rjpatt,
The reinvestments from fund distributions are considered purchases and add to your cost basis just like a purchase from your other money. You could just keep track of all your "purchases" including those from reinvested distributions with a simple spreadsheet listing cost, # shares, NAV per share and cumulative shares along with date of purchase and source of funds (e.g. cash, DIV, LTCG, STCG) . If you decide to make a partial sale, you could select e.g. the highest cost basis shares so that your taxable gain would be minimized or in a crash such as in 2000-1, you could perhaps get a tax loss that would lower your taxes.
If you are interested in spending the time to do this (minimal, in my mind), you should probably get hold of the IRS publication about mutual funds (Publication 564) and learn about the specific shares technique. There are certain IRS requirements to show that you used this technique---e.g. gettting a confirming letter from the broker that you did in fact instruct them to sell the specific shares you claim before the sale was made.
You will also have to keep track of the specific shares you sold (e.g. yellow highliter on a paper spreadsheet or the equivalent on Excel). I find that keeping track of the cumulative shares after each transaction (provided you by broker) is useful in case you forget to input a line item. You will be able to figure out where the missing line is because the previous cumulative total and the line item qty do not match the next cum total.
There are also rules about being able or not being able to switch from one method (e.g. average cost basis) to another (e.g. specific shares) that need to be followed.
As others have already mentioned, you should keep the original paperwork for each reinvestment since you will need it as proof of basis when you sell (even if you go the spreadsheet route).