Tax tips for Mutual Fund Shareholders

Good news for many mutual fund shareholders. “ The Jobs and Growth Tax Relief Reconciliation Act of 2003”, included tax law changes beneficial to many fund shareholders. The changes will affect the following types of investment income commonly received by shareholders with taxable accounts:

Long-Term capital gain distribution:* The maximum tax rate on long-term capital gains has been reduced from 20% to 15%. The new rate applies to gains from securities that were sold by funds after May 5, 2003. Distributions consisting of long-term capital gains realized by funds after May 5, 2003, will be subject to this new lower rate.

Qualified dividends:* These dividends, paid by a mutual fund that invests in the stocks of U.S. and many foreign corporations, are now subject to a maximum tax rate of 15%. Previously, all dividends paid by mutual funds were taxed as regular ordinary income, at rates as high as 35%. Shareholders will have to satisfy a holding-period requirement to qualify for the new lower dividend rate.

*The tax documents you will receive in the coming weeks contain information you will need to determine the percentage of your 2003 long-term capital gains that qualifies for the new lower rate, and to calculate the share of your 2003 dividends that are “qualified.”

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