Tex Payor Is an Investor in the Invest4U Mutual Fund

Tex Payor is an investor in the Invest4U Mutual Fund. The manager of the fund, fearing a substantial decline in the stock market, sold a lot of the fund's holdings to lock in profits. As a result, the fund earned a lot of long-term capital gain income. Which of the following statements is true regarding the tax treatment of this income?

A) Tex must pay taxes on that portion of the long-term capital gain income that Invest4U distributes to him.
B) Tex must pay taxes on his proportionate share of the long-term capital gain income earned by Invest4U, whether distributed or not.
C) Tex must pay taxes only on dividend income distributed by Invest4U.The mutual fund itself pays tax on any capital gains it earns.
D) None of the above is a true statement.