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The tax laws require a mutual fund to distribute the capital gains and ordinary
income that it receives from its portfolio investments each year. The capital gains
requirement applies only to profit that has been realized through the sale of securities,
with the gains typically distributed by funds toward the end of the calendar year.
These distributions are taxable when paid to taxable accounts, whether the shareholder
receives the distribution in cash or reinvests it in additional fund shares.
Fund shareholders may realize capital gains in two ways. First, if the fund manager
sells stock on the shareholders' behalf inside the fund portfolio and then distributes
that gain to the shareholder as a taxable distribution; and second, if the shareholder
sells his or her mutual fund shares at a Net Asset Value (NAV) greater than the
NAV at time of purchase.
Tax Implications
Fund gains that arise from the sale of securities held by the portfolio for more
than one year are distributed to fund shareholders as "capital gain dividends",
even if the shareholder purchased fund shares less than one year earlier. Shareholders
report these dividends on their tax returns as long-term capital gains, which are
taxed either at a reduced rate of 10 percent (for those taxpayers otherwise taxed
at a 15 percent rate) or at a reduced rate of 20 percent (for those taxpayers otherwise
taxed at rates above 28 percent).
Which Funds Will Generate Capital Gains?
Any type of mutual fund (other than a money market fund) can generate capital gain
distributions since distributions are generated when a fund sells portfolio securities
for a net profit over the course of a year. However, some portfolios traditionally
generate greater capital gains than others. Equity portfolios, for instance, historically
realize greater gains than bond portfolios. And, depending on marketplace trends,
certain investment styles within the equity universe may demand increased portfolio
activity, which in turn may generate greater capital gains.
Important Dates
There are three dates that are important in the capital gains calendar. If you are
a shareholder on the record date, you will receive the capital gains distribution.
That distribution is then taken out of the fund's Net Asset Value on the ex-date
(thereby causing the fund's price to decline to reflect that reduction in value).
It is this amount taken out of the NAV on the ex-date that is used to pay the capital
gain to shareholders of record. These capital gains are then paid out, in the form
of cash or additional shares, on the payment date.
PIMCO Funds Capital Gains
In December, PIMCO Funds will have its record, ex-, and payment dates for its realized
capital gains. It is important to remember that fund prices on the day after the
funds' ex-date will be effected by the amount taken out of the funds' Net Asset
Values (in order to pay the capital gain distribution). These amounts are subject
to change for many reasons, including market volatility, fund flows and portfolio
activity. As we have further information on capital gains amounts, dates and reinvestment
prices, we will post the data to our Web site. Financial advisors with questions
on these capital gains can call PIMCO Funds at 1-866-746-2602.
Investors should consider the investment objectives, risks, charges, and expenses of this Portfolio and the variable product carefully before investing. This and other important information are contained in the PIMCO Variable Insurance Trust (the "Portfolio") prospectus and the variable product prospectus. Ask your financial professional to explain all charges that may apply. The portfolio prospectus may be obtained by contacting your PIMCO representative. The variable product prospectus may be obtained by contacting the applicable insurance company or your Investment Consultant. Please read both the PIMCO Variable Insurance Trust prospectus and the variable product prospectus carefully before you invest or send money.
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