The Pokorny Group at Morgan Stanley Smith Barney Your success is our success.
Our Mission With nearly two decades in the brokerage industry, we offer you an insightful and experienced team that is committed to assisting you in achieving your financial goals. For the past nineteen years, Magda and David Pokorny have developed a comprehensive investment strategy with proprietary analysis tools, using a discretionary fee based management program. Additionally, our daily review process devotes the time and attention to the management of your investment portfolio. Each portfolio is custom designed through our separate accounts and managed within the parameters of the financial goals that you set with our guidance. Using these approaches, we have performed very well during this last market crisis and we believe our strategies going forward will be equally rewarding. Through the private portfolio management program, and with constant monitoring of your portfolio, we are able to provide you with a customized design of strategy and independent research all tailored towards accomplishing your objectives. 2/MORGAN STANLEY SMITH BARNEY MORGAN STANLEY SMITH BARNEY/3
Meet the Professionals Why Use a Portfolio Manager? Your success is our success is not just a slogan it is a statement of philosophy as to how we serve our clients. It describes the integral connection between you and our commitment to assist you in achieving your financial goals starting from the planning process to the investment management process. Our unique ability to design, implement, manage and provide continuous monitoring of your portfolio all under a fixed fee ensures one unified goal. Your success is our success. Magda Pokorny Portfolio Manager, Vice President Wealth Management Magda Pokorny graduated from the University of Illinois with a B.S. in Accounting. She also received a Certificate of Financial Planning from Kaplan College. Magda has over a decade of experience in senior management positions in corporate accounting, and nearly two decades working in the securities industry as a portfolio manager, investment advisor and director of wealth management. Magda speaks several languages including French, German and Arabic. David Pokorny Consulting Group Analyst David Pokorny graduated from Elmhurst College with a B.S. in Accounting, as well as a Minor in Business Economics. Additionally, he received a Certificate of Financial Planning from Kaplan College. David has 15 years of experience in senior management positions in corporate accounting and nearly two decades in the securities industry as a portfolio manager, investment advisor and a consulting group analyst. David enjoys playing golf and tennis, cycling, and woodworking. As we get older our time horizon is shorter and the ability to achieve our goals is more sensitive to the risks that surround us. We may move from a wealth accumulation phase to a wealth preservation phase and eventually a wealth transfer phase. This is why it becomes essential to designate people and strategies that fit your time horizon, current and future need as well as your tolerance for volatility. The key benefit of utilizing a portfolio manager is derived from some very basic fundamentals. Our mission is to start with an in-depth review of your current financial status and future goals, as well as relevant tolerance towards risk and related time horizon. The client s portfolio is then designed using our Morgan Stanley, Smith Barney Portfolio Management program, which is exclusive to only four percent of Morgan Stanley Smith Barney s Advisors. This program is custom designed to benefit the client because of the flexibility of redirection in the portfolio strategy in good or bad markets, tax impact, less overlapping diversification and a high level focus on risk vs. return opportunity. The design of your portfolio can concentrate on income, growth and income, value, growth or a combination of any or all without overlapping investments. This flexible Portfolio Management program can adjust quickly to changing market environments within the parameters of the client s objectives and time horizon, by redirecting portfolio dollars towards strategies that adjust as economic cycles change. 4/MORGAN STANLEY SMITH BARNEY MORGAN STANLEY SMITH BARNEY/5
Portfolio Managers: Management Style While no one investment strategy can offer a perfect world, there are key advantages to a Global Asset Allocation strategy Top-Down/ Bottom-Up. The purpose is to provide opportunities for investment returns in the U.S. and exposure to world-wide opportunities during the various stages of economic cycles allowing broad diversification without redundancy. I. Asset Allocation & Economics Evaluating the economic phase from a forward looking perspective is critical to developing, implementing and reallocating investment dollars within a portfolio strategy that fits both the client s objectives and investment opportunities. For example: Balancing portfolios between stocks, bonds, cash and less-correlated investments considers the risk and return potential for each investment category. Examples of less correlated investments may include commodities, managed futures and some derivatives such as options. Additionally, intermediate treasuries and T-bills tend to have little correlation to stocks while the opposite is true for international equities. Blending the four categories based on each probable outcome helps the manager allocate to the four categories previously mentioned. There are periods of time when government bonds make more economic sense than corporate bonds or preferred stocks. The reverse is also true. Investment selection is highly dependant on the phase of the economy. A forward looking assessment to determine the allocation today that makes the best sense for the future is part of the management process. The Portfolio Management Program provides daily monitoring which is reviewed by both the Portfolio Manager and the Consulting Group Analyst. II. importance of Asset Allocation: Asset Allocation strategy plays a significant role in managing risk as well as optimizing returns. Asset Allocation considers placing investment dollars into four main asset classes: Cash, fixed income, stocks and non-correlated assets. The amount of dollars placed in each category is dependant on client objectives along with market opportunities given the stage of the economic cycle. Rebalancing investment dollars between the four asset classes can adjust risk vs. return as economic phases advance through the economic cycle. Understanding and anticipating these cycles creates a portfolio strategy that adjusts between the four asset classes in advance of the stage in the cycle occurring. This forward looking process can provide a cushion in troubled markets and targeted opportunities in stronger markets while maintaining broad diversification. Asset Allocation is performed at a very sophisticated level incorporating many levels of allocation within a broad array of fixed income, individual stocks and ETF s where viewed as of strategic importance III. Top-Down describes the macro-economic view taking into consideration the various stages of the economic cycle, direction of interest rates as well as global opportunities and many other business, economic and political factors. Next step is to apply a forward looking overweight to sectors of the economy that offer the best value given the current economic phase. The objective is to avoid overpriced sectors that are tracking higher from market traders following sector or stock momentum or other non-economically justifiable rationale. The diversification strategy will typically cover all ten sectors of the US economy supported by carefully screened stocks and include fixed income investments such as bonds that offer increased diversification to the portfolio strategy. Strategic allocation during complex periods can be made to a variety of fixed income vehicles as well as US and foreign stocks and bonds. This is a tactical strategy which can be applied intra-year or inter-year depending on market valuations and risk factors. While diversification can minimize certain risks it does not ensure against some potential losses. Some hedging through alternative investments and options etc. can be considered if suitable to your risk tolerance and time horizon towards achieving your goal. Fixed income investments can also have risk. Some examples of risks are: inflation risk in vehicles such as CD s, T Bills, and government bonds, financial or credit risk in preferred stocks and corporate bonds. IV. Bottom-Up reflects the second step to investment selection. Bottom up describes the actual individual investments or micro-economic view of investments that fit into the Top Down macro-economic strategy. For example one may find value in sectors such as the retail industry as well as many other industries. This is the macro-economic view. Based on this, we then select the companies who s positioning in the economy offer good value or strong growth. The process will combine individual stock of companies, bonds or other fixed income vehicles of those companies that offer excellent investment value. This process avoids redundancy of diversification which often times is problematic with selecting mutual funds. Thus we diversify between sectors and stocks and bonds within sectors and consider small, medium, and large companies. V. Magda and David will seek out opportunities in sectors of the global economies that offer good value given the current economic phase. In certain circumstances we integrate with other money managers who blend well with our strategy, combining their expertise in foreign markets as part of the global diversification process. 6/MORGAN STANLEY SMITH BARNEY MORGAN STANLEY SMITH BARNEY/7
Sources of Investment Risk Sources of Investment Risk One major advantage of a private portfolio management program is the pure diversification of risk without overlapping. Furthermore, risk is managed for the overall portfolio in totality, providing a focused management process on risk vs. return. You re Advantaged with Private Separate Accounts What is a Separate Account? It is as the name implies. Your investment portfolio is designed and managed specifically for you under the Portfolio Management Program with Morgan Stanley Smith Barney. Additionally, we blend this program with outside money managers in separate accounts to provide management diversification. The advantage of fee based portfolio management using Separate Accounts includes the following: Owning a diversified portfolio of individual securities allows the manager to initiate more specific actions towards minimizing risk while attempting to maximize returns and avoiding overlapping of securities and strategies. Strategies that blend multiple managers can provide incremental benefits to the stability of a portfolio. Diversification does not ensure against loss. Types of Risk Considered in Portfolio Management Manageable risk through Diversification (Unsystematic Risk) Business Risk is the uncertainty of income flows caused by the nature of a firms business Financial Risk is the uncertainty introduced by the method by which the firm finances its investments Liquidity Risk is the uncertainty introduced by the secondary market for an investment Exchange Rate Risk is the uncertainty of returns to an investor who acquires securities in an external currency Country Risk also known as Political Risk, which is the uncertainty of returns from potential changes in political or economic environment of a country Inflation Risk is uncertainty regarding the supply vs. demand for goods and services (too many dollars chasing too few goods and services is inflation) Fundamental Risk is market risk associated with the above factors. Non- Diversifiable Risk Systematic Risk affected by changes in the macroeconomics variables, money supply, interest rates, industrial production, corporate earnings and corporate cash flow; cannot diversify away from systematic risk. Psychological Risk is the uncertainty about the behavior patterns of investors affected by material economic events and conditions Diversification and Unsystematic Risk The purpose of diversification in theory is to reduce the standard deviation for risk in the total portfolio. This assumes imperfect correlations among securities. As you add securities, the covariance declines which reduces the volatility of a portfolio. The number of securities may vary when diversifying. However, a law of diminishing returns may rise about 40 to 60, which means that adding additional securities may not materially reduce risk by any substantial measure. This is of importance to the average investor. At some point, overlapping of strategy and investments can occur with traditional investment vehicles. Therefore no further material benefit towards investment returns or risk management is acquired do to redundancy of same. Asset Allocation is performed both intra-year and interyear. This means your investment dollars are automatically redirected to where the managers have evaluated the best opportunities under a defined risk scenario. This tactical strategy allows the managers to raise substantial levels of cash when opportunities are less attractive and shift those dollars to fixed income vehicles that may be less volatile. Investors have a fresh portfolio designed specifically for them. This means that you are going to see a dollar cost averaging process take place in the early stages of implementing your portfolio. Tax Impact Because we have individual securities we are able to better manage gains and losses within a portfolio by strategically taking losses during the year. The raised cash level will then be used to reinvest in other opportunities. We make a conscious effort to minimize the capital gains tax issues each year. You have direct contact with the key people managing your portfolio. This means we will have the real answers to your questions, not generalities. Flexibility Since our fee-based discretionary program is not prospectus driven; we have tremendous flexibility to respond to changing markets. Our diversification encompasses most securities investments and since we can include small, medium, and large corporations within our sector of diversification, we can provide a number of potential opportunities. The same holds true with fixed income. Various stages of the economy require selecting fixed income investments that can provide the best combination of risk vs. return and/or support a high income stream all designed around the client s tolerance for risk and needs for the future. Performance reporting against benchmarks is very useful to compare relative success of client s goals. One-on-one meeting to review client portfolios is performed regularly with the Portfolio Manager and Consulting Group Analyst. Risks (Drawbacks) with Portfolio Management While there are many advantages to this program, it should be stressed that no program can completely avoid all market risks. Furthermore, it is advisable to diversify into multiple portfolio management strategies that do not overlap in style and individual securities. By doing so, you provide a more fundamentally stable portfolio strategy. The Pokorny Group will certainly provide knowledge and experience to guide you through this process. 8/MORGAN STANLEY SMITH BARNEY MORGAN STANLEY SMITH BARNEY/9
The Parable of Investing Investing is similar to waiting in a long line to take a thrill ride at your favorite theme park. You must show patience while standing in line, enduring the great anticipation for the excitement of the moment to come. The wait is almost longer than the ride itself, and time passes slowly and often with frustration. Your success is our success If you step out of line, you lose your turn and must go back to the end of the line and start all over again. Once you have reached your turn, it is almost a moment of disbelief. The ride begins slowly and accelerates to a point, taking your breath away. Then, just as it began with excitement, it concludes as a fond memory. You leave the ride rewarded for your patience, and with a smile and a glow of excitement, you re ready to go again. Stay patient and don t leave the line. Timing Timing Markets has not proven successful for the individual investor. Portfolio strategy that tactically considers the changes of economic cycles provides a more consistent and reliable investment process. Part of this strategy is to carefully manage market volatility and changing economic conditions through Morgan Stanley Smith Barney s Portfolio Management Program available to an investors. 10/MORGAN STANLEY SMITH BARNEY MORGAN STANLEY SMITH BARNEY/11
Magda Pokorny 550 North Brand Boulevard Suite 1000 Glendale, CA 91203 Telephone: 818.409.0721 Toll-Free: 800.826.9507 Facsimile: 818.244.7623 magda.pokorny@mssb.com www.fa.smithbarney.com/thepokornygroup David Pokorny 550 North Brand Boulevard Suite 1000 Glendale, CA 91203 Telephone: 818.409.0719 Toll-Free: 800.826.9507 Facsimile: 818.244.7623 david.pokorny@mssb.com www.fa.smithbarney.com/thepokornygroup Morgan Stanley Smith Barney LLC and its affiliates do not provide tax or legal advice. To the extent that this material or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Any such taxpayer should seek advice based on the taxpayer s particular circumstances from an independent tax advisor. 2010 Morgan Stanley Smith Barney LLC. Member SIPC. 3394 04/10