2009 Tax Information
When mutual funds distribute their income to shareholders, the distributions may fall into one of several categories and each is governed by a different set of tax rules.
Interest from state and local municipal bonds is generally free from federal income taxation. Mutual funds that invest in these bonds typically distribute this interest to shareholders in the form of an exempt-interest dividend. Depending on your home state's laws, some or all of the exempt-interest dividend may be exempt from state income taxes as well. The income from certain state or local government bonds owned by the fund may be subject to the alternative minimum tax.
Brokerage firms and mutual fund companies are required to report tax-exempt interest to shareholders and to the Internal Revenue Service. This information is generally reported on IRS Form 1099-INT, Interest Income. The Form 1099-INT will also show the amount of interst dividend subject to the alternative minimum tax in Box 9.
A mutual fund distribution that does not come from the fund's earnings is known as a return of capital or nondividend distribution. This occurs when a portion, or all, of what was invested in the fund is distributed back to shareholders in a particular year. This type of distribution can come about due to activities in underlying investments of the fund or certain tax adjustments.
This type of distribution is sometimes incorrectly referred to as a "nontaxable dividend" or a "tax-free dividend." To determine if any portion your nondividend distribution is taxable, you must first reduce your cost basis of your shares by the amount of the nondividend distribution. If the return of capital reduces the cost basis of your shares below zero, the excess amount is treated as a capital gain. Your tax advisor can help you if this occurs. In most cases however, the amount of the return of capital is smaller than your basis in the shares, thus making it nontaxable.
Return of capital distributions from mutual fund investments, appear in box 3 of Form 1099-DIV, Dividends and Distributions, labeled "Nondividend distributions."
This information is for use with concurrent or prior delivery of a fund prospectus. Investors should consider the investment objectives, risks, charges and expenses of a mutual fund carefully before investing. To learn more about this and other important information about each fund, download a free prospectus. The prospectus should be read carefully before investing.
Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.
Columbia Management Investment Advisers, LLC and its affiliates do not offer tax or legal advice. Consult with your tax advisor or attorney regarding your specific situation.
Not all products and all share classes are available through all firms.
RiverSource®, Seligman® and Threadneedle® mutual funds are distributed by Columbia Management Investment Distributors, Inc. (formerly known as RiverSource Fund Distributors, Inc.), member FINRA and managed by Columbia Management Investment Advisers, LLC (formerly known as RiverSource Investments, LLC). Threadneedle mutual funds are subadvised by Threadneedle International Limited, an affiliate of Columbia Management. Seligman is an offering brand of Columbia Management.