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It is in a taxable account there is a subtle but often over looked aspect of mutual funds to look at when you compare them. That is where they stand in unrealized capital gains or capital losses carried over from previous years. By law mutual funds are not able to distribute capital loses to the fund holders like they do capital gains, but they do get to carry forward theses loses forward to offset capital gains in future years.

Here is an overly simplistic example.
Fund A was established twenty years ago for 1 million dollars and has never had any turnover and is now worth 10 million dollars. Eventually there will be 9 million dollars in capital gains that will be distributed to the fund holders. If you didn't hold the fund for the last ten years then you may end up getting capital gains distributions on part of that even though you didn't get any benefit.

Fund B was established 5 years ago for 10 million dollars at the peak of the market. It is now worth 5 million dollars and had bought and sold all of the original high priced stock.. Unfortunately it wasn't able to pass on the 5 million dollar capital loss to the fund holders but is carrying it forward so that the next 5 million dollars in capital gains will be offset and not be passed on to the fund holders.

If everything else is equal then Fund B is much more attractive than fund A.

If these numbers are even in the prospectus then they are likely buried very deeply in the fine print but you can get this information by calling the companies 800 number. Be sure that you talk to someone that that understands what you are talking about or you may end up incorrect numbers. The questions to ask are;

1) For the fund is there any capital loss carried forward from prior years?

2) What are the unrealized capital gains for the fund and what is the total value of the fund? This will let you calculate a percentage of unrealized capital gains.

3) What are the approximate realized but undistributed capital gains for this year? When will it be distributed?

Greg
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