Understanding Your Forms 1099/Year ... - Morgan …

1 We are pleased to provide you with consolidated information returns on Forms 1099 and Year-End Summary for calendar year 2010. This document contains certain tax information which Citigroup Global Markets Inc. ( Our Clearing Broker ) is required to report to both you and the Internal Revenue Service (IRS). Review the enclosed tax document carefully; retain it for reference when preparing your federal income tax return for Forms 1099 generally contain aggregate information about payments made to your account in 2010. These figures have been derived from the detailed information that appears on your Year-End Summary, which is provided for your convenience. Neither Morgan Stanley Smith Barney LLC.

2 Nor Our Clearing Broker are in the business of giving tax advice. If you have any tax questions, please consult your tax Forms 1099 and Year-End SummaryThis pamphlet is provided to help you better understand your 2010 Form 1099 and Year-End Summary. The official IRS instructions are also provided on the enclosed Instructions for Recipients of Forms 1099. Other IRS publications referred to in the instructions are available through your local IRS office and on the Internet at suggest that you read this pamphlet carefully. It explains tax reporting requirements, the methods used to determine the reported income from your investments and the way the IRS treats certain investments. If your account is in the name of a corporation or other entity similarly exempt from Form 1099 reporting, or if you had no reportable income for 2010, the enclosed document consists of only a Year-End Summary.

3 The sections of this pamphlet that discuss Forms 1099 may therefore not be relevant to you have reviewed this pamphlet, compare your Forms 1099 alongside your Year-End Summary. The total figures shown in each Box of your Forms 1099 are reported in detail elsewhere. For example, the amount reported in Box 1 (Form 1099-INT Interest Income) comprises earnings on securities identified in Details of Form 1099 Reported Interest Income. The Year-End Summary will not be filed with the IRS. For your convenience, the Year-End Summary can be differentiated from the Forms 1099 by a border that reads 2010 Year-End Summary. If you have questions, please call your Financial Advisor or our Client Service Representatives at the toll-free number listed on the front page of the enclosed enclosed Forms 1099 include the following reportable amounts, if applicable to your account.

4 Dividends and distributions, including qualified dividends and long-term capital gain distributions Interest income, including accrued interest received on the sale of certain debt instruments Interest on Treasury obligations Foreign tax paid Investment expense/organizational expense Accrued Original Issue Discount income Gross proceeds from any sales, including short sales, redemptions and tenders Federal income tax withheld Royalty trust payments Payments in lieu of dividends Contract adjustment payments, consent payments and other miscellaneous incomePlease Note: The information on your Forms 1099/Year -End Summary reflects your personal investment activity.

5 As a result, some parts of this pamphlet may not apply to your account. To find information about your investments, please refer to the section headings. Note that each section is presented in the same order as in your Forms 1099/Year -End Notes About Your Forms 1099 and Year-End SummaryReporting on Tax-Exempt InterestThe Tax Increase Prevention and Reconciliation Act of 2005 ( TIPRA ), enacted May 17, 2006, contained a requirement that payors report tax-exempt interest on Form 1099 to you and the IRS. Tax-exempt interest is reported in the same manner as interest paid on taxable debt obligations. The aggregate amount reported for the calendar year includes periodic payments of tax-exempt interest, accrued interest on the sale of a tax-exempt bond and exempt-interest dividends from mutual funds.

6 This amount is reported in Box 8 on the Form addition, Box 9 is used to report the portion of the tax-exempt interest that is derived from private activity bonds. This interest is subject to the alternative minimum tax (AMT). Our Clearing Broker has used their best efforts to determine the amount of tax-exempt interest that is subject to AMT. While this information has been obtained from sources considered reliable, no guarantee can be made as to its completeness or present, tax-exempt original issue discount (OID) income is not required to be reported on Form 1099. However, to the extent Our Clearing Broker was able to obtain rate information on bonds issued with tax-exempt OID, it is shown in the Year-End Summary under the heading Details of Tax-Exempt OID 2010.

7 Lastly, backup withholding applies to tax-exempt interest paid unless you have provided your taxpayer identification number (TIN) in the manner required. If you are unsure about whether you need to provide your TIN on a Form W-9, please contact your Financial to holders of REMICs, Mortgage strips, CMOs and other Collateralized Debt Obligations: Please read this prior to filing your 2010 income tax IRS has issued regulations concerning Form 1099 reporting of interest and Original Issue Discount (OID) income from regular interests in Real Understanding Your Forms 1099/Year -End SummaryA Guide to Your StatementEstate Mortgage Investment Conduits ( REMICs ) and other Collateralized Debt Obligations, such as allow issuers and nominees sufficient time to prepare Forms 1099-OID and statements of additional information, the regulations extend the date for furnishing such statements to holders until March 15, you hold these types of securities in your account, you will be receiving an amended Form 1099, which we will mail to you on or before March 15, 2011 with the required to holders of Widely Held Fixed Income Trusts: Please read this prior to filing your 2010 income tax IRS has issued regulations concerning the Form 1099 reporting of income, expenses, and credits and other information from widely held fixed income trusts ( WHFITS ).

8 A WHFIT is a investment trust that holds a fixed pool of assets and is classified as a grantor trust for federal income tax purposes. Each investor owns an undivided pro-rata interest in each asset in a grantor trust. The tax character and source of the income, expenses and credits received/paid by the trust passes through the investors. To allow nominees sufficient time to collect the required information from issuers and to prepare Forms 1099 along with a written tax statement of additional information, the regulations extend the date for furnishing such statements to holders until March 15, 2011. If you hold these types of securities in your account, you will be receiving an amended Form 1099, which we will mail to you on or before March 15, 2011 with the necessary figures on the Forms 1099/Year -End Summary may differ from your monthly requirements and the nature of our reporting responsibilities can result in certain unavoidable differences between your Forms 1099 and your monthly statements.

9 For example, some taxable income distributions, such as those from mutual funds, are declared in 2010 but paid to you in January 2011. These distributions have been reported, as required, with your 2010 income. To identify these securities, refer to Details of 1099 Reported Dividends and Distributions on your Year- End Global Markets Inc. as PayerWhen you file your tax return, list Citigroup Global Markets Inc. as payer on Schedule B of IRS Form 1040 for all dividends and/or interest received through your Morgan Stanley Smith Barney LLC. MessagesPlease note any messages that may appear on the first page of your Forms 1099/Year -End Original CostThe Forms 1099 do not provide the original cost information for the transactions reported to the : The original cost of a security is not always your tax basis for use in calculating gain or loss resulting from the sale of the security.

10 Tax treatment of items such as bond premiums, return of capital distributions, returns of principal or accrued OID will affect the calculation of your tax basis on certain securities. Seek the advice of your tax advisor on these Income Tax WithheldClients who have not furnished a taxpayer identification number (usually a Social Security number) or proper certification to the payer of dividends or interest become subject to backup withholding at the rate of 28% on certain payments. This amount is charged to your account and paid to the IRS as required by law. Backup withholding is also required if the IRS notifies us that a taxpayer has under-reported dividends or interest on a prior-year federal income tax Reporting Municipal IncomeUnder state tax laws, Our Clearing Broker is required to report certain investment Information for any client whose primary address is in the state of California, Connecticut, Minnesota, Montana, New York or Rhode Island.