Why do the Funds pay distributions?
To avoid federal taxation, mutual funds must distribute all of their dividends and capital gains each year. All interest and dividends received from the securities in the portfolio, less expenses, are passed through to shareholders as income. Gains realized from selling securities that have been held less than a year are paid out as short term capital gains. Gains realized from securities held for more than a year are passed through to shareholders as long term capital gains, which are taxed at a lower rate.
