and Quantitative Standards.

Three Robust Manager Research Lists

APPROVED LIST Higher level of research conviction. Based on expected long-term performance.

TACTICAL OPPORTUNITIES LIST Based on expected short-term performance.


Key Benefits of Our Manager Research Lists

APPROVED LIST

• Responsive to client needs and industry trends

• Information on a broad universe of investment managers and products

• Gives Financial Advisors and clients greater flexibility in portfolio construction

FOCUS LIST

• Higher advice content

• Explicit focus on identifying potential to add value over time

• Intensive due diligence process, generally including on-site visits, business reviews, etc.

• Detailed reporting, including portfolio and performance analysis

TACTICAL LIST

• Draws from both the Approved and Focus lists

• Leverages manager research capabilities, as well as capital markets analysis by the Global Investment Committee (GIC)

• Enables Financial Advisors to provide clients with actionable short-term advice


• Recommendations focused primarily on investment management firms unaffiliated with Morgan Stanley

• Research and evaluation process that is disciplined and consistently applied

• Access to one of the industry’s largest databases of manager analytics and statistics

• Compensation of manager research analysts is not tied to the client assets placed in the investment firms they examine

• Our manager research is published solely for the use of our clients and is not available or sold to any other source

• Investment firms may be removed from our programs, regardless of asset levels, if they have strayed from their original mandate or experienced significant changes to their management or operations

What Sets Our Investment Advisor Research Apart


Depending on the type of advisory program in which you choose to invest, Consulting Group’s Private Portfolio Group and Portfolio Advisory Services teams provide a suite of specialized services that may include one or more of the following:

• Firm-discretionary asset allocation advice, investment product selection and ongoing portfolio monitoring

• Overlay portfolio management for unified managed accounts (UMAs)

• Disciplined portfolio rebalancing

• Optional tax-management services1 for certain advisory programs

• Portfolio reviews, transition analyses and client conference calls and meetings

Portfolio Construction

1. Tax management is an optional service from Private Portfolio Group for Select UMA accounts over $500,000. Tax-management services may adversely impact account performance and do not constitute tax advice or a complete tax-sensitive investment management program. There is no guarantee that tax-management services will produce the desired results.


Investment Advisory Programs

CLIENT COLLABORATION (NON-DISCRETIONARY)

• Separately Managed Account (SMA) Programs

• Non-Discretionary Advisory

• Mutual Fund Advisory Programs

• Unified Managed Account (UMA) Program

All investment decisions made by the client with advice and input from Financial Advisor

FINANCIAL ADVISOR (FA-DISCRETIONARY)

• Portfolio Management/FA Discretionary Program


All investment decisions are delegated by the client to the Financial Advisor

CONSULTING GROUP (FIRM-DISCRETIONARY)

• Consulting Group Capital Markets (CGCM) Funds

• Customized Investment Outsourcing Program


• Global Investment Solutions

All investment decisions are delegated by the client to Consulting Group professionals


A separately managed account (SMA) typically consists of a customized portfolio of stocks, bonds or other assets managed on an individual investor’s behalf by a professional investment manager. The managers in Consulting Group’s SMA programs have undergone an extensive due diligence process overseen by Consulting Group Investment Advisor Research, and we offer many exclusive strategies not available elsewhere in the industry. Two primary types of stand-alone SMA programs are available through Consulting Group:

• Single-contract SMA programs require only a single contract between the client and Morgan Stanley and have standardized fees and account minimums that apply to all clients

• Dual-contract SMA programs have separate contracts between both the client and Morgan Stanley and the client and the professional investment manager. Account minimums and fees may vary widely among different managers in a dual-contract program

Separately Managed Account (SMA) Programs


At opposite sides of the spectrum are FA-discretionary and non-discretionary advisory programs. Portfolios in both types of programs may include a wide variety of investment types, including individual securities (stocks and bonds), mutual funds, exchange-traded funds and other, more sophisticated investment options. However, decision-making authority in each program is very different:

• In Consulting Group’s Non-Discretionary Advisory Programs, final decision-making authority for all investment transactions rests with the client, who receives advice on asset allocation and investment selection from his or her Financial Advisor

• In Consulting Group’s FA-Discretionary Advisory Programs, the client has delegated all day-to-day investment decisions for the portfolio to his or her Financial Advisor

FA-Discretionary and Non-Discretionary Programs


A mutual fund is an investment company that invests in different types of securities, such as stocks or bonds, on behalf of individuals who have similar investment goals. The assets are managed by a professional portfolio manager hired by the fund, and investors participate by owning shares of the fund rather than the fund’s underlying securities.

Consulting Group’s Mutual Fund Advisory Programs provide a wide range of diversified mutual funds to investors, with research support from the Consulting Group Investment Advisor Research team and asset allocation models that leverage advice from the Morgan Stanley Wealth Management Global Investment Committee (GIC). Financial Advisors work with investors to construct a portfolio of mutual funds. In lieu of sales charges paid for each fund, investors pay a single, quarterly asset-based fee.

Mutual Fund Advisory Programs


Unified Managed Account (UMA) Programs

1. In Consulting Group’s advisory programs, alternative investments are limited to US-registered mutual funds, separate account strategies and exchange-traded funds (ETFs) that seek to pursue alternative investment strategies or returns utilizing publicly traded securities.. Please see the Important Disclosures at the end of this presentation for additional information.

At Morgan Stanley, you can choose to give your Financial Advisor or the firm discretion to make investment decisions in your unified managed account for you – or you can ask your Financial Advisor to give you advice so that you can make the final decisions.

Unified managed accounts (UMAs) allow investors to create individually tailored, diversified portfolios under a single investment account that may include a variety of investment instruments, including separately managed accounts, mutual funds and exchange-traded funds in both traditional and alternative strategies.1

UMAs combine the potential for account customization with a high degree of investment diversification and operational efficiency, making them an attractive option for many investors. UNIFIED MANAGED ACCOUNT

Overlay Portfolio Manager

Separately Managed Account 2

Exchange Traded

Fund

Separately Managed Account 1

Mutual Fund

Alternative Investments


Global Investment Solutions specializes in creating professionally managed portfolios for a global network of Financial Advisors and their clients. As an investment management business of Consulting Group, it draws on the collective wisdom and independent thinking of several experienced investment teams to deliver discretionary portfolio management to high net worth and institutional investors.

Comprised of seasoned portfolio managers and other investment professionals, each team focuses on particular asset classes and investment approaches. An array of professionally managed equity and fixed income strategies is available to fit a broad range of goals, diversification objectives and risk-tolerance levels.

Global Investment Solutions


Consulting Group also offers additional firm-discretionary investment programs and products.

• Customized Investment Outsourcing (CIO) provides customized, institutional-level investment services, such as asset allocation advice, investment product selection and periodic performance reviews, for client accounts in excess of $10 million for accounts custodied at Morgan Stanley and at a $25 million minimum for accounts custodied elsewhere

• Consulting Group Capital Markets (CGCM) Funds are a family of proprietary, style-driven mutual funds available only in certain Consulting Group mutual fund advisory programs. Each CGCM fund may be managed (or “sub-advised”) by multiple professional money managers chosen by Consulting Group’s Portfolio Advisory Services team after a rigorous review process

Additional Firm-Discretionary Programs


Disciplined Institutional Advisory Process

1. As of December 31, 2011. 2. Tax analysis for family offices is provided by Consulting Group’s Private Portfolio Group

Consulting Group delivers advice to more than $167 billion1 in institutional assets for clients that include corporations, health care entities, insurance funds, nonprofit organizations, state and local governments, multi-family offices and other institutional entities.

ORGANIZATIONAL ASSESSMENT

• Mission and objectives

• Asset/liability structure, cash flow analysis

• Tax analysis for family offices

• Fiduciary and documentation review

1 ASSET ALLOCATION STUDY

• Dynamic portfolio construction recommendations and probability analysis

• Policy adherence evaluation

• Customized tactical recommendations and strategic advice

3 INVESTMENT POLICY STATEMENT

• Asset/liability analysis

• Spending policy guidelines

• Customized investment policy statements

2 4 INVESTMENT MANAGER STRATEGIES

• Open architecture manager searches

• Published manager research reports

• Trade and execution services

5 REPORTING AND COMMUNICATIONS

• Custody services

• Performance measurement and monitoring

• Ongoing trustee education

6 ONGOING REVIEW AND MONITORING

• Portfolio rebalancing

• Investment policy review

• Assisting with other service providers, attorneys, accountants


Consulting Group clients may receive a variety of materials designed to help them develop effective strategies and stay focused on their long-term goals.

Your Morgan Stanley Financial Advisor can provide such publications as:

• Quarterly performance reports

• Research bulletins and profiles

• Market commentaries

• Educational primers

• Client newsletters

• Online reports

• Presentations

A Wealth of Information


• Personalized asset allocation advice

• A disciplined process that helps prevent behavioral bias

• A wide range of innovative discretionary and non-discretionary investment advisory programs

• Extensive investment manager research and ongoing evaluation

• Comprehensive performance reporting

• Regular economic and market analysis and advice

• Rebalancing advice and other portfolio optimization strategies

• Access to the global range of resources and experienced investment professionals available at Morgan Stanley

• Personalized local service and support from your Financial Advisor

Consulting Group Advantages


Important Disclosures Investing in the markets entails the risk of market volatility. The value of all

types of investments may increase or decrease over varying time periods. To the

extent the investments depicted herein represent international securities, you

should be aware that there may be additional risks associated with international

investing, including foreign economic, political, monetary and/or legal factors,

changing currency exchange rates, foreign taxes, and differences in financial and

accounting standards. International investing may not be for everyone. These

risks may be magnified in emerging markets. Small- and mid-capitalization

companies may lack the financial resources, product diversification and

competitive strengths of larger companies. In addition, the securities of small-

and mid-capitalization companies may not trade as readily as, and be subject to

higher volatility than, those of larger, more established companies. 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 allows the issuer to retain the right to redeem the

debt, fully or partially, before the scheduled maturity date. Proceeds from sales

prior to maturity may be more or less than originally invested due to changes in

market conditions or changes in the credit quality of the issuer. High Yield bonds

are subject to additional risks such as increased risk of default and greater

volatility because of the lower credit quality of the issues.

In Consulting Group’s advisory programs, alternative investments are limited to

US-registered mutual funds, separate account strategies and exchange-traded

funds (ETFs) that seek to pursue alternative investment strategies or returns

utilizing publicly traded securities. Investment products in this category may

employ various investment strategies and techniques for both hedging and more

speculative purposes such as short-selling, leverage, derivatives and options,

which can increase volatility and the risk of investment loss. Alternative

investments are not suitable for all investors. There may be tax implications with

a rebalancing strategy.

Morgan Stanley Smith Barney LLC, its affiliates, and its employees are not in the

business of providing tax or legal advice. These materials and any tax-related

statements are not intended or written to be used, and cannot be used or relied

upon, by any taxpayer for the purpose of avoiding tax penalties. Tax-related

statements, if any, may have been written in connection with the "promotion or

marketing" of the transaction(s) or matters(s) addressed by these materials, to

the extent allowed by applicable law. Any taxpayer should seek advice based on

the taxpayer's particular circumstances from an independent tax advisor. The

performance of tax-managed accounts is likely to vary from that of non-tax

managed accounts.

Plan Sponsor, September 2011. Plan Sponsor magazine submitted

questionnaires to 150 retirement plan consulting firms in July 2011. A total of 60

retirement plan consulting firms completed the questionnaire. The top ten

consultants are listed by various criteria as reported in the survey. For more

information, go to www.plansponsor.com. For the purposes of this survey,

“institutional” is defined as any type of retirement plan, including foundations

and endowments and other nonprofits. The ranking is not indicative of a firm’s

future performance. Neither Morgan Stanley nor its affiliated financial advisors

pay a fee to Plan Sponsor in exchange for this report.

FundFire Survey, February 2011. This survey by FundFire included responses

from more than 40 managed account managers who work with various

separately managed account (SMA) program sponsors. Managers were asked to

rate a number of SMA sponsors on the thoroughness of their manager review

process on a scale of one (weakest) to five (toughest).


Important Disclosures Cerulli Associates, 4q 2013 Summary Report. Cerulli Associates’ data are

based on data submitted by firms participating in Cerulli’s survey. Morgan

Stanley Wealth Management was ranked No. 1 in terms of assets under

management out of the firms listed in the industry for the quarter with respect to

Top Managed Account Program Sponsors Across All Industry Segments. This

category includes separate account consultant programs, mutual fund advisory

programs, ETF advisory programs, rep as portfolio manager programs, rep as

advisor programs and unified managed account programs. Separate account

consultant programs are programs in which asset managers manage investors’

assets in discretionary separate accounts. Mutual fund advisory programs and

ETF advisory programs are discretionary and nondiscretionary programs

designed to systematically allocate investors’ assets across a wide range of

mutual funds or ETFs. Rep as portfolio manager programs are discretionary

programs in which advice is an essential element; planning is undertaken or

advice is treated as a separate service from brokerage. Rep as advisor programs

are nondiscretionary programs where the advisor has not been given discretion

by the client and must obtain approval each time a change is made to the

account or its investments. Unified managed accounts are vehicle-neutral

platforms that simplify the delivery of multiple investment vehicles, such as

separate accounts, mutual funds, exchange-traded funds and individual

securities through their integration within a single environment. Rankings are

subject to change. Some historical figures may be revised due to newly

identified programs, firm restatements, etc.

DALBAR 2013 Quantitative Analysis of Investor Behavior. The average equity

mutual fund investor performance results are calculated using data supplied by

the Investment Company Institute. Investor returns are represented by the

change in total mutual fund assets after excluding sales, redemptions and

exchanges. This method of calculation captures realized and unrealized capital

gains, dividends, interest, trading costs, sales charges, fees, expenses and any

other costs.

The information herein has been obtained from sources that we believe to be

reliable, but we do not guarantee its accuracy or completeness. All opinions

included in this material constitute the Firm’s judgment as of the date of this

material and are subject to change without notice. This material is provided for

informational purposes only and is not intended as an offer or solicitation with

respect to the purchase or sale of any security.

Morgan Stanley Smith Barney LLC offers investment program services through a

variety of investment programs, which are opened pursuant to written client

agreements. Each program offers investment managers, funds and features that

are not available in other programs; conversely, some investment managers,

funds or investment strategies may be available in more than one program.

Morgan Stanley’s investment advisory programs may require a minimum asset

level and, depending on your specific investment objectives and financial

position, may not be suitable for you.


Important Disclosures INDEX DEFINITIONS

S&P 500 Index: S&P 500 index covers 400 industrial, 40 utility, 20

transportation, and 40 financial companies of the U.S. markets (mostly NYSE

issues). The index represents about 75% of NYSE market cap and 30% of NYSE

issues. It is a capitalization-weighted index calculated on a total return basis with

dividends reinvested.

90-DAY T-BILLS: Equal dollar amounts of three-month Treasury bills are

purchased at the beginning of each of three consecutive months. As each bill

matures, all proceeds are rolled over or reinvested in a new three-month bill. The

income used to calculate the monthly return is derived by subtracting the

original amount invested from the maturity value. The yield curve average is the

basis for calculating the return on the index. The index is rebalanced monthly by

market capitalization.

Consumer Price Index: Consumer Price Index for all urban consumers. Measure

of change in price of goods and services purchased by all urban consumers.

Approximately 400 items make up the basket of goods and services measured.

Returns prior to 1947 are not seasonally adjusted. Returns from 1947 forward are

seasonally adjusted. By using seasonally adjusted data, economic analysts and

the media find it easier to see the underlying trend in short-term price change. It

is often difficult to tell from raw (unadjusted) statistics whether developments

between and 2 months reflect changing economic conditions or only normal

seasonal patterns. Therefore, many economic series, including the CPI, are

seasonally adjusted to remove the effect of seasonal influences. Seasonal

influences are those that occur at the same time and in about the same

magnitude every year. They include price movements resulting from changing

climatic conditions, production cycles, model changeovers, and holidays.

CITIGROUP NON-US WORLD GOVT BOND H: This index includes all the

components of the World Government Bond Index (listed below) except the

United States. The index includes all fixed-rate bonds with a remaining maturity

of one year or longer and with amounts outstanding of at least the equivalent of

$25 million US Dollars. Those government securities that are excluded from the

indexes typically fall into three categories: floating- or variable-rate bonds

(including index-linked bonds); securities aimed principally at non-institutional

investors such as savings bonds in the United States and Canada; and private

placement-type securities, where liquidity may be poor and where accurate

information on outstanding, market coupon, and maturity structure may be

difficult or impossible to obtain. This index is designed to directly address the

growing interest in and implementation of currency-hedged bond investments

by global investors as a means of achieving low-risk interest rate diversification in

their portfolios. Currency-hedged returns are also reported for the overall non-

base on a monthly basis.

BC AGGREGATE BOND INDEX: The US Aggregate Index covers the dollar-

denominated investment-grade fixed-rate taxable bond market, including

Treasuries, government-related and corporate securities, MBS pass through

securities, asset-backed securities, and commercial mortgage-based securities.

These major sectors are subdivided into more specific subindexes that are

calculated and published on an ongoing basis.


Important Disclosures INDEX DEFINITIONS continued…

BC US HIGH YIELD: The Barclays Capital US High Yield Index covers the

universe of fixed rate, non-investment grade debt. Eurobonds and debt issues

from countries designated as emerging markets (e.g., Argentina, Brazil,

Venezuela, etc.) are excluded, but Canadian and global bonds (SEC registered) of

issuers in non-EMG countries are included. Original issue zeroes, step-up coupon

structures, 144-As and pay-in-kind bonds (PIKs, as of October 1, 2009) are also

included.

BC CREDIT INDEX: Publicly issued U.S. corporate and specified foreign

debentures and secured notes that meet the specified maturity, liquidity, and

quality requirements. Must be rated investment-grade (Baa3/BBB- or higher) by

at least two of the following ratings agencies: Moody's, S&P, Fitch. If only two of

the three agencies rate the security, the lower rating is used to determine index

eligibility. If only one of the three agencies rates a security, the rating must be

investment-grade. Must be fixed rate, although it can carry a coupon that steps

up or changes according to a predetermined schedule. Must be dollar-

denominated and non-convertible. Must be publicly issued. Must be an

investment grade credit security.

MSCI EAFE (NET): The MSCI EAFE Index (Europe, Australasia, Far East) (net) is a

free float-adjusted market capitalization index that is designed to measure

developed market equity performance, excluding the US & Canada. As of

December 2003 the MSCI EAFE Index consisted of the following 21 developed

market country indices: Australia, Austria, Belgium, Denmark, Finland, France,

Germany, Greece, Hong Kong, Ireland, Italy, Japan, the Netherlands, New

Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the

United Kingdom. This series approximates the minimum possible dividend

reinvestment. The dividend is reinvested after deduction of withholding tax,

applying the rate to non-resident individuals who do not benefit from double

taxation treaties. MSCI uses withholding tax rates applicable to Luxembourg

holding companies, as Luxembourg applies the highest rates.

MSCI EM (GROSS): The MSCI EAFE Index (Europe, Australasia, Far East) is a free

float-adjusted market capitalization index that is designed to measure developed

market equity performance, excluding the US & Canada. This series

approximates the maximum possible dividend reinvestment. The amount

reinvested is the dividend distributed to individuals resident in the country of the

company, but does not include tax credits.

RUSSELL 1000: Russell 1000 Index measures the performance of the 1,000

largest companies in the Russell 3000 Index, which represents approximately

92% of the US market. As of the latest reconstitution, the average market

capitalization was approximately $9.3 billion; the median market capitalization

was approximately $5.2 billion. The smallest company in the index had an

approximate market capitalization of $1.4 billion.

RUSSELL 1000 GROWTH: Russell 1000 Growth Index measures the

performance of those Russell 1000 companies with higher price-to-book ratios

and higher forecasted growth values.

RUSSELL 1000 VALUE: Russell 1000 Value Index measures the performance of

those Russell 1000 companies with lower price-to-book ratios and lower

forecasted growth values.


Important Disclosures INDEX DEFINITIONS continued…

RUSSELL 2000: Russell 2000 Index measures the performance of approximately

2,000 of the smallest companies in the Russell 3000 Index, which represents

approximately 10% of the total market capitalization of the Russell 3000 Index.

As of the latest reconstitution, the average market capitalization was

approximately $1.1 billion; the median market capitalization was approximately

$460 million. The largest company in the index had an approximate market

capitalization of $2.6 billion.

RUSSELL 2000 GROWTH: Russell 2000 Growth Index measures the

performance of those Russell 2000 companies with higher price-to-book ratios

and higher forecasted growth values.

RUSSELL 2000 VALUE: Russell 2000 Value Index measures the performance of

those Russell 2000 companies with lower price-to-book ratios and lower

forecasted growth values.

RUSSELL 3000: Russell 3000 Index measures the performance of the 3,000

largest US companies based on total market capitalization, which represents

approximately 98% of the investable US equity market. As of the latest

reconstitution, the average market capitalization was approximately $86.4

billion; the median market capitalization was approximately $923 million. The

index had a total market capitalization range of approximately $540 billion to

$101 million.

RUSSELL MIDCAP: Russell Midcap Index measures the performance of

approximately 800 of the smallest companies in the Russell 1000 Index, which

represent approximately 31% of the total market capitalization of the Russell

1000 Index. As of the latest reconstitution, the average market capitalization was

approximately $4.1 billion; the median market capitalization was approximately

$8.1 billion. The largest company in the index had an approximate market

capitalization of $17.4 billion.

RUSSELL MIDCAP VALUE - Russell Midcap Value Index measures the

performance of those Russell Midcap companies with lower price-to-book ratios

and lower forecasted growth values. The stocks are also members of the Russell

1000 Value index.

RUSSELL MIDCAP GROWTH - Russell Midcap Growth Index measures the

performance of those Russell Midcap companies with higher price-to-book ratios

and higher forecasted growth values. The stocks are also members of the Russell

1000 Value index.

© 2014 Morgan Stanley Smith Barney LLC, member SIPC. Consulting Group is a

business of Morgan Stanley Smith Barney LLC.

2011-PS-2306 (3/13)

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