Eaton Vance Corporation's seventh annual survey of investors, conducted by Penn, Schoen & Berland Associates, Inc., reveals that there is a significant percentage of investors who are becoming more tax savvy but do not know how to make their money work in the most tax-efficient manner.

Eighty-nine percent of investors say that the impact that taxes have on their investment returns is important, and 52% described the impact as very important to them.

Forty-three percent of investors said President Bush's tax cuts have been beneficial to the economy, and only 26% said that the cuts were hurtful. Fifty-five percent said that not extending the 2003 Tax Act beyond 2008, when some parts of the act will expire, will have a negative impact on the economy.

"If investors are hit with substantial capital gains this year, their enthusiasm for continued capital gains tax relief could well build into a march on Washington come tax time," said Duncan W. Richardson, chief equity investment officer of Eaton Vance Management. 

The survey found that many investors have unrealistic expectations about paying taxes on capital gains. Only 46% expect to pay this tax. Although this number is low, it is an improvement over the 40% who said they would have to pay the tax a year ago. The survey found that 50% of investors are worried that they might pay more in the capital gains tax. Forty-seven percent said they paid capital gains taxes in 2004, and 65% said they had to pay this tax in the past five years.

The survey indicated that more investors are tax-benefit sensitive when investing today, as 44% said that they invested with consideration to after-tax returns. Fifty percent chose to invest in low-yielding growth stocks held long term or municipal or tax free bonds to make sure they reached maximum tax-efficiency. Also, 43% of investors said they are putting their money in tax-beneficial funds thanks to financial advisers. The number rose sharply from 29% who got advice in 2001.

The survey also showed that more investors are taking an active interest in their investments, and their tax situations because 70% said they review their fund statements with particular attention to the tax implications and 84% think the tax disclosures on their statements are important.

However, as in the past, the investors have very little detailed knowledge of the actual tax rates. Only 12% can correctly identify the current maximum federal tax rate for ordinary income.

"It is a near certainty that tax-savvy financial advisers can add value year in and year out by recovering some of that 2% [lost to taxes] for their clients trough simply knowing and making use of the current tax code," said Richardson.

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