Income Share

What Is an Income Share?

An income share is a class of shares offered by a dual-purpose fund. This share class delivers out distributions and dividends to its investors. Income shares may likewise be known as preferred shares.

Understanding an Income Share

Income shares are one class of shares in a dual-purpose fund. They can measure up to capital shares, which are their counterpart in a pooled dual-purpose fund offering.

Dual-purpose funds were first presented during the 1960s. They were phased out by the 1990s after the Internal Revenue Service (IRS) rules changed taxation on the funds. Famous forms of these funds incorporated the American Dual Vest Fund managed by Haywood Management, the Gemini Fund managed by Wellington Management, Income and Capital Shares Inc. managed by John P. Pursue Inc., the Leverage Fund of Boston managed by Vance, Sanders and Co., and the Scudder Duo Vest fund managed by Scudder, Stevens and Clark.

Dual-purpose funds were structured as closed-end funds with two share class offerings: income shares and capital shares. The funds offered a limited number of shares to the public in an initial public offering (IPO). Post-IPO, the funds traded on exchanges with a market price and an accounting net asset value (NAV) calculated every day. Dual-purposes funds were likewise structured with specific terms. Thusly, these funds had a predetermined maturity date whereupon they returned principal to their investors.

Benefits of Income Shares

Income shares targeted investors seeking ordinary income payments. Accounting instruments worked with the value and incremental income payments made to income share investors. Managers of dual-purpose funds invested in a broad scope of securities, including both equities and obligation — which paid interest and dividends for investors. At maturity, these shares were given priority in the liquidation and payouts of the fund. Income shares could likewise be alluded to as preferred shares.

Capital Shares versus Income Shares

Capital shares were the counterpart to income shares. They were additionally alluded to as common shares. These shares were offered alongside income shares in the fund's IPO and traded actively on market exchanges. Capital shares varied from income shares in that they didn't receive dividends or distributions from investments in the fund. Capital shares depended principally on the active management of the fund managers for capital appreciation. These funds ordinarily had broad flexibility to invest in a wide universe of securities for capital gains. At the fund's maturity date, capital shares received second priority for payouts following income shares. Maturity date payouts included principal and any capital gains.

Features

• Dual-purpose funds were phased out during the 1990s after the Internal Revenue Service (IRS) rules changed taxation on the funds.
• Income shares targeted investors seeking ordinary income payments.
• An income share is a class of shares offered by a dual-purpose fund; this share class delivers out distributions and dividends to its investors.
• Income shares are one class of shares in a dual-purpose fund; they can measure up to capital shares, which are their counterpart in a pooled dual-purpose fund offering.