The dividends and interest earned by a mutual fund on its investment is income. Most equity funds distribute income quarterly. When a fund sells an investment security for a higher price than originally paid, the fund has a gain. When an investment security is sold for a lower price than originally paid, the fund has a loss. If the investment security is held by the fund for more than one year, the gain or loss will be a long-term capital gain or loss. If the investment security is held for less than one year, the gain or loss will be a short-term capital gain. Gains and losses are netted together and when the mutual fund has a net gain, that gain is usually distributed to the shareholder once a year.

An excellent research source to use when making investment decisions is the mutual fund's ticker symbol. To use this valuable research tool, go to Internet financial search engines such as Finance.Yahoo.com, Finance.Google.com. and insert the funds ticker symbol for quotes. A wealth of data such as the mutual fund company profile, purchase requirement, current performance, past performance, common stock holdings, bond holdings, etc. will be readily provided.

Here is a "hypothetical" Distribution/Reinvestment Model of a mutual fund investment.  March 31 distribution of $0.15 was given every shareholder of record. The closing Net Asset Value (NAV) was $31.50 after discounting the distribution.  Further on June 28, 2010 distribution of $0.10 was given every shareholder of record.  The closing Net Asset Value (NAV) was $30.00.

Investment Category: Small-Cap Value

Initial Purchase: $2,500 1/4/2010

Net Asset Value: $30.00

Maximum sales fees: 5.00%

Investment Value: $2,375.00 (-5.00%)

Shares purchased: 79.1666

Risk: High

1. 3/31/2010 Distribution of income $0.15 per  share

• Total value of distribution $11.875
• Additional shares gained/reinvested: 0.3769
• Total shares owned:  79.5435
• Net Asset Value:  $31.50
• Total Performance:  $31.50 x 79.5435 $2,505.62 0.22%

2. 6/28/2010 Distribution of income $0.10 per share

• Total value of distribution $7.954
• Additional shares gained and reinvested: 0.2651
• Total shares owned: 79.8086
• Net Asset Value:  $30.00
• Total Performance:  $30.00 x 79.8086 $2,394.25 -4.22%

3.  Net Asset Value as of 8/27/2007  $31.80

• Total Performance $31.80 + $.25 $32.05 - $30.00) 6.83%
• Total Return (investment $2,500 - $31.80 x 79.8086) 1.51% 

Total Return on Investment: $2,537.91 1.51% 

Mutual fund performances cannot guarantee future results. Always contact the mutual fund and read the prospectus before making an investment.