New Cost Basis traderydex.com updates
We have enhanced our position and account history pages to reflect total cost basis and Non-Covered/Covered share totals by fund. We will also display the average basis per share for those customers using Average Cost as their cost basis disposition method.

Financial Professionals—Make your cost basis elections online: If you are a Financial Professional and interested in making cost basis method election changes on behalf of your client(s) online, please contact Client Services at 877.887.9339 Monday through Friday 8:30 am–5:30 pm ET.

• IRS Cost Basis Reporting Resources
• TradeRydex Web Changes Demo (Coming Soon)
• Cost Basis Reporting Detail Letter
• Cost Basis Reporting Negative Consent Letter

Cost Basis Reporting rules are changing due to Section 403 of the Energy Improvement and Extension Act of 2008. Effective January 1, 2012, broker-dealers, transfer agents and custodians, are required to provide cost basis reporting to the IRS as part of the Form 1099B.

Cost basis information for mutual fund shares purchased on or after January 1, 2012, and subsequently redeemed will now be reported to both the shareholder and the IRS on Form 1099B beginning with the 2012 tax year (on the Combined Form 1099Div/B received in February 2013). Cost basis information for shares purchased prior to January 1, 2012, will continue to only be reported to eligible shareholders.

Shareholders will be able to request that the fund provide calculations using a method they select. The following cost basis methods will be supported: Average Cost, First In First Out (FIFO), Last In First Out (LIFO) or Highest Cost First Out (HIFO), and the ability to choose specific share lots. Rydex|SGI has selected Average Cost as the default method.

Cost basis method selection must be considered at the time of the sale.

Q: Why is Cost Basis Reporting changing?
Q: When will the changes to Cost Basis Reporting go into effect?
Q: What type of accounts are affected by the new regulations?
Q: How will the new cost basis information be provided?
Q: What are covered shares vs. non-covered shares?
Q: What cost basis reporting methods will I be able to select from?
Q: If I don’t select a default method, what happens?
Q: What steps do I need to take right now?

Q: Why is Cost Basis Reporting changing?
A: As part of the Energy Improvement and Extension Act of 2008, brokers and mutual fund companies will be required to provide cost basis reporting to the Internal Revenue Service (IRS) and to taxpayers on mutual fund shares acquired on or after January 1, 2012, and subsequently redeemed.

Q: When will the changes to Cost Basis Reporting go into effect?
A: Changes will go into effect for new shares acquired on or after January 1, 2012, and subsequently redeemed. Typically, these will be referred to as “covered” shares.

Q: What type of accounts are affected by the new regulations?
A: In general, only accounts that currently receive tax reporting on IRS Form 1099Div/B are included, such as individual, joint, trust, UGMA/UTMA and partnerships. Retirement accounts and most corporate accounts, including all IRAs and 403(b)s are not covered by the regulations. The only newly reportable entity will be S-corporations.

Q: How will the new cost basis information be provided?
A: Beginning with the 2012 Form 1099B, which will be delivered in 2013, cost basis information for covered shares will be included on the form. You may receive a separate cost basis statement for any eligible, non-covered shares.

Q: What are covered shares vs. non-covered shares?
A: Covered shares are shares acquired on or after January 1, 2012, versus non-covered shares, which are generally shares acquired before January 1, 2012.

Non-covered shares are generally considered to be those shares acquired before January 1, 2012 (the “effective date”). Such shares are grandfathered and mutual fund companies are not required to provide cost basis reporting to the IRS for these shares. As a result, Rydex|SGI will not report the cost basis information of your non-covered shares to the IRS, but will, if we have in the past, report the cost basis information for non-covered shares to you. For non-covered shares, we will only provide cost basis reporting using the Average Cost method.

Shares acquired on or after the effective date are considered covered shares subject to mandatory cost basis reporting. The cost basis reporting information for these covered shares will be included on your Form 1099B for tax year 2012. Additionally, we will begin to report cost basis information of your covered shares to you and the IRS, as required by law.

Consequently, each customer’s account will be identified as having two separate pools. Older shares acquired before the effective date defined as non-covered, and the new shares acquired on or after the effective date defined as covered.

Q: What cost basis reporting methods will I be able to select from?
A: The following methods are available as account level defaults for covered shares:

Average Cost — The costs of all shares are added to obtain an aggregate purchase cost. The average cost per share is then determined by dividing the aggregate cost by the number of shares owned. The basis of the redeemed shares is determined by multiplying the number of shares sold by average cost per share.
FIFO — First In, First Out
HIFO — Highest Cost, First Out
LIFO — Last In, First Out

Shareholders may also identify specific shares to be sold at the time of a redemption or exchange redemption. Shareholders using this method are expected to provide lot selection information along with their exchange or redemption request. However, shareholders using this method must also select a method among FIFO, LIFO and HIFO to use as their account level default. For situations where the shareholder is unable to or does not provide instructions (i.e. systematic withdrawals and other non-shareholder generated activity) the account level default will be used. Shareholders who wish to specify shares may not use Average Cost as their account level default because the average will apply to all shares, regardless of which shares a client specifies for sale.

Q: If I don’t select a default method, what happens?
A: We will use the default cost basis reporting method of Average Cost to determine what shares will be sold to satisfy the request, as well as the gain or loss associated with it.

Q: What steps do I need to take right now?
A: Check this page periodically for updates and watch for more information by mail. You may also wish to contact a tax professional to discuss cost basis method selection.