Using Investment Companies As A Service

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Investment companies must cater to their shareholders if they wish to be successful. Of course, the primary goals of investment companies are the investment objectives stated in their charters: capital gains, income, capital stability, or any one of various combinations thereof. Among the services and conveniences extended by investment companies in addition to accumulation plans that include:

1. One stock certificate. A diversified investment portfolio can be achieved while holding only one certificate. This avoids the necessity of handling numerous dividend checks and simplifies bookkeeping and record keeping for the stockholder and the broker concerned. Tax appraisals, estate valuations, raising cash for taxes and expenses, and division of assets among beneficiaries all are simplified.

2. Automatic investment of dividends. This may be done in several ways, depending upon the specific rules of the individual investment company. Some insist upon a stated minimum holding in order to qualify for automatic investment of dividends; some invest such income at the regular offering price and some at net asset value. In addition to income dividends, most investment companies distribute realized long-term capital gains dividends through an optional plan offering the stockholder a choice of receiving stock or cash. (No matter which way the dividend is received, taxes must be paid on the full amount.)

3. Withdrawal plans. These plans are offered by many investment companies, usually only to those who have a certain fixed amount of capital invested. Payments may be in fixed dollar amounts or may be variable, i.e. at a fixed percentage of the value of the particular shares at time of payment. The holder may determine to receive an amount which can be paid out of investment income or decide to receive at least a part of his regular withdrawal payment in the form of capital. Often, in fact, investors do decide on a method of planned exhaustion of earlier pay-ins of capital to meet fixed obligations of the future such as mortgage or educational payments.

4. Life insurance. Certain accumulation plans provide life insurance programs, deducting the cost thereof from the investor's regular monthly payment. Upon the death of an investor whose payments have been kept up, the plan can be completed and the beneficiary will receive the total number of shares that the completed plan provides. Insurance protection normally covers the difference between the total investment outlined in the contract and the total amount (exclusive of dividends reinvested) paid up until the time of death. As a result, the amount of insurance coverage and premiums due are steadily reduced by the amount invested.

5. Custodianship. The custodian bank for an investment company may hold in safekeeping the securities owned by the various shareholders. Although the shareholder may if he so desires have his shares delivered to him, it is often much safer and more convenient to have shares held by the custodian. Any chance of shares being lost, damaged, or destroyed is significantly less; and liquidation of holdings will usually be much more easily and rapidly effected.

6. Provision for beneficiaries. Many contractual plans make it possible for a plan holder to have his shares legally become the property of a previously named beneficiary upon the death of the plan holder. This simplifies various estate problems and places financial resources in the hands of beneficiaries shortly after death.

Although the services discussed herein are of secondary importance to the specific investment goals of the investment company and to the objectives of diversification, professional management and supervision, and continuous investment, they have been of value to shareholders, and may rightfully claim some of the credit for the growing popularity of investment company shares.

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