Interestingly enough, this long-term tax advantage could have been even more significant had the Vanguard 500 distributed long-term capital
gains over the period 2000 to 2003. One plausible explanation can be stated as follows: the long bull market of the 1990s generated record unrealized capital gains in mutual funds. As expected, Table 5.3 shows that the Vanguard 500's distributions per share steadily increased over those years. For example, the difference between the 1999 total, when taxable capital gains distributions per share culminated to $0.92000, and the total for the prior year ($0.33500), is $0.585 per share, or 174.6% higher.
Those gains were, however, wiped out in 2000, the first year of the bear market. Although the bear market "officially" ended in March 2003, Table 5.3 shows that VFINX did not distribute any gains in the remaining quarters of 2003, in spite of an overall significant positive performance for that year. Obviously, and as explained in Chapter 4, the unrealized losses were carried forward to offset profits. Considering that losses can be carried forward for up to five years, one should not be surprised if the significant losses incurred in the early 2000s will continue to be carried forward in the years to come, henceforth reducing the Long-term capital gains tax advantages of the SPDR 500 over the Vanguard 500.
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