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We are financial advisors who specialize in portfolio design for taxable and tax-deferred
investments.
Who We AreDavid White & Associates
Not enough time Not enough knowledge Rear-view mirror data
Investors are uncomfortableselecting investments themselves.
Clients Come to Us for Guidance
In 1986, there were 1,940 mutual funds. By the end of 1997, there were over 6,300. Today there are more than 8,000. There are an additional 20,000 options for
privately managed accounts.
Too many investment choices create confusion.
Clients Come to Us for Clarity
Source: Lockwood Investment advisory services
No coordination between taxable and tax-deferred investments
Multiple advisors = Uncoordinated advice
Most investors don’t have
a coherent plan for their total portfolio.
Clients Come to Us for Strategy
Performance? No
Current Tax rates? Yes
Fees? Yes
What can we predict?
Pursuing Portfolio Growth
Investor Awareness of Investor Awareness of Tax Impact isTax Impact is GROWING GROWING
““ Whenever you sell a winner, Whenever you sell a winner, make sure to unload a loser make sure to unload a loser before the tax year is over. before the tax year is over. ””
““ There’s a lot of advice going There’s a lot of advice going around about the need to around about the need to minimize mutual fund taxes. It’s minimize mutual fund taxes. It’s time to set the record straight. time to set the record straight. ””
““ Looking for tax-Looking for tax-efficient funds?efficient funds?””
““ Tax-managed funds; Tax-managed funds; Gain with less pain. Gain with less pain. ””
These logos are trademarks of the respective news organizations. Sources: These logos are trademarks of the respective news organizations. Sources: Smart InvestingSmart Investing, January 1999 by Steven T. Goldberg; , January 1999 by Steven T. Goldberg; FortuneFortune 3/17/1997 by Maggie Topkis; 3/17/1997 by Maggie Topkis; Bloomberg.com and Women’s WireBloomberg.com and Women’s Wire current article dated November 12, 1999 current article dated November 12, 1999
not by-lined; not by-lined; USA TodayUSA Today article dated November 6, 1998 by John Waggoner. article dated November 6, 1998 by John Waggoner.
The reduction of the long-term capital gains rate to 15%
The Opportunity
We help clients take advantageof the 2003 tax law changes,
specifically:
Source: T. Rowe Price Associates. Assumes 10% average annual pre-tax return and liquidation of account after 20 years, 20% tax rate for capital gains, 30% for income. Rates are assumed for illustrative purposes only and are not indicative of any particular investment.
After-Tax Growth of $10,000 over 20 years at Various Tax-Efficiency Rates
The Impact of Taxes on Investment Results
The Tax Bite on Wealth Creation
$67,275
$46,575$51,083 $55,820
$70,000
$60,000
$0
$50,000
$40,000
$30,000
$20,000
$10,000
$80,000Pre-tax return
of 10%
After-tax returnat 80%
tax-efficiency
After-tax returnat 85%
tax-efficiency
After-tax returnat 90%
tax-efficiency
Strategies to Enhance Strategies to Enhance After-Tax ReturnsAfter-Tax Returns
Offset GainsOffset Gainsand Lossesand Losses
LossLossHarvestingHarvesting
Tax-lotTax-lotAccountingAccounting
Tax-awareTax-awareTradingTrading
Private Private AssetAsset
ManagemenManagementt
Private Private AssetAsset
ManagemenManagementt
“Fewer than one American in five knows how much his/her funds charge.”
The Economist, January 24, 1998
Source: Comptroller of the Currency
The Problem
Fees are high and rising!
1992 Average stock fund fees 1.46%
1997 Average stock fund fees 1.70%
2002 Average stock fund fees 1.75%
Source: Morningstar, Inc.: 12/31/02 Note: Fees include mutual fund expense ratio and .30 basis points clearing/custody fees.
The Challenge
We construct portfolios with an emphasis on
what is predictable: fees and taxes. We coordinate a strategy for taxable and non-
taxable pools of assets under one investment plan. We have access to one of the most comprehensive
universe of investment vehicles in the marketplace.
What Makes Us Different?
According to a respected academic study, asset allocation is responsible for over 90% of variations in portfolio performance.
Brinson, Hood & Beebower, Financial Analysts Journal, 1986Brinson, Singer & Beebower, Financial Analysts Journal, 1991
91.5%Asset Allocation
4.6%Securities Selection
1.8%Timing
2.1%Other Factors
Importance Of Asset Allocation
Strategy
MFS Investment Management®
MFSB-FUSION-03-04 2
MFS Investment Management®
1929-1999
1906-1921
1922-1928
1929-1941
1942-1965
1966-1981
1982-1999
2000- May 2004
Type Of Market Total Period
Secular Bear
Secular Bull
Secular Bear
Secular Bull
Secular Bear
Secular Bull
Secular Bear
Length in Years 71 yrs 16 yrs 7 yrs 13 yrs 24 yrs 16 yrs 18 yrs 4+ yrs
Dow* 5.3 (1.1) 20.1 (7.4) 9.4 (0.6) 15.4 (2.7)
S&P 500 10.6 -- -- (2.4) 15.7 6.0 18.5 (4.5)
Microcap (Decile 9-10) 12.7 -- -- (2.4) 20.7 12.2 14.4 20.3
Small Cap Value 14.3 -- -- (4.7) 22.3 14.8 18.4 12.8
Small Cap Growth 10.7 -- -- (0.6) 15.2 10.5 13.7 4.4
Large Cap Value 12.5 -- -- (4.9) 20.5 11.0 17.4 (0.1)
Large Cap Growth 9.7 -- -- (2.3) 14.1 5.1 17.7 (9.0)
Long-Term Gov’t Bonds
5.1 -- -- 4.5 2.1 2.5 12.2 9.5
Long-Term Corporate Bonds
5.6 -- -- 6.1 2.4 2.9 12.0 9.5
* Represents price appreciation only.Past performance is no guarantee of future results. Investors cannot invest directly in an index. Source: Merriman Capital Management, Inc., data through 1929-1999. Meeder Financial, data prior to 1929 and 2000 to current.
“In investing, what is comfortable is rarely profitable.”
Robert Arnott Active Asset
Allocation
SOURCE: Journal Of Financial Planning
Emotion All Too Often Guides Investment
Decisions
Loss
Enthusiasm
Confidence
Caution
Doubt and
Suspicion
Indifference
Denial
Concern
Fear
Panic
Despair
Greed
CYCLE OF EMOTION
Sell
Buy
Investor vs. Investment Returns
3.06%3.51%
11.16%
12.98%
0%
2%
4%
6%
8%
10%
12%
14%
STOCKS BONDS INVESTOR INFLATION
Annualized Returns 1984 through 2003
Source: Dalbar, Stocks = S&P 500, Bonds = Long Term Government Bond Index, Investor = Avg. Equity Investor, Inflation = CPI
Benefit of Active Management during Secular Bear Market
(1965-1982) 1965 1982
969 Dow Jones Industrial Average* 1047
$100,000** Average Fund Manager $577,265
Average Fund Increase: +477% or 10.2% / Year
Source: Bloomberg, Morningstar, as of 6/30/02.
Past performance is no guarantee of future results. Investors cannot invest directly in an index.
Benefit of Active Management during Secular Bear Market (1965-1982)
Source: Bloomberg, Morningstar, as of 6/30/02.
Past performance is no guarantee of future results. Investors cannot invest directly in an index.
The importance of rebalancing
Bonds50%
Stocks50%
December 31, 1995
Hypothetical results are for illustrative purposes only and are not intended to represent the future performance of any MFS portfolio. Source: Lipper Inc. Stocks are represented by the S&P 500 Stock Index, a commonly used measure of the broad U.S. stock market. Bonds are represented by the Lehman Brothers Aggregate Bond Index, a measure of the U.S. bond market. It is not possible to invest directly in an index. Past performance is no guarantee of future results.
Bonds32%
Stocks68%
December 31, 1999
Stocks50%
Bonds50%
December 31, 1999
Bonds68%
Stocks32%
December 31, 2002
$559,113$609,254
$716,380
$0
$200,000
$400,000
$600,000
Chasingperformance
Hoping for arebound
Allocating,diversifying, and
rebalancing
InvestorOne
InvestorTwo
InvestorThree
(Hypothetical $10,000 annual investment from 12/31/83 to 12/31/03)
Time-tested strategiesADR has beaten most strategies
Strategy
MFS Investment Management®
Chasing Performance: Invests in best market segment at the end of every year. Hoping for a rebound: Invests in the worst market segment at the end of every year. Allocating: Rebalances each market segment at the end of every quarter to align portfolio
Source: Lipper Inc. Hypothetical results are for illustrative purposes only and are not intended to represent the future performance of any MFS portfolio.
For purposes of this comparison, we’ve divided the overall market into the six indices listed on the next slide. These indices represent small- to large-cap, growth to value, international, and fixed-income investing styles. It is not possible to invest directly in an index. Past performance is no guarantee of future results.
Assess Your Assess Your Needs and Needs and
Establish Goals Establish Goals and Objectivesand Objectives
Select Professional
Money Manager(s) to Implement the
Strategy
Investment Investment AdvisorAdvisor
Develop an Investment
Policy Statement and Asset Allocation
Strategy
Monitor Manager(s) on
an Ongoing Basis
The Planning Process
• The strategic approach utilizes Modern Portfolio Theory to develop a long-term target asset mix.
• The target asset mix remains relatively consistent throughout the investment period.
• Periodic rebalancing to the target asset mix controls risk and promotes disciplined selling of winners and buying of losers.
STRATEGIC
Strategic Asset Allocation
• Establish long-term target asset mix by applying the principals of Modern Portfolio Theory
• Gather proprietary capital market research from investment analysts
• Determine where the most attractive opportunities currently exist
• Adjust asset mix accordingly, within permissible ranges for each Risk/Return profile
TACTICAL
Tactical Asset Allocation
Tactical Asset Allocation decisions
Past performance is no guarantee of future results. Investors cannot invest directly in an index.
Private Money management
Retirement Projections Withdrawal strategies
Asset allocation Tax Strategies Consolidated Statements
Measure performance to index Fees-Retail vs. Wholesale
Institutional fees less than retail Small investor can now purchase these plans
Diversification of elite managers Ability to trade without fees to top managers
• 3.1 Trillion of combined managed assets as of Nov. 2004
• 3.9 million customer accounts maintained
• 409 billion in customer assets
• Source: National Financial Website
:
National Financial-Fidelity
• $1.05 Trillion Combined Assets Under Management
• $710 Billion Combined Assets Under Advisement
• Over 2000 Research Analysts and Investment Professionals
• 88 Locations Worldwide
:
AssetMarkCombined Credentials
Alltel Corporation Avon Products Bayer Corporation Bell Atlantic Corp. Black & Decker California Public
Employee Retirement System (CalPERS)
Carnegie Mellon University
Commonwealth of Mass.
Dole Food Company Eastman Kodak Goodyear Tire &
Rubber
Shell Oil Sony Corporation The Ministers and
Missionaries Benefit Board of the American Baptist Churches
University of California University of Pittsburgh Westinghouse Electric World Bank
AssetMarkInstitutional Client List
This is a representative list of institutional clients of the Portfolio Strategists who have granted permission to use their names in marketing materials. Clients on this list have been selected to represent the broad range of institutional clients advised by the Portfolio Strategists and have not been selected based on portfolio performance. Inclusion on this list does not constitute an endorsement by any of these clients.
• Owned by the oldest bank in the U.S.-Bank of New York
• One of the worlds leading custodians with over $8.3 trillion in assets
• Over $7.7 billion in client assets
• 160 Professionals
• 33 Locations Worldwide
:
Lockwood-Bank of New York-Pershing Credentials
Ameritas Investment Corp. AIC
Securities and advisory services offered by registered representatives and investment advisor associates of
Ameritas Investment Corp. 800-335-9858. AIC is not affiliated with David White & Associates.