Mr. Emmett: First of all, J.P. Morgan has been running non-US equities or international equity portfolios since the early 1970s, so we have a long track record in the area. In particular, we've also broadened our product range over recent years, in terms of both more and less aggressive vehicles. One of the demands that we've seen both internally, from our own private banking business, and externally, from the retail market, is the ability for us to come up with a tax-aware or tax-managed international equity vehicle. The visibility of pre-tax returns and post-tax returns has become much higher in recent years. For instance, with the changed SEC guidelines, mutual funds will now have to publish both their pre-tax and post-tax returns. Reporting services like Morningstar are increasingly highlighting the post-tax returns, as well as giving funds tax efficiency ratings. So the tax efficiency of individual vehicles has become much more visible, and quite rightly investors are concerned not just with the headline figure, but post-tax returns. J.P. Morgan is a firm that is one of the market leaders in running domestic US equities in a tax-managed or tax-efficient manner, and it was a natural step for us to take that expertise and transplant it into the international equity universe.
TWST: Before we go on to the international opportunities, I'd like you
to talk about the advantages of tax-aware investing and in what way you
are differentiated from other mutual funds.
Ms. Sicat: Essentially, most investors have realized that you can have a
portfolio that is giving them some great returns, but then 17% on
average has been given away just paying the tax man. Investors are now
becoming more and more aware that you actually have to manage portfolios
on a tax-efficient basis, and not just on a total return basis or
relative to the benchmark. One of the advantages of having a tax-
efficient portfolio is that you're not just managing to the total return
aspect of it, but making sure that you're not paying out capital gains
at the end of the year. Within J.P. Morgan we've been running a lot of
tax-efficient portfolios on the US side since the early 1990s. In fact,
none of our tax-aware products have paid a capital gains distribution at
all. That's relative to other equity managers out there who have paid
some large distributions.
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