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Subject:  Re: Dividend Distributions and 401K Date:  12/24/1999  9:27 AM
Author:  TMFPixy Number:  16839 of 88772

Mphipps writes:

<<Hang up is this
Invesco, one of my 401k mutual funds, declared a distribution of around $3 per share.
Now is I held the shares in invest direct the amount of capital gains would be 27 shares time 3.
And the number of shares would increase. Next year no matter what the fund price if they declare a capital gains the share reinvested this year will contribute to the capital gains.
Under unitized shares I don't see the accounting that allows the reinvested shares from year to year being accounted for.
Why because you increase the share unit price. Its like not reinvested the capital gains. That money is not growing at the same rate as the other money reinvested into the fund.
Next year when investor delcared a per share distribution. What are you going to multiple by to add to my 401k account. Unitized increased the price not the number of shares.>>

From your description, it sounds as if you don't own the fund shares directly. Instead, the plan does. You own a portion of plan shares represented by its investment in the fund based on your proportional investment in relation to all other plan particpant's investment in that fund. When the fund pays a dividend, that goes to the plan based on the number of fund shares held by that plan. By law, the plan must distribute that dividend to its participants based on their proportional holdings of that fund. It can do so by issuing additional shares or by adjusting the unit value of the plan's shares that represent the plan's holdings in the fund. Regardless of how it handles the accounting, you still get your fair share of those dividends.

I sense you believe you are being cheated out of your share of the growth in the fund because the plan doesn't increase its shares on receipt of the dividends it receives. That just isn't so. If it were, the plan couldn't pass its annual audits plus the Department of Labor and perhaps the IRS would be prosecuting the trustees and anyone else with fiduciary responsibility in that plan. I don't know for sure -- and neither do you -- how that plan's accounting system handles this issue. However, your plan administrator does. Therefore, because you are so concerned, you should insist and keep on insisting that the procedures be explained to you until you understand them.

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