MutualFundWire.com: Americans' Tax Pain on Funds Increases

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Thursday, April 13, 2000

Americans' Tax Pain on Funds Increases

Taxes paid on capital gains and dividend distributions continue to be among the biggest expenses for investors, and of greater interest to fund marketers of late as the SEC appears poised to get into the act and regulate the reporting of performance figures in mutual fund advertising.

With the increase in mutual funds' sensitivity to tax issues on the rise, Liberty Funds Group's annual Tax Pain Index takes on added significance as firms measure their products against the industry as a whole. According to the Index, fund investors paid $39 billion in taxes in 1998, the most recent data available, almost 15% higher than in 1997. The Index takes a baseline of $7 billion as its starting point, the amount paid by investors.

In May, the SEC proposed requiring fund companies to include standardized after-tax returns in fund prospectuses and annual reports and the House of Representatives passed a bill in early April by 358-2, requiring the SEC to implement regulations "to improve mutual fund tax disclosure within one year" after the measure becomes law. The bill now goes to the Senate for its vote.

Although no figures are yet available for this year, the strength of the market and the amount of money moving in and out of funds pre-supposes that the figures for 1999 will be another substantial increase from the previous year, again increasing the attention paid to the issue of disclosure.

Mutual Fund Tax Pain Index
Year	Taxable Distributions	Taxes
1990	$41 billion	$7 billion
1995	$70 billion	$19 billion
1996	$108 billion	$30 billion
1997	$150 billion	$34 billion
1998	$155 billion	$39 billion