Re: Distributions

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In Reply to: Distributions posted by Tim Gadd on December 24, 1999 at 11:01:22:

: I can't figure out the best way to apply ST & LT Capital Gains distributions that are not reinvested in the fund the generated the distributions, but are applied to a "sweep" account. In my Fidelity brokerage account, I have chosen not to have distributions reinvested. When distributions are made, the proceeds are applied to the "sweep account" - the default money market fund for the account.

: In Fund Manager, when I enter the distribution amounts as non-reinvested capital gains in the funds that generated them and then enter the same amounts as reinvested capital gains in the money market (sweep) fund, the cost basis for each fund and the portfolio is lowered (as should be, I think), but the amount of the distributions are added in the "gain" column for the funds on the portfolio performance report (this doesn't seem right).

: Alternatively, when I enter the distribution amounts as non-reinvested capital gains in the funds that generated them and then enter the same amounts as "purchases" in the money market (sweep) fund, the cost basis for each fund and the portfolio is not lowered (this doesn't seem right). Using this method, the amount of the distributions are added in the "invested" column on the portfolio performance report (this doesn't seem right either).

: Here is a combination I have not tried - Entering the distributions as reinvested capital gains for the funds that generated the distributions and then entering redemption transactions for the same amounts, and then applying the "redeemed" amounts as purchases in the money market fund.

: What I think I am trying to accomplish (rightly or wrongly) is a reduction of the cost basis for each fund with distributions, without these amounts showing up in the "gain" or "invested" columns on the portfolio performance report. It seems to me that these distributions are just "a wash" and while affecting the cost basis of the funds/portfolio and having tax consequences, should not affect the performance metrics of the portfolio. This may be where I am confused/wrong.

: Can you explain the proper method of applying distributions when they are "swept" to a money market fund? I hope I haven't overly confused the issue with my ramblings.

: FYI - I have no default cash account set up in Fund Manager.

: Thanks!

Hi Tim,
Here's the deal with distributions and tax cost basis... When you
have a "distributed" distribution, this does not affect your cost basis.
Your cost basis stays the same. Since you are getting money out of the
fund, the value of the fund will go down, so essentially your unrealized
taxable gains go down when you receive a distributed distribution. Once
you finally sell those shares, your gains are lower, than they would have
been, had you not received the distribution.
On the other hand, reinvested distributions do increase your cost basis.
Since you are putting more money into the fund (the reinvested $) your
basis increases. When you end up selling the shares of this fund, your
taxable capital gains will be lower, due to this increased cost basis.
In either case, reinvested or distributed, you end up having a lower
tax burden from the capital gains point of view, when you sell your shares.
This lowering of the gains is due to the distribution, which you of course
must also pay taxes on when you receive it.

An independent issue is recording the money into your cash account.
This should just be a purchase, not a reinvested distribution. Your cash
account did not pay a distribution, it just received the proceeds from
the fund's distribution.

Thanks,
Mark
--
Mark Beiley

Fund Manager for Windows 3.1x/95/98/NT

Replies:

• Re: Distributions Tim Gadd 17:16:12 12/24/99 (1)
  • Re: Distributions Mark 13:06:25 12/25/99 (0)