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Investors have seen their mutual funds’ values plummet 35 percent, on average, over the past year, said Dave Carpenter in the Associated Press. Yet many will be getting a tax bill for

distributions and dividends paid out in 2008. How is this possible? “Even though a fund’s value has declined, it may have realized capital gains over the course of the year—profits from

selling specific securities in the portfolio.” In particular, many mutual funds sold off holdings in September and October, when investors pulling billions of dollars out of funds triggered

“ill-timed distributions.” Even if you didn’t cash out, you’re still on the hook for taxes they incurred. “Talk about kicking investors when they’re down.” Mutual funds that invest in

foreign stocks were among the “worst offenders,” said Daren Fonda in _SmartMoney._ “Many of these funds soared in recent years, creating big gains that are just now being passed on to

shareholders.” Oppenheimer’s Developing Markets fund paid out a whopping 36 percent of its net assets in capital gains in 2008. Most fund managers generally don’t consider the tax

consequences before buying and selling securities, says Morningstar’s Christine Benz. But some fund companies, including Vanguard and Eaton Vance, do offer so-called tax-managed funds

designed to keep taxes to a minimum. “Investors may want to switch if they’re getting walloped.” Fortunately, taxes aren’t an issue for investments that are sheltered in retirement accounts,

such as 401(k)s or IRAs, said Jan M. Rosen in _The New York Times._ “The income can grow tax-free until retirement, when distributions are taxed at regular rates.” Morningstar’s Benz

recommends putting funds that tend to rack up big tax bills in a tax-sheltered account, and sticking with index funds or other tax-efficient funds in your taxable accounts. Meanwhile, take

some comfort in the fact that taxes on capital gains and qualified dividends are historically low right now. “For most shareholders, the rate is 15 percent, and some will escape the tax

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