World Economic

Will Toll Brothers Inc. get through the housing and economic mess OK? What about its stock?

As one of the nation’s leading builders of luxury houses, it is in many ways better positioned to deal with recession than competitors trying to sell to less-affluent customers.

It is loaded with cash, has a solid balance sheet and doesn’t have to sell off any land holdings in desperation.

Yet despite being an industry leader, it faces an arduous industry year of fewer buyers and more sales contract cancellations because of uncertainty about the duration and depth of the housing downturn. To deal with this, it has aggressively begun to offer below-market-rate mortgages on its homes.

Toll Brothers shares rose 7 percent last year, following a 38 percent decline in 2007.

Founded in 1967 by brothers Robert and Bruce Toll, it has operations in 21 states. Robert remains the CEO, and company insiders own about one-fourth of the firm’s shares.

Toll Brothers reported a net loss of $298 million in its last fiscal year, the first loss since it was first publicly traded 22 years ago. It is considered unlikely to produce a profit in 2009. Several joint-venture partners were foreclosed upon, and it must also contend with the depressed value of tens of thousands of its lots. It is expected to continue to take impairments, or reductions in its capital.

Toll Brothers expects to deliver between 2,000 and 3,000 houses this year, compared with its peak of 8,769 in 2005. Houses carry price tags of $600,000 and above.

The question mark remains in the housing market, with a huge amount of inventory to be worked off and foreclosures in high gear. Recovery could begin this year but perhaps not until 2010. The effectiveness of steps by the government to stimulate house buying will play a role.

According to Thomson Financial, analysts’ ratings on the stock consist of three "strong buys," five "buys," nine "holds" and one "sell."

I thought funds that included stocks and bonds were supposed to be superior in downturns. What about my T. Rowe Price Capital Appreciation Fund?

Ah, the good old days: Prior to 2008, the fund had posted a gain for 17 consecutive calendar years through its judicious asset allocation of stocks, bonds, convertible bonds and cash.

But that run ended last year with a 27 percent drop as the bottom fell out of virtually everything, with its convertible bonds especially hard-hit.

The $7 billion T. Rowe Price Capital Appreciation Fund declined 23 percent over the last 12 months and had a three-year annualized decline of 5 percent. Both results rank in the upper third of moderate allocation funds.

Portfolio manager David Giroux, previously an industry analyst, took over the fund in mid-2006. The fund reports he has between $100,000 and $500,000 of his own money invested in the fund payday loan lender.

"Over time the fund has a very good record, and Giroux has continued to generate a pretty solid record, though losing money in 2008 was pretty unavoidable," said Greg Carlson, an analyst with Morningstar Inc. "It has a value-oriented process that’s a little on the contrarian side."

Sixty percent to 70 percent of the portfolio is kept in stocks considered to have been overly punished by the market. It also keeps 10 percent or more in convertible bonds. The remainder of the portfolio is generally in cash or traditional bonds.

"Giroux has a lot of areas to cover here, but he was an excellent analyst," Carlson said. "He had a lot of preparation for this role and receives pretty significant (research) help."

Financial services is the largest concentration, with 16 percent of the portfolio; industrial materials and energy are other major holdings. Top holdings include Tyco Electronics Ltd., Time Warner Inc., Exxon Mobil Corp., Danaher Corp., AT&T Inc., Bank of America Corp. preferred, Covidien Ltd., Ameriprise Financial Inc. and Illinois Tool Works Inc.

The no-load fund requires a $2,500 minimum initial investment. Its annual expense ratio is 0.70 percent. T. Rowe Price is a solid parent company known for quality research, strong shareholder communication and above-average returns.

My planner says I can still make my individual retirement account contribution for 2008 in 2009. Is that true? What’s the most I can contribute? He also thinks I should convert to a Roth IRA. Are contribution limits the same?

You can make your contribution to a 2008 IRA until April 15. The contribution limit for traditional and Roth IRAs is $5,000. If you’re 50 or older, you can contribute an extra $1,000.

"To convert an IRA to a Roth IRA, there are income limitations," said Molly Balunek, certified financial planner and vice president of Spero-Smith Investment Advisers in Cleveland.

"For 2008 and 2009, you can only convert if your modified adjusted gross income is $100,000 or less, which is the same for both married couples and single individuals."

The annual amount you can put into a Roth IRA as a regular contribution is reduced or eliminated as your income goes above certain levels.

In 2008, single filers have a phase-out range of $101,000 to $116,000, while joint-filing married couples have a phase-out range of $159,000 to $169,000. For 2009, phase-out range for single filers is $105,000 to $120,000, while married joint filers have a phase-out range of $166,000 to $176,000.

andrewinv@aol.com

2008, TRIBUNE MEDIA SERVICES INC.

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