Exchange-Traded Funds

Transcription

1 Exchange-Traded Funds US ETF Weekly Update - Weekly Flows: $5.2 Billion Net Inflows - ETF Assets Stand at $1.4 Trillion, up 8% YTD - One ETF Launch NORTH AMERICA MICHAEL JABARA Michael.Jabara@mssb.com STEPHEN MINAR Stephen.Minar@mssb.com DAVID PERLMAN David.Perlman@mssb.com As with any investment, ETFs have risks. These include the general risks associated with investing in the underlying assets, potential tracking error, and the possibility that particular indices may lag other market segments or active managers. In addition, ETFs investing in international markets may include currency and geopolitical risks, while fixed income ETF risks also include credit and interest rate risk. Leveraged, Inverse, and Leveraged Inverse ETFs have unique risks, which are reviewed on slide 9. We define exchange-traded funds as encompassing passively and actively managed exchange-traded funds. This report is focused on U.S.-listed exchange-traded funds. These funds are registered with the SEC and trade as a single stock under SEC exemptions. U.S. listed, open-end fund ETFs must be offered under and sold only pursuant to a Prospectus. U.S.-listed ETFs may not be marketed or sold in a number of jurisdictions and may not be suitable for all investors. Morgan Stanley Smith Barney Sales Personnel should check with the Legal Department to clarify whether they may market the ETFs in a particular jurisdiction. Morgan Stanley Smith Barney does and seeks to do business with companies covered in Morgan Stanley Smith Barney Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Smith Barney Research. Investors should consider Morgan Stanley Smith Barney Research as only a single factor in making their investment decision. For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report.

2 US-Listed ETFs: Estimated Flows by Market Segment ETFs posted net inflows of $5.2 bln last week, the third consecutive week of net inflows - Last week s net inflows were led by Fixed Income ETFs ($1.8 bln); interestingly, despite accounting for only 3% of the ETF market, US Dividend Income ETFs posted the next highest net inflows at $1.5 bln - ETF assets stand at $1.4 tln, up 8% YTD; $45.8 bln net inflows YTD 13-week flows were mostly positive among asset classes; combined $65.9 bln in net inflows - International Developed Equity ETFs have posted material flows over the last 13 weeks ($16.6 bln), 34% of which can be attributed to two Japan ETFs (DXJ, EWJ) - Commodity ETFs have posted net outflows of $5.8 bln over the last 13 weeks; in particular, one ETF, the SPDR Gold Trust (GLD), has exhibited net outflows of $6.1 bln over this period (GLD accounts for 61% of Commodity market cap) Net Cash Flow ($ Mil) Mkt Cap Market Investment Objective Funds 1-Week 4-Week 13-Week ($ Mil) Share (%) US Broad-Market ,245 42,027 3 US Large-Cap 60 (699) 5,398 9, , US Mid-Cap (483) 2,287 60,229 4 US Small- & Micro-Cap 39 (300) (10) 4,056 59,284 4 US Sector & Industry 147 1,480 2,904 10, , US Custom ,133 3,352 17,615 1 US Dividend Income 17 1,495 2,337 3,813 49,228 3 Leveraged/Inverse ,604 2 International - Developed 149 1,327 3,355 16, , International - Emerging 134 (1,621) (3,986) 7, , Global ,332 3,454 42,787 3 Fixed Income 165 1,831 3,665 4, , Commodity 39 (295) (4,956) (5,827) 102,852 7 Currency 17 (70) (3) (117) 3,643 0 Active ,075 11,965 1 Total 1,229 5,187 12,369 65,848 1,443, Source: Bloomberg, Morgan Stanley Smith Barney Research. Data estimated as of 3/15/13 based on daily change in share counts and daily NAVs. 2

3 US-Listed ETFs: Estimated Largest Flows by Individual ETF The Vanguard Short-Term Bond ETF (BSV) generated net inflows of $1.3 bln, the most of any ETF - Despite a recent slowdown in fixed income flows, BSV has posted only one week of net outflows over the last 13 weeks - The ishares MSCI Emerging Markets Index Fund (EEM) has exhibited net outflows for three consecutive weeks totaling $2.5 bln; prior to the last three weeks, EEM had only posted net outflows in one of the previous 25 weeks - Over the last 13 weeks the WisdomTree Japan Hedged Equity Fund (DXJ) posted net inflows of $3.9 bln, the most of any ETF; DXJ focuses on Japanese exporters and hedges its yen risk Net Inflows Net Outflows Source: Bloomberg, Morgan Stanley Smith Barney Research. Data estimated as of 3/15/13 based on daily change in share counts and daily NAVs. Net Cash Flow ($ Mil) Mkt Cap ETF Name Symbol 1-Week 4-Week 13-Week ($ Mil) Vanguard Short-Term Bond ETF BSV 1,277 1,325 2,053 11,316 Vanguard High Dividend Yield ETF VYM 1,091 1,187 1,550 6,287 SPDR S&P MidCap 400 ETF MDY 564 (69) ,634 WisdomTree Japan Hedged Equity Fund DXJ 421 1,124 3,943 5,262 Financials Select Sector SPDR XLF ,016 11,516 Vanguard MSCI EAFE ETF VEA ,193 12,671 ishares Barclays 20+ Year Treasury Bond Fund TLT ,392 SPDR Barclays Short Term Municipal Bond ETF SHM ,904 SPDR Oil & Gas Exploration & Production ETF XOP ,146 FlexShares iboxx 3-Year Target Duration TIPS Index Fund TDTT ,199 ishares Russell 2000 Index Fund IWM (864) (914) ,519 ishares MSCI Emerging Markets Index Fund EEM (778) (2,508) 2,682 48,097 SPDR Dow Jones Industrial Average ETF DIA (709) (542) (762) 10,636 Vanguard FTSE Emerging Markets ETF VWO (614) (717) ,117 ishares FTSE China 25 Index Fund FXI (527) (1,210) (163) 7,042 PowerShares QQQ QQQ (418) (558) (895) 31,552 SPDR Gold Trust GLD (323) (4,547) (6,051) 63,079 ishares Barclays TIPS Bond Fund TIP (276) (516) (1,313) 20,700 SPDR Barclays High Yield Bond ETF JNK (245) 71 (581) 12,109 SPDR S&P 500 ETF SPY (113) 3,399 3, ,377 3

4 US-Listed ETFs: Short Interest Data Updated: Based on data as of 2/28/13 SPDR S&P 500 ETF (SPY) had the largest increases in USD short interest at $4.1 bln - SPY s shares short have increased for four consecutive periods and are at their highest level since 5/31/12 - Aggregate ETF USD short interest increased by $4.4 bln over the period ended 2/28/13 and has now increased $11.4 bln the last three periods; despite the increase in short interest, financial markets have remained resilient The average shares short/shares outstanding for ETFs is currently 4.3% - Interestingly, the top 10 ETFs most heavily shorted as a % of shares outstanding does not change much; certain areas of the market such as retail, currency, and real estate seem to consistently make the list - Based on multiple borrowings and the ability to continuously create new shares, shares short as a % of shares outstanding can exceed 100% (only five ETFs exhibited shares short as a % of shares outstanding greater than 100%) ETF Name Change in Short Interest Symbol SPDR S&P 500 ETF SPY 4,120,651,550 SPDR Gold Trust GLD 978,586,776 ishares MSCI Emerging Markets Index Fund EEM 343,418,572 SPDR S&P MidCap 400 ETF MDY 338,454,664 ishares iboxx $ High Yield Corporate Bond Fund HYG 195,347,881 ishares Russell 2000 Index Fund IWM (1,118,231,010) Vanguard FTSE Emerging Markets ETF VWO (398,683,126) PowerShares QQQ QQQ (254,583,573) ishares MSCI EAFE Index Fund EFA (215,572,124) ishares FTSE China 25 Index Fund FXI (145,606,941) Shares Short as % of Shares Outstanding Last Change in USD Amount Held Short ETF Name Symbol Shares Short / Shrs Out (%) CurrencyShares Euro Trust FXE SPDR Retail ETF XRT Market Vectors Retail ETF RTH SPDR Oil & Gas Exploration & Production ETF XOP CurrencyShares Japanese Yen Trust FXY PowerShares KBW Regional Banking Portfolio KBWR 72.4 Direxion Daily Gold Miners Bear 3x Shares DUST 70.5 Direxion Daily Real Estate Bear 3x Shares DRV 68.8 SPDR S&P Regional Banking ETF KRE 68.3 ishares Dow Jones US Real Estate Index Fund IYR 66.9 Source: Bloomberg, Morgan Stanley Smith Barney Research. Short Interest data are only reported bi-monthly with a lag. Data compares short interest from 2/28/13 vs. 2/15/13. 4

5 US-Listed ETFs: Most Successful Recent Launches by Assets $6.5 bln in total market cap of ETFs less than 1-year old - Newly launched Fixed Income ETFs accounted for 42% of the market cap of ETFs launched over the past year, the most of any category, including $1.2 bln in net inflows over the last 13 weeks - Issuance is off to a slow start in 2013; 16 new ETF listings and 26 closures YTD The top 10 most successful launches make up 62% of the market cap of ETFs launched over the past year - Six different ETF sponsors and two asset classes represented in top 10 most successful launches - Seven out of the 10 most successful launches over the past year have an income orientation - The ALPS Sector Dividend Dogs ETF (SDOG) cracked the top 10 most successful launches last week; SDOG has a market cap of $157 mln and provides high dividend exposure across US sectors by selecting the five highest-yielding securities in each of the 10 GICS sectors and equally weighting them Estimated Flows for ETF Launches Over Past Year Net Cash Flow ($ Mil) Mkt Cap Source: Bloomberg, Morgan Stanley Smith Barney Research. Data estimated as of 3/15/13 based on daily change in share counts and daily NAVs. Market Investment Objective Funds 1-Week 4-Week 13-Week ($ Mil) Share (%) US Broad-Market US Large-Cap US Mid-Cap US Small- & Micro-Cap US Sector & Industry US Custom US Dividend Income Leveraged/Inverse International - Developed International - Emerging Global Fixed Income ,162 2, Commodity Currency Active Total ,286 3,342 6, Top 10 Successful Launches Over Past Year 1-Week Flows ($ Mil) Mkt Cap Symbol Fund Name ($ Mil) SJNK SPDR Barclays Short Term High Yield Bond ETF 1, Week Flows ($ Mil) IEMG ishares Core MSCI Emerging Markets ETF IEFA ishares Core MSCI EAFE ETF VTIP Vanguard Short-Term Inflation-Protected Securities ETF IHY Market Vectors International High Yield Bond ETF EMHY ishares Emerging Markets High Yield Bond Fund EMLP First Trust North American Energy Infrastructure Fund MDIV First Trust Multi-Asset Diversified Income Index Fund MOAT Market Vectors Morningstar Wide Moat Research ETF SDOG ALPS Sector Dividend Dogs ETF Total 4,

6 US-Listed ETFs: New Listings For the Week Symbol Fund Name Launch Date Expense Ratio (%) DIV Global X SuperDividend US ETF 3/12/ Tracks an index of 50 equally weighted common stocks, MLPS, and REITs that rank among the highest dividend yielding equity securities in the US and that have paid dividends consistently over the last two years. Source: Company Data, Morgan Stanley Smith Barney Research. 6

7 US-Listed ETFs: News Highlights No news highlights. Source: Company Data, Morgan Stanley Smith Barney Research. 7

8 Recent Reports Fixed Income ETF Asset Allocation Model Update - March 14, Tracking Error Report: A Modest Rise Amid Expansion - March 14, 2013 ETF Quarterly Report: $1.4 Trillion in 1,235 ETFs - March 5, Q12 ETF Fund Flows-$59.4 Billion Net Inflows - February 5, 2013 ETF US Sector Allocation Model Update - January 9, 2013 US Dividend ETFs: More Than Just Yield - December 7, Year-End ETF & CEF Tax Strategies - October 19, 2012 Morgan Stanley & Co., Citi Research and Morgan Stanley Smith Barney do not provide fundamental research ratings on exchange-traded funds (ETFs). 8

9 Leveraged, Inverse & Leveraged Inverse Conclusions and Risks 1) Leveraged, Inverse, and Leveraged Inverse (L&LI) ETFs generally capture a high percentage of their expected daily returns, particularly on a net asset value basis. 2) L&LI ETFs are not appropriate for all investors. However, we believe they can be appropriate tools for some investors looking to make short-term tactical trades if they perceive a high likelihood of a strong market move occurring in a relatively short time period. In strong trending markets, being on the right side of the trade with L or LI ETFs can lead to very strong returns. 3) Investors should not expect these ETFs to deliver total returns linked to their benchmarks over any period other than daily. The effects of compounding and the daily re-leveraging or de-leveraging that occurs with L&LI ETFs can lead to unexpected results over the long term. As a result, we believe longer-term investors should consider regularly rebalancing positions. 4) Trendless markets, particularly those with a high level of volatility, can lead to substantial relative underperformance of L&LI ETFs. 2) Leveraged and Leveraged Inverse (L&LI) ETFs typically utilize futures and equity swap agreements. The use of these derivative instruments increases risk and enhances the possibility of tracking error. Relative to traditional ETFs, leveraged, inverse and leveraged inverse ETFs typically have higher costs and lower tax efficiency. 3) The effects of compounding can lead to significant deviations from traditional benchmarks over longer time periods. For example, if $100,000 is invested in an index that increases in value by 10% on day one and then decreases in value by 10% on day two, the investment will be worth $110,000 at the end of day one and $99,000 after day two. However, the value of a security that doubles the daily performance of the index would be worth $120,000 on day one and $96,000 after day two. Thus, the index is down 1% after two days, a doubling of which would be down 2%. However, the security attempting to double the return of the index is down 4%. Investors should consider carefully the potential impact over longer periods. MLP and MLP ETF Risks Individual MLPs are publicly traded partnerships that have unique risks related to their structure. These include, but are not limited to, their reliance on the capital markets to fund growth, adverse ruling on the current tax treatment of distributions (typically mostly tax deferred), and commodity volume risk. For tax purposes, MLP ETFs are taxed as C corporations and will be obligated to pay federal and state corporate income taxes on their taxable income, unlike traditional ETFs, which are structured as registered investment companies. These ETFs are likely to exhibit tracking error relative to their index as a result of accounting for deferred tax assets or liabilities (see funds prospectuses). The potential tax benefits from investing in MLPs depend on their being treated as partnerships for federal income tax purposes and, if the MLP is deemed to be a corporation, then its income would be subject to federal taxation at the entity level, reducing the amount of cash available for distribution to the fund which could result in a reduction of the fund s value. MLP funds accrue deferred income taxes for future tax liabilities associated with the portion of MLP distributions considered to be a tax-deferred return of capital and for any net operating gains as well as capital appreciation of its investments; this deferred tax liability is reflected in the daily NAV; and, as a result, the MLP fund s after-tax performance could differ significantly from the underlying assets even if the pre-tax performance is closely tracked. Commodity ETF Risks Commodity ETFs may be subject to greater volatility than traditional ETFs and can be affected by increased volatility of commodities prices or indexes as well as changes in supply-and-demand relationships, interest rates, monetary and other governmental policies, or factors affecting a particular sector or commodity. Currency ETF Risks Investments in currency involve additional special risks, such as credit risk and interest rate fluctuations. 9

10 Important Disclosures The information and opinions in Morgan Stanley Smith Barney Research were prepared by Morgan Stanley Smith Barney LLC and/or its affiliates Morgan Stanley Private Wealth Management Ltd, and Morgan Stanley Smith Barney Australia Pty Ltd (collectively, "Morgan Stanley Smith Barney"). For important disclosures (including copies of historical disclosures) regarding the securities and/or companies that are the subject of this Morgan Stanley Smith Barney Research product, please contact Morgan Stanley Smith Barney Research, 522 Fifth Ave., New York, N.Y , Attention: Research Management. In addition, the same important disclosures, with the exception of the historical disclosures, are contained on the Firm's disclosure website at Historical disclosures will be provided upon request back to June 1, Morgan Stanley Smith Barney Analyst Certification The Morgan Stanley Smith Barney research analysts principally responsible for the preparation and content of all or any identified portion of this research report, hereby certify that their views about the securities and/or companies discussed in this report are accurately expressed and that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report. Unless otherwise stated, the individuals listed on the cover page of this report are Morgan Stanley Smith Barney research analysts. Global Research Conflict Management Policy Morgan Stanley Smith Barney has a Conflict Management policy available at: Important US Regulatory Disclosures on Subject Issuers The following analyst or strategist (or a household member) owns securities (or related derivatives), ETFs, or Closed-End funds that he or she covers or recommends in Morgan Stanley Smith Barney Research: David Perlman - Vanguard Total Stock Market ETF, Vanguard Total World Stock Index Fund, WisdomTree Emerging Markets Equity Income Fund. Morgan Stanley Smith Barney or an affiliate, including, but not limited to, Morgan Stanley, but excluding Citigroup Global Markets, Inc. and its affiliates other than Morgan Stanley Smith Barney, beneficially owned 1% or more of a class of common equity securities of: PIMCO 1-5 Year U.S. TIPS Index Fund, PIMCO Enhanced Short Maturity Strat.Fund, PIMCO Intermediate Muni. Bond Strat.Fund, PIMCO ST Municipal Bond Strat. Fund, PIMCO Total Return ETF. Within the last 12 months, Morgan Stanley Smith Barney or an affiliate, including, but not limited to, Morgan Stanley, and/or Citigroup Global Markets, Inc. or an affiliate, received compensation for investment banking services from the following issuers (if the security is an ETF or Closed-End Fund, the compensation is from the fund's investment manager or advisor): First Trust Dow Jones Internet Index, First Trust ISE-Revere Natural Gas Index, First Trust Large Cap Core AlphaDEX Fund, First Trust Morningstar Dividend Leaders Index Fund, PIMCO 1-5 Year U.S. TIPS Index Fund, PIMCO Enhanced Short Maturity Strat.Fund, PIMCO Intermediate Muni. Bond Strat.Fund, PIMCO ST Municipal Bond Strat. Fund, PIMCO Total Return ETF. In the next 3 months, Morgan Stanley Smith Barney or an affiliate, including, but not limited to, Morgan Stanley, and/or Citigroup Global Markets, Inc. or an affiliate, will seek compensation for investment banking services from the following issuers (if the security is an ETF or Closed-End Fund, the compensation is from the fund's investment manager or advisor): PIMCO 1-5 Year U.S. TIPS Index Fund, PIMCO Enhanced Short Maturity Strat.Fund, PIMCO Intermediate Muni. Bond Strat.Fund, PIMCO ST Municipal Bond Strat. Fund, PIMCO Total Return ETF, Vanguard Consumer Discretionary ETF, Vanguard Consumer Staples ETF, Vanguard Dividend Appreciation ETF, Vanguard Energy ETF, Vanguard ETF Emerging Markets, Vanguard ETF European, Vanguard ETF REIT, Vanguard Extended Market ETF, Vanguard Financials ETF, Vanguard FTSE All-World ex-us ETF, Vanguard FTSE ex-us SmallCap ETF, Vanguard Growth ETF, Vanguard Health Care ETF, Vanguard High Dividend Yield ETF, Vanguard Industrials ETF, Vanguard Information Technology ETF, Vanguard Intermediate-Term Bond ETF, Vanguard Intermediate-Term Corporate Bond ETF, Vanguard Large-Cap ETF, Vanguard Materials ETF, Vanguard Mid-Cap ETF, Vanguard Mid-Cap Growth ETF, Vanguard Mid-Cap Value ETF, Vanguard MSCI EAFE ETF, Vanguard Pacific ETF, Vanguard Short- Term Bond ETF, Vanguard Short-Term Corporate Bond, Vanguard Small-Cap ETF, Vanguard Small-Cap Growth ETF, Vanguard Small-Cap Value ETF, Vanguard Telecom Services ETF, Vanguard Total Bond Market ETF, Vanguard Total Stock Market ETF, Vanguard Total World Stock Index Fund, Vanguard Utilities ETF, Vanguard Value ETF. Within the last 12 months, Morgan Stanley Smith Barney or an affiliate, including, but not limited to, Morgan Stanley, and/or Citigroup Global Markets, Inc. or an affiliate, has provided or is providing investment banking services to, or has an investment banking client relationship with, the following issuers (if the security is an ETF or Closed-End Fund, the services were or are being provided to, or the relationship is with, the fund's investment manager or advisor): First Trust Dow Jones Internet Index, First Trust ISE-Revere Natural Gas Index, First Trust Large Cap Core AlphaDEX Fund, First Trust Morningstar Dividend Leaders Index Fund, PIMCO 1-5 Year U.S. TIPS Index Fund, PIMCO Enhanced Short Maturity Strat.Fund, PIMCO Intermediate Muni. Bond Strat.Fund, PIMCO ST Municipal Bond Strat. Fund, PIMCO Total Return ETF, Vanguard Consumer Discretionary ETF, Vanguard Consumer Staples ETF, Vanguard Dividend Appreciation ETF, Vanguard Energy ETF, Vanguard ETF Emerging Markets, Vanguard ETF European, Vanguard ETF REIT, Vanguard Extended Market ETF, Vanguard Financials ETF, Vanguard FTSE All-World ex-us ETF, Vanguard FTSE ex-us SmallCap ETF, Vanguard Growth ETF, Vanguard Health Care ETF, Vanguard High Dividend Yield ETF, Vanguard Industrials ETF, Vanguard Information Technology ETF, Vanguard Intermediate-Term Bond ETF, Vanguard Intermediate-Term Corporate Bond ETF, Vanguard Large-Cap ETF, Vanguard Materials ETF, Vanguard Mid-Cap ETF, Vanguard Mid-Cap Growth ETF, Vanguard Mid-Cap Value ETF, Vanguard MSCI EAFE ETF, Vanguard Pacific ETF, Vanguard Short-Term Bond ETF, Vanguard Short-Term Corporate Bond, Vanguard Small-Cap ETF, Vanguard Small-Cap Growth ETF, Vanguard Small-Cap Value ETF, Vanguard Telecom Services ETF, Vanguard Total Bond Market ETF, Vanguard Total Stock Market ETF, Vanguard Total World Stock Index Fund, Vanguard Utilities ETF, Vanguard Value ETF. Within the last 12 months, Morgan Stanley Smith Barney or an affiliate, including, but not limited to, Morgan Stanley, and/or Citigroup Global Markets, Inc. or an affiliate, has received compensation for products or services other than investment banking services from the following issuers (if the security is an ETF or Closed-End Fund, the compensation is from the fund's 10

11 Important Disclosures investment manager or advisor): Alerian MLP ETF, Consumer Discretionary Select Sector, Consumer Staples Select Sector SPDR, CurrencyShares Australian Dollar Trust, CurrencyShares Canadian Dollar Trust, CurrencyShares Swiss Franc Trust, Direxion Financial Bear 3X, Direxion Financial Bull 3X, Energy Select Sector SPDR, Financials Select Sector SPDR, Guggenheim BRIC ETF, Guggenheim China Small Cap ETF, Guggenheim Multi-Asset Income ETF, Guggenheim S&P Global Water Index ETF, Guggenheim Solar ETF, Health Care Select Sector SPDR, Industrials Select Sector SPDR, IQ Global Resources ETF, IQ Hedge Multi-Strategy Tracker ETF, ishares Barclays 1-3 Year Credit Bond, ishares Barclays 20+ Year Treasury Bond, ishares Barclays 3-7 Year Treasury, ishares Barclays 7-10 Year Treasury Bond, ishares Barclays Agency Bond Fund, ishares Barclays Aggregate Bond Fund, ishares Barclays Intermediate Credit, ishares Barclays Lehman 1-3 Yr Treasury, ishares Barclays MBS Bond Fund, ishares Barclays Short Treasury, ishares Barclays TIPS Bond Fund, ishares Cohen & Steers Realty Majors, ishares Core MSCI Emerging Markets ETF, ishares Core S&P 500 ETF, ishares Core S&P Mid-Cap ETF, ishares Core S&P Small-Cap ETF, ishares DJ US Basic Materials Sector Index Fund, ishares DJ US Cons. Services Sector Index Fund, ishares DJ US Consumer Goods Sector, ishares DJ US Technology Sector Index, ishares Dow Jones Broker-Dealers Index, ishares Dow Jones International Select D, ishares Dow Jones Select Dividend Index, ishares Dow Jones Transportation Index, ishares Dow Jones U.S. Index Fund, ishares Dow Jones U.S. Medical Devices, ishares Dow Jones U.S. Oil & Gas Exp., ishares Dow Jones U.S. Oil Equip. & Svcs, ishares Dow Jones US Aerospace & Defense, ishares Dow Jones US Energy Sector Index Fund, ishares Dow Jones US Financial Sector, ishares Dow Jones US Financial Services, ishares Dow Jones US Healthcare Sector, ishares Dow Jones US Home Construction, ishares Dow Jones US Industrial Sector, ishares Dow Jones US Real Estate Index, ishares Dow Jones US Telecom Sector, ishares Dow Jones US Utilities Sector, ishares FTSE China 25 Index Fund, ishares Gold Trust, ishares GSCI Commodity Indexed Trust, ishares High Dividend Equity Fund, ishares iboxx $ High Yield Corp Bond, ishares iboxx $ InvesTop Inv Grade Bond, ishares JPMorgan USD Emerging Mkt Bond, ishares Morningstar Large Growth Index, ishares Morningstar Large Value Index, ishares Morningstar Mid Growth Index, ishares Morningstar Mid Value Index Fund, ishares MSCI ACWI ex US Index Fund, ishares MSCI ACWI Index Fund, ishares MSCI All Country Asia ex- Japan Index Fund, ishares MSCI All Peru Capped Index Fund, ishares MSCI Australia Index Fund, ishares MSCI Brazil Index Fund, ishares MSCI BRIC Index Fund, ishares MSCI Canada Index Fund, ishares MSCI Chile Index Fund, ishares MSCI China Index Fund, ishares MSCI EAFE Growth Index Fund, ishares MSCI EAFE Index Fund, ishares MSCI EAFE Small Cap Index Fund, ishares MSCI EAFE Value Index Fund, ishares MSCI Emerging Markets Index Fund, ishares MSCI Emerging Mkts Min Volatilit, ishares MSCI EMU Index Fund, ishares MSCI France Index Fund, ishares MSCI Germany Index Fund, ishares MSCI Hong Kong Index Fund, ishares MSCI Israel Capped Index Fund, ishares MSCI Italy Index Fund, ishares MSCI Japan, ishares MSCI Malaysia Index Fund, ishares MSCI Mexico Index Fund, ishares MSCI Pacific ex-japan Index Fund, ishares MSCI Russia Capped Index Fund, ishares MSCI Singapore Index Fund, ishares MSCI South Africa Index Fund, ishares MSCI South Korea Index Fund, ishares MSCI Spain Index Fund, ishares MSCI Sweden Index Fund, ishares MSCI Switzerland Index Fund, ishares MSCI Taiwan Index Fund, ishares MSCI Thailand Index Fund, ishares MSCI Turkey Index Fund, ishares MSCI United Kingdom Index Fund, ishares MSCI USA Minimum Volatility Index Fund, ishares Nasdaq Biotech, ishares PHLX SOX Semiconductors Sector Index Fund, ishares Russell 1000 Growth Index Fund, ishares Russell 1000 Index Fund, ishares Russell 1000 Value Index Fund, ishares Russell 2000 Growth Index Fund, ishares Russell 2000 Index Fund, ishares Russell 2000 Value Index Fund, ishares Russell 3000 Growth Index Fund, ishares Russell 3000 Index Fund, ishares Russell 3000 Value Index Fund, ishares Russell Microcap Index Fund, ishares Russell Mid Cap Growth Index, ishares Russell Midcap Index Fund, ishares Russell Midcap Value Index Fund, ishares S&P 100 Index Fund, ishares S&P 500 Growth Index Fund, ishares S&P 500 Value Index Fund, ishares S&P Europe 350 Index Fund, ishares S&P Global 100 Index Fund, ishares S&P Global Consumer Discretionary Sector Index Fund, ishares S&P Global Consumer Staples, ishares S&P Global Energy Sector Index, ishares S&P Global Financial Sector Index Fund, ishares S&P Global Healthcare Sector Index Fund, ishares S&P Global Ind. Sector Index, ishares S&P Global Infrastructure Index, ishares S&P Global Materials Sector, ishares S&P Global Tech. Sector Index, ishares S&P Global Tele. Sector Index, ishares S&P Global Utilities Sector, ishares S&P Latin America 40 Index Fund, ishares S&P MidCap 400 Growth Index Fund, ishares S&P MidCap 400 Value Index Fund, ishares S&P N. Amer. Natural Res. Sector, ishares S&P N. Amer. Software Index Fund, ishares S&P Nat'l AMT-Free Municipal, ishares S&P North American Technology, ishares S&P Short Term Nat.Municipal, ishares S&P SmallCap 600 Growth, ishares S&P SmallCap 600 Value, ishares S&P U.S. Preferred Stock Index, ishares S&P/Citigroup International Treasury Bond Fund, ishares Silver Trust, Market Vectors Agribusiness ETF, Market Vectors Brazil Small-Cap ETF, Market Vectors Coal ETF, Market Vectors Emerg. Markets Local, Market Vectors ETF Gold Miners, Market Vectors Global Alt.Energy ETF, Market Vectors Hard Assets Producers ETF, Market Vectors High Yield Municipal Inde, Market Vectors Indonesia Index ETF, Market Vectors Intermediate Municipal In, Market Vectors Junior Gold Miners ETF, Market Vectors Nuclear Energy ETF, Market Vectors Russia ETF, Market Vectors Steel Index ETF, Market Vectors Vietnam ETF, Materials Select Sector SPDR, Oil Services HOLDRS, Pharmaceutical HOLDRS, PIMCO 1-5 Year U.S. TIPS Index Fund, PIMCO Enhanced Short Maturity Strat.Fund, PIMCO Intermediate Muni. Bond Strat.Fund, PIMCO ST Municipal Bond Strat. Fund, PIMCO Total Return ETF, PowerShares Build America Bond Portfolio, PowerShares DB Agriculture Fund, PowerShares DB Base Metals Fund, PowerShares DB Energy Fund, PowerShares DB G10 Currency Harvest Fund, PowerShares DB Oil Fund, PowerShares DB USD Index Bearish Fund, PowerShares DB USD Index Bullish Fund, PowerShares Dynam. LargeCap Value, PowerShares Dynam.LargeCap Growth, PowerShares Dynamic Market Portfolio, PowerShares Emerging Markets Sovereign Debt Portfolio, PowerShares Financial Preferred Portf., PowerShares FTSE RAFI US 1000 Portfolio, PowerShares Global Clean Ergy. Portfol., PowerShares Global Water Portfolio, PowerShares Int.Div. Achievers Portfol., PowerShares Preferred Portfolio, PowerShares QQQ, PowerShares S&P 500 BuyWrite Portfolio, PowerShares S&P 500 Low Volatility Portfolio, PowerShares Senior Loan Portfolio, PowerShares VRDO Tax-Free Wkly Portfol., PowerShares Water Resources Portfolio, PowerShares WilderHill Clean Ergy., Rydex Russell Top 50 ETF, Rydex S&P 500 Pure Growth ETF, Rydex S&P Equal Weight ETF, Semiconductor HOLDRS, SPDR Barclays 1-3 Month T-Bill ETF, SPDR Barclays Capital Int. Treasury, SPDR Barclays Capital ST Muni. Bond ET, SPDR Barclays Convertible Bond ETF, SPDR Barclays High Yield Bond ETF, SPDR Barclays Municipal Bond ETF, SPDR Barclays Short Term High Yield Bond ETF, SPDR Biotech ETF, SPDR DB Int. Govt. Inflation-Protect, SPDR Dow Jones Int. Real Estate ETF, SPDR Dow Jones REIT ETF, SPDR KBW Bank ETF, SPDR KBW Regional Banking ETF, SPDR Oil & Gas Equipment & Services ETF, SPDR Oil & Gas Exploration & Prod. ETF, SPDR Retail ETF, SPDR S&P China ETF, SPDR S&P Dividend ETF, SPDR S&P Emerging Asia Pacific ETF, SPDR S&P Emerging Markets Small Cap ETF, SPDR S&P Homebuilders ETF, SPDR S&P International Dividend ETF, SPDR S&P International Small Cap ETF, SPDR S&P Metals & Mining ETF, Technology Select Sector SPDR, Utilities Select Sector SPDR, Vanguard Consumer Discretionary ETF, Vanguard Consumer Staples ETF, Vanguard Dividend Appreciation ETF, Vanguard Energy ETF, Vanguard ETF Emerging Markets, Vanguard ETF European, Vanguard ETF REIT, Vanguard Extended Market ETF, Vanguard Financials ETF, Vanguard FTSE All-World ex-us ETF, Vanguard FTSE ex-us SmallCap ETF, Vanguard Growth ETF, Vanguard Health Care ETF, Vanguard High Dividend Yield ETF, Vanguard Industrials ETF, Vanguard Information Technology ETF, Vanguard Intermediate-Term Bond ETF, Vanguard Intermediate-Term Corporate Bond ETF, Vanguard Large-Cap ETF, Vanguard Materials ETF, Vanguard Mid-Cap ETF, Vanguard Mid-Cap Growth ETF, Vanguard Mid-Cap Value ETF, Vanguard MSCI EAFE ETF, Vanguard Pacific ETF, Vanguard Short-Term Bond ETF, Vanguard Short-Term Corporate Bond, Vanguard Small-Cap ETF, Vanguard Small-Cap Growth ETF, Vanguard Small-Cap Value ETF, Vanguard Telecom Services ETF, Vanguard Total Bond Market ETF, Vanguard Total Stock Market ETF, Vanguard Total World Stock Index Fund, Vanguard Utilities ETF, Vanguard Value ETF, WisdomTree Emerging Markets Equity Income Fund. 11

12 Important Disclosures Within the last 12 months, Morgan Stanley Smith Barney or an affiliate, including, but not limited to, Morgan Stanley, and/or Citigroup Global Markets, Inc. or an affiliate, has either provided or is providing non-investment banking, securities-related services to and/or in the past has entered into an agreement to provide services or has a client relationship with the following issuers (if the security is an ETF or Closed-End Fund, the services were or are being provided to, or the agreement is with, the fund's investment manager or advisor): Alerian MLP ETF, Consumer Discretionary Select Sector, Consumer Staples Select Sector SPDR, CurrencyShares Australian Dollar Trust, CurrencyShares Canadian Dollar Trust, CurrencyShares Swiss Franc Trust, Direxion Financial Bear 3X, Direxion Financial Bull 3X, Energy Select Sector SPDR, Financials Select Sector SPDR, First Trust Dow Jones Internet Index, First Trust ISE-Revere Natural Gas Index, First Trust Large Cap Core AlphaDEX Fund, First Trust Morningstar Dividend Leaders Index Fund, Guggenheim BRIC ETF, Guggenheim China Small Cap ETF, Guggenheim Multi-Asset Income ETF, Guggenheim S&P Global Water Index ETF, Guggenheim Solar ETF, Health Care Select Sector SPDR, Industrials Select Sector SPDR, IQ Global Resources ETF, IQ Hedge Multi-Strategy Tracker ETF, ishares Barclays 1-3 Year Credit Bond, ishares Barclays 20+ Year Treasury Bond, ishares Barclays 3-7 Year Treasury, ishares Barclays 7-10 Year Treasury Bond, ishares Barclays Agency Bond Fund, ishares Barclays Aggregate Bond Fund, ishares Barclays Intermediate Credit, ishares Barclays Lehman 1-3 Yr Treasury, ishares Barclays MBS Bond Fund, ishares Barclays Short Treasury, ishares Barclays TIPS Bond Fund, ishares Cohen & Steers Realty Majors, ishares Core MSCI Emerging Markets ETF, ishares Core S&P 500 ETF, ishares Core S&P Mid-Cap ETF, ishares Core S&P Small-Cap ETF, ishares DJ US Basic Materials Sector Index Fund, ishares DJ US Cons. Services Sector Index Fund, ishares DJ US Consumer Goods Sector, ishares DJ US Technology Sector Index, ishares Dow Jones Broker-Dealers Index, ishares Dow Jones International Select D, ishares Dow Jones Select Dividend Index, ishares Dow Jones Transportation Index, ishares Dow Jones U.S. Index Fund, ishares Dow Jones U.S. Medical Devices, ishares Dow Jones U.S. Oil & Gas Exp., ishares Dow Jones U.S. Oil Equip. & Svcs, ishares Dow Jones US Aerospace & Defense, ishares Dow Jones US Energy Sector Index Fund, ishares Dow Jones US Financial Sector, ishares Dow Jones US Financial Services, ishares Dow Jones US Healthcare Sector, ishares Dow Jones US Home Construction, ishares Dow Jones US Industrial Sector, ishares Dow Jones US Real Estate Index, ishares Dow Jones US Telecom Sector, ishares Dow Jones US Utilities Sector, ishares FTSE China 25 Index Fund, ishares Gold Trust, ishares GSCI Commodity Indexed Trust, ishares High Dividend Equity Fund, ishares iboxx $ High Yield Corp Bond, ishares iboxx $ InvesTop Inv Grade Bond, ishares JPMorgan USD Emerging Mkt Bond, ishares Morningstar Large Growth Index, ishares Morningstar Large Value Index, ishares Morningstar Mid Growth Index, ishares Morningstar Mid Value Index Fund, ishares MSCI ACWI ex US Index Fund, ishares MSCI ACWI Index Fund, ishares MSCI All Country Asia ex-japan Index Fund, ishares MSCI All Peru Capped Index Fund, ishares MSCI Australia Index Fund, ishares MSCI Brazil Index Fund, ishares MSCI BRIC Index Fund, ishares MSCI Canada Index Fund, ishares MSCI Chile Index Fund, ishares MSCI China Index Fund, ishares MSCI EAFE Growth Index Fund, ishares MSCI EAFE Index Fund, ishares MSCI EAFE Small Cap Index Fund, ishares MSCI EAFE Value Index Fund, ishares MSCI Emerging Markets Index Fund, ishares MSCI Emerging Mkts Min Volatilit, ishares MSCI EMU Index Fund, ishares MSCI France Index Fund, ishares MSCI Germany Index Fund, ishares MSCI Hong Kong Index Fund, ishares MSCI Israel Capped Index Fund, ishares MSCI Italy Index Fund, ishares MSCI Japan, ishares MSCI Malaysia Index Fund, ishares MSCI Mexico Index Fund, ishares MSCI Pacific ex-japan Index Fund, ishares MSCI Russia Capped Index Fund, ishares MSCI Singapore Index Fund, ishares MSCI South Africa Index Fund, ishares MSCI South Korea Index Fund, ishares MSCI Spain Index Fund, ishares MSCI Sweden Index Fund, ishares MSCI Switzerland Index Fund, ishares MSCI Taiwan Index Fund, ishares MSCI Thailand Index Fund, ishares MSCI Turkey Index Fund, ishares MSCI United Kingdom Index Fund, ishares MSCI USA Minimum Volatility Index Fund, ishares Nasdaq Biotech, ishares PHLX SOX Semiconductors Sector Index Fund, ishares Russell 1000 Growth Index Fund, ishares Russell 1000 Index Fund, ishares Russell 1000 Value Index Fund, ishares Russell 2000 Growth Index Fund, ishares Russell 2000 Index Fund, ishares Russell 2000 Value Index Fund, ishares Russell 3000 Growth Index Fund, ishares Russell 3000 Index Fund, ishares Russell 3000 Value Index Fund, ishares Russell Microcap Index Fund, ishares Russell Mid Cap Growth Index, ishares Russell Midcap Index Fund, ishares Russell Midcap Value Index Fund, ishares S&P 100 Index Fund, ishares S&P 500 Growth Index Fund, ishares S&P 500 Value Index Fund, ishares S&P Europe 350 Index Fund, ishares S&P Global 100 Index Fund, ishares S&P Global Consumer Discretionary Sector Index Fund, ishares S&P Global Consumer Staples, ishares S&P Global Energy Sector Index, ishares S&P Global Financial Sector Index Fund, ishares S&P Global Healthcare Sector Index Fund, ishares S&P Global Ind. Sector Index, ishares S&P Global Infrastructure Index, ishares S&P Global Materials Sector, ishares S&P Global Tech. Sector Index, ishares S&P Global Tele. Sector Index, ishares S&P Global Utilities Sector, ishares S&P Latin America 40 Index Fund, ishares S&P MidCap 400 Growth Index Fund, ishares S&P MidCap 400 Value Index Fund, ishares S&P N. Amer. Natural Res. Sector, ishares S&P N. Amer. Software Index Fund, ishares S&P Nat'l AMT-Free Municipal, ishares S&P North American Technology, ishares S&P Short Term Nat.Municipal, ishares S&P SmallCap 600 Growth, ishares S&P SmallCap 600 Value, ishares S&P U.S. Preferred Stock Index, ishares S&P/Citigroup International Treasury Bond Fund, ishares Silver Trust, Market Vectors Agribusiness ETF, Market Vectors Brazil Small-Cap ETF, Market Vectors Coal ETF, Market Vectors Emerg. Markets Local, Market Vectors ETF Gold Miners, Market Vectors Global Alt.Energy ETF, Market Vectors Hard Assets Producers ETF, Market Vectors High Yield Municipal Inde, Market Vectors Indonesia Index ETF, Market Vectors Intermediate Municipal In, Market Vectors Junior Gold Miners ETF, Market Vectors Nuclear Energy ETF, Market Vectors Russia ETF, Market Vectors Steel Index ETF, Market Vectors Vietnam ETF, Materials Select Sector SPDR, Oil Services HOLDRS, Pharmaceutical HOLDRS, PIMCO 1-5 Year U.S. TIPS Index Fund, PIMCO Enhanced Short Maturity Strat.Fund, PIMCO Intermediate Muni. Bond Strat.Fund, PIMCO ST Municipal Bond Strat. Fund, PIMCO Total Return ETF, PowerShares Build America Bond Portfolio, PowerShares DB Agriculture Fund, PowerShares DB Base Metals Fund, PowerShares DB Energy Fund, PowerShares DB G10 Currency Harvest Fund, PowerShares DB Oil Fund, PowerShares DB USD Index Bearish Fund, PowerShares DB USD Index Bullish Fund, PowerShares Dynam. LargeCap Value, PowerShares Dynam.LargeCap Growth, PowerShares Dynamic Market Portfolio, PowerShares Emerging Markets Sovereign Debt Portfolio, PowerShares Financial Preferred Portf., PowerShares FTSE RAFI US 1000 Portfolio, PowerShares Global Clean Ergy. Portfol., PowerShares Global Water Portfolio, 12

13 Important Disclosures PowerShares Int.Div. Achievers Portfol., PowerShares Preferred Portfolio, PowerShares QQQ, PowerShares S&P 500 BuyWrite Portfolio, PowerShares S&P 500 Low Volatility Portfolio, PowerShares Senior Loan Portfolio, PowerShares VRDO Tax-Free Wkly Portfol., PowerShares Water Resources Portfolio, PowerShares WilderHill Clean Ergy., Rydex Russell Top 50 ETF, Rydex S&P 500 Pure Growth ETF, Rydex S&P Equal Weight ETF, Semiconductor HOLDRS, SPDR Barclays 1-3 Month T-Bill ETF, SPDR Barclays Capital Int. Treasury, SPDR Barclays Capital ST Muni. Bond ET, SPDR Barclays Convertible Bond ETF, SPDR Barclays High Yield Bond ETF, SPDR Barclays Municipal Bond ETF, SPDR Barclays Short Term High Yield Bond ETF, SPDR Biotech ETF, SPDR DB Int. Govt. Inflation-Protect, SPDR Dow Jones Int. Real Estate ETF, SPDR Dow Jones REIT ETF, SPDR KBW Bank ETF, SPDR KBW Regional Banking ETF, SPDR Oil & Gas Equipment & Services ETF, SPDR Oil & Gas Exploration & Prod. ETF, SPDR Retail ETF, SPDR S&P China ETF, SPDR S&P Dividend ETF, SPDR S&P Emerging Asia Pacific ETF, SPDR S&P Emerging Markets Small Cap ETF, SPDR S&P Homebuilders ETF, SPDR S&P International Dividend ETF, SPDR S&P International Small Cap ETF, SPDR S&P Metals & Mining ETF, SPDR S&P MidCap 400 ETF, Technology Select Sector SPDR, United States Natural Gas Fund LP, Utilities Select Sector SPDR, Vanguard Consumer Discretionary ETF, Vanguard Consumer Staples ETF, Vanguard Dividend Appreciation ETF, Vanguard Energy ETF, Vanguard ETF Emerging Markets, Vanguard ETF European, Vanguard ETF REIT, Vanguard Extended Market ETF, Vanguard Financials ETF, Vanguard FTSE All-World ex-us ETF, Vanguard FTSE ex-us SmallCap ETF, Vanguard Growth ETF, Vanguard Health Care ETF, Vanguard High Dividend Yield ETF, Vanguard Industrials ETF, Vanguard Information Technology ETF, Vanguard Intermediate- Term Bond ETF, Vanguard Intermediate-Term Corporate Bond ETF, Vanguard Large-Cap ETF, Vanguard Materials ETF, Vanguard Mid-Cap ETF, Vanguard Mid-Cap Growth ETF, Vanguard Mid-Cap Value ETF, Vanguard MSCI EAFE ETF, Vanguard Pacific ETF, Vanguard Short-Term Bond ETF, Vanguard Short-Term Corporate Bond, Vanguard Small-Cap ETF, Vanguard Small-Cap Growth ETF, Vanguard Small-Cap Value ETF, Vanguard Telecom Services ETF, Vanguard Total Bond Market ETF, Vanguard Total Stock Market ETF, Vanguard Total World Stock Index Fund, Vanguard Utilities ETF, Vanguard Value ETF. Within the last 12 months, Morgan Stanley Smith Barney or an affiliate, including, but not limited to, Morgan Stanley, and/or Citigroup Global Markets, Inc. or an affiliate, has either provided or is providing non-investment banking, non-securities-related services to and/or in the past has entered into an agreement to provide services or has a client relationship with the following issuers (if the security is an ETF or Closed-End Fund, the services were or are being provided to, or the agreement is with, the fund's investment manager or advisor): WisdomTree Emerging Markets Equity Income Fund. PowerShares Int.Div. Achievers Portfol., PowerShares Preferred Portfolio, PowerShares QQQ, PowerShares S&P 500 BuyWrite Portfolio, PowerShares S&P 500 Low Volatility Portfolio, PowerShares Senior Loan Portfolio, PowerShares VRDO Tax-Free Wkly Portfol., PowerShares Water Resources Portfolio, PowerShares WilderHill Clean Ergy., Rydex Russell Top 50 ETF, Rydex S&P 500 Pure Growth ETF, Rydex S&P Equal Weight ETF, Semiconductor HOLDRS, SPDR Barclays 1-3 Month T-Bill ETF, SPDR Barclays Capital Int. Treasury, SPDR Barclays Capital ST Muni. Bond ET, SPDR Barclays Convertible Bond ETF, SPDR Barclays High Yield Bond ETF, SPDR Barclays Municipal Bond ETF, SPDR Barclays Short Term High Yield Bond ETF, SPDR Biotech ETF, SPDR DB Int. Govt. Inflation-Protect, SPDR Dow Jones Int. Real Estate ETF, SPDR Dow Jones REIT ETF, SPDR KBW Bank ETF, SPDR KBW Regional Banking ETF, SPDR Oil & Gas Equipment & Services ETF, SPDR Oil & Gas Exploration & Prod. ETF, SPDR Retail ETF, SPDR S&P China ETF, SPDR S&P Dividend ETF, SPDR S&P Emerging Asia Pacific ETF, SPDR S&P Emerging Markets Small Cap ETF, SPDR S&P Homebuilders ETF, SPDR S&P International Dividend ETF, SPDR S&P International Small Cap ETF, SPDR S&P Metals & Mining ETF, SPDR S&P MidCap 400 ETF, Technology Select Sector SPDR, United States Natural Gas Fund LP, Utilities Select Sector SPDR, Vanguard Consumer Discretionary ETF, Vanguard Consumer Staples ETF, Vanguard Dividend Appreciation ETF, Vanguard Energy ETF, Vanguard ETF Emerging Markets, Vanguard ETF European, Vanguard ETF REIT, Vanguard Extended Market ETF, Vanguard Financials ETF, Vanguard FTSE All-World ex-us ETF, Vanguard FTSE ex-us SmallCap ETF, Vanguard Growth ETF, Vanguard Health Care ETF, Vanguard High Dividend Yield ETF, Vanguard Industrials ETF, Vanguard Information Technology ETF, Vanguard Intermediate- Term Bond ETF, Vanguard Intermediate-Term Corporate Bond ETF, Vanguard Large-Cap ETF, Vanguard Materials ETF, Vanguard Mid-Cap ETF, Vanguard Mid-Cap Growth ETF, Vanguard Mid-Cap Value ETF, Vanguard MSCI EAFE ETF, Vanguard Pacific ETF, Vanguard Short-Term Bond ETF, Vanguard Short-Term Corporate Bond, Vanguard Small-Cap ETF, Vanguard Small-Cap Growth ETF, Vanguard Small-Cap Value ETF, Vanguard Telecom Services ETF, Vanguard Total Bond Market ETF, Vanguard Total Stock Market ETF, Vanguard Total World Stock Index Fund, Vanguard Utilities ETF, Vanguard Value ETF. Within the last 12 months, Morgan Stanley Smith Barney or an affiliate, including, but not limited to, Morgan Stanley, and/or Citigroup Global Markets, Inc. or an affiliate, has either provided or is providing non-investment banking, non-securities-related services to and/or in the past has entered into an agreement to provide services or has a client relationship with the following issuers (if the security is an ETF or Closed-End Fund, the services were or are being provided to, or the agreement is with, the fund's investment manager or advisor): WisdomTree Emerging Markets Equity Income Fund. The research analysts or strategists principally responsible for the preparation of Morgan Stanley Smith Barney Research have received compensation based upon various factors, including quality of research, investor client feedback, competitive factors, and firm profitability or revenues (which include fixed income trading and capital markets profitability or revenues). Research analysts' or strategists' compensation is not linked to the profitability or revenues of particular capital markets transactions performed by Morgan Stanley Smith Barney or the profitability or revenues of particular fixed income trading desks. Morgan Stanley Smith Barney and its affiliates do business that relates to companies/instruments covered in Morgan Stanley Smith Barney Research. Morgan Stanley Smith Barney and/or its affiliates sells to and buys from customers the securities/instruments of issuers covered in this Morgan Stanley Smith Barney Research report on a principal basis. Morgan Stanley Smith Barney and others associated with it may have positions in and effect transactions in securities of ETFs mentioned and may also perform or seek to perform brokerage and other services for those ETFs and may enter into transactions with them. Affiliates of Morgan Stanley Smith Barney may participate in the creation and redemption of the securities covered in this report and as an authorized participant or otherwise, and may acquire such securities from the issuers for the purpose of resale. 13

14 Important Disclosures Investors should consider the investment objectives, risks, charges and expenses of each investment company carefully before investing. The prospectuses and product descriptions contain this and other information about the investment company and should be read carefully before investing. Investors may obtain product descriptions and prospectuses for the ETFs mentioned in this report from the ETF distributor, their brokers or the exchange upon which the particular ETF is listed. Morgan Stanley is an authorized participant for one or more ETFs of the following fund families: BlackRock Fund Advisors, ; DirexionShares, ; ETF Securities, ; Guggenheim Funds, ; Merrill Lynch & Co., ; PIMCO ETFs, ; PowerShares Capital, ; StateStreet Global Advisors, ; United States Commodity Funds, ; The Vanguard Group, ; VanEck Associates, ; WisdomTree, ETFs are redeemable only in Creation Unit size through an Authorized Participant. Certain disclosures listed above are also for compliance with applicable regulations in non-us jurisdictions. Closed-End Fund Rating System Morgan Stanley Smith Barney only rates Closed-End Funds ("CEF"). For CEFs, Morgan Stanley Smith Barney uses a relative rating system using the terms Overweight, Equal-weight, Underweight, and Not Covered (see definitions below). Morgan Stanley Smith Barney does not assign ratings of Buy, Hold or Sell to the CEFs we cover. Overweight, Equal-weight, and Underweight are not the equivalent of buy, hold and sell. Investors should carefully read the definitions of all ratings used in Morgan Stanley Smith Barney Research. In addition, since Morgan Stanley Smith Barney Research contains more complete information concerning the analyst's view, investors should carefully read Morgan Stanley Smith Barney Research, in its entirety, and not infer the contents from the ratings alone. In any case, ratings (or research) should not be used or relied upon as investment advice. An investor's decision to buy or sell a security or fund should depend on individual circumstances (such as the investor's existing holdings) and other considerations. Closed-End Fund Ratings Definitions Overweight (O): The closed-end fund's total return is expected to exceed the average total return of the analyst's industry coverage universe, on a risk-adjusted basis, over the next months. Equal-weight (E): The closed-end fund's total return is expected to be in line with the average total return of the analyst's industry coverage universe, on a risk-adjusted basis, over the next months. Underweight (U): The closed end fund's total return is expected to be below the average total return of the analyst's industry coverage universe, on a risk-adjusted basis, over the next months. Not Covered (NC): Indicates that the analyst does not cover the fund. Closed-End Fund Ratings Distribution (as of date February 28, 2013 ) Morgan Stanley Smith Barney only rates CEFs. Thus, this Ratings Distribution table only displays the distribution data for the rated CEFs. For disclosure purposes only (in accordance with FINRA requirements), we include the category of Buy, Hold, and Sell alongside our ratings of Overweight, Equal-weight, and Underweight. Morgan Stanley Smith Barney does not assign ratings of Buy, Hold or Sell to the CEFs we cover. Overweight, Equal-weight, and Underweight are not the equivalent of buy, hold, and sell but represent recommended relative weightings (see definition below). To satisfy regulatory requirements, we correspond Overweight, our most positive stock rating, with a buy recommendation; we correspond Equal-weight to hold and Underweight to sell recommendations, respectively. CEF Coverage Universe Investment Banking Clients (IBC) Closed-End Fund (CEF) Rating Category Count % of Total Count % of Total IBC % of Rating Category Overweight/Buy % % 10.7% Equal-weight/Hold % % 12.8% Underweight/Sell % % 11.5% Total % % 14