Tax liability calculation

The procedure starts with gathering information on each of the aforementioned components of taxable income. Hence, the historical per share data shown in Table 5.3, were obtained for each taxable component from State Street Global Advisors, the SPY's trustee; and from Vanguard for VFINX. Because ordinary income and short-term capital gains are taxed at the investor's marginal tax rate, they were grouped together in Table 5.3 without fear of consequential loss of information.

Next, because a taxable income calculated on the basis of per share distributions might be misleading, we opted for the per dollar distributions as shown in Table 5.4, over the initial per share distributions. This choice is justified by often significant year-to-year differences in net asset value (NAV) of the two investment products as shown in Table 5.3. Failure to recognize these differences could certainly impact the comparison. Per dollar

Table 5.3 Historical distributions per share 1993-2003

Vanguard 500 (VFINX)

SPDR 500 (SPY)

Table 5.3 Historical distributions per share 1993-2003

Vanguard 500 (VFINX)

SPDR 500 (SPY)

Distributions per share1

Distributions per share2

Ordinary income & income S.T.C.G.3 ST.C.G.3 L.T.C.G4

NAV

Ordinary income & income S.T.C.G.3 S.T.C.G.3 L.T.C.G4

NAV

03/23/93 06/22/93 09/21/93 12/28/93 Total 1993

Total 1994

03/21/95 06/20/95 09/25/95 12/21/95 Total 1995

$1.17000

$0.04000

$1.21000

$0.16000

03/19/93 06/18/93 09/17/93 12/17/93 Total 1993

Total 1994

03/17/95 06/16/95 09/15/95 12/15/95 Total 1995

0.213191 0.318020 0.286187 0.287239 1.104637

0.271171 0.304976 0.288180 0.362730

1.227057

0.268220 0.316210 0.312260 0.372000 1.268690

0.285450 0.350940 0.351940

0.000000 0.000000 0.000000 0.030000 0.030000

0.000000 0.000000 0.000000 0.000000

0.000000

0.000000 0.000000 0.000000 0.010000 0.010000

0.000000 0.000000 0.000000

0.213191 0.318020 0.286187 0.317239 1.134637

0.271171 0.304976 0.288180 0.362730

1.227057

0.268220 0.316210 0.312260 0.382000 1.278690

0.285450 0.350940 0.351940

0.000000 0.000000 0.000000 0.000000 0.000000

0.000000 0.000000 0.000000 0.000000

0.000000

0.000000 0.000000 0.000000 0.000000 0.000000

0.000000 0.000000 0.000000

12/19/96 Total 1996

03/24/97 06/24/97 09/23/97 12/22/97 Total 1997

Total 1998

03/25/99 06/24/99 09/23/99 12/22/99 Total 1999

Total 2000

$0.62000 $1.28000

$1.33000

$1.30000

$0.00000 $0.01000

$0.08500

$0.00000

$0.62000 $1.29000

$1.41500

$1.30000

$0.21000 $0.24000

$0.33500

$0.00000

12/20/96 Total 1996

03/21/97 06/20/97 09/19/97 12/19/97 Total 1997

Total 1998

03/19/99 06/18/99 09/17/99 12/17/99 Total 1999

Total 2000

0.286810 1.275140

0.299258 0.349953 0.348355 0.379504 1.377070

0.313421 0.352010 0.358530 0.391823

1.41 5784

0.319853 0.404970 0.372218 0.347552 1.444593

0.370823 0.348408 0.375319 0.411330

1.505880

0.315510 0.346440 0.369000

0.080000 0.080000

0.000000 0.000000 0.000000 0.000000 0.000000

0.000000 0.000000 0.000000 0.000000

0.000000

0.000000 0.000000 0.000000 0.000000 0.000000

0.000000 0.000000 0.000000 0.000000

0.000000

0.000000 0.000000 0.000000

0.366810 1.355140

0.299258 0.349953 0.348355 0.379504 1.377070

0.313421 0.352010 0.358530 0.391823

1.415784

0.319853 0.404970 0.372218 0.347552 1.444593

0.370823 0.348408 0.375319 0.411330

1.505880

0.315510 0.346440 0.369000

0.040000 0.040000

0.000000 0.000000 0.000000 0.000000 0.000000

0.000000 0.000000 0.000000 0.000000

0.000000

0.000000 0.000000 0.000000 0.000000 0.000000

0.000000 0.000000 0.000000 0.000000

0.000000

0.000000 0.000000 0.000000

Continued

Table 5.3 Continued

Vanguard 500 (VFINX)

Ex: Date

Distributions per share1

Ordinary income

Ordinary income & S.T.C.G.3

12/28/01 Total 2001

03/22/02 06/21/02 09/27/02 12/27/02 Total 2002

Total 2003

Average (1993-2003)

$0.38500 $0.00000 $0.38500 $0.00000 $107.08 $1.27500 $0.00000 $1.27500 $0.00000

$0.00000

$0.00000

1.293182 0.000000 0.130000 0.000000

SPDR 500 (SPY)

Ex: Date

Distributions per share2

Ordinary income

Ordinary income & S.T.C.G.3

12/21/01 Total 2001

03/15/02 06/21/02 09/20/02 12/20/02 Total 2002

Total 2003

Average (1993-2003)

0.392770 0.000000 0.392770 0.000000 $114.59 1.423720 0.000000 1.423720 0.000000

0.330980 0.353370 0.378100 0.435884 1.498334

0.354380 0.360250 0.400060 0.515590

1.630280

0.000000 0.000000 0.000000 0.000000 0.000000

0.000000 0.000000 0.000000 0.000000

0.000000

0.330980 0.353370 0.378100 0.435884 1.498334

0.354380 0.360250 0.400060 0.515590

1.630280

0.000000 0.000000 0.000000 0.000000 0.000000

0.000000 0.000000 0.000000 0.000000

0.000000

1.379199 0.010909 1.390108 0.003636

Notes: 1. Distributions per share and NAV were obtained from The Vanguard Group.

2. Distributions per share and NAV were obtained from State Street Global Advisors.

3. S.T.C.G. stands for short-term capital gains distributions.

4. L.T.C.G. stands for long-term capital gains distributions (include reinvesment of dividends and capital gains).

Table 5.4 Historical distributions per dollar invested 1993-2003

Vanguard 500 (VFINX)

Distributions per dollar invested

Ex: Date

Ordinary income & S.T.C.G.

L.T.C.G

03/23/93

$0.00522

$0.00071

06/22/93

$0.00527

$0.00000

09/21/93

$0.00512

$0.00000

12/28/93

$0.01063

$0.00000

Total 1993

0.026241

0.000712

03/22/94

$0.00523

$0.00159

06/21/94

$0.00516

$0.00000

09/20/94

$0.00506

$0.00000

12/27/94

$0.01253

$0.00209

Total 1994

0.027982

0.003680

03/21/95

$0.00474

$0.00000

06/20/95

$0.00431

$0.00000

09/25/95

$0.00402

$0.00000

12/21/95

$0.01032

$0.00175

Total 1995

0.023391

0.001749

03/25/96

$0.00376

$0.00049

06/24/96

$0.00351

$0.00000

09/24/96

$0.00341

$0.00000

12/19/96

$0.00887

$0.00301

Total 1996

0.019563

0.003497

03/24/97

$0.00367

$0.00054

06/24/97

$0.00325

$0.00000

09/23/97

$0.00306

$0.00000

12/22/97

$0.00752

$0.00465

Total 1997

0.017490

0.005192

03/26/98

$0.00290

$0.00093

06/25/98

$0.00257

$0.00000

09/24/98

$0.00278

$0.00000

12/21/98

$0.00520

$0.00215

Total 1998

0.013451

0.003087

SPDR 500 (SPY)

Distributions per dollar invested

Ordinary

income &

Ex: Date

S.T.C.G.

L.T.C.G

03/19/93

0.004697

0.000000

06/18/93

0.007044

0.000000

09/17/93

0.006195

0.000000

12/17/93

0.006809

0.000000

Total 1993

0.024744

0.000000

03/18/94

0.005729

0.000000

06/17/94

0.006561

0.000000

09/16/94

0.006034

0.000000

12/16/94

0.007910

0.000000

Total 1994

0.026234

0.000000

03/17/95

0.005385

0.000000

06/16/95

0.005852

0.000000

09/15/95

0.005321

0.000000

12/15/95

0.006157

0.000000

Total 1995

0.022716

0.000000

03/15/96

0.004433

0.000000

06/21/96

0.005270

0.000000

09/20/96

0.005126

0.000000

12/20/96

0.004894

0.000534

Total 1996

0.019723

0.000534

03/21/97

0.003809

0.000000

06/20/97

0.003882

0.000000

09/19/97

0.003663

0.000000

12/19/97

0.003958

0.000000

Total 1997

0.015312

0.000000

03/20/98

0.002867

0.000000

06/19/98

0.003170

0.000000

09/18/98

0.003505

0.000000

12/18/98

0.003308

0.000000

Total 1998

0.012850

0.000000

Continued

Table 5.4 Continued

Vanguard 500 (VFINX)

Distributions per Dollar invested

Ex: Date

Ordinary income & S.T.C.G.

SPDR 500 (SPY)

Distributions per Dollar invested

Ex: Date

Ordinary income &

03/25/99 06/24/99 09/23/99 12/22/99 Total 1999

03/23/00 06/22/00 09/21/00 12/21/00 Total 2000

03/15/01 06/22/01 09/21/01 12/28/01 Total 2001

03/22/02 06/21/02 09/27/02 12/27/02 Total 2002

Average (1993-2003)

$0.00257 $0.00313 $0.00297 $0.00335 0.012017

$0.00213 $0.00233 $0.00239 $0.00307 0.009928

$0.00273 $0.00248 $0.00359 $0.00360 0.012395

$0.00274 $0.00329 $0.00458 $0.00520 0.015811

$0.00376 $0.00326 $0.00391 $0.00465 0.015584

0.017623

$0.00354 $0.00000 $0.00000 $0.00372 0.007266

$0.00000 $0.00000 $0.00000 $0.00000 0.000000

$0.00000 $0.00000 $0.00000 $0.00000 0.000000

$0.00000 $0.00000 $0.00000 $0.00000 0.000000

$0.00000 $0.00000 $0.00000 $0.00000 0.000000

0.002289

03/19/99 06/18/99 09/17/99 12/17/99 Total 1999

03/17/00 06/16/00 09/15/00 12/15/00 Total 2000

03/16/01 06/15/01 09/21/01 12/21/01 Total 2001

03/15/02 06/21/02 09/20/02 12/20/02 Total 2002

03/21/03 06/20/03 09/19/03 12/19/03 Total 2003

Average (1993-2003)

0.002421 0.003011 0.002813 0.002442 0.010688

0.002655 0.002349 0.002526 0.003055 0.010585

0.002677 0.002827 0.003612 0.003428 0.012543

0.002856 0.003491 0.004461 0.004844 0.015653

0.003952 0.003623 0.003859 0.004735 0.016168

0.017020

0.000000 0.000000 0.000000 0.000000 0.000000

0.000000 0.000000 0.000000 0.000000 0.000000

0.000000 0.000000 0.000000 0.000000 0.000000

0.000000 0.000000 0.000000 0.000000 0.000000

0.000000 0.000000 0.000000 0.000000 0.000000

0.000049

distributions were obtained by dividing per share distributions by the investment's NAV at the time of distribution.

Finally, for a better understanding of how the tax rate reductions will affect the two investment options, the tax liability per dollar invested also was calculated in panels A (SPY) and B (VFINX) of Table 5.5.

Table 5.5 Tax comparison - SPDR 500 versus Vanguard 500 Panel A: SPDR 500 Trust Series I

Taxable income per dollar invested (I) Tax liability per dollar invested (II)

Ordinary Total Ordinary income taxable income Total tax

Year & S.T.C.G. L.T.C.G. income & S.T.C.G. L.T.C.G liability

1993 $0.024744 $0.000000 $0.024744 $0.009799 $0.000000 $0.009799

1994 $0.026234 $0.000000 $0.026234 $0.010389 $0.000000 $0.010389

1995 $0.022716 $0.000000 $0.022716 $0.008996 $0.000000 $0.008996

1996 $0.019723 $0.000534 $0.020257 $0.007810 $0.000149 $0.007960

1997 $0.015312 $0.000000 $0.015312 $0.006064 $0.000000 $0.006064

1998 $0.012850 $0.000000 $0.012850 $0.005089 $0.000000 $0.005089

1999 $0.010688 $0.000000 $0.010688 $0.004232 $0.000000 $0.004232

2000 $0.010585 $0.000000 $0.010585 $0.004192 $0.000000 $0.004192

2001 $0.012543 $0.000000 $0.012543 $0.004904 $0.000000 $0.004904

2002 $0.015653 $0.000000 $0.01 5653 $0.006042 $0.000000 $0.006042

2003 $0.016168 $0.000000 $0.016168 $0.005659 $0.000000 $0.005659 Average $0.017020 $0.000049 $0.017068 $0.006652 $0.000014 $0.00667

Panel B: Vanguard Index Trust 500

Taxable income per dollar invested (III) Tax liability per dollar invested (IV)

1993 $0.026241 $0.000712 $0.026954 $0.010392 $0.000199 $0.010591

1994 $0.027982 $0.003680 $0.031662 $0.011081 $0.001030 $0.012111

1995 $0.023391 $0.001749 $0.025139 $0.009263 $0.000490 $0.009752

1996 $0.019563 $0.003497 $0.023060 $0.007747 $0.000979 $0.008726

1997 $0.017490 $0.005192 $0.022683 $0.006926 $0.001038 $0.007965

1998 $0.013451 $0.003087 $0.016538 $0.005327 $0.000617 $0.005944

1999 $0.012017 $0.007266 $0.019282 $0.004759 $0.001453 $0.006212

2000 $0.009928 $0.000000 $0.009928 $0.003931 $0.000000 $0.003931

2001 $0.012395 $0.000000 $0.012395 $0.004847 $0.000000 $0.004847

2002 $0.015811 $0.000000 $0.015811 $0.006103 $0.000000 $0.006103

2003 $0.015584 $0.000000 $0.015584 $0.005454 $0.000000 $0.005454 Average $0.017623 $0.002289 $0.019912 $0.006894 $0.000528 $0.00742

Continued

Table 5.5 Continued

Panel C: Tax Comparison

Tax savings of SPDR 500 as Tax liability per dollar invested(I-III) % of Vanguard 500

Ordinary

Total

Ordinary

income

taxable

income

Total tax

Year

& S.T.C.G.

L.T.C.G.

income

& S.T.C.G.

L.T.C.G

liability

1993

-$0.00150

-$0.00071 -

$0.00221

-$0.00059

-$0.00020

-$0.00079

1994

-$0.00175

-0.00368 -

$0.00543

-$0.00069

-$0.00103

-$0.00172

1995

-$0.00067

-$0.00175 -

$0.00242

-$0.00027

- $0.00049

-$0.00076

1996

$0.00016

-$0.00296 -

$0.00280

$0.00006

-$0.00083

-$0.00077

1997

-$0.00218

-$0.00519 -

$0.00737

-$0.00086

-$0.00104

-$0.00190

1998

-$0.00060

-$0.00309 -

$0.00369

-$0.00024

-$0.00062

-$0.00086

1999

-$0.00133

-$0.00727 -

$0.00859

-$0.00053

-$0.00145

-$0.00198

2000

$0.00066

$0.00000

$0.00066

$0.00026

$0.00000

$0.00026

2001

$0.00015

$0.00000

$0.00015

$0.00006

$0.00000

$0.00006

2002

-$0.00016

$0.00000 -

$0.00016

$0.00006

$0.00000

-$0.00006

2003

$0.00058

$0.00000

$0.00058

$0.00020

$0.00000

$0.00020

Average

-$0.00060

-$0.00224 -

$0.00284

-$0.00024

-$0.00051

-$0.00076

Average Tax Savings of SPDR 500

-3.25%

-6.93%

-10.18%

as a % of Vanguard's 500

as a % of Vanguard's 500

The marginal tax rates in effect during the years under consideration, as shown in Table 5.2, were used for this purpose, along with the appropriate long-term capital gains tax rates.

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