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This question arises from a previous one regarding managing all one's investments from one screen on a brokerage house's web site, and a recent answer by @Patches regarding segregation of the brokerage's own activities and its clients' activities.

Suppose I have a brokerage account with, say, Ameritrade, and I buy 100 shares in a Vanguard mutual fund through the Ameritrade account.

  1. Does this set up an account with Vanguard in my name, so that I could, if I wanted to, log on to the Vanguard web site and buy and sell the shares there too?
  2. Or is it that Ameritrade has a big account in the same Vanguard mutual fund with thousands of shares belonging to various clients, and it buys 100 new shares for me in its Vanguard account (or possibly transfers 100 shares to my name if someone else with an Ameritrade account happens to be selling 100 shares that day), and so 100 shares invested in the Vanguard mutual fund shows up on my screen on the Ameritrade web page?

And since it is tax season again, if the Vanguard fund distributes dividends and capital gains, do I get a 1099 from Vanguard, or are the numbers simply listed in the 1099 from Ameritrade?

  • @fennec Thanks for editing the title to make it more informative. – Dilip Sarwate Mar 30 '12 at 20:02
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Your option #2 is the correct one. For mutual funds, stocks, trusts etc - the broker will buy the shares in your name and will hold them in a trust account. For traded partnerships - the broker will have you added as a partner. Its all virtual because no actual share certificates are issued, its just records in computers.

For shares - you're getting 1099 from the broker, which aggregates all your stocks, funds and trusts, including dividends, interest, taxes and gains. For stocks - the broker will deliver the proxy statement to you and you can vote through proxy or attend the shareholders' meeting.

For traded partnerships, you'll get K-1 directly from the partnership.

  • Thanks for the reformatting and editing of the question, and for the reply confirms what I suspected would turn out to be the case. I assume that when mutual fund shares will also be like stocks in that when there are shareholder meetings or elections of boards of directors and the like, the brokerage will pass on the proxy statements to me? – Dilip Sarwate Mar 28 '12 at 1:58
  • @DilipSarwate To the best of my knowledge, mutual funds don't have shareholder meetings or boards, but rather prospectus that defines the fund, and manager that manages it. – littleadv Mar 28 '12 at 2:00
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    Some funds do have meetings and boards of directors who are elected by the share-holders. Fidelity mutual funds, for example, hold annual meetings where boards of directors are elected, and when I had investments there, I used to give proxies, and vote on things like deleting paragraph 3(h) from the fund's self-set limitations on trading activity etc. Even got reminders if I forgot and they did not have enough proxies for a quorum. – Dilip Sarwate Mar 28 '12 at 2:13
  • @DilipSarwate well then I guess you answered yourself:) – littleadv Mar 28 '12 at 6:07
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    Actually, no, I did not answer myself. One cannot buy fractional shares of stock in a company, and although paper certificates are no longer issued, each share is separately identifiable. Mutual fund shares can be bought in fractions of a thousandth of a share, and are not separately identifiable except by date of purchase. One can tell the mutual fund company to sell 10.035 shares bought on a certain date, but one cannot sell 10.035 shares of a stock. – Dilip Sarwate Mar 29 '12 at 3:09

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