The Eco Group at Morgan Stanley Smith BarneySustainable Investing for Endowments and Foundations

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http://www.morganstanley.com/fa/theecogroup

3THE ECO GROUP

The Eco Group at Morgan Stanley Smith Barney

More and more, endowments and foundations are focusing on socially responsible investing. They are including environmental, social and governance considerations into their investment decisions. After all, no organization wants to invest in a business that violates its mission. In fact, socially conscious organizations want to support businesses that reflect their principles. There are two concerns, however. First, can the organization maintain an acceptable rate of return while practicing sustainable investing? And second, is the organization large enough to get the expertise it needs to successfully pursue this strategy?

At the Eco Group at Morgan Stanley Smith Barney, our objective is to help organizations engage in socially responsible investing. We believe that, as investors, we can use capital to contribute to a more just and sustainable world. Social responsibility is a passion for us. We strive to help every organization, regardless of size, make a difference by shaping their portfolios to both support their mission and deliver acceptable performance.

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Meet the ProfessionalsMeet the Professionals

Jerry and Matthew are seasoned investment professionals who share a commitment to socially responsible investing. They formed the Eco Group to bring their principled approach to endowments and foundations. “We believe that the best way to make a difference is to use our skills to help clients be catalysts for change.” The Eco Group is a proud participant in the Chesapeake Sustainable Business Alliance, Social Investment Forum, Maryland Green Registry, and the Baltimore Jewish Environmental Network.

Jerry Klein, CLU®, ChFC®, CRPC®Senior Vice PresidentFinancial Advisor

Jerry has been in the financial industry for more than 30 years. He began his career at EF Hutton, who pioneered the use of independent money managers for clients. There, he honed his expertise in helping institutions develop cogent investment policy statements.

He joined a Morga n Sta n ley Smith Barney predecessor in 2005, combining his experience with the intel-lectual capital the firm provides to its Financial Advisors. Jerry co-founded The Eco Group because “I believe help-ing clients vote with their wallets is a vital step to improving the world for the generations to come.”

Jerry is a graduate of the University of Maryland where he earned both a BS in Business Administration, and an MBA in Finance.

He is an active volunteer for the Make- A-Wish Foundation of the Mid-Atlantic, as a wish granter. Jerry lives in Owings Mills, MD with his wife and enjoys golf, cycling and photography.

jerry.klein@mssb.com410-229-8291

Matthew A. Klatsky, CFP®Financial Advisor

Matthew has been an investment professional for more than 12 years. His background includes an unusual combination of equity trading for pen-sions and endowments, as well as risk management. This perspective helps institutional investors reach their goals.

Matthew joined Jerry to form the Eco Group because he wanted to apply his skills to helping endowments and foundations pursue sustainable invest-ments. “Sustainable investing is smart investing … sustainable companies tend to be excellent investments.”

Matthew attended the University of Maryland’s Smith School of Business, earning a BS in Finance. He also serves on the school’s Baltimore Development Council, and is an active member of the Terrapin Club.

Matthew and his wife live in the Mt. Washington area of Baltimore with their two children. He is an active volunteer in organizations that make his com-munity a better place to live and work, including donating his professional acumen to the investment committee of The Associated Jewish Charities. He is also an avid sailor and golfer.

matthew.klatsky@mssb.com410-229-8219

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Bringing Sustainable Investing to Your Organization

Socially responsible investing (or ESG  — environmental, social, governance  — as it is increasingly known) seeks to reconcile two objectives: 1) for inves-tors to avoid investing in companies that profit from activities they oppose and / or support companies that behave in ways they consider responsible, while also 2) earning a reasonable return on their assets.

ESG investing recognizes that corpo-rate responsibility and societal concerns are an important part of investment

Socially responsible investing has been an important part of the portfolios of larger endowments and foundations for some time. Our mission is to spread this concept to any endowment or foundation that wishes to pursue it.

decisions for many organizations. In addition, companies that engage in responsible environmental, social and governance activities also mitigate in-vestment risk.

At the Eco Group, we use a number of specific screens to identify compa-nies in industries or lines of business that our clients wish to avoid, such as tobacco, alcoholic beverages, weapons, pollution, pornography, or other areas that conflict with our clients’ mission and philosophy.

Investors have also discovered that it is possible to “do well by doing good” – carefully selected sustainable businesses may offer excellent opportunities for profitable results.

As part of our service to endowments and foundations, we will implement a disciplined process designed to help you achieve your goals, both ethically and financially. We can also help allevi-ate fiduciary responsibility for board members, so you can focus on the true mission of your organization.

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How We Work

The EcoGroup at Morgan Stanley Smith Barney offers investment consulting services designed to meet the complex needs of foundations and endowments. To help our clients achieve their goals, we follow a four-step process. Not only does this formalize your investment strategy, it relieves you and your board from complex and potentially contentious decision-making.

1 Understanding your organization and its mission

While it is always important to get to know a client, it is especially crucial with ESG investing. We need to know not just your investment goals, but also the philosophy and ethical imperatives of your organization. We will take the time to understand both your financial requirements and your overall mission. With this knowledge, we can craft an investment strategy that is designed to deliver the performance you need with the standards you wish to maintain.

2 Creating or modifying your Investment Policy Statement

Our next step is to work with you to develop an investment policy statement (IPS). The IPS provides clear guidelines for selecting the proper investments,

while also helping you and your direc-tors to evaluate and provide oversight on investment issues.

Your investment policy statement may include:

• Investment objectives of your organization

• Asset allocation strategy • Performance benchmarks • How endowment earnings or

returns relate to spending policy • The degree of risk permitted

in the investment portfolio • Portfolio rebalancing

strategies and frequencies • Considerations relevant to

hiring, retaining and firing investment managers

• Use of social investing criteria and/or mission-related investing and related investment restrictions

• Endowment sustainability as an influence on investment decision-making

• Liquidity requirements • Definitions of roles

and responsibilities in the investment process

• Frequency of policy review

3 Evaluate and select investment managers

The screening process for manager selection is a crucial component of ESG investing.

We draw upon the resources and intellectual capital of more than 30 experienced research professionals who review more than 1,300 invest-ment products each quarter. Among the factors they consider may be:

• Investment philosophy • Research capabilities • Portfolio-construction process • Composition of the investment

management team

As consultants specializing in ESG investing, we have knowledge of, and access to, managers that are specifically attuned to ethical concerns. We care-fully screen all appropriate managers, and make recommendations based on your specific needs and issues.

4 Investment management and review

Once your strategy is in place, we will continually monitor your portfolio’s performance, recommending adjustments as appropriate. We will also meet with you regularly to review your strategy and reevaluate as needed.

In essence, our team serves as your chief investment officer, managing some or all investment functions that might previously have been handled by your own staff. These functions include managing relationships with asset management firms, custodians, administrative and recordkeeping firms, and other trusted advisors.

We can also draw on the deep and highly respected resources of Morgan Stanley Smith Barney as needed in the ongoing management of your investments.

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The Eco Group’s Customized 401(k) /403(b) Strategy

At Morgan Stanley Smith Barney, our goal is to provide you with a retirement program designed to meet the needs of your company and its employees. We understand that retirement plans can be complicated. It takes time to design a plan, educate your employees, and comply with your fiduciary responsibilities. Working together, the Eco Group can help you build a retirement program that will include a flexible plan design, high-quality investment options, including socially responsible fund choices and comprehensive state-of-the art plan management and monitoring.

Morgan Stanley Smith Barney strives to offer endowments and foundations the finest in financial thinking, products and execution to help them meet their financial goals. When we work together, you’ll benefit from personalized advice, objective guidance and dedication to the success of your mission as well as the performance of your assets. With access to Morgan Stanley Smith Barney’s renowned global resources and investment opportunities, we can help you develop and maintain an optimal investment strategy that aligns with the goals and philosophy of your organization.

© 2011 Morgan Stanley Smith Barney LLC. Member SIPC. 6869704 09/11

Morgan Stanley Smith Barney LLC (“Morgan Stanley Smith Barney”) is a registered broker-dealer, not a bank. Where appropriate, Morgan Stanley Smith Barney has entered into arrangements with banks and other third parties to assist in offering certain banking-related products and services. Unless otherwise specifically disclosed to you in writing, investments and services offered through Morgan Stanley Smith Barney, member SIPC, are not insured by the FDIC, are not deposits or other obligations of, or guaranteed by, banks and involve investment risks, including possible loss of principal amount invested.

The investments and services listed may not be suitable for all investors. Morgan Stanley Smith Barney LLC recommends that inves-tors independently evaluate particular investments, and encourages investors to seek the advice of a financial advisor. The appropriateness

of a particular investment will depend upon an investor’s individual circumstances and objectives.

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. Individu-als are urged to consult their tax or legal advisors before establish-ing a retirement plan and to understand the tax, ERISA and related consequences of any investments made under such plan.