The exclusion of up to $5,000 for death benefits no longer applies. It had applied only for employees who died before August 21, 1996. Only a death gratuity paid to a survivor of a member of the Armed Forces continues to be excludable from gross income.
A mutual-fund distribution allocated to gains realized on the sale of fund portfolio assets. You report the distribution as long-term capital gain even if you held the fund shares short term.