Excerpted from Bogle on Mutual Funds by John C. Bogle, pages 214
"You should not purchase the shares of a mutual fund without being aware of two highly significant figures: (1) the capital gains that have been realized but not yet distributed by the fund and (2) the unrealized capital appreciation or depreciation in the fund's portfolio. Both figures should be available on request from the fund's sponsor.
1. Realized capital gains." NOT relevant here
2. "Unrealized capital gains. You should also be aware of the amount of unrealized gains in the fund's portfolio, which may later be translated into taxable realized gains, or unrealized losses which may be used to offset future realized capital gains. If you purchase shares in a fund with a $10.00 net asset value and a cost basis of $8.00 per share, ultimately the $2.00 gain is likely to be realized and distributed, and you will be subject to taxes when it is. Alternatively, if the net asset value is $10.00 and the cost basis is $12.00, the fund can (during the subsequent five years) realize $2.00 of gains, none of which need be distributed or taxed. In an extreme example, assuming each fund realized an additional $2.00 of gains, the first fund might distribute $4.00 of gains and the latter nothing. Although most comparisons are unlikely to be that extreme, you should consider the potential tax liability or the potential tax benefit of a fund, by ascertaining the cost basis of the fund's shares."
I asked Vanguard about this by phone - how much unrealized capital gains (which could be taxed) are in the fund, but couldn't exactly get my question across to them. Does anybody know or know where to find out? Would investing in a Vanguard 500 ETF make any difference?