advantage of SMA

ADVANTAGE PORTFOLIO MANAGEMENT PROGRAM ADVANTAGE PORTFOLIO MANAGEMENT PROGRAM SEPARATE ACCOUNTS: A Guide to Investing with Professional Money Managers WHAT ARE SEPARATELY MANAGED ACCOUNTS? A separate account is a pool of securities — stocks, bonds, and cash equiv- alents — managed by a money manager on a discretionary basis. In addition to top-level expertise, separate accounts offer the advantages of tax efficien- cy, reduced fees, and the ability to dictate certain investment restrictions, such as the exclusion of alcohol or tobacco stocks from a portfolio. Traditionally, separate accounts have been available only to those who could meet the high minimum initial investment requirements. Now, thanks to technological advances, your brokerage firm can offer these advan- tages at significantly reduced investment minimums. The result is unprecedented access to today’s top money management talent. PRIMARY FEATURES OF SEPARATELY MANAGED ACCOUNTS Professional Money Management Many sophisticated investors want access to the top money managers in the country. Now, that access is yours with separately managed accounts. Your portfolio is managed according to a personalized asset allocation plan designed to meet your goals, while managing your risk. Plus, you enjoy the con- venience of consolidated account activity and performance reporting. Portfolio Customization Managed to meet an investor’s specific requirements, separate accounts provide a high level of customization including the ability to place purchase restrictions on the man- ager. This includes the purchase restriction of specific securities and/or securities from particular industries (e.g. tobacco or alcohol). For example, if you hold a large position in your employer’s stock, you may restrict the separate account manager from pur- chasing additional shares of that stock, thus avoiding overexposure to the holding. Tax Efficiency Working with your separate account manager, you have the opportunity to develop a strategy to control tax costs over the long-term. You own the individual securities with- in the separate account, which allows you more flexibility in income tax planning with respect to the timing of gains and losses from individual securities in the account. Simple, All-inclusive Fee A single asset-based fee is charged for separately managed accounts on a quarterly basis. In some cases, the separately managed account fee may be partially or totally deductible on your federal income tax. This fee generally includes services such as client profiling, investment management, portfolio selection, trading, account maintenance, periodic account rebalancing, and continuing advisory services. HOW CAN SEPARATELY MANAGED ACCOUNTS BENEFIT ME? Separately managed accounts provide an individualized approach and a number of advantages that are not available by investing in other investment vehicles: Direct Ownership of the Underlying Securities You own each of the securities in your portfolio, rather than a share of a mutual fund. This provides you with greater flexibility for tax planning purposes as well as the ability to restrict the purchase or liquidation of securities based on your investment needs. Greater Control of Your Tax Liability You can decide when to recognize capital gains and losses, which provides you with greater control over your tax bill. Because your portfolio is customized for you, separately managed accounts also offer tax-efficient handling of existing securities. Comprehensive Account Information You will regularly receive updates on the purchase and sale decisions of the separate account managers, month- ly brokerage statements that provide detailed holdings information, and the history of the manager’s activity for the month. You also receive a consolidated performance report on a quarterly basis that includes performance information for the entire portfolio as well as information on individual security holdings. Peace of Mind from a Fee-based Relationship You receive the peace of mind that comes from ongoing professional portfolio management. You never pay trans- action fees or commissions for trades made in your portfolio. ARE SEPARATELY MANAGED ACCOUNTS RIGHT FOR ME? Separately managed accounts are appropriate investment vehicles for many investors. To determine whether you are a potential separately managed account investor, consider the following questions: � Do you have at least $100,000 in investable assets? Separately managed accounts are appropriate for high-net-worth individuals with portfolios of at least $100,000. � Would you enjoy receiving personalized advice to help you match your investments to your goals and risk tolerance? When you invest in separately managed accounts, your financial advisor will help you develop a comprehensive investment strategy based on your goals, risk tolerance, and time horizon. � Did you incur significant taxes from your investments last year? Separately managed accounts can be managed for tax efficiency. � Do you know the total fees and commissions you now pay as a percentage of your assets? Separately managed account fees are fee-based, not commis- sion-based. This means that you never pay transaction fees or commissions for trades made in your portfolio. It also provides your portfolio manager incentive to grow your assets. HOW DO I INVEST IN SEPARATELY MANAGED ACCOUNTS? The Consulative Process for Investing In Separately Managed Accounts? Step 1: With guidance from your investment advisor, you complete an investor profile questionnaire to identify your goals, risk tolerance, time horizon, tax considerations, and other personal investing issues. Step 2: Based on this information, you receive a personalized asset allocation plan designed to pursue your goals, while managing risk and minimizing tax liability. This plan provides a recommended money manager of a portfolio of money managers. Step 3: Once you approve the recommended strategy, the account is funded, an appropriate manager or managers are chosen, and securities are purchased for your portfolio according to the recom- mended asset allocation. Step 4: Your investment advisor provides ongoing investment monitoring to ensure your portfolio contin- ues to conform to the recommended asset allocation. Step 5: You receive in-depth reporting to keep you abreast of account activity and performance. Quarterly Performance Reports provide detailed information on all securities in your portfolio and review portfolio performance, enabling you to assess their progress. How Do I Find Out More About Separately Managed Accounts? If you have any questions about separately managed accounts or would like more information, please contact your investment advisor. ©2003 U.S. Clearing A Division of Fleet Securities