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Union Calendar No. 297

106TH CONGRESS

2D SESSION H. R. 1089

[Report No. 106–547]

To require the Securities and Exchange Commission to require the improved

disclosure of after-tax returns regarding mutual fund performance, and

for other purposes.

IN THE HOUSE OF REPRESENTATIVES

MARCH 11, 1999

Mr. GILLMOR (for himself, Mr. OXLEY, Mr. MARKEY, Mr. TOWNS, Mr.

WHITFIELD, Mr. LARGENT, Mr. WAXMAN, Mr. DEAL of Georgia, Mr.

BURR of North Carolina, Mr. TAUZIN, and Mr. HALL of Texas) introduced the following bill; which was referred to the Committee on Commerce

MARCH 27, 2000

Additional sponsors: Mr. COX and Mr. BARRETT of Wisconsin

MARCH 27, 2000

Reported with an amendment, committed to the Committee of the Whole

House on the State of the Union, and ordered to be printed

[Strike out all after the enacting clause and insert the part printed in italic]

A BILL

To require the Securities and Exchange Commission to require the improved disclosure of after-tax returns regarding mutual fund performance, and for other purposes.
2

•HR 1089 RH

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Mutual Fund Tax

5 Awareness Act of 1999’’.

6 SEC. 2. FINDINGS.

7 The Congress finds the following:

8 (1) Taxes can be the single biggest cost associ9 ated with mutual funds. The average stock fund in10 vestor has lost up to 3 percentage points of return

11 every year to taxes.

12 (2) The average portfolio turnover rate for an

13 actively managed (nonindex) fund has increased

14 from 30 percent 20 years ago to almost 90 percent

15 today, and average capital gains distributions of

16 growth funds, per share, have more than doubled in

17 the last 10 years.

18 (3) If a fund’s performance is based mostly on

19 short-term gains, investors can lose a significant

20 part of their return to taxes.

21 (4) Performance figures that investment compa22 nies generally disclose to their shareholders are net

23 of fees and expenses, but not taxes, and therefore do

24 not represent the impact taxes have on an investor’s

25 return.
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•HR 1089 RH

1 (5) This disclosure focuses on how much money

2 investors made before taxes, and not on how much

3 money investors actually got to keep.

4 (6) Improved disclosure of tax efficiency would

5 allow shareholders to compare after-tax returns to

6 raw performance, and would permit the investors to

7 determine whether the fund manager tries to mini8 mize tax consequences for shareholders.

9 (7) While the investment company prospectus

10 details the average annual portfolio turnover rate,

11 the prospectus may not expressly inform share12 holders about the impact the portfolio turnover rate

13 has on total returns.

14 SEC. 3. IMPROVEMENTS IN DISCLOSURE REQUIREMENTS.

15 Within 1 year after the date of enactment of this Act,

16 the Securities and Exchange Commission shall revise reg17 ulations under the Investment Company Act of 1940 to

18 require, consistent with the protection of investors and the

19 public interest, improved methods of disclosing in invest20 ment company prospectuses and annual reports the after21 tax effects of portfolio turnover on investment company

22 returns to investors.

23 SECTION 1. SHORT TITLE.

24 This Act may be cited as the ‘‘Mutual Fund Tax

25 Awareness Act of 2000’’.
4

•HR 1089 RH

1 SEC. 2. FINDINGS.

2 The Congress finds the following:

3 (1) Taxes can be the single biggest cost associated

4 with mutual funds. The average stock fund investor

5 has lost up to 3 percentage points of return every

6 year to taxes.

7 (2) The average portfolio turnover rate for an ac8 tively managed (nonindex) fund has increased from

9 30 percent 20 years ago to almost 90 percent today,

10 and average capital gains distributions of growth

11 funds, per share, have more than doubled in the last

12 10 years.

13 (3) If a fund’s performance is based mostly on

14 short-term gains, investors can lose a significant part

15 of their return to taxes.

16 (4) Performance figures that mutual funds gen17 erally disclose to their shareholders are net of fees and

18 expenses, but not taxes, and therefore do not represent

19 the impact taxes have on an investor’s return.

20 (5) This disclosure focuses on how much money

21 investors made before taxes, and not on how much

22 money investors actually got to keep.

23 (6) Improved disclosure of the effect of taxes on

24 mutual fund performance would allow shareholders to

25 compare after-tax returns to raw performance, and

26 would permit the investors to determine whether the
5

•HR 1089 RH

1 fund manager tries to minimize tax consequences for

2 shareholders.

3 (7) While the mutual fund prospectus details the

4 average annual portfolio turnover rate, the prospectus

5 may not expressly inform shareholders about the im6 pact the portfolio turnover rate has on total returns.

7 SEC. 3. IMPROVEMENTS IN DISCLOSURE REQUIREMENTS.

8 Within 18 months after the date of enactment of this

9 Act, the Securities and Exchange Commission shall revise

10 regulations under the Securities Act of 1933 and the Invest11 ment Company Act of 1940 to require, consistent with the

12 protection of investors and the public interest, improved

13 disclosure in investment company prospectuses or annual

14 reports of after-tax returns to investors.

Union Calendar No. 297

106TH CONGRESS

2D SESSION H. R. 1089

[Report No. 106–547]

A BILL

To require the Securities and Exchange Commission to require the improved disclosure of aftertax returns regarding mutual fund performance,

and for other purposes.

MARCH 27, 2000

Reported with an amendment, committed to the Committee of the Whole House on the State of the Union,

and ordered to be printed