Last year, investors were in for a rude awakening when it came time to pay taxes on their mutual funds. Not only did they have to pay hefty capital gains taxes for the returns they raked in during the first part of 2000, but the subsequent downturn in the markets eliminated most of what they had accumulated.
In 2000, investors paid an estimated $345 billion in capital gains taxes, representing a 45% increase over 1999. That situation gave a boost to the Security and Exchange Commission's efforts to adopt a rule requiring after-tax performance reporting in certain funds' prospectuses and advertisements. Last year around this time, taxes' impact on fund performance became a popular subject in financial publications and suddenly, or so it seemed, taxes mattered.