At Morgan Stanley Smith Barney, we believe it is important for you to understand the costs associated with obtaining investments and services from us. As our client, you benefit from the full scope of services and resources of a global industry leader. Through your Financial Advisor, you have access to our firm’s powerful capabilities: world-class equity research, high-quality debt and equity offerings, asset management expertise, financial planning and credit management tools and our team of in-house professionals, including retirement planning, estate and trust service specialists.

Depending on the types of relationships you establish and the ways you choose to do business with us, Morgan Stanley Smith Barney may be compensated for the services we provide through transaction commissions and markups, asset-based fees and other fees and charges.

Brokerage
For brokerage activity we offer transaction-based pricing in which you pay commissions, sales loads, markups/markdowns or other fees for each transaction you and your Financial Advisor execute. You can conduct transaction-based business in virtually all financial products and services within an Active Assets Account or in retirement, education savings, or other accounts we offer.

Morgan Stanley Smith Barney Choice Select
If you are a moderate or active trader, you may wish to enroll in Choice Select--a pricing solution for certain brokerage accounts. Choice Select is a different way to pay commissions on equities and option trades.¹ With a sliding scale commission schedule, the more you trade, the lower your marginal commission rate. The schedule is based on the principal volume of eligible trades executed annually, and commissions are charged quarterly in arrears.

Any investment advice given to Choice Select clients is soley incidental to Morgan Stanley Smith Barney's business as a broker-dealer. Clients do not pay for, nor do they receive a level of advice different from that provided to other full-service brokerage clients who pay on a per-trade basis.

Investment Advisory
In Morgan Stanley Smith Barney’s investment advisory programs, you generally pay an annual fee, charged quarterly in advance, based on the total value of the assets in your account at the end of the previous quarter. Unless otherwise noted, the asset-based fee generally covers investment consulting and certain brokerage services provided by Morgan Stanley Smith Barney, as well as the external or internal investment management fees. However, the asset-based fee does not cover expenses paid within any mutual funds you may own.

You may select from our comprehensive suite of managed account programs, which are designed for various levels of investment experience and sophistication, with asset minimums that start as low as $10,000. Depending upon the program, your investment manager may invest in stocks, bonds, money market funds, mutual funds, exchange-traded funds and cash. You can establish investment advisory relationships for your retirement or trust accounts in addition to your personal investment accounts. If you select Morgan Stanley Advisory, our nondiscretionary advisory account, your Financial Advisor will provide investment advice, but you will retain decision-making authority over the account.

Lending Services
Morgan Stanley Smith Barney offers a variety of lending products to individuals and businesses. Morgan Stanley Smith Barney is compensated for these services in two ways: through fees when the loan or credit line is initially established and through ongoing interest charges. These fees and payments depend on the type, structure and duration of the loan.

For margin, non-purpose margin² and overdraft loans³, you are not charged up-front fees. Normally, ongoing interest charges are calculated and paid based on a variable interest rate. Principal is usually repaid at your discretion, although Morgan Stanley Smith Barney may exercise its rights under its agreement with you at any time, including if there is a collateral shortfall.

For the Portfolio Loan Account, clients are not charged upfront fees to set up the credit facility. Various loan structures can be established in one loan account, including a variable rate revolving line of credit or one or more fixed rate loans. The ongoing principal and interest payments depend on the type, structure and duration of the loan. Principal is usually repaid at the client’s discretion, although Morgan Stanley Bank may exercise its rights under its agreement with you at any time, including if there is a collateral shortfall. You can also establish a standby letter of credit. Fees on standby letters of credit are based on the issuance amount of the Letter of Credit. Fees, interest and principal payments are paid to Morgan Stanley Bank. The Portfolio Loan Account can be used for a variety of purposes but not for buying, trading or carrying securities, and is offered by Morgan Stanley Bank, an affiliate of Morgan Stanley Smith Barney LLC.

For conforming mortgage loans available through the Morgan Stanley Home Loans⁴program, you repay the principal amount borrowed, with interest, to Morgan Stanley Credit Corporation. Some loans may involve an origination fee, which is typically up to one percent of the principal amount of the loan, and/or an application fee and closing costs.

Commercial loans available through Morgan Stanley Commercial Financial Services, Inc., have various structures (e.g., lines of credit, letters of credit, term loans, commercial mortgages). The structure and amount of both initial facility fees and ongoing principal and interest payments depend on the type, structure and duration of the loan.

How Morgan Stanley Smith Barney Compensates Your Financial Advisor

Your Morgan Stanley Smith Barney Financial Advisor’s compensation is based primarily on the fees and commissions that you pay us according to the products and services you choose.

Investments
There are two primary payout tiers for investment products and services as shown below.

Tier One includes fee-based products and services, such as Investment Advisory accounts, as well as Mutual Funds, trades subject to Choice Select pricing and others. Transactions with commissions above certain minimums are also Tier One with the exception of Equity and Fixed Income Syndicate. Tier Two includes Equities, Fixed Income and Fixed Annuities with commissions below certain minimums. In addition, on certain lending products such as Margin, Portfolio Loan Account and Mortgages, Financial Advisors are credited with anywhere from 25 to 70 basis poitns on the balance of the loan depending on the product and level of discount with the individual loan. Financial Advisors may also receive ongoing compensation (called residuals) on some investment products.

Financial Advisors who are in their first three years in the Morgan Stanley Smith Barney Wealth Management Program are eligible for a third payout tier on certain investment advisory services.

The payout range and the product and services included in each Tier vary and are subject to change. Generally, payouts range from 30% to 43% with Tier One products and services
typically paying at a higher rate than Tier Two. In addition to the payout tiers outlined above, your Financial Advisor may be eligible for a bonus, based on the total amount of production he or she generates during the year.

Your Financial Advisor will receive a reduced or no payout for transactions below certain commission levels and for households that do not meet certain asset minimums. Exceptions to this policy include investments in Fund Solution.

Morgan Stanley Smith Barney and its affiliates may earn compensation in other, more indirect ways with regard to certain of the products you purchase or services you receive. For example, Morgan Stanley Smith Barney may earn compensation in connection with the provision of investment banking, prime brokerage, institutional brokerage or placement agent services, as well as stock loan or other lending, money-management or trading-desk activities. Certain investment vehicles may include securities of Morgan Stanley Smith Barney’s parent or other affiliates and companies in which Morgan Stanley or its affiliates make a market or in which Morgan Stanley Smith Barney or the officers or employees of Morgan Stanley Smith Barney or Morgan Stanley Smith Barney’s affiliates own securities.

Morgan Stanley Smith Barney LLC is committed to providing best execution for customer orders. In furtherance of this commitment, Morgan Stanley Smith Barney LLC considers several factors, including price, the available liquidity pool, execution speed, transaction costs, service and opportunities for price improvement in determining where to route customer orders for execution.

Industry regulations require that we disclose whether we receive compensation for directing client orders for execution to various dealers, exchanges or market centers. This compensation is commonly referred to as “payment for order flow.” Consistent with its best execution considerations, Morgan Stanley Smith Barney LLC accepts benefits that constitute payment for orderflow. Morgan Stanley Smith Barney LLC routes customer orders to national securities exchanges, alternative trading systems (“ATSs”), including electronic communications networks (“ECNs”), and other market centers. Certain market centers offer cash credits for orders that provide liquidity to their books and charge explicit fees for orders that extract liquidity from their books. From time to time, the amount of credits that Morgan Stanley Smith Barney LLC receives from one or more such market centers may exceed the amount that it is charged. Under these limited circumstances, such payments would constitute payment for order flow.

Morgan Stanley Smith Barney LLC or certain affiliates maintain ownership interests in certain market centers that stand to appreciate as a result of any profits generated from the execution of orders.

Notwithstanding the foregoing, Morgan Stanley Smith Barney LLC regularly and rigorously monitors the quality of the executions provided by all market centers to which customer orders are routed to ensure those market centers are providing the best execution reasonably available under the circumstances.

Additional information regarding these disclosures will be provided upon written request and certain order routing information is available on the Rule 606 section of the Morgan Stanley website.