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COST BASIS REPORTING
Frequently Asked Questions
December 2011

The information contained in this document is provided for information purposes only and it is based on our understanding of the current cost basis reporting regulations.  It is not a comprehensive overview of the cost basis reporting regulations.  The information contained in this document does not constitute, and should not be considered, legal or tax advice.  Aston Funds and its representatives cannot provide legal or tax advice.  Please consult your legal or tax advisor regarding the cost basis reporting regulations and how they may affect your particular situation.

Cost basis generally refers to the price you paid for your shares adjusted for sales charges and transaction fees, return of capital and certain corporate actions, and it is used to calculate the capital gain or loss on the subsequent sale of shares for income tax purposes. 

New Internal Revenue Services (“IRS”) regulations require mutual fund companies to report cost basis and holding period information to both the IRS and shareholders on Form 1099-B, for gross proceeds from purchases acquired on or after January 1, 2012 (“Covered Shares”). 

Cost basis reporting is not required with respect to mutual fund shares acquired before January 1, 2012, money market fund shares, securities held in an individual retirement plan, and certain other shares for which cost basis information may not be available (“Non-covered Shares”).  However, as a courtesy to you, Aston Funds has voluntarily provided and will continue to voluntarily provide to you, but not the IRS, cost basis information for shares acquired before January 1, 2012, using the Average Cost method.  The IRS cost basis reporting regulations treat mutual fund shares acquired before the effective date of January 1, 2012 as if they are held in a separate account from mutual fund shares acquired after January 1, 2012. 

 

How do the cost basis reporting changes affect me if I hold shares of Aston Funds through a broker-dealer or other financial intermediary?

If you hold shares of Aston Funds through a financial intermediary, those shares will be subject to the account options supported by the financial intermediary and the financial intermediary will be responsible for reporting cost basis and holding period information to you and the IRS on Form 1099-B.  Please contact the financial intermediary for additional information. 

 

What is the default cost basis method used by Aston Funds?

Aston Funds has elected to use the Average Cost Single Category method (“Average Cost”) as its default cost basis calculation method with respect to Covered Shares.  The Average Cost method will be used on all accounts for which the accountholder has not affirmatively elected to use a different cost basis method. 

 

What do I need to do now?

If you would like to use Aston Funds’ default method of Average Cost, you do not need to do anything.  If you would like to use a different method, you may select a different method online or by mail, as discussed below.   

 

What is a lot depletion method? What lot depletion method will be used by Aston Funds to deplete shares?

The lot depletion method is the order in which mutual fund tax lots will be depleted from your account when you request to redeem a portion of your shares.  Your account may contain both Covered and Non-covered Shares of a fund. 

When you redeem less than the entire balance of shares of a fund from your account and the cost basis method selected (either by you or as the fund’s default) is Average Cost, the tax lots in your account will be depleted in First In, First Out (“FIFO”) order and unknown date shares will be depleted first.  If you have selected a cost basis method other than Average Cost the tax lots in your account will be depleted in the order you have selected.  The depletion order may span across both Covered and Non-covered Share lots.

 

What cost basis methods does Aston Funds support?

The cost basis methods supported by Aston Funds are listed in the table below.  We highly recommend that you consult your tax advisor to determine the possible tax consequences with respect to your particular situation.

Average Cost (Average Cost Single Category). This is our default method.Shares are depleted on a FIFO basis with the cost basis calculated by taking the shares redeemed multiplied by the average cost per share.
FIFO (First In, First Out)Oldest shares purchased are redeemed first.
LIFO (Last In, First Out) Most recent shares purchased are redeemed first.
HIFO (Highest Cost, First Out)Shares with the highest cost basis are redeemed first.
LOFO (Lowest Cost, First Out)Shares with the lowest cost basis are redeemed first.
HILT (Highest Cost Long Term, First Out) The long-term highest cost available shares are redeemed first.
HIST (Highest Cost Short Term, First Out) The short-term highest cost available shares are redeemed first.
LILT (Lowest Cost Long Term, First Out) The long-term lowest cost available shares are redeemed first.
LIST (Lowest Cost Short Term, First Out) The short-term lowest cost available shares are redeemed first.
SLDM (Specific Lot Depletion Method)The lots to be depleted are specifically chosen by you at the time of redemption. Note that if you do not identify the lots to be depleted at the time of redemption, the lots will be depleted using the FIFO method.

How can I select/change the cost basis method for my account?

If you would like to use a different cost basis method than our default method of Average Cost, you must make an election with respect to every account you hold with Aston Funds.  You may also select a different cost basis method to use on a particular redemption.

You may change an election from the Average Cost method to a different method, with respect to an account, at any time prior to the first time you request to redeem shares from that account.  After you have redeemed shares from an account, using the Average Cost method, the share lots that existed in your account at the time of redemption are locked, with the cost basis being computed using Average Cost.  Therefore, a change in your cost basis election method after such redemption will only apply prospectively. 

Please note that the IRS regulations currently require changes to and from the Average Cost method to be in writing.  Aston Funds will accept the following means of making this election in writing: (1) hard copy letter of instruction; (2) the Cost Basis Election Form designed by Aston Funds and available on our website at www.astonfunds.com/forms-prospectuses/forms-applications; or (3) a secure website instruction, which is available if you have registered for online account access.  Please send the hard copy letter of instruction or your completed Cost Basis Election Form to:

 

Aston Funds
P.O. Box 9765
Providence, RI 02940

Other elections/changes to the cost basis method may be made by contacting one of our Investor Services Representatives at (800) 992-8151, Monday through Friday between 9:00 a.m. and 7:00 p.m. Eastern time, or as provided above.

Because under the current regulations, a change to or from the Average Cost method must be made in writing, if you would like to change to or from Average Cost contemporaneously with a request for redemption, you may only do so via a secure website instruction, which is available if you have registered for online account access.  Otherwise, if you would like to change to or from Average Cost, you must do so prior to a request for redemption.

 

Can I make a blanket cost basis reporting election to cover all of my accounts, including future accounts with Aston Funds?

You may make a blanket cost basis election to cover all of your current accounts with Aston Funds.  This election will NOT cover accounts with different registrations or accounts you open in the future. 

 

Am I required to use the same cost basis method for all of the funds in my account?

No.  You may select different cost basis methods for different funds in your account. 

 

Can I change my cost basis method for a particular redemption after my redemption request has been processed?

No.  You may not change the cost basis method for a particular redemption after the redemption request has been processed.

 

How will Aston Funds confirm my election, change or revocation of cost basis method?

Your cost basis election will be reflected when you view your account online, if you have registered for online account access.  In addition, your quarterly account statements will reflect the cost basis method used on your redemptions.

 

Are there any circumstances when my elected cost basis method may not be used?

Yes.  In general, your cost basis election may not be used in certain circumstances, including: (1) if you select the SLDM method, but you do not specifically identify the share lots to be depleted at the time of redemption; and (2) on transfers that occur by virtue of certain changes to your account.  Please consult your tax advisor regarding your particular situation.

 

How will my shareholder account options be affected by my selection of a cost basis method?

If the cost basis method for an account for which you have established a Systematic Withdrawal Plan is Average Cost (either by default or as a result of your affirmative election), an automatic redemption from this account will end the time period during which you may revoke the Average Cost election with respect to the shares that exist in your account at the time of redemption.  After the first automatic redemption, you may only change the cost basis method on the account prospectively. 

 

How will non-shareholder generated Fund activity affect my cost basis reporting options?

Your account may become subject to certain non-shareholder generated activity, including but not limited to: involuntary conversion from one class of shares to another (due to your balance in a fund falling below the required investment minimum), or redemption of your shares by Aston Funds in an amount sufficient to cover an annual maintenance fee for an IRA or an Education Savings Account, as described in the prospectus. 

Generally, an involuntary conversion will not affect your cost basis options.  However, if we redeem your shares in order to cover an annual maintenance fee, the time period during which you may revoke the Average Cost method election for that account will end.  If, after an involuntary redemption, you change your cost basis method, the election will only apply prospectively.

Form 1099-B reporting is required and will be provided for involuntary redemptions. 

 

How do the cost basis regulations affect transfers of gifted and inherited shares?

Generally, gifted and inherited shares that are Covered Shares will remain Covered shares when transferred.  The cost basis regulations generally treat all transfers between accounts with different owners as gifts unless the shareholder provides us information to the contrary.  Please consult your tax advisor regarding the rules for determining the cost basis of gifted and inherited shares and your particular situation.

 

What is a wash sale?

A wash sale occurs when you sell shares of a fund at a loss, and repurchase shares of an identical fund within a 61-day period beginning 30 days before you take your loss and ending 30 days after.  The loss from the wash sale will be added to the cost basis of shares of the repurchased fund.  Wash sales of Covered Shares will be reported on Form 1099-B.  Please consult your tax advisor regarding the wash sale rules and your particular situation.

 

What is the impact of the cost basis regulations on corporations, particularly S Corporations?

Under the cost basis regulations, S Corporations are subject to Form 1099-B reporting.  Each corporate shareholder is required to return a completed Form W-9 to us to indicate whether the corporation is an S Corporation or a C Corporation and to certify the corporation’s Tax Identification Number (“TIN”), even if the correct TIN has previously been provided to us.  If we are unable to determine your corporate status, we are required by IRS regulations to assume that you are an S Corporation and provide Form 1099-B reporting.  In addition, if you do not provide a certified TIN, we may be required by the IRS to deduct backup withholding from certain reportable payments.  You may also be subject to an IRS-imposed penalty for failing to furnish your correct TIN. 

How will my income tax reporting obligations be affected?

As discussed above, the effective date for mandatory cost basis reporting on redemptions of Covered mutual fund shares is January 1, 2012.  The revised Form 1099-B will be first used for calendar-year 2012 sales of mutual fund shares.  Please note that the cost basis regulations have extended the deadline for mailing Form 1099-B to shareholders from January 31 to February 15.  The February 15 deadline also applies to other tax forms that may be sent in a consolidated reporting statement with Form 1099-B.  The taxpayer filing deadline has not changed as a result of the cost basis reporting regulations. 

Please note that what is reported on Form 1099-B may differ from what you are required to report on Schedule D of Form 1040.  These differences may be due to differences in reporting for wash sales, and gifted and inherited shares, among others.  Under the new cost basis regulations Aston Funds has up to three years to send a corrected Form 1099-B to you.  If you receive a corrected Form 1099-B you may be required to amend your tax filings for the prior year(s).  Please consult your tax advisor regarding your particular situation.

The IRS cost basis regulations are available at http://www.irs.gov/pub/irs-irbs/irb10-47.pdf.  For the most up to date information regarding the cost basis regulations please visit the IRS website at www.irs.gov or consult with your tax advisor.

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