| Capital Gains |
| Download HighMark Funds capital gains distribution information. |
| > 2012 Capital Gains Distributions |
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| FREQUENTLY ASKED QUESTIONS REGARDING FUND DISTRIBUTIONS |
| 1. What is a capital gain? |
| The profit made by selling an investment (e.g., stock, bond, mutual fund share) for an amount greater than it was purchased. |
| 2. What is a capital gains distribution? |
| Mutual funds pay capital gain distributions because they are required by law to pass along net earnings and profits to their shareholders annually. Mutual fund managers buy and sell securities in the course of managing a portfolio and may incur a capital gain or capital loss with each sale. Generally speaking, if gains exceed losses, the fund must distribute the net gains to its shareholders, as required by the IRS, in the form of a capital gains distribution. |
| 3. What are the tax implications of dividends and capital gains distributions? |
| As a shareholder of a mutual fund, you are responsible for paying taxes on most distributions paid to you, regardless of whether they were paid in cash or reinvested. Dividends are paid to shareholders when securities held by a mutual fund have paid interest or dividend income to the fund and the sum of all this "income" exceeds the fund's expenses. Capital gains (both short-term and long-term) are paid to shareholders when a mutual fund has sold securities at a profit. Both dividends and short-term capital gains are currently taxed at ordinary income-tax rates. Long-term capital gains are taxed at rates that, for many investors, are lower than their ordinary income-tax rates. Long-term capital gains are currently taxed at a maximum rate of 20 percent. Please note that income in an IRA or 401(k) type account, including dividends and capital gains, is generally deferred from taxes until the investments are redeemed. |
| 4. Why does the fund price drop when capital gains are paid? |
| As fund managers buy and sell securities over the course of a year, the profits contribute to the rise of the Net Asset Value (NAV) of the fund's shares. Whenever that profit is paid out to shareholders in the form of a distribution, the fund's NAV, or share price, is reduced proportionately. Shareholders who choose to automatically reinvest all distributions received will receive additional shares equaling the amount of the distribution and the total account value will not be affected. For example, if an investor has 100 shares of a fund and the NAV is $10 a share, the account value is $1,000. If the fund pays a capital gains distribution of $2 a share, or $200 total, the NAV drops to $8 and the original shares are now worth $800. A shareholder who automatically reinvests the $200 capital gains distributions will acquire an additional 25 shares ($200 divided by $8). The end result is an account with 125 shares worth $8 eachβ"for a total of $1,000. The additional shares compensated the investor for the drop in NAV, maintaining the total value of the account. |
| 5. When must taxes on capital gains distributions be paid? |
| Mutual fund shareholders are required to include the amounts of taxable dividends and/or capital gains distributions on their federal income tax returns. This is true even if a fund's share price declined during the year. Shareholders who receive taxable dividends and/or capital gains distributions will receive information with their year-end account statements and Form 1099-DIV. |
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| For more information, please contact your adviser or call HighMark Funds at 1.800.433.6884. The information on this page is for informational purposes only and does not constitute, and should not be construed as, professional, legal or tax advice. To determine your individual tax situation and specific needs, please consult a professional tax adviser or your financial adviser. |
