2016 Distribution Information
The Muhlenkamp Fund did not make anyor distributions in 2016.
Considerations for Dividend andDistributions
The goal of the Muhlenkamp Fund is to make our shareholders a good return after taxes and. This means minimizing the tax rate and postponing to the extent that it may be profitable.
How do we seek to “minimize the tax”?
We prefer long-term and qualified over short-term and ordinary . Here’s why:
• Long-term(earned from the sale of investments held longer than one year), along with qualified , are taxed at 0%, 15%, or 20% depending on your tax bracket; a 3.8% surtax is applicable to higher taxpayers.
• Short-term(earned from the sale of investments held for one year or less), along with ordinary , are subject to ordinary taxes, which range from 10%-39.6%.
Fund shareholders (except those with tax-deferred accounts such as an IRA, Roth IRA, Coverdell Education Savings Account, etc.) are required to pay taxes for the year the distributions are received. Accounts with distributions in excess of $10.00 receive IRS Form 1099-DIV, which is mailed at the beginning of the calendar year following the distribution.
What do you mean by “postponing
We believe the proper time to sell a security is when the underlying trend that drove its performance has matured. It’s much like growing tomatoes…
The whole point of planting tomatoes is to harvest ripe tomatoes, and the time to harvest them is when they’re no longer growing. Similarly, we believe the time to sell assets is when they’re no longer growing. In investing, the growing season is often 3-5 years or more. This often means that you pay the tax on the harvest in a year when theprice didn’t grow. (If you sell it while it’s still growing, you probably sold it too early.) The fact that Uncle Sam may claim a portion of your gain may be incidental to the process. Harvest the crop and celebrate!
Historically, during the period between mid-December and mid-January thetypically has positive returns (known as the January Effect). We have found that the strongest stocks during this period tend to have been the ones that did poorly prior to mid-December. In other words, we believe the absolute worst time to take tax losses may be mid-December (probably because so many others are selling to take a tax loss at that time). This is why we begin tax planning in August with a second round in October. Any losses visible in December, we would rather hold until January-February to get a start on the next year’s tax bill.
How are distributions paid?
Distributions are payable in one of two ways:
1. You may elect to receive a check for the amount of the distribution.
2. You may elect Automatic Reinvestment of Distributions, which will generate the purchase of additional Fund shares.
How is eligibility of distributions determined?
The following dates explain the timing of distributions and the shareholders who are eligible to receive them:
• Record Date: All shareholders of record at close of business on this day are eligible to receive the distribution payment.
• Ex-Dividend Date: The day on which the distribution amount is deducted from the Fund’s Net Value (NAV) or price. The Ex-Dividend Date is generally the business day after the record date.
• Payment Date: The day the Fund pays shareholders the distribution. For the Muhlenkamp Fund, the Payment Date is normally the same business day as the Ex-Dividend Date.
Do distributions affect the Fund’s Net
On the Ex-Dividend Date,and distributions cause the Fund’s NAV per to decrease by the amount of the distribution. This is not due to performance, but reflects the fact that you will have more shares in your account—or have received a check—due to the distribution. If you reinvest and distributions, your account value will not change, you will simply have more shares at a lower price per .
The distribution may look like a “paper shuffle,” but it’s one that allows the IRS to collect taxes; refer to the following hypothetical example:
Hypothetical Example of a $2.00 perDistribution*
|Before Distribution||After Distribution|
* Assumes the NAV orprice of the Fund does not change due to market activity.
: Market activity may also impact the Fund’s NAV on the Ex-Dividend date, so the total change in NAV per may be more or less than the distribution.
Do distributions affect the Fund’s
“” includes the amount of distributions ( and ) plus capital appreciation.
Why would the Fund make a
A distribution has no relationship to the Fund’s annual performance.
reflect appreciation over the full period that we owned the related assets (often 3-5 years or more), which is based on when and at what price the assets were originally purchased. Remember: We believe the time to harvest the crop is after it has stopped growing. So even though the Fund’s performance may be flat or down for the year, the sales of those assets can result in a distribution, particularly if they have been held for a long period of time.
We want to sell our companies’ stocks after they have gone up, and then use that money to buy the stocks of companies that are undervalued. If we do that well, we should be making distributions and paying taxes after the good years, not during them. (Even though the IRS operates on a one-year calendar cycle, the economy and the markets do not; therefore, neither do we.)
1. If you elect to receive a check for the amount of the distribution, theof your account will not change.
Let’s say you purchased 100 shares of a mutual fund with an NAV of $10 per : your is $1,000. Over time, the fund’s NAV increases to $12, and the fund pays $1 per in long-term . You will receive a check for $100 as the long-term distribution, and the fund’s NAV will drop to $11 per . Your , however, will remain at $10 per or $1,000.
2. If you elect to reinvest yourdistributions, they will add to the of your account—but are taxed only once. When you track and calculate the of your account, treat the reinvested distribution as another investment that you made out of pocket. This will increase your and lower your future tax bill.
Using the previous example, if the distribution of $100 is reinvested, the money will buy an additional 9.09 shares at $11 per . Your for owning the additional shares is $1,100: $1,000 (the original purchase price), plus the $100 that was reinvested.
What’s the relationship between reinvested distributions and wash-sale rules?
A wash-sale occurs when you realize a loss on the redemption of fund shares and, then, acquire shares of that same fund (in any account)—including the reinvestment of distributions—within a 30-day period before or after the transactions occur. In a wash-sale, the loss you realized on the sale or exchange is disallowed.
Continuing with our illustration…Let’s say the NAV of the 100 shares you purchased at $10 per (your is $1,000), declines by 30%. If you want to sell those shares to realize losses for tax purposes, you must sell those shares more than 30 days before, or 30 days after, the distribution’s Payment Date. If you sell the shares within that 61-day window (i.e. 30 days before the Payment Date, the Payment Date itself, or 30 days after the Payment Date), the loss will be disallowed under the wash-sale rules.
Can distributions affect Adjusted Gross
The distribution in a taxable account is included in your AGI and may increase the tax you owe on the rest of your. The distribution may also subject you to the Alternative Minimum Tax (AMT), or may change what you should be paying in quarterly estimated taxes. This is especially relevant for people with large accounts worth tens or hundreds of thousands of dollars.
Also, Medicare participants pay a premium each month for Part B (Medical Insurance). While most people pay the standard premium amount, if your Modified Adjusted Gross(MAGI) as reported on your IRS tax return from two years ago is above a certain amount, you may be subject to an Related Monthly Adjustment Amount (IRMAA). IRMAA is an extra charge added to your premium.
: The MAGI on the 2015 tax return will determine the Part B premium in 2017. This can also impact the premiums for Part D drug plans and Medigap Plans.
Please call us at (877) 935-5520 extension 4, if you have any questions regarding distributions, or anything else regarding your account(s). We appreciate the confidence you have placed in us.
Any tax or legal information provided is merely a summary of our understanding and interpretation of some of the currenttax regulations and is not exhaustive. Investors must consult their tax adviser or legal counsel for advice and information concerning their particular situation. Neither the Fund nor any of its representatives may give legal or tax advice.
This information is for informational purposes only and is not intended as tax advice.
The Muhlenkamp Fund is distributed by Quasar Distributors, LLC.