| SEC
Considers Changing Rules on
Mutual Fund Disclosure
By Jim Wiandt
June 29, 2000 |
|
The Securities and Exchange Commission (SEC) is proposing to
force mutual funds to disclose both pre-tax and after-tax returns.
The rule is being strongly resisted by mutual fund companies
who are notorious for running tax-inefficient managed funds.
For some perspective on the issue, see our
article on the bet that Vanguard founder Jack Bogle won
from Robert Markman of Markman Capital Management. In the five-year
period of the bet, the Vanguard 500 beat Markman's Moderate
Fund, 226% to 156%. With taxes figured in though, the passive
500 fund triumphed by 214% to 114%.
Similar results hold across the field of large
capitalization mutual funds, most of which are actively managed
and tax inefficent.
| |
Vanguard 500 |
Average Large Cap. Fund |
| 1 Year
Pretax |
27.84% |
24.67% |
1 Year
Aftertax |
27.00% |
23.07% |
| |
|
|
5 Year
Pretax |
24.95% |
20.37% |
| 5 Year Aftertax |
23.90% |
17.90% |
| |
|
|
10 Year
Pretax |
16.67% |
14.07% |
10 Year
Aftertax |
15.46% |
11.62% |
Returns Through Sept. 1999 - Motley Fool
The proposed new rule reads as follows:
Mutual funds would be required to disclose
after-tax returns based on standardized formulas comparable
to the formula currently used to calculate before-tax average
annual total returns. The proposals also would require funds
that include after-tax returns in advertisments and other sales
materials to include standardized after-tax returns.
The comment period on the proposed rule was scheduled to end
June 30, 2000. For those who wish to comment to the SEC, email
can be sent to rule-comments@sec.gov
with File No. S7-09-00 in the Subject line. Rest assured, the
active managers have their end covered.
