Until now, mutual fund performance reports included only pretax numbers. Your income tax obligations weren’t included. However, any earnings you enjoy from your mutual fund investing will be after you’ve paid your tax bill. Now, all mutual funds offered to taxpaying investors must report results in three ways:
- Pretax. It is assumed that all distributions have been reinvested in additional fund shares but no taxes have been paid.
- Aftertax, existing shareholders. It is assumed that distributions have been reinvested yet taxed:
- Income distributions are assumed to have been taxed at the highest ordinary tax rate for that year.
- Short-term capital gains distributions are assumed to have been taxed the same as ordinary income.
- Long-term gains are assumed to have been taxed at the highest rate for such gains.
- Aftertax, former shareholders. Here, it is assumed that the fund has been sold and any capital gains tax has been paid.
These numbers, which appear in each fund’s prospectus, give you a more accurate idea of how investors have fared.
