1. Global vs. International Global – includes U.S. International – does not include U.S. Diversification with U.S. stocks

2. Global Categories Large, developed economies U.K., France, Germany, Japan Second tier markets South Korea, Switzerland, Belgium Emerging or Developing markets Brazil, China, Russia, India

3. Issues in International Funds Investment issues Analysis is more difficult Trading costs Usually higher Regulatory issues May prohibit foreign investors Even if allowed, often more difficult, limited foreign ownership

4. Currency risk Bad if dollar strengthens Good if dollar weakens Political risk Operational risk Less developed markets More fraud

5. Unit Investment Trusts Generally bought and sold through brokerages Generally passive, bond, often tax-free bond Generally for large investors Generally long-term 10+ years

6. UIT Negatives Front end load as high as 5.5% Sponsors (broker) often has market Spreads from 1.5% to 5.5% “Dribble back” of principal as bonds redeemed No manager to restructure if needed Available information is limited

7. New UIT Short term 1 year even Example: Dogs of the Dow Highest 10 dividend Dow stocks Jan 1 to Dec 31

8. Exchange Traded Funds (ETF) Hybrid UIT and closed end fund Generally indexed Possibility of actively managed Low management fee

9. Advantages Trade during day Short sell Margin Limit order No load – transaction fee

10. Sale price can differ from NAV Generally close because of arbitrage – redeem or create shares

11. ETF Names Diamonds – DJIA Spyders – S&P 500 Cubes – NASDAQ 100 WEBS – World Equity Benchmark Series iShares – Barclays Global Investor HOLDRS – sector Vipers – Vanguard Real assets – Gold & Silver http://www.amex.com

12. Mutual Fund Abuses Late trading Front running

13. StockSharesP0P0 P1P1 X500$20$40 Y300$30$31 Cash$0 Shares1,000 Total assets$19,000$29,300 NAV$19.00$29.30 Return = ($29.30 – 19.00) / $19.00 = 54.20%

14. StockSharesP0P0 P1P1 X500$20$40 Y300$30$31 Cash$9,500 Shares1,500 Total assets$28,500$29,300 NAV$19.00$25.81 Return = ($25.87 – 19.00) / $19.00 = 36.41%

15. MF distributions Record date Ex-dividend date – usually one day later Fund drops by distribution Reinvestment date Usually ex-dividend date Payable date

16. Taxes Don’t buy distributions

17. StockShares1-Nov30-Oct31-Oct A100$20$30Sell @$30 B100$30$40Sell @40 Cash$0$1,400 MF shares500600 MF assets$5,000$8,400 NAV$10$14 You buy100 shares on Oct 30$1,400

18. Stock A 100($30 – 20) = $1,000 Stock B 100($40 – 30) = $1,000 $2,000 in capital gains distributed CG distribution = $2,000/600 = $3.333

19. Fund NAV $14 – 3.333 = $10.667 You have 100 shares @ $10.667 = $1,066.67 100 dividends @ $3.333 = $333.33 Portfolio = $1,400

20. What’s the problem? You pay taxes on $333.33 If you bought on October 31 $4,000/ $10.667 = 131.246 shares

21. Turnover Lesser of: Total Sales / Avg. Daily Assets Total Purchases / Avg. Daily Assets

22. Traditional vs. Roth IRA Traditional $2,000/year, 30 years, 10% return, 30% tax Value in 30 years = $328,988 Annual withdrawal for 20 years = $38,642.81 Taxes @ 30% = $11,592.84 Aftertax withdrawal = $27,049.97

23. Roth Deposit = $2,000(1 -.30) = $1,400 Value in 30 years = $230,291.63 Annual withdrawal (tax-free) = $27,049.97 The advantage of a Roth is increased deposits, not the tax-free withdrawals

24. Distributions Ordinary dividends Capital gains Long-term Short-term Nontaxable distributions Return of principal (rare)

25. Selling Shares FIFO Specific identification Average cost - single category Average cost – double category Short-term shares Long-term shares

26. Taxes Don’t buy distributions Step-up at death Kiddie tax First $650 of passive income free At 14, kid’s tax rate

27. Tax Efficiency Size of income distributions Turnover Biased 40-50% - Damage is done Total return Fund flows

28. Lock in losses $3,000 per year Can’t buy 30 days before or after Step up at death

29. Embedded Capital Gains SharesP0P0 P1P1 A100$40$4,000$45$4,500 B200$80$16,000$87$17,400 C300$35$10,500$39$11,700 Total$30,500$33,600 Shares100 NAV$30.50$33.60 Embedded CG = ($33.60 – 30.50) /$30.50 = 10.16%

30. What to Look For Expenses, expenses, expenses Turnover not important No capital gains