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Bill Calls for Disclosure of Tax Consequences

Mutual fund companies could be required to disclose the impact of taxes on portfolio returns, if a bill that has been introduced in the U.S. House of Representatives passes. Congressmen Paul Gillmore (R-Ohio) and Edward Markey (D-Mass.) introduced a bill, the Mutual Fund Tax Awareness Act of 1999, on March 11.

"Performance figures that investment companies generally disclose to their shareholders are net of fees and expenses, but not taxes," Gillmore said in a news release. "I do not think shareholders are adequately informed about the impact taxes have on their returns." Taxes can be especially high on capital gains from high portfolio turnover, he said. Currently, the average turnover rate for an actively-managed fund is 90 percent, he said.

If the bill passes, the SEC would be required to draft regulations on how mutual fund companies would disclose after-tax performance.

"Taxes can be the single biggest cost associated with mutual funds," the legislation says. "The average stock fund investor has lost up to three percentage points of return every year to taxes."

"Imagine what a tax charge of three percent compounded over 20 years would amount to," Gillmore said.

The bill is now before the House Commerce Committee.