| Capital Gain Distributions |
Capital gain distributions are made to mutual fund shareholders based on the profits derived from the fund's sales of stocks or bonds during the course of the year. Federal law requires realized profits to be distributed to investors at least yearly. These distributions are taxable, unless shareholders owned their holdings through a tax-deferred investment such as a 401(k) or IRA.
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| Two Types of Capital Gains, Two Levels of Taxation |
There are two types of capital gains, determined by how long shares have been held before being sold. The tax liability for each type of capital gain is different.
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Short-term capital gains are realized from profits of any holdings sold within 12 months of purchase; short-term capital gains are taxed as ordinary income. |
| Long-term capital gains are realized from profits of any holdings sold more than 12 months after purchase; long-term capital gains are taxed at a reduced rate. |
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Important Terms |
| To help shareholders with their tax planning, First American periodically releases estimates of per-share distributions for the entire fund family. To understand the estimates, it's helpful to know these terms: |
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Record date - Shareholders must officially own securities on record date in order to receive a capital gains distribution. |
| Ex-Dividend date - Mutual funds paying out capital gains will have a drop in share price at the close of business on the ex-dividend date, reflecting the capital gain to be paid. This is also the first day shareholders may make a purchase and not receive a capital gains distribution. |
| Payment date - Date on which capital gains are distributed to shareholders, at the close of business. |
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Options for Receiving Capital Gains |
| For shares held outside of a tax-deferred investment, such as a 401(k) or IRA, you have a choice as to how you receive the Capital Gains distribution. You may choose to reinvest your dividend, or have it sent directly to you. These options can be further explained by your financial professional. |
