Yes, I agree you could do it that way. But if someone buys 1 fund, such
as the Vanguard 500 Index, are they really diversified? I guess what
the later posters wrote makes sense--to use either a life strategy fund
or the STAR fund as one holding.

I wrote:
- quote -

Morningstar writes: "The market appears to prefer cash distributions, as
do we ..."
http://www.beearly.com/pdfFiles/2005...pril%20MDI.pdf

This makes some sense.

If you hold KMP directly (it is an LLC, but behaves the same as an LP),
you get cash distributions (via the K1) that are largely non-taxable.
This is because, while KMP has a revenue stream, it is simultaneously
depreciating assets, so it nets little profit (on paper). The
distributions are treated as return of principal, and are thus
non-taxable.

So, if you hold KMP directly, you have access to cash (which you are
free to reinvest or do anything else you want with). When you sell your
shares, you pay signficant capital gains (because you have gradually
reduced your basis via the return of principal).

If you hold KMR, then you avoid the K1 paperwork; the downside is that
you don't get the cash - you get shares instead, even if you would have
preferred using the cash elsewhere (e.g. you found a better investment
elsewhere). Thus the discount. (Your basis is not reduced by the
amount of the distribution, as with KMP, because you have effectively
plowed that distribution back into the investment; but you have more
shares, that represent the same deferred gain.)

--
Mark Freeland
nBeOwXs[at]pacbell.net

zxcvbob wrote:
- quote -

Thanks. That helps a lot.

According to its prospectus, KMR is technically not a fund at all, but a
corporation, subject to corporate taxes. A mutual fund (including an
ETF) is not taxed at the investment company (fund) level, but passes its
tax liabilities through to its shareholders. A corporation, on the
other hand, pays taxes on its income, and the shareholders are shielded
from taxes to the extent that the company retains earnings.

See p. 105 of its prospectus:
http://www.freeedgar.com/EdgarConstr...85k2e424b1.txt

"NO FLOW-THROUGH OF TAXABLE INCOME OF Kinder Morgan Management, LLC.
Because we will be treated as a corporation for federal income tax
purposes, an owner of shares will not report on its federal income tax
return any of our items of income, gain, loss and deduction."

But at the same time, on p. 104:
"An election has been made with the IRS to treat us as a corporation for
federal income tax purposes. Thus, we will be subject to federal income
tax on our taxable income at tax rates up to 35%."

The bottom line, as SmartMoney notes, is that "because MLP funds [corps
owning limited partnerships, like KMR owning KMP] pay taxes, they should
yield less than a do-it-yourself MLP portfolio [owning KMP directly]".
http://smartmoney.com/sturmscreen/in...?story=may2005

- quote -

I don't know why either, but the discount only appeared once KMR gave up
the right of shareholders to exchange their shares for KMP (which would
obviously keep the share prices at rough parity).
http://www.kindermorgan.com/investor...evelopment.pdf
(See slide 11.)

As the presentation points out (and owners of CEFs trading at discounts
know), the discount means that the yield is even higher than for the
underlying LLC (KMP). An interesting investment vehicle. Thanks.

--
Mark Freeland
nBeOwXs[at]pacbell.net

Mark Freeland wrote:
- quote -


Note to moderator: Sorry, I couldn't find anything to trim. It was all
relevant.

The fund is KMR, it is wholely invested in KMP, Kinger Morgan Pipeline
limited partnership. The ETF shields investors from all the complicated
K1 tax stuff. All distributions are payed in the form of "stock
dividends", which are just like a stock split -- not taxable. And to
top it off, for some inexplicable reason, KMR trades at a discount to KMP.

Best regards,
Bob

zxcvbob wrote:
- quote -

I believe that all distributions are taxable, regardless of the form in
which they are received. I do appreciate the distinction you are
drawing between distribution *in shares* and distributions that are
*reinvested* in shares - for tax purposes, these are substantially
indistinguishable.

For example, from Pioneer's Floating Rate Trust (an exchange traded
closed end fund) prospectus:
http://www.pioneerfunds.com/misc/pdf...ate_abc_pr.pdf

"Shareholders receiving a distribution in the form of additional shares
issued by the Fund will be treated for U.S. federal income tax purposes
as receiving a distribution in an amount equal to the amount of cash
they would have received had they elected to receive cash, except when
the Fund distributes newly issued shares, in which case the amount of
the distribution will be equal to the fair market value of the shares
received, determined as of the distribution date." (p. 60)

Or from John Hancock Preferred Income Fund III prospectus,
http://www.secinfo.com/dUQQm.269.htm#3crl
one reads nearly identical wording:

"Shareholders receiving distributions in the form of additional shares
issued by the Fund will be treated for federal income tax purposes as
receiving a distribution in an amount equal to the amount of cash they
would have received had they elected to receive cash, except when the
Fund distributes newly issued shares, in which case the amount of the
distribution will be equal to the fair market value of the shares
received, determined as of the distribution date."

Does your prospectus have similar wording, or talk about distributions
in shares, to compare with these funds?
--
Mark Freeland
nBeOwXs[at]pacbell.net

Tom B. wrote:

- quote -

At Scottrade, mutual fund dividends and distributions can be either
reinvested or paid out. You choose when you purchase the fund.
Fractional shares are kept track of.

Stocks, on the other hand, are only dealt with in whole shares and any
fractions are automatically sold and distributed as "cash-in-leau". No
automatic reinvestment of anything. I wish they tracked fractional
shares because I own one ETF in my taxable account that pays all
distributions in new shares (thus a distribution is not a taxable event
except for the fractions received CIL.)

Best regards,
Bob

"HW "Skip" Weldon" <skip5700removethis[at]hotmail.com> wrote in message
news:6du17119tmm7rgp2av1ej7muq3apriak3l[at]4ax.com...
- quote -

Good point, Skip. There are also Life Strategy funds, again, funds of funds.
In this case, the underlying funds are both index funds and one actively
managed fund. And, as Rich points out, no fees for this fund except those of
the underlying funds.

Elizabeth Richardson

"HW \"Skip\" Weldon" <skip5700removethis[at]hotmail.com> writes:

- quote -

And at least the last time I looked, VGSTX does *not* pyramid
expense ratios. VGSTX does (or at least used to) have a zero
expense ratio, so you only get hit with the MERs of the underlying
funds with nothing extra tacked on.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

On Thu, 28 Apr 2005 08:43:44 CST, "Elizabeth Richardson"
<erichktn[at]worldnet.att.net> wrote:

- quote -

While it isn't an index fund, Vanguard's Star Fund (VGSTX) is a "fund
of funds" yet for fees purposes is only one fund. It offers an
economical way to get diversity.

-HW "Skip" Weldon
Columbia, SC

"Tom B." <tbridgeport56[at]gmail.com> wrote in message
news:1114660009.531267.269720[at]o13g2000cwo.googlegroups.com...
- quote -

When you have such a small holding, why would you split among several funds?
The point is diversification, I know, but until you have a larger amount
invested, one index fund should be sufficient. In other words, start with
one core holding, build it, then diversify by adding a second fund, etc.
Shouldn't this be the strategy, especially when using index funds versus
actively managed funds?

Elizabeth Richardson

One downside with Scott Trade: I could be wrong, but I do not believe
that have an automatic dividend reinvestment program, which I think is
an important consideration long term.

Also, keep in mind that one possibility is to start the IRA at one
brokerage, and then later move it to another. The first brokerage does
charge a transfer out fee (usually $50 to $75). One potential strategy
would be to start at a deep discounter like Scott Trade, then after 3-4
years, when you have more assets, switch to Vanguard or Fidelity.

I guss with Vanguard it all depends on how many funds you want to own.
As the others have pointed out, the charge is $10 PER INDEX FUND under
$5,000. So if you split your $4,000 initial contribution 4 ways you'd
being paying $40 a year, or 1% of the initial assets, in fees for at
least several years.

Elizabeth Richardson wrote:
- quote -


Don't forget about the additional $10/year account maintenance fee if
you have less than $10,000 in index funds. You'd be paying $20/year if
you started your IRA with a Vanguard Total Market Index Fund.

- quote -

Sure, I agree that Vanguard's fees are very low. But the expense ratios
on Vanguard's mutual funds are higher than for ETFs. Let's take an
example where you have $20,000 invested in Total Stock Market mutual
fund. You're paying 0.19% for expense ratio, which comes out to $38. If
you bought Vanguard's Total Stock Market VIPER through Scottrade, then
you pay 0.13% for expense ratio ($26) + $7 commission, which comes out
to $33.

bo peep wrote:
- quote -

1. The $5,000 limit is PER FUND. So if you plan on doing asset
allocation more than one fund, it may take a while to get above that
point PER FUND.

2. For index funds (such as Total Market Index Fund), there is an
additional $10 annual account maintenance fee if your funds are less
than $10,000 PER FUND.

"Bucky" <uw_badgers[at]email.com> wrote in message
news:1114337774.150632.183650[at]g14g2000cwa.googlegroups.com...
- quote -

And how many purchases will you make annually that generates this $7 fee? If
it's 2 purchases, you've already paid more than the Vanguard annual fee. As
someone else pointed out, the fee is charged only on those accounts where
the fund has less than $5000, so you'd likely not be paying that after the
2nd year. Also, no fee is charged when the account, or a person's total
assets with Vanguard, exceeds $50,000. Vanguard's fees are so low as to be
not much of a consideration, in my opinion.

Elizabeth Richardson

bc2 wrote:
- quote -

I think all 3 are good. I know what you mean by Vanguard's maintenance
fees. You can avoid them by buying Vanguard ETFs with a Scottrade
account, then you just pay a one-time $7 trade commission, but no
Vanguard maintenance fee. If you want a no-brainer, just get VTI (total
market viper) and be done with it.

<<I don't want to get stuck with the maintenance fees of Vanguard>
According to the Vanguard web site, they charge "$10 annual custodial
fee on each fund in your Roth IRA with a balance of less than $5,000".
That seems quite reasonable to me. Also, if you are contributing
significant amounts, it should not take long to get to $5k.

John Cowart

bc2 wrote:

- quote -

I like the idea of a broker that will allow you the ability to trade in
stocks and options in additional to the mutual funds.

--
Ron

Hi everybody,

I am 21 years old and just finishing college. I intend to open a Roth IRA
soon. I was looking around at various places, including Vanguard,
Fidelity, and Scottrade. All have pros and cons, but I was wondering if
there was a general consensus on where a beginning IRA investor should
open the account. I don't want to get stuck with the maintenance fees of
Vanguard, while I like their low-cost managed funds. Scottrade's is
totally free, but the fund selection is limited. And Fidelity is probably
somewhere in between. So, what advice do you have for me? I'll listen to
anything... brokerages, asset allocation ideas, whatever. I'm here to
learn. Thanks in advance!