Developed Markets Fund Merger

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jidina80
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Joined: Wed Feb 24, 2010 4:05 pm
Location: Fiji

Developed Markets Fund Merger

Post by jidina80 »

Will the merger of Vanguard Developed Markets Fund into Vanguard International Tax Managed Fund likely to have any unfavorable tax consequences for investors as a result of the merger? I browsed the "Important Information" document that Vanguard sent, but did not find the answer to such an important question front and center.( http://www.vanguard.com/pdf/PROXYDM.pdf )

I also wrote Vanguard, but received the following weak response:
"It is nice to hear from you .Anytime there is a merger there is a
possibility that there will be gains generated.

How much, if any, we don't know at this time.

Sorry, this is the only information available. As soon as I hear anything I
will let you know.

Sincerely,
"
I'm not concerned about minor taxable gains, but as a long-term investor I have huge unrealized gains. For instance, will its 'final distribution' be larger than usual? I find it incredible that Vanguard doesn't know whether the merger itself is likely to generate significant taxable income for investors. Does anyone have a clue?
livesoft
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Re: Developed Markets Fund Merger

Post by livesoft »

It might depend on how many shareholders bail out beforehand.
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FillorKill
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Re: Developed Markets Fund Merger

Post by FillorKill »

From that .pdf you attached:

"The proposed exchange of shares is expected to be accomplished on a tax-free basis.
Accordingly, we anticipate that Developed Markets Fund shareholders will not realize
any capital gains or losses from the reorganization
. However, you should pay close
attention to these points:
Final distribution. Prior to the reorganization, the Developed Markets Fund will
distribute any remaining undistributed net income and/or realized capital gains
. These
distributions generally will be taxable to you.**"

For the fund right now (VDMAX)
Realized/unrealized gains as of 01/31/2014

Realized capital gain/loss –$2.46
Realized capital gain/loss as a % of NAV –7.75%

Looks like they will pay a div of whatever income is on the books (I don't see how this would be an abnormally large amount) but probably no cap gain as they had a loss on the books as of 01/31/14 but you just won't know for sure until the dust settles.
FillorKill
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Re: Developed Markets Fund Merger

Post by FillorKill »

IMO the final distribution will be small. This fund distributed annually and that just happened in December. Even the broad VG international funds that started paying on a quarterly basis distribute a very small dividend first quarter - a good proxy for the income on their books first quarter.

IMO a small dividend and no cap gain distribution IAW the merger for VDMAX holders.
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rob
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Re: Developed Markets Fund Merger

Post by rob »

jidina80 wrote:Will the merger of Vanguard Developed Markets Fund into Vanguard International Tax Managed Fund likely to have any unfavorable tax consequences for investors as a result of the merger?
It absolutely will for those us us in the Tax Managed fund - The removal of the tax management features for the future and the dropping from 100% to 75% tax preferred dividends will increase the tax drag on the fund. From an investor currently in the index fund - no real difference. Vanguard does not seem to want to talk about this topic.......

See http://www.bogleheads.org/forum/viewtop ... 0&t=134313
| Rob | Its a dangerous business going out your front door. - J.R.R.Tolkien
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Taylor Larimore
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The Serenity Prayer

Post by Taylor Larimore »

God grant me the serenity to accept the things I cannot change; courage to change the things I can; and wisdom to know the difference.
Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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rob
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Re: The Serenity Prayer

Post by rob »

Taylor Larimore wrote:
God grant me the serenity to accept the things I cannot change; courage to change the things I can; and wisdom to know the difference.
Best wishes.
Taylor
With due respect.. I know the difference very well. That does not mean that I cannot make my objections known and reevaluate my investing plans within logical bounds based on Vanguards actions. While I don't like some of Vanguard methods and procedures, this is the first time I honestly distrust their actions; and that is a shock to me..... There is just NO information provided on the rationale for this LARGE change to the tax managed fund. Possibly, it's a justifiable change, but they should make that information public if that's the case.

I would think changing fundamental fund objectives - especially for a purpose built taxable fund - would give others pause also.
| Rob | Its a dangerous business going out your front door. - J.R.R.Tolkien
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jidina80
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Re: The Serenity Prayer

Post by jidina80 »

Taylor Larimore wrote:
God grant me the serenity to accept the things I cannot change; courage to change the things I can; and wisdom to know the difference.
Best wishes.
Taylor
Taylor, I don't know where you're coming from with that kind of comment, but I try to tax-manage my income as a retiree and can't afford any big surprises in taxable income. I'm surprised Vanguard won't just come out and say that the whole merger will not significantly affect one's U.S. federal income tax, or simply tell me that it will.

As one who was surprised by Vanguard's Total Bond Market Index Fund's over-exposure to Enron and WorldCom, causing a huge hit in 2002, way more than the total market, I am a bit wary.
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