PERFORMANCE

The goal of a Parametric Tax-Managed Core portfolio is to provide a pre-tax return similar to that of an index and outperform it after considering the impact of taxes. The following chart shows how a 10-year composite of Parametric TMC accounts measures up against its index and a universe of active mutual funds.

What this chart means
The quartile charts above illustrate the distribution of annualized 10-year performances of a broad universe of actively managed mutual funds. Represented by light and dark blue symbols, the relative rank of the S&P500 index and the Parametric TMC composite benchmarked to the S&P500 is shown. In the Pre-Tax (left) distribution, the index and Parametric are, as generally cap-weighted strategies, median or near median performers. In the After-Tax analysis—achieved by adjusting the individual performance of all the mutual funds for the taxes (dividend and capital gain distributions) created during management—the performances of all of the managers and the index are reduced by a material tax drag, while the Parametric composite added significant value (through realized capital gain avoidance and realized capital loss "harvesting"). The TMC performance story is a powerful one, built upon intuitive and persistent concepts:

• Cap-weighted indexes naturally provide broad diversification, low turnover, and, importantly, low rates of capital gain realization.
• By targeting a cap-weighted market index, an investor guarantees median performance (pre-costs) vs. the universe of active alternatives. After costs, the cap-weighted index will improve by its cost advantage.
• An index-based strategy that reduces the taxes inherent in index management and harvests excess capital losses will, over any time period, outperform the majority of traditional, active equity strategies.
• This performance success is not dependent upon selection skill of any kind.

Footnote:
Parametric's composite consists of fully discretionary client portfolios that are indexed to the S&P 500, initiated with cash, and managed without restrictions. After-tax returns assume that realized short-term losses are able to offset short-term gains taxed at 35 percent and that realized long-term losses are able to offset long-term gains taxed at 15 percent.

Source: Parametric and Morningstar
Morningstar Universe size: 600 mutual funds (Large Blend, Large Growth and Large Value).
Assumptions: Maximum Federal Tax Rates used for each period. All performance net of management fees. Index turnover data provided by the Frank Russell Company. Mutual fund after-tax performance is based upon Morningstar reported data regarding distribution of income and capital gains. Parametric composite and S&P 500 performance data annualized 05/1996 through 12/2007.