Disclosures

The Cost of Waiting for Higher Rates

Risk Considerations

Interest Rate and Duration Risk

Interest rate risk is the risk that the market value of securities in a portfolio might rise or fall due to changes in prevailing interest rates. Generally, fixed income securities are sensitive to fluctuations in interest rates; all else being equal, if interest rates rise, bond prices will fall and vice versa. Duration measures a bond's price sensitivity to changes in interest rates. The longer the bond's duration, the more sensitive its market value is to changes in interest rates. Your Financial Advisor can provide you with the duration risk of your fixed income investments.

Credit Risk

Credit risk is the risk that the issuer might be unable to make interest and/or principal payments on a timely basis. Widely recognized rating agencies, such as Moody’s Investors Service, Standard & Poor’s and Fitch Ratings, offer their assessment of an issuer’s creditworthiness. US Treasury securities are considered to be among the ‘safest’ investments as they are backed by the ‘full faith and credit’ of the US government, while high yield (below investment grade) corporate bonds are considered to have the greatest credit risk.

Secondary Market and Liquidity Risk

You may be able to sell your bonds prior to maturity at prevailing market prices, although the degree of liquidity can vary between bond issues. The price you receive for fixed income securities sold in the secondary market may be more or less than the par value or the original purchase price.

Reinvestment Risk

Reinvestment risk is the risk that the income stream from a given investment (interest or principal) may be reinvested at a lower interest rate. This risk is especially evident during periods of falling interest rates where coupon payments are reinvested at a lower rate than the current instrument.

Disclosures

This material was prepared by sales, trading or other non-research personnel of Morgan Stanley Smith Barney LLC (together with its affiliates hereinafter, “Morgan Stanley Wealth Management,” or “the firm”). This material was not produced by a research analyst of Morgan Stanley & Co. LLC or Morgan Stanley Wealth Management, although it may refer to a Morgan Stanley & Co. LLC or Morgan Stanley Wealth Management research analyst or report. Unless otherwise indicated, these views (if any) are the author’s and may differ from those of the aforementioned research departments or others in the firms.

The securities/instruments discussed in this material may not be suitable or appropriate for you. The appropriateness of a particular investment or strategy will depend on your individual circumstances and objectives. This material does not provide individually tailored investment advice or offer legal, tax, regulatory or accounting advice. By providing this material to you, Morgan Stanley Wealth Management is not advising you to take any particular action based on the information or opinions or views (if any) contained in this material. Prior to entering into any proposed transaction, you should determine, in consultation with your own advisors, the potential economic, legal, tax, regulatory and accounting risks, merits, characteristics and consequences of the transaction. The information contained in this material is not intended to, and should not, form a primary basis for any investment decision. You should consider this material among other factors in making an investment decision. Unless stated otherwise, this material has not been based on a consideration of any individual client circumstances and as such should not be considered to be a tailored investment recommendation.

You should seek tax advice based on your particular circumstances from an independent tax advisor. The firm is not acting as a fiduciary under either the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), or under section 4975 of the Internal Revenue Code of 1986, as amended (“Code”), in providing this material. Morgan Stanley Wealth Management 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 herein are not intended to be, and do not constitute, advice within the meaning of the Municipal Advisor Rule.

This material was prepared by or in conjunction with Morgan Stanley Wealth Management trading desks that may deal as principal in or own or act as market maker or liquidity provider for the securities/instruments (or related derivatives) mentioned herein and may trade them in ways different from those discussed in this material. Morgan Stanley Wealth Management and its affiliates may act in a principal or agency capacity and will charge a markup or commission for most transactions in the securities/instruments mentioned herein. The applicable trading desk may have accumulated a position in the subject securities/instruments based on the information contained herein. Trading desk materials are not independent of the proprietary interests of the firm, which may conflict with your interests. We may also perform or seek to perform investment banking services for the issuers of the securities/instruments mentioned herein. The author(s) 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 Wealth Management is involved in many businesses that may relate to companies, securities or instruments mentioned in this material. These businesses include market making and specialized trading, risk arbitrage and other proprietary trading, fund management, investment services and investment banking.

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. 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 this material and contain material information not contained herein and to which prospective investors 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 is stale or may change. We make no express or implied representation or warranty with respect to the accuracy or completeness of this material, nor are we obligated to provide updated information on the securities/instruments mentioned herein.

The value of and income from investments may vary because of changes in interest rates, foreign exchange rates, default rates, prepayment rates, prices of securities/instruments, market indexes, operational or financial conditions of companies or other factors. There may be time limitations on the exercise of options or other rights in securities/instruments transactions. Past performance is not a guide to future performance. 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. We have no obligation to tell you when such assumptions may change. 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 Wealth Management does not represent that any such assumptions will reflect actual future events or that all assumptions have been considered or stated. 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.

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Interest on municipal bonds is generally exempt from federal income tax; however, some bonds may be subject to the alternative minimum tax (AMT). Also, municipal bonds acquired in the secondary market at a discount may be subject to the market discount tax provisions, and therefore could give rise to taxable income. Typically, state tax-exemption applies if securities are issued within one’s state of residence and, if applicable, local tax-exemption applies if securities are issued within one’s city of residence. The tax-exempt status of municipal securities may be changed by legislative process, which could affect their value and marketability.

Insurance does not pertain to market values, which will fluctuate over the life of the bonds; FAs/PWAs should inform clients that insurance covers only the timely payment of interest and principal when due. Credit ratings shown may be the higher of the 'underlying' rating of the issuer or the rating of any insurer providing credit enhancement to the bonds. It is important that you obtain the underlying credit rating of the issuer and consider it as a factor in any investment decision. Information on the underlying credit rating of the issuer can be obtained from your FA/PWA

A taxable equivalent yield is only one of many factors that should be considered when making an investment decision. Morgan Stanley and its Financial Advisors or Private Wealth Advisors do not offer tax advice; investors should consult their tax advisors before making any tax-related investment decisions. Build America Bonds described herein are backed by the credit quality of the issuer, and not the Federal Government. These Build America Bonds are structured as direct payment bonds, in which a direct Federal subsidy is paid to the state or local government issuer. You should read the relevant offering document. Zero coupon bonds may experience greater price volatility than interest bearing fixed income securities because of their comparatively longer duration. Municipal zero coupon bonds are generally tax-exempt; however, for taxpayers subject to the AMT, the accreted interest on some municipal bonds may be included in the AMT calculation. Municipal bonds are subject to rules regarding the treatment of any market discount if such bonds are purchased in the secondary market below the bond’s original issue or accreted price.

Non-Traditional Municipal Bonds are securities which are generally not backed by either a tax levied by a state or local unit of government or revenues generated by a public enterprise. Such securities could be investment grade, non-investment grade or unrated. These bonds do not carry a repayment obligation of the issuing (conduit) entity and upon the occurrence of certain events or circumstances may not return full principal at maturity. Non-traditional municipal bonds can be complex instruments and may include structured and/or securitized products. FAs and PWAs must explain to clients the structure of the particular investment, the source from which the issuer will make interest payments and principal repayments, the availability of funds to make such payments, and the conditions under which the bonds could result in a loss of principal. Non-traditional municipal bonds encompass diverse municipal issues, each with unique investment risks.

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