Addressing the fund-investing public's concerns may leave some questions.
Sometimes, addressing the concerns of the fund-investing public leaves a few open questions. Here are two — with answers — that readers shared after some recent columns:
Q: The funds I bought about 20 years ago were sold, and the firm that runs them now says it doesn’t have my original cost information.
My tax preparer says that if I sell and can’t figure out the cost, I should just use zero. That doesn’t seem very tax wise, so how do I come up with a cost basis?
A: You might start by canning the tax preparer, as “use zero as your basis” guarantees that you not only overpay taxes and lay out the absolute maximum for your original investment, but you double-pay taxes for any annual distributions you’ve reinvested over the last two decades.
Internal Revenue Service rules require a “good-faith estimate” of cost, something that can be defended and justified. Technically, in the case of an audit, Uncle Sam will want some confirmation from the firm or your original purchase slip.
But even Uncle Sam would not presume that you got the shares for nothing. What’s more, making a savvy good-faith estimate will not make you audit bait.
If you know how much you invested and the year in which you first bought the fund, the management company should be able to provide at least the average price for that year, plus a distribution history since then.
That information can become the foundation for developing that good-faith estimate of your cost. (For more information on fund distributions and taxes, check out IRS Publication 564, which you can find online at the www.irs.gov.)
Moreover, keep pushing the fund firm, going up the ladder from phone reps to supervisors. The firm has a responsibility to help.
Q: I got a call from someone who wanted to take my proxy vote by telephone. The problem was that I didn’t have the ballot and had no idea what the vote was for. When I asked them to send another copy, they said they couldn’t do that. So I stuck it to them and just voted by phone against everything the board wanted. How’s that for a proxy voting strategy?
A: It’s awful, but not for the obvious reason that it is best if you read a proxy before voting it.
Whenever management hires a proxy solicitor, it isn’t having a tough time getting “yes” votes, it’s having trouble reaching quorum, collecting the minimum number of votes needed for the election to count. Votes typically go the board’s way, provided there’s a quorum.
This is a fairly common proxy-solicitor trick. Solicitors are not required to send a fresh proxy; if this upsets an investor and results in all “no” votes, it still helps them accomplish the job of getting out the vote.
A “no” done in spite actually gives management precisely what it wants, the votes needed to make the election stand. If you believe management is doing something nefarious, don’t worry about voting your proxy. Vote with your feet and take your money elsewhere.
Chuck Jaffe is senior columnist at CBS Marketwatch. He can be reached at email@example.com or Box 70, Cohasset, MA 02025-0070.