|REGULAR (TAXABLE) ACCOUNTS
I. Dividends and Distributions from the Funds:
When I receive income dividends or capital gain distributions in my regular account, are those amounts taxable?
Yes. Dividends and capital gain distributions are taxable to you and must be reported on your tax return. In mid-to-late January, you will receive Form 1099-DIV, which reports the total taxable distributions you received during the year. This information is reported to the IRS.
If I reinvest my dividends or capital gains, are they still taxable?
Yes. The value of reinvested dividends and distributions will be included on Form 1099-DIV and must be reported on your tax return. The shares you receive on the reinvestment are treated as newly purchased shares.
Why does a Fund pay capital gain distributions?
Capital gain distributions in a mutual fund are distributions of the net profits derived from sales of stocks and bonds within the Fund. As a result, they can occur in a Fund even in a period when the Fund’s total return is low or negative. To comply with IRS requirements, the Dodge & Cox Funds normally distribute net capital gains annually. (When a Fund sells an individual security, the Fund tracks the difference between the selling price and the original purchase price of that security to determine the gain or loss produced by the sale. At the end of each tax year, the Fund accumulates the gains and losses for all securities sold by the Fund during the year. If the net amount is positive, the Fund will make a capital gain distribution to shareholders.)
II. Sales (Redemptions or Exchanges) of Fund Shares:
If I sell shares in my regular account, is the transaction taxable?
Yes. If you sell (redeem or exchange) shares in your Fund account, the gain or loss on that sale must be reported to the IRS on your tax return. In mid-to-late January, you will receive Form 1099-B, which reports the proceeds you received from your sale. This information is reported to the IRS.
If I exchange my investment from one Dodge & Cox Fund to another, is the transaction still taxable?
Yes. For tax purposes, an exchange is considered a sale of one Fund and the purchase of another. The gain or loss on the shares you sell in the exchange transaction must be reported on your tax return. In mid-to-late January, you will receive Form 1099-B, which reports the proceeds you received from your sale.
If I sell shares in my account, how do I calculate the gain or loss?
Your gain or loss is determined by comparing the amount you realize from the sale (sales proceeds) against the cost basis of the shares sold.
How do I determine the basis of the shares I have sold?
There are four IRS-approved methods for determining the basis of shares sold. For more information on calculating cost basis for mutual fund holdings, please refer to IRS Publication 564 “Mutual Fund Distributions.”
One IRS-approved method is Average Cost, Single Category, which is used by many Fund shareholders. Most shareholders who sold shares in the current year and who opened their accounts after 11/1/87 will receive an Average Cost Accounting Statement in the following year to assist with reporting gains and losses under the average cost method. The information on the Average Cost Accounting Statement is NOT reported to the IRS. If you elect to use the average cost method you must continue to use it for all of your accounts in the same Fund. If you choose to use a method other than the average cost method, you will be responsible for keeping the cost records.
What is the difference between short-term and long-term capital gains?
Short-term gains are gains on securities held one year or less. They are taxed at the same rates as ordinary income. Short-term capital gain distributions from the Fund are reported as ordinary income on your Form 1099-DIV.
Long-term gains are gains on securities held more than one year. They are generally taxed at a maximum federal rate of 15%.
IRA ACCOUNTS—TRADITIONAL IRA (Including SEP-IRAs), ROTH IRA
I. Dividends and Distributions from the Funds:
When the Fund pays income dividends or capital gain distributions in my IRA account, are those amounts taxable?
No. Income dividends and capital gain distributions are not taxable as long as those assets remain in your IRA.
II. IRS Reporting of Year-end Account Values:
Is the value of my Traditional or Roth IRA reported to the IRS each year?
Yes. Your year-end balance, which appears on the year-end account statement sent to you in early January, is reported to the IRS.
If I contributed to my Roth and/or Traditional IRA for the tax year, will my contribution be reported to the IRS?
Yes. Form 5498, which is sent to you in May, reports your total IRA contributions attributed to the previous tax year. This information is reported to the IRS.
If I rolled assets from another retirement account into a Dodge & Cox Funds IRA, will that transaction be reported to the IRS?
Yes. Form 5498 is sent to you in May showing rollover amounts received into your Dodge & Cox Funds IRA during the previous year. This information is reported to the IRS.
IV. Sales (Redemptions or Exchanges) of Fund Shares:
If I exchange shares in my IRA from one Dodge & Cox Fund to another, is the transaction taxable?
No. Assets exchanged between Dodge & Cox Funds within your IRA are not taxable. The transaction is not reported to the IRS.
If I sold shares in my Dodge & Cox Funds IRA in order to roll the assets into another retirement account, is the transaction taxable?
No. In general, as long as the investment remains in an IRA or other qualified retirement account, and the rollover was properly completed within 60 days, the proceeds on the Fund shares you sell are not taxable. You may only rollover assets once every 12 months. In mid-to-late January the Fund will send you Form 1099-R, which reports the amount of the withdrawal from your Dodge & Cox Funds IRA. This information is reported to the IRS. The custodian of the IRA which received the rollover should report the receipt on Form 5498 in May following the year of receipt.
If I do a direct transfer from one Fund group to another is the transaction taxable?
No. In general, a direct transfer from one IRA custodian to another IRA custodian is not taxable. This information is not reported to the IRS.
I took a distribution from my Dodge & Cox Funds IRA, is the transaction reported to the IRS?
Yes. In mid-to-late January, the Fund will send you Form 1099-R, which reports the amount of your withdrawal from your Dodge & Cox Funds IRA. This information is reported to the IRS.
V. Conversions Between Traditional IRAs and ROTH IRAs:
I converted assets from a Traditional IRA to a Roth IRA, is the transaction reported to the IRS?
Yes. A Roth IRA conversion is considered to be a distribution from your Traditional IRA and a contribution by way of conversion to a Roth IRA. In January, you will receive a Form 1099-R which reports the amount withdrawn from the Traditional IRA in the conversion. In May, you will receive a Form 5498 reporting the amount received into your Roth IRA. This information is reported to the IRS. In general, the amount of the conversion must be recognized as taxable income.
FOR MORE INFORMATION
How can I get more information about my tax requirements?
You can obtain forms and publications from the IRS by calling 1-800-TAX-FORM or by visiting the IRS web site at www.irs.gov. You may wish to request the following publications:
- — For regular accounts: IRS Publication 564, “Mutual Fund Distributions”
- — For IRA accounts: IRS Publication 590, “Individual Retirement Arrangements (IRAs)”
- Please refer to the Funds’ prospectus and/or to the Funds’ IRA Disclosure Statement, which can either be downloaded, ordered by using the Order Forms & Literature Form, or obtained by calling Dodge & Cox Funds at (800) 621-3979.
- If you are a shareholder, you will receive your 1099 Forms from the Fund in mid-to-late January.
- If you require specific information concerning your individual tax situation, please consult with a tax advisor or refer to IRS and state instructions for preparing income tax returns.
The preceeding information is not intended to be a complete discussion covering all your income tax requirements, and it should not be relied upon as a source of professional advice.