How do capital gains affect fund distributions?
Fund capital gains generally arise when securities are sold within a fund portfolio. These capital gains are passed on to shareholders as required fund distributions of short-term or long-term capital gains.
What are short-term capital gains?
Short-term capital gain characterization results when the sold security is held for a time period of one year or less. A fund distribution of such short-term capital gain is generally treated as ordinary income subject to Federal ordinary income tax rates. The short-term capital gain distribution is included in Box 1a of the IRS Form 1099-DIV.
What are long-term capital gains?
Long-term capital gain characterization results when the sold security is held for a time period over one year. A fund distribution of long-term capital gain is treated as income subject to Federal income tax at a maximum rate of 23.8% (20% maximum long-term capital gain rate plus 3.8% Medicare tax). The long-term capital gain distribution is included as a capital gain distribution in Box 2a of the IRS Form 1099-DIV.
How can I tell if a fund has a capital loss carry forward?
Every fund’s Annual Report is required to disclose capital losses carrying forward to future fiscal years. These “capital loss carryforwards” are capital losses incurred during a fund’s fiscal year that carry over to future fiscal years when the losses can be netted with capital gains. For any fund in question, please refer to the “Federal Income Tax Matters” footnote of the Annual Report to find capital loss carryforward detail.
What are ordinary income distributions?
Ordinary income distributions are paid by a fund generally from tax basis net investment income (certain gains from derivatives and foreign currency can be classified as ordinary income as well). Ordinary income distributions are subject to Federal ordinary income tax rates. The ordinary income dividends paid by a fund (as well as any short-term capital gain distributions) are included in Box 1a of the IRS Form 1099-DIV.
How are ordinary income distributions classified as Qualified Dividend Income (QDI) taxed?
Certain dividends paid from U.S. corporations or from foreign corporations domiciled in a country having a tax treaty with the U.S., are generally subject to the maximum Federal long-term capital gain tax rate of 23.8% provided certain holding period requirements are met. When paid by a Fund to shareholders, this QDI is included in Box 1b of the IRS Form 1099-DIV.
What are exempt-interest dividend distributions?
Exempt-interest dividend distributions are paid by municipal bond and tax-managed funds that earn tax-free interest income. Such amounts are exempt from Federal income tax, and are included in Box 11 of the IRS Form 1099-DIV. Although such exempt-interest dividend distribution amounts are free from Federal income tax, any portion of such distributions arising from “private activity bonds” may be subject to the Federal alternative minimum tax; any such amount is included in Box 12 of the IRS Form 1099-DIV.
What are return of capital distributions?
Return of capital distributions result when a fund distributes in excess of its earnings and profits for a tax year. Such distributions are common, and can occur if a fund has certain tax adjustments to income. These distributions will likely not be subject to tax, and will adjust the tax cost of fund shares downward. A return of capital distribution will be included in Box 3 of IRS Form 1099-DIV. In addition, a Form 8937 for each fund which paid return of capital distributions can be found on our website, pimco.com/tax.
Are fund distributions subject to tax on Unrelated Business Taxable Income?
Tax on Unrelated Business Taxable Income ("UBTI") applies to certain federally tax-exempt organizations only. Such an entity would have filed for and received a special exemption from tax under the Internal Revenue Code. However, despite the exemption, tax may still be due on an organization's UBTI. UBTI is net income that a tax-exempt organization earns from activities that do not qualify under the tax law for purposes of its tax exemption, such as from a business which is not related to the organization’s tax-exempt mission. Debt financed activities of a tax-exempt entity also can generate UBTI. None of the funds has passed through any UBTI to tax-exempt shareholders. However, if a tax-exempt entity obtained its fund shares through debt financing, the entity may have earned UBTI. Please consult a tax professional for more information.
How do distributions affect share values?
The fund’s net asset value (NAV) drops in direct relationship to the distribution paid, plus or minus any market movement. For example, if a fund has a $10 NAV and pays a 25-cent distribution, the stated NAV will be $9.75 (that figure would rise or fall with any market movement). However, because shareholders receive either a cash distribution or additional shares through reinvestment, the total value of their accounts will not change (absent market movement). In our example, the total value associated to each share will still be worth $10 — $9.75 NAV, plus either 25 cents in cash or additional shares. Distributions will vary on a per-share basis, based on the underlying share class.
What is the difference between record date, ex-dividend date and payable date for dividend and capital gains distributions?
Record Date – Purchases through this day are eligible to receive the distribution. Shares redeemed on this day are not eligible to receive the distribution.
Ex-Dividend Date – The date on which the distribution amount per share is deducted from the fund’s net asset value (NAV) per share.
Payable Date – The fund pays shareholders their proportional amount of any distribution on this date. For PIMCO funds, the payable date for distributions paid in cash is normally the same business day as the ex-dividend date, except for those funds with daily income distributions. PIMCO fund shares purchased with reinvested distributions usually are credited on the reinvestment date at the closing price for that date.
