What is cost basis?

As part of the Emergency Economic Stabilization Act of 2008, mutual fund companies are now required to report cost basis information to both investors and the Internal Revenue Service (IRS) on a sale or exchange of fund “covered shares” that were acquired on or after January 1, 2012.  Cost basis is the dollar amount you paid for the shares you purchased. This basis includes reinvested dividends and capital gains distributions and, where applicable, is adjusted for any sales charges or transaction fees. When you sell shares in a taxable account, the cost basis accounting method you choose determines how your gain or loss is calculated.

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What distinguishes covered vs. non-covered shares?

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

  • Covered shares are 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 shares acquired before January 1, 2012. Because they are not covered by the new rules, we are not required to report cost basis for these shares to the IRS. As a service to you and for informational purposes only, we will continue to report any cost basis information we have on non-covered shares using the Average Cost method.

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What methods can I choose for determining my cost basis?

Bridgeway’s default cost basis accounting method for our mutual fund investors is Average Cost. You have the ability to select a method for determining your cost basis on covered shares; each produces different tax implications. Establishing your preferred method in advance helps facilitate future sales of shares.
Please consult your tax professional to determine which method should be considered for your individual tax situation.

  • Average Cost: Calculates your gains or losses on shares sold based on the average purchase price of all the shares you own.
  • FIFO (First In, First Out): The shares purchased first are sold first.
  • LIFO (Last In, First Out): The shares purchased last are sold first.
  • HIFO (Highest Cost, First Out): The highest-cost shares are sold first.
  • Specific Lot Identification: You specify the share lots in your account to be redeemed or exchanged, each time shares are sold. Note: If you select this method, the cost basis of all systematic redemptions will be determined using FIFO (First In, First Out).

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How do I notify Bridgeway about my selection of cost basis method?

To select your cost basis method, contact us:

  • BY MAIL: Print out and complete the election form and return it to:
  • Bridgeway Funds
  • P.O. Box 9860
  • Providence, RI 02940-8060
  • BY PHONE: Call us at 800.661.3550, Monday through Friday, 8 a.m. to 5 p.m. Central Time

If you do not designate a cost basis method, your account will be coded to our default method of Average Cost. You can still change your designation prior to or at the time of your first redemption, otherwise the trade will be processed using our default method of Average Cost.

When you redeem covered shares (shares acquired on or after January 1, 2012) from your account, we will calculate the cost basis on those shares according to your cost basis method election.

For more information, please consult your tax professional. You may also refer to IRS publication 550, Investment Income and Expenses.

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How will this change my tax reporting documents?

If you redeem covered shares (shares acquired on or after January 1, 2012) from your account during 2012, the Form 1099-B that you will receive in 2013 will now provide cost basis and gain or loss information specific to the covered shares redeemed.

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If I hold both covered and non-covered shares in my account, which shares are sold first?

Non-covered shares for which Bridgeway does not have cost basis information will be sold first unless you choose either the Highest In First Out or Specific Lot method. The order of sale for your remaining covered and non-covered shares will be determined by your cost basis method. If you choose the HIFO method, the cost of all non-covered shares will be fixed at their average cost.

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What is John Montgomery’s (Chief Investment Officer) personal investment philosophy?

John has a high pain threshold in market downturns and does not constantly look at personal account statements. This keeps him from obsessing about returns and alleviates undue stress. His personal investment philosophy is a simple four-step plan:

  • Structure an asset allocation plan that matches your goals, investing time horizon, and tolerance for risk (getting help from a qualified financial advisor, as appropriate)
  • Write the plan down
  • Implement the plan
  • Rebalance to the plan approximately annually (or as lifestyle changes occur)

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Can I change my cost basis method?

Yes, you have the option to change your cost basis method at any time. However, please note that if a redemption is processed under the average cost method, then the cost of all shares remaining in the account after the redemption must be fixed at their average cost. Please call our shareholder services representatives at 800.661.3550 to discuss your individual situation.


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If you have additional questions,
please call us at 800.661.3550.

The information, including all linked pages and documents, is not intended to be tax advice and cannot be used to avoid any tax penalties.