To Tell the Truth . . .

Face it: Taxes can put a big dent in the return your fund kicks off. Recent studies show that five-letter word can often mean a difference of 250 basis points, or 2.5 percent, in a fund's total return once taxes are accounted for. Yikes! Trying to find out how much of a bite paying taxes on the capital gains, dividend and interest income your fund kicks off has never been easy-until this year.

Thanks to the Mutual Fund Tax Awareness Act of 2000, as of February, all mutual funds must include both pre- and after-tax returns in their prospectuses. Although the after-tax return figures you'll see reflect the worst-case scenario (they are calculated based on the highest individual tax rate), that knowledge is valuable-particularly for those whose funds are held in personal and not tax-deferred accounts. This information is also useful for comparing funds.

"Shareholders can now see that there can be differences of 200, 300 or 400 basis points a year in terms of after-tax returns," says Duncan Richardson, chief equity officer at Eaton Vance, a fund family that focuses on tax efficiency. "Those differences are because some investment styles are so much less tax-efficient than others."

Just as a fund's past performance doesn't guarantee future returns, tax bites often change. But don't let that stop you from reading the pre- and after-tax return table first in a fund's prospectus.

Dian Vujovich is an author, syndicated columnist and publisher of fund investing site www.fundfreebies.com.