Asset Class Review DEC. 10, Gold

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1 DEC. 10, 2012 INVESTOR EDUCATION GLOBAL INVESTMENT COMMITTEE Asset Class Review OVERVIEW AUTHOR Gold DESCRIPTION. Gold is a precious yellow metallic element, not subject to oxidation or corrosion, with 79 protons in its nucleus and an atomic weight of One troy ounce of gold equals avoirdupois ounces. The first gold coins are believed to have been minted approximately 2,700 years ago, and since then, gold has for varying lengths of time functioned alongside or instead of various other forms of currency as a medium of exchange, store of value, and unit of account. For example, throughout its 1,100-year history, the Byzantine Empire, with Constantinople as its capital, maintained a monetary economy based on gold. Its gold coin, weighing approximately 4.5 grams and called the bezant (also known as the solidus, or nomisma) circulated freely within and outside the Byzantine Empire for 645 years, from 324 to 969 A.D. CHOICES. Gold can be purchased and sold in a variety of forms, including: (i) recently minted legal tender and commemorative coins; (ii) previously issued coins and medals of numismatic value; (iii) gold bars and bullion; (iv) shares of gold mining companies; (v) exchangetraded funds; (vi) gold futures and options; (vii) gold trust receipts, structured notes, and gold-backed bonds; (viii) gold jewelry and objects of art; and in a related but different category, (ix) other precious metals such as silver, platinum, palladium, and rhodium. How and where gold is owned are often determined by the investor s motivations, concerns, amount to invest, objectives, and personal circumstances. DAVID M. DARST, CFA Chief Investment Strategist David.Darst@mssb.com Note: The Art of Asset Allocation, 2nd Edition, by David M. Darst (McGraw Hill, 2008).

2 Gold Advantages 1. Historically, gold has tended to retain its purchasing power over long periods of time compared to the cost of fundamental human needs such as food, shelter, and clothing. Disadvantages 1. Although gold as an asset may be considered a conservative investment, some segments of the gold market are considered to include speculative and momentum-based traders, promoters, conspiracy theorists, and dogmatic participants whose views may be perceived as lacking objectivity. 2. For centuries, the intrinsic value of gold has been widely accepted due to its rarity, beauty, durability, malleability, ductility, portability, divisibility, and anonymity. 2. Physical gold has no yield, may in some geographies trade in relatively low-volume and somewhat illiquid markets, is cumbersome to transport in large quantities, may incur costs of assay, custody, taxation, segregation, and insurance, and may be difficult to access in unsettled conditions. 3. Gold has generally exhibited negative or very low correlations of returns with almost all other asset classes. 3. Due to their effectively embedded option component linked to a potential rise in gold prices, gold mining shares have substantially leveraged exposure to gold-price movements, may at times be expensively valued, and may sometimes be difficult to assess by conventional methods understood by issuers, investors, and intermediaries, leading to unforeseen and possibly unfavorable consequences. 4. During many previous periods of excessive inflation, financial markets turmoil, deflationary shock, monetary system failure, and/or geographical instability, gold has been viewed as a form of insurance protection and refuge. 4. For substantial intervals during eras of financial and geopolitical stability, gold prices may move within a mean-reverting band, influenced by: (i) the level of real interest rates; (ii) the demand for jewelry, industrial uses, and identified bar hoarding; and (iii) sources of supply, including new discoveries, production, forward sales and hedging by gold-mining companies, gold scrap recycling, and central bank selling and gold lending activity. 5. Unlike many managed-paper currency systems, gold has a slowly changing and relatively inelastic supply; gold is considered to be the only monetary asset that is not the liability of another party. 5. Gold may be subject to governmental influence and/or confiscation through the sealing of safety deposit boxes and other measures, the declaration of gold payment clauses as unenforceable, and the arbitrary fixing of gold prices. Source: The Art of Asset Allocation, 2nd Edition, by David M. Darst (McGraw-Hill, 2008); Morgan Stanley Wealth Management Investment Strategy. 2 MORGAN STANLEY SMITH BARNEY LLC Dec. 10, 2012 Please refer to important information, disclosures and qualifications at the end of this material.

3 Handy & Harman Gold Bullion Spot Price Index Price Performance YTD (1) (Price in US Dollars) 2,000 1,750 1,500 1,250 1, Note: (1) Data are as of Nov. 30, Source: Bloomberg. 3 MORGAN STANLEY SMITH BARNEY LLC Dec. 10, 2012 Please refer to important information, disclosures and qualifications at the end of this material.

4 Handy & Harman Gold Bullion Spot Price Index Monthly and Annual Returns (%) YTD (1) YEAR JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Notes: (1) Data are as of Nov. 30, (2) Full Year Data for 2012 are as of Nov. 30, Source: Bloomberg. FULL YEAR (2) 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. Index returns do not include any expenses, fees, or sales charges, which would lower performance. Past performance is no guarantee of future results. The Handy & Harman Gold Bullion Spot Price Index tracks the price of gold in US dollars per troy ounce and has been reported daily since January Morgan Stanley Smith Barney Global Investment Committee Asset Class Reviews 1. Managed Futures 10/31/11 2. US Equity 11/28/11 3. US Cash and Cash Equivalents 1/3/12 4. Master Limited Partnerships 1/23/12 5. Publicly Traded Real Estate Shares and REITs 2/27/12 6. High Yield Fixed Income 3/26/12 7. US Investment Grade Fixed Income 4/23/12 8. Inflation-Indexed Securities 5/21/12 9. Emerging Markets Fixed Income 6/25/ Hedge Funds 7/30/ Emerging Markets Equity 8/27/ Commodities 9/24/ Non-US Equity 10/22/ Non-US Fixed Income 11/26/ Gold 12/10/12 4 MORGAN STANLEY SMITH BARNEY LLC Dec. 10, 2012 Please refer to important information, disclosures and qualifications at the end of this material.

5 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. Incorporated or Citigroup Global Markets Inc. The views and opinions contained in this material are those of the author(s) and may differ materially from the views and opinions of others at Morgan Stanley Smith Barney LLC or any of its affiliate companies. Past performance is not necessarily a guide to future performance. The author(s) (if any authors are noted) principally responsible for the preparation of this material receive compensation based upon various factors, including quality and accuracy of their work, firm revenues (including trading and capital markets revenues), client feedback and competitive factors. Morgan Stanley Smith Barney is involved in many businesses that may relate to companies, securities or instruments mentioned in this material. This material has been prepared for informational purposes only and is not an offer to buy or sell or a solicitation of any offer to buy or sell any security/instrument, or to participate in any trading strategy. Any such offer would be made only after a prospective investor had completed its own independent investigation of the securities, instruments or transactions, and received all information it required to make its own investment decision, including, where applicable, a review of any offering circular or memorandum describing such security or instrument. That information would contain material information not contained herein and to which prospective participants are referred. This material is based on public information as of the specified date, and may be stale thereafter. We have no obligation to tell you when information herein may change. We make no representation or warranty with respect to the accuracy or completeness of this material. Morgan Stanley Smith Barney has no obligation to provide updated information on the securities/instruments mentioned herein. The securities/instruments discussed in this material may not be suitable for all investors. The appropriateness of a particular investment or strategy will depend on an 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. Actual events may differ from those assumed and changes to any assumptions may have a material impact on any projections or estimates. Other events not taken into account may occur and may significantly affect the projections or estimates. Certain assumptions may have been made for modeling purposes only to simplify the presentation and/or calculation of any projections or estimates, and Morgan Stanley Smith Barney does not represent that any such assumptions will reflect actual future events. Accordingly, there can be no assurance that estimated returns or projections will be realized or that actual returns or performance results will not materially differ from those estimated herein. This material should not be viewed as advice or recommendations with respect to asset allocation or any particular investment. This information is not intended to, and should not, form a primary basis for any investment decisions that you may make. Morgan Stanley Smith Barney is not acting as a fiduciary under either the Employee Retirement Income Security Act of 1974, as amended or under section 4975 of the Internal Revenue Code of 1986 as amended in providing this material. 5 MORGAN STANLEY SMITH BARNEY LLC Dec. 10, 2012 Please refer to important information, disclosures and qualifications at the end of this material.

6 Morgan Stanley Smith Barney and its affiliates do not render advice on tax and tax accounting matters to clients. This material was not intended or written to be used, and it cannot be used or relied upon by any recipient, for any purpose, including the purpose of avoiding penalties that may be imposed on the taxpayer under U.S. federal tax laws. Each client should consult his/her personal tax and/or legal advisor to learn about any potential tax or other implications that may result from acting on a particular recommendation. International investing entails greater risk, as well as greater potential rewards compared to U.S. investing. These risks include political and economic uncertainties of foreign countries as well as the risk of currency fluctuations. These risks are magnified in countries with emerging markets, since these countries may have relatively unstable governments and less established markets and economies. Investing in commodities entails significant risks. Commodity prices may be affected by a variety of factors at any time, including but not limited to, (i) changes in supply and demand relationships, (ii) governmental programs and policies, (iii) national and international political and economic events, war and terrorist events, (iv) changes in interest and exchange rates, (v) trading activities in commodities and related contracts, (vi) pestilence, technological change and weather, and (vii) the price volatility of a commodity. In addition, the commodities markets are subject to temporary distortions or other disruptions due to various factors, including lack of liquidity, participation of speculators and government intervention. 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. An investment in an exchange-traded fund involves risks similar to those of investing in a broadly based portfolio of equity securities traded on an exchange in the relevant securities market, such as market fluctuations caused by such factors as economic and political developments, changes in interest rates and perceived trends in stock and bond prices. Investing in an international ETF also involves certain risks and considerations not typically associated with investing in an ETF that invests in the securities of U.S. issues, such as political, currency, economic and market risks. These risks are magnified in countries with emerging markets, since these countries may have relatively unstable governments and less established markets and economics. For specifics and a greater explanation of possible risks with ETFs along with the ETF s investment objectives, charges and expenses, please consult a copy of the ETF s prospectus. Investing in sectors may be more volatile than diversifying across many industries. The investment return and principal value of ETF investments will fluctuate, so an investor s ETF shares (Creation Units), if or when sold, may be worth more or less than the original cost. ETFs are redeemable only in Creation Unit size through an Authorized Participant and are not individually redeemable from an ETF. Asset allocation and diversification do not assure a profit or protect against loss in declining financial markets. The indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. The indices selected by Morgan Stanley Smith Barney to measure performance are representative of broad asset classes. Morgan Stanley Smith Barney retains the right to change representative indices at any time. Because of their narrow focus, sector investments tend to be more volatile than investments that diversify across many sectors and companies. 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. 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