Frequently Asked Questions

1. What is cost basis?

Cost basis is generally 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.

2. What is the new cost basis legislation?

On October 3, 2008, Congress passed the Emergency Economic Stabilization Act, which requires brokers to report adjusted cost basis for taxable accounts to the IRS and taxpayers via Form 1099-B starting with tax year 2011. The legislation applies to securities acquired on or after the effective date as follows:

The legislation also requires that the new Form 1099-B indicate if the gain or loss is short-term or long-term, and the amount of any loss disallowed under the wash sale rules.

3. What are covered securities? What are non-covered securities?

Covered refers to securities acquired on or after the effective dates in the legislation.

Non-covered refers to securities acquired prior to the effective dates.

4. Do I have to return the election form? What happens if I do not submit a selection form?

Your mutual fund selected a default method for cost basis reporting and will notify you of its selection. You have the option to choose the same method as the fund’s default or you may choose any of the other cost basis reporting methods. This election is good for all future transactions unless you either revoke or change the election.

If you elect Average Cost as your cost basis method, the regulations require that you make the election in writing. This can be accomplished by selecting average cost on your election form, signing the election form, and returning it to the address on the form. The form should be returned regardless of the method you choose. If you do not return the election form, the fund’s default method will apply.

5. What cost basis methods are available?

Not all cost basis methods listed will be available for every fund. The following cost basis methods may be available to you:

6. Can you explain in more detail the Loss/Gain Utilization method?

The Loss/Gain Utilization method is used to deplete the shares with the largest losses first and the shares with the largest gains last. This will be done on a per share basis in each tax lot.

The following is the order in which the tax lots will be depleted:

7. What cost basis method is best for me? How can I decide?

It depends on your personal tax situation. You should consult with a tax advisor, CPA, Financial Planner, or Investment Manager to decide what option is best for you.

8. What is the purpose of the cost basis method I choose?

The cost basis method determines which tax lots are sold first. A tax lot consists of one or more shares of a security purchased at the same price on the same day.

9. What shares will be used when I request a redemption?

Generally, all non-covered shares will be depleted before covered shares. The non-covered shares will be depleted starting with the oldest shares first. For shareholders who proactively elect a method other than Average Cost or Specific Lot Identification, you have the option to use the same cost basis accounting method to deplete your non-covered shares that you chose for your covered shares. However, there may be limitations when applying the same method to your non-covered shares. For example, any prior redemptions of non-covered shares may not have been depleted using your current method. Therefore we may not be able to identify the specific shares that were redeemed or that you reported to the IRS. Please also note that non-covered shares purchased prior to January 2011 may be included as an aggregated share position on our cost basis reporting system. If you wish to use the same cost basis accounting method that you have elected for your covered shares, please contact us at the number noted on your quarterly statement or our website.

For shareholders using Average Cost for both covered and non-covered shares, you will have two average cost figures – one for your non-covered shares and one for your covered shares.

10. Am I able to change my election?

Effective January 1, 2012, if you have not proactively elected a basis method and the fund’s default is average cost you may retroactively change the fund’s default to another method before the date of the first redemption or transfer. Whether you are changing from average cost to another basis method or changing to average cost from another basis method, that request must always be in writing. Once your shares have been sold, the cost basis method applied at the time of the sale cannot be changed. You may only elect another method for future sales.

11. Who's responsible for reporting cost basis, gains and losses to the IRS?

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

Before 2011, financial institutions have only been required to report the proceeds of investment sales — not the actual gain or loss. Under new federal rules your fund company or broker will report to the IRS gains and losses realized from the sale of:

Collectively, investments acquired after the above dates are called "covered securities," because they are covered by the new regulations. It's important to note that investors will still be solely responsible for calculating and reporting gains and losses realized on the sale of non-covered securities — those acquired before the above dates.

12. How will my gain/loss be reported?

You will receive a Form 1099-B showing sales proceeds for each closing sale transaction. Basis information will be reported along with the calculated gain or loss on the trade. The gain or loss will be classified on the form as short-term 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.

13. When do I have to submit an election form?

You will need to have your election form submitted before January 1, 2012. If you have not provided your election by then, the funds default method will apply to your account.

14. What is my cost basis for an investment I received as a gift?

If the donor's basis is less than the value of the gift at the time the gift is made, you generally must use the donor's basis. If it isn't, you would use the following:

You're considered to have neither a gain nor a loss if the sales proceeds are greater than the fair market value on the date of the gift and less than the donor's basis.

15. Can my broker make my election for me?

The broker who is the registered representative of record may provide the election over the phone. However an election of average cost must be made in writing.

16. What's a wash sale?

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 you on Form 1099-B.