investment company outline

pipeline theory:

• allow dividends and interest to flow through to investment company to holder without taxation when investment co. holds it.

Mutual fund distributions

·        Capital gains-buy and sell held investments at a profit

·        Net investment income-interest and dividends give individuals income

·        Dividends, distributions of net investment income

·        Dividend distributions NOT called capital gains

Dividend and interest distributions

·        Part of shareholder income

·        Paid every month

·        Taxed at 15% or at ordinary income

Capital gains distributions

·        Tax on profit from selling shares

·        Taxed as long term gain ALWAYs

Mutual fund yield

·        Yield=dividend from current year/current offer price

An open-end investment company has a dividend of $1.20 per year and a capital gains distribution of $0.50. The offer price at the time of purchase is $22.40 and the net asset value is $21.05 based on a minimum investment. Assuming a minimum investment, what is the yield of the investment company?

·        1.20/22.40

·        5.36% yield

Ex dividend date

·        Record date, individuals who own shares by this time get dividend

·        Ex-dividend date, record date+1 business day, day on OR after-individuals are not entitled to dividend

·        Selling dividends, Registered representatives cannot sell security right before ex-dividend because security pays a dividend