VIA FAX
January 24, 1995
TO: TAX COMMITTEE No. 4-95
ACCOUNTING/TREASURERS COMMITTEE No. 6-95
TRANSFER AGENT ADVISORY COMMITTEE No. 7-95
RE: COST BASIS REPORTING SURVEY
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A bill was recently introduced in the U.S. House of Representatives which would
increase (or "index") the cost basis of certain capital assets for inflation. Indexing calculations
for shares in regulated investment companies ("RICs") would be complicated by two factors.
First, RIC shareholders typically hold multiple blocks of shares purchased at different times
and therefore eligible for different inflation adjustments. Second, RIC shares generally would
be eligible for indexing at less than 100 percent of the relevant inflation factor because indexing
would be available, under the bill, only to the extent that the RIC’s portfolio consists of equities
that trade on U.S. exchanges. Thus, for example, if a RIC always holds 70 percent of its assets in
U.S. equities, its RIC shares would be eligible for only 70 percent of the relevant inflation
adjustment.
If a RIC currently computing average cost basis for its shareholders were to voluntarily
compute an "indexed" average cost, the RIC, rather than its shareholders, could perform these
shareholder-level indexing calculations. In assessing whether RIC shareholders would receive
and use this information, it would be helpful to know the number of RICs that either currently
provide average cost information to their shareholders or plan to provide this information in
January 1996 for redemptions occurring during 1995.
Request for Information
To assist the Institute in assessing the impact that indexing legislation would have on
the industry, we would like each fund complex to complete the attached survey. Only one
response is needed from complexes with representatives on more than one of the committees
receiving this request. Your response should be faxed at your earliest convenience to my
assistant, Theresa Brice, at (202) 326-5841. If you have any questions regarding the survey, the
indexing legislation or average cost reporting, please call me at (202) 326-5832.
Your response to this short survey will be greatly appreciated.
Keith D. Lawson
Associate Counsel - Tax