Questions and Answers

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Capital Gainz

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Chapter 5 - Questions and Answers

===>>> This chapter lists questions and answers pertaining to potentially confusing points. They represent well over 75% of the questions we receive from users. This may be the most important chapter of this manual. I suggest you read it carefully, and refer to it if you don't understand something.

5.1 General Usage

5.1.1 "What do the functions 'Form Accept' and 'Form Reject', listed at the bottom of forms, mean?"

===>>> These are short cut keys. Hitting the Form Accept key is the same as hitting Enter on each of the fields. The net result is that the record is written to disk. Hitting the Form Reject key is the same as hitting Esc on all of the fields. The net result is that you return to the prior table or menu.

These keys are more or less a matter of preference. The best use of the Form Accept key is on the User Settings or Report Settings Forms. After changing a value near the top, you can use Form Accept instead of hitting Enter on all the remaining fields. Similarly, you can use Form Reject if you are near the bottom of one of these forms and decide against the changes you just made.

5.1.2 "What's the best way to get started?"

Follow along with the demo/tutorial screen show. Or, read the Quick Tour chapter in the users manual. Also, I strongly urge you to read this entire chapter. Roughly 75% of the questions asked are represented here. Finally, if you installed the Example Data, you can play around with it for awhile.

5.1.3 "Why is the XYZ Table hard to read?"

Capital Gainz' default screen colors sometimes are hard to see on CGA screens or laptops. You can use the Colors option on the User Settings Form to alter them to your liking. Or, before starting Capital Gainz, issue the DOS command:

        C:> MODE BW80

or

        C:> MODE MONO

Then, Capital Gainz runs as if it is using a monochrome monitor.

5.1.4 "Why does Capital Gainz stop immediately with an error of 'Too Many Files Open'?"

DOS normally creates a base CONFIG.SYS with FILES set to 10 (or 20). Capital Gainz opens many files, so this value should be increased. For most users, a value of 40 is sufficient. You also may bump up the BUFFERS statement to 20. During installation, you can request that these changes be made automatically to your CONFIG.SYS. The new values don't take effect until you reboot.

Also, you may have used Ctrl-Esc in DOS 5.0, causing Capital Gainz to be swapped out of memory. If you try to start Capital Gainz again, the one suspended in memory is still holding file handles. See your system documentation for how to swap suspended tasks back into memory. You should also look into remapping Ctrl-Esc, as explained in Chapter 16.

5.1.5

"When I try to run Capital Gainz, it stops and prints a DOS error."
"When I run Capital Gainz it hangs immediately."
"When I run Capital Gainz, it stops with an internal error."
"When I install Capital Gainz, the installation procedure aborts."

These are all symptoms of a corrupted file, usually caused by diskette damage in the mail or line noise during electronic downloading. See Chapter 3 for information on installation errors.

5.1.6 "Holy moley! Why is the users manual so long?"

I'd get too many complaints if it was too short. I want to explain everything about Capital Gainz, so you can manage your investments correctly and efficiently. You should only read selected chapters, leaving the rest for reference.

5.1.7 "I accidentally deleted some files with the .K01 extension. What do I do?"

The files with the .K01 extension are index files, providing fast access to the data files (.DAT). If a .K01 file does not exist for a data file, Capital Gainz will automatically build it on startup.

5.1.8 "Why does Ctrl-Esc bring up the Task List instead of escaping from the Capital Gainz form?"

===>>> If you are running Capital Gainz under Microsoft Windows, then Windows grabs the Ctrl-Esc sequence before it gets to Capital Gainz. The same goes for DOS 5.0. You can redefine the Form Accept and Form Reject short cut keys for Capital Gainz in the User Settings Form.

5.1.9 "Why can't I execute Capital Gainz from a different directory?"

Capital Gainz assumes all the data files, along with the CAPGNZ.INF and ERROR.DAT files, are in the current directory when you execute Capital Gainz.

5.1.10 "Why does Capital Gainz report that no Help is available?"

The Help facility uses the online documentation files. If you did not install the documentation, or moved the documentation from the directory you specified at installation, then no help is available. You need to re-install the documentation or modify CAPGNZ.INF.

5.1.11 "Why does Capital Gainz halt with an error of 'Insufficient Memory'?"

Capital Gainz requires about 512KB of free conventional memory to run. Generally, this requires 640KB of installed memory. If your drivers and TSRs consume too much conventional memory, then there's not enough memory for Capital Gainz to run. See Chapter 23 for suggestions on how to alleviate this problem. There are several utilities, such as DOS 5.0's MEM command, available that tell you how much free memory you have. Also, the amount of available free memory is displayed at the bottom of the Main Menu.

Sometimes users run menu or shell programs that don't leave enough memory for Capital Gainz to run. In this case, you must terminate the menu or shell program and run Capital Gainz from the DOS prompt. Alternatively, you may be able to run the menu or shell program in high memory.

Even if you have more than 640KB of memory, you still must free up enough conventional memory. Programs must be specifically written to directly use any expanded or extended memory beyond 640KB.

If you absolutely can't free up any more memory, you may be able to use Capital Gainz by not going too 'deep'. For instance, always add securities using the Global Security and Security options from the Main Menu, rather than from lookup tables when recording activity.

5.1.12 "Why does Capital Gainz halt with 'Invalid Record Declaration'?"

===>>> You are trying to execute Capital Gainz against data files created with a different version of Capital Gainz. You need to upgrade your data files with the Utility Program.

5.1.13 "What do 'Function List' and 'More' mean on some of the tables?"

===>>> Capital Gainz always tries to display functions available at each point in the program. However, as much data as possible should be displayed in tables, instead of consuming valuable screen space with lists of functions. To compromise, when all functions do not fit on a single line, Capital Gainz lets you popup a list of available functions, or scroll horizontally through them. Function List pops up a list of available functions, and you can highlight the one you want and hit Enter to execute it. Or, you can scroll through the list of functions at the bottom of the screen with the key labeled More.

A function does not have to be displayed in order to be invoked. For instance, say you frequently use the Price Update function on the Local Security Table and remember that the associated key is function key 4. You don't have to scroll through the functions until Price Update is displayed to invoke it.

5.1.14 "Why do some entities have Tables and Lookup Tables? Why not always use the normal Table, with all functions available?"

Separate lookup tables are used in order to show more values faster, and also to reduce memory requirements. For instance, while the Local Security Table takes 4 lines per security, the Local Security Lookup Table only uses a single line per security. Less information is shown, but it's faster to bring up than the full table.

5.1.15 "When I exit from Capital Gainz, why is the message 'Type EXIT to return to Capital Gainz' displayed? Also, why can't I start up Capital Gainz?"

You are using the GoTo DOS function on the Main Menu. GoTo DOS means that Capital Gainz is temporarily suspended while you do something in DOS. Typing EXIT returns to Capital Gainz. Trying to execute CG.BAT or CAPGNZ.EXE will fail if Capital Gainz is suspended. To exit completely from Capital Gainz, use the X) Exit to DOS choice on the Main Menu.

5.1.16 "I'm having some problems that are hard to explain. What's the best way of getting help?"

For complicated problems, the best way to get help is to send copies of your data files on a diskette, along with an explanatory note. The files to include are: *.DAT and *.K01. I understand that these contain sensitive data. If you'd like, you can use the Hide Account Numbers option in the Utility Program to blank out the account numbers in the security files on the diskette.

5.1.17 "Why is CG.BAT missing?"

CG.BAT is created at installation. If you did not use the normal installation routine, CG.BAT will be created the first time you execute CAPGNZ.EXE. You can then modify it as necessary.

5.2 Passwords

5.2.1 "Can I secure my data from other people who use my computer?"

Use the Set Password function on the Main Menu to password protect access to the program. If you leave the password blank, Capital Gainz does not prompt for password entry.

5.2.2 "I forgot my password. Can I just delete the password file?"

===>>> No! If it were this easy to circumvent the password system, it would be useless. To regain access to Capital Gainz, you must reinstall the Program Data files. Capital Gainz will not run if there is no Password File. However, if you leave the password blank, Capital Gainz does not prompt for password entry. Thus, security really requires two actions on your part: set a non-trivial password, and secure the Capital Gainz installation disks.

5.2.3 "Why do I keep getting 'Invalid Password', even though I'm entering the correct password?"

If you get this error, then you aren't entering the exact string you specified when you set the password. Remember that passwords are case sensitive, and blanks are allowed in the string. (But trailing blanks are ignored.)

5.2.4 "Why are '.'s displayed when I enter a password?"

To prevent someone from seeing the password as you type it in.

5.3 Purchases, Sales, and Distributions

5.3.1 "Do I have to enter all of my prior purchases and sales to get started?"

Unfortunately, if you want accurate performance calculations, you really have to. There's no other way if you want historical gain/loss and return figures. Also, in order to match purchases with future sales, and determine long/short term holding periods, all purchases must be recorded. It's not too difficult to sit down with the year-end statements and enter data. The Buy Shares Form is repeatedly accepted, the number of open shares is shown on the Buy Shares Form, and Capital Gainz pre-fills some fields and calculates others.

There are two short cuts available. You can only record purchases that you still own. For instance, if you've been buying and selling shares of a mutual fund over some time period, you only really need to record purchases that are still open.

Another alternative is to lump all of your holdings into two groups, long and short term. Record one big purchase equal to the total shares and amount of the long term group, and make sure the difference between the current date and the purchase date exceeds the holding period. Then, record the individual short term purchases. Technically, you should then use an averaging method, since you did average the long term holdings. However, this is between you and the IRS. The ultimate outcome will be the same whether you use averaging or not. This approach works great with money market funds, since they maintain a constant price anyway. Ironically, this 'grouped purchase' approach won't work with mutual funds that you've already sold shares of using an averaging method - unless you adjust the amounts and prices.

5.3.2 "How do I change or delete a buy, sell, or distribution entry?"

===>>> To change or delete activity, you need to choose Log Maintenance on the Main Menu. Then, from the Log Maintenance Menu, choose the type of activity and date range. Next, fill in the symbol field on the Log screen. The buy, sell, or distribution activity for the symbol is displayed in a table from oldest to most recent. Use the Up Arrow, Down Arrow, PgUp, PgDn, Ctrl-PgUp, and Ctrl-PgDn keys to highlight the entry you want to change or delete. Hit Enter to change the highlighted entry, or Del to delete it. After hitting Enter, the activity form pops up with the current values filled in, and you make your desired changes. After hitting Del, the activity form pops up with the current values filled in, and you are prompted to confirm the deletion.

5.3.3 "How do I record purchases/sales of a mutual fund that charges a load?"

Loads are treated similarly to commissions, but calculating them is a little more difficult. A $35 commission on a $1000 purchase means you paid $1035, invested $1000 of it, and paid $35 to the broker. A $35 load on a $1000 purchase, which is a 3.5% load, means that you paid $1000, invested $965 of it, and paid $35 to the mutual fund. To make things more difficult, the load price, the Net Asset Value, or both may be listed in your statements and quoted in the mutual fund listings. The Calc Load/Comm function, available on the Buy Form, Sell Form, and Price Form will help you out. Chapter 7 contains details and examples.

5.3.4 "How can I record a purchase for $0.00?"

Capital Gainz usually requires non-zero values for shares, price, and amount. If you want to set one or more of these to zero, turn off calculations and value checking with the Calc Off key. This key toggles calculations on and off.

Before you record a purchase at $0.00, be sure that's what you really want to do. If shares are given to you as a present, or in a will, they should generally be recorded at their current fair market value, with that value reported as normal income on your taxes. A good way to handle this in Capital Gainz is to record the purchase at the security's current price, then record a negative commission equal to the purchase amount. The gain calculation will use a basis of $0.00, and the negative commission will be reported in the tax report as income for that year.

5.3.5 "Why is the Per Share calculated on the Distribution Form so low?"

You are misinterpreting the meaning of the Per Share field. It is not the price, but rather the per share amount of the distribution: distribution_amount/shares.

5.3.6 "How do I know what the per share amount of a distribution is?"

For stocks and bonds, this is the dividend rate. For mutual funds, check your statements immediately after receiving a distribution, as they usually include a per share value. If not, the value calculated by Capital Gainz is usually close enough to provide fairly accurate yield and total return figures. More exact per share values mean more accurate yield and total return calculations.

5.3.7 "I've been using the per share value in the Distribution Form wrong. Do I have to change them all?"

There's a function on the Distribution Log, Recalc Per Share, that will recalculate the per share values for the displayed distribution records. This function is pretty slow, but at least you don't have to do it by hand. The calculated values should be very close to the actual per share values.

5.3.8 "Does the order that I enter activity matter?"

===>>> Prior to version 3.1, you should have entered purchases, sales, and distributions in chronological order. This was because the default price displayed for a purchase was based on the most recent price, the default selling price was based on the most recent price, and the distributions/share amount calculated for a distribution was calculated based on the current number of open shares. Of course, it was easy just to enter the correct values from your statements. If you didn't record entries in order and did not change the distributions/share value, then displayed yield figures would be incorrect.

Prior to version 3.0h, you had to execute sales before recording any subsequent purchases if you didn't use the FIFO (first-in/first-out) or ID (specific identity) selling methods. This was because the purchases affected by the sale were not limited by the selling date entered. As of version 3.0h, this restriction was eliminated, and open shares selected for the sale are limited by the selling date. When using averaging methods, the average price is recalculated for the sell date, based on the activity logs.

As of version 3.1, the default price shown for a purchase or sale is the closest dated price found in the price history, and the distribution per share amount is calculated based on the number of shares held on the distribution date. With two exceptions, the order that activity is entered doesn't matter. First, entering activity out of order is somewhat slower. For instance, if you enter a dividend after recording subsequent purchases, Capital Gainz must process the activity logs, determining the number of shares held on that date, before calculating the per share value. Second, and more important, is that each sale should not be entered until all prior purchases and sales have been recorded.

To explain the restriction on sales, assume you buy 10 shares at $11 on 1/1/91, 10 shares at $12 on 2/1/91, and 10 shares at $13 on 3/1/91. If you executed a LIFO (last-in/first-out) sale of 10 shares on 4/1/91 prior to recording the 3/1/91 purchase, the shares bought on 2/1/91 would be incorrectly selected. Or, say you use the average selling method, and enter all 3 purchases correctly, but record a 10 share sale on 3/2/91 and then a 10 share sale on 2/2/91. The 2/2/91 sale should close 10 shares at an average price of $11.50, and the 3/2/91 sale should close 10 shares at an average price of $12.25. By entering the sales out of order, the 2/2/91 sale would use the correct $11.50 basis, but the 3/2/91 sale would use a $12 basis. The prices used are the average prices at the time the sales are recorded. Since the 3/2/91 sale didn't 'know' about the 2/2/91 sale, the basis was incorrectly calculated.

5.3.9 "I have a 401K Plan that sends statements, but does not include the number of shares or the share price. How can I track this in Capital Gainz?"

===>>> At first glance, you may want to record the purchases at a fixed price of $1.00, then somehow record a gain or a loss. However, since no gain or loss has actually been realized, this is incorrect. The best way to handle this type of investment is to use a fixed price of $100.00, which allows greater precision than $1.00. Set the selling method for the local security to the average method, so shares you withdraw will have the same basis as those you leave in. When you receive a statement showing your gain/loss, use the Price Update function on the Local Security Form. From the Price Form, choose the Price From Value function. Enter the value from your statement in the Value Form, and the corresponding price is calculated for you. Now your investment shows the corresponding gain or loss, but it is unrealized. Use the last calculated price for subsequent purchases. The Price From Value function is also available when you choose Update Prices/From Screen. Chapter 7 contains details and examples.

5.3.10 "My wife and I work for the same company and each contribute to the 401K plan. We need to use the Price From Value feature to tracks gains and losses. Can we use a single global security, and link two local securities to it?"

No. Since the Price From Value feature derives a price from the value of the security, the price for these two 401K plans will differ unless identical contributions are made. Use a unique global security for each 401K local security.

5.3.11 "Can I enter multiple activity on a single date for a security?"

Yes. You can have multiple purchases, multiple sales, and/or multiple distributions on a given date for a single security. For instance, you can have two purchases for Mutual Fund XYZ on 1/15/91. You can also have purchases, sales, and distributions on the same date. For instance, you can receive a dividend and purchase shares with the amount on the same date. When a distribution is recorded, the per share amount is calculated based on the number of shares held as of the beginning of the specified date. This allows for accurate per share calculations when a mutual fund pays dividends and capital gains on the same day. However, when selling shares, the number of shares available to be sold are the number as of the end of the specified date. Likewise, the average purchase price for the average selling method is calculated as of the end of the day.

When activity is entered on the same date, the following order is assumed:

1. Distributions,
2. Purchases,
3. Sales.

===>>> You should avoid having multiple sales on a single date if you are using the average selling method. This is because accurate average prices rely on the chonological order of sales.

5.3.12 "Why aren't the other fields recalculated on the Buy Shares or Sell Shares Forms when I change the amount, so that price*shares=amount?"

The Shares and Price fields are only calculated if they are 0. The reason these fields are not automatically adjusted is that Shares multiplied by Price doesn't have to be equal to Amount, although it should be very close.

5.3.13 "Is it OK to delete old distribution and closed shares records?"

===>>> You really shouldn't delete the old records, as they are used to determine your overall performance with the security. If you use the average selling method, don't delete the closed shares records, since they are required to calculate the current average price. If you end up selling all shares of a security and want to clean up, I suggest defining an 'inactive' portfolio, and using the Utility Program to move the closed out security to it. You can put this new portfolio on a floppy disk, if you'd like.

5.3.14 "How do I record an IRA maintenance fee?"

===>>> To record an IRA fee, fill in the Distribution Form using the FEE type. If you paid the fee with a separate check, then that's all you need to do. If you let the fund company sell shares to get the fee, you'll need to record the sale. After recording the fee, answer YES to the Sell Shares to Cover Fee question. This process is similar to recording a dividend and the subsequent purchase. These are the only two ways that mutual fund IRA maintenance fees are handled. If you did not send a separate check, look for the sale in your statements. Capital Gainz prints out a list of any recorded fees after Schedule B, with a comment to the effect that they may be tax deductible.

5.3.15 "How can I see a chronological list of activity?"

The Mixed Detail Report shows a chronological listing of purchases, sales, and distributions for a security, similar to the mutual fund statements.

5.3.16 "When I record a purchase, why does the number of shares calculated by Capital Gainz differ from my mutual fund statements?"

There are occasionally rounding errors, but more than likely you need to adjust the precision settings for the local security. One setting specifies how many decimal places to calculate the number of shares to, and the other specifies the number of decimal places for prices and distributions per share. If your mutual fund company statements carry the number of shares to .001 and the price to .0001, then set the share precision to 3 and the price precision to 4. If these values are set correctly, the figures calculated by Capital Gainz should usually be the same as those on your statement. If there are minor differences, then use the values from the statement. If there are significant differences, verify that your entries and statements are correct.

5.3.17 "I have a stock that was taken over by another company in a stock swap. How do I record this?"

Recording a non-taxable stock swap purchase takes several steps. First, you need to adjust the number of shares and the basis of the shares. Use the Stock Split function for this. For example, if you received one new share for each three shares you owned, then execute a 1-for-3 stock split. Next, change the local security to reflect the new security's symbol. Finally, change the global security to reflect the new security's symbol and name.

5.3.18 "How do I record and then cover a short sale?"

To record a short sale, use the Sell Shares activity. From there, specify the SHRT (short sale) selling method. When you purchase shares of that local security, Capital Gainz will prompt you to cover any outstanding short sales.

5.3.19 "Why was the Double Category selling method discontinued?"

The Double Category selling method is a cruel joke on the part of the authors of the tax laws. Maintenance is horrendously difficult, even with a computer program. The major reasons why it is no longer supported are:

There is no difference between short and long term tax rates. Even if there were, last-in/first-out or specific identity are superior selling methods.

This method is far more complicated than many users assume. Actions such as recording sales out of order, or changing the holding period can have numerous side effects. It's very easy to make a serious error.

Roughly 50% of our testing was devoted to the Double Category method, given its complicated nature. As the program gets more complex, the price would have to be raised considerably and new features would be delayed.

Dues to an omission in the tax laws, it's impossible to account for changes in the holding period.

5.3.20 "I have a security that uses the Double Category selling method. What do I do?"

This method is still available for any securities that were already using it, but share migration is no longer managed. To continue using it, you must manually maintain the values in the local security using the Fixup option. You are strongly urged to discontinue use. If you haven't sold any shares, simply change to a different selling method. If you've only sold shares from the long term category, it seems reasonable that you can switch to the Single Category method after migrating all of the short term shares. However, there is no mention of this in the IRS documents. If you have sold short term shares, you'll either have to manually maintain these securities within Capital Gainz, or backtrack and redo prior sales with another method, filing amended taxes as necessary. Seek advice from your accountant or the IRS documentation.

5.3.21 "What selling methods am I allowed to use?"

===>>> According to the IRS publications, anytime you have multiple purchases of a security, you are assumed to use the FIFO (first- in/first-out) method unless you provide explicit prior written identification of the shares you want to sell to the agent responsible. For mutual funds, you can also use the average selling method without notifying the agent. However, once you use the average method, you must continue to use it as long as you hold shares of that fund.

5.3.22 "What good are the LIFO (last-in/first-out), MAX (maximum gain/minimum loss), MIN (maximum loss/minimum gain), and ID (specific id) selling methods if I must provide prior notification to the selling agent?"

The best use of these methods is to execute the sale, print the report of shares that would be sold, then don't confirm the sale. A copy of this report can be sent to the selling agent along with an explanatory note. Upon confirmation of the sale, you can re-execute the sale in Capital Gainz and confirm it. Make sure that the sell date is prior to any purchases recorded in the interim.

5.3.23 "I made an error in a previous sale. Do I just unsell the shares then re-execute the sale to fix it?"

===>>> Usually, you can do this. However, be careful if any sales follow the one you want to change. Changes to a prior sale can potentially affect subsequent sales, especially when using the averaging sell method. In this case, you should unsell all sales from the one you want to change to the most recently recorded sale, make your changes, then re-execute all of the sales in order.

To explain this, assume you recorded purchases of 10 shares at $10 on 1/1/91, 10 shares at $12 on 2/1/91, and 10 shares at $13 on 3/1/91. Also, you recorded a 10 share sale on 2/2/91 at an $11 basis and a 10 share sale on 3/2/91 at a $12 basis, using the average selling method. If you notice that the purchase on 1/1/91 should have been at $11, then you must unsell both sales, make the change, then re-execute the sales. This correctly results in an $11.50 basis for the 2/2/91 sale and a $12.25 basis for the 3/2/91 sale. If you only unsell the 2/2/91 sale, make the change, and re-execute the sale, you end up with an $11.50 basis for the 2/2/91 sale and the incorrect $12 basis for the 3/2/91 sale would not change.

You can also change the open information for the closed shares record. This is NOT recommended if you used the average selling method.

5.3.24 "After recording a distribution, I answered YES to reinvest the shares. Why don't these shares show up in the Open Shares Log?"

After recording a distribution and answering the reinvestment question, you still must complete the Buy Form that Capital Gainz brings up. Usually, all of the information is filled in correctly except for the price. Often, users mistakenly escape out of this form. Remember that reinvestment is a two step process: you must record the distribution AND the purchase.

5.3.25 "When recording a distribution, why does Capital Gainz sometimes ask me if I want to use a distribution per share from a given date?"

You already recorded a distribution for a local security linked to the same global security, or you entered a distribution for the global security in the Price History Table. When you go to record a distribution, Capital Gainz checks if you have recently added a distribution for the global security. If so, you are asked if you want to use that distribution. If you answer YES, Capital Gainz fills in the information and will not make another entry in the price history table for that global security. If you answer NO, Capital Gainz assumes that you are recording a completely different distribution.

5.3.26 "Why aren't the shares purchased with reinvested dividends shown with the distributions?"

===>>> Shares purchased by reinvesting distributions are not associated with the distributions. The distribution and the share purchase are recorded separately. The reinvestment feature of Capital Gainz simplifies this two-step process, but the records created are not related.

5.3.27 "How can I enter Interest instead of Dividends?"

===>>> Whether a security receives dividends or interest is determined by the security type associated with the global security. The Security Type Table shows which security types get dividends or interest. You can change this for a given security type.

When recording a distribution, Capital Gainz determines whether the associated global security is set to receive dividends or interest. Depending on how it was defined, the distribution type choices include DIV or INT.

5.3.28 "I made an error recording a distribution reinvestment. Do I need to delete it and re-enter it?"

Capital Gainz manages reinvested distributions by simply taking you to the Buy Shares Form and filling in the values after you record the distribution. The distribution and subsequent purchase are not linked. To change a reinvested distribution, you need to change the open shares record, distribution record, or both. For instance, if you were changing the share price of the reinvestment, only change the open shares record. However, to change the distribution amount, you'll need to change both the open shares record and the distribution record.

5.3.29 "How do I record a stock dividend?"

You need to distinguish between taxable and non-taxable stock dividends, as well as between stock dividends of identical shares and those of different shares. I'll briefly describe each, but suggest reading IRS publication 550 or consulting with a tax professional.

For non-taxable stock dividends with identical shares, you must adjust the number of shares you own and their basis price. So, if you received 8 shares as a stock dividend on the 200 shares you previously bought at $5/share, your basis is still $1000, but the number of shares is now 208. If you sold 100 shares, the basis price is ($1000/208) = $4.8077 and the basis amount is $4.8077 * 100 = $480.77. If the 200 shares you owned were bought 100 at $2 each and 100 at $8 each, then the two lots would be adjusted to 104 shares at $1.9231 ($200/104) and 104 shares at $7.6923 ($800/104). As you can see, these calculations are simply stock splits: a 208 for 200 split multiplies the shares by 208/200, and multiplies the price by 200/208. In the first example, 200 * 208/200 = 208 shares, and $5 * 200/208 = $4.8077. In the second example, 100 * 208/200 = 104 for each lot, $2 * 200/208 = $1.9231 and $8 * 200/208 = $7.6923. So, to record a non-taxable stock dividend of identical shares, record a stock split of:

(shares_owned + new_shares)/shares_owned

A non-taxable stock dividend of non-identical shares is more complicated. Say you have 200 shares of common stock bought at a price of $5. You receive 8 shares of preferred stock for each 200 shares of common. At the time, the listed price of the common was $6, and the listed price of the preferred was $2.50. The basis of the shares you own is $5 * 200 = $1000, and the value is $6 * 200 = $1200. The value of the shares you receive is $2.50 * 8 = $20. You must divide the basis with the ratio $1200/($1200 + $20) = .98361 for the common, and the ratio $20/($1200 + $20) = .01639 for the preferred. Thus, the common you owned is changed to a basis of $1000 * .98361 = $983.61, and the basis of the new preferred is $1000 * .01639 = $16.39. Capital Gainz will not automatically handle this situation - it's tempting to apply a split of $1200/$1220 to the common, but the number of shares should not change. Instead, you must adjust the prices of all open shares of the common stock, define the preferred security, then record the purchase of the preferred security.

A stock dividend is taxable if you have the option of receiving shares or cash, or if the distribution is not applied evenly to all shareholders. In this case, I suggest recording a cash dividend, then reinvesting it. If the shares are non-identical, you'll need to define the new security first, so you can reinvest the distribution.

5.3.30 "How do I buy shares using a money market fund, or sweep sale proceeds into a money market fund?"

Treat a money market account like any other security. To buy shares from a money market fund:

• Make sure Redistribute Proceeds is set to YES in the User Settings.
• Execute a sale against the money market fund for the desired amount.
• When the sale is complete, answer YES to the redistribute question.
• Complete the form that comes up to purchase another security.

Sweeping proceeds into a money market fund is identical, except you sell the other security and purchase shares of the money market fund with the proceeds.

5.3.31 "How do I record a payment of accrued interest?"

According to the IRS documents, all interest payments should be recorded on Schedule B, with any accrued interest payments listed as adjustments (subtractions). Capital Gainz does not handle this specific case, so I suggest recording the full interest payment, then recording the accrued interest payment as a FEE in the Distribution Form. When you generate the tax forms, a separate fee report is included to remind you of tax-related fees.

5.4 Portfolios

5.4.1 "I was maintaining multiple portfolios in different DOS directories. How do I use the multiple portfolio feature with my scattered data files?"

Use the Capital Gainz Utility program to upgrade the data files in each of your directories, if it was not done during installation. Then, change to the directory where you want to consolidate all of your portfolios. Use the Capital Gainz Utility program to copy or move the scattered portfolios into the current directory. Portfolios moved from another location will automatically be renumbered so as not to conflict with existing portfolios.

5.4.2 "Why doesn't the portfolio name appear on forms and reports?"

The current portfolio name is only shown if you have more than one portfolio.

5.5 Securities

5.5.1 "What is the difference between Local and Global securities?"

Local securities are securities in a particular portfolio, and have associated buy, sell, and distribution activity. Global securities contain information about a particular security, such as name and type, have price histories, but do not have any activity associated with them. You link local securities to global securities by relating the local security symbol to the global security symbol. Deleting a local security does not affect the related global security. The global security's price history remains intact.

You can think of local securities as instances of a global security in a particular portfolio. You can associate global securities with many local securities, since a particular security can be held in more than one portfolio. However, you can only associate a local security with a single global security.

You may want to link multiple local securities within a single portfolio to the same global security. This lets you own shares of a mutual fund in a regular account, and shares of the same mutual fund in an IRA account, both in the same portfolio. The mutual fund information and price history are centrally maintained with the global security. In fact, you can track a security's price history without ever actually adding it to a portfolio.

5.5.2 "Stock XYZ split 1.25 for 1, but Capital Gainz only accepts a single decimal precision in the stock split form. What should I do?"

Simply record the split as 12.5 for 10 (or 2.5 for 2), which is identical to 1.25 for 1. Capital Gainz accepts split ratios from 0.1 to 999.9.

5.5.3 "What should I do with Local Securities that have been closed out?"

When you sell all of the shares from a local security, you should keep the security around until after all sales have been used in the tax forms. Then, you have two options. First, you can simply delete the security, which will remove it along with all associated activity logs. Deleting a local security does not delete the associated global security and price history - if you want to remove these, you'll need to delete the global security as well. However, a better approach is to create a new portfolio to use for closed out securities. Use the Utility Program to move the inactive local securities to the new portfolio. This way, you can always go back and review prior performance. To save disk space, the Capital Gainz Utility Program will let you put this new portfolio on a floppy disk.

5.5.4 "Why isn't the load percentage associated with a security?"

A future release will modify the local security file format to include loads.

5.6 Brokers/Investment Companies

5.6.1 "Can I own the same local security through multiple Broker/Investment Companies?"

Strictly speaking, you can't do this (but you can achieve an equivalent result). The broker/investment company information is simply a way to associate holdings with a particular broker or mutual fund company. You can associate a broker/investment company with a global security and with a local security.

For stocks, you can set the global security's broker/investment company to some commonly used 'default' broker. Then, you would use a specific broker with the associated local securities.

For mutual funds, you should specify the mutual fund company as the broker/investment company for the global security. For the local security, you can use the same broker/investment company, or use the broker name if you purchased the shares through a broker.

You can achieve the same result as owning the same local security through multiple broker/investment companies. If you want this within a single portfolio, then define two different local securities and link them to the same global security. Or, you can use the same local security symbol in different portfolios, both linked to the same global security.

5.6.2 "Why do I have to enter a broker/investment company for each local and global security?"

Some users want to leave this blank, but this conflicts with Capital Gainz' philosophy of bringing up lookup tables when you leave a field blank. The alternative is to define a dummy blank broker, for instance NONE, to use when you don't want to enter the broker/investment company information.

5.7 Prices, Distributions Per Share

5.7.1 "When I change a price in the Price History Table, how come the prices in the related local securities' activity files are not updated?"
"How come when I change the price for a local security, the price history table reflects the change but related local securities' activity files are not updated?"

===>>> Think of the Price History Table as a repository of information: activity entries put information in, and sometimes change information, but information in the table does not get applied back to the activity records. Here's some arguments supporting this approach:

Say you purchase shares of a stock at $10 at the beginning of the trading day, which happens to be the last day of the month. If the price goes up to $11 by the end of the day, and you update prices at the end of the month, you don't want the recorded purchase price changed.

Say you purchase shares of stock held in two different portfolios. The purchases are on the same day, but at different times and for different prices. The entry of the second purchase replaces the first entry's price history record. This new price should not be used for the first purchase.

In essence, propagating changes in the price history back to the activity records makes sense in many cases. However, there are far too many common exceptions.

5.7.2 "When I change a distribution per share amount in the Price History Table, how come the distribution per share amounts in the related local securities' distribution files are not updated?" "How come when I change the distribution per share amount for a local security, the price history table reflects the change but related local securities' distribution files are not updated?"

===>>> The answer to the previous question about prices in the Price History File applies here. For example:

Say you delete a distribution per share record from the price history. Should the distribution records on this date also be deleted? Should their per share value be set to 0? Granted, a strong case can be made for propagating changes in distribution per share records in the Price History File back to the distribution records. However, treating prices and distributions differently would result in far more confusion.

5.7.3 "I've messed around with the price history. How can I resynchronize it with my activity?"

Use the Utility Program to rebuild the Price History File from your activity files.

5.7.4 "Is there a way to create an example file for price updates?"

When you update prices from the Global Security Table or the Local Security Table, there is a function key option, Generate Skeleton File, that creates a skeleton price file. Capital Gainz will write a list of your global securities to the filename you request. When you exit Capital Gainz, you can edit this file to include updated price and date information. This eliminates trial-and-error, and also provides a ready list of security symbols.

5.7.5 "I own two bonds with different maturities. Why are the two price histories combined?"

You have both local security bond holdings linked to the same global security. The global security defines the bond, and the price history is linked to the global security. Because of the maturities, these two bonds are different, and the two local securities should be linked to distinct global securities.

5.8 Reports

5.8.1 "What are these funny 'D' and 'M' characters printed on my reports?" "Why are there no lines separating sections of my reports?"

===>>> By default, Capital Gainz uses the extended ASCII line drawing characters for borders and separators in printed reports. Most printers can print these characters, but sometimes you have to flip a dip switch on your dot matrix printer or load the appropriate font for your laser printer. If you don't want to bother with this, go to the User Settings Form and select NO for the Line Draw Chars field. This substitutes the - and = characters for the similar line drawing characters.

5.8.2 "How can I cut down the amount of paper used in reports?"

There are two ways to generate shorter reports, saving paper. They are both available from the User Settings Form, using the Set Report Parameters function:

Set Lines Per Page to 0. This causes the header to only be printed once, and no page breaks are added. Essentially, you have an infinite length page.

Set Brief Formats to YES. This causes some information to be omitted from several reports, resulting in shorter output. The Activity Detail Reports, for instance, only print a single line per record, instead of 2-3 lines per record.

5.9 Calculations

5.9.1 "Why doesn't the Gain/Loss figure for Mutual Fund XYZ in the Local Security Table include shares purchased with distributions (since these were 'given' to me)?"

===>>> The Local Security Table shows the current gain or loss of all shares that you've purchased, to help you determine whether you should sell any. Even though distributions such as dividends are 'given' to you, you reinvested them in more shares of the mutual fund. If you use the Activity Summary function, you'll see a calculation that combines all of your buy, sell, and distribution activity to come up with your overall performance figure. Calculating total distributions in the Local Security Table would significantly hamper performance, and also may adversely affect your selling decisions.

5.9.2 "What's the distinction between realized and unrealized gains/losses?"

The Open Shares Log represents unrealized gains and losses, while the Closed Shares Log represents realized gains and losses. This means that the gains and losses shown in the Open Shares Log can change based on other changes, such as updating the price of the security.

The gains and losses shown in the Closed Shares Log only change if you explicitly change the closed shares records.

5.9.3 "Why does one of my securities show a loss greater than 100%?"

By default, Capital Gainz does NOT include commissions in the basis, but does factor them into the gain/loss calculation. The net result is that there is a slight difference in the percentage calculations than if you included the commissions in the basis. The reasoning here is that the commission amount is never actually invested in shares. If you would rather include the commission in the basis, answer YES to the Include Commission in Basis field on the User Settings Form. Changing this field has no permanent effect, so you can try it both ways.

For example, say you purchased 100 shares at $10 each, paid a $40 commission, and the security is now worth $11. Your gain is:
(100 * $11) - (100 * $10) - $40 = $60

• Not including commissions in the basis, the percentage gain is: $60/(100 * $10) = 6.00%
• Including commissions in the basis, the percentage gain is: $60/((100 * $10) + $40) = 5.77%

5.9.4 "Why is Mutual Fund XYZ's yield so high (or all '*'s)?"

===>>> You either entered the amount of the dividend for the Dividends/Year field in the Global Security Form, or entered a price for the Per Share field in the Distribution Form. The dividends/year figure should indicate the number of times a year the company pays dividends, such as 4 for quarterly payouts. The per share value should indicate the per share amount of the distribution, not the reinvestment price, and is normally listed on your statements.

5.9.5 "I've only recorded activity for a short time and the return percentages look correct, but the rate calculations appear way too low."

There is probably an incorrect, 'stray' entry in the Price History File. For instance, say you added a price for 1/01/01 instead of 1/01/91. Calculating return percentages for all dates would include the 1/01/01 entry, skewing the rate by 90 extra years. To fix this, check the Price History Table.

5.9.6 "What's the difference between the Total Return and Performance figures in the Activity Summary Report?"

===>>> Total return uses the price history of a security to show the return over the period. In essence, this simulates a 'buy-and-hold' strategy, where one share is purchased at the beginning of the period, held to the end of the period, and distributions are reinvested. Your performance is calculated based on purchases, sales, and distributions recorded in the activity logs.

5.9.7 "What do the variations between Total Return and Performance mean?"

If your actual performance was under par, but the total return is good, then you've adversely affected your performance through poor timing. The security is a good-performer, and should probably be held. This effect is common for dollar-cost averaging strategy employed over a short period in a rising market.

If your performance was good, but the total return is under par, then you've managed to increase returns through good market-timing. While a 'buy-and-hold' strategy would not have done well, the market-timing effects of your purchases and sales made this security a winner. This effect is common for dollar-cost averaging strategy employed over a long period in a fluctuating market.

5.9.8 "What figure is more important, Total Return or Performance?"

They are both important, but total return is probably the most revealing of the two figures. It clearly shows whether a security has performed well or not. Poor attempts at market timing may result in low values for Performance, regardless of the security's performance. Or, successful market timing can cover up a security's poor performance.

5.9.9 "What is the 'rate' figure?"

A fairly complex calculation is used to determine the simple, yearly rate of return, assuming annual compounding. This figure can be misleading, because a 10% return for one month doesn't mean you should expect 120% per year.

5.9.10 "How are purchases on different dates factored into the calculated return for Performance?"

Accounting for time differences is difficult, and every approach has flaws. The method used involves annualizing purchases that cover partial periods. For instance, say two purchases were made over a year, one at the beginning of the year for $1000 and one at the end of the year for $500. If the return on the security was $100, then the calculated return is:

(100/(1000 + 500 - 500 * 1/2)) * 100 = 8.00%

Since the second purchase was not held for the first half of the period, it's adjusted by subtracting out half of the purchase amount.

5.9.11 "Why does the yield calculation only use the last dividend?"

Yield is really a measure of expected return. That's why Capital Gainz takes the last dividend/interest distribution per share and multiplies it by the number of expected dividend/interest payouts. An alternative is to sum all dividend/interest distributions over the last year.

There are three problems with doing this:

1. 'Missing' distributions would have to be estimated.
2. If a security increases its dividend, then the yield would not be correct.
3. Performance would be hampered.

5.9.12 "I have a stock that quit paying dividends. How do I show no yield?"

Set the Dividends/Year field in the Global Security Form to 0.

5.9.13 "Why doesn't Capital Gainz automatically set the yield to zero if no dividends have been recorded for some time?"

At first glance, it makes sense to ignore dividends over one year old, so that the yield will drop to zero if the security quits paying dividends. However, if you sell all the shares of a security, it's nice to be able to see the yield, even though you don't own it. If you want to reduce the yield to zero, set the Dividends/Year field in the Global Security Form to 0.

5.10 Tax Forms

5.10.1 "I have a local security with distributions and sales, but it doesn't show up on Schedule D."

The local security was defined as tax-exempt, which means it's treated like an IRA. To change it, highlight the security in the Local Security Table, hit Enter, then change the tax exempt field to NO.

5.10.2 "What does Capital Gainz do with long and short term capital gains distributions on Schedule B?"

The IRS publications are ambiguous on this point. Some statements indicate that capital gains distributions from mutual funds should always be classified as long term. However, other statements can be interpreted as meaning short term capital gains should be lumped together with dividends. This means that short term capital gains should stay on Schedule B, while long term capital gains are subtracted back out.

A valid argument exists for both approaches. Based on several mutual fund statements, Capital Gainz treats all short capital gains distributions like dividends. However, you can modify one or more security types to treat short term capital gains distributions like long term capital gains. The default approach sets the STCG (short term capital gains) handling of a security type as B SCH, meaning they stay on Schedule B. You can change this to D<-B, meaning they flow to Schedule D from Schedule B.

5.10.3 "I changed the Long Term Holding Period in the User Settings, but the Schedule D report doesn't reflect the new value. What's wrong?"

===>>> The long term holding period is applied to sales at the time of the sale only. This allows prior sales to remain correct in spite of changes in the holding period. For instance, several years ago the holding period changed from 6 months to 1 year. By determining long/short term status at the time of the sale, prior years' Schedule D forms will always be accessible.

You can apply the new holding period to one or more sold shares records without unselling/reselling the shares. You can highlight the record on the Closed Shares Log, hit Enter to change it, then set the status field to STERM (short term) or LTERM (long term). You can also change a range of sold shares records. Select Date Range on the Log Maintenance Menu, enter the first and last selling dates of the sold shares records that you want to change, bring up the Closed Shares Log, and execute the function Apply Holding Period. Each of the closed shares record's open and close dates are compared to the holding period, and the long/short term status is set accordingly.

5.10.4 "What does 'Group Sales' mean on Schedule D?"

===>>> The group sales option lets you group all purchases for a given sale, resulting in a single short term transaction, long term transaction, or one of each. If you've been buying shares of a mutual fund monthly and then close the fund by selling all of the shares, grouping sales makes the Schedule D report much shorter and easier to read and transfer to your actual tax forms, since each individual purchase is not shown. The purchase date shown for grouped sales is VARIOUS. Essentially, a grouped sale is analogous to the sales subtotals in the Closed Shares Detail Report.

You can group sales of individual security types by modifying the types in the Security Type Table, or group all types by setting Group Sales to YES on the form displayed after selecting the tax forms report.

5.10.5 "Group sales make Schedule D simpler, but are they IRS approved?"

I have used them before, as have several accountants I've talked to. The end result is certainly identical to listing each purchase. However, no IRS publication states whether or not they are acceptable.

5.10.6 "I've used the check writing feature of a money market mutual fund. Now I've got a whole lot of Schedule D entries, with 0 gain - should these all be reported?"

Technically, all sales of mutual funds must be reported on Schedule D. You have two options to make things easier. First, you can use the Group Sales option, so you only have a single transaction for each check. Alternatively, you can change the global security's type, or define a new one, to OMIT sales from Schedule D. Neither approach is defined as acceptable or unacceptable in any IRS publication.

5.10.7 "How do I change a security so that the dividends or interest are listed as tax free on Schedule B?"

To define a security as distributing tax-free dividends/interest, select a tax-free security type for the associated global security. Tax-free security types have the phrase 'tax-free' in their names. However, you can change the tax-free status of a security type, or define a new security type that is tax-free.

5.10.8 "I have an international fund that pays a foreign tax, as reported on my year-end 1099 form. How do I record this to make Schedule B correct?"

Foreign taxes are paid out of distributions, but the fund companies don't report them until the end of the year. This affects the distributions/share, and thus the yield of a fund - but only slightly.

The suggested way to handle this is:

1. Record the Foreign Tax as a dividend on the last day of the year, without reinvesting the distribution.
2. Record the Foreign Tax as a fee on the last day of the year, without selling shares to cover the fee. This way, the distributions will match up.

Capital Gainz prints out a list of any recorded fees after Schedule B, with a comment to the effect that they may be tax deductible.

5.10.9 "What's the difference between a local security defined as Tax Exempt and a local security whose linked global security uses a tax- free security type?"

===>>> A Tax Exempt local security is treated like an IRA, so no distributions or sales are reported on Schedule B or Schedule D. A tax-free security type indicates that dividends or interest are non- taxable on Schedule B. Sales are reported as usual on Schedule D.

5.11 Execution Speed

5.11.1 "What's the best way to speed up execution without getting a faster machine or disk drive?"

Probably the best way to increase the overall performance of Capital Gainz without new hardware is to use a disk cache. SMARTDRV.SYS, which comes with Windows, does an admirable job. To speed up reports, backups, and shelling to DOS, use a RAM drive for temporary files. See Chapter 23 for details.

5.12 Consistency Check

5.12.1 "Why doesn't Capital Gainz check for duplicate symbol/date pairs in Buy/Sell/Distribution records?"

Multiple purchases of a security on a single date are common for dividend reinvestment plans. Dividends and additional cash are reinvested on the same day at the same price. In any case, incorrect multiple entries should be easily spotted by comparing totals to the totals on your mutual fund or broker statements.

5.13 Utility Program

5.13.1 "Why can't I start the Utility Program from Capital Gainz?"

In order to invoke the Utility Program from Capital Gainz, two things are necessary. First, Capital Gainz must have been started by CG.BAT. Second, the Utility Program, CGUTIL.EXE, must be in the same directory as Capital Gainz.

5.13.2 "Why does the Utility Program keep failing with 'Invalid Record Declaration'?"

Except when upgrading, the version number of the Utility Program must match the version of Capital Gainz used to create the data files. The upgrade process transforms data files created with an older version of Capital Gainz into a format usable by the current version of Capital Gainz. When you upgrade data files, you must correctly specify the version number of Capital Gainz used to create the data files you are converting from.

5.14 Graphics Program

5.14.1 "Why can't I start the Graphics Program from Capital Gainz?"

To invoke the Graphics Program from Capital Gainz, two things are necessary. First, Capital Gainz must have been started by CG.BAT. Second, the Graphics Program, CGGRAPH.EXE, must be in the same directory as Capital Gainz.

5.14.2 "Why doesn't the Graphics Program display a status line when printing, like Capital Gainz does?"

The Graphics Program prints the entire screen. Thus, the status line is blanked out, then redisplayed after output is complete.

5.14.3 "I've moved a lot of cash to a money market account. Why are other securities' bars so small that the cost/value difference is obscurred?"

Since the Graphics Program automatically scales data based on the largest value, the large money market holding is adversely affecting other securities. Money market securities maintain a constant price, so their cost and value bars will always be equivalent. You should specify NO to the Include Cash? field in the Graphics User Settings, removing cash equivalent securities from the graph.

5.14.4 "Can I get rid of all these lines cluttering up the Price Graph?"

The average, standard deviation, and best-fit lines are displayed by default. You can choose not to print these by setting their color to NO COLOR in the Graphics User Settings. Similarly, you can turn off the grid.

5.14.5 "Can I generate PCX files to use with other programs?"

Yes. Normally, when you print to a file, output is in the format of your selected printer. However, if you specify a filename with a .PCX extension, it will be printed in PCX format.

5.14.6 "I'm trying to set up my HP Laserjet, but the printer setup form displayed is for a dot matrix printer. How can I get the appropriate form?"

The setup form is specific to the printer you select in the User Settings Form. Enter a blank or invalid value in the Printer field to bring up the list of printer types to choose from. Select PCL Laserjet. Back at the User Settings Form, hit the Setup Printer key to bring up the form to setup a PCL Laserjet printer.

5.14.7 "Why does the Graphics Program keep failing with 'Invalid Record Declaration'?"

The version number of the Graphics Program must match the version of Capital Gainz used to create the data files.