Vanguard Asset Allocation Fund tax distributions

The Vanguard Asset Allocation Fund is a questionable candidate for placement in taxable accounts. The fund uses a tactical asset allocation strategy to allocate its investments across three discrete asset classes:
 * 1) US stocks, as represented by the S&P 500 Index.
 * 2) US bonds, as represented by long term treasury bonds.
 * 3) US cash, as represented by money market instruments.

Since 2000, Vanguard has reported the shifts in the fund's tactical asset allocation.

The fund is one of the underlying funds in Vanguard's series of LifeStrategy funds. The inclusion of a tactical asset allocation component to these funds is a controversial topic among forum participants, who often criticize this investment policy.

Distributions
The following table provides long term data on the Vanguard Asset Allocation Fund's history of dividend and capital gains distributions. (Complete data extends back to 1994. The fund began operations in 1991 and distributed capital gains during its first three years of operations). Qualified dividend data (with the exception of unavailable figures for fiscal year 2005) are provided, as are data on the percentage of treasury and government security dividends (which are exempt from state and local income tax in most states). Vanguard provides government obligations data back to 2004.

The tax efficiency of the fund is very dependent on the existence of long term carryforward losses. The fund's carryforward losses from the two bear markets in the first decade of the twenty-first century have resulted in no taxable capital gains distributions since 2001. One should note that, without the benefit of loss carryforwards, the fund distributed considerable amounts of both short term and long term gains during the 1991 - 2000 bull market (see the second tab of Table 4 below for loss carryforward data).

Note:
 * Current attributes and distributions: Vanguard

Tactical asset allocation changes
The following table provides the fund's tactical asset changes since 2000. The fund has been managed from inception by Mellon Capital Management Corporation.