Understanding 2011 Distribution Estimates

Understanding 2011 Distribution Estimates

We recently posted 2011 distribution estimates of income and capital gains for our open-end funds. Some estimates of capital gain distributions are higher than their historical averages, and also occur in a year characterized by extreme volatility and thus-far negative or low returns. It’s important to note that distributions and returns are not always directly correlated in short-term periods such as one or two years. In fact, it’s possible for low distribution levels to occur in higher return years and larger distributions to be paid in lower or even negative return years.

Annually, mutual funds are required to distribute effectively all of their net realized capital gains. The Funds’ distributions in any year consist of net investment income and/or net short-term and long-term gains realized by the Funds between November 1 of the previous calendar year and the end of October of the current year. (So long-term capital gains distributed in December 2011 were realized between November 1, 2010 and October 31, 2011.)

In 2009 and 2010, the equity markets enjoyed stellar returns coming out of the difficult bear market that began in July 2007 and became particularly dire between September 2008 and March 2009. As active managers, we are always making efforts to position our portfolios for success in the years ahead. Part of this work involves selling shares of companies that have reached or exceeded our sell targets in order to pursue other opportunities. Over the last 12 months, these activities led to substantial net realized gains in certain portfolios. It should be noted that in all of the Funds we have made every effort to manage the level of capital gain distributions by realizing losses to the extent we considered desirable.

Although we do not manage portfolios with tax efficiency as a goal, our long-term buy-and-hold approach has generally resulted in relatively lower distributions to shareholders than would otherwise be the case. Our disciplined approach remains the same, even as the market’s tumultuous direction in 2011 has led to some Fund distribution levels being higher than we would ideally prefer.

View 2011 Distribution Estimates