(5) This disclosure focuses on how much money
investors made before taxes, and not on how much
money investors actually got to keep.
(6) Improved disclosure of tax efficiency would
allow shareholders to compare after-tax returns to
raw performance, and would permit the investors to
determine whether the fund manager tries to mini-
mize tax consequences for shareholders.
(7) While the investment company prospectus
details the average annual portfolio turnover rate,
the prospectus may not expressly inform share-
holders about the impact the portfolio turnover rate
has on total returns.
SEC. 3. IMPROVEMENTS IN DISCLOSURE REQUIREMENTS.
Within 1 year after the date of enactment of this Act,
the Securities and Exchange Commission shall revise reg-
ulations under the Investment Company Act of 1940 to
require, consistent with the protection of investors and the
public interest, improved methods of disclosing in invest-
ment company prospectuses and annual reports the after-
tax effects of portfolio turnover on investment company
returns to investors.
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Mutual Fund Tax
Awareness Act of 2000’’.
SEC. 2. FINDINGS.
The Congress finds the following:
(1) Taxes can be the single biggest cost associated
with mutual funds. The average stock fund investor
has lost up to 3 percentage points of return every
year to taxes.
(2) The average portfolio turnover rate for an ac-
tively managed (nonindex) fund has increased from
30 percent 20 years ago to almost 90 percent today,
and average capital gains distributions of growth
funds, per share, have more than doubled in the last
10 years.
(3) If a fund’s performance is based mostly on
short-term gains, investors can lose a significant part
of their return to taxes.
(4) Performance figures that mutual funds gen-
erally disclose to their shareholders are net of fees and
expenses, but not taxes, and therefore do not represent
the impact taxes have on an investor’s return.
(5) This disclosure focuses on how much money
investors made before taxes, and not on how much
money investors actually got to keep.
(6) Improved disclosure of the effect of taxes on
mutual fund performance would allow shareholders to
compare after-tax returns to raw performance, and
would permit the investors to determine whether the
fund manager tries to minimize tax consequences for
shareholders.
(7) While the mutual fund prospectus details the
average annual portfolio turnover rate, the prospectus
may not expressly inform shareholders about the im-
pact the portfolio turnover rate has on total returns.
SEC. 3. IMPROVEMENTS IN DISCLOSURE REQUIREMENTS.
Within 18 months after the date of enactment of this
Act, the Securities and Exchange Commission shall revise
regulations under the Securities Act of 1933 and the Invest-
ment Company Act of 1940 to require, consistent with the
protection of investors and the public interest, improved
disclosure in investment company prospectuses or annual
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 Commis-
sion to require the improved disclosure of after-
tax returns regarding mutual fund performance,
and for other purposes.
MARCH 27, 2000
Reported with an amendment, committed to the Com-
mittee of the Whole House on the State of the Union,
and ordered to be printed