SEC Passes Rule Forcing Funds to Disclose After-Tax Returns

The Securities and Exchange Commission passed a rule Friday that will require mutual fund companies to include the after-tax returns for the one-, five- and 10-year time periods in their prospectuses.

The SEC said the new rules are designed to help investors understand the impact that taxes can have on their mutual fund returns. Mutual funds distributed around $238 billion in capital gains and $159 billion in taxable dividends in 1999, while recent research suggests that over 2 1/2 percentage points of the average stock fund's total return each year is lost to taxes, the SEC said.

The after-tax returns must be presented in two ways. One example will show the effect of taxable distributions resulting from the portfolio manager's purchases and sales of securities in the fund. The other will show the effect of taxable distributions along with the shareholder's tax hit if he or she sold the fund. ...