Tax-exempt investors: the privileged many

Since the first tax bite was taken from the dollar of sales at the point the company decided to report it as earnings instead of spending it, the only tax that affects the decision whether to retain after-tax earnings or pay dividends is the tax paid by the recipient of the dividend. The majority of the stock of most high technology companies and, by their inclusion in that group, New Technological Corporations, is held by institutions. Many of these institutions pay no taxes either because they are tax-exempt, as are most pension funds, or by virtue of returning all earnings beneficially to their shareholders, as do most mutual funds. An institutional tax-exempt shareholder in a company with high earnings may view dividend payments in a very different light than an individual investor. The professional fund manager who invests in a company is basically paid to return yields greater than those achievable from Treasury Bills. If a company he invests in cannot think of anything more productive do with its earnings than buy Treasury Bills, he has every right and reason to insist that profits be returned to him for investment at the higher yields his investors hired him to obtain. In addition, whether managing a diversified fund or a narrow industry-indexed fund, the portfolio manager desires a ``pure play'' in the main business of the companies he selects for his portfolio. It's not clear where a ``combined personal computer software manufacturer and money market fund'' fits into the picture.