Mutual Funds Dividends and Capital Gains Distributions

Most mutual funds will declare net investment income dividends and capital gains distributions, payable in December. To receive the capital gains distributions, you must have been the mutual funds shareholder on the record date. Capital gains distributions are the same for all classes. All long term capital gains are taxable as 15% rate gains, except as noted.

If you received a capital gains distribution from your mutual funds during the year, you will need to report it on your tax returns. These distributions must be reported to the IRS whether you received them in cash or reinvested them in additional mutual funds shares.

Mutual funds must distribute at least 98 percent of their calendar year earnings to their mutual funds shareholders by the end of December in order to obtain favorable tax treatment.

For tax purposes, these are two types of mutual funds distributions:

Ordinary (income) dividends distributions

– collectively, the dividends, interest and short-term capital gains earned by mutual funds' portfolio holdings.

Capital gains distributions

– long-term capital gains generated from a mutual funds' profits from the sale of holdings that have appreciated in value.

Long-term capital gains are the net realized profits from the sale of investments held by the mutual fund for more than one year; short-term capital gains are the net realized profits form the sale of investments held by a mutual fund for one year or less. Short-term capital gains are taxed as ordinary income.

Note:

Depending upon the mutual funds distribution option you have selected, these monies have either been sent to you in the form of a check, have been credited to your mutual funds brokerage account, or have been reinvested in additional mutual funds shares.