Funds Beginner: Earnings from Mutual Funds

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1.
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.
2.
Total return includes capital gains distributions.
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True. Capital gains distributions are dividends.
3.
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.
4.
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.
5.
Which of the following is not a dividend?
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The sale of a mutual fund share. When individual shareholders sell their shares, these shares are not dividends.
6.
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.