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    Introduction to Alternative Investments

    2013

    INVESTMENT PRODUCTS: NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE

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    Table of Contents

    I. Introduction to Alternative Investments

    II. Hedge Funds

    III. Fund of Hedge Funds

    IV. Managed Futures

    V. Private Equity

    VI. Real Estate

    VII. Exchange Funds

    VIII. Appendix

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    I. Introduction to Alternative Investments

    4

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    Introduction to Alternative Investments

    Alternative investments generally refer to a diverse range of investment strategies thatfall outside the traditional, long-only purchase and sale of stocks and bonds

    Hedge Funds, Hedge Fund of Funds, Managed Futures Funds, Private Equity Funds, RealEstate Funds and Exchange Funds

    The appeal of alternative investments lies in their potential to provide attractive risk-adjusted performance, lower volatility and addit ional diversif ication relative to traditionalasset classes1

    The name "alternative investments" suggests new and obscure investments, howeveralternative investments have existed and been established for decades

    Hedge Funds (1949)2, Modern Venture Capital (1946)3, Real Estate (centuries old)

    Alternative investments of ten share a few principal character is tics that help identifythem as such:

    Historically low to moderate correlation with traditional asset classes (stocks and bonds)4

    Not listed on an exchange

    Private investment funds available only to high net worth and institutional investors

    Reduced liquidity1 Diversification does not ensure against loss.

    2 Source: Mark Anson, Handbook of Alternative Assets, (New York: John Wiley & Sons, Inc., 2002), p. 12.

    3 Source: Mark Anson, Handbook of Alternative Assets, (New York: John Wiley & Sons, Inc., 2002), p. 262.

    4Past correlations do not guarantee future correlations. Real results may vary.

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    6

    Major Alternative Asset Classes1

    Hedge Funds

    Privately managed investment funds that uti lize sophisticated strategies in both

    the international and domestic markets. They're designed to potentially offsetlosses during a market downturn and often seek to generate returns higher thantraditional stock and bond investments.

    Fund of FundsActively and professionally managed port fo lios cons isting of mult ip le hedgefunds offering diversification across managers, strategies, styles, and/or sectors.

    Private Equity

    Typically invests globally in nonpublic entities with a value-add approach,

    seeking to acquire undervalued/underperforming entities or ones with signi ficantgrowth potential with the objective of reselling at a higher price in the future.Underlying asset classes include buyouts, venture capital, and mezzanine debt.

    Real EstateNegot iated private investments in real estate assets with the objective ofgenerating current income and/or reselling at a higher value in the future.

    Managed Futures

    Employs professional money managers called Commodity Trading Adv isors to

    direct investments in global currencies, interest rates, equities, metals, energyand agricultural markets through the use of futures, forwards and options on thebasis of technical and fundamental analysis.

    Exchange FundsPrivate vehicles which enable holders of concentrated stock posi tions toexchange those stocks for a diversified portfolio.

    1 Please see the Appendix for Risk Considerations.

    Consider a Different Way to Diversify Your Portfolio

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    7

    Alternative Investments Differ From Traditional Investments

    Alternative InvestmentsAlternative Investments Traditional Investments

    Relative performance objective1

    Limited or no leverage

    Performance generally dependent primarily onmarket returns

    Historically high correlation withmarket indices

    Typically offers daily liquidity

    No performance fees but may include fixedmanagement fees for professionalmanagement

    Absolute performance objective1

    May use leverage

    Performance dependent primarily onalternative investment manager skill

    Historically low to moderate correlation withmarket indices

    Typically have reduced liquidity ranging frommonthly to 12+ year lock-ups

    Generally higher fees which may includeperformance fees2

    1 There is no guarantee that these objectives will be met.2 Generally includes fees such as management and performance fees for professional management.

    Please see the Glossary for key definitions and Appendix for Risk Considerations.

    Alternative investments describe a spectrum of strategies that cannot be accessedthrough traditional fixed income and equity markets.

    These strategies have the potential to help lower volatility and increase

    diversification in clients portfolios.

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    Large College Endowments Are Heavily Invested In Alternatives

    Source: National Association of College and University Business Officers (NACUBO) 2012 study of 831 institutions published March 2013. Portfolio returns are based on data ending June 30,

    2012.This study does not i ndicate the percentage of portfoli o returns attribut able to the allocation to alternatives. Note: The larger the endowment, the better the ability t o diversify.

    Past performance does not guarantee future results. Real results may vary. Traditional Strategies include Equity, Fixed Income and Cash. Alternatives Strategies include Real Estate,

    Hedge Funds, Private Equity, Venture Capital, Natural Resources and Other.

    Portfo lio A llocations for Fiscal Years 2011 and 2012

    TotalInst itutions Over $1 Billion

    $501 Million -$1 Billion

    $101 - $500Million

    $51 - $100Million

    $25 - $50Million

    Under $25Million

    Number of Institutions 823 831 73 68 66 71 251 250 162 164 134 128 137 150

    2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012

    Asset Class

    Traditional 47% 46% 40% 39% 54% 52% 65% 64% 77% 76% 82% 81% 90% 89%

    Alternative Strategies 53% 54% 60% 61% 46% 48% 35% 36% 23% 24% 18% 19% 10% 11%

    Average Five- and 10-Year Net Returns for Fiscal Years 2011 and 2012

    TotalInst itutions Over $1 Billion

    $501 Million -$1 Billion

    $101 - $500Million

    $51 - $100Million

    $25 - $50Million

    Under $25Million

    Number of Institutions 823 831 73 68 66 71 251 250 162 164 134 128 137 150

    2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012

    5-Year Net Return 4.7% 1.1% 5.4% 1.7% 4.8% 1.2% 4.4% 0.7% 4.4% 1.0% 4.7% 1.0% 5.2% 1.5%

    10-Year Net Return 5.6% 6.2% 6.9% 7.6% 6.0% 6.6% 5.3% 6.0% 5.1% 5.7% 5.0% 5.8% 4.9% 5.7%

    For Illustrative Purposes Only

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    Academic Leaders Are Significantly Invested in Alternatives

    Note: The allocations represented here are for illustrative purposes only. Alternative investments are not suitable for all investors.

    Source: Stanford University 2012 Annual Report, Yale Endowment 2012 Annual Report, Harvard Management Company Endowment Report 2012. Stanfords portfolio includes a 6%

    allocation to cash and equivalents and 7% to Natural Resources, Yales Portfolio includes a 3% allocation to cash and 8% to Natural Resources, Harvards Portfolio includes a 15%

    allocation to Natural Resources and equivalents.

    For Illustrative Purposes Only

    16%21%

    10%

    18%15%

    15%

    12%

    35%

    16%

    37%

    14%

    33%

    10% 4%

    11%

    Stanford Yale Harvard

    Strategic Endowment Asset Allocations 2012

    FixedIncomeEquities

    PrivateEquityHedgeFundsRealAssets

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    II. Hedge Funds

    10

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    What is a Hedge Fund?

    A hedge fund is an alternat ive investment strategy that is designed to reduce overal lportfolio volatility, increase diversification and provide the potential for enhancedreturns

    They consist of investments in both domestic and international markets and typicallyemploy sophisticated trading strategies, using leverage and derivative instruments intheir goal to generate alpha1

    A manager's ability to generate alpha is primarily based on its investment strategy oftenutilizing: Leverage, Short-selling, Derivatives, and Illiquid securities

    These tools, strategies and securities are used by hedge fund managers with the objectiveof enhancing returns and reducing risks, however they also increase the risk of losses2

    Hedge Funds are not new they have been in existence for over 50 years

    Typically, Hedge Funds seek an absolute return3

    Unlike traditional vehicles, which manage to a relative benchmark

    Primarily invest in publicly-traded securities

    Stocks/Bonds/Commodities/Currencies

    1 When considering including hedge funds as a portion of an investors overall portfolio, it is important that an investor considers the various risks associated with these potentially

    speculative and illiquid investments, and that investors have the financial sophistication to be able to understand and assume such risks

    2 Increased flexibility for the manager may increase risks to the investor

    3 There is no guarantee that this objective will be met.

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    90% Bonds, 10% HedgeFunds

    90% U.S. Stocks, 10%Hedge Fund

    100% Bonds

    50% Bonds, 50% U.S.Stocks

    100% U.SStocks

    45% Bonds, 45% U.S.Stocks, 10% Hedge Funds

    6.20%

    6.45%

    6.70%

    6.95%

    7.20%7.45%

    7.70%

    7.95%

    8.20%

    8.45%

    8.70%

    2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00%

    Com

    poun

    dAnnualReturn

    Annual ized Standard Deviation

    Hypothetical Portfolio Allocations Using Index Returns

    January 1992 - December 2012

    12

    Traditional Portfolios may benefit from Hedge Fund Allocations

    U.S. Stocks represented by the S&P 500 Index; Bonds represented by the Barclays Aggregate Bond Index; Hedge Funds represented by the HFRI Fund WeightedComposite Index. Sourced from PerTrac Financial Solutions, LLC (Memphis, TN). Indices are unmanaged and investors cannot directly invest in them. Compositeindex results are shown for illustrative purposes and do not represent the performance of a specific investment. Indices of hedge funds have material inherentlimitations. Reference the Appendix for index descriptions and key definitions. This information is forILLUSTRATIVE PURPOSES ONLY and is not intended to

    represent the performance of any specific investment. Past performance is no guarantee of future results.

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    Source: HFR Global Hedge Fund Industry Report Year End 2012, Bloomberg, PerTrac. Past performance does not guarantee future results. Real results may vary.Indexes are unmanaged and investors cannot directly invest in them. Composite index results are shown for illustrative purposes and do not represent the performance of a specific investment.

    Data point descriptions are on the following page. Please see Appendix for index descriptions and key definitions.

    Risk Return Comparison

    0%

    2%

    4%

    6%

    8%

    10%

    12%

    14%

    0% 2% 4% 6% 8% 10% 12% 14% 16% 18%

    AnnualizedCompoun

    dReturn(%)

    Annualized Standard Deviation (%)

    Hedge Fund Strategy Risk Return ComparisonJanuary 1992 - December 2012

    Emerging Markets

    Long/Short EquityEvent Driven

    Distressed

    Relative Value

    MacroHedge Funds

    Convertible ArbitrageMerger Arbitrage Real Estate

    Fixed Income

    Equity Market Neutral

    Fund of Funds U.S. Bonds

    Managed Futures

    Emerging Markets - Asiaex-Japan

    U.S. Equities

    Global Equity

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    Hedge Fund Risk Return Comparison: List of indices used

    U.S. Equity S&P 500

    Global Equity MSCI EAFE - Net

    U.S. Bonds Barclays Aggregate Bond Index

    Managed Futures Barclay CTA Index

    Real Estate NCREIF Property Index Returns

    Equity Market Neutral HFRI EH: Equity Market Neutral Index

    Event Driven HFRI Event-Driven (Total) Index

    Distressed HFRI ED: Distressed/Restructuring Index

    Merger Arbitrage HFRI ED: Merger Arbitrage Index

    Macro HFRI Macro (Total) Index

    Long/Short Equity HFRI Equity Hedge (Total) Index

    Hedge Funds HFRI Fund Weighted Composite Index

    Fund of Funds HFRI Fund of Funds Composite Index

    Emerging Markets HFRI Emerging Markets (Total) Index

    Emerging Markets ex-Asia HFRI Emerging Markets: Asia ex-Japan Index

    Fixed Income HFRI RV: Fixed Income-Corporate Index

    Relative Value HFRI Relative Value (Total) Index

    Convertible Arbitrage HFRI RV: Fixed Income-Convertible Arbitrage Index

    Source: HFR Global Hedge Fund Industry Report Year End 2012, Bloomberg, PerTrac. Indexes are unmanaged and investors cannot directly invest in them. Composite index results are shownfor illustrative purposes and do not represent the performance of a specific investment. Please see Appendix for index descriptions and key definitions.

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    III. Funds of Hedge Funds

    16

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    Fund of Hedge Funds

    Professional management

    Manager sourcing

    Rigorous due diligence

    Portfolio construction

    On-going monitoring

    Fund of Hedge Funds Characteristics1

    Invests in multiple hedge fund strategieswhile circumventing single manager

    concentration risk

    Diversification across different: strategies,managers, and investment styles

    Low correlation with traditional securities

    markets

    An additional layer of fees for professionalinvestment allocation

    Business risk and operations due diligence

    Ongoing monitoring and risk management

    Potential to access closed and/or exclusivemanagers

    Fund of

    Hedge FundManager

    GlobalMacro

    MergerArbitrage

    Commodities

    ShortBias

    EmergingMkts

    Activist

    CreditArbitrage

    MarketNeutral

    Distressed

    L/SEquity

    Hypothetical Fund of Hedge Fund Allocation

    Diversified across multiplemanagers/strategies

    Allocations arerebalanced according to atargeted risk budget

    1The hypothetical allocations above are for illustrative purposes and do not represent the allocations of a specific investment. Reference the Glossary for strategy descriptions and key definitions.

    Please see the Appendix for Risk Considerations.

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    Rationale for Professional Hedge Fund Selection

    Hedge Fund Characteristic Consideration

    Investment flexibility Hedge funds allow for the use of trading strategies such as short selling, options andother derivative instruments, as well as hedging techniques and use of leverage,which, while potentially increases investment returns, can be high ly volatile and

    increase an investors risk of investment loss. Significant investment expertise andexperience is often required to perform a meaningfu l fund evaluation.

    Abil ity to be opportunistic in changing marketenvironments

    Hedge fund managers can exercise their judgment without most traditionalconstraints, making it challenging to evaluate and forecast investment risk.

    Intended to generate alpha or excess returndelivered by an investment manager

    Alpha ident if ication is di ff icul t due to:- Complexity of trading strategies,

    - Reduced transparency,- Valuation challenges,- Changing strategies and changing conditions.

    Exclusive access Hedge funds often have high investment minimums and at times may be inaccessibledue to limited capacity.

    Hedge funds offer many appealing characteristics toinvestors. At the same time, there are certain attributesof hedge funds that require careful consideration and

    assessment that should be conducted by highly skilledprofessionals following a detailed research process.

    Fund of hedge fund managers are uniquelyspecialized and resourced to evaluate and select qualityhedge funds for the purpose of constructing a portfolioof hedge fund strategies. See the below table for certainhedge fund characteristics and considerations.

    Individual funds will have specific risks related to their investment programs that will vary from fund to fund. Please review and be familiar with the funds offering materials, including the private

    placement memorandum or prospectus. Please see the Glossary for key definitions and Appendix for Risk Considerations.

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    Funds of Hedge Funds: HFRI Fund of Funds Composite Index, source: Hedge Fund Research, Inc. U.S. Large Cap Equity: S&P 500 Indexwith the reinvestment of dividends, source: Bloomberg.

    The HFRI Fund Weighted Index is net of fees and expenses. Indexes are unmanaged and investors cannot directly invest in them. The composite index results above are for illustrative purposesand do not represent the performance of a specific investment. Volatility as measured by annual standard deviation. Past performance is no guarantee of future results . Reference the

    Appendix for index descriptions and disclosures.For Illustrative Purposes Only

    -50.00%-40.00%

    -30.00%

    -20.00%

    -10.00%

    0.00%

    10.00%

    20.00%

    30.00%

    40.00%

    50.00%

    60.00%

    70.00%

    80.00%

    MonthlyCumulativeRateofReturn

    Funds of Hedge Funds Performance Compared to U.S. Large Cap Equit iesJanuary 1, 2002 - December 31, 2012

    Fund of Hedge Funds U.S. Large Cap Equities

    Index Growth Comparison

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    IV. Managed Futures

    20

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    Managed Futures

    What are Managed Futures?

    An alternative investment vehicle

    Limited liability investment vehicles that trade futures, forwards and options on futuresand forwards

    Use professional portfo lio management

    Offer potential global market exposure through a single investment vehicle

    Assets allocated to professional trading managers called Commodi ty Trading Advisors(CTAs)

    What is a CTA?

    A professional trading manager who manages customer money in the futures, forwards,

    and options markets

    CTAs use tested trading methods and money management techniques in their attempt toachieve profits and control r isk

    Please see Appendix for Risk Considerations.

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    Markets Traded

    22

    For Illustrative Purposes Only

    Not all markets are traded in any given Morgan Stanley Wealth Management managed futures funds.Markets traded may inc lude, but are not limited to:

    Metals

    Energies

    Brent crude oil

    Crude oilGas oilGasolineHeating oilKeroseneNatural gas

    AluminumCopperGoldLeadNickelPalladiumPlatinumSilverTin

    Zinc

    BarleyCocoaCoffeeCornCottonFeeder cattleLean hogsLive cattleLumber

    MilkOatsOrange juicePork belliesRapeseedRough riceRubberSoybean mealSoybean oil

    SoybeansSugarWheat

    Agriculturals

    Australian dollarBrazilian realBritish poundCanadian dollarChilean pesoChinese YuanColombian pesoCzech korunaEuro

    Hong Kong dollarHungarian forintIndian rupeeIsraeli shekelJapanese yenKorean wonMexican pesoNew Zealand dollarNorwegian krone

    Philippine pesoPolish zlotyRussian rubleSingapore dollarSouth African randSwedish kronaSwiss francTaiwan dollarTurkish lira

    U.S. dollar

    Foreign Exchange

    AEXAll ShareCAC 40DAXDow 30FTSE 100Euro Stoxx 50Euro Stoxx 600H-Shares

    Hang SengIBEX 35MIB 30NASDAQ 100Nikkei 225NYSE CompositeOMX 30Russell 2000S&P Canada 60

    S&P/MIBS&P MidcapS&P NiftyS&P 500Singapore FreeSPI 200TaiwanTopix

    Stock Indices

    Australian Bank BillAustralian Treasury BondsBritish Long GiltBritish Short SterlingCanadian Bankers AcceptancesCanadian Government BondEuriborEurodollarEuropean Bonds

    EuroyenJapanese Government BondMuni Bond IndexNew Zealand BillSwapnotesSwiss Government BondU.S. Treasury BondsU.S. Treasury Notes

    Interest Rates

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    Managed Futures vs. Stocks

    Since 1980, stocks have declined more than 10% on six occasions, with an average decline of 28.6% on theseoccasions. Managed futures has had an average rate of return of 18.7% during those six periods.

    For Illustrative Purposes Only

    38.8%

    9.7%

    18.6%

    5.6%

    23.1%

    16.1%

    -16.5%

    -29.6%

    -14.7% -15.4%

    -44.7%

    -51.0%-60%

    -50%

    -40%

    -30%

    -20%

    -10%

    0%

    10%

    20%

    30%

    40%

    50%

    Dec 80-Jul 82 Sep 87-Nov 87 Jun 90-Oct 90 Jul 98-Aug 98 Sep 00- Sep 02 Nov 07-Feb 09

    Barclay CTA Index S&P 500 Index

    RampantInflation

    StockMarketCrash

    First GulfWar

    RussianDebtDefault

    TechBubbleBursts

    CreditCrisis

    Data: January 1980 December 2012. Monthly returns for the S&P 500 Index provided by PerTrac Financial Solutions, LLC (Memphis, TN) and monthlyreturns for the Barclay CTA Index provided by BarclayHedge, Ltd. (Fairfield, IA). Managed futures investments do not replace equities or bonds but rather act asa complement to help in potentially smoothing overall portfolio returns. Monthly returns for the Barclay CTA Index reflect the composite fee structure of therepresentative commodity trading advisors, and therefore, may be higher or lower than those fees applicable to any one particular managed futures fund.Indexes are unmanaged and investors cannot directly invest in them. Composite index results are shown for illustrative purposes and do not represent theperformance of a specific investment. Please see Appendix for Index descriptions.

    PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.

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    Annualized Return of Managed Futures vs. Stocks

    For Illustrative Purposes Only

    Jan-1980 to Dec-2012 US Stocks US BondsInternational

    StocksManaged Futures

    Average Annual Return 11.2% 8.6% 9.6% 10.7%

    Annualized Standard Deviation 15.5% 5.6% 17.8% 14.9%

    Worst Draw Down -51.0% -9.0% -56.4% -15.7%

    Best /Worst 12 Month Return 61.2% / -43.3% 35.2% / -5.1% 103.7% / -49.9% 63.7% / -7.9%

    % Positive 12 Month Periods 79.2% 94.8% 70.4% 84.2%

    Return / Risk 0.72 1.52 0.54 0.72

    In the performance table above, average annual return is based on annualized compounding of monthly returns. The standard deviation statisticmeasures the dispersion of monthly returns about the mean and is used to represent the volatility or risk. The worst drawdown is the largestpercentage loss incurred from the highest value to its lowest value for the given time period. The Return/Risk statistic is related to the SharpeRatio, return divided by the standard deviation and is unadjusted for the risk-free Treasury Bill rate. Statistical comparisons on a 12-month holdingperiod basis are based on monthly data from January 1980 through December 2012, producing 385 observations. Sources: U.S. Stocks (S&P 500Index), U.S. Bonds (Barclays Aggregate Bond Index), International Stocks (MSCI EAFE Index)PerTrac Financial Solutions, LLC (Memphis, TN);Managed Futures (Barclay CTA Index)BarclayHedge, Ltd. (Fairfield, IA). Monthly returns for the Barclay CTA Index reflect the composite feestructure of the representative commodity trading advisors, and therefore, may be higher or lower than those fees applicable to any one particularmanaged futures fund. Indexes are unmanaged and investors cannot directly invest in them. Composite index results are shown for illustrativepurposes and do not represent the performance of a specific investment. Please see Appendix for index descriptions.

    PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.

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    Index Growth Comparison

    Managed Futures: Barclay CTA Index, source: BarclayHedge, Ltd. (Fairfield, IA) U.S. Large Cap Equity: S&P 500 Index with the reinvestment of dividends, source: Bloomberg. Indexes are

    unmanaged and investors cannot directly invest in them. The composite index results above are for illustrative purposes and do not represent the performance of a specific investment. Volatility as

    measured by annual standard deviation. Past performance is no guarantee of fut ure results. Reference the Appendix for index descriptions and disclosures.

    -50.00%

    -40.00%-30.00%

    -20.00%

    -10.00%

    0.00%

    10.00%

    20.00%

    30.00%

    40.00%

    50.00%

    60.00%

    70.00%

    80.00%

    90.00%

    100.00%

    110.00%

    MonthlyCumulativeR

    ateofReturn

    Managed Futures Compared to U.S. Large Cap Equit iesJanuary 1, 2002 - December 31, 2012

    U.S.LargeCapEquitiesManagedFutures

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    V. Private Equity

    26

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    Private Equity: Key Characteristics

    Private equity can be broadly defined as privately negotiated investments in (most often) non-public companies where managers are often active investors

    Long-term investments which seek low correlation with public equity markets seeking returns in

    excess of traditional asset classes

    May provide diversification across various market cycles and vintage years

    May improve the risk-return trade-offPotential BenefitsPotential Benefits Risks

    Attractive long-term return potential Potential for exceeding returns of public

    equity

    Diversification benefits Relatively low correlations with public equity

    and bonds Broad and diverse range of different private

    equity strategies (buyouts, venture capital,

    special situations) Vintage year diversification1 (commitment

    drawn over time)

    Strong alignment of interest with investors

    Illiquidity Investments are locked up for a significant period

    of time

    Imprecise Interim Value Measurement2

    Investments are non-public Quarterly marks imprecise indications of

    eventual/exit value

    Costs Funds are subject to annual management and

    performance fees

    Note: These investments are only suitable for long term investors willing to forgo liquidity and put capital at risk for an indefinite time. Past

    performance is no guarantee of future results.1 Since direct private equity and fund of funds invest over multiple years, vintage year diversification is achieved.2 Private equity valuations are generally estimate until there is a realization event.

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    Private Equity Strategies

    Early Stage Venture Capital

    Seed or startup equity in private

    companies that may not begenerating revenue or profits

    Growth Equity

    Equity investments in moremature companies to providefunding for growth andexpansion

    Buyouts

    Equity investments to acquire acontrolling interest in acompany

    Mezzanine

    Subordinated debt or preferredstock that earns a coupon andmay have warrants or

    conversion featuresDistressed / Special Situations

    Investments in unconventionalstrategies such as energy,royalty, and distressed funds

    Stages of a Company Life Cycle1

    1. There can be no assurance that investors will receive the results shown above. Past performance is no

    guarantee of future results. No guarantee that objectives will be met.

    For Illustrative Purposes Only

    EarningsGrowth

    (%)

    Private Only Public or Private

    Distressed /Special Situations

    Early Stage Venture CapitalGrowthEquity

    Buyouts

    Mezzanine

    Expansion / Late StageVenture Capital

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    Private Equity Investing

    For Illustrative Purposes Only

    The J Curve

    Economic outcome of a private equity fund investment not know for years

    For a successful fund, performance typically follows a JCurve pattern

    J-Curve drivers:

    Management fees drawn on committed capital during the portfolio construction phase

    Value Creation: Investments held at cost for at least first few years

    Interim mark-ups are generally based on conservative approach

    0

    FundIRR(%)

    Time

    Harvesting

    Value Creation

    Portfolio Construction

    There can be no assurance that investors will receive the results shown above. Pastperformance is no guarantee of future results.

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    Methods of Accessing Private Equity1,2

    Note: Past performance is no guide to future performance and the value of investments and income from them can fall as well as rise.

    1 Governance structures at the company level are designed on a case by case basis to be appropriate. Private equity does not use one-size-fits-all approach to boardcomposition or number of seats.

    2 Not all fund of funs have the same structure or invest in all of the same types of private equity investments.

    Primary Fund Investing

    Typically based on a GP-LP structure,whereby investors (the limited partners, or

    LPs) commit funds to the private equity fund(the general partners, or GP)

    The fund pools these commitments and usesthem to invest in underlying assets

    Once the investment is realized, capital flows inthe reverse direction back to the LPs asdistributors

    For Illustrative Purposes Only

    Secondary Fund Opportunities

    Involves acquiring direct interests of primaryfunds from existing LPs at a discount to NAV

    Secondary purchases tend to eliminate blindpool risk

    Smooth out / mitigate the J-Curve effect

    Secondary purchases acquired during theharvest period may have a shorter duration

    Potentially distressed sellers in need of liquidity

    Fund of Private Equity Funds

    Multiple layers of fees

    Large footprint allowing diversification acrossgeographies and strategies

    Advisory Board seats due to bigger

    investments and good relationships

    Large pool of resources for due diligence

    Legal and commercial review of terms

    Monitoring and administrative efficiency

    Co-investment Opportunities

    Invest alongside GPs in individual deals

    Typically offered to preferred existing LPs in thefund on a no fee, no carry basis

    Increasingly prevalent in current market

    environment where debt financing is difficult toobtain or prohibitively expensive: GPs arelimited by portfolio constraints on singleinvestments in their fund, and have to partnerto meet equity requirements

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    Private Equity Returns

    How Private Equity Can Generate Return Premiums

    Illiquid assets acquired at a discount to public/liquid alternatives

    Access to more information

    Strong interest alignment between management and owners

    Control, value-added investing

    Highly adaptive governance1

    Mechanisms for Value Creation

    Earning Growth revenue improvement, operating efficiency

    Multiple Expansion2 private-to-public arbitrage

    De-Leverage debt pay down

    How to Measure Private Equity Returns

    IRR3%

    Cash Multiple4

    Long-Dated Horizon generally 3 to 5 year hold periods, 7 to 10 year fund life (possibly longer)

    Note: Past performance is no guide to future performance and the value of investments and income from them can fall as well as rise.1 Governance structures at the company level are designed on a case by case basis to be appropriate. Private equity does not use one-size-fits-all approach to boardcomposition or number of seats.2 When the purchase prices is less than what public markets would value the company.3 Internal Rate of Return is the interest rate at which the net present value of all the cash flows (both positive and negative) from a project or investment equal to zero.4 Quarter of returns

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    VI. Real Estate

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    Real Estate

    Internal Rate of Return objective*

    Leverage (typically 0 to 75%)

    Historically, low correlation with market

    indices

    Less volatility compared to equities andfixed income

    Physical asset

    Relatively illiquid

    Potential inflation hedge

    Relative performance objective*

    No leverage

    Historically, high correlation with market

    indices

    More volatility than real estate, evenduring periods of out performance

    Financial asset

    Highly liquid

    Historically vulnerable to inflation

    Real EstateReal EstateTraditional InvestmentsTraditional Investments

    *There is no guarantee that these objectives will be met.

    Individual funds will have specific risks related to their investment programs that will vary from fund to fund. Please review and be familiar with the funds offering materials, including the privateplacement memorandum or prospectus. Please see the Glossary for key definitions and Appendix for Risk Considerations.

    Potential benefits to Real Estate investing when compared to traditional investments.

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    The 4 Quadrants of Commercial Real Estate Investing

    Public and Private Debt and Equity

    Commercial Mortgage BackedSecurities (CMBS)

    Collateralized Debt Obligations(CDOs)

    Real Estate Investment Trusts(REITs)

    Real Estate Operating Companies(REOCs)

    Whole Mortgage Loans(First Mortgages)

    Mezzanine Financing

    Bridge Loans

    Construction Loans

    Limited Partnerships

    Private REITs

    Open or Closed End Funds

    Separate Accounts

    Public

    Private

    Debt Equity

    Note: These investments are only suitable for long term investors willing to forgo liquidity and put capital at risk for an indefinite

    time. Past performance is no guarantee of future results.

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    Real Estate Investment Strategies1

    Core Investing:

    Lower Risk/Lower Return Potential

    Well managed, high quality properties

    High grade credit quality tenants,

    substantially leased Diversified across property types

    Return derived primarily form income

    Value-Added Investing:

    Moderate Risk/Return Potential

    Undervalued properties due to sub-optimal management

    Value potential through renovation, re-leasing, repositioning or redevelopment

    Improved income as a result of bettermanagement

    Opportunistic Investing: High Risk/High Return Potential

    Limited current income

    Distressed investments

    Driven by capital appreciation

    Speculative development

    1 Individual funds will have specific risks related to their investment programs that will vary from fund to fund. Please review and be familiar with the funds offering materials, including the privateplacement memorandum or prospectus. Please see the Glossary for key definitions and Appendix for Risk Considerations.

    A Range of Opportuni ties to Satisfy Objectives (2)

    Expected Return (2)

    Lower Higher

    Risk

    Lower

    H

    igher

    Core

    Opportunistic

    ValueAdded

    2 There can be no assurance that any targeted or expected return can be realized or that actual returns or

    performance results will not be materially lower than expected returns. They are based on industry consensus

    and the opinions of the team are being provided for informational purposes only. The expected returns do not

    reflect the performance of any Morgan Stanley investment.

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    Why Invest in Commercial Real Estate (CRE ) U.S. real estate is a huge asset class $6.8 trillion in 20121

    Over the long term, real estate may provide diversification benefits due to historically lowercorrelations with other asset classes 2

    Contractual leases may provide greater stability due to cash flow / income streams2

    1 2012 Update, A Birds Eye View of Global Real Estate Markets. Source: Prudential Real Estate Investors.2 These are the opinions of AIG as of the date of the presentation and are subject to change at any time due to changes in market or economic conditions.

    3 Past performance is not indicative of future results. Real results may vary. Please see Appendix for Risk Considerations andIndex definitions.4 Indexes are unmanaged and investors cannot directly invest in them. Composite index results are shown for illustrative purposesand do not represent theperformance of a specific investment.

    Correlation of Total Returns

    Quarterly, Last 10 Years (3)(4)

    Stocks BondsHedgeFunds

    PrivateEquity

    Commodities REITs Core RE Opty RE

    Stocks 1.00 (0.29) 0.65 0.82 0.49 0.79 0.20 0.41

    Bonds 1.00 (0.41) (0.33) (0.34) (0.06) (0.12) (0.20)

    Hedge Funds 1.00 0.79 0.65 0.54 0.36 0.62

    Private Equity 1.00 0.49 0.67 0.44 0.74

    Commodities 1.00 0.37 0.17 0.32

    REITs 1.00 0.24 0.38

    Core RE 1.00 0.85

    Opty RE 1.00

    Source: MSREI Strategy calculations, data from NCREIF, REITs (FTSE NAREIT US Real Estate Index Series), Stocks (S& P 500), Bonds (U.S. Barclays Capital AggregateBond Index), Private Equity (Thomson VentureXpert Private Equity Index), Hedge Funds (HFRI Hedge Fund Composite Index), Commodities (Thomson Reuters /Jefferies CRB Commodity Index), Core RE ( NFI-ODCE Index), and Opty RE (NCREIF Townsend Opportunity Fund Index)

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    VII. Exchange Funds

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    Exchange Funds

    Private placement vehicles enabling holders of concentrated single-stock positions toexchange those stocks for a diversified portfolio

    Typically comprised largely of equities, exchange funds may also include other qualifying

    assets such as real estate or commodities Investors may benefit from:

    Greater diversification by exchanging a concentrated stock position for fund shares withouttriggering a taxable event

    Risk Considerations Dividends are pooled

    Investors forfeit their stock voting rights

    Investment may be illiquid for several years

    Investments may be leveraged or contain derivatives

    Significant early redemption fees may apply Changes to the U.S. tax code which could be retroactive (potentially disallowing the favorable tax

    treatment of exchange funds)

    Investment risk and potential loss of principal

    Individual funds will have specific risks related to their investment programs that will vary from fund to fund. Please review and be familiar with the funds offering materials, including the privateplacement memorandum or prospectus. Please see the Appendix for Risk Considerations.

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