Funds Beginner: Earnings from Mutual Funds

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1.
Ordinary dividends are earned when a mutual fund sells securities for a profit.
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False. Capital gains dividends are earned in this way, but ordinary dividends are distributions of interest or dividends from the fund's holdings.
2.
Returns of capital are generally taxed at your ordinary income tax rate.
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False. They are generally not taxed at all. However, if the return of capital exceeds the amount of after-tax dollars invested (basis), then they can be taxed as a capital gain.
3.
A capital gain on a share held for five years will be taxed at a lower rate than a share held for four months.
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True. Once you have held a share for more than one year, your capital gains tax drops.
4.
Mutual funds earn money when investors buy and sell their shares.
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False. Mutual funds earn money when their underlying securities earn money.
5.
The confirmation statement sent to investors after a dividend reinvestment states all but which of the following?
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An investor's capital gains. Capital gain information arrives in a different notice.
6.
Because it is a sum, a total return is positive.
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False. If there has been a substantial loss in net asset value, the sum may be negative.