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Morgan Stanley Smith Barney Investment Strategy Please refer to important information, disclosures and qualifications at the end of this material. Portfolio Investment Opportunities in Managed Futures November 2011 David M. Darst, CFA

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Morgan Stanley Smith Barney Investment Strategy

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

Portfolio Investment Opportunities inManaged Futures

November 2011David M. Darst, CFA

Morgan Stanley Smith Barney Investment Strategy

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

Table of Contents

2

Section 1 Select Investment Advantages and Potential Risks of Managed Futures

Section 2 Summary of Managed Futures Investment Performance and Correlation

Section 3 Overview of the Investment Landscape

Section 4 Additional Sources & Disclosures

Morgan Stanley Smith Barney Investment Strategy

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

Section 1

Select Investment Advantages and Potential Risks of Managed Futures

3

Singapore

Toronto

Source: Wikimedia Commons.

Sydney

Morgan Stanley Smith Barney Investment Strategy

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

SELECT INVESTMENT ADVANTAGES AND POTENTIAL RISKS OF MANAGED FUTURES

Historical Background on Futures and Managed Futures

4

• Although recorded instances exist of the trading of rice futures in Japan during the 17th century, exchange-based futures trading began in the United States during the middle of the 19th century. In 1848, eighty-two Chicago merchants agreed on the need to establish a central trading exchange that would set an immediate and a future price for grain. In response, these merchants founded the Chicago Board of Trade (CBOT) at 101 South Water Street in Chicago, the world’s first futures exchange. On March 13, 1851, the first contract was traded on this exchange, marking the inception of the futures industry.

• For more than one hundred years, the futures markets expanded in size and breadth, but remained focused solely on grains and agricultural commodities. Futures contracts provided farmers, ranchers, distributors, and others in the commodities markets with an efficient mechanism to help manage and hedge against the price volatility often experienced in agricultural markets.

• As time passed, the risk management benefits of the futures markets became apparent to other sectors of the economy, and beginning in the late 1970s and early 1980s, the industry began introducing contracts which created new futures products and markets for metals, energy, interest rates, currencies, and other financial instruments.

• During the late 1970s, a number of Commodity Trading Advisors (CTAs) were established, inaugurating the managed futures industry. CTAs are investment managers who use the global futures, options, and related markets as an investment medium to manage their clients’ assets.

• In the latter two decades of the twentieth century and on into the twenty-first, the managed futures industry has exhibited rapid growth, and as of the end of 2Q2011, it was estimated that futures trading advisors had approximately $300 billion under management globally.

• Many domestic and international corporations, financial institutions, trading firms, and securities broker-dealers are active participants in the managed futures marketplace. Hedgers rely on the futures markets to obtain protection against rising or falling prices, while speculators and traders seek to profit from their trading and investment strategies in the futures markets.

Source: Morgan Stanley Smith Barney Investment Strategy; Morgan Stanley Smith Barney Managed Futures Department; Chicago Board of Trade.

Definition: Futures contracts are standardized contracts that allow for the delivery of an underlying commodity or financial instrument at a specified price on a stipulated future date. A futures contract obligates the buyer to purchase the underlying commodity or instrument, and the seller to sell it, unless the contract is sold, transferred, or closed out prior to the established settlement date.

Leverage: Futures contracts involve a form of inherent leverage through the posting of initial, variation, and maintenance margin, which is a performance guarantee that the contract will be honored.

Derivative Nature: Because futures prices are driven by and derived from the behavior of the underlying commodity or financial instrument, futures are considered derivative instruments.

Regulation: The Commodity Futures Trading Commission (CFTC), created by the United States Congress in 1974, is responsible for regulating futures trading and markets. The mission of the CFTC is to protect market users and the public from fraud, manipulation, and abusive practices related to the sale of commodity and financial futures and options, and to foster open, competitive, and financially sound futures and option markets.

Morgan Stanley Smith Barney Investment Strategy

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

SELECT INVESTMENT ADVANTAGES AND POTENTIAL RISKS OF MANAGED FUTURES

Distinguishing Between Commodities, Futures, and Managed Futures

5Source: Morgan Stanley Smith Barney Investment Strategy; Morgan Stanley Smith Barney Managed Futures Department.

Instrument or Strategy Determinants of Investment Success Principal Means of Implementation

Commodities (Purchased and sold by investors, hedgers, speculators, and traders)

Commodity selection

Prediction of price movements

Costs and amounts of leverage

Risk control behavior

Physical commodities

Options, futures, and swaps involving commodities

Collateralized futures (futures contracts plus government securities posted as full or partial margin collateral)

Futures (Purchased and sold by investors, hedgers, speculators, and traders)

Instrument selection

Prediction of price movements

Costs and amounts of leverage

Risk control behavior

Commodity futures

Financial futures

Managed Futures (Managed by Commodity Trading Advisors (CTAs); also known as managed funds, Managed Futures Funds, or managed futures advisors, in partnerships subscribed to by investors)

Manager selection

Manager trading skill

Manager model construction

Manager use of leverage

Risk control systems and behavior

Financial futures

Commodity futures

Forwards and cash instruments

Options, swaps, and swaptions

Physical commodities

Early-stage Wheat in Iowa

Global Currency Exchange Rates

Morgan Stanley Smith Barney Investment Strategy

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

SELECT INVESTMENT ADVANTAGES AND POTENTIAL RISKS OF MANAGED FUTURES

Select Advantages of Managed Futures

6

• Low Correlations with Many Other Asset Classes: Because of their generally low correlations of returns with many other conventional and alternative asset classes (including hedge funds), managed futures and Managed Futures Funds have tended to offer diversification opportunities that may have the potential to lower the standard deviation of returns and improve the risk-reward profile of an investment portfolio.

• Returns Generation in Varying Financial Conditions: Managed futures and Managed Futures Funds have the potential to generate attractive returns and may be suited to perform well in various economic and financial market scenarios.

• Favorable Performance During Periods of Financial Market Dislocation: On several occasions during periods of substantial turmoil or stress in financial markets, investment returns for Managed Futures have been favorable (please refer to page 24 for further information).

• Exposure to a Broad Spectrum of Assets and Markets: Managed futures advisors may utilize futures contracts traded on many global exchanges involving typically 75-100 underlying assets or indices, including equity indices, financial instruments, agricultural products, precious and nonferrous metals, currencies, and energy products, offering potential trading and investment opportunities across a broad spectrum of assets and markets.

• Disciplined Quantitative Underpinning to Approach: As a heavily quantitatively and computer-driven trading strategy, managed futures trading systems seek to identify and profit from price, volume, volatility, and covariance trends and anomalies across multiple time zones and in multiple markets. One differentiating factor among Managed Futures Funds is the degree to which a fund’s strategy utilizes discretionary trading as substitutes for, or overlays and modifications of, the fund’s underlying model and trading algorithms.

Source: Morgan Stanley Smith Barney Investment Strategy; Morgan Stanley Smith Barney Managed Futures Department.

Traders on the Floor of the New York Mercantile Exchange

Harvested Soybeans

Source: United States Department of Agriculture.

Morgan Stanley Smith Barney Investment Strategy

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

SELECT INVESTMENT ADVANTAGES AND POTENTIAL RISKS OF MANAGED FUTURES

Select Advantages of Managed Futures

7

• Asset Class Characteristics: Because Managed Futures: (i) offer the opportunity to establish with equal facility long and short positions; (ii) often employ stop-loss, trend-following, and/or mean-reverting trading disciplines; (iii) can incorporate leverage and interest income derivatives by means of margin and cash balances; and (iv) provide participation in a broad range of underlying markets, their potential investor liquidity, returns patterns, volatility profiles, correlations of returns, and skew and kurtosis characteristics, tend to be different from those of conventional asset classes (such as equities, fixed income securities, and cash) and from those of many alternative asset classes (such as hedge funds, private equity/venture capital, and real estate).

• Diversification: Managed Futures allow traders, investors, hedgers, and speculators to express views on, participate in, or oppose the movements of interest rates, equity indices, foreign exchange rates, and the prices of agricultural, metals, and energy products.

• Access and Exposure: Managed Futures may offer access and exposure to professional fund management in a wide variety of investment styles, trading methodologies, geographies, and underlying commodities and financial instruments.

• Protection: Through stop-loss disciplines and other systematic trading approaches, Managed Futures Funds tend to generate options-like returns with limitations on capital losses and anticipated participation in capital gains.

Source: Morgan Stanley Smith Barney Investment Strategy.

Source: Freeimages (www.freeimages.co.uk).

Source: Freeimages (www.freeimages.co.uk).

Morgan Stanley Smith Barney Investment Strategy

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

SELECT INVESTMENT ADVANTAGES AND POTENTIAL RISKS OF MANAGED FUTURES

Potential Investment Risks of Managed Futures Funds

8

• Reduced Liquidity and High Fee Levels: Substantial risks may be associated with investing, hedging, and speculating in Managed Futures Funds, including: (i) the possibility for an investor to lose all or a substantial portion of his or her investment capital; (ii) a limited ability to readily redeem partnership interests or units in a Managed Futures Fund; (iii) no established secondary market for Managed Futures Fund partnership interests or units; and (iv) the possibility for Managed Futures Funds’ high fees and expenses to potentially vitiate or negate portfolio profits or gains.

• Suitability: “Managed futures are complicated and risky investment instruments that may be unsuitable for many investors. Commodity futures and financial futures trading itself is speculative, potentially volatile, and involves a high degree of leverage. Because managed futures investing is not well understood by mainstream individual investors, it is crucial that securities broker-dealer firms meet their suitability and disclosure obligations when recommending these products.”(1)

• Capital Drawdowns: In certain sideways-trending, choppy, directionless market conditions in some or many of their underlying instruments, Managed Futures Funds’ returns patterns may be characterized by capital losses (drawdowns) and/or by high volatility, which may not be appropriate for all investors.

• Correlations Patterns: Correlations of returns for Managed Futures Funds with the returns on other asset classes may: (i) vary over time; (ii) change significantly during periods of increased market volatility; and/or (iii) be substantially affected by managers’ varying usage of leverage, derivatives, and short selling strategies and techniques.

• Possible Misapplication of Trading Disciplines: Given the fact that many Managed Futures Funds’ trading strategies tend to rely on: (i) trend following; (ii) momentum-based investment approaches; (iii) pattern recognition; (iv) stop-loss position unwinding; and (v) hedging disciplines, they may or may not be applied by their managers with an appropriately successful degree of discipline and insight under certain kinds of capital markets conditions and futures trading environments.

• Exposure to Systemic Threats: Although many futures exchanges reduce counterparty default risk through: (i) clearing institution guarantees; (ii) the setting of initial, maintenance, and variation margin conditions; and (iii) daily (and sometimes intraday) reconciliation of balances and debiting or crediting of margin collateral, Managed Futures Funds’ investment performance may be negatively affected by circumstances threatening the systemic reliability and integrity of such safeguards.

Source: Morgan Stanley Smith Barney Investment Strategy; Morgan Stanley Smith Barney Managed Futures Department.

Notes: 1. Adapted from remarks by Mary L. Shapiro, Former Vice Chairman of the National Association of Securities Dealers, and Chairperson, U.S. Securities and Exchange Commission

Morgan Stanley Smith Barney Investment Strategy

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

SELECT INVESTMENT ADVANTAGES AND POTENTIAL RISKS OF MANAGED FUTURES

Placing Managed Futures in an Investment Context

9

• Most of the returns, standard deviations of returns, and correlations of returns data associated with Managed Futures investment activity cover the time period from the mid- to late 1980s through the first decade of the 21st century; to the degree that this specific time frame is not representative of the economic, financial, geopolitical, and/or systemic conditions in future years and groups of years, the analytical tools, trading methodologies, and absolute and relative investment results may deviate, perhaps sharply, from historical patterns.

• Stop loss-based trading strategies (and/or continuous delta hedging strategies) may limit a Managed Futures fund’s portfolio losses, and tend to work most of the time, but not always, most notably in those cases where: (i) market conditions and/or manager misjudgments in a meaningful number of underlying instruments generate a sufficiently large number of repeated occurrences of being stopped out at a loss (colloquially termed “getting whipsawed”); and/or (ii) market prices of a meaningful number of the fund’s underlying investments experience significant price gaps and/or trading discontinuities resulting in actual realized prices that differ sharply from the manager’s intended stop-loss limits prices.

• Managed Futures-based investment and trading strategies and other algorithms which tend to have many of the trend-following and/or reversion-anticipating characteristics associated with statistical arbitrage, assume that markets are not random walk-like in nature and at the same time, raise the question of whether there are intrinsic sources of return beyond fixed-income like returns that are associated with: (i) commodities; (ii) commodity futures; (iii) financial instruments; and (iv) futures on financial instruments; as a result of such considerations, it tends to be difficult to make returns projections for Managed Futures as an asset class.

• Because of the dispersion of returns associated with first-quartile returns (i.e., the 25th best manager out of a select universe of 100 managers) as compared with third-quartile returns (i.e., the 75th best manager out of a select universe of 100 managers) special caution and care are particularly important in Managed Futures manager selection; manager evaluation criteria(1) include: (i) integrity and character; (ii) philosophy and approach; (iii) resource utilization; (iv) past investment performance; (v) risk management procedures and disciplines; (vi) correlations of returns with other Managed Futures managers and with other asset classes; (vii) fees and expenses; (viii) tax considerations; and (iv) operational and technical elements.

Source: Morgan Stanley Smith Barney Investment Strategy.

Notes: 1. Please see page 207 in The Art of Asset Allocation. Second Edition, by David M. Darst, CFA (McGraw-Hill, 2008) for further details about and discussion of each of these criteria.

Morgan Stanley Smith Barney Investment Strategy

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

SELECT INVESTMENT ADVANTAGES AND POTENTIAL RISKS OF MANAGED FUTURES

Essential Differences Between Managed Futures and Other Asset Classes

10

Scope of Activity

• Managed Futures Funds may participate in a wide variety of financial and commodity futures, forwards, and option markets, thereby gaining exposure to a broad opportunity set of underlying and derivative price movements.

Long and Short Positions

• Managed Futures Fund managers may attempt to capitalize on price movements from a long position standpoint (with the expectation of benefiting from price increases in the underlying futures, forwards, or options contracts) and/or from a short position standpoint (with the expectation of benefiting from price declines in the underlying futures, forwards, or options contracts).

Model-Driven Trading

• Managed Futures Fund managers attempt to identify and profit from sustained upward or downward price movements in specific kinds of futures, forwards, or options contracts; in many cases, such trend identification and trend-following investment techniques are developed and executed using computer-based, quantitatively driven models analyzing inputs including the amplitude and magnitude of behavior in: (i) prices; (ii) volume; (iii) explicit and implied volatility; (iv ) correlations with other instruments and with other forms of derivatives on a given instrument; (v) skewness; (vi) kurtosis; and (vii) other factors.

Stop-Loss Disciplines

• Many Managed Futures Fund managers employ stop-loss disciplines to sell out (liquidate) long positions after they have declined a certain amount in price, or to buy back (cover) short positions after they have risen a certain amount in price; while such maneuvers may limit losses, they can be costly in the aggregate during choppy market conditions, which may recurrently trigger stop-loss orders.

Use of Leverage

• Losses and/or gains may be magnified by the inherent leverage in futures trading, combined with Managed Futures Funds’ policies regarding the use of greater or lesser amounts of leverage for specific positions and market conditions.

Source: Morgan Stanley Smith Barney Investment Strategy.

Set forth below are some of the essential reasons why the payoff profiles and patterns of returns of ManagedFutures may be choppy and sometimes discontinuous in nature, differing from and exhibiting generally lowlevels of correlations with the returns of equities, fixed income securities, cash, and select other types ofalternative investments:

Morgan Stanley Smith Barney Investment Strategy

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

• Having an appropriate balance of contracts among a variety of: (i) underlying commodities and financial instruments; (ii) maturities and contract expirations; and (iii) countries, counterparties, time zones, exchanges, and settlement and delivery mechanisms.

SELECT INVESTMENT ADVANTAGES AND POTENTIAL RISKS OF MANAGED FUTURES

Select Risk Management Strategies Pursued by Managed Futures Advisors

11Source: Morgan Stanley Smith Barney Investment Strategy and adaptations of “Managing Risk for Managed Futures,” Schweser Study Program, 2004.

Diversification

Liquidity

Volatility

Quantification

Budgeting

Leverage

Modeling

• Taking into account the differing degrees of liquidity associated with: (i) specific position sizes; (ii) primary and non-primary trading marketplaces; (iii) exchange- and non exchange- based order handling mechanisms; and (iv) hedging and investment activity in related physical, spot, cash, forward, swap, and other derivatives markets.

• Using levels of and trends in historical and implied volatility to influence and inform trading, speculation, investment, price discovery, risk definition, risk assumption, and risk transference activity.

• Constructing, stress-testing, modifying, and applying appropriate: (i) mean absolute deviation, variance, covariance, range, and shortfall analysis; (ii) t-tests, F-tests, and chi-square tests; (iii) Roy’s safety-first rule and Sharpe ratios; and (iv) efficient frontier, mean variance optimization, value-at-risk (VaR), and other tools to measure actual historical risk and potential future risk.

• Aggregating risks of various kinds and at multiple levels to detect and respond to portfolio risk.

• Remaining aware of the extent, magnitude, diversity, costs, and forms of borrowing and lending activity, and the degree to which leverage may subject the portfolio to rollover, counterparty, and systemic exposure.

• Building, constructing, and developing a profound understanding of the algorithms, powers, and limitations of the software and hardware behind the valuation, trading, loss limitation, and other models utilized in the identification and implementation of trading and investment systems.

Morgan Stanley Smith Barney Investment Strategy

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

SELECT INVESTMENT ADVANTAGES AND POTENTIAL RISKS OF MANAGED FUTURES

Special Considerations Associated with Managed Futures Funds

12

• Tax Reporting(1): Many managed futures investments are structured as limited partnerships which may involve tax reporting procedures via the IRS Partnership Form 1065, so-called Schedule K-1. Because the IRS generally classifies each year’s returns from Managed Futures trading as 40% short term and 60% long term, investors may be subject to more favorable (or less favorable) tax treatment on such investments compared to certain other asset classes.

• Liquidity: The units of such private placements tend to be relatively illiquid, as there is no established trading market for them, although investors may be able to redeem their units at specified intervals (such as once a month, once a quarter, or according to some other given time interval) or at the discretion of the general partner of the Managed Futures Fund.

• Minimum Net Worth and Income Requirements: With the exception of a small number of publicly traded entities that can be purchased by non-accredited investors, Managed Futures Funds are typically offered as private placements and have investor minimum net worth and minimum income requirements intended to ensure that only accredited investors or qualified eligible persons purchase such funds.

• Documentation Requirements: Prior to investing in private Managed Futures Funds, qualified investors must receive a Private Placement Memorandum for the Fund, which contains the information needed to evaluate the potential investment and provide important disclosures regarding risks, conflicts of interest, sales restrictions, fees and expenses.

• Single-Manager vs. Multiple-Manager Risk: In view of the relatively high standard deviations of returns that may be associated with any single Managed Futures Fund manager, allocations to Managed Futures Funds may be implemented using a Fund of Funds approach and/or a broadly diversified group of managers and strategies.

Beef Cattle Feed Lot in Oklahoma

The 10 states in the US with the largest cattle populations are Texas, Missouri, Oklahoma, Nebraska, South Dakota, Montana, Kansas, Iowa, Kentucky, and Florida.

Source: United States Department of Agriculture. Notes:1. The information contained herein is not intended as tax, legal, or investment advice, and may not be suitable for all investors. Investors should consult

their own tax, legal, investment, or other advisors to determine such suitability. If Managed Futures investments are held in a qualified investment account, such as an IRA, tax reporting is generally not required.

Source: Morgan Stanley Smith Barney Investment Strategy; Morgan Stanley Smith Barney Managed Futures Department

Morgan Stanley Smith Barney Investment Strategy

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

SELECT INVESTMENT ADVANTAGES AND POTENTIAL RISKS OF MANAGED FUTURES

Fees and Expenses Associated withManaged Futures Funds

13

• Level and Complexity of Fees: Managed Futures Funds typically have fee structures that may be higher and more complex than fee structures usually associated with many conventional equity or fixed income funds and other pooled vehicles.

• Multiple Fees: Managed Futures Fund managers may in many cases be compensated through multiple fees, which could include one or more of: (i) a flat management fee, which may be based on the total assets under management for the fund; (ii) an incentive fee, which may be based on the performance of the individual manager; (iii) a commission fee based on the net asset value of the account or fund; (iv) transaction costs or brokerage fees; (v) an administrative fee, which may apply to all investors; (vi) redemption fees upon the sale of partnership interests; and (vii) in the case of Managed Futures funds of funds, additional layers of fees may apply.

• Fees in Relation to Aggregate Positions: Fees can also be examined in proportion to the dollar value of positions held via the use of leverage, as the dollar value of futures positions held by a fund is typically much larger than actual fund assets, while fees charged to a fund are based solely on fund assets. Redemption fees may also apply in certain circumstances.

• Variations on Fees: Fees and fee structures may differ: (i) from fund to fund; (ii) from manager to manager; and (iii) when offset by credits associated with the level of interest rates earned on collateral positions and cash balances.

• Fee Review: Prospective investors should carefully review the stated fee structures of specific Managed Futures Funds and fund managers.

Source: Morgan Stanley Smith Barney Investment Strategy; Morgan Stanley Smith Barney Managed Futures Department; Chicago Board of Trade.

Morgan Stanley Smith Barney Investment Strategy

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

SELECT INVESTMENT ADVANTAGES AND POTENTIAL RISKS OF MANAGED FUTURES

Investment Approaches of Managed Futures Funds

14

Investment approaches may be categorized by: (i) convergent versus divergent strategies; (ii) broad-based versus price-based trading systems; and (iii) systematic versus discretionary trading systems. While Managed Futures Funds advisors and CTAs may not necessarily employ and may not be limited to these investment approaches or trading strategies, the latter two investment approaches tend to be prevalent within the managed futures industry: (i) a systematic trend-following and counter trend-following investment approach; and (ii) a discretionary or fundamental investment approach.

Source: Morgan Stanley Smith Barney Investment Strategy; Morgan Stanley Smith Barney Managed Futures Department.

Systematic Investment Approach• Managers who pursue a technical or systematic trend-following or counter trend-following

approach utilize quantitative, computer-based trading models and strategies to identify opportunities to capitalize on what are believed to be upward or downward market trends. Trend-following managers hope to achieve positive absolute returns by making opportunistic trades that focus on meaningful and sustained directional moves in equities, bonds, currencies, commodities, or other futures, forwards, or options contracts. Some manager styles seek to take advantage of market trends lasting over short periods of time (perhaps hours or days), while other manager styles attempt to take advantage of market trends of intermediate- or longer-term duration (perhaps weeks or months). Technical trend-following advisors may rely solely on quantitative inputs and strategies, and may or may not allow qualitative or fundamental factors to affect their investment decisions. Approximately 80% of Managed Futures Funds advisors and CTAs pursue some type of systematic trend-following or counter trend-following investment approach.

Discretionary Investment Approach• Managers who pursue a discretionary or fundamental approach may utilize quantitative trading

models and strategies, while also taking into consideration fundamental factors such as supply and demand data, macroeconomic indicators, geopolitical forces, and other qualitative influences in an effort to anticipate and predict market directions and movements for equities, bonds, currencies, commodities, or other futures, forwards, or options contracts and derivative instruments included within the portfolio. Some managers may utilize fundamental data with the intention of taking advantage of qualitative market judgments about trading opportunities lasting over short periods of time (perhaps hours or days) while other managers may attempt to take advantage of qualitative market judgments about trading opportunities lasting over intermediate- or longer-trading periods (perhaps weeks or months). Approximately 20% of Managed Futures Funds advisors and CTAs pursue some type of discretionary or fundamental investment approach.

Select Contracts for Futures Contracts on U.S. Exchanges

Corn (CBOT)Contract Size: 5,000 bushels

Price Quote: Cents and ¼ cent per bushel

Contract Months: Mar, May, Jul, Sep, Dec

Soybeans (CBOT)Contract Size: 5,000 bushels

Price Quote: Cents and ¼ cent per bushel

Contract Months: Jan, Mar, May, Jul, Aug, Sep, Nov

Copper (COMEX)Contract Size: 25,000 pounds

Price Quote: Cents per pound

Contract Months: The current calendar month and the next 23 consecutive months and any Mar, May, Jul, Sep, Dec falling within 60 month period beginning with current month

Crude Oil (NYMEX)Contract Size: 1,000 barrels

Price Quote: Dollars and Cents per barrel

Contract Months: 60 consecutive months plus long-dated futures

Orange Juice (ICE)Contract Size: 15,000 pounds

Price Quote: Cents and 5/100 cents per pound

Contract Months: Jan, Mar, May, Jul, Sep, NovSource: Chicago Board of Trade; New York Mercantile Exchange;

Chicago Mercantile Exchange; Commodity Exchange of New York.

Morgan Stanley Smith Barney Investment Strategy

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

SELECT INVESTMENT ADVANTAGES AND POTENTIAL RISKS OF MANAGED FUTURES

Select Insights Into Managed Futures Returns Patterns

15

• Factors Influencing Capital Drawdowns: Managed Futures Funds tend to exhibit very low positive returns or negative returns (drawdowns): (i) during periods of sharp and severe price reversals of previously established trends; (ii) during periods of choppy, sideways, trendless price movements in their main areas of investment focus (due in large part to the fact that many Managed Futures Funds essentially have a long position in volatility or are essentially long the equivalent of an options straddle position, i.e., a long put option plus a long call option); (iii) when portfolio emphasis is placed on sectors that move against the manager’s long or short positions; and (iv) when a substantial majority of markets are all in a relatively quiet state, with limited profit opportunities for managers to attempt to exploit.

• Unusual Price Behavior: It is relatively unusual, but not impossible, for many markets and sectors (including currencies, interest rates, energy, metals, and equities) across many regions to experience an essentially trendless environment.

• Determinants of the Use of Leverage: The degree of leverage employed by Managed Futures Funds tends to be a function of: (i) manager risk tolerance and risk control procedures; (ii) the strategy, trading disciplines, and objectives of the fund itself and its primary investor base; (iii) price, volume, volatility, covariance, and investor behavior characteristics affecting the main groups of underlying futures in the funds’ areas of emphasis; (iv) the degree of conviction that the fund manager has about present and future price trends and risk/reward opportunities; and (v) regulatory, internal, and counterparty leverage limits.

• Elements of Success in Managed Futures Trading: Success in managed futures trading requires skill in: (i) the timing of purchase and sale decisions; (ii) the style of trading and investment implementation; and (iii) the selection and weighting of areas of investment focus. Other success factors include the manner in which risk is assumed and managed, the time frame of the investment activity, and a sufficient degree of both amplitude and duration in the price movements of the underlying instruments.

• Costs of Stop-Loss Disciplines: Stop-loss trading disciplines may protect principal, yet can incur costs that may be small individually but substantial in the aggregate in trendless market environments; in such circumstances, Managed Futures Funds may experience a series of relatively defined losses resulting from being stopped out repeatedly after initially establishing long or short positions.

• Post-Drawdown Capital Recovery: Although there is no guarantee that future results will resemble past performance, intervals of trendless market behavior have tended to give way to sustained market moves in many sectors, with substantial capital drawdowns in many cases followed by periods of meaningfully positive investment returns (please refer to page 25 for eighteen instances of such outcomes).

Source: Morgan Stanley Smith Barney Investment Strategy; Morgan Stanley Smith Barney Managed Futures Department.

Oil Rig in the Gulf of Mexico

Morgan Stanley Smith Barney Investment Strategy

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

Markets Traded

• Managed Futures Funds tend to focus on the futures, forwards, and options markets, while Hedge Funds tend to trade across the equity, fixed income, and derivatives markets.

Investment Approach

• Many Managed Futures Funds’ investment approaches rely to a meaningful degree on systematic, technical trend-following, while most Hedge Fund managers tend to utilize one or more of a range of investment styles such as: (i) market neutral; (ii) convertible, fixed income, risk arbitrage, or capital structure arbitrage; (iii) distressed investing; (iv) global macro strategies; and (v) other approaches.

Performance Characteristics

• While both Managed Futures Funds and Hedge Funds have in the past exhibited the ability to generate attractive investment returns across many, but not all, market environments, Managed Futures Funds have historically tended to perform better on an absolute and relative basis during periods of equity market weakness, whereas Hedge Funds have historically tended to perform better on an absolute and relative basis during periods of equity market strength.

Investor Transparency

• The majority of Managed Futures Funds generally allow for full transparency, for the fund manager and the general partners, into underlying positions and daily independent pricing, whereas the majority of Hedge Funds generally provide limited transparency and monthly pricing.

Skewness and Kurtosis

• Managed Futures Funds tend to have a higher degree of positive skewness of monthly returns and a lower degree of kurtosis of monthly returns than Hedge Funds (please refer to pages 30 and 32 for more details concerning the concepts of skewness and kurtosis).

SELECT INVESTMENT ADVANTAGES AND POTENTIAL RISKS OF MANAGED FUTURES

Managed Futures Funds Compared With Hedge FundsKey Distinctions

16Source: Morgan Stanley Smith Barney Investment Strategy; Morgan Stanley Smith Barney Managed Futures Department.

Pit Traders at the Chicago Mercantile Exchange

Oil Rig in the North Sea

Morgan Stanley Smith Barney Investment Strategy

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

Underlying Instrument Trend Persistence Characteristics Selected Influences on Returns Patterns

Agricultural Futures Moderate Supply and Demand Conditions

Meteorological and Climate Conditions

Currency Futures High Interest Rate Movements

Economic Trends

Trade and Capital Flows

Geopolitical Events

Energy Futures Moderate Supply Forces

Demand Forces

Geopolitical Forces

Equity Futures Moderate Economic Trends

Fundamental and Valuation Trends

Psychological/Technical/Liquidity Trends

Interest Rate Futures High Monetary and Fiscal Policy

Inflationary/Deflationary Forces

Economic Trends

Metals (Base) Futures Low Supply and Demand Conditions

Infrastructure and Capacity Conditions

Metals (Precious) Futures Low Inflationary/Deflationary Forces

Supply and Demand Conditions

Geopolitical Conditions

SELECT INVESTMENT ADVANTAGES AND POTENTIAL RISKS OF MANAGED FUTURES

Trend Characteristics and Underlying Drivers of Managed Futures

17Source: Morgan Stanley Smith Barney Investment Strategy.

The phrase “trend persistence characteristics” refers to the past tendency for prices of the underlyinginstrument to continue moving generally in the same direction for some period of time once established.Many Managed Futures industry participants and investment strategists maintain that the greater degreeof perceived uncertainty in a given market the more likely that trend characteristics should be high.

Late-stage Wheat in Minnesota

Drilling for Oil in a Texas Field

Morgan Stanley Smith Barney Investment Strategy

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

Interest Rates26%

Currencies24%

StockIndices23%

Agriculturals13%

Metals8%

Energy7%

Agriculturals64%

Currencies5%

Metals16%

Interest Rates14%

Lumber & Energy1%

Composition of Traded Futures Markets(1)

1980

18

Source: Futures Industry Association; Morgan Stanley Smith Barney Managed Futures Department. Notes:1. Includes domestic and international contracts traded on U.S. exchanges. 2. Due to the scope and size of the Interbank foreign exchange (FX) market, a significant amount of currency trading activity is executed through Interbank counterparties and is not included in these data.

(2)

(2)

SELECT INVESTMENT ADVANTAGES AND POTENTIAL RISKS OF MANAGED FUTURES

Evolution of the Futures Markets

2010

Sectors Volume (MM)

Interest Rates 2,555.9

Currencies 2,350.9

Stock Indices 2,324.6

Agriculturals 1,245.9

Metals 800.7

Energy 650.8

Total 9,928.9

Volume of Contracts Traded

Sectors Volume (MM)

Agriculturals 59.1

Metals 15.0

Interest Rates 12.5

Currencies 4.2

Lumber & Energy 1.2

Total 92.1

Volume of Contracts Traded

Morgan Stanley Smith Barney Investment Strategy

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

580 7231,004

1,2251,518

1,9202,416

3,0793,474

2,7063,103

614625522495505510

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Volume of Futures Contracts Traded on All U.S. Exchanges

Million

286 251 266 250 278538 662

9061,135

1,3651,521

1,963

2,466

258199177170164141

0

500

1,000

1,500

2,000

2,500

3,000

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Number of Futures and Options Contracts Traded on All U.S. Exchanges

19

Source: Commodity Futures Trading Commission.

Source Commodity Futures Trading Commission.

Traders at the Chicago Board of Trade (CBOT) celebrate upon completing 2003’s record annual trading volume of 454 million contracts.

Chicago Board of Trade (CBOT)

Source: Chicago Board of Trade.

Chicago Skyline

Actively Traded Futures and Options Contracts in the U.S.SELECT INVESTMENT ADVANTAGES AND POTENTIAL RISKS OF MANAGED FUTURES

Morgan Stanley Smith Barney Investment Strategy

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

0

50

100

150

200

250

300

350

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Global Assets Under Management in Managed Futures

$ U.S. Billion

20

Source: BarclayHedge, Ltd.

Old World Map

World Map

The Earth from Space

Global assets under management in Managed Futures have grown from approximately $300 million in 1980

to approximately $300 billion as of the end of Q2 2011.

(1)

Notes:1. Data are as of 2Q2011.

Total Global Assets Under Management in Managed Futures1980 – 2011YTD(1)

SELECT INVESTMENT ADVANTAGES AND POTENTIAL RISKS OF MANAGED FUTURES

Morgan Stanley Smith Barney Investment Strategy

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

ABN AMRO Clearing Chicago LLC J.P. Morgan Securities LLC

ADM Investor Services, Inc. Macquarie Futures USA Inc.

Advantage Futures, LLC Marex North America LLC

Barclays Capital Inc. MBF Clearing Corp.

BMO Capital Markets Corp. Merrill Lynch, Pierce, Fenner & Smith Inc.

BNP Paribas Prime Brokerage, Inc. MF Global Inc.

BNY Mellon Clearing, LLC Mizuho Securities USA Inc.

BOCI Commodities and Futures Limited Morgan Stanley & Co. LLC

BP Corporation North America, Inc. Newedge USA, LLC

Citigroup Global Markets Inc. Penson Financial Services, Inc.

Credit Suisse Securities (USA) LLC Phillip Futures Inc.

Crossland, LLC Proxima Clearing, LLC

Deutsche Bank Securities Inc. Rand Financial Services Inc.

Dorman Trading, L.L.C. RBC Capital Markets LLC

Enskilda Futures Limited RBS Securities Inc.

FCStone, L.L.C. R.J. O'Brien & Associates, LLC

Gelber Group, LLC Rosenthal Collins Group, L.L.C.

GETCO, LLC Santander Investment Securities Inc.

Goldman, Sachs & Co. Term Commodities, Inc.

Goldman Sachs Execution & Clearing, L.P. Timber Hill LLC

HSBC Securities (USA) Inc. TradeLink L.L.C.

Jefferies Bache, LLC UBS Securities LLC

Jump Trading, LLC Vision Financial Markets LLC

New York Mercantile Exchange Clearing Member Firms

21

Section 2

Summary of Managed Futures Investment Performance and Correlation

The New York Mercantile Exchange (NYMEX)

The London Metal Exchange (LME)The London Metal Market and Exchange Company was founded in 1877, but its history traces back to the Royal Exchange, which opened in 1571. It was at the Royal Exchange where the tradition of the Ring (which can still be found on the LME logo) was born.A merchant with metal to sell would draw a circle on the floor and call out a willingness to make a trade, and other traders would assemble around the circle and make their bids.

Source: CME Group

Morgan Stanley Smith Barney Investment Strategy

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

Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.

(60)

(40)

(20)

0

20

40

60

80

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

Annual Return

(%)

Barclay CTA Index

YearBarclay CTA

IndexS&P 500

IndexMSCI EAFE

Index10-Year U.S.Treas. Bond

U.S. Treas. Bill (90-Day)

1980 63.7% 32.5% 22.6% -0.1% 11.9%1981 23.9% -4.9% -2.3% 5.4% 15.0%1982 16.7% 21.5% -1.9% 33.5% 11.3%1983 23.7% 22.6% 23.7% 2.9% 8.9%1984 8.7% 6.3% 7.4% 14.3% 10.0%1985 25.5% 31.7% 56.2% 27.3% 7.8%1986 3.8% 18.7% 69.4% 19.7% 6.2%1987 57.3% 5.3% 24.6% -3.2% 5.9%1988 21.8% 16.6% 28.3% 6.4% 6.8%1989 1.8% 31.7% 10.5% 16.4% 8.6%1990 21.0% -3.1% -23.4% 6.8% 7.9%1991 3.7% 30.5% 12.1% 17.2% 5.8%1992 -0.9% 7.6% -12.2% 6.5% 3.6%1993 10.4% 10.1% 32.6% 11.8% 3.1%1994 -0.7% 1.3% 7.8% -7.8% 4.2%1995 13.6% 37.6% 11.2% 23.7% 5.8%1996 9.1% 23.0% 6.0% 0.1% 5.3%1997 10.9% 33.4% 1.8% 11.3% 5.2%1998 7.0% 28.6% 20.0% 12.9% 5.1%1999 -1.2% 21.0% 27.0% -8.4% 4.7%2000 7.9% -9.1% -14.2% 14.5% 6.0%2001 0.8% -11.9% -21.4% 4.0% 4.1%2002 12.4% -22.1% -15.9% 14.7% 1.7%2003 8.7% 28.7% 38.6% 1.3% 1.1%2004 3.3% 10.9% 20.2% 4.9% 1.2%2005 1.7% 4.9% 13.5% 2.0% 3.0%2006 3.5% 15.8% 26.3% 1.4% 4.8%2007 7.6% 5.5% 11.2% 9.8% 4.7%2008 14.1% -37.0% -43.4% 20.3% 1.8%2009 -0.1% 26.5% 31.8% -9.9% 0.2%2010 7.0% 15.1% 7.8% 8.1% 0.1%

Annual Total Returns for Select Indices

22

Source: Morgan Stanley Smith Barney Investment Strategy; Factset; Bloomberg LLC; BarclayHedge, Ltd.

(1)

Notes:1. Performance data are net of fees for the Barclay CTA Index only; the Barclay CTA Index is an industry benchmark of representative performance of Commodity Trading Advisors. As of late

2011, there are 565 programs included in the calculation of the Barclay CTA Index. To qualify for inclusion in the CTA Index, an advisor must have four years of prior performance history. Please refer to page 23 for additional details concerning the Barclay CTA Index for Managed Futures.

2. The 10-Year U.S. Treasury Bond is represented by the Citigroup 10-Year Treasury Note Index.3. The U.S. Treasury Bill (90-Day) is represented by the Citigroup 3-Month Treasury Bill Index.

(1)

Investment performance of the Barclay CTA Index may bemore volatile than investment performance for other indices represented above. There is no guarantee that an investment of this type will achieve its objectives andinvestors may suffer losses.

S&P 500 Index 10-Year U.S. Treasury Bond U.S. Treasury Bill (90-Day)

Annual Total Return Performance for the Barclay CTA Index and Select Other Indices

1980 – 2010

SUMMARY OF MANAGED FUTURES INVESTMENT PERFORMANCE AND CORRELATION

(2) (3)

Morgan Stanley Smith Barney Investment Strategy

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

Source: BarclayHedge, Ltd.

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

Barclay CTA Index1980 – 2010Index Level

Notes:1. The Barclay Agricultural Traders Index is an equal-weighted composite of managed programs that trade agricultural markets, such as grains, meats, foods. In 2011, 29 agricultural programs were included in the index.2. The Barclay Currency Traders Index is an equal-weighted composite of managed programs that trade currency futures and/or cash forwards in the interbank market. In 2011, 117 currency programs were included in the index.3. The Barclay Discretionary Traders Index is an equal-weighted composite of managed programs whose approach is at least 65% discretionary or judgmental. In 2011, 150 discretionary programs were included in the index.4. The Barclay Diversified Traders Index is an equal-weighted composite of managed programs that trade a diversified portfolio. In 2011, 360 diversified programs were included in the index. 5. The Barclay Financial & Metals Traders Index is an equal-weighted composite of managed programs that trade primarily financial or financial and metals. In 2011, 98 financial/metals programs were included in the index.6. The Barclay Systematic Traders Index is an equal-weighted composite of managed programs whose approach is at least 95% systematic. In 2011, 457 systematic programs were included in the index.

23

Source: Morgan Stanley Smith Barney Investment Strategy; Bloomberg, LLC.

Source: Bloomberg, LLC.

The Barclay CTA Index is a leading industry benchmark of representative performance of commodity trading advisors. There are currently 565 programs included in the calculation of the Barclay CTA Index for the year 2011, which is unweighted and rebalanced at the beginning of each year.

To qualify for inclusion in the CTA Index, an advisor must have four years of prior performance history. Additional programs introduced by qualified advisors are not added to the Index until after their second year. These restrictions, which offset the high turnover rates of trading advisors as well as their artificially high short-term performance records, ensure the accuracy and reliability of the Barclay CTA Index.

Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.

(%), All Barclay CTA Index Returns Are Expressed Net of Fees

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

1987-2010(23-Year)

CAGR

Barclay CTA Index 57.3 21.8 1.8 21.0 3.7 -0.9 10.4 -0.7 13.6 9.1 10.9 7.0 -1.2 7.9 0.8 12.4 8.7 3.3 1.7 3.5 7.6 14.1 -0.1 7.0 6.9Sub Indices

Agricultural Traders Index 7.1 95.8 10.0 9.7 1.1 1.4 11.3 7.9 26.0 10.7 -2.1 2.2 -2.1 11.9 -11.8 0.0 -7.6 14.4 -0.1 3.6 3.8 9.9 -1.4 11.7 7.6

Currency Traders Index 29.6 4.3 18.9 57.7 10.9 10.3 -3.3 -6.0 11.5 6.7 11.3 5.7 3.1 4.5 2.7 6.3 11.1 2.4 -1.2 -0.1 2.6 3.5 0.9 3.4 6.7

Discretionary Traders Index 56.4 39.8 33.6 21.4 4.4 -0.4 9.5 1.9 4.2 1.5 2.6 -6.2 3.2 2.1 -0.1 11.1 5.2 8.7 7.5 7.6 6.2 12.2 1.9 5.6 7.5

Diversified Traders Index 58.5 17.4 0.4 34.1 7.2 1.0 13.7 0.1 14.3 11.8 14.7 7.8 -2.9 10.9 2.3 14.2 11.4 1.1 0.6 5.3 11.4 26.6 -3.6 9.8 8.8

Financial & Metals Traders Index 99.3 14.7 26.6 22.3 16.5 4.3 8.8 -4.7 12.9 9.8 5.6 11.3 -4.5 3.4 7.1 12.6 9.6 -0.1 1.7 1.4 7.2 10.4 0.6 3.4 7.6

Systemic Traders Index 63.0 12.2 1.2 34.6 13.4 3.2 8.2 -3.2 15.3 11.6 12.8 8.1 -3.7 9.9 3.0 12.1 8.7 0.5 0.9 2.1 8.7 18.2 -3.4 7.8 7.6

Barclay CTA Indices - Annual Total Return

Select Managed Futures Indices’ Performance SUMMARY OF MANAGED FUTURES INVESTMENT PERFORMANCE AND CORRELATION

(1)

(2)

(3)

(4)

(5)

(6)

Morgan Stanley Smith Barney Investment Strategy

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

PeriodNumber of

Months EventS&P 500 Index (Total Return)

Barclay CTA Index

Barclay CTA Index vs. S&P 500 Index

Fourth Quarter 1987 3 U.S. Stock Market Crash -22.53% 13.77% 36.30%

Third Quarter 1990 3 Invasion of Kuwait by Iraq -13.75% 15.82% 29.57%

Third Quarter 1998 3 Russian Debt Default, LTCM Crisis -9.95% 8.95% 18.90%

November 2000 - December 2000 2 U.S. Presidential Election Uncertainty -7.43% 8.90% 16.33%

September 2001 - October 2001 2 Terrorist Attacks on United States Soil -6.32% 4.40% 10.72%

October 2001 - July 2002 10 Enron and Worldcom Bankruptcies -11.37% 7.49% 18.86%

August 2002 - October 2002 3 Bear Market Bottom and High Yield Bond Market Turbulance -2.39% 0.27% 2.66%

January 2000 - December 2002 36 Technology Bubble Bursts, U.S. Recession -37.60% 22.22% 59.82%

January 2003 - March 2003 3 War in Iraq, SARS Crisis, Geopolitical Uncertainty -3.15% 0.73% 3.88%

July 2007 - December 2008 18 Widespread Global Credit / Mortgage Crisis -37.86% 20.07% 57.93%

September 2008 - December 2008 4 Financial Institutions in U.S. Face Liquidity Crunch -28.91% 6.46% 35.36%

Comparative Investment Performance During Periods of Perceived Crisis

24

Source: Morgan Stanley Smith Barney Investment Strategy; Morgan Stanley Smith Barney Managed Futures Department.

(1)

Notes:1. The select periods are used for illustrative purposes and may not correspond with the precise starting and ending dates surrounding the suggested events or periods of perceived crisis.

Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.

Managed Futures Returns During Financial Market DislocationsPerformance of the Barclay CTA Index vs. the S&P 500 Index During Select Periods of Financial Market Uncertainty

SUMMARY OF MANAGED FUTURES INVESTMENT PERFORMANCE AND CORRELATION

Morgan Stanley Smith Barney Investment Strategy

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

25

Source: Morgan Stanley Smith Barney Managed Futures Department.

Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.

Review of Drawdowns of 5% or More in the Barclay CTA Index1980 – September 2011

SUMMARY OF MANAGED FUTURES INVESTMENT PERFORMANCE AND CORRELATION

Barclay CTA Index Drawdowns of 5% or More

January 1980 - September 2011

Average Historical Drawdown (9.18%)

Average Duration in Months 4.5

Number of Drawdowns 18

% Positive 12-month PeriodsFollowing a Drawdown 100%

Average 12-month ReturnFollowing a Drawdown 21.20%

1980 - September 2011Drawdown

PerformanceNumber of

MonthsRecovery(Months) Peak Trough

Succeeding 12 Month Return

(15.66%) 4 9 Jun 1989 Oct 1989 32.87%(15.46%) 9 4 Mar 1986 Dec 1986 57.27%(11.09%) 4 3 Jul 1984 Nov 1984 24.49%(10.10%) 5 3 Dec 1991 May 1992 17.93%(9.81%) 1 1 May 1984 Jun 1984 16.27%(9.50%) 10 4 Oct 1990 Aug 1991 12.50%(9.19%) 2 2 Jul 1985 Sep 1985 34.95%(9.12%) 1 2 Jun 1982 Jul 1982 17.83%(9.05%) 1 3 Jan 1983 Feb 1983 15.67%(8.52%) 3 1 Sep 1982 Dec 1982 23.75%(8.50%) 1 2 May 1983 Jun 1983 6.16%(8.35%) 4 2 Dec 1987 Apr 1988 31.52%(8.23%) 1 10 Jun 1988 Jul 1988 15.00%(7.74%) 5 15 Mar 2004 Aug 2004 5.71%(6.74%) 6 2 Oct 2001 Apr 2002 18.04%(6.47%) 4 1 Feb 1985 Jun 1985 36.26%(6.13%) 7 13 Jul 1993 Feb 1994 5.85%(5.63%) 13 5 Jun 1999 Jul 2000 9.55%

Average (9.18%) 4.5 4.6 21.20%

Review of Drawdowns of 5% or More in the Barclay CTA Index

Morgan Stanley Smith Barney Investment Strategy

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

26

Time Period from January 1980 through September 2011

Source: Morgan Stanley Smith Barney Managed Futures Department.

Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.

The Barclay CTA Index attempts to provide a benchmark of representative performance of the money managers within the managed futures industry. In an effort to eliminate selection or survivorship bias, the Barclay CTA Index will only consider CTAs with at least four years of performance history for inclusion in the Index. In addition, in an attempt to avoid artificially high returns, the CTA’s returns for the first four years of performance are ignored and only the manager’s performance from year five onward is included in the index.

The Barclay CTA Index and Survivorship Bias

Source: The Barclay Institutional Report, published by BarclayHedge Ltd.

Managed Futures Rolling Return AnalysisPerformance of the Barclay CTA Index vs. the S&P 500 Index

SUMMARY OF MANAGED FUTURES INVESTMENT PERFORMANCE AND CORRELATION

S&P 500

Barclay CTA Index

Rolling Return Period

Number ofTime

Periods

Number ofProfitable

Periods

Number ofUnprofitable

PeriodsPercentage

Profitable

24-Month Rolling Return 358 356 2 99.44%

36-Month Rolling Return 346 346 0 100.00%

48-Month Rolling Return 334 334 0 100.00%

60-Month Rolling Return 322 322 0 100.00%

Rolling Return Period

Number ofTime

Periods

Number ofProfitable

Periods

Number ofUnprofitable

PeriodsPercentage

Profitable

24-Month Rolling Return 358 301 57 84.08%

36-Month Rolling Return 346 287 59 82.95%

48-Month Rolling Return 334 269 65 80.54%

60-Month Rolling Return 322 276 46 85.71%

Morgan Stanley Smith Barney Investment Strategy

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

0

100

200

300

400

500

600

700

800

900

1,000

Indexed Performance of Barclay CTA Index Versus S&P 500 Index1980 – 1989 Indexed to 100

27

Source: Bloomberg, LLC.

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989

+63.7 +23.9 +16.7 +23.8 +8.7 +25.5 +3.8 +57.3 +21.8 +1.8Barclay CTA Index Total Return (%)S&P 500 Index Total Return (%) +32.5 -4.9 +21.5 +22.6 +6.3 +31.7 +18.7 +5.3 +16.6 +31.7

The Nineteen Eighties1980“The Empire Strikes Back”

1981“Raiders of the Lost Ark”

1982“E.T.: The Extra-Terrestrial”

1983“Return of the Jedi”

1984“Beverly Hills Cop”

1985“Back to the Future”

1986“Top Gun”

1987“Three Men and a Baby”

1988“Rain Man”

1989“Batman”

Top Grossing U.S. Movies in the 1980s

TitleAmount

$U.S. Million

$290

$242

$430

$309

$235

$210

$177

$168

$172

$251Source: Wikipedia.

Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.

Barclay CTA Index

S&P 500 Index

Investment performance of the Barclay CTA Index may be more volatile than investment performance of the S&P 500 Index. There is no guaranteethat an investment in Managed Futures or the Barclay CTA index will achieve its objectives, and investors may suffer losses.

SUMMARY OF MANAGED FUTURES INVESTMENT PERFORMANCE AND CORRELATION

Patterns of Managed Futures ReturnsIndexed Performance of Barclay CTA Index vs. S&P 500 Index (1980-1989)

Barclay CTA Index S&P 500 Index

Morgan Stanley Smith Barney Investment Strategy

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

0

50

100

150

200

250

300

350

400

450

Indexed Performance of Barclay CTA Index Versus S&P 500 Index1990 – 1999 Indexed to 100

28

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

+21.0 +3.7 -0.9 +10.4 -0.7 +13.6 +9.1 +10.9 +7.0 -1.2Barclay CTA Index Total Return (%)S&P 500 Index Total Return (%) -3.1 +30.5 +7.6 +10.1 +1.3 +37.6 +23.0 +33.4 +28.6 +21.0

The Nineteen Nineties

Source: Bloomberg LLC.

Top Grossing U.S. Movies in the 1990s

Title

1990“Home Alone”

1991“Robin Hood ”

1992“Aladdin”

1993“Jurassic Park”

1994“Forrest Gump”

1995“Toy Story”

1996“Independence Day”

1997“Titanic”

1998“Saving Private Ryan”

1999“Star Wars – Episode I”

Amount $U.S. Million

$285

$166

$217

$357

$330

$192

$306

$601

$216

$431

Source: Wikipedia.

Barclay CTA Index

S&P 500 Index

SUMMARY OF MANAGED FUTURES INVESTMENT PERFORMANCE AND CORRELATION

Patterns of Managed Futures ReturnsIndexed Performance of Barclay CTA Index vs. S&P 500 Index (1990-1999)

Barclay CTA Index S&P 500 Index

Investment performance of the Barclay CTA Index may be more volatile than investment performance of the S&P 500 Index. There is no guaranteethat an investment in Managed Futures or the Barclay CTA index will achieve its objectives, and investors may suffer losses.Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.

Morgan Stanley Smith Barney Investment Strategy

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

0

20

40

60

80

100

120

140

160

180

200

Indexed Performance of Barclay CTA Index Versus S&P 500 Index2000 – 2009 Indexed to 100

29

First Decade of the Twenty-First Century

Source: Bloomberg LLC.

2000“How the Grinch Stole Christmas”

2001“Harry Potter & theSorcerer’s Stone”

2002“Spiderman”

2003“Lord of the Rings:Return of the King”

2004“Shrek 2”

2005“Star Wars: Episode III- Revenge of the Sith”

2006“Pirates of the Caribbean:Dead Man’s Chest”

2007“Spider-Man 3”

2008“The Dark Night”

2009“Avatar”

$260

$318

$404

$377

$436

$380

$423

$337

$533

$761

Top Grossing U.S. Movies in the 2000s

TitleAmount

$U.S. Million

Source: IMDb

Barclay CTA Index

S&P 500 Index

SUMMARY OF MANAGED FUTURES INVESTMENT PERFORMANCE AND CORRELATION

Patterns of Managed Futures ReturnsIndexed Performance of Barclay CTA Index vs. S&P 500 Index (2000-2009)

Barclay CTA Index Total Return (%)S&P 500 Index Total Return (%)

+7.9 +0.8 +12.4 +8.7 +3.3 +1.7 +3.5 +7.6 +14.1 -0.1

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

-9.1 -11.9 -22.1 +28.7 +10.9 +4.9 +15.8 +5.5 -37.0 +26.5

Barclay CTA Index S&P 500 Index

Investment performance of the Barclay CTA Index may be more volatile than investment performance of the S&P 500 Index. There is no guaranteethat an investment in Managed Futures or the Barclay CTA index will achieve its objectives, and investors may suffer losses.Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.

Morgan Stanley Smith Barney Investment Strategy

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

0

10

20

30

40

50

60

70

80

90

<(10.5%)

(10.5%) to

(9.0%)

(9.0%) to

(7.5%)

(7.5%) to

(6.0%)

(6.0%) to

(4.5%)

(4.5%) to

(3.0%)

(3.0%) to

(1.5%)

(1.5%) to

0.0%

0.0% to

1.5%

1.5% to

3.0%

3.0% to

4.5%

4.5% to

6.0%

6.0% to

7.5%

7.5% to

9.0%

9.0% to

10.5%

≥10.5%

Barclay CTA Index and S&P 500 IndexTotal Monthly Periods = 380

# of Months

30

Source: Morgan Stanley Smith Barney Investment Strategy; Bloomberg, LLC.; FactSet.

Percentage Monthly Return

Relative Skewness SK =

Excess Kurtosis =

n

n

i = 1(Xi – X) 4

1s4 3

Skewness represents the extent to which a distribution is not symmetrical. A positively skewed distribution has many outliers in the right tail, and a negatively skewed distribution has many outliers in the left tail.

n

n

i = 1(Xi – X) 3

1s3

Value > 0.5 Tends to indicate largelevels of Skewness

Kurtosis is a measure of the degree to which a distribution is more or less “peaked” than a normal distribution. Leptokurtic distributions are more peaked than a normal distribution, and platykurtic distributions are less peaked (flatter) than a normal distribution. A leptokurtic returns distribution generally has more returns clustered around the mean and more returns with large deviations from the mean (fatter tails). Relative to a normal distribution, a leptokurtic distribution will have a greater percentage of small deviations from the mean and a greater percentage of extremely large deviations from the mean.

Value > 1.0 Tends to indicateexcess Kurtosis

s = population standard deviation

s = population standard deviation

SUMMARY OF MANAGED FUTURES INVESTMENT PERFORMANCE AND CORRELATION

Distribution of Monthly Returns1980 – August 2011

Barclay CTA Index S&P 500 Index

Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.

Morgan Stanley Smith Barney Investment Strategy

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

(0.8) (0.6) (0.4) (0.2) 0.0 0.2 0.4

10-Year U.S. Treasury Note

MSCI EAFE Index

S&P 500 Index

Cash

NASDAQ Composite

Gold

Historical Correlations of Annual Returns with Managed Futures (1980 – 1989)

The Nineteen Eighties

Year Total Return (%)1980 55.671981 15.111982 56.581983 3.461984 22.911985 33.591986 19.201987 62.011988 15.871989 2.171990 25.851991 6.921992 1.451993 11.841994 2.741995 12.461996 12.481997 13.221998 10.601999 1.262000 10.462001 4.922002 13.402003 11.072004 3.832005 2.442006 5.662007 11.572008 21.762009 0.612010 14.29

CISDM CTA Equal-Weighted Index

31

Source: Morgan Stanley Smith Barney Investment Strategy; FactSet; Bloomberg LLC; BarclayHedge, Ltd.Notes:1. Managed Futures returns represent annual returns data for the Barclay CTA Index.2. Cash returns represent annual returns data for the 90-day U.S Treasury Bill represented by the Citigroup 3-Month Treasury Bill Index.3. Gold returns represent annual returns data for the Handy & Harman spot gold price.4. International Bond returns represent annual returns data for the J.P. Morgan GBI Global Ex United States. The inception year for these data was 1988 thus, sufficient data are not

available for the 1980-1989 and 1980-2009 periods represented on this page. 5. Hedge Fund returns represent annual returns data for the HFRI Weighted Composite Hedge Fund Index. The inception year for these data was 1990; thus, data are not available for

the 1980-1989 and 1980-2009 periods represented on this page.

(2)

(3)

The CISDM CTA Equal-Weighted Index reflects the average performance of Commodity Trading Advisors (CTAs) reporting to the CISDM Hedge Fund/CTA Database. In order to be included in the equally weighted index universe, a CTA must have at least $500,000 under management and at least a 12-month track record.

The CISDM CTA Equal-Weighted Index

Source: Bloomberg, LLC.

SUMMARY OF MANAGED FUTURES INVESTMENT PERFORMANCE AND CORRELATION

Correlations of Annual Returns of Managed Futures withOther Asset Classes(1)

For Select Periods Within the 1980-2009 Time Frame

(0.6) (0.4) (0.2) 0.0 0.2 0.4 0.6 0.8

10-Year U.S. Treasury NoteMSCI EAFE Index

S&P 500 IndexCash

NASDAQ CompositeGold

International BondsHedge Funds

Historical Correlations of Annual Returns with Managed Futures (1990 – 1999)

The Nineteen Nineties

(0.6) (0.4) (0.2) 0.0 0.2 0.4 0.6 0.8

10-Year U.S. Treasury NoteMSCI EAFE Index

S&P 500 IndexCash

NASDAQ CompositeGold

International BondsHedge Funds

Historical Correlations of Annual Returns with Managed Futures (1990 – 2009)

The 20 Years From 1990 – 2009

(0.1) 0.0 0.1 0.2 0.3 0.4 0.5 0.6

10-Year U.S. Treasury Note

MSCI EAFE Index

S&P 500 Index

Cash

NASDAQ Composite

Gold

Historical Correlations of Annual Returns with Managed Futures (1980 – 2009)

The 30 Years From 1980 – 2009

(4)

(5)

(2)

(3)(2)

(3)

(4)(5)

(2)

(3)

Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.

Morgan Stanley Smith Barney Investment Strategy

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

Monthly Returns Data (1994-2009)AverageMonthly

Return (%)

Std. Dev. of Annualized

Monthly ReturnsSkewness of

Monthly ReturnsKurtosis of

Monthly ReturnsManaged Futures Indices

Barclay CTA Index 0.52 7.74 0.30 0.20Barclay Top 50% Managed Futures Index 0.61 9.11 0.32 0.47Dow Jones Credit Suisse Managed Futures Hedge Fund Index 0.57 11.79 0.03 0.11Thomson Reuters/Jefferies CRB Commodity Index 0.57 16.24 -0.54 2.62CISDM CTA Equal-Weighted Index 0.71 8.59 0.46 0.13

Hedge Fund IndicesHFRI Fixed Income-Convertible Arbitrage 0.69 7.44 -3.01 25.75HFRI Event Driven 0.90 6.97 -1.37 4.69HFRI Macro Index 0.77 6.79 0.13 1.09

Equity IndicesS&P 500 Total Return 0.71 15.52 -0.77 1.20NASDAQ Composite 0.83 25.44 -0.39 0.97MSCI EAFE 0.53 16.44 -0.77 1.96

Fixed Income Indices10-Year U.S. Treasury Bond 0.47 7.58 0.02 1.54Barclays Capital U.S. Aggregate 0.51 3.88 -0.27 0.90J.P. Morgan GBI Global Ex-US 0.55 8.44 0.26 0.49

Statistical Analysis for Managed Futures, Hedge Funds, Equities, and Bonds

Annual Returns Data (1994-2009)AverageAnnual

Return (%)Std. Dev. of

Annual ReturnsSkewness of

Annual ReturnsKurtosis of

Annual ReturnsManaged Futures Indices

Barclay CTA Index 6.17 5.18 0.03 -1.35Barclay Top 50% Managed Futures Index 7.35 6.25 -0.34 -1.10Dow Jones Credit Suisse Managed Futures Hedge Fund Index 6.64 8.81 -0.02 -0.96Thomson Reuters/Jefferies CRB Commodity Index 7.71 22.82 -0.94 -0.58CISDM CTA Equal-Weighted Index 8.66 5.80 0.41 -0.04

Hedge Fund IndicesHFRI Fixed Income-Convertible Arbitrage 9.73 18.34 0.53 5.20HFRI Event Driven 11.91 13.09 -1.10 1.47HFRI Macro Index 9.66 8.33 0.90 0.92

Equity IndicesS&P 500 Total Return 9.81 21.29 -0.76 -0.09NASDAQ Composite 12.32 34.99 0.20 -0.19MSCI EAFE 7.53 21.84 -0.86 0.47

Fixed Income Indices10-Year U.S. Treasury Bond 5.91 10.02 0.04 -0.74Barclays Capital U.S. Aggregate 6.27 5.07 0.50 1.32J.P. Morgan GBI Global Ex-US 6.91 10.08 0.00 -1.19

Statistical Analysis for Managed Futures, Hedge Funds, Equities, and Bonds

32

Notes:1. Skewness characterizes the degree of asymmetry of a distribution around its mean. Positive skewness indicates a distribution with an asymmetric tail extending toward more positive

values. Negative skewness indicates a distribution with an asymmetric tail extending toward more negative values.2. Kurtosis characterizes the relative peakedness or flatness of a distribution compared with the normal distribution. Positive kurtosis indicates a relatively peaked distribution. Negative

kurtosis indicates a relatively flat distribution.

Source: Morgan Stanley Smith Barney Investment Strategy; FactSet; Bloomberg LLC; Hedge Fund Research International; BarclayHedge, Ltd.

Using monthly total returns data for the 1994-2009 time period, the performance of Managed Futures indices may be compared with the investment performance of indices representing other asset classes as follows:

Managed Futures Indices Compared with

Hedge Fund Indices

Equity Indices

Fixed Income Indices

Avg.Monthly Return of Managed Futures

Std. Dev. of Annualized Monthly Returns of Managed Futures

Generally lower

Generally lower

Similar

Generallyhigher

Generally lower

Generally higher

Managed Futures Indices Compared with

Hedge Fund Indices

Equity Indices

Fixed Income Indices

Skewness of Monthly Returns of Managed Futures

Kurtosis of Monthly Returns of Managed Futures

Considerably more positive

Considerably more positive

Generally more positive

Considerably lower

Considerably lower

Considerably lower Investment performance of the Barclay CTA Index may be more volatile than investment performance of the indices listed in the above table. There is

no guarantee that an investment in Managed Futures or the Barclay CTA index will achieve its objectives, and investors may suffer losses.

SUMMARY OF MANAGED FUTURES INVESTMENT PERFORMANCE AND CORRELATION

Analysis of Select Asset Class ReturnsMonthly & Annual Returns Data 1994–2009

Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.

Morgan Stanley Smith Barney Investment Strategy

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

Standard Deviation of Annualized Monthly Returns

Barclay CTA Index

Dow Jones Credit Suisse Managed Futures Hedge

Fund Index

Barclay Top 50% Managed Futures Index

Thomson Reuters/Jefferies CRB Commodity Index

CISDM CTA Equal-Weighted IndexHFRI Macro Index

HFRI Fixed Income-Convertible Arbitrage

HFRI Event Driven

NASDAQ Composite

S&P 500 Total Return

MSCI EAFE

10-Year U.S. Treasury Bond

Barclays Capital U.S. Aggregate

J.P. Morgan GBI Global Ex-US

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

0 5 10 15 20 25 30

Risk and Return Data for Select Asset Class Indices(1)

33

Source: Morgan Stanley Smith Barney Investment Strategy; FactSet; Bloomberg LLC; Hedge Fund Research International; BarclayHedge, Ltd.

Aver

age

Mon

thly

Ret

urn

(%)

Oil Rig in the Gulf of Mexico

SUMMARY OF MANAGED FUTURES INVESTMENT PERFORMANCE AND CORRELATION

Analysis of Select Asset Class ReturnsMonthly Returns Data 1994–2009

Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.

Notes:1. See Index Glossary for definitions of select asset class indices

Fixed Income IndicesManaged Futures Indices Hedge Fund Indices Equity Indices

Morgan Stanley Smith Barney Investment Strategy

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

HFRI Macro Index

HFRI Fixed Income-Convertible Arbitrage

HFRI Event Driven

NASDAQ Composite

S&P 500 Total Return

MSCI EAFE

10-Year U.S. Treasury Bond

Barclays Capital U.S. Aggregate

J.P. Morgan GBI Global Ex-US

Barclay CTA Index

Dow Jones Credit Suisse Managed Futures Hedge

Fund Index

Barclay Top 50% Managed Futures Index

Thomson Reuters/Jefferies CRB Commodity Index

CISDM CTA Equal-Weighted Index

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

0 5 10 15 20 25 30 35

Risk and Return Data for Select Asset Class Indices(1)

Standard Deviation of Annual Returns

34

Source: Morgan Stanley Smith Barney Investment Strategy; FactSet; Bloomberg LLC; Hedge Fund Research International; BarclayHedge, Ltd.

Aver

age

Annu

al R

etur

n (%

)

Notes:1. See Index Glossary for definitions of select asset class indices

SUMMARY OF MANAGED FUTURES INVESTMENT PERFORMANCE AND CORRELATION

Analysis of Select Asset Class ReturnsAnnual Returns Data 1994–2009

Components for the Thomson Reuters/ Jefferies CRB Futures Price Index

CommodityIndex

WeightingGroup IWTI Crude Oil 23%

Heating Oil 5%

RBOB Gasoline 5%

Group I Sub-Total 33%

Group IINatural Gas 6%

Corn 6%

Soybeans 6%

Live Cattle 6%

Gold 6%

Aluminum 6%

Copper 6%

Group II Sub-Total 42%

Group IIISugar 5%

Cotton 5%

Coffee 5%

Cocoa 5%

Group III Sub-Total 20%

Group IVNickel 1%

Wheat 1%

Lean Hogs 1%

Orange Juice 1%

Silver 1%

Group IV Sub-Total 5%

Past performance is no guarantee of future results. Estimates of future performance are based on assumptions that may not be realized. This material is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.

Source: Jefferies Group, Inc.; Thomson Reuters.

Fixed Income IndicesManaged Futures Indices Hedge Fund Indices Equity Indices

Morgan Stanley Smith Barney Investment Strategy

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

“Margin Call” (2011)

Director: J.C. Chandor

Starring Kevin Spacey, Paul Bettany, Zachary Quinto, and Demi Moore, “Margin Call”takes place over a 24-hour period at a large investment bank in the early stages of the 2008 financial crisis.

“Wall Street: Money Never Sleeps” (2010)

Director: Oliver Stone

Starring Michael Douglas, ShiaLaBeouf, Josh Brolin, and Carey Mulligan, this sequel to “Wall Street” is set in 2008 as Gordon Gekko looks to mend his relationship with his estranged daughter as well as reclaim his rightful place in the world of finance seven years after his release from prison.

35

Section 3

Overview of the Investment Landscape

Movies about Wall Street and Trading

“Rollover” (1991)

Director: Alan J. Pakula

“Rollover” stars Jane Fonda, who inherits a struggling oil business. In her efforts to revive the company, Fonda manages to increase the chaos and financial problems of the company.

“Boiler Room” (2000)

Director: Ben Younger

Starring Giovanni Ribisi and Vin Deisel, “Boiler Room”depicts the story of a young hustler who joins a high-flying, cutthroat trading firm in an effort to win back the favor of his father.

“Wall Street” (1987)

Director: Oliver Stone

“Wall Street” stars Michael Douglas, who plays Gordon Gekko, a stock speculator, and Charlie Sheen, who plays the role of Bud Fox, a tenacious rookie stockbroker who is eager to get to the top.

“Glengarry Glen Ross”(1992)

Director: James Foley

“Glengarry Glen Ross” stars Al Pacino, Jack Lemmon, Alec Baldwin, Ed Harris, and Alan Harkin. The underlying story highlights greed in capitalism and depicts how far some people will go to succeed.

“Pi” (1999)

Director: Darren Aronofsky

“Pi” stars actor Sean Gullette, who plays Max Cohen, a man who is obsessed with numbers and believes that everything in the universe can be explained by mathematical patterns. Max attempts to discover a mathematical code to predict movements in the stock market.

“Trading Places” (1983)

Director: John Landis“Trading Places” is a comedy starring Eddie Murphy, Dan Aykroyd, Ralph Bellamy, and Don Ameche. In the movie, Murphy and Aykroyd, who play Billy Ray Valentine and Louis Winthorpe III, make a fortune for themselves when they corner the market for frozen concentrated orange juice futures.

“Inside Job” (2010)

Director: Charles H. FergusonThe film is described by Ferguson as being about “ the systemic corruption of the United States by the financial services industry and the consequences of that systemic corruption.” The film explores how changes in the policy environment and banking practices helped create the financial crisis in 2008.

“Too Big to Fail” (2011)

Director: Curtis Hanson

Based on the book of the same name by Andrew Ross Sorkin, “Too Big To Fail,” starring William Hurt, Paul Giamatti, Billy Crudup, and Topher Grace, offers an intimate look at the financial crisis of 2008 and the powerful men and women who decided the fate of the world’s economy in a matter of weeks.

Morgan Stanley Smith Barney Investment Strategy

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

36

Source: Morgan Stanley Smith Barney Managed Futures Department; BarclayHedge, Ltd.

The Morgan Stanley Individual Investor Group’s Managed Futures “Hall of Fame”In alphabetical order, many of the distinguished contributors to the development of the Futures and Managed Futures Industries include:

Fischer Black (1938-1995) – Co-Author of the Black-Scholes options pricing formulaRichard Donchian (1905-1993) – A pioneer in futures money managementTerrence Duffy – Chairman, Chicago Mercantile ExchangeJohn W. Henry – Founder, John W. Henry & CompanyLeo Melamed – Chairman Emeritus, Chicago Mercantile ExchangeRobert Merton – Harvard Business School professor and 1997 Nobel Prize in Economic Sciences laureateRichard Sandor – Former Vice Chairman, Chicago Board of Trade and Founder of the Chicago Climate Exchange (CCX)Myron Scholes – Co-Author of the Black-Scholes options pricing formula and 1997 Nobel Prize in Economic Sciences laureate Tom Schneeweis – Director of the Center for International Securities and Derivatives Markets (CISDM) and finance professor at the University of MassachusettsKen Tropin – Founder and Chairman of Graham Capital Management and former Chairman of the Managed Funds AssociationPaul Tudor Jones – Chairman and CEO, Tudor Investment Corporation

OVERVIEW OF THE INVESTMENT LANDSCAPE

The Top 50 CTAs Ranked by Assets Under ManagementAs of June 30, 2011

As of June 30, 2011

Rank Advisor Assets Under

Mgmt. ($Million) Rank AdvisorAssets Under

Mgmt. ($Million)1 Man-AHL Ltd. 23,900.0 26 BlueGold Capital Management 1,700.0 2 Winton Capital Management 22,440.0 27 Armajaro Asset Management 1,690.9 3 Transtrend B.V. 10,209.0 28 Altis Partners (Jersey) Ltd. 1,426.1 4 BlueCrest Capital Management 9,400.0 29 Tudor Investment Corporation 1,423.5 5 Blenheim Capital Management 8,601.0 30 QFS Asset Management 1,391.0 6 Graham Capital Management 8,464.1 31 GLC Ltd. 1,390.0 7 FX Concepts, LLC. 6,510.7 32 GMO Australia 1,286.4 8 Aspect Capital 5,015.0 33 Cantab Capital Partners 1,261.0 9 Brummer & Partners 4,485.6 34 Mesirow Financial Commodities Mgmt, LLC 1,200.0 10 Harness Investment Group 4,431.0 35 Aisling Analytics Pte Ltd. 1,184.0 11 Crabel Capital Management 4,177.2 36 Estlander & Partners 1,162.1 12 Quantitative Investment Management 4,173.4 37 Amplitude Capital AG 967.3 13 Capital Fund Management 3,700.0 38 Chesapeake Capital Corporation 940.2 14 Renaissance Technologies LLC 3,127.7 39 Welton Investment Corporation 922.0 15 Campbell & Company 2,581.0 40 Conquest Capital Group 859.0 16 Ortus Capital Management 2,523.0 41 Revolution Capital Management 839.2 17 IKOS CIF 2,198.9 42 NuWave Investment Management 835.9 18 FDO Partners LLC 2,193.0 43 Mapleridge Capital Corporation 827.6 19 P/E Investments 2,154.0 44 Quality Capital Management 826.0 20 Two Sigma Investments 2,100.0 45 The Cambridge Strategy (Asset Management) 822.0 21 Kaiser Trading Group 2,000.0 46 Harmonic Capital 821.0 22 Millburn Ridgefield 1,909.8 47 Informed Portfolio Management (IPM) 783.0 23 Eagle Trading Systems 1,802.0 48 Eckhardt Trading Company 781.5 24 Boronia Capital 1,785.0 49 QuantMetrics Capital Management 762.8 25 Skandinaviska Enskilda Banken AB 1,760.5 50 Ramsey Quantitative Systems Inc. 754.0

Top 50 CTAs Ranked by Assets Under Management

Morgan Stanley Smith Barney Investment Strategy

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

Interest Rate Stock Index Agricultural Metals EnergyFutures Futures Foreign Exchange Futures Futures Futures FuturesAustralian Bank Bills CAC 40 Korean Won Canola Oil Aluminum Brent Crude Oil

Australian T-Bonds Canada S&P TSX 60 Australian Dollar Mexican Peso Cocoa Copper WTI Crude Oil

British Long Gilt CBOE VIX Brazilian Real New Zealand Dollar Coffee Gold Emissions

British Short Sterling DAX British Pound Norwegian Krone Corn Lead Ethanol

Canadian Bankers Acceptances Dow Jones Industrial Canadian Dollar Polish Zloty Cotton Nickel Gas Oil

Canadian Gov't Bonds EURO STOXX 50 Chinese Yuan Russian Ruble Feeder Cattle Palladium Heating Oil

Euribor FTSE 100 Czech Koruna South African Rand Fluid Milk Platinum Jet Fuel

Eurodollar Hang Seng Euro Swedish Krona Lean Hogs Silver Kerosene

Euroswiss IBEX-35 PLUS Hungarian Forint Swiss Franc Live Cattle Tin Natural Gas

Euroyen MIB 30 Israeli Shekel Turkish Lira Lumber Zinc Unleaded Gas

Euro Bonds NASDAQ 100 Japanese Yen U.S. Dollar Oats

Japanese Gov't Bonds Nikkei 225 Orange Juice

New Zealand Bills OMX Stockholm 30 Raw Beans

Spanish Gov't Bonds Russell 2000 Rice

Swiss Gov't Bonds S&P 500 Rubber

U.S. T-Bonds S&P / ASX 200 Soybeans

U.S. T-Bills STOXX Europe 600 Index Sugar

Taiwan Stock Index Wheat

Topix Stock Index

Source: Morgan Stanley Smith Barney Managed Futures Department. 37

In addition to trading activity in the spot or cash instruments underlying a given futures contract, options, forwards, swaps, swaptions, and other listed and/or unlisted instruments may be used by Managed Futures Funds in their risk assumption and risk reduction activities.

A significant portion of CTA trading activity tends to be concentrated in these sectors:

OVERVIEW OF THE INVESTMENT LANDSCAPE

Select Traded Futures Markets

Morgan Stanley Smith Barney Investment Strategy

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

38Source: Commodity Futures Trading Commission; Futures Industry Association

IL

MA

MO

NY

MN

PA

TX

OVERVIEW OF THE INVESTMENT LANDSCAPE

Global Futures Exchanges and ClearinghousesSelect State Flags

Organization LocationAustralian Securities Exchange (ASX24) AustraliaBolsa de Mercadorias & Futuros Brazil

Dalian Commodity Exchange China

Dubai Mercantile Exchange Dubai

Eurex Exchange Europe

Hong Kong Exchanges and Clearing Hong Kong

Ice Futures Canada Canada

Ice Futures Europe United Kingdom

JSE Securities Exchange South Africa

Korea Exchange Korea London Metal Exchange United KingdomMEFF Renta SpainMontreal Exchange CanadaMulti Commodity Exchange IndiaNational Commodity & Derivatives Exchange IndiaNYSE Liffe European Derivatives market United Kingdom

OMX Exchanges Sweden / NorwayOsaka Securities Exchange Japan

Shanghai Futures Exchange China

Singapore Exchange Singapore

Taiwan Futures Exchange TaiwanTokyo Commodity Exchange Japan

Tokyo Financial Exchange Japan

Tokyo Stock Exchange Japan

Turkish Derivatives Exchange Turkish

Zhengzhou Commodity Exchange China

Select International Commodity & Futures/Options Exchanges (Regulated by the Commodity Futures Trading Commission)

Exchange LocationChicago Board of Trade ChicagoChicago Mercantile Exchange ChicagoOne Chicago Futures Exchange ChicagoCBOE Futures Exchange ChicagoChicago Climate Futures Exchange ChicagoNorth American Derivatives Exchange ChicagoKansas City Board of Trade Kansas CityMinneapolis Grain Exchange MinneapolisThe Trend Exchange MinneapolisCantor Financial Futures Exchange New YorkICE Futures New YorkNew York Mercantile Exchange New YorkCommodity Exchange Division New YorkNASDAQ OMX Futures Exchange New YorkELX Futures New YorkGreen Exchange New YorkNYSE Liffe US New YorkFutureCom Texas

Regulated Commodity Exchanges in the United States

(Registered with the Commodity Futures Trading Commission)

Organization LocationChicago Board of Trade ChicagoClearing Corporation ChicagoCME Clearinghouse ChicagoNorth American Derivatives ChicagoOptions Clearing Corporation ChicagoKansas City Board of Trade Kansas CityMinneapolis Grain Exchange Clearinghouse MinneapolisCantor Clearinghouse New YorkIce Clear Credit New YorkIce Clear US New YorkInternational Derivatives Clearinghouse New YorkNew York Portfolio Clearing New YorkNew York Mercantile Exchange Clearinghouse New York

Registered Derivatives Clearing Organizations in the U.S.

Morgan Stanley Smith Barney Investment Strategy

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

39

Section 4

Additional Sources & Disclosures

Morgan Stanley Smith Barney Investment Strategy

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

40

ADDITIONAL SOURCES & DISCLOSURES

Index Glossary

90-Day Treasury Bill: Short-term obligations issued by the United States government. T-bills are purchased at a discount to the full face value, and the investor receives the full value when they mature. The difference or “discount” is the interest earned. T-Bills are issued in denominations of $10,000 (auction) and $1,000 increments thereafter.

Barclay CTA Index: The Barclay CTA Index is a leading industry benchmark of representative performance of commodity trading advisors. There are currently 565 programs included in the calculation of the Barclay CTA Index for the year 2011, which is unweighted and rebalanced at the beginning of each year. To qualify for inclusion in the CTA Index, an advisor must have four years of prior performance history.

Barclay Agricultural Traders Index: The Barclay Agricultural Traders Index is an equal-weighted composite of managed programs that trade agricultural markets, such as grains, meats, foods. In 2011, 29 agricultural programs were included in the index.

Barclay Currency Traders Index: The Barclay Currency Traders Index is an equal-weighted composite of managed programs that trade currency futures and/or cash forwards in the interbank market. In 2011, 117 currency programs were included in the index.

Barclay Discretionary Traders Index: The Barclay Discretionary Traders Index is an equal-weighted composite of managed programs whose approach is at least 65% discretionary or judgmental. In 2011, 150 discretionary programs were included in the index.

Barclay Diversified Traders Index: The Barclay Diversified Traders Index is an equal-weighted composite of managed programs that trade a diversified portfolio. In 2011, 360 diversified programs were included in the index.

Barclay Financial & Metals Traders Index: The Barclay Financial & Metals Traders Index is an equal-weighted composite of managed programs that trade primarily financial or financial and metals. In 2011, 98 financial/metals programs were included in the index.

Barclay Systematic Traders Index: The Barclay Systematic Traders Index is an equal-weighted composite of managed programs whose approach is at least 95% systematic. In 2011, 457 systematic programs were included in the index.

Barclay Top 50 Index: The Barclay Top 50 Index seeks to replicate the overall composition of the managed futures industry with regard to trading style and overall market exposure. The BTOP 50 employs a top-down approach in selecting its constituents, which include 50 of the largest CTAs in the Barclay CTA universe.

Barclays Capital U.S. Aggregate Bond Index: The Barclays Capital U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS, and CMBS.

Morgan Stanley Smith Barney Investment Strategy

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

41

ADDITIONAL SOURCES & DISCLOSURES

Index Glossary

CISDM CTA Equal-Weighted Index: The CISDM CTA Equal-Weighted Index reflects the average performance of Commodity Trading Advisors (CTAs) reporting to the CISDM Hedge Fund/CTA Database. In order to be included in the equally weighted index universe, a CTA must have at least $500,000 under management and at least a 12-month track record.

Citigroup 10-Year Treasury Note Index: The Citigroup 10-Year Benchmark Index measures the total return for the current ten-year on-the-run Treasuries that settle by the end of the calendar month and the two shorter and two longer issues in the Treasury Index nearest the ten-year benchmark maturity. Callable bonds are excluded form this index.

Citigroup 3-Month Treasury Bill Index: The Citigroup 3-Month T-Bill Index is a market value-weighted index of public obligations of the U.S. Treasury with maturities of three months

Dow Jones Credit Suisse Managed Futures Hedge Fund Index: The Dow Jones Credit Suisse Managed Futures Hedge Fund Index is an asset-weighted hedge fund index derived from the TASS database of more than 5,000 funds. The strategy invests in listed financial and commodity futures markets and currency markets around the world. For more information, please refer to the index website at www.hedgeindex.com.

Handy & Harman Gold Bullion Spot Price: The Handy & Harman Gold Bullion Spot Price tracks the price of gold in US dollars per troy ounce.

HFRI Fund Weighted Composite Index: The HFRI Fund Weighted Composite Index is a global, equal-weighted index of over 2,000 single-manager funds that report to HFR Database. Constituent funds report monthly net of all fees performance in U.S. Dollar and have a minimum of $50 Million under management or a twelve (12) month track record of active performance. The HFRI Fund Weighted Composite Index does not include Funds of Hedge Funds. Performance of the HFRI indices are expressed in index values.

HFRI Event-Driven (Total) Index: The Event-Driven index is composed of investment managers who maintain positions in companies currently or prospectively involved in corporate transactions of a wide variety including but not limited to mergers, restructurings, financial distress, tender offers, shareholder buybacks, debt exchanges, security issuance or other capital structure adjustments. Security types can range from most senior in the capital structure to most junior or subordinated, and frequently involve additional derivative securities. Event-Driven exposure includes a combination of sensitivities to equity markets, credit markets and idiosyncratic, company specific developments. Investment theses are typically predicated on fundamental characteristics (as opposed to quantitative), with the realization of the thesis predicated on a specific development exogenous to the existing capital structure. The HFRI Event-Driven (total) Index is a global, equal-weighted index. Constituent funds report monthly net of all fees performance in U.S. Dollar and have a minimum of $50 Million under management or a twelve (12) month track record of active performance. Performance of the HFRI indices are expressed in index values.

Morgan Stanley Smith Barney Investment Strategy

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

42

ADDITIONAL SOURCES & DISCLOSURES

Index Glossary

HFRI Macro (Total) Index: The HFRI Macro (Total) Index is composed of investment managers which trade a broad range of strategies in which the investment process is predicated on movements in underlying economic variables and the impact these have on equity, fixed income, hard currency and commodity markets. Managers employ a variety of techniques, both discretionary and systematic analysis, combinations of top down and bottom up theses, quantitative and fundamental approaches and long and short term holding periods. Although some strategies employ Relative Value techniques, Macro strategies are distinct from Relative Value strategies in that the primary investment thesis is predicated on predicted or future movements in the underlying instruments, rather than realization of a valuation discrepancy between securities. In a similar way, while both Macro and Equity Hedge managers may hold equity securities, the overriding investment thesis is predicated on the impact movements in underlying macroeconomic variables may have on security prices, as opposed to Equity Hedge, in which the fundamental characteristics of the company are the most significant and integral to investment thesis. The HFRI Macro (Total) Index is a global, equal-weighted index. Constituent funds report monthly net of all fees performance in U.S. Dollar and have a minimum of $50 Million under management or a twelve (12) month track record of active performance. Performance of the HFRI indices are expressed in index values.

HFRI Relative Value: Fixed Income – Convertible Arbitrage Index: The HFRI Relative Value: Fixed Income – Convertible Arbitrage Index includes strategies in which the investment thesis is predicated on realization of a spread between related instruments in which one or multiple components of the spread is a convertible fixed income instrument. Strategies employ an investment process designed to isolate attractive opportunities between the price of a convertible security and the price of a non-convertible security, typically of the same issuer. Convertible arbitrage positions maintain characteristic sensitivities to credit quality the issuer, implied and realized volatility of the underlying instruments, levels of interest rates and the valuation of the issuer's equity, among other more general market and idiosyncratic sensitivities. The HFRI Relative Value: Fixed Income – Convertible Arbitrage Index is a global, equal-weighted index. Constituent funds report monthly net of all fees performance in U.S. Dollar and have a minimum of $50 Million under management or a twelve (12) month track record of active performance. Performance of the HFRI indices are expressed in index values.

J.P. Morgan GBI Global Ex-U.S. Index: The J.P. Morgan GBI Global Ex-U.S. Index is a part of the Government Bond Index series which provides a comprehensive measure of local currency denominated fixed rate government debt issued in developed markets. There is no minimum size requirement and, at rebalance, all bonds must have at least 13 months remaining until maturity, however, liquidity requirements usually have the effect of excluding the relatively smaller issues in each market.

Morgan Stanley Smith Barney Investment Strategy

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ADDITIONAL SOURCES & DISCLOSURES

Index Glossary

MSCI EAFE Index: The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measuredeveloped market equity performance, excluding the U.S. and Canada.

NASDAQ Composite Index: The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on the NASDAQ Stock Market. The Index is market-value weighted. The NASDAQ Composite includes over 5,000 companies, more than most other stock market indexes. Because it is so broad-based, the Composite is one of the most widely followed and quoted major market indexes.

S&P 500 Index: The S&P 500 Index is a free-float capitalization-weighted index of 500 large-cap common stocks actively traded in the United States. The included stocks trade on either one of the two largest American stock market exchanges; the New York Stock Exchange and the NASDAQ. With over 80% coverage of U.S. equities, it is widely regarded as an ideal proxy for the U.S. equities market.

Thomson Reuters/Jefferies CRB Futures Index: The Thomson Reuters/Jefferies CRB Futures Index has served as a widely recognized measure of global commodities markets for nearly 50 years. The CRB Index is designed to provide timely and accurate representation of a long-only, broadly diversified investment in commodities.

Morgan Stanley Smith Barney Investment Strategy

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Websites• Center for International Securities and Derivatives Markets (CISDM). www.cisdm.org• CME Group. www.cmegroup.com.• Commodity Futures Trading Commission. www.cftc.com.• Eurex Futures and Options Exchange. www.eurexchange.com.• Futures Industry Association. www.futuresindustry.org.• London Metal Exchange. www.lme.co.uk.• Managed Funds Association www.managedfunds.org• National Futures Association. www.nfa.futures.org.• BarclayHedge, Ltd. www.barclayhedge.com.

Books• Bernstein, Jacob. How the Futures Markets Work. Prentice Hall Press, 2000.• Burghardt, Galen and Brian Walls. Managed Futures for Institutional Investors: Analysis and Portfolio

Construction (Bloomberg Financial). Bloomberg Press, 2011. • Chandler, Beverly. Managed Futures: An Investor’s Guide. Wiley, 1994.• Covel, Michael W. The Complete TurtleTrader: How 23 Novice Investors Became Overnight Millionaires. Harper

Paperbacks, 2009.• Gregoriou, Greg N. and Joe Zhu. Evaluating Hedge Fund and CTA Performance: Data Envelopment Analysis

Approach. Wiley, 2005.• Hull, John C. Fundamentals of Futures and Options Markets. Pearson, 2001.• Kleinman, George. Commodity Futures and Options. Prentice Hall, 2000.• Lambert, Emily. The Futures: The Rise of the Speculator and the Origins of the World's Biggest Markets. Basic

Books, 2010.• Schwager, Jack. A Complete Guide to the Futures Markets: Fundamental Analysis, Technical Analysis, Trading,

Spreads, and Options.Wiley, 1984.• Waldron, Richard E. Futures 101: An Introduction to Commodities Trading. Squantum Publishing, 1997.

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• The sources listed here may serve as useful resources for more information on Managed Futures and Managed Futures Funds

• Morgan Stanley Smith Barney’s Managed Futures Department can be reached at 212-296-1999.

ADDITIONAL SOURCES & DISCLOSURES

Select Information Sources

Morgan Stanley Smith Barney Investment Strategy

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

Journals / Publications• Abrams, Ryan, Ranjan Bhaduri, and Elizabeth Flores. “Lintner Revisited: A Quantitative Analysis of Managed

Futures in an Institutional Portfolio.” CMEGroup.com. CME Group, 2009. • Barclay Managed Funds Report, published quarterly by BarclayHedge, Ltd..• Brorsen, Wade B; Townsend, John P; “Performance Persistence for Managed Futures.” 2002 Journal of

Alternative Investments, Volume 4, Number 4, pp. 57 – 61.• Chung, Sam Y.; “The Risks and Rewards of Investing in Commodity-Based Indices.” 2000 Journal of Alternative

Investments, Volume 3, Number 1, pp. 32-44• Edwards, Franklin and James Park. “Do Managed Futures Make Good Investments?” Journal of Futures Markets,

16 (1996), pp. 475-517.• Elton, E. and M. Gruber. “Professionally Managed, Publicly Traded Commodity Funds.” Journal of Business, 50

(1987), pp. 175-199.• Introduction to Hedging with Futures and Options, published by the Chicago Board of Trade.• Jensen, Gerald R.; Mercer, Jeffrey M.; Johnson, Robert R.; “Tactical Asset Allocation and Commodity Futures.”

2002 Journal of Portfolio Management, Volume 28, Number 4, pp. 100-111.• Labuszewski, John W. “Why Managed Futures?” CMEGroup.com. CME Group, 2008. • Managing Risk for Managed Futures, Schweser Study Program, 2004.• Monthly Review of Commodity Trading Advisors’ Investment Performance, published by Barron’s magazine. • Schneeweis, Thomas and Richard Spurgin. “Quantitative Analysis of Hedge Fund and Managed Futures Return

and Risk Characteristics.” University of Massachusetts Amherst, 1999.• Schneeweis, Thomas, Richard Spurgin, and David McCarthy. “Survivorship Bias in Commodity Trading

Advisors.” Journal of Futures Markets 16 (1996), pp. 757-772.• Schneeweis, Thomas and Georgi Georgiev. “The Benefits of Managed Futures.” University of Massachusetts

Amherst, June 2002.

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• The sources listed here may serve as useful resources for more information on Managed Futures and Managed Futures Funds

• Morgan Stanley Smith Barney’s Managed Futures Department can be reached at 212-296-1999.

ADDITIONAL SOURCES & DISCLOSURES

Select Information Sources

Morgan Stanley Smith Barney Investment Strategy

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

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ADDITIONAL SOURCES & DISCLOSURES

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.

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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 investor’s 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. Actualevents 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.

Alternative investments which may be referenced in this report, including private equity funds, real estate funds, hedge funds, managed futures funds, and funds of hedge funds, private equity, and managed futures funds, are speculative and entail significant risks that can include losses due to leveraging or other speculative investment practices, lack of liquidity, volatility of returns, restrictions on transferring interests in a fund, potential lack of diversification, absence and/or delay of information regarding valuations and pricing, complex tax structures and delays in tax reporting, less regulation and higher fees than mutual funds and risks associated with the operations, personnel and processes of the advisor.

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.

Morgan Stanley Smith Barney Investment Strategy

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ADDITIONAL SOURCES & DISCLOSURES

Disclosures (cont’d)

Physical precious metals are non-regulated products. Precious metals are speculative investments, which may experience short-term and long term price volatility. The value of precious metals investments may fluctuate and may appreciate or decline, depending on market conditions. If sold in a declining market, the price you receive may be less than your original investment. Unlike bonds and stocks, precious metals do not make interest or dividend payments. Therefore, precious metals may not be suitable for investors who require current income. Precious metals are commodities that should be safely stored, which may impose additional costs on the investor. The Securities Investor Protection Corporation (“SIPC”) provides certain protection for customers’ cash and securities in the event of a brokerage firm’s bankruptcy, other financial difficulties, or if customers’ assets are missing. SIPC insurance does not apply to precious metals or other commodities.

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.

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.

REITs investing risks are similar to those associated with direct investments in real estate: property value fluctuations, lack of liquidity, limited diversification and sensitivity to economic factors such as interest rate changes and market recessions.

Because of their narrow focus, sector investments tend to be more volatile than investments that diversify across many sectors and companies.

Before engaging in the purchase or sale of options, potential clients should understand the nature of and extent of their rights and obligations and be aware of the risks involved, including, without limitation, the risks pertaining to the business and financial condition of the issuer of the underlying security or instrument. Options investing, like other forms of investing, involves tax considerations, transaction costs and margin requirements that can significantly affect the profit and loss of buying and writing options. The transaction costs of options investing consist primarily of commissions (which are imposed in opening, closing, exercise and assignment transactions), but may also include margin and interest costs in particular transactions. Transaction costs are especially significant in options strategies calling for multiple purchases and sales of options, such as multiple leg strategies, including spreads, straddles and collars. If you are considering options as part of your investment plan, your Morgan Stanley Smith Barney Financial Advisor or Private Wealth Advisor is required to provide you with the "Characteristics and Risks of Standardized Options" booklet from the Options Clearing Corporation. Clients should not enter into options transactions until they have read and understood the Disclosure Document, as options are not suitable for everyone, and discuss transaction costs with their Financial Advisor or Investment Representative. Please ask your Financial Advisor, Private Wealth Advisor for a copy of the Characteristics and Risks of Standardized Options booklet. A copy of the ODD is also available online at: http://theocc.com/publications/risks/riskchap1.jsp.

Investing in foreign emerging markets entails greater risks than those normally associated with domestic markets, such as political, currency, economic and market risks.

Growth investing does not guarantee a profit or eliminate risk. The stocks of these companies can have relatively high valuations. Because of these high valuations, an investment in a growth stock can be more risky than an investment in a company with more modest growth expectations.

Value investing does not guarantee a profit or eliminate risk. Not all companies whose stocks are considered to be value stocks are able to turn their business around or successfully employ corrective strategies which would result in stock prices that do not rise as initially expected.

Morgan Stanley Smith Barney Investment Strategy

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ADDITIONAL SOURCES & DISCLOSURES

Disclosures (cont’d)

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