Cost Basis Information Center

Cost basis is the price you paid for your shares, adjusted for return of capital, certain corporate actions and any sales charges or transaction fees. Cost basis is an important calculation used to determine gains and losses on any shares you sell in a taxable (non-retirement) account. You will need this information to prepare your tax return.

On October 12, 2010, the Treasury issued the final regulations to the Emergency Economic Stabilization Act of 2008. It requires fund companies to report the following information for covered shares (those purchased after January 1, 2012) in taxable (non-retirement) accounts to both the IRS and to shareholders, via Form 1099-B:

• Adjusted cost basis
• Shareholder's gross proceeds
• Wash sale adjustments
• Short- and long-term gains and losses
• Holding period for each redemption of covered shares

Reporting must be provided to shareholders by February 15 for the previous tax year.

In the new legislation, covered securities refer to shares acquired on or after January 2012. (Effective dates differ for other types of securities.)

Shares acquired prior to January 1, 2012 are non-covered; investors will still be solely responsible for calculating and reporting gains and losses realized on the sale of these securities.

Cost basis methods determine which tax lots (shares purchased at the same price on the same day) are sold first. Direct shareholders of PIMCO funds should choose a cost basis accounting method allowed under the Internal Revenue Code.

The following cost basis methods are available:

Average Cost (ACST) – A method for valuing the cost of covered shares in an account by averaging the effect of all covered transactions in the account. The gain/loss is calculated by taking the cumulative dollar cost of the covered shares owned and dividing it by the number of covered shares in the account. Non-covered securities are calculated separately from covered securities and are not reported to the Internal Revenue Service.

First In, First Out (FIFO) – Depletes shares beginning with the earliest acquisition date

Last In, First Out (LIFO) – Depletes shares beginning with the latest acquisition date.

High Cost, First Out (HIFO) – Depletes shares beginning with shares purchased at the highest cost.

Low Cost, First Out (LOFO) – Depletes shares beginning with shares purchased at the lowest cost.

Loss/Gain Utilization (LGUT) – A method that evaluates losses and gains and then strategically selects lots based on that gain/loss in conjunction with a holding period.

Specific Lot Identification (SLID) – The shareholder needs to designate which specific shares to redeem at the time they place a redemption request. A secondary accounting method must be selected and will only be activated if the lots chosen are no longer available. Please note that average cost cannot be used as a secondary accounting method.

PIMCO has chosen the below accounting methods as the default for cost basis reporting. You may choose the same default method or any other cost basis reporting methods. This election is good for all future transactions unless you either revoke or change the election.

• PIMCO Open-End Mutual Funds: Average Cost (ACST)
• PIMCO Closed-End Funds: First In, First Out (FIFO)

If you elect average cost as your cost basis method, the regulations require that you make the election in writing.

You may retroactively change the fund's default to another method before the date of the first redemption, exchange or transfer. Elections to or from average cost must be made in writing. No matter what cost basis method you choose, you may always change it on future purchases.

You may change your cost basis method as often as you like. You are not required to use the same method for every redemption transaction. However, if you have chosen or were defaulted to average cost, changes to or from this method must be made in writing.

Generally, when you transfer to a new fund/account, your personal information, including the cost-basis method, is copied from the old fund/account. You may change the method at any time.

It depends on your personal tax situation. You should consult with a tax professional, CPA, financial planner, or investment manager to decide what option is best for you.

Taxpayers are required to report the sale of capital assets on their Form 1040 individual income tax returns, using Schedule D. Fund companies provide some help by reporting the transaction to both investors and to the IRS.

You will receive a Form 1099-B showing sales(s) proceeds for each redemption transaction. In addition to cost basis information, the calculated gain or loss on the trade will be reported, and classified as short- or long-term based on the acquisition date of the security. The information reported to you on Form 1099-B will also be reported to the IRS.

A wash sale occurs when you sell an investment at a loss, and repurchase a substantially identical investment within a 61-day period that extends from 30 days before you take your loss until 30 days after. Losses from wash sales are not deductible. Instead, the loss is added to the cost basis of the repurchased investment. Any wash sale for covered securities will be reported to the IRS and to you on Form 1099-B.

All non-covered shares will be depleted before the covered shares, starting with the oldest shares first unless your cost basis accounting method is Specific Lot Identification (SLID). If SLID is selected, you need to designate which specific shares to redeem at the time you place a redemption request.