Report all mutual fund gains as income, regardless of whether you reinvested. You’ll receive 2 kinds of distributions: ordinary dividends, and capital gains.
Ordinary dividends are net gains of the fund which are paid out periodically to shareholders. They are considered dividends to you, and must be reported as such.
Capital gains are subject to different tax rates. A mutual fund’s net gains from selling securities falls into this category. Your mutual fund should send you a form with a breakdown of capital gain distributions.