Tax Center

The distribution of capital gains is not necessarily correlated to a mutual fund’s current performance. When mutual funds realize more gains than losses, they must distribute those gains to shareholders or pay federal taxes on those gains if not distributed. A mutual fund may also use net capital losses from prior years to offset current year realized capital gains, subject to limitations in certain cases. On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted, effective for taxable years beginning after December 22, 2010. Among the changes made are changes to the capital loss carryforward rules allowing for capital losses to be carried forward indefinitely. Rules in effect for taxable years beginning prior to the effective date of the Act limited the carryforward period to eight years. Capital loss carryforwards generated in taxable years beginning after the effective date of the Act must be fully used before capital loss carryforwards generated in taxable years beginning prior to the effective date of the Act; therefore, under certain circumstances, capital loss carryforwards available as of the effective date of the Act may expire unused.

Information about each mutual fund’s realized and unrealized capital gains, including available capital loss carryforwards, can be found in their semiannual and annual reports to shareholders. A mutual fund’s unrealized capital gains can indicate whether the mutual fund would need to distribute capital gains if its securities were sold. Realized and unrealized capital gains reported in the financial statements may not include all tax adjustments. Additionally, the amount of net realized foreign currency losses that reduced ordinary income distributions during the period and the net unrealized gain/loss from foreign currency translations can be found in the semiannual and annual reports to shareholders. Such amounts may not include all tax adjustments.

Tax law requires that mutual funds pay substantially all net investment income and net capital gains to their investors, who may elect to either receive cash or reinvest in additional shares of the mutual fund. Ordinary income distributions are made on a monthly, quarterly, or annual basis in accordance with a mutual fund’s distribution policy. You can find your mutual fund’s distribution policy in the its Prospectus. Capital gain distributions are made annually in December. Additionally, certain mutual funds may be subject to an additional distribution, commonly referred to as a spillback distribution.

Ordinary income generally consists of dividends, interest, and other income earned on a mutual fund’s investments, less expenses.

Spillback distributions are distributions of ordinary income and/or capital gains from the previous fiscal year that were not distributed by the end of that year. Spillback distributions must be declared within 9½ months (the extended tax return due date) of the end of a mutual fund’s fiscal year. The extended tax return due date is October 15th for the mutual funds with a December 31st fiscal year end. Even though they represent ordinary income and/or capital gains earned by a mutual fund in the previous fiscal year, they are taxable in the year in which they are paid.

Yes. Spillback distributions are normal practice for mutual funds under designated rules and regulations within the Internal Revenue Code.

Similar to a regular monthly or quarterly distribution, when a spillback distribution is paid, the mutual fund’s net asset value (“NAV”) per share is reduced by the amount of the distribution. For example, if a mutual fund’s NAV per share is $5, and it pays a distribution of $1 per share, the NAV would drop to $4 per share, assuming there was no other market activity affecting the share price.

Shareholders who reinvest their distributions would receive additional fund shares equal to the amount of the distribution. As a result, the shareholder’s total account value would remain the same.

Please note that spillback distributions and all other fund distributions (ordinary income and capital gain) will not impact the total return experienced by a fund shareholder regardless of whether the distribution is reinvested or paid in cash.

Spillback distributions are typically paid out in August.

Spillback distributions are taxable in the year they are paid, even though they represent ordinary income and/or capital gains earned by a mutual fund in the previous year. Spillback distributions will be reported to shareholders on Form 1099-DIV, which are delivered to shareholders annually in February.

Distributions are taxable in the year they are paid (unless mutual fund shares are held in a tax-advantaged account), whether shareholders receive them in cash or reinvest them in additional mutual fund shares.

No. Distributions do not impact total return. A mutual fund’s calculation of its total return includes the assumption of reinvestment of all distributions back into the mutual fund. As such, the total return calculation returns the same result immediately after a distribution as it did immediately prior to a distribution.

Record Date: The date used to determine which shareholders are eligible to receive the distribution. Shareholders who purchase mutual fund shares that settle on or before the record date will receive the distribution.

Ex-dividend Date: The date when the distribution amount per share is deducted from a mutual fund's NAV. Shareholders who purchase mutual fund shares on or after the ex-dividend date are not eligible to receive the distribution.

Payable Date: The date when shareholders are paid their distribution, either in cash or by reinvestment in additional mutual fund shares. Distributions are reinvested at the NAV per share on the ex-dividend date.

During periods in which the US dollar appreciates relative to foreign currencies, mutual funds that hold non-US dollar denominated bonds may realize currency losses that impact their ordinary income distributions. When a non-US dollar denominated bond matures or is sold, the resulting gain or loss is made up of two components: a capital gain/loss and a currency gain/loss. A recognized currency loss, in accordance with federal tax rules, decreases the amount of ordinary income a mutual fund has available to distribute (to the extent that losses are not offset by realized currency gains, and regardless of how long the bond was held). To compensate for realized currency losses, a mutual fund that distributes income more frequently than annually might consider such currency losses when declaring its distribution rates in an effort to mitigate potential of distributing more income than it earns for the year. If currency losses are not factored into ongoing distributions, a mutual fund risks distributing more income to shareholders than it earned during the year. This would result in a return of capital to shareholders, effectively reducing the amount of principal that shareholders have in their accounts.

When a distribution is paid, a mutual fund's NAV per share is reduced by the amount of the distribution. For example, if a mutual fund's NAV per share is $5, and it pays a distribution of $1 per share, its NAV per share would drop to $4 per share, assuming there was no other market activity affecting the share price. Shareholders who reinvest their distributions would receive additional mutual fund shares equal to the amount of the distribution. As a result, the shareholder’s total account value would remain the same.

Distributions are taxable in the year received whether shareholders receive them in cash or reinvest them in additional mutual fund shares. If mutual fund shares are held in a tax-advantaged account (such as a 401(k) or IRA), taxes may be paid upon withdrawal from the account. Distributions are taxable to shareholders even if they are paid from ordinary income or capital gains earned by a mutual fund before a shareholder’s investment in the mutual fund (and thus were included in the price the shareholder paid for his or her shares). Ordinary income distributions are taxable to shareholders at individual income tax rates. All or a portion of a mutual fund's ordinary income may be distributed to shareholders as “qualified dividend income,” which is taxed at a more favorable rate than a shareholder’s individual tax rate. Dividend income earned by a mutual fund must meet certain requirements in order for the ordinary income distributions to qualify for the lower rate. Long-term capital gains are currently taxed at a maximum rate of 20%. Short-term capital gains are currently taxed at ordinary income rates.

Shareholders who receive ordinary income and capital gains from a mutual fund held in a taxable account will receive Form 1099-DIV, which will reflect all distributions paid during the calendar year, generally by February of the following calendar year.

Yes. The character of mutual fund distributions is determined annually in accordance with federal tax regulations; as such, ordinary income and capital gain distributions are sometimes reclassified after the end of the calendar year to properly reflect the mutual fund's earnings on a tax basis. For example, for those mutual funds that invest in forward currency contracts, required mark-to-market adjustments at year end may be more or less impactful to income than last estimated in determining previous distributions. Likewise, for investments in real estate investment trusts (“REITs”), the amount of distributable (taxable) income is dependent on the composition of distributions made by the underlying portfolio of REITs; accordingly, when a mutual fund identifies the character of distributions paid by REITs in the previous calendar year, distributions to mutual fund shareholders may be reclassified as either ordinary income or capital gain distributions or, if in excess of taxable income, as a return of capital.

The impact of derivatives on mutual fund distributions depends on the types of derivative contracts utilized by a mutual fund, the volume of derivatives use, and the performance of the derivative contracts during the annual measurement period. Information on a mutual fund's use of derivatives, including realized and unrealized capital gains, can be found in the mutual fund's semiannual and annual reports to shareholders. The timing and character of amounts required to be distributed with respect to derivatives are based on the application of complex sections of the Internal Revenue Code; as such, actual distributions may differ from amounts reported in a mutual fund's financial statements.

Yes. Lazard provides estimates of ordinary income and capital gain distributions to be paid in December for the convenience of shareholders and their financial advisors to assist with year-end tax and investment planning; however, such estimates are not intended to be a precise indicator of year-end distribution amounts. Actual distributions may differ significantly from the estimates. Ordinary income and capital gain distribution estimates are typically made available on or about November 1 each year at www.lazardassetmanagement.com or by calling (800) 823-6300.