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Cost Basis Reporting

As part of the Emergency Economic Stabilization Act of 2008, the Internal Revenue Service ("IRS") issued regulations regarding how mutual fund companies report the cost basis of mutual fund shares you own.

Saturna and other mutual fund companies are now required to report cost basis information to both shareowners and the IRS on the sale or exchange of fund shares acquired on or after January 1, 2012, known as "covered shares." Previously, we reported only gross proceeds, and not cost basis, on Form 1099-B.

The cost basis regulations only apply to taxable accounts. As a result, cost basis is not required for tax-deferred accounts, including HSA, ESA, and retirement accounts.

For taxable accounts, we use the First In, First Out ("FIFO") method as a default. If you would like to continue to use FIFO, you do not need to do anything. Your account(s) will default to FIFO unless you elect to use another method.

What is "cost basis"?

Cost basis of mutual fund shares is typically the purchase price. Cost basis is affected both by the accounting method used to calculate cost basis and by the reinvestment of dividends, which increases the aggregated cost basis.

When you sell or exchange shares, your capital gain or loss is the difference between the proceeds from the sale/exchange and the cost basis of the shares.

Even though we will report any cost basis for the sale or exchange of covered shares to you and the IRS, you will be responsible for reporting any capital gain or loss information for both covered and non-covered shares to the IRS.

Covered versus non-covered shares

The new regulations make the distinction between covered and non-covered shares in a taxable account:

  • Covered shares are any shares acquired on or after January 1, 2012. We are required to report the cost basis for any sales or exchanges of covered shares to you and the IRS.
  • Non-covered shares are any shares acquired before January 1, 2012, and any shares for which cost basis is unknown. Because they are not covered by the new rules, we are not required to report cost basis for these shares to you or the IRS. However, when known, cost basis for non-covered shares will continue to be available for informational purposes.

Holding period

Whether you purchased your shares directly or through reinvestment, your holding period — the length of time you owned the shares — determines whether your gain or loss is considered long or short-term:

  • Long-term: shares held for more than one year
  • Short-term: shares held for one year or less

Cost basis accounting methods

We provide several IRS-approved methods for determining your cost basis on covered shares — each with different tax implications.

Please consult your tax professional to determine which method should be considered for your individual tax situation.

Default method Description

First In, First Out (FIFO)

Shares acquired first are sold first.

This is the method we have traditionally used to calculate cost basis on non-covered shares and reported on your account statements. Although we will not report cost basis for non-covered shares to the IRS, we will generally continue to report it to you.

If you would like to use FIFO for your covered shares, you do not need to do anything.

Other methods Description

Average Cost

Determined by dividing the total cost of the shares owned at the time of the sale/exchange by the total number of shares owned to produce an average cost per share. Shares acquired first are sold first to determine your holding period.

You should be aware that shares using Average Cost at the time of redemption will use "average cost per share" for as long as the position is held.

If you select Average Cost, Saturna may not be able to provide specific lot information for your shares. Therefore, if you currently do not maintain records adequate to determine basis information for all of your shares, please consider this limitation before selecting Average Cost.

Note: Average cost will be calculated separately for your covered and non-covered shares.

Last In, First Out (LIFO)

Shares acquired last are sold first.

High Cost, First Out (HIFO)

Shares with the highest purchase price are sold first.

Low Cost, First Out (LOFO)

Shares with the lowest purchase price are sold first.

Specific Lot Identification

You identify the specific shares you want to sell, or exchange, at the time of each sale, or exchange, via written instructions or by using Saturna’s Specific Lot Identification Redemption Form. The original purchase dates and prices of the shares you choose will determine your cost basis and holding period.

Specific Lot Identification is not available for tax-deferred accounts (IRAs, HSAs, ESAs, etc.).

Note: If you do not provide timely Specific Lot ID instructions, Saturna will use FIFO as a default.

Selecting a cost basis method

If you would like to use First In, First Out (FIFO) for your covered shares, you do not need to do anything.

If you would like to select a method other than FIFO for your covered shares, please fill out the Cost Basis Election Form This link will open a PDF. and return it to us.

For more information

To find out more about cost basis and how it could impact you, please consult your tax professional or financial adviser, or contact us. You can also refer to IRS Publication 550, Investment Income and Expenses, which is available at the IRS website.

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