Guide to Reding Your Morgn Stnley Sttement Your ccount sttement is vluble resource tht provides the informtion you need s you work with your Finncil Advisor towrds relizing your finncil objectives. By crefully reding your sttement, you cn remin up-to-dte on your ccount(s). The gol of this guide is to provide suggestions on how to red nd understnd your sttement. We encourge you to support our go green efforts by reviewing your sttements online vi Morgn Stnley Online nd eliminting pper sttements. By enrolling in edelivery, you reduce the volume of pper you hve to mnge, while retining online ccess to seven yers of sttements. As n dded benefit, you need not wit for the mil: when your sttement is vilble to view online, you receive n emil notifiction. To enroll in edelivery, log in to Morgn Stnley Online, click the Accounts tb nd select Documents nd then select Go Pperless. If you re not lredy enrolled go to www.morgnstnley.com/online. Tble of Contents 1 Introduction 3 Cover Pge 4 Consolidted Summry 5 Account Summry 10 Account Detil 15 Additionl Account Sections 17 Recp of Csh Mngement Activity & Fiscl Reviews 18 edelivery 19 Frequently Asked Questions Regrdless of the delivery method you choose, we re committed to providing sttements tht keep you informed s you work towrds reching your finncil gols.
The sttement, which is orgnized into six min components, is designed with top-down pproch, moving from summry level informtion to the more grnulr detils of ccount holdings nd ctivity. The sttement gives you snpshot of your ccount nd when pproprite, provides perspective on growth nd the chnge in vlue of your ccount(s) over time. Our gol is to give you the informtion tht enbles you to be n informed prticipnt in the finncil mngement of your ccount. key Sttement Components Cover Pge: Provides snpshot of your ccount(s) s well s contct informtion for your Finncil Advisor. Consolidted Summry: Provides key summry informtion for ll the ccounts included in your miling envelope (i.e., ccount link group sttement pckge). For single sttement pckges, this section would not pper. Reserch Rtings Definitions: Provides definition of the equity rtings you my see in HOLDINGS. Note, for Advisory Accounts, the definitions re for Globl Investment Mnger Anlysis (GIMA) Sttus Definitions. Reserch Rting Definitions re provided with the June nd December sttements. In ddition, they re lwys vilble online under Accounts/ Documents/Sttements. Disclosures (Expnded Disclosures or Stndrd Disclosures): Provides importnt informtion bout your ccounts nd how we conduct business. Expnded Disclosures re provided with the June nd December sttements. In ddition, they re lwys vilble online under Accounts/ Documents/Sttements. The Stndrd Disclosures re provided with the Sttement for ll other months (Jn-My nd July-November). Account Summry: Provides summry informtion t n ccount level. The sections in the Account Summry re similr to some of the Consolidted Summry sections. Depending upon the type of ccount, there my be dditionl informtion. Account Detil: Shows the relevnt sections for ech ccount in given sttement period. These sections include: HOLDINGS: Presents securities grouped by product, with informtion unique to ech. ACTIVITY: Presents ll ctivity up through the lst business dy of the sttement period. MESSAGES: Alerts you to timely ccount-specific informtion. The following pges contin exmples of sttement sections for illustrtive purposes only nd do not represent complete ccount sttement. morgn stnley smith brney llc. member sipc. 2
Cover Pge The Cover Pge provides n overview of your ccount(s). b You will find the sttement reporting period on every pge of the sttement. Sttement frequency is bsed upon the type of ccount nd ctivity. Generlly, All Active Assets Accounts (including Brokerge nd Advisory), nd Bsic Securities Advisory Accounts receive sttements every month. Bsic Securities Brokerge Accounts, nd Individul Retirement Accounts receive sttements on qurterly bsis (unless there hs been qulifying ctivity). Eduction ccounts receive qurterly-only sttements, detiling ctivity for tht period. c d Also displyed re b the contct detils for your Finncil Advisor or Tem, c the direct phone number for the Client Service Center nd d the firm s Web site. morgn stnley smith brney llc. member sipc. 3
Consolidted Summry The Consolidted Summry is good plce to strt ssessing your totl investment picture nd provides concise, t--glnce snpshot of ll ccounts included in your ccount link group sttement pckge. Clients with single ccount will receive only the Account Summry. b The OVERVIEW OF YOUR ACCOUNTS (for ccount link group sttement pckges) section provides key informtion for ech ccount, with totls by ccount ctegory (i.e., Personl, Retirement, Eduction, Trust, nd Business), giving you comprehensive summry of ll of your ccounts. Although only the whole dollr mounts re displyed in this summry, both dollrs nd cents re used to clculte ll totls. As result, mnully summing the individul line items my not equl the ctul totl displyed. To view both the dollrs nd cents, refer to the Account Summry section. b The strting pge number for ech ccount is displyed in the lst column on the right. In ddition, if you hve elected edelivery, those ccounts re identified. morgn stnley smith brney llc. member sipc. 4
Account Summry The Account Summry provides n overview for ech of your ccounts. In the blue br t the top of every pge, you will find the Account Number, Account Nme nd Retirement Account Type (if pplicble). If you hve sked your Finncil Advisor to nicknme your ccount, the nicknme will lso pper here. b c b The CHANGE IN VALUE OF YOUR ACCOUNTS section ws designed s quick nd esy wy to see your ccount's chnge in vlue for the current period nd yer to dte. The Chnge in Vlue figure represents the difference between the Totl Ending Vlue minus the Totl Beginning Vlue net of Credits/Debits nd Security Trnsfers. Chnge in Vlue comprises (1) portfolio pprecition/deprecition, plus (2) income. Sid nother wy, to determine Chnge in Vlue: First, strt with the Totl Beginning Vlue, which includes ccrued interest. Then, dd ll Credits/Debits nd Securities Trnsfers (if the securities trnsfers include fixed income, we will lso include the pproprite ccrued interest). By including the inflows/outflows, you get clerer picture of your overll chnge in vlue without worrying bout when these movements took plce. And, finlly, subtrct tht mount from the Totl Ending Vlue to rrive t Chnge in Vlue. c Providing historicl context, the CHANGE IN VALUE OVER TIME grph shows the impct of deposits nd withdrwls on the chnging mrket vlue of your ccount. morgn stnley smith brney llc. member sipc. 5
Account Summry (continued) The ASSET ALLOCATION tble nd pie chrt/br grph shows how the products in your ccount re distributed cross the vrious Asset Clsses (Csh, Equities, Fixed Income & Preferreds, Alterntives, Annuities & Insurnce, Structured Investments nd Other). In most cses, ASSET ALLOCATION is displyed s pie chrt. However, if the ccount hs either net short position, or net debit, the informtion is displyed s br chrt. b Accounts re orgnized in the sttement pckge into ctegories (i.e., Personl, Retirements, Eduction, Trust, Business) nd within ctegory by ccount number. The Wyfinding tbs on the bottom of the first front fcing pge of ech ccount signls where you re within the sttement pckge. b morgn stnley smith brney llc. member sipc. 6
Account Summry (continued) To help you understnd both sides of your finncil ledger, we disply BALANCE SHEET view of your ssets nd libilities (which my include debits nd other libilities). When relevnt, line items for fixed income securities include interest ccruls s indicted by the ^. To see the specific mount of Accrued Interest, see the HOLDINGS section within Account Detil. b b We know tht mny of our clients like to blnce the movement of csh in their ccounts from opening to closing blnces, nd therefore CASH FLOW summry tble hs been included. The ctegories re ligned with the wy our clients hve told us they view the movement of their funds. The tble begins with n opening blnce, which is the combined opening blnce of your csh, deposits nd money mrket funds. It then lists vriety of deposit nd withdrwl line items, grouped into three mjor ctegories: Investment Relted Activity, Csh Relted Activity nd Crd/Check Activity. Since our sttements present trde dte view, the ctivity will include ll trdes executed in the current period. In this cse you will lso see line for Net Unsettled Purchses/Sles in the BALANCE SHEET nd CASH FLOW sections representing the net mount of ll unsettled securities trnsctions. In the subsequent month, the CASH FLOW section will include line for Prior Unsettled Purchses/Sles. morgn stnley smith brney llc. member sipc. 7
Account Summry (continued) b b GAIN/(Loss) SUMMARY presents Relized Gin/(Loss) for this period nd this yer. Unrelized Gin/(Loss) is clculted bsed upon the cquisition dte of the holding. When security positions re sold, the detils of ech trnsction re displyed t the tx lot level in seprte REALIzED GAIN/(Loss) section within ACTIVITY. In ddition to the (GAIN/(LOSS) SUMMARY, the REALIZED GAIN/(LOSS) DETAIL section provides trnsction informtion t the tx lot level. The INCOME & DISTRIBUTION SUMMARY presents both Txble nd Tx-Exempt mounts credited to your ccount for This Period nd This Yer, nd is ctegorized by type of distribution (including Qulified Dividends, Other Dividends, Long Term Cpitl Gins Distributions, Interest, nd Prtnership Distributions). For ccounts not subject to IRS tx reporting by us, txble nd tx-exempt totls re not broken out seprtely. c c When relevnt, the ADDITIONAL ACCOUNT INFORMATION provides Accrued Interest Pid nd Accrued Interest Received on purchses nd sles of fixed income securities, s well s Foreign Tx Pid, Return of Cpitl nd Tresury Interest. morgn stnley smith brney llc. member sipc. 8
Account Summry (continued) b c The Primry nd Contingent beneficiries tht you hve designted my be listed on your IRA sttement. For nnuities displyed in IRA ccounts, where we re not the custodin, contct the crrier for the current nnuity beneficiry. The RETIREMENT RECAP section trcks contributions nd distributions for IRA, CESA, VIP Bsic, VIP PLUS nd RPM ccounts. The section my lso include: Fir Mrket Vlue of the ccount which is reported to the IRS nnully for IRAs. Individul Mximum Contribution Limits, which re bsed on your ge nd the mximum Trditionl IRA or Roth IRA contribution llowed under current regultions. b HISTORICAL CONTRIBUTIONS & DISTRIBUTIONS is n t--glnce qurterly view of contributions nd distributions for the most recent five yers, with summry line cpturing ll prior contributions nd distributions. c For eligible IRA, VIP Bsic nd 403(b) clients, we clculte your nnul Required Minimum Distribution (RMD) nd disply this mount on ech qurterly sttement, mking it esy to trck your yer-to-dte distributions, nd to compre those withdrwls to the required nnul mount. The RMD clcultions re vluble for clients ge 70½ nd older who must withdrw the RMD. morgn stnley smith brney llc. member sipc. 9
Account Detil The Account Detil component presents the Holdings, Activity nd Account specific Messges for the current reporting period. b At the top of this component, Account Type, Investment Objectives nd other importnt ccount informtion re displyed for your reference. b The HOLDINGS section presents comprehensive list of positions on trde dte bsis nd is orgnized by product type (e.g., Stocks, Municipl Bonds, Mutul Funds, etc.). Fixed income securities re displyed by mturity dte, while most securities re listed lphbeticlly. The columns presented for ech section my vry depending upon the type of security. Generlly, you ll find the Quntity, Shre Price, Totl Cost, Mrket Vlue, Unrelized Gin/(Loss), Estimted Annul Income, nd Current Yield to the right of the Security Description. For ccounts tht reflect securities t tx lot level detil, Trde Dte nd Unit Cost re dditionlly displyed. Additionl informtion is displyed beneth the security, nd my vry. For exmple, for Common Stocks, Reserch Rting nd Next Dividend Pyble Dte re displyed; for Fixed Income Securities, Coupon Rte, s well s Mturity nd Rtings re displyed; for Mutul Funds, Reinvestment Options re displyed. For ech position, the underlying sset clss(es) re listed. morgn stnley smith brney llc. member sipc. 10
Account Detil (continued) Fixed Income securities re sorted by mturity or pre-refunding dte (if erlier), nd then lphbeticlly within dte. Originl Unit Cost nd Adjusted Unit Cost s well s Accrued Interest re displyed. Both the relized nd unrelized gin/(loss) informtion my hve been djusted for vriety of resons; including return of principl, ccretion of originl issue discount (OID), mrket discount nd the mortiztion of bond premiums. Accrued Interest is the estimted mount tht would be received upon sle of fixed income securities. It is clculted from the dte of the lst coupon pyment (or dted dte) through the closing dte of the sttement, bsed on informtion provided by the issuer. It is shown seprtely, since it is never prt of cost bsis for the purposes of gin/(loss). morgn stnley smith brney llc. member sipc. 11
Account Detil (continued) For Mutul Funds, severl unique pieces of informtion re presented which, when tken together, provide comprehensive snpshot of your mutul funds. Unrelized Gin/(Loss) compres the Totl Cost of ll fund purchses (including shres cquired through reinvestment of distributions) with the current Mrket Vlue. Totl Purchses vs Mrket Vlue is provided to ssist you in compring your totl purchses, excluding reinvested distributions, with the current vlue of the mutul fund positions in your ccount. For mutul funds for which you choose not to reinvest distributions, Cumultive Csh Distributions (including income nd cpitl gins distributions) reflects these csh distributions s prt of your funds economic gin. This line my not reflect ll such distributions, including those on investments mde prior to the ddition of this informtion on sttements. Net Vlue Increse/(Decrese) compres the difference between: Your totl purchses (excluding reinvestments) plus the csh distributions nd, The current vlue of the fund s shres (including reinvestments). On the itlicized line beneth the security description, the sttement reflects the underlying sset clss(es). Note tht for Mutul Funds, Unit Investment Trusts, nd Exchnge-Trded & Closed-End Funds, position my be tied to multiple sset clsses. morgn stnley smith brney llc. member sipc. 12
Account Detil (continued) In ddition to the ASSET ALLOCATION tble nd pie chrt/br grph tht shows how the products in your ccount re distributed cross Asset Clsses, there is n ALLOCATION OF ASSETS tble, immeditely following the HOLDINGS section. This summry tble cross-references the product ctegories in your ccount to the underlying Asset Clss(es) nd shows by product, the vlue in ech Asset Clss. morgn stnley smith brney llc. member sipc. 13
Account Detil (continued) As prtner with your Finncil Advisor, review of the ACTIvity on your sttement is n importnt prctice. All ctivity for the month is included in this component. The CASH FLOW ACTIVITY BY DATE section is chronologicl disply of the ctivities ffecting your csh blnces; including purchses nd sles, income nd distribution pyments. In ddition, DEBIT CARD & CHECKING ACTIVITY re lso discretely broken out in their own sections. Becuse the sttement presents ll trdes executed in the current sttement period, you could see trdes in this section tht my not hve settled by the end of the month. Items not ffecting your csh blnce, such s Options Activity, Corporte Actions, Open Orders, nd Security Trnsfers, re displyed seprtely by ctegory. An lterntive presenttion of ctivity is vilble, with ctivity displyed in discrete ctegories (e.g., Purchses & Sles, Income & Distributions, Deposits & Withdrwls). Plese spek to your Finncil Advisor for more detils. morgn stnley smith brney llc. member sipc. 14
Additionl Account Sections Ech month, your Active Assets Account sttement will provide detiled informtion on your checking ctivity; including Pyee Nme, Check Number, Dollr Amount, Dte Written nd Dte Clered. Using the Expense Anlyzer codes in the bck of your check register, you cn nnotte your checks nd ctegorize your personl, business nd txdeductible expenses, mking budgeting nd tx preprtion esier. At yer-end, you will see summry of the entire yer's check detils, grouped by expense ctegory. All of your Debit Crd ctivity including purchses, csh withdrwls nd ATM trnsctions re detiled on your monthly sttement nd recpped t yer-end. For those ccounts tht hve more thn one crdholder, the sttement will disply the ctivity by unique crdholder nme nd lst four digits of the crd number. morgn stnley smith brney llc. member sipc. 15
Additionl Account Sections (continued) UNSETTLED PURCHASES/SALES ACTIVITY is displyed for trdes tht were executed during the current sttement period, but hve not settled (including trdes with extended settlements). When the trdes re purchses, the positions re reflected in the HOLDINGS section; nd when the trdes re sles, the positions re no longer displyed in the HOLDINGS section. b b If you hve sked us to send copies of your sttement to dditionl prties, the nmes of the Interested Prties re listed here. (Fees my pply. Ask your Finncil Advisor for more detils.) morgn stnley smith brney llc. member sipc. 16
Recp of Csh Mngement Activity & Fiscl Reviews For eligible ccounts, yer-end review component is produced. For Active Assets Accounts nd Bsic Security Accounts, Recp of Csh Mngement Activity, which ccompnies the December sttement, is summry of the selected ccount ctivity for the preceding 12 months. As prt of the Recp, Debit Crd ctivity is orgnized by spending ctegory; nd checks re orgnized by expense code, with subtotls for Deductible nd Non-Deductible ctivity. Active Assets Accounts with fiscl yerend other thn December re eligible for Fiscl Review, which will ccompny the lst sttement of their fiscl yer. When the fiscl yer-end is December, the ccount will receive Recp of Csh Mngement Activity with the December sttement. Retirement nd Eduction ccounts re not eligible for either the Recp of Csh Mngement Activity or the Fiscl Review. morgn stnley smith brney llc. member sipc. 17
edelivery We encourge our clients to consider edelivery for their sttements. Here s how it works: Enroll in edelivery by logging on to www.morgnstnley.com/edelivery. Ech month, when your sttement is vilble, you will receive n emil notifiction with secure link to your sttement. Sttements re vilble online for seven yers nd you hve the bility to retrieve them nytime nd from nywhere. Some importnt fetures of edelivery: When you enroll, you hve the option to hve pper copy of your December Sttement miled. Clients tht receive n ccount link group sttement pckge of two or more ccount sttements cn mix nd mtch edelivery nd Mil: Both the edelivered nd Miled sttements will receive Consolidted Summry. The OVERVIEW Of YOUR ACCOUNTS pge will indicte which sttements were edelivered. Any relevnt inserts will follow your chosen method of delivery. Convenient: View, print or sve sttements nytime, nywhere. Flexible: Enroll some ccounts in edelivery nd hve others delivered vi mil. Secure: Know tht client informtion is sfegurded on our secure website. Accessible: Retrieve up to seven yers of ccount sttements ll in one plce. Green: Help the environment by cutting down on printed pper. For exmple, this Overview of Your ACCOUNTS pge represents n ccount link sttement pckge of five ccounts. The client hs elected edelivery for three of the ccount sttements nd mil for one ccount sttement. One ccount hs no blnces or positions this month so sttement ws not generted. Note tht ll of the ccounts re listed on the OVERVIEW OF YOUR ACCOUNTS nd the three ccounts tht re set for edelivery re identified by edel. morgn stnley smith brney llc. member sipc. 18
Frequently Asked Questions Q. I receive n ccount link group sttement pckge of three ccounts. I would be hppy to hve the sttements for my two Retirement Accounts edelivered but do wnt to continue to receive my Personl Account in the mil. Is there ny wy I cn do this? A. Yes! Clients tht receive n ccount link group sttement pckge of two or more ccounts hve the option to individully elect their delivery preference for ech ccount within the sttement pckge. Enroll in edelivery t www.morgnstnley.com/edelivery. Once the sttement is vilble, you will receive n emil with secure link to your sttement. This is gret wy to reduce the volume of pper you hve to mnge nd, since you do not hve to wit for the mil, you will be ble to view your sttement s soon s it is redy. Q. Wht does trde dte ctivity presenttion men? A. Historiclly there hve been two pproches to displying security trnsctions, nd the impct on your ccount: Settlement Dte Displying only those trnsctions tht hve settled within the current sttement period; or Trde Dte Displying ll trdes executed within the current sttement period, regrdless of whether or not they hve settled. In the pst, when clients purchsed or sold position t the end of the month, they hd to wit until the next sttement to see the impct of the trde. Morgn Stnley uses trde dte ctivity presenttion in order to reflect the impct of ll trdes executed through the lst business dy of the month nd, to lign with both performnce nd cost bsis reporting. Q. How re unsettled trdes represented on my sttement? A. Any position bought or sold, regrdless of whether or not it hs settled, will pper in (or, be removed from) the HOLDINGS section of your sttement. Since neither monies nor securities re due to the contr side until settlement dte there is no impct to csh, deposits or money mrket funds until the trdes settle. As result, when n unsettled trde is included on your sttement, you will see Net Unsettled Purchses / Sles in the BALANCE SHEET nd CASH FLOW summry sections so tht the Totl Vlue is not over (or under) stted. Q. Wht re the Estimted Annul Income nd Current Yield tht re displyed in the HOLDINGS section of my sttement nd how re they different from the informtion in the Income Summry? A. Estimted Annul Income is projection of future income nd the Income Summry section is recp of the income ctully credited to your ccount during the current sttement period nd yer-to-dte. The Estimted Annul Income which ppers in the HOLDINGS is bsed upon the dividend or interest expected to be received over the next twelve months. Generlly, for equities, it is the most recent dividend (per-shre) times the pyment frequency, times the number of shres or units held. Current Yield is then clculted by dividing the totl estimted nnul income by the current mrket vlue of the entire position. For securities tht hve defined mturity dte within the next 12 months, the Estimted Annul Income clcultion will be djusted to reflect income only through mturity dte. For exmple: Number of Shres Current Shre Price Most Recent Dividend Amount Dividend Pyment Frequency (Qurterly) Estimted Annul Income Current Mrket Vlue of the Entire Position Current Yield 100 $15.00.25 4 $100.00 $1500.00 6.7% Mutul fund Estimted Annul Income is bsed upon historicl distributions over the preceding 12-month period, rther thn on the most morgn stnley smith brney llc. member sipc. 19
Frequently Asked Questions (continued) recent dividend. The Annul Percentge Yield (APY) for Bnk Deposits represents the pplicble rte in effect for your deposits t the sttement ending dte. This APY my be different thn the APY tht ws in effect during the sttement period. For Money Mrk Funds (MMF), the Current Yield refers to simple nnulized yield (net of fees) for n identified seven-clendr-dy period. Q. Wht is the reltionship between Shre Price nd Mrket Vlue? A. Shre Price of the securities displyed on the sttement is obtined from vrious sources. For securities tht re listed on n exchnge or which trde continully in n ctive mrketplce, the Shre Price reflects the closing price s of the lst business dy of your sttement period. For securities tht trde less frequently, the price generlly reflects the bid price if it is vilble. Fixed income prices re provided by outside pricing services nd/or computerized pricing models, which do not lwys provide ctul mrket vlues nd my be bsed on recent trnsctions or bids, or estimtes. For Mutul Funds, the Shre Price is the fund s Net Asset Vlue (NAV) t the end of the dy. Depending upon the security type, the shre price lbel my vry, e.g., contrct price for options, unit price for bonds. Your Expnded Disclosures contin more detil on pricing nd ccount vlutions. Mrket Vlue is generlly derived by multiplying the Shre Price times the Quntity. For certin securities (such s Collterlized Mortgge Obligtions), there is nother component, the Fctor, which is lso prt of the eqution. The fctor reflects the remining principl blnce of mortgge security nd it chnges fter ech principl pyment. Q. Wht's the difference between Cpitl Gins nd Cpitl Gins Distributions? A. A Cpitl Gin is profit between the security's djusted cost bsis nd the price t which it is sold. A Cpitl Gins Distribution is mutul fund's distribution to shreholders of the profits on the sle from one or more of fund's underlying securities. Q. Wht s the difference between Unrelized Gin / (Loss) nd Relized Gin / (Loss)? A. Unrelized Gin /(Loss) presents the potentil gin or loss if you were to hve sold security t the price displyed on your month-end sttement. Unrelized Gin/(Loss) does not include commissions or fees tht my pply to proceeds upon the finl sle of the security. Gins or losses re considered relized when the position is ctully sold, nd the detils (which would include the impct of ll commissions nd/ or fees) re presented in seprte section on your sttement. Q. In my summry sections, why do I only see one number for Unrelized Gin / (Loss), but I see This Period / This Yer for Relized Gin/ (Loss)? A. Generlly speking, Relized Gin/(Loss) is reportble in the yer the trde is mde. For the positions tht you currently own nd for which there hs been no reportble event (e.g., sle), we disply unrelized Gin/ (Loss) informtion from cquisition dte to the present, in the Consolidted Summry nd Account Summry s well s in the HOLDINGS. Q. Wht is the difference between ll of the cost terms? A. Totl Cost (lso known s Cost Bsis) represents the mount pid for the security, including commissions nd fees if pplicble, nd excluding ccrued interest on fixed income purchses. Totl Cost my differ from the net mount on the trde confirmtion (e.g., for fixed income trdes), s the net mount pid could include ccrued interest pid to the seller (or received from the buyer). Unit Cost represents the per-shre mount pid for the security, including commissions nd fees if pplicble nd excluding ccrued interest on fixed income purchses. morgn stnley smith brney llc. member sipc. 20
Frequently Asked Questions (continued) For exmple: 2,000 shres t $24.7551 $49,510.20 Commission $120.00 Processing Fee $6.00 Totl Cost $49,636.20 Unit Cost (Totl Cost / # of Shres) $24.8181 Adjusted Cost: Your Totl Cost (or, Cost Bsis) my be djusted for vriety of resons. For fixed-income securities, the mjority of djustments to cost bsis re either mortiztion of the premium (the mount you pid for bond in excess of its fce vlue) t purchse, or the ccretion of originl issue discount (OID) or mrket discount. Whether you choose to mortize the premium on non-municipl bonds or not, the pertinent informtion is redily vilble. Amortiztion is n ccounting procedure tht reduces the cost bsis of bond by the mount of ny premium (the mount in excess of pr) pid for the bond. Cost bsis of the bond will be decresed dily until it is equl to its fce vlue t mturity dte (or erlier cll dte). Morgn Stnley mortizes premiums pid on both tx-exempt nd txble bonds. And, lthough the premium on tx-exempt bond must be mortized, clients my use this informtion or elect not to do so for txble bonds. Accretion refers to the dily process of incresing your originl cost bsis by the Originl Issue Discount (OID) tht ccrues on the bond until the sle or redemption of the bond. IRS regultions require the holder to report OID s it ccrues over the term of the debt instrument whether or not you receive ny pyments from the issuer. If you purchse the bond t originl issue nd hold it to mturity, the bsis upon mturity will hve incresed to the fce mount. We use the constnt yield method, lso referred to s the economic ccrul method, for both municipl nd txble fixed-income securities. Cost bsis my lso be djusted for other securities. For equities, the bsis must be djusted for certin events tht occur fter purchse. For exmple, if you receive dditionl stock from non-txble stock dividends or stock splits, the bsis of your originl shres is reduced. Similrly, bsis is reduced when you receive non-dividend distributions, such s non-txble return of cpitl (up to the mount of your bsis). Q. Wht do you men when you sy ccounts subject to tx reporting? A. Accounts subject to tx reporting re those ccounts for which we re required to provide n IRS Form 1099 for US ccounts nd form 1042-S for foreign ccounts. Certin ccounts re exempt from our reporting requirements (though these ccounts my hve reporting requirements of their own). These include, mong others, corporte, tx-exempt orgniztions, IRA nd retirement ccounts. Q. Wht is Accrued Interest nd how does it impct my ccount? A. Accrued Interest is the estimted mount of interest tht would be included in the totl mount received upon the sle of fixed income position; nd is clculted from the dte of the lst coupon pyment (or dted dte) through the closing dte of the sttement. Since the vlue of your fixed income positions includes the interest tht ccrues every dy, this provides comprehensive vlution of your ccount. The Accrued Interest is shown in HOLDINGS for ech fixed income security, s well s on the BALANCE SHEET (where it is included in the overll vlue of ech fixed income product type). morgn stnley smith brney llc. member sipc. 21
Frequently Asked Questions (continued) Q. Wht is Accrued Interest You Pid nd Accrued Interest Received? A. Accrued Interest You Pid is tht portion of bond purchse tht represents the interest which will be given to the seller of the bond on next coupon pyble dte. As the new owner of the bond, the purchser will receive the entire coupon pyment even if it hs not been owned for the full period. This mount is prt of the totl trnsction cost but not prt of the bond s cost bsis. On the other hnd, when client sells bond, Accrued Interest Received represents the interest tht hs ccrued since the lst coupon pyble dte nd to which the client is entitled. And, lthough prt of the totl trnsction proceeds, Accrued Interest You Pid is not prt of the proceeds for the purposes of gin/(loss) clcultion. Q. My bonds seem to be in rndom order. Are they in ny order? A. Bonds re presented by mturity or pre-refunding dte if erly, nd then lphbeticlly within dte. Q. Wht s the difference between the Blnce Sheet ctegories nd those displyed on the Asset Alloction pie chrt nd tble? A. The BALANCE SHEET presents your positions grouped into vriety of product ctegories (e.g., Stocks, Mutul Funds, Municipl Bonds, etc.). The ASSET ALLOCATION pie chrt (or, br chrt, if the ccount hs debit or short position), tkes the mrket vlue of these positions nd lloctes them cross one or more of the following Asset Clsses: Csh, Equities, Fixed Income & Preferreds, Alterntives, Annuities & Insurnce, Structured Investments or Other. For certin products (e.g., Mutul Funds, Unit Investment Trusts, Exchnge-Trded & Closed-End Funds), the vlue of the position could be split cross more thn one sset clss. For instnce, the vlue of blnced mutul fund could be split into Equities nd Fixed Income & Preferreds. Keep in mind tht Asset Alloction is the orgniztion of investments by Morgn Stnley Welth Mngement bsed on vrious chrcteristics, such s risk, voltility nd correltion to other investments, nd s result my differ from the clssifiction of the underlying security for regultory purposes or its txble sttus, nd my differ from the Product Level disply in the Blnce Sheet clssifiction. Morgn Stnley does not render dvice on tx nd tx ccounting mtters to clients. Clients should spek with their own tx dvisors regrding their personl tx circumstnces or specific dvice regrding tx mtters. 2016 Morgn Stnley Smith Brney LLC. Member SIPC. CRCxxxxxxx CS 8706648 09/16 morgn stnley smith brney llc. member sipc. 22