Fund Q

[Marshac]

Quick question for all y'all seasoned investors out there...

My 401k is managed by ICMA, and I had some questions about dividends... mainly where were they? I have sent several emails to ICMA, and got a few different questions back. First responce said that they would show up as "contributions".... awesome if this were true....sadly, I have been watching my "contributions", and it's only my money going in, no dividends. Again, I emailed ICMA, and this time they said that the dividends are reflected in the share price of the funds.... what the heck? does this mean that they are buying more stocks to add to the fund using the dividends and simply raising the fund prices to match?

If this second method is indeed true, then wouldn't folks with larger portfolios lose out since their dividends are diluted across all of the fund shares? It's late, and I may not be thinking clearly right now, but this seems a little shafty. I need to call them up and find out exactly what's going on....anyone have any thoughts?

[charlie]

Marshac, my guess is that your investment may
not declare dividends very often or maybe never.
If that is the case, the NAV of the "fund", if that is
what it is, will reflect reinvested dividends. If
dividends are declared, then you will see a drop
in the NAV and your next report should show
your reinvested dividends.

Cheers,

Charlie

[cute fuzzy bunny]

Yeah reinvested dividends dont show up in 401k/ira's sometimes. Sometimes you dont even get them as that may be where the plan manager takes their expenses so you dont see a line item on a report and get cranky about how much it is.

As far as 'seasoned investor', I was going to say something about not being seasoned as I like to let people season me with whatever they want before they eat me, but I dont have time for that kind of fooling about today...

TH, where have you been man? I've had to shoulder
the burden of keeping the fun going all by myself
(well, C-T helped a little).

JG

[ESRBob]

Welcome back TH!
Marsha, echoing TH's comments, I have heard some of these operations pay themselves their management fee out of your dividends first, and then give you anything that is left over. *It must feel like a painless way to get their 1.5-2% of assets as most people are not as astute as you to ask this sort of question.

Not sure if this is your situation at all, but it might bear.

[wzd]

When I had money in a "Lucent stock fund" as one of the 401k options when I worked at Lucent (not a lot, and not a real good idea....), they ran the fund in a strange, hard to track way. The reason was that the fund was a mutual fund holding Lucent stock. The fund NAV did NOT track the stock price directly, but it did track it. Think of it this way: You invest $1000 when stock is $10 per share. Seems you own 100 shares. But you own 40 shares of the fund at $25 each. The stock goes up to 11. Now you own 40 shares at 27.50. Each share is 2.5 shares of stock. The next day the stock issues a dividend of .10 and the share price drops to 10.90 (I know, it usually is not quite that clean..). The dividends are used to purchase more stock, and now you still own 40 shares of the fund, at $27.50 each. But that 40 shares of the fund represents 100.917 shares of stock at 10.90 each. Wonderful to track isn't it.

Now the commision confusion - and you could think of the dividend as paying it, but the accounting is usually seperate if you get plan statements. (not your 401k statement but the fund statement). Periodically, the fund will deduct its fee. If their fee is 1% per period (quarter, year, you chose), then they get 1% of the NAV. As of the day before they deduct their fee, you owned 40 shares of the fund at 27.50 each which represents 100.917 shares of stock at 10.90 each, for a value of $1100. The 1% fee would be $11, so the new value of your account is $1089, or 40 shares of the fund at $27.225 which represents 99.908 shares at $10.90 each. In effect they redeemed some stock to pay their fee, although in reality, the fund is not fully invested, and your 40 shares really represent some stock and some cash (and they took some of the cash).

Now doesn't that sound like a mutual fund? Get the annual statement for the fund, a calculator, and you can see the gory details. You probably will also need a glass of Scotch or your favorite beverage to fix your attitude afterwards.

Wayne

I was always amazed at how our 401K company hid their fees on the statements they issued to us. (When I was employed) Shares of my mutual fund just disappeared from one statement to the next.

When I complained to our CEO (He had no Clue), He called them on it. I told him, that if our software produced statements like this our clients would have 'hanged' us.

[Marshac]

Quote:

Now doesn't that sound like a mutual fund? *Get the annual statement for the fund, a calculator, and you can see the gory details. *You probably will also need a glass of Scotch or your favorite beverage to fix your attitude afterwards.

FUNd is right.

Thanks for that very complete answer... I think you're right on the money as to what's going on.

So why is this method preferable to directly depositing the divs into my account as a "contribution"? Is it simply for the purposes of deception and obfuscation?

[wzd]

Quote:

So why is this method preferable to directly depositing the divs into my account as a "contribution"? Is it simply for the purposes of deception and obfuscation?

That may be. There may be some recordkeeping or reduction in admin costs arguments though. Your number of shares and individual statement will not change, only the NAV of a share changes, when dividend or plan fee events occur. So there is one stock holding, one dividend payment, and thats it. Versus 2000 fractional stock holdings, 2000 dividends to process, etc. But my old ESOP plan did it the way you mention, with dividends shown as an additional investment in fractional shares, so it certainly can be done. My guess would be historical, when the recordkeeping was more expensive, stock trades were more expensive, etc. But I do like your answer better