1 See Institute Memorandum to SEC Rules Committee No. 23-99 and Tax Committee No. 6-99 (among others), dated
March 31, 1999.
[11170]
August 9, 1999
TO: ACCOUNTING/TREASURERS COMMITTEE No. 25-99
RE: SUBMISSIONS TO SEC STAFF ON AFTER-TAX RETURN CALCULATIONS
______________________________________________________________________________
As we previously informed you,1 the “Mutual Fund Tax Awareness Act of 1999” (H.R. 1089)
was introduced in March 1999 by Representative Paul Gillmor (R-OH) and ten cosponsors. This
legislation would direct the Securities and Exchange Commission to adopt a rule under the Investment
Company Act of 1940 within one year to require improved disclosure in investment company
prospectuses and annual reports of the after-tax effects of portfolio turnover on returns to investors.
Recently, the SEC staff requested two fund companies who have reported tax-adjusted total
returns to provide the staff with a description of a method of calculating an after-tax (pre-liquidation)
return and an after-tax (post-liquidation) return. These companies provided the Institute with draft
copies of their submissions, which they reviewed with the Institute and a task force of its members.
Attached are the submissions filed by the Institute and the two contacted members in response to the
SEC’s request for technical assistance.
The Institute’s letter states that, while the descriptions reflect a reasonable approach for
calculating after-tax total returns, many issues will need to be addressed before a rule in this area could
be adopted, or even proposed. The issues identified in the Institute letter are: the appropriate federal
income tax rate(s); the use of historic or current tax rates for prior periods; adjustments for certain types
of taxes and credits; the appropriate method for reflecting the tax liability; the appropriate measurement
period(s); where after-tax returns should be disclosed (prospectus or shareholder reports); whether
disclosure of after-tax returns should be mandatory (and, if so, for which funds); appropriate narrative
disclosure to accompany after-tax returns; alternative methods of comparing funds’ taxable distributions;
and whether comparable rules should be applied to competing investment and savings products.
Keith D. Lawson Amy B.R. Lancellotta
Senior Counsel Senior Counsel
Attachments