The
SEC has finally announced its adoption of the after-tax disclosure rule. Despite running through the review ringer, which inspired hundreds of letters, the rule stands with its less-appealing restrictions.
Even the
Investment Company Institute, which generally supported the rule, had several notable complaints in a June, 2000 letter.
"The proposed standardized formula for computing the after-tax return number should reflect tax rates for ordinary income and capital gains that are representative of the rates paid by average fund investors, rather than the maximum federal tax rate," wrote
Craig Tyle, ICI's general counsel. "Using the highest rate would be misleading to many investors because it would grossly overstate the impact of taxes on them."
Tyle's words, echoed by many industry professionals, went unheeded.
"Taxes can be the most significant cost of investing in a mutual fund," said
Paul Roye, the SEC's director of the division of investment management. "Today's action addresses the gap between the importance of taxes to mutual fund investors and the knowledge that investors have about taxes."
Especially after many investors felt the pain of the capital gains debacle in losing funds, the public has become increasingly aware of the impact of taxes on investments. But, what does it really mean?
Not much, perhaps. Money market funds, exempt from the rule, might seem just a little more attractive to investors. Mostly likely, we'll see savvy marketers waving particularly tax-efficient funds under the noses of the media.
 
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