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Mutual Fund Tax Awareness Act of 1998
To require the Securities and Exchange Commission to require the improved disclosure of tax effects of portfolio transactions on mutual fund performance, and for other purposes.
Summary
This bill requires the Securities and Exchange Commission to revise its regulations within one year to improve how mutual funds disclose the tax effects of their investment activities to shareholders. Currently, mutual funds disclose performance figures that account for fees and expenses but not taxes, which the bill argues gives investors an incomplete picture of actual returns after taxes. The bill directs the SEC to require mutual funds to disclose in their prospectuses and annual reports how portfolio turnover rates and capital gains distributions affect investor returns after accounting for federal income taxes. The bill notes that portfolio turnover rates in actively managed funds have increased significantly over time, and investors may lose substantial portions of returns to taxes depending on the fund's investment strategy.
AI-generated plain-language summary of the bill text — neutral, and may be imperfect. See the full text below for the exact wording.
Sponsor (1)
11 cosponsors
- Rep. Burr, Richard [R-NC-5] (R-NC)
- Rep. Deal, Nathan [R-GA-9] (R-GA)
- Rep. Hall, Ralph M. [D-TX-4] (D-TX)
- Rep. Largent, Steve [R-OK-1] (R-OK)
- Rep. Manton, Thomas J. [D-NY-7] (D-NY)
- Rep. Oxley, Michael G. [R-OH-4] (R-OH)
- Rep. Shimkus, John [R-IL-20] (R-IL)
- Rep. Tauzin, W. J. (Billy) [R-LA-3] (R-LA)
- Rep. Towns, Edolphus [D-NY-10] (D-NY)
- Rep. Waxman, Henry A. [D-CA-29] (D-CA)
- Rep. Whitfield, Ed [R-KY-1] (R-KY)
Actions (3)
- Oct 20, 1998 Referred to the Subcommittee on Finance and Hazardous Materials. · house
- Oct 13, 1998 Referred to the House Committee on Commerce. · house
- Oct 13, 1998 Introduced in House
Similar bills (6)
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Full text
IN THE HOUSE OF REPRESENTATIVES
October 13, 1998
Mr. Gillmor (for himself, Mr. Oxley, Mr. Manton, Mr. Deal of Georgia, Mr. Burr of North Carolina, Mr. Hall of Texas, Mr. Whitfield, Mr. Largent, Mr. Towns, Mr. Waxman, Mr. Tauzin, and Mr. Shimkus) introduced the following bill; which was referred to the Committee on Commerce
A BILL
To require the Securities and Exchange Commission to require the improved disclosure of tax effects of portfolio transactions on mutual fund performance, and for other purposes.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the “Mutual Fund Tax Awareness Act of 1998”.
SEC. 2. FINDINGS.
The Congress finds the following:
(1) Performance figures that investment companies generally disclose to their shareholders are net of fees and expenses, but not taxes, and thereby fail to take into consideration the impact taxes have on an investor’s return.
(2) The incompleteness of this disclosure with respect to taxes, because it treats investment companies with similar pre- tax, but with dissimilar after-tax, returns, presents investors with a false or misleading picture of fund performance.
(3) Improved disclosure of tax-efficiency would allow shareholders to compare after-tax returns to raw performance, and would permit the investors to determine whether the fund manager tries to minimize tax consequences for shareholders.
(4) If a fund’s performance is based mostly on short-term gains, investors can lose up to one-half of the return to taxes.
(5) The average portfolio turnover rate for an actively managed (non-index) fund has increased from 30 percent 20 years ago to almost 90 percent today, and average capital gains distributions of growth funds, per share, have more than doubled in the last 10 years.
(6) While the investment company prospectus details the average annual portfolio turnover rate, the prospectus does not adequately inform shareholders about the impact the portfolio turnover rate has on total returns.
SEC. 3. IMPROVEMENTS IN DISCLOSURE REQUIREMENTS.
Within 1 year after the date of enactment of this Act, the Securities and Exchange Commission shall revise regulations under the Investment Company Act of 1940 to require, consistent with the protection of investors and the public interest, improved methods of disclosing in investment company prospectuses and annual reports the after-tax effects of portfolio turnover on investment company returns to investors. <all>
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