What procedures may a fund use to estimate the tax character of current-year distributions where these distributions have not yet been reported on IRS tax forms?
A. Instruction 3 to Item 21(b)(2) of Form N-1A and Instruction 3 to Item 21(b)(3) of Form N-1A provide that “the taxable amount and tax character of each distribution should be as specified by the Fund on the dividend declaration date, but may be adjusted to reflect subsequent recharacterizations of distributions.” The Division believes that adjustments to reflect subsequent recharacterizations of distributions are mandatory.20 In meeting this requirement, a fund should use reasonable efforts to make the most current determination of the tax character of each distribution. It is advisable for funds to retain written explanations of their efforts for this purpose. The tax character specification or any subsequent recharacterization need not be disseminated to shareholders prior to its use in an after-tax return calculation.
