Mutual Funds Year-end Distributions

Here’s a complete list of my mutual fund year-end distributions:

Symbol Date Dividend Short-term
capital gain
Long-term
capital gain
Total
CSVFX 09/20/06 $0.12 $0.13 $2.51 $2.76
OAKBX 12/14/06 $0.5013 $0 $1.3081 $1.8094
TGLDX 12/15/06 $0.217 $1.122 $3.93 $5.269
PRSVX 12/18/06 $0.27 $0.25 $1.16 $1.68
PRNEX 12/18/06 $0.57 $0.34 $1.21 $2.12
TREMX 12/18/06 $0.42 $0 $1.06 $1.46
TAREX 12/20/06 $0.893 $0.062 $2.568 $3.523
DODGX 12/28/06 $0.54 $0.247 $6.405 $7.192
DODFX 12/28/06 $0.565 $0.144 $0.349 $1.18
CGMFX 12/28/06 $0.81 $0 $2.92 $3.73

Most of the funds I own distribute annually (except DODGX which distributes every quarter), with more payouts in the forms of dividend and long-term capital gain rather than short-term capital gain. The benefit of dividend and long-term gain is that they have lower tax rates. Since all these funds are in my taxable account (as contrary to tax-deferred accounts such as 401(k)s and IRAs), I am responsible for the taxes due to these payouts, but they will be treated differently. For qualified dividend and long-term gain, they have a favorable rate which has a maximum of 15%. On the other hand, short-term gain will be taxed at my ordinary income level, which is much higher than 15%. Thus, to reduce taxes and keep more from what you gained, it’s suggested to put funds with high payouts in tax sheltered accounts (401(k), IRA) and keep funds with low or no distributions in taxable accounts. However, I feel that this suggestion has to fit in the overall investment strategy/condition. For example, many good funds are simply not available in my 401(k) plan and most of us have can only access a limit number of funds that are provided by our employers. For IRA account, though I can those whichever fund I like, the annual contribution cap ($5,000 for 2007) makes it hard to have a dozen funds and only put a couple of hundreds in each one every year. So instead of avoiding the high payout funds, I am willing to take the tax consequences and invest them in our taxable account. For me, this is the right way to go.

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