Under new Securities and Exchange Commission rules, mutual funds must report pretax and after tax returns for several time periods:
- Funds over 10 years old must report for the previous one, five, and 10 years.
- Funds between five and 10 years old must report for the previous one and five years as well as for the life of the fund.
- Funds less than five years old must report for the latest year and for the life of the fund.
All funds must include this information in the “Risks and Returns” section of each new prospectus. Just as you shouldn’t invest in a mutual fund because of its one-year return, so you shouldn’t give much weight to a fund’s one-year tax efficiency. The five-year and, especially, the 10-year tax-efficiency numbers are much more meaningful.
