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Q. What is a cost-basis method?
A. A cost-basis method is a systematic approach for ordering shares to be sold that were purchased at different times and at different prices. The order is used to determine which shares are sold first. The order of shares sold could be based on either the date the shares were acquired or the cost basis of the shares. Please refer to Cost-Basis Reporting—What Are My Options for more details. The article can be found in the Tax Center at www.lordabbett.com.
Q. Do I have to choose a method?
A. No. All Lord Abbett funds will use the average cost-basis method to compute and report cost basis on sales of shares purchased after January 1, 2012, unless you (or your broker) provide instructions to use a different method. If you would like to use the default method of average cost, no action is required. If your preference is to use a method other than average cost, then you must inform us of your preferred cost-basis method.
Q. Which cost-basis methods can a shareholder choose?
A. Lord Abbett will support six different cost-basis methods. In addition, a shareholder will have the ability to specifically select the shares that she/he wishes to sell instead of using one of the cost-basis methods. Below is a list of all the available methods and a description for each. Numerical examples of each method can be found at the end of this document, in the attached Cost-Basis Method Examples.
Hybrid cost-per-share and acquisition-date-ordering method
Q. Which method is best?
A. Each shareholder’s tax situation may be different; therefore, the “best” method for one shareholder may not be the best for another. A shareholder may want to discuss his personal tax situation with his advisor prior to selecting a method.
Q. When do I need to choose a method?
A. We will begin accepting cost-basis method requests on November 15, 2011. If a method is not chosen by January 1, 2012, the default method of average cost will be used.
Q. Can I choose a method after January 1, 2012?
A. Yes, you may choose a method at any point; however, if a method is not chosen by January 1, 2012, the default of average cost will be used. You will be able to revoke the default average-cost method and choose a different method provided you do so before the first redemption date following January 1, 2012. Once you redeem or exchange shares using the average-cost method you can no longer revoke the average-cost-basis method; however, you may change to a different method going forward for shares purchased after you make a different election.
Q. What is the difference between revoking and changing an average-cost-basis method?
A. You will be able to revoke the average-cost-basis method no later then your first redemption date. By revoking the average-cost-basis method, the tax basis of each share will revert back to its original basis. All such shares will no longer maintain the same average cost basis per share. After a redemption has occurred using average cost, you may only change to another method going forward (as described above) and can no longer revoke the average-cost-basis method. This means that all shares acquired prior to the change will maintain the same average cost basis per share. Any shares acquired after the change will keep its original cost basis and will not be averaged with prechange shares.
Q. How frequently can I change my method?
A. You may change your method as frequently as you like. You are not required to use the same method for every redemption transaction. However, if you have chosen to use average cost or were defaulted to average cost, you may only change to another method either in writing or on our Website. Changes to or from a method that does not include average cost may also be made by telephone.
Q. Where can I find more information on each method?
A. The attached Cost-Basis Method Examples reflects the results of each method based on the same set of transactions. As you can see, the resulting gain or loss for each method is different.
The opinions in the preceding commentary are as of the date of publication and subject to change based on subsequent developments and may not reflect the views of the firm as a whole. This material is not intended to be legal or tax advice and is not to be relied upon as a forecast, or research or investment advice regarding a particular investment or the markets in general, nor is it intended to predict or depict performance of any investment. Investors should not assume that investments in the securities and/or sectors described were or will be profitable. This document is prepared based on information Lord Abbett deems reliable; however, Lord Abbett does not warrant the accuracy or completeness of the information. Investors should consult with a financial advisor prior to making an investment decision.
Investors should carefully consider the investment objectives, risks, charges, and expenses of the Lord Abbett funds. This and other important information is contained in each fund’s summary prospectus and/or prospectus. To obtain a prospectus or summary prospectus on any Lord Abbett mutual fund, contact your investment professional or Lord Abbett Distributor LLC at 888-522-2388 or visit us at www.lordabbett.com. Read the prospectus carefully before you invest.