Investors can't win for losing in the year-end mutual fund game of Dodge the Distributions.

If they buy shares of a fund just before it makes an annual capital-gains payout, they get stuck with a tax bill for gains in which they didn't participate.

If, instead, they sit tight and wait until after the distribution to buy, they risk missing out on a market move during what has lately been the best time of the year for stocks.

It's a predicament that makes a compelling case for changing the tax rules covering capital-gains distributions. All that is needed is to allow taxable investors to defer taxes on the payouts when they reinvest the money, as almost all of them do.

Proposals for such a change have been made repeatedly in Congress. But they never get far in the uproar that always surrounds discussions of the tax system. So the dodge-'em game goes on for another round in the waning weeks of 2005.

What's the harm, and to whom? According to the latest industry census, 51.8 million U.S. households own stock mutual funds, and 61 percent of those households have at least some of those fund shares outside tax-sheltered employer plans.

That's about 31.6 million families. The same census, reported last month by the Investment Company Institute and the Securities Industry Association, says the median household income of equity investors is $65,000.

So this is hardly some wealthy elite we're talking about. The burden of this problem falls squarely on ordinary people.

Mutual funds, which are owned by their investors, don't have to pay income taxes themselves as long as they pass substantially all their investment earnings to those investors. Many of those distributions are made in early to mid-December, and most investors have arrangements set up for the distributions to be reinvested in the funds.

The hitch is that if they hold their shares in taxable accounts, they are hit with a current capital-gains tax obligation of as much as 15 percent on the distribution (more if any of the gains are short-term, or if state taxes apply). The problem can be compounded for investors who make regular purchases of fund shares, as many do, if they add to their holdings just before the distribution is made.

Hence the standard advice: Don't buy a distribution. If you're planning an additional investment, wait until afterward to buy.

Unfortunately, that strategy can cost you more in missed opportunities than any taxes you may save.

Suppose you decided around mid-October last year that you wanted to put $10,000 in the Hypothetical Fund, and then noticed that the fund was planning a year-end gains distribution amounting to 5 percent of its assets.

In order to avoid a taxable distribution of $500 on your $10,000, you held back until mid-December. Well, as it happened last year, the Standard & Poor's 500-stock index jumped 10.4 percent, and the Nasdaq composite index 13 percent, between Oct. 22 and Dec. 15.

That turned out to be all the Nasdaq's gain, and almost all the S&P 500's gain, for the whole year. The Nasdaq finished 2004 with a net total return of 9.1 percent, the S&P 500 with 10.9 percent.

If the Hypothetical Fund posted a 10 percent return in the late October-mid-December stretch, you gave up $1,000 in paper profits to duck a distribution half that size. On that distribution you might have owed $75 to $125 in taxes, depending on which state you live in.

Also, the amount you reinvest increases your so-called cost basis, reducing the tax bill you will owe when you eventually sell your investment.

Last year may not have been typical. Let's look at what has happened in 2005. From Oct. 18 through Nov. 25, the S&P 500 climbed 7.9 percent and the Nasdaq composite 10.2 percent.

Again this year, that's a lot to give up to save yourself a tax headache. As long as fund tax rules remain the way they stand now, investors will find themselves vulnerable to this kind of can't-win situation.