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To Tell the Truth . . .

Funds fess up to the real effects of taxes on performance figures.

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This story appears in the June 2002 issue of Entrepreneur. Subscribe »

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.

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