Question:   How do I calculate the average basis for the sale of mutual fund shares?

Answer:   In order to figure your gain or loss using an average basis:

• You must have acquired the shares at various times and prices, and
• You must have left them on deposit in an account handled by a custodian or agent who maintains an account for the acquisition or redemption of these shares.

There are two methods for calculating average basis:

• Single-category method.
• Double-category method.

Single-category method:

• First, add up the cost of all the shares you own in the mutual fund.
• Divide that result by the total number of shares you own.
• This gives you your average per share. Multiply that number by the number of shares sold.

Double-category method:

• First, divide your shares into two categories, long-term and short-term.
• Shares held for 1 year or less are short-term.
• Shares held for more than 1 year are long-term.
• Then use the steps described under the single-category method to get an average basis for each category.
• The average basis for that category is then the basis of each share sold from that category.

Beginning on April 1, 2011, the double-category method will no longer be available for calculating average basis with respect to shares in a mutual fund after that date.  You must use the single-category method for such shares if you choose to use average basis.