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Vanguard reveals tax bite
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October 11, 1999: 12:14 p.m. ET
Fund group is first to tell shareholders how taxes affect returns
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NEW YORK (CNNfn) - Vanguard Group said Monday it will begin releasing after-tax performance data on its mutual funds, making it the first fund company to give shareholders information on how taxes can dramatically affect returns.
The Valley Forge, Pa.-based fund giant, which has led the industry in cost-cutting, also will include in annual reports tax data on 47 equity and balanced funds whose managers have the most ability to influence the tax bite.
"This is a natural evolution of what we have long talked about at Vanguard -- that costs, broadly defined, are important in assessing funds' returns," said Joel Dickson, a principal at Vanguard.
Laura Lallos, an analyst at Chicago fund researcher Morningstar, said the change could have a big impact on the industry.
"I think it's very significant," Lallos said. "I don't know of any fund companies that do it…If Vanguard puts the information on the table, perhaps other fund companies will put it on the table, too."
Vanguard will provide the after-tax returns for funds using the 39.6 percent income rate, Dickson said. It decided to use the highest income bracket because that is what Morningstar uses in its data. Vanguard will use Morningstar data as a comparison with other funds' after-tax returns, he said.
Taxes for income and capital gains eat up about 2.5 percent a year for the average mutual fund, Dickson said. Stock funds can be much higher than that.
"These costs do add up over time," Dickson said.
Vanguard will provide the data for all funds except its REIT index fund, which has complicated tax distributions; its money market funds, because the tax tabs aren't influenced by manager decisions; and its preferred stock fund, which is geared to corporate investors. 
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