Morgan Stanley Smith Barney LLC (“MSWM”) (together with its affiliates, hereinafter “Morgan Stanley” or the “Firm”) wishes to inform our Middle Markets institutional clients (“you”) of the following important information and qualifications in connection with your receipt of a communication from the Firm that contains a link to this disclosure (the “Firm Communication”).
The Firm Communication was prepared by sales, trading or other non-research personnel of MSWM, and is not a product of MSWM or Morgan Stanley & Co. LLC (“MSCO’s”) Research Departments. The Firm Communication is a marketing communication, cannot be distributed to members of the public and is not a research report, though it may refer to a MSWM or MSCO research report or the views of a MSWM or MSCO research analyst. Unless indicated, the views (if any) expressed in the Firm Communication are the views of the author(s) and may differ from or conflict with those of the MSWM or MSCO Research Departments or others in the Firm and its affiliates. This may be the result of differing time horizons, methodologies, market events or other factors. The author(s) principally responsible for the preparation of the Firm Communication 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. The Firm Communication is not independent of the proprietary interests of Morgan Stanley. Such interests may conflict with your interests and you should be mindful of such potential conflicts of interest when reviewing the Firm Communication. The Firm is not commenting on the fundamentals of any companies mentioned. For additional information and important disclosures, see http://www.morganstanley.com/disclosures/.
Morgan Stanley is not acting as a municipal advisor to any municipal entity or obligated person within the meaning of Section 15B of the U.S. Securities Exchange Act of 1934, as amended (the “Municipal Advisor Rule”), and the opinions or views (if any) contained in the Firm Communication are not intended to be, and do not constitute, advice within the meaning of the Municipal Advisor Rule.
The Firm Communication is not (and should not be construed to be) investment advice (as defined under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) or similar concepts under applicable law) from Morgan Stanley with respect to an employee benefit plan or to any person acting as a fiduciary for an employee benefit plan, or as a primary basis for any particular plan investment decision.
The Firm Communication 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. Any such offer would be made only after you had completed an independent investigation of the securities, instruments or transactions, and received all information required to make your own investment decision, including, where applicable, a review of any prospectus, prospectus supplement, offering circular or memorandum describing such security or instrument. That information would supersede the Firm Communication and contain material information not contained therein and to which you are referred. The Firm Communication may be based upon information or data generally available to the public from external sources believed to be reliable as of the specified date, but the Firm has not independently verified such information. No representation or warranty, express or implied, is given with respect to their accuracy or completeness, and they may change without notice. The Firm Communication may be stale after the specified date, may not be updated and the Firm has no obligation to tell you when information therein may change or provide updated information on the securities/instruments mentioned therein. Morgan Stanley on its own behalf and on behalf of its affiliates disclaims any and all liability relating to the Firm Communication, including, without limitation, any express or implied representations or warranties for statements or errors contained in, or omissions from, the Firm Communication.
Morgan Stanley and others associated with it may (i) make markets or specialize in, (ii) engage in risk arbitrage with respect to, (iii) act as liquidity provider for, (iv) have or may in the future enter into principal or proprietary positions (long or short) in, (v) act in an agency capacity with respect to or (vi) effect transactions in and charge a markup or commission for such transactions in securities/instruments (or related derivatives) mentioned in the Firm Communication or with respect to companies mentioned therein, or engage in trading strategies mentioned therein. Morgan Stanley and other associated with it may also perform or seek to perform investment banking, fund management, brokerage or other services for the issuers of the securities and instruments mentioned in the Firm Communication and may enter into transactions with such issuers. The Firm may engage in a variety of trading activities (which may conflict with the position you may have) before or after providing this information, including accumulation of a position in the subject securities/instruments based on the information contained in the Firm Communication. In particular, Morgan Stanley acts as “prime broker” and lender for a number of hedge funds. As a result, Morgan Stanley may indirectly benefit from increases in investments in hedge funds. The Firm may at any time modify or liquidate all or a portion of its positions and is under no obligation to contact you to disclose any such intention to modify or liquidate or any such modification or liquidation.
Unless stated otherwise, the Firm Communication has been prepared without consideration of your investment objectives, risk tolerance or financial circumstances and as such should not be considered to be a personal or tailored investment recommendation. By providing the Firm Communication to you, Morgan Stanley is not advising you to take any particular action based on the information or opinions or views (if any) contained therein. The Firm reminds you that the investments described in the Firm Communication are subject to market risk and will fluctuate in value. The investments, information and analyses discussed in the Firm Communication may be unsuitable for you depending upon your specific investment objectives and financial position. The appropriateness of a particular investment or strategy will depend on your individual circumstances and objectives.
The information and analyses contained in the Firm Communication are not intended as tax, legal, regulatory, accounting or investment advice. MSWM does not render advice on tax and tax accounting matters. By providing the Firm Communication to you, Morgan Stanley is not advising you to take any particular action based on the information or opinions (if any) contained therein. Prior to entering into any proposed transaction, you should consult with your own personal tax, municipal, financial, accounting and/or legal advisor regarding the information or opinions (if any) contained in the Firm Communication and any potential tax or other implications that may result from acting on a particular opinion (if any) contained therein. The Firm Communication is not intended to, and should not, form a primary basis for any investment decision. You should consider the Firm Communication among other factors in making an investments decision.
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. Where an investment is denominated in a currency other than your currency, changes in rates of exchange may have an adverse effect on the value, price of, or income derived from the investment. There may be time limitations on the exercise of options or other rights in securities/instruments transactions.
Any performance data quoted in the Firm Communication represents past performance. Past performance is not a guide to future performance. Any estimates, projections or predictions (including in tabular form) given in the Firm Communication are intended to be forward-looking statements and are based on assumptions that may not be realized. Changes to any such assumptions may have a material impact on any projections or estimates. These forward-looking statements and underlying assumptions speak only as of the date of the Firm Communication. Morgan Stanley expressly disclaims any obligation or undertaking to update or revise any forward-looking statement or underlying assumption contained in the Firm Communication to reflect any change in its expectations or any change in circumstances upon which such statement is based. In addition, actual events may differ from those assumed, and certain legal, accounting and tax restrictions, margin requirements, commissions and other transaction costs may significantly affect the projections, estimates and economic consequences of the transactions discussed in the Firm Communication. Certain assumptions may have been made for modeling purposes only to simplify the presentation and/or calculation of any projections or estimates. Accordingly, there can be no assurance, and no representation or warranty is made, that estimated returns or projections will be realized or that actual returns or performance results will not materially differ from those estimated herein.
HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.
ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING STRATEGY IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.
Price and availability are subject to change at any time. To the extent any prices or price levels are noted in the Firm Communication, they are for informational purposes only and are not intended for use by third parties, and are indicative as of the date shown and are not an offer to purchase or sell any instrument or enter into, transfer and assign, or terminate any transaction, or a commitment by Morgan Stanley to make such an offer. Actual transactions at these prices may not have been effected. An indicative price estimate for a transaction may differ substantially from an actionable price. Unless otherwise expressly stated, any pricing estimates in the Firm Communication are a good faith estimate of a price that may be assigned on the day they are given. Different products may be offered at different prices at different times, depending on liquidity and numerous other market factors. Any pricing estimates in the Firm Communication do not necessarily reflect Morgan Stanley’s internal bookkeeping or theoretical model-based prices for the security or substantially similar transactions/securities/instruments. Certain factors which may not have been assessed for purposes of this pricing, including, for example, the notional amount of these or substantially similar transactions/securities/instruments, credit spreads, underlying volatility, costs of carry, use of capital and profit, may substantially affect the price of any specific transaction/security/instrument. Any pricing estimates in the Firm Communication may vary significantly from pricing estimates available from other sources or pricing estimates determined for other purposes. While Morgan Stanley has developed the information on which any pricing estimates in the Firm Communication are based from sources it believes to be reliable, it makes no representations or warranties with respect to these pricing estimates.
The trademarks and service marks contained in the Firm Communication are the property of their respective owners. Third-party data providers make no warranties or representations of any kind relating to the accuracy, completeness or timeliness of the data they provide and shall not have liability for any damages of any kind relating to such data. Unless otherwise specifically indicated, all information in the Firm Communication with respect to any third party not affiliated with Morgan Stanley has been provided by, and is the sole responsibility of, such third party and has not been independently verified by Morgan Stanley, its affiliates or any other independent third party.
The Firm Communication may not be distributed in any jurisdiction where it is unlawful to do so.
Additional information on securities discussed in the Firm Communication is available on request. The Firm Communication or any portion thereof, may not be reprinted, resold or redistributed without the prior written consent of Morgan Stanley Smith Barney LLC.
Equity securities may fluctuate in response to news on companies, industries, market conditions and the general economic environment. Companies paying dividends can reduce or stop payouts at any time.
Investing in smaller/mid-cap companies involves greater risks not associated with investing in more established companies, such as business risk, significant stock price fluctuations and illiquidity.
International investing may entail 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.
Options are not for everyone. The trading of futures or options on futures contains inherent risks. The Firm reminds you that these investments are subject to market risk and will fluctuate in value. Before engaging in the purchasing or writing of options, you should understand the nature and extent of their rights and obligations and be aware of the risks involved, including the risks pertaining to the business and financial condition of the issuer and the underlying stock. A secondary market may not exist for these securities. For customers of the Firm who are purchasing or writing exchange-traded options, your attention is called to the publication “Characteristics and Risks of Standardized Options”. That publication, which investors should have read and understood prior to investing in options, can be viewed on the Web at the following address: http://www.optionsclearing.com/about/publications/character-risks.jsp.
Clients engaging in the execution structure known as Spreading should understand that Spreading may also entail substantial commissions, because it involves at least twice the number of contracts as a long or short position and because spreads are almost invariably closed out prior to expiration. Potential investors should be advised that the tax treatment applicable to spread transactions should be carefully reviewed prior to entering into any transaction. Also, it should be pointed out that while the investor who engages in spread transactions may be reducing risk, such investor is also reducing profit potential. The risk/ reward ratio, hence, is an important consideration.
The risk of exercise in a spread position is the same as that in a short position. Certain investors may be able to anticipate exercise and execute a “rollover” transaction. However, should exercise occur, it would clearly mark the end of the spread position and thereby change the risk/reward ratio. Due to early assignments of the short side of the spread, what appears to be a limited risk spread may have more risk than initially perceived. An investor with a spread position in index options that is assigned an exercise is at risk for any adverse movement in the current level between the time the settlement value is determined on the date when the exercise notice is filed with Office of the Comptroller of the Currency and the time when such investor sells or exercises the long leg of the spread. Other multiple-option strategies involving cash settled options, including combinations and straddles, present similar risk.
An investment in an exchange-traded fund (“ETF”) 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. (For specifics and a greater explanation of possible risks with ETFs, please consult a copy of the prospectus.) 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. Certain ETFs track specific sectors of the economy. Investing in sectors may be more volatile than diversifying across many industries. Certain ETFs may also track stock indexes. These underlying indexes are unmanaged. You cannot invest directly in an index. ETFs are (i) redeemable only in creation unit size aggregations and may not be individually redeemed, (ii) redeemable only through Authorized Participants, and (iii) redeemable on an “in-kind” basis.
The following link contains ETF performance data for periods of 1, 5 and 10 years (or the life of the fund, if shorter) and prospectuses for particular ETFs: http://www.morganstanley.com/etfperformance/index.html. The entity serving as distributor for a particular ETF is listed in the relevant prospectus. The prospectuses contain more complete and important information about the ETFs and should be read carefully before investing. The Firm defines exchange-traded funds as encompassing passively managed index-linked ETFs, HOLDRs, and closed-end funds. ETFs do not charge sales loads or other nonrecurring fees, but you may pay a brokerage commission on the purchase or sale of ETF shares. Any performance data shown in the Firm Communication does not reflect the deduction of a brokerage commission, which would reduce the performance quoted.
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