PERFORMANCE

The goal of a Parametric Tax-Managed Core (TMC) portfolio is to provide a pre-tax return similar to that of an index and outperform after considering the impact of taxes.

The following chart shows the composite tax alpha and pre-tax excess returns for Parametric’s tax-managed accounts benchmarked to the Russell 1000, S&P 500, and MSCI EAFE indices over a 10-year period. Tax alpha is defined as the after-tax excess return minus any pre-tax excess return. This measure shows that the Parametric composites added significant value (through realized capital gain avoidance and realized capital loss "harvesting").

The TMC performance story is a powerful one, built upon the following 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 can expect median performance (pre-costs) vs. the universe of active alternatives. After costs, the cap-weighted index will improve by the amount of its cost advantage.
• By carefully managing gain/loss realization after-tax returns can be improved.
• This after-tax performance success is not dependent upon stock selection skill.

Footnote:
Parametric's composite consists of fully discretionary client portfolios that are indexed to the S&P 500, Russell 1000, and MSCI EAFE, 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, data through 12/31/2009
Morningstar Universe size: 314 mutual funds (Large Blend).
Assumptions: Maximum Federal Tax Rates used for each period. All performance is net of management fees. Mutual fund after-tax performance is based upon Morningstar reported data regarding distribution of income and capital gains.