strategies for institutional investors - fa complex world of investing by delivering objective ......
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Strategies for Institutional InvestorsConsulting Group Helps Meet Today’s Challenges and Prepare for Tomorrow’s Responsibilities
The management of institutional portfolios has never been a simple matter. Today, the investment challenges and fiduciary responsibilities are more demanding than ever before. For more than 30 years, Morgan Stanley Smith Barney’s Consulting Group has been committed to helping trustees, directors and investment committees manage their fiduciary responsibilities and navigate the increasingly complex world of investing by delivering objective and customized investment advice and services. Consulting Group believes that institutional investors are best served by those who adhere to high standards of objective advice and ethical behavior in all matters. These rigorous guidelines apply to everything we do and move us toward our end goal: to set the industry standard in investment advice for institutional investors.
We are guided by a set of core principles. We seek to:
• Act in the best interest of our clients: We place our clients’ investment objectives at the forefront of all our relationships and services.
• Provide objective investment recommendations: Our firm’s research of investment managers and products is objective and impartial. We do not simply deliver financial “products”; we create strategies to help satisfy your distinct circumstances.
• Maintain high ethical standards: We seek to set and maintain high standards of professional conduct in all aspects of our advisory programs.
MORGAN STANLEY SMITH BARNEY/ 01
The Consulting Group AdvantageConsulting Group, the managed-account unit of Morgan Stanley Smith Barney, was formed more than three decades ago to address the complexities facing trustees, directors and investment committees. Selected members of our community of Financial Advisors have been specifically trained to understand the needs of institutional investors. Those Financial Advisors have the ability to draw on the work of one of the world’s largest teams of manager research analysts and investment professionals—a depth of intellectual capital that we believe is among the best in the institutional investment-consulting community.
We focus on investment policy statements to be reviewed by you and your counsel, asset and liability studies, spending policy analysis, asset allocation recommendations, investment-manager research, in-depth performance
review, global market analyses, disciplined rebalancing services and other portfolio optimization strategies. What’s more, we’ve developed a rigorous investment process that helps guide every aspect of our advice.
1
Needs ANAlysis
Review time horizon, risk tolerance, future liabilities and
cash inflows spending policy, assets and liabilities and desired fund
surpluses and reserves.
2
iNvestMeNt Policy
Help you (and where appropriate, your counsel) establish guidelines for
investment policy statement. Define the duties of all parties to the process, set risk
and return targets, describe portfolio constraints and state manager selection criteria.
3
Asset AllocAtioN
Build a diversified portfolio designed to optimize the trade-off
between expected risk and return in accordance with the
investment policy.
4MANAger/Product selectioN
Identify appropriate investment vehicles and/or portfolio managers for
each asset class in the portfolio. Establish procedures for evaluating, negotiating and
contracting with investment managers.
5Portfolio MoNitoriNg
Conduct performance measurement and evaluation in relation to stated risk-return targets, inflation, liability growth, customized market indexes
or other relevant benchmarks.
6review & rebAlANciNg
Portfolio weights may be adjusted periodically to track the allocation targets. Managers may be downgraded or replaced due to changing
requirements or deficiencies. Continual review of investment policy in light of changing
needs and market environment.
Consulting Group uses a six-stage process that encompasses the design of an investment strategy, the selection of appropriate managers to implement that strategy and regular portfolio monitoring and rebalancing activities.
02 /MORGAN STANLEY SMITH BARNEY
Asset allocation and diversification do not assure a profit or protect against loss in a declining market.
A Matter of responsibilityWhether you are the trustee of a corporate pension plan, a member of the board of directors for a foundation or the manager of a family office or private trust, you are required to make hundreds of difficult financial decisions every year, including:
Identifies client objectives • Can help formulate and or analyze existing investment policy statements • Helps establish asset allocation strategies • Presents appropriate investment managers • Provides periodic portfolio review for rebalancing consideration • Reviews investment results
Assumes responsibility for managing delegated portion of assets where appointed as a discretionary asset manager • Manages portfolios within stated investment process, guidelines and constraints • Makes investment decisions for purchases and sales of holdings within portfolios • Operates according to investment policy statement
clieNt
coNsultANt
iNvestMeNt-MANAgeMeNt firMs
THE INvESTMENT CONSuLTING relAtioNshiP
Delegates investment selection responsibilities • Contracts with various investment firms for investment related services • Receives monthly reports • Retains control of funds through custodian • Reviews and approves consultant’s recommendations • Examines performance and results
• developing a comprehensive investment strategy tailored to the needs of your organization
• documenting that strategy in an investment policy statement that guides your decisions yet is flexible enough to allow you to take advantage of new opportunities
• hiring competent investment-management firms and monitoring their results
• complying with regulatory and legal procedures that require you to document and justify your investment decisions
At a time when global capital markets are evolving at a tremendous speed, you may be exposed to legal liability for your actions—and for judgments that adversely affect the funds entrusted to your care.
To help manage all of these responsibilities, many institutional investors look to our specially trained Financial Advisors who can help offer guidance on these aspects of the investment-management process.
MORGAN STANLEY SMITH BARNEY/ 03
Sophisticated Asset Allocation The asset allocation work and advice we tailor to each client’s needs are an important component of our services. Our Financial Advisors use the work of the firm’s Global Investment Committee (“GIC”), a group of approximately 20 seasoned investment professionals. To supplement their comprehensive analysis, the committee often taps insightful sources of information outside of our firm. Normally, the Global Investment Committee meets monthly to survey the economic landscape, update their strategic asset allocation recommendations and recommend any tactical moves that exploit short-term opportunities.
The Global Investment Committee employs a two-pronged approach to the creation of its market views. First, it establishes strategic allocations for each asset class, representing the committee’s long-term outlook. Then the committee makes tactical, or opportunistic, recommendations to the strategic portfolio. These strategic recommendations reflect the committee’s tactical views, based on current and prospective economic conditions, as to which asset classes it believes are likely to outperform or underperform their long-term averages—or one another—over the next six to 12 months.
The GIC’s asset allocation advice does not end with a series of static models. We provide our investors with access to one of the most sophisticated asset allocation modeling capabilities in the investment industry. The tool, known simply as the Asset Allocation Center,
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CLIENT-DRIvEN Asset AllocAtioN
OnGOinG AllOcAtiOn
Advice
chAnGes in investOr
criteriA
Asset AllOcAtiOn
PlAn
FinAnciAl AdvisOr investOr
strAteGic mOdel
POrtFOliOs
investOr criteriAReturn Requirements •
Time Horizon • Risk Tolerance • Constraints
Active AllOcAtiOn
Advice
provides the ability to forecast using both traditional and alternative investment strategies, including illiquid securities. The Asset Allocation Center uses a proprietary strategy developed exclusively by investment professionals and independent economists from academia. This asset allocation methodology incorporates the long-term characteristics of an array of asset classes, including cash, fixed income, equities, hedge funds, private equity and real estate.
The experience and depth of the Global Investment Committee combined with Consulting Group’s ability to model client portfolios provide us with the sophisticated analytical tools to deliver customized asset allocation advice. Indeed, not all investment consulting firms can draw on the depth and scope of a large team of professionals providing global investment analytics and advice. Your Financial Advisor is well-positioned—through his or her experience in the institutional-consulting arena—to tailor the committee’s advice to your needs.
MORGAN STANLEY SMITH BARNEY/ 05
recOmmendAtiOn FOr mOdel POrtFOliO: mAnAGed Futures GLOBAL MODEL #2
recOmmendAtiOn FOr mOdel POrtFOliO:
reAl estAte GLOBAL MODEL #5
recOmmendAtiOn FOr mOdel POrtFOliO:
10% tO PrivAte equity GLOBAL MODEL #4
recOmmendAtiOn FOr mOdel POrtFOliO:
hedGe Funds GLOBAL MODEL #3
Global Cash 1%Global Cash 3%Global Cash 6%Global Cash 11%
Total Bonds49%
Total Equity22%
Total Alternative/Absolute Return
Investments18%
Total Alternative/Absolute Return
Investments24%
Total Alternative/Absolute Return
Investments29%
Total Alternative/Absolute Return
Investments31%
Total Equity32% Total Equity
38%Total Equity
46%
Total Bonds38%
Total Bonds30%
Total Bonds22%
The models shown above are for illustrative purposes only. They represent four samples of the GIC’s models from which investors may select. The appropriateness of a particular investment strategy and asset allocation will depend on an investor’s individual circumstances and objectives. Your Financial Advisor can provide you with information about all the GIC models.
Data Source: Global Investment Committee as of April 2010
Due to rounding, percentages do not equal 100%
Offering Possible Solutions to Complex fiduciary issues
Whether the issue your organization faces is how to fund future retiree health benefits, how to meet government payout requirements or how to comply with accounting standards, our institutional Financial Advisors can recommend appropriate solutions.
• AssociationsOccupying a niche between charitable organizations and not-for-profit companies, associations often face financial challenges common in both worlds. Whether your association consists of a hundred members or several thousand, we offer investment strategies for all types of funds—from cash management to operating funds to endowed assets.
• Defined Benefit PlansConsulting Group has a long history of helping pension plans meet their need for retirement savings. PPA added a host of new rules that guide plan design, funding requirements that you, your plan’s
actuaries and other responsible professionals need to be immersed in. To help you satisfy these responsibilities, we offer specialized services such as asset/liability studies to help determine the asset growth needed to fund future liabilities. Then, we recommend asset allocation strategies that will help you meet those liabilities.
• Defined Contribution PlansDefined contribution plans are shifting away from traditional fee arrangements and focusing instead on complete fee transparency and fee-based compensation models. Our defined contribution plan services feature fully disclosed fees and a menu of several hundred funds that are researched and evaluated using a disciplined process.
• Family Offices Single-family and multifamily offices and their private trustees and directors have special investment and financing needs
serving specialized markets
fiduciaries are covered by a maze of rules and regulatory standards. Some are defined by certain statutes, such as the uniform Prudent Investor Act, or uPIA, and the uniform Prudent Management of Institutional Funds Act, a law similar to uPIA. Others—such as qualified retirement plans—are governed by the Employee Retirement Income Security Act of 1974, or ERISA, the Internal Revenue Code of 1986, as amended, and an update to ERISA, the Pension Protection Act of 2006, or PPA. Charitable endowments may be covered by tax rules enforced by the Internal Revenue Service. Three laws govern collective bargaining arrangements—ERISA, PPA and the Taft-Hartley Act of 1947. State and local governments must comply with the standards set forth by the Government Accounting Standards Board and
various state and local laws that may incorporate all or part of the concepts of ERISA, the uPIA or other statutes. Other institutional entities are governed by common law as interpreted by the courts.
To complicate matters even further, fiduciaries may be held personally liable for investment losses caused by incompetence or misconduct incurred either by them or by their fellow trustees.
Our consulting process is specifically designed to help you meet the standards of financial prudence and fiduciary process— standards that we believe can pose significant challenges to even the most knowledgeable directors and trustees.
06 /MORGAN STANLEY SMITH BARNEY
MORGAN STANLEY SMITH BARNEY/ 07
that set them apart from other investors. These needs can include complex tax and estate-planning issues, disposition of restricted stock, management of offshore investments, the appraisal of rare antiques, art and real estate and the management of investment objectives across multiple generations. Our firm’s family wealth advisors and consultants can leverage the vast resources of Morgan Stanley Smith Barney to help protect you and your family’s wealth.
• Foundations, Endowments and Nonprofit OrganizationsPhilanthropic fiduciaries must match anticipated budget needs with available resources. Yet, future outlays typically cannot be actuarially projected. Many private foundations must also factor in the minimum annual distributions required by law. These accounting requirements can place inordinate strains on investment decisions. In addition, many foundations and endowments are run by private trustees who may not be entirely well-versed in the ramifications of their fiduciary and investment decisions. Your Financial Advisor is well-versed in the needs of nonprofit organizations.
• health care organizationsIn an era of increased competition and cost restraints in both the private and public sectors, many health care organizations face an acute need for financial resources. Some of the top issues they face are the improved management of their endowments, operating funds and capital-campaign proceeds. We have capabilities that encompass all of these types of portfolios that align investment strategies with spending needs.
• Public PlansPublic-pension-plan trustees, while not governed by the fiduciary definitions of ERISA, are bound by certain standards and other requirements defined by state law. Complying with these provisions—while meeting the expectations of elected officials, government leaders, community residences and beneficiaries—is a particular challenge at a time when many public funds are restructuring their investment strategies and
exploring nontraditional portfolio opportunities. Our Financial Advisors focusing on public retirement plans have made investment education and fiduciary advice a focus of their services to public pension plans.
• religious organizationsThe executives of religious organizations face particular challenges with their ministries, houses of worship and congregations. We can help allocate resources and advise leadership for all religious organizations as they seek to align their investment strategies with their religious beliefs and goals.
• taft-hartley funds Trustees of multiemployer plans must comply with ERISA, PPA and the 1947 Taft-Hartley Act. In today’s regulatory environment, ensuring compliance with all sets of fiduciary standards is not a simple matter, particularly when multiple benefits—retirement, health, education and disability—often must be invested and administered in different ways. We have a broad array of services created to help meet the needs of America’s workers through the prudent management of Taft-Hartley funds.
• state and local governmentsGovernment entities may be restricted by state and local law in the types of investments they can use. These restrictions differ from state to state and often by the type of institution within each state. Many state and local governments are grappling with a statement issued by the Government Accounting Standards Board, known as GASB 45, which mandates accounting rules for other postemployment benefits. Consulting Group is well versed in GASB 45 and , working at the direction of your local counsel versed in the particular limitations of state law, can help state and local governments develop investment strategies and select managers to meet the special GASB requirements.
1 Center for Fiduciary Studies, October 2007.
the importance of a Prudent fiduciary The primary responsibility of fiduciaries is to act in the interest of participants and beneficiaries. Fiduciaries must act prudently and must diversify the plan’s investments in order to minimize the risk of large losses. In addition, they must follow the terms of plan documents to the extent that the plan terms are consistent with ERISA. They also must avoid conflicts of interest or engage in transactions on behalf of the plan that benefit parties related to the plan, such as other fiduciaries, services providers or the plan sponsor.
Fiduciaries who do not follow these principles of conduct may be personally liable to restore any losses to the plan, or to restore any profits made through improper use of plan assets. Courts may take whatever action is appropriate against fiduciaries who breach their duties under ERISA including their removal.*
* united States Department of Labor
The Power of investment Advisor researchDelegating investment-management functions to outside advisors is a practical necessity for most fiduciaries. Asset management is a highly specialized field, and few trustees or directors have the time or experience to devote themselves wholly to investment management.
Evaluating investment-management firms is a cornerstone of our organization, and we draw on the strength, resources and experience of the Investment Advisor Research team. This team is composed of approximately 50 experienced manager-evaluation analysts who are trained and experienced in assessing the merits of the thousands of investment firms available today.
The Investment Advisor Research team reviews nearly 1,400 investment products each quarter, including separately managed account strategies, mutual funds, exchange traded funds and alternative-investment products. The team looks beyond past performance to examine factors such as the manager’s investment philosophy and how closely it is adhered to; the manager’s research capabilities, portfolio-construction
08 /MORGAN STANLEY SMITH BARNEY
identify traditional and alternative-investment money managers through a rigorous quantitative and qualitative research process.
Build platforms of researched investment products across asset classes and styles.
identify appropriate investment opportunities that can suit diverse client needs.
Provide unbiased, independent manager research and recommendations.
continually evaluate investment-management firms to help ensure quality.
Provide published manager and investment product research reports to help demonstrate prudent fiduciary decisions.
Advice
recOmmendAtiOns
quAntitAtive & quAlitAtive AnAlyses
inFOrmAtiOn GAtherinG
THE INvESTMENT ADvISOR reseArch Process
• Narrows the universe of managers
• Evaluates managers in specific asset classes
• Applies measurable criteria:
• Risk and return characteristics
• Risk-adjusted performance
• Style consistency
• Portfolio turnover
KEY EvALuATION ASPECTS
QuANtitAtive ANAlyses
process and investment-management team; its business operations and technological capabilities; and other essential information.
A critical factor in our evaluation process is the degree to which it is free from favoritism, bias and potential conflicts of interest. In striving to achieve a pure process, the MSSB Investment Advisor Research team adheres to these guidelines:
• We focus on recommending investment firms and strategies that are unaffiliated with our firm.
• We have access to a database featuring analytics and statistics from over 6,500 investment products.
• The compensation of our research analysts is not tied to the assets placed in the investment firms they examine.
• Our investment-manager research process follows a disciplined procedure that is consistently applied to each firm evaluated. This process allows for an objective comparison of strengths and weaknesses across firms of similar styles and philosophies.
• We do not allow investment-management firms to pay for our retail research and evaluation services.
• Our research is published solely for the use of our clients and is not available or sold to any other source.
• From time to time, investment firms are removed from our programs, regardless of asset levels, because they strayed from their original mandate or experienced significant changes that we believe will hinder their ability to deliver results to our clients.
A critical factor in our evaluation of an investment-management firm is the degree to which it is free from favoritism, bias and potential conflicts of interest.”
MORGAN STANLEY SMITH BARNEY/ 09
INvESTMENT MANAGER review Process
• History and stability of firm
• Background of key professionals
• Business evaluation
• Ownership structure
• Compensation/incentives to key professionals
• Personnel turnover
• Sources of returns
• Risk controls
• Style analysis
• Attribution analysis
• Strategy implementation
• Proprietary systems and analytical tools
• Depth and breadth of research process
• Technology and business operations
PEOPLE AND ORGANIZATION
STRATEGY/ PROCESS
quALITY OF RESEARCH
QuAlitAtive AssessMeNt
‘‘
Alternative thinkingMany institutional investors are increasingly turning to alternative investments—such as hedge funds, private equity, venture capital and real estate—to help diversify portfolios and help enhance risk-adjusted returns.
Morgan Stanley Smith Barney has deepened and expanded its alternative-investment capabilities through innovation and experience. Today, we offer a wide array of alternative investments and, within each alternative
asset class listed, provide a variety of investment vehicles from Morgan Stanley Smith Barney and leading third-party managers.
• Relative value
• Event Driven
• Equity Long / Short
• Macro and Managed Futures
• Funds of Hedge Funds
• Fully Leased Multitenant Property
• Stable Lease Roll
• Moderate Redevelopment and Releasing
• Distressed Sellers,Emerging Sectors and Other Property Opportunities
• venture Capital
• Leveraged Buyouts
• Mezzanine Financing
• Distressed Debt
• Global Interest Rates
• Currencies
• Global Equity Indexes
• Energy
• Metals
• Agriculture / Livestock
• Softs / Others
• Mortgage-Backed Arbitrage and Opportunistic
• Municipal Arbitrage
• Fixed Income Relative value
• Diversified Asset-Backed Securities
• Relative-value Preferreds
• Relative-value Leveraged Loans
hedge fuNds reAl estAte PrivAte eQuityMANAged futures
fixed iNcoMe AlterNAtives
ALTERNATIvE-INvESTMENT reseArch Process
• review the performance of all the manager’s relevant products in a specific investment style. • Assess key investment professionals’ credentials and reputation.• Perform an ongoing review of funds versus peers and benchmarks.• consider portfolio construction, risk management and investment-decision processes.• evaluate the market environment and the likelihood of outperformance.
• review operations infrastructure, systems, processes and controls. • Assess middle- and back-office staff qualifications and capabilities.• Perform ongoing media and background-check monitoring.• consider the independence and quality of service providers.• encourage the adoption of industry “best practice” operational controls.
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iNvestMeNt ANAlysts focus oN the
iNvestMeNt teAM
oPerAtioNs ANAlysts focus oN the Middle
ANd bAck offices
MORGAN STANLEY SMITH BARNEY/ 11
doing well by doing goodmany institutional investors—particularly foundations, endowments and other not-for-profit organizations—seek to align their investment objectives with their philanthropic goals. consulting Group offers socially minded investors a number of ways they can both attain their investment goals and maintain their social values. One is to let us help you select an investment-management firm or fund that specializes in such strategies. Another alternative is to use our trading system to block the purchase of specific companies or industries that do not meet your social criteria. consulting Group can tailor a socially responsible investment strategy to suit your particular needs.
Customized Performance reportingAccess to accurate and timely information is an important component of prudent investment management. To fill this need, Consulting Group has developed a sophisticated system of detailed performance reports, which cover vital aspects of an institutional investment program, including:
• Performance results for individual managers and for the portfolio as a whole• Analysis of asset allocation strategies• Comparisons to broad-market and style-specific benchmarks• Cash flows and the growth of assets• Performance-attribution analysis• Modern portfolio analytics, such as beta, alpha, batting averages, up- and down-capture
ratios and Sharpe ratios, among others• The capability of showing withdrawals as either net or gross of account fees
12 /MORGAN STANLEY SMITH BARNEY
TOTAL FUNDAsset Allocation ($000)
Dom. Eq Intl Eq FixedInc Cash Total5,132 3,153 4,610 316 13,210
Asset Allocation By Manager
Fiscal Qtr Fiscal YTD Trailing Trailing Trailing Since InceptionInvestment Returns (%) 03/31/09 12/31/08 12 Months 3 Years 5 Years 08/31/03 08/20/03Total Fund 12.65 6.85 -19.81 -1.98 2.54 3.84 3.94Composite 11.85 3.25 -22.10 -2.26 2.33 3.56 N/A
S&P 500 Index 15.70 2.96 -32.57 -8.24 -1.91 0.39 N/A
Fixed Manager 4.04 5.03 7.48 7.03 5.19 5.07 5.09Global Equity 20.33 2.39 -38.66 -10.97 -1.75 1.88 1.99All Cap Growth 11.66 4.32 -32.30 -6.87 -2.91 -1.64 -1.47Large Cap Value 18.95 5.68 -31.35 -8.58 0.65 2.76 2.83Small Cap Value 17.60 2.54 -27.97 -4.05 5.95 6.71 7.16Small Cap Growth 13.37 10.89 -37.71 -15.19 -5.42 -6.07 -6.04International Equity 21.03 9.63 -21.75 -0.72 7.60 8.65 9.21Large Cap Growth 9.24 6.36 -41.79 -9.64 -4.67 -3.25 -3.02Small Cap Growth 14.60 6.11 -31.62 -9.61 N/A -2.47 -3.77Mid Cap Growth 14.73 8.81 -32.97 -8.02 N/A -3.56 -3.71Mid Cap Value 11.74 5.26 -33.40 -5.51 N/A -2.13 -1.94International Equity 29.12 14.07 -36.73 N/A N/A -20.87 -19.82Emerging Markets 30.40 30.82 N/A N/A N/A 30.82 33.53
Asset Growth ($000)Beginning Market Value 11,743 11,974 16,036 12,369 9,399 9,541 3,260Net Contributions & Withdrawals -17 364 301 1,769 2,738 1,776 8,013Gain/Loss + Income 1,484 872 -3,127 -928 1,073 1,893 1,937Ending Market Value 13,210 13,210 13,210 13,210 13,210 13,210 13,210
Please refer to the attached Disclosures for important information.
-25.0
-12.5
0.0
12.5
25.0
Fiscal Qtr 03/31/09
Fiscal YTD 12/31/08
Trailing 12Months
Trailing 3Years
Trailing 5Years
Since 08/31/03
Inception 08/20/03
Portfolio Performance (%)
Total Fund CompositeSmall Cap
Growth1%Small Cap Growth
1%Large Cap
Growth8%Mid Cap Value
4%
All Cap Growth6%
Small Cap Value3%International
Equity8%
Large Cap Value2%
Mid Cap Growth3%
Fixed Manager35%
Global Equity10%
InternationalEquity12%
EmergingMarkets
7%
0%10%20%30%40%50%60%70%80%90%
100%
Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 May-09
Allocation Over Time
Dom. Eq Intl Eq FixedInc Cash
Intl Eq24%
Cash2%
Dom. Eq39%
FixedInc35%
Since:
INVESTMENT PRODUCTS: NOT FDIC INSURED · NO BANK GUARANTEE · MAY LOSE VALUE
ACCOUNT - EXECUTIVE SUMMARY - Equity Manager
Portfolio Performance (%) Asset Allocation ($000)Dom. Eq Intl Eq Cash Total
701 28 12 740
Portfolio Characteristics Fiscal Qtr Fiscal YTD Trailing Trailing Mgr Chng Since Inception Yield 1.54% Account Sharpe Ratio -0.31
Investment Returns (%) 03/31/09 12/31/08 12 Months 3 Years 07/31/06 08/31/03 08/20/03 Beta 0.90 Index Sharpe Ratio -0.16Large Cap Growth 11.66 4.32 -32.30 -6.87 -7.06 -1.64 -1.47 Alpha 2.14% # Equity Positions 56Russ 1000 Growth 10.50 3.20 -40.50 -9.25 -8.07 0.22 N/A R2 94%
Risk / Return Analysis Since 08/31/2003Asset Growth ($000)Beginning Market Value 1,185 1,162 1,672 718 712 2,001 1,983Net Contributions & Withdrawals -559 -461 -387 354 356 -1,103 -1,104Gain/Loss + Income 114 39 -545 -332 -328 -158 -139Ending Market Value 740 740 740 740 740 740 740
Top Equity Holdings Economic Sector Allocation
Stock Sector % Port % PortCoach Inc Consumer Discretiona 2.7 Information Technolo 26.9General Dynamics Corp Industrials 2.4 Health Care 22.6Flowserve Corp Industrials 2.3 Industrials 16.2Murphy Oil Corp Energy 2.2 Consumer Discretiona 14.5Goodrich Corp Industrials 2.2 Consumer Staples 8.4*** Transocean Ltd Switzerland Energy 2.1 Energy 8.0Activision Blizzard Inc Information Technolo 2.0 Materials 2.0 Annualized % Return Std. Dev.Apple Inc Information Technolo 2.0 Cash Equivalents 1.9 Large Cap Growth Equity -1.64 14.07Mosaic Company Materials 2.0 Russ 1000 Growth 0.22 15.20Mcdonalds Corp Consumer Discretiona 2.0 Russ 3000 Growth 0.27 15.53
CPI 2.52 1.5590-Day TB 2.70 0.48
Please refer to the attached Disclosures for important information.
-40
-20
0
20
40
Fiscal Qtr 03/31/09
Fiscal YTD 12/31/08
Trailing 12Months
Trailing 3Years
Mgr Chng 07/31/06
Since 08/31/03
Inception 08/20/03
Large Cap Growth Russ 1000 Growth
Dom. Eq94%
Cash2%
Intl Eq4%
-17.44
-8.61
0.22
9.05
17.88
0.00 7.60 15.20 22.80 30.40Annualized Standard Deviation%
Ann
ualiz
ed R
etur
n%
Large Cap Growth Equity Russ 1000 Growth
Russ 3000 Growth CPI
90-Day TB
Since:
INVESTMENT PRODUCTS: NOT FDIC INSURED · NO BANK GUARANTEE · MAY LOSE VALUE
the consulting Group Advantage For over 30 years, Morgan Stanley Smith Barney’s Consulting Group has been committed to helping trustees, directors and investment committees navigate the increasingly complex world of investing by delivering objective investment advice. We provide customized investment-consulting solutions with intellectual intelligence provided by some of the industry’s most experienced collection of analysts who are members of our Investment Advisor Research group and the Global Investment Committee.
• Cash-management services• Commercial and residential
real estate financing• Custody and trading services • Corporate financial services• Executive financial services• Family wealth-advisory services
• Hedging and monetization services• Philanthropic services• Private wealth management• Retirement plan services• Tailored lending services• Trust and estate solutions
MORGAN STANLEY SMITH BARNEY/ 13
Our commitment to our clients is backed by the resources of Morgan Stanley Smith Barney, one of the world’s preeminent financial services firms. Along with our expertise in investment consulting, we can deliver a broad range of wealth management products, services and capabilities, including:
We have a long and successful track record of maintaining deep relationships with our clients. Learn more about what we can do for you and your organization by speaking with your Morgan Stanley Smith Barney Financial Advisor.
Investing in the markets entails the risk of market volatility. The value of all types of investments may increase or decrease over varying time periods.
Tax laws are complex and subject to change. Morgan Stanley Smith Barney LLC, its affiliates and Morgan Stanley Smith Barney’s Financial Advisors do not provide tax or legal advice and are not “fiduciaries” (under ERISA, the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise agreed to in writing by Morgan Stanley Smith Barney. This material was not intended or written to be used for the purpose of avoiding tax penalties that may be imposed on the taxpayer. Individuals are urged to consult their tax or legal advisors before establishing a retirement plan and to understand the tax, ERISA and related consequences of any investments made under such plan.
Bonds are subject to interest rate risk. When interest rates rise, bond prices fall; generally the longer a bond’s maturity, the more sensitive it is to this risk. Bonds may also be subject to call risk, which is the risk that the issuer will redeem the debt at its option, fully or partially, before the scheduled maturity date. The market value of debt instruments may fluctuate, and proceeds from sales prior to maturity may be more or less than the amount originally invested or the maturity value due to changes in market conditions or changes in the credit quality of the issuer. Bonds are subject to the credit risk of the issuer. This is the risk that the issuer might be unable to make interest and/or principal payments on a timely basis. Bonds are also subject to reinvestment risk, which is the risk that principal and/or interest payments from a given investment may be reinvested at a lower interest rate.
Bonds rated below investment grade may have speculative characteristics and present significant risks beyond those of other securities, including greater credit risk and price volatility in the secondary market. Investors should be careful to consider these risks alongside their individual circumstances, objectives and risk tolerance before investing in high-yield bonds. High yield bonds should comprise only a limited portion of a balanced portfolio.
Equity securities may fluctuate in response to news on companies, industries, market conditions and general economic environment.
Asset allocation and diversification do not assure a profit or protect against loss in declining financial markets.
REITs investing risks are similar to those associated with direct investments in real estate: lack of liquidity, limited diversification and sensitivity to economic factors such as interest rate changes and market recessions..
Investing in alternative investments is speculative, not suitable for all clients and intended for experienced and sophisticated investors who are willing to bear the high economic risks of the investment, which can include:
• Investing in the markets entails the risk of market volatility. The value of all types of investments may increase or decrease over varying time periods;
• loss of all or a substantial portion of the investment due to leveraging, short selling or other speculative investment practices;
• lack of liquidity in that there may be no secondary market for the fund and none expected to develop;
• volatility of returns;
• restrictions on transferring interests in the fund;
• potential lack of diversification and resulting higher risk due to concentration of trading authority with a single advisor;
• absence of information regarding valuations and pricing;
• delays in tax reporting;
• less regulation and higher fees than mutual funds; and
• advisor risk.
© 2010 Morgan Stanley Smith Barney LLC. Member SIPC. Consulting Group is a business of Morgan Stanley Smith Barney LLC. 2010-PS-47 4/10 3468