Point 8: Fund Distribution and Tax Information
The fund distributes substantially all of its net income and capital gains to shareholders each year. Normally, dividends are distributed in March, June, September, and December. Capital gains are distributed in September and December. Distributions are reinvested automatically in additional shares unless you elect another option. Your distributions are taxable when paid, whether you take them in cash or reinvest them. For federal tax purposes, income and short-term capital gain distributions are taxed as dividends, and long-term capital gain distributions, if any, are taxed as long-term capital gains.
What to Look for: If you are tax-alert, you know that distributions made by the fund are taxable even if reinvested, assuming you are holding the fund in a non-tax-sheltered account, and it will be taxed as ordinary income or capital gains, either short or long depending on how long the fund has held the investments. Also the frequency of distributions is noted and is important for financial and tax planning.
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