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Morningstar, Inc. Commentaries


Deck the Halls With Higher Tax Bills

Dec 23, 2013

Click here to access Deck the Halls With Higher Tax Bills

While the holiday season is generally filled with cheer, some closed-end fund investors may say "Bah, humbug!" thanks to higher tax bills this year. Investors in traditional open-end funds are quite familiar with the year-end tradition of special distributions. And although CEFs are required to distribute nearly all of their realized gains and income earned during the year to maintain their status as a registered investment company, CEF investors are often removed from this ritual. That's partly because managed and level distribution policies allow CEFs to pay capital gains throughout the year. In fact, as of mid-December, 13% of all CEFs had managed distribution policies (a stated, predetermined percentage of net asset value is paid out each year, with payments spread evenly throughout the year) and more than three fourths had level distribution policies (the same dollar amount is paid each period, usually monthly or quarterly).



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