While tax planning is a yearlong endeavor, November and December remain key months
for most individuals to focus on minimizing their income and capital gain tax liabilities.

We believe it is crucial to first evaluate the investment merit and fit of each position within
a portfolio. In our experience, holding positions with weakened investment fundamentals in order to avoid taxable gains may often prove self-defeating.

Our goal is to maximize the after-tax investment returns for our clients. This includes both avoiding the unnecessary realization of gains, as well as replacing positions with relatively weaker investment merits. Such investments, if left unchecked, may dangerously skew the profile of a portfolio and put the investor’s long-term goals at risk.

As 2006 is coming to a close, we thought it would be helpful to share some tax planning techniques we employ on clients’ behalf. Specific actions vary - they directly depend upon each investor’s specific circumstances. Some of the tax strategies we employ may include:

• Placing less tax-efficient investments in tax-deferred accounts (i.e., IRAs, Roth-IRAs, and other retirement accounts) when possible

• Selling positions with built-in capital losses to offset specific realized gains

• Considering any carry-over capital losses from previous years. They may help offset additional gains taken in the current year

• Examining the potential after-tax return of any new investment relative to existing positions or competing investment options

• Balancing the tax liability impact of realizing a gain triggered by selling a mutual fund against the tax liability to be triggered by the fund’s expected year-end distributions

• Avoid selling investments with large built-in gains, unless the sale is justified by the incremental expected return from an alternative investment

• Avoid selling investments with large built-in gains, unless the sale is necessary to maintain the portfolio's risk profile within prudent levels

• Consider using a covered-call strategy to subsidize tax expenses when the sale of a security with large built-in gains is deemed necessary

• Considering the benefits and risks of delaying the sale of a position we decided to sell, until it qualifies for long-term, rather than short-term, capital gain treatment

• Attempting to first sell “tax-lots” with losses, or “tax-lots” with lowest gains first, in a partial sale of a position

We make every attempt to align our goals with your goals. Assisting you with maximizing after-tax returns is one example. We hope that you find our tax-management tips helpful in understanding the actions we take in managing your portfolio(s).

This article is for informational purposes only and not intended as financial advice. Consult your financial advisor to determine what is appropriate for your situation.
Past performance is no guarantee of future results.

If you have any comments, questions or suggestions concerning this electronic newsletter, please email us at fgi@fragassogroup.com.

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A REGISTERED INVESTMENT ADVISOR
The Retirement Planning and Wealth Preservation Specialists Since 1972
610 Smithfield Street, Suite 400, Pittsburgh, PA 15222

Phone 412.227.3200, Fax 412.227.3210, Toll Free 1.800.900.4492
Fee-based investment management and securities offered through LPL Financial
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