Leveraged/Inverse Exchange-Traded Funds

This information is specific to leveraged, inverse, and leveraged inverse exchange-traded fund (“LIETF”) sales at E*TRADE from Morgan Stanley.

Summarized below is important information about LIETFs. Please visit the ETF section of the Disclosure Library to review important information about ETFs, in general, and how E*TRADE from Morgan Stanley is compensated when you invest in ETFs.

A LIETF’s prospectus contains its investment objectives, risks, charges, expenses and other important information, and should be carefully considered before investing. For a current prospectus, visit the ETF Center at www.etrade.com/etf.

In general, a Leveraged ETF is designed to provide a multiple (e.g., two times) of the performance of the index, benchmark or single-security it tracks. An Inverse ETF is designed to provide the opposite of the performance of the index, benchmark or single-security it tracks. A Leveraged Inverse ETF is designed to provide a multiple of the opposite of the performance of the index, benchmark or single-security it tracks.

Please keep in mind that LIETFs typically seek to achieve their investment objectives on a daily basis (i.e., over one trading session). When held for longer than one day, the performance of LIETFs can differ significantly from the performance (or the inverse of the performance) of their underlying index, benchmark or single-security over the same time period. This effect can compound the longer the product is held and result in large and unexpected losses, particularly in volatile markets.

LIETFs also amplify the volatility and related risk associated with a fund’s underlying index, benchmark or single-security. Volatility refers to the frequency and magnitude of changes in the prices of a financial instrument. Generally, the higher the volatility of an instrument, the greater its price swings and the more risk associated with it. The increased volatility associated with LIETFs may be especially pronounced with respect to funds that provide exposure to a single-security, which by their nature, are not diversified.

Further, LIETFs may face liquidity concerns. Liquidity refers to the ability of market participants to buy and sell securities at a competitive price. Greater volatility in LIETFs may lead to market dislocations and higher probability that LIETFs may be restricted from trading or be liquidated. As a result, there may be lower liquidity involving LIETFs, which may result in an investor not being able to sell a LIETF or having to accept a discounted price to do so. This is especially the case for exchange-traded notes (ETNs), which present additional and distinct risks from LIETFs. Please read more about ETNs here.

You can also visit the websites sponsored by the U.S. Securities and Exchange Com­mission (www.sec.gov) and the Financial Industry Regulatory Authority (www.finra.org) to obtain additional educational information about LIETFs, or access the following links:

SEC.gov | Updated Investor Bulletin: Leveraged and Inverse ETFs

The Lowdown on Leveraged and Inverse Exchange-Traded Products

Know Before You Invest: Volatility-Linked Exchange-Traded Products