Tex Payor Bought Shares of the Stocks4U Mutual Fund on February

Tex Payor bought shares of the Stocks4U Mutual Fund on February 26^th.During the year, the fund sold some of the stocks in which it was invested, generating long-term capital gain income for the fund. Tex received a distribution of some of these gains at the end of the year, based on his proportionate ownership of the fund. Which of the following statements is true regarding the tax consequences of this distribution to Tex?

A) Tex will have to pay tax on the distribution at his marginal tax rate. Since Tex had not been invested in the fund for over 12 months when the distribution occurred, it is considered to be short-term capital gain income for him, which is taxed as ordinary income.
B) Tex will have to pay tax on the distribution unless he opts to reinvest the distribution in the fund, in which case the income will not be taxable.
C) Tex will have to pay tax on the distribution at the tax rate for long-term capital gains, which are currently taxed preferentially.
D) There are no tax consequences to Tex. Mutual fund investors are taxed only on dividend distributions and on capital gains realized when they sell shares of a fund that they own. Capital gains earned by the fund when securities are bought and sold by the fund's manager are taxed to the fund.