You
will pay tax on dividends from a Fund (other than exempt-interest dividends)
whether you receive them in cash or additional shares. If you redeem Fund shares
or exchange them for shares of another fund, you generally will be treated as
having sold your shares and any gain on the transaction may be subject to tax.
Fund distributions derived from qualified dividend income, which consists of
dividends received from U.S. corporations and qualifying foreign corporations,
and from long-term capital gains are eligible for taxation at a maximum rate of
15% or 20% for individuals, depending on whether their income exceeds certain
threshold amounts, which are adjusted annually for inflation.
A
3.8% Medicare tax is imposed on the net investment income (which includes, but
is not limited to, interest, dividends and net gain from investments) of U.S.
individuals with income exceeding $200,000, or $250,000 if married filing
jointly, and of trusts and estates.
Your
dividends and redemption proceeds will be subject to backup withholding tax if
you have not provided a taxpayer identification number or social security number
or the number you have provided is incorrect.
If
you are neither a tax resident nor a citizen of the United States or if you are
a foreign entity (other than a pass-through entity to the extent owned by U.S.
persons), the Fund’s ordinary income dividends (which include distributions of
net short-term capital gain) will generally be subject to a 30% U.S. withholding
tax, unless a lower treaty rate applies. However, certain distributions reported
by the Fund as exempt-interest dividends, capital gain dividends,
interest-related dividends or short-term capital gain dividends and paid to a
foreign shareholder may be eligible for an exemption from U.S. withholding
tax.
Separately,
a 30% withholding tax is currently imposed on U.S.-source dividends, interest
and other income items paid to (i) certain foreign financial institutions and
investment funds, and (ii) certain other foreign entities. To avoid withholding,
foreign financial institutions and investment funds will generally either need
to (a) collect and report to the IRS detailed information identifying their U.S.
accounts and U.S. account holders, comply with due diligence procedures for
identifying U.S. accounts and withhold tax on certain payments made to
noncomplying foreign entities and account holders or (b) if an intergovernmental
agreement is entered into and implementing legislation is adopted, comply with
the agreement and legislation. Other foreign entities will generally either need
to provide detailed information identifying each substantial U.S. owner or
certify there are no such owners.
Each
Fund intends to make income distributions most of which will be excludable from
gross income for Federal income tax purposes and exempt from California, New
Jersey or Pennsylvania personal income taxes, respectively, with respect to the
California Fund, the New Jersey Fund and the Pennsylvania Fund. Some
distributions may be taxable.
Each
Fund will purchase a municipal security only if it is accompanied by an opinion
of bond counsel, delivered on the date of issuance of the security, that the
interest paid on such security is excludable from gross income for Federal
income tax purposes and exempt from personal income taxes in California, New
Jersey or Pennsylvania, as applicable (i.e., “tax-exempt”). For purposes of each
Fund’s investment strategies, municipal securities and municipal bonds do not
include certain tax credit bonds or tax subsidy bonds issued by municipalities
and/or states, the interest on which is taxable for Federal income tax purposes.
Holders of tax credit bonds may be entitled to be allocated income tax credits
of certain amounts. To the extent dividends distributed by a Fund are derived
from bond interest income that is excludable from gross income for Federal
income tax purposes, they are exempt from Federal income tax. Interest income
from other investments and income from derivatives may produce taxable dividend
distributions.
Each
Fund intends to minimize the payment of taxable income to shareholders by
investing in tax-exempt or municipal securities in reliance at the time of
purchase on an opinion of bond counsel that the interest paid on those
securities will be excludable from gross income for Federal income tax purposes.
Such securities, however, may be determined to pay, or have paid, taxable income
subsequent to the Fund’s acquisition of the securities. In that event, the IRS
may demand that the Fund pay Federal income taxes on the affected interest
income, and, if the Fund agrees to do so, the Fund’s yield could be adversely
affected. In addition, the treatment of dividends previously paid or to be paid
by the Fund as “exempt interest dividends” could be adversely affected,
subjecting the Fund’s shareholders to increased Federal income tax liabilities.
If the interest paid on any tax-exempt or municipal security held by a Fund is
subsequently determined to be taxable, the Fund will dispose of that security as
soon as reasonably practicable. In addition, future laws, regulations, rulings
or court decisions may cause interest on municipal securities to be subject,
directly or indirectly, to Federal income taxation or interest on state
municipal securities to be subject to state or local income taxation, or the
value of state municipal securities to be subject to state or local intangible
personal property tax, or may otherwise prevent the Fund from realizing the full
current benefit of the tax-exempt status of such securities. Any such change
could also affect the market price of such securities, and thus the value of an
investment in the Fund.
Dividend
distributions derived from taxable interest income or capital gains realized by
a Fund on portfolio securities or derivative instruments, if any, will be
subject to Federal income tax and applicable state and local taxes.
