Morgan Stanley Private Wealth Management Colgate University February 13, 2010 Morgan Stanley Private Wealth Management is a division of Morgan Stanley Smith Barney LLC
Morgan Stanley Private Wealth Management Value Proposition for Clients Mission Statement: Morgan Stanley Private Wealth Management is dedicated to ultra high net worth individuals, their families and foundations. By providing advice founded on a culture of excellence and driven by global insight, Morgan Stanley Private Wealth Management is devoted to helping our clients preserve and grow their financial, family, and social capital • Established Leader in Ultra-High Net Worth Wealth Management • Morgan Stanley Private Wealth Management has been an established wealth management leader dedicated to ultra high net worth families and their foundations for over 30 years • Global Presence and Expertise • With 21 offices in key financial hubs worldwide, Morgan Stanley Private Wealth Management leverages its global presence to deliver local market expertise • People • First-class talent, experience and a team-based culture • Customized Wealth Management Approach • Morgan Stanley Private Wealth Management utilizes a customized wealth management process best suited for the unique needs of ultra high net worth families • Innovative Solutions • Range of sophisticated solutions and services provided through an open architecture platform that leverages the intellectual capital and insight of the Firm
Morgan Stanley Private Wealth Management Global Footprint – 21 Offices Across 4 Continents • Established in 1977 • Over 400 Private Wealth Advisors globally • Over $170 billion in assets under management • 21 offices worldwide • Co-located generally in the same offices as other Morgan Stanley businesses such as Investment Banking, Equities, Fixed Income and Investment Management Private Wealth Management Global Footprint Munich London Boston San Francisco Chicago Milan New York Menlo Park Atlanta Philadelphia Geneva Zurich Washington, DC Dubai Los Angeles Houston Miami Riyadh Hong Kong Singapore São Paulo *As of Dec 2009
Your Morgan Stanley Private Wealth Management Team • Key Team Statistics • Total Assets Under Administration of $1,200 MM • The team has a combined +45 years experience in the financial services industry • Kevin & Jack were named two of the top 1,000 advisors in the country by Barron’s February 2009 • KEVIN R. LYNCH • Executive Director • Phone: 312.706.4524 • Fax: 312.777.2256 • kevin.r.lynch@MorganStanley.com • BS, Manufacturing Engineering Technology, Bradley University 1986 • MBA, University of Chicago, 1993 • Baxter International 1986-1996 • Deutsche Bank Private Wealth Management 1996-2009 • Joined Morgan Stanley in April 2009 • ___________________________________ • Wealth Management Focus: • Pre IPO/Liquidity & Estate Planning • Executive Compensation & Stock Option Exercise analysis • Risk & Liability analysis • Portfolio Risk Management • 10b5-1 Plan Consulting • Structured Products • JACK DOERGE • Executive Director • Phone: 312.706.4174 • Fax: 312.291.5755 • jack.doerge@MorganStanley.com • AB, Bowdoin College • MBA, University of Chicago 1988 • Goldman Sachs PWM 1988-2000 • Bear Stearns PWM 2000-2008 • Joined Morgan Stanley 2008 • Board Member, Chicago Children’s Memorial Foundation Board and Children’s Memorial Hospital Board • ________________________________ • Wealth Management Focus: • Directed Share Programs • Longer duration fixed income securities • Asset allocation, investment management, tax planning • Alternative investments • JONATHAN DEFREYTAS • Vice President • Phone: 312.706.4526 • Fax: 312.777.2256 • jonathan.defreytas@MorganStanley.com • BA, Marketing & International Business, Pennsylvania State University, 1998 • Deutsche Bank Private Wealth Management 1998-2009 • Joined Morgan Stanley in April 2009 • ___________________________________ • Wealth Management Focus: • Directed Share Programs • Section 16 Stock Trading and Advice • Restricted Stock • Multi - Asset Class Portfolio Construction • - Investment Manager Analysis • Institutional Sales & Trading • Hedging and Monetization Strategies • Family Office Servicers • Tara O’Malley • Sales Associate • Phone: 312.706.4549 • Fax: 312.777.2256 • tara.o’malley@MorganStanley.com • BA, University of Dayton • Deutsche Bank PWM • Joined Morgan Stanley in 2009 • Jason Oberg • Sales Associate • Phone: 312.706.4177 • Fax: 312.291.5755 • jason.oberg@MorganStanley.com • AB, Colgate University • Goldman Sachs Intern 2008 • Joined Morgan Stanley in 2009 • Heather Shintaku • Sales Associate • Phone: 312.706.4176 • Fax: 312.291.5755 • heather.shintaku@MorganStanley.com • BS, Drake University • Goldman Sachs PWM • Bear Stearns PWM • Joined Morgan Stanley in 2008 • Dawn Michalik • Sales Associate • Phone: 312.706.4582 • Fax: 312.777.2256 • dawn.michalik@MorganStanley.com • BA, Governers State Univ. • MBA 1997 • Deutsche Bank PWM • Joined Morgan Stanley in 2009
Section 1 Customized Wealth Management Process
CUSTOMIZED WEALTH MANAGEMENT PROCESS The Private Wealth Management Approach to Customizing a Family’s Wealth Management Strategy • Benefits of Customized Wealth Management Process: • Holistic: Integrates the advice of clients’ external advisors (including but not limited to lawyers, accountants, tax preparers and other financial advisors) with that of Morgan Stanley Private Wealth Management to create a comprehensive solution • Educational: Aims to ensure that clients understand how all facets of their strategic plans work together • Objective: Independent group uniquely situated to leverage the intellectual capital throughout the Firm 1 2 • Discovery Process Formulation of Tax, Trust & Estate Strategy with appropriate advisors 3 Creation of a Customized, Strategic Asset Allocation 4 Integration of Tactical Asset Allocation 5 6 Implementation of the Customized Wealth Strategy Ongoing Assessment of a Family’s Portfolio and Wealth Management Needs
CUSTOMIZED WEALTH MANAGEMENT PROCESS Access to Industry Leading Capital Markets Research and Capabilities Industry and Company Analysts Fixed Income Broad inventory across credit, municipals, FX, interest rates and commodities with traders dedicated to the ultra high net worth client Create detailed analyses and investment opinions of individual stocks within regions, sectors and industries Proprietary Offerings and Capabilities Intellectual Capital Global Economists Structured Solutions Provide macro perspectives on global and regional policy, economic and political trends Extensive Capital Markets Resources Create structures that are tailored to an investor’s specific risk/return profile and investment needs as an alternative to direct investment Global Strategists Leverage economic insight to identify market trends and investment themes in regional markets and major asset classes Product Specialists Team dedicated to ultra high net worth families with expertise across asset classes and products Connectivity to Morgan Stanley & Co. Affiliates Sophisticated Products Equity Syndicate Global Reach and Execution Opportunity to access institutional products and resources Leveraging equity syndicate process and capabilities of Global Capital Markets Execution in financial markets in more than 25 countries across the globe 13
CUSTOMIZED WEALTH MANAGEMENT PROCESS Leveraging the Intellectual Capital of Morgan Stanley for Strategic and Tactical Asset Allocation David M. Darst, CFA GWMG Chief Investment Strategist, Chairman Asset Allocation Committee Morgan Stanley Smith Barney Global Asset Allocation Committee Sample Asset Allocation Framework • Served in Senior Management roles within the Equity Division of Goldman Sachs including Regional Manager of its Swiss Private Bank • Author of six books, including The Art of Asset Allocation,Mastering the Art of Asset Allocation and The Little Book That Saves Your Assets • Joined Morgan Stanley in 1996 • CFA designation in 2006 • BA, Yale University, MBA Harvard University • Morgan Stanley Private Wealth Management leverages the expertise of the Morgan Stanley Smith Barney Global Asset Allocation Committee for tactical investment recommendations used as a basis from which to create customized recommendations specifically addressing clients’ unique risk profiles • The committee is composed of senior investment professionals representing the major global asset classes within the Equity, Fixed Income, Alternative Investments, and Cash universe • To enhance long term performance potential without introducing undue additional volatility, the committee suggests shorter term adjustments that may be made to take advantage of temporary market dislocations
CUSTOMIZED WEALTH MANAGEMENT PROCESS Implementing Your Customized Wealth Strategy Open Architecture Investment Platform and Advisory Services • A comprehensive suite of solutions through which your customized wealth strategy is implemented • On an advisory/discretionary basis where Morgan Stanley acts as investment adviser to the client • On a brokerage/transaction basis where Morgan Stanley acts as a broker to the client and the client retains responsibility for making all investment decisions in and monitoring their account Brokerage Platform Advisory Platform Transaction-Based Fee Asset-Based Fee Traditional Investments: Alternative Fixed Income Equity - Related Alternatives Equity, Cash, Fixed Income Investments Related Morgan Stanley Managers Morgan Stanley and Research Calls Research Calls Alternative Investments/Private Alternative Investments/Private External Managers Placement Platform (Morgan Placement Platform (Morgan Stanley and External) Separate Account Underwriting Stanley and External) Interest Rates Funds Calendar • Investment Group • Private Equity • PWM Advisor Managed • Hedge Funds • Venture Capital Derivatives • Morgan Stanley Investment • Private Equity • Real Estate Credit Products Management • Real Estate • Real Assets • Managed Futures Strategic Equity Portfolios Municipals • Commodities Funds Fund of Funds • Exchange Funds • Morgan Stanley Investment • Hedge Funds • Fund of Funds Management • Private Equity Foreign Exchange • Hedge Funds • Van Kampen Commodities External Managers Separate Account • Among the Top Quartile Managers Hedging Strategies and Risk Management Solutions • Niche Strategies Structured Products and Derivatives Funds • Among the Top-Ranked Mutual Funds Cash Management Lending • Note: these services are available through affiliation with Citigroup and provided by Citigroup. They may require your Private Wealth Advisor to engage the services of other affiliated professionals to utilize them • Service provider: Wealth Touch Inc Philanthropic Services and Family Governance Financial and Risk Management Specialized Investment Advice • Philanthropic objectives and structures • Family dynamics, business succession planning and intergenerational wealth transfer • Art Advisory1 • Personal and Business Security and Identity Theft1 • Home Advisory and Concierge1 • Expense Management2 • Aircraft Advisory1
CUSTOMIZED WEALTH MANAGEMENT PROCESS Utilizing Third Party Equity and Fixed Income Asset Managers Providing clients with access to both internal and third party actively managed investment solutions Morgan Stanley Investment Management Equity and Fixed Income Asset Management Platform • With over $570 billion in assets under management, MSIM offers individuals comprehensive, multi-asset class investment solutions • Morgan Stanley AIP manages portfolios of proprietary hedge fund of funds targeted at meeting a range of client objectives • FrontPoint Partners is an integrated investment management company focused on providing single strategy and multi-strategy absolute return investments to individual and institutional investors • Open architecture platform featuring both proprietary and third party capabilities • Solutions across a variety of asset classes and strategies Third-Party Asset Managers Morgan Stanley Private Wealth Management • Morgan Stanley’s traditional research group, Global Advisory Research (GAR), uses a rigorous due diligence process to screen the entire universe of equity, fixed income and real estate managers • Graystone research focuses on identifying, selecting, and monitoring third party alternative investment managers • Morgan Stanley Investment Group • Professional asset managers dedicated to constructing and managing discretionary portfolios across various fixed income and equity strategies • Strategic Equity Portfolios (STEP) • Highly flexible, tax efficient investment portfolios leveraging Morgan Stanley Equity Research 14
CUSTOMIZED WEALTH MANAGEMENT PROCESS PWM Assists with Manager Selection Across Asset Classes by Leveraging Global Advisor Research Morgan Stanley Global Advisor Research (GAR) Total Universe of Fund Strategies 6,800 • Morgan Stanley Private Wealth Management leverages the expertise of the Global Advisor Research Group in addition to professionals dedicated to manager selection embedded within PWM • Third Party Asset Manager Research • Open architecture platform dedicated to offering clients a wide variety of separate account and mutual fund asset classes • GAR Research Team • Team of 15 research analysts • Experienced team averaging over 15 years of investment analysis • Specialized knowledge and skills derived from a diverse range of experiences • Balanced • Convertible • Emerging Markets • Equity • Real Estate • Fixed Income • Global Equity • International Equity • Municipals • Socially Responsible Analysis of Third-Party Managers GAR’s Rigorous Due Diligence Process • Quantitative Analysis • Fund Performance • Risk/Reward Profile • Portfolio Characteristics • Risk Statistics • Quartile Rankings • Asset Growth Statistics • Qualitative Analysis • Manager Turnover • Fund History • Organizational Credibility • Sound Investment Process • Adherence to Investment Strategy • On-site Interviews with Portfolio Managers Morgan Stanley Approved Strategies1 GAR Approved Strategies 320 • As of May 2009.
CUSTOMIZED WEALTH MANAGEMENT PROCESS Ongoing Assessment to Help Meet Your Changing Financial and Family Needs Deepening Relationships Beyond Asset Allocation Ongoing Portfolio Review • Review of Investment Policy: • Your individualized investment policy statement is reviewed to ensure that your investment objectives evolve with your current personal and financial needs • Review of Strategic Asset Allocation: • Your strategic asset allocation is analyzed quantitatively and qualitatively in relation to your investment policy statement to confirm that your specific needs are being addressed • Review of Portfolio Performance: • The appropriateness of each holding, based upon performance and your investment objectives, is assessed • Execution of Tactical Adjustments: • Leverage the Firm’s intellectual capital and investment platform to integrate tactical changes to your asset allocation framework • Specialized Advisory Services1: • Art: Comprehensive fine-art consulting and management, providing personalized acquisition strategies and managing every aspect of collection administration • Home: Dedicated services pertaining to the management and maintenance of multiple homes globally • Aircraft: Advisory and financing • Philanthropic Services and Family Governance: • Development and implementation of charitable grant making strategies and philanthropic structures • Advising on family dynamics, business succession planning and intergenerational wealth transfer • Risk Management1: • Identifying family, business and individual risks to develop a customized assessment of personal and business security Breadth of Expertise to Adapt to Changing Client Needs 1. Note: these services are available through affiliation with Citigroup and provided by Citigroup. They may require your private wealth advisor to engage the services of other affiliated professionals to utilize them
CUSTOMIZED WEALTH MANAGEMENT PROCESS Disclosures – Security Type Investing Risks Small/Mid Caps U.S. Equity Investing in smaller companies involves greater risks not associated with investing in more established companies, such as business risk, significant stock price fluctuations and illiquidity. International/Emerging Markets International investing entails greater risk, as well as greater potential rewards compared to U.S. investing. These risks include potential and economic uncertainties of foreign countries as well as the risk of currency fluctuations. These risks are magnified in countries with emerging markets, since these countries may have relatively unstable governments and less established markets and economics. Fixed Income Fixed Income Securities are subject to interest rate risk, credit risk, prepayment risk, market risk, and reinvestment risk. Fixed Income Securities, if held to maturity, may provide a fixed rate of return and a fixed principal value. Fixed Income Securities prices fluctuate and when redeemed, may be worth more or less than their original cost. High Yield Bonds High Yield Fixed Income Investments, also know as junk bonds, are considered speculative, involve greater risk of default and tend to be more volatile than investment grade fixed income securities. Hedge Funds Hedge funds are suitable only for long-term, qualified investors. They are generally illiquid, not tax efficient, and have higher fees than many traditional investments. They may also be highly leveraged and engage in speculative investment techniques which can magnify the potential for investment loss or gain. REITS REITs investing risks are similar to these associated with direct investments in real estate; lack of liquidity, limited diversification, and sensitivity to economic factors such as interest rate charges and market recessions. Private Equity Private equity interests may be highly illiquid, involve a high degree of risk and be subject to transfer restrictions. TIPS Because the return of TIPS is linked to inflation, TIPS may significantly underperform vs. fixed return treasuries in times of low inflation . Managed Futures Managed futures investments are speculative, involve a high degree of risk, use significant leverage, are generally illiquid, have substantial charges, subject investors to conflicts of interest, and are suitable only for the risk capital portion of an investor’s portfolio. Before investing in any partnership and in order to make an informed decision, investors should read the applicable prospectus and/or offering documents carefully for additional information, including charges, expenses and risks. Investors should read the prospectus and/or offering documents carefully for additional information, including charges, expenses and risks. Managed futures investments do not replace equities or bonds but rather may act as a complement in a well diversified portfolio. Real assets The prices of real assets -precious metals tend to fluctuate widely and in a unpredictable manor , and have historically experienced periods of flat or declining prices. Their prices are affected by several factors , including global supply and demand , investors expectations with respect to the rate of inflation , currency exchange rates, interest rates , investment and trading activities of hedge funds and commodity funds , and global or regional political , economic or financial events and situations Commodities Investing in commodities entails significant risks. . Commodity prices may be affected by a variety of factors at any time, including but not limited to, (i) changes in supply and demand relationships, (ii) governmental programs and policies, (iii) national and international political and economic events, war and terrorist events, (iv) changes in interest and exchange rates, (v) trading activities in commodities and related contracts, (vi) pestilence, technological change and weather, and (vii) the price volatility of a commodity. In addition, the commodities markets are subject to temporary distortions or other disruptions due to various factors, including lack of liquidity, participation of speculators and government intervention
CUSTOMIZED WEALTH MANAGEMENT PROCESS Disclosures – Security Type Investing Risks Exchange-Traded Funds An investment in an Exchange-Traded Fund (ETF) involves risks similar to those of investing in a broadly based portfolio of equity securities traded on exchange in the relevant securities market, such as market fluctuations caused by such factors as economic and political developments, changes in interest rates and perceived trends in stock prices. The investment return and principal value of ETF investments will fluctuate, so that an investor’s ETF shares (creation units), if or when sold, may be worth more or less than the original cost. Inverse and leveraged exchange-traded funds may not be suitable for all investors. Investing in short/inverse funds involves certain risks, which may include increased volatility due to the funds' possible use of short sales of securities and derivatives such as options and futures. The funds are subject to active trading risks that may increase volatility and impact the funds' ability to achieve their investment objectives. The use of leverage by a fund increases the risk to the fund. The more a fund invests in leveraged instruments, the more the leverage will magnify any gains or losses on those investments.
CUSTOMIZED WEALTH MANAGEMENT PROCESS Disclosures Investments and services offered through Morgan Stanley Private Wealth Management, a division of Morgan Stanley Smith Barney LLC, and accounts carried by Morgan Stanley & Co. Incorporated; members SIPC. Financing, Cash Management and Lending Services may not be available in all jurisdictions. These materials are provided for general informational and educational purposes based upon publically available information from sources believed to be reliable. These materials do not take into account your personal circumstances and we do not represent that this material is complete or applicable to your situation. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustration purposes only and do not show the performance of any specific investment. Reference to an index does not imply that the portfolio will achieve return, volatility or other results similar to the index. The composition of an index may not reflect the manner in which a portfolio is constructed in relation to expected or achieved returns, portfolio guidelines, restrictions, sectors, correlations, concentrations, volatility, or tracking error target, all of which are subject to change over time. These materials may change at any time without notice to you. We are not providing you with specific investment, legal, or tax advice. We strongly recommend that you consult your own legal and tax adviser to determine whether the analyses in these materials apply to your personal circumstances. Particular, legal, accounting and tax implications applicable to you, as well as margin requirements and transaction costs may significantly affect the structure discussed and we do not represent that the results indicated will be achieved by you. This material may not be used for the purpose of avoiding taxpayer penalties under either State or Federal tax laws. Past performance may not be indicative of future performance. These materials do not constitute an offer to either buy or sell securities or to participate in any trading strategy.
CUSTOMIZED WEALTH MANAGEMENT PROCESS Disclosures Investors should carefully consider the investment objectives and risks as well as charges and expenses of an exchange traded fund before investing. This report is not a financial plan and does not create an investment advisory relationship between you and your Morgan Stanley Private Wealth Management Investment Representative. We are not your fiduciary either under the Employee Retirement Income Security Act of 1974 (ERISA) or the Internal Revenue Code of 1986, and any information in this report is not intended to form the primary basis for any investment decision by you, or an investment advice or recommendation for either ERISA or Internal Revenue Code purposes. Morgan Stanley Private Wealth Management will only prepare a financial plan at your specific request using Private Wealth Management approved financial planning signature. We may act in the capacity of a broker or that of an advisor. As your broker, we are not your fiduciary and our interests may not always be identical to yours. Please consult with your Investment Representative to discuss our obligations to disclose to you any conflicts we may from time to time have and our duty to act in your best interest. We may be paid both by you and by others who compensate us based on what you buy. Our compensation, including that of your Investment Representative, may vary by product and over time. These materials may contain opinions regarding global economic conditions and developments. Their inclusion is for educational and informational purposes and does not necessarily reflect that of the entirety of the Company. Many of the views and opinions contained herein regarding asset allocation were prepared by Morgan Stanley Smith Barney Asset Allocation Group and may differ materially from that of others at the Company. Nothing in this allocation is designed to constitute an individual investment plan which should only be devised after discussion with your Investment Representative. Any allocation containing alternative investments should note that they are highly illiquid and are only suitable for investors willing to put capital at risk for an indefinite period of time. Alternative investments often engage in leverage and other speculative investment practices, may involve complex tax structures, typically have higher fees, and generally are not subject to the same regulatory requirements as traditional asset classes. Importantly, asset allocation does not assure profit or protect against loss in declining financial markets. The projections or other information generated by the Asset Allocation Analysis Tool regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment returns, were compiled recently with the benefit of hindsight, and are not guarantees of investment results. The Asset Allocation Analysis Tool may contain historical asset class return data and statistically generated data from 1972-2008 which are not used to forecast potential return but rather to identify relative patterns of behavior among asset classes which when put in different combinations assume various levels of risk. Results may vary with each use and over time.