Who We Are David White & Associates We are financial advisors who specialize in portfolio design for taxable and tax-deferred investments. Clients Come to Us for Guidance Investors are uncomfortable selecting investments themselves. Not enough time Not enough knowledge Rear-view mirror data Clients Come to Us for Clarity Too many investment choices create confusion. 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. Source: Lockwood Investment advisory services Clients Come to Us for Strategy Most investors don’t have a coherent plan for their total portfolio. No coordination between taxable and tax- deferred investments Multiple advisors = Uncoordinated advice Pursuing Portfolio Growth What can we predict? Performance? No Current Tax rates? Yes Fees? Yes Investor Awareness of Tax Impact is GROWING “ Whenever you sell a winner, “ Tax-managed funds; make sure to unload a loser Gain with less pain. ” before the tax year is over. ” “ There’s a lot of advice going “ Looking for tax- around about the need to efficient funds?” minimize mutual fund taxes. It’s time to set the record straight. ” These logos are trademarks of the respective news organizations. Sources: Smart Investing, January 1999 by Steven T. Goldberg; Fortune 3/17/1997 by Maggie Topkis; Bloomberg.com and Women’s Wire current article dated November 12, 1999 not by-lined; USA Today article dated November 6, 1998 by John Waggoner. The Opportunity We help clients take advantage of the 2003 tax law changes, specifically: The reduction of the long-term capital gains rate to 15% The Impact of Taxes on Investment Results The Tax Bite on Wealth Creation After-Tax Growth of $10,000 over 20 years at Various Tax-Efficiency Rates $80,000 Pre-tax return $70,000 of 10% After-tax return at 90% After-tax return tax-efficiency $60,000 at 85% After-tax return at 80% tax-efficiency $50,000 tax-efficiency $40,000 $67,275 $30,000 $55,820 $51,083 $20,000 $46,575 $10,000 $0 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. Strategies to Enhance After-Tax Returns Tax-aware Offset Gains Trading and Losses Private Asset Management Loss Tax-lot Harvesting Accounting The Problem “Fewer than one American in five knows how much his/her funds charge.” The Economist, January 24, 1998 Source: Comptroller of the Currency The Challenge 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. What Makes Us Different? 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. Importance Of Asset Allocation According to a respected academic study, asset allocation is responsible for over 90% of variations in portfolio performance. 91.5% Asset Allocation 4.6% Securities Selection 1.8% Timing 2.1% Other Factors Brinson, Hood & Beebower, Financial Analysts Journal, 1986 Brinson, Singer & Beebower, Financial Analysts Journal, 1991 Strategy MFS Investment Management® MFSB-FUSION-03-04 2 MFS Investment Management® 1929- 1906- 1922- 1929- 1942- 1966- 1982- 2000- May 1999 1921 1928 1941 1965 1981 1999 2004 Total Secular Secular Secular Secular Secular Secular Secular Type Of Market Period Bear Bull Bear Bull Bear Bull Bear 18 Length in Years 71 yrs 16 yrs 7 yrs 13 yrs 24 yrs 16 yrs 4+ yrs 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 5.1 -- -- 4.5 2.1 2.5 12.2 9.5 Bonds Long-Term 5.6 -- -- 6.1 2.4 2.9 12.0 9.5 Corporate Bonds * Represents price appreciation only. Past performance is no guarantee of future results. Investors cannot invest directly in an index. Source: Merriman Capital Management, Emotion All Too Often Guides Investment Decisions CYCLE OF EMOTION “In investing, Greed what is Enthusiasm Indifference comfortable is Buy Denial rarely Confidence profitable.” Loss Concern Robert Arnott Caution Fear Active Asset Panic Allocation Doubt and Sell Suspicion Despair SOURCE: Journal Of Financial Planning Investor vs. Investment Returns Annualized Returns 1984 through 2003 14% 12.98% 12% 11.16% 10% 8% 6% 4% 3.51% 3.06% 2% 0% STOCKS BONDS INVESTOR INFLATION 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 (1965-1982) 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 December 31, 1995 December 31, 1999 Bonds 32% Stocks Bonds 50% 50% Stocks 68% December 31, 1999 December 31, 2002 Stocks 32% Bonds Stocks 50% 50% Bonds 68% 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. Strategy Time-tested strategies ADR has beaten most strategies (Hypothetical $10,000 annual investment from 12/31/83 to 12/31/03) $716,380 $609,254 $600,000 $559,113 $400,000 Investor Investor Investor $200,000 One Two Three $0 Chasing Hoping for a Allocating, performance rebound diversifying, and rebalancing 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. MFS Investment Management® The Planning Process Assess Your Needs and Establish Goals and Objectives Develop an Monitor Investment Investment Policy Manager(s) on an Advisor Statement and Ongoing Basis Asset Allocation Strategy Select Professional Money Manager(s) to Implement the Strategy Strategic Asset Allocation STRATEGIC • 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. Tactical Asset Allocation TACTICAL • 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, 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 National Financial-Fidelity : • 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 AssetMark Combined Credentials : • $1.05 Trillion Combined Assets Under Management • $710 Billion Combined Assets Under Advisement • Over 2000 Research Analysts and Investment Professionals • 88 Locations Worldwide AssetMark Institutional Client List Alltel Corporation Shell Oil Avon Products Sony Corporation Bayer Corporation Bell Atlantic Corp. The Ministers and Black & Decker Missionaries Benefit California Public Board of the American Employee Retirement Baptist Churches System (CalPERS) University of California Carnegie Mellon University University of Pittsburgh Commonwealth of Westinghouse Electric Mass. World Bank Dole Food Company Eastman Kodak Goodyear Tire & Rubber 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. Lockwood-Bank of New York- Pershing Credentials : • 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 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.