19 October 2004

In an industry first, Vanguard will begin reporting the performance of its index funds on an after-tax basis from 19 October 2004.

"Vanguard is conscious of maintaining tax -efficiency in our funds and supports the transparency of after-tax reporting. We want to educate our investors so that they understand what they are paying for in fees and taxes - this will allow them to make more informed decisions about the different tax impacts on their investments. At the end of the day, it's what's left in the investor 's pocket that counts", states Jeremy Duffield, Vanguard's Managing Director.

In Australia there is comprehensive disclosure and controls about how fund managers report past performance. However, it is not mandatory for fund managers to provide detailed disclosure of after-tax performance.

"Vanguard is throwing down the gauntlet to the funds management industry and leading the way by reporting what is - from the investor's viewpoint - the most important performance number," Duffield says.

Since February 2002, US fund managers have been required to provide detailed disclosure of after-tax returns. The US regulator, the Securities and Exchange Commission (SEC), introduced after-tax reporting in order to reduce the level of "surprise" many investors experienced when they discovered they "owed substantial taxes on their mutual fund investments that appeared to be unrelated to the performance of the fund".

Duffield says that fund managers often argue that tax impacts are not their concern and can be ignored. "That attitude is disappointing and concerning, because it makes it very difficult to achieve the best outcome for their clients - the end investor."

"Fund managers are typically judged by pre-tax performance numbers in the regular surveys that are published. But gross performance numbers can be misleading. A fund manager who has turned over the portfolio aggressively - and 100 per cent turnover in a year is not unusual - will deliver a lot less to the retail investor once tax is paid," Duffield says.

Vanguard will publish its after-tax performance numbers on a monthly basis across the full range of retail and wholesale funds. The performance data will be available from www.vanguard.com.au once the end of month returns are available.

To make the numbers as meaningful as possible returns will be provided for a range of tax levels and for two distinct circumstances - when a hypothetical investor remains in the fund at the end of the period (After-tax on distributions) and when a hypothetical investor redeems their investment at the end of the period (After-Tax on Distributions and Full Redemption).

The performance tables will cover a mid-range taxpayer (31.5 per cent) a top marginal taxpayer (48.5 per cent) and a super fund (15 per cent).

The purpose of after-tax reporting is to provide investors with a hypothetical indication, it does not take into account individual specific requirements and should not be taken as specific advice.

For the after-tax performance updates for Vanguard's funds go to:

Retail Investor Funds After Tax Performance
Institutional Index Funds After Tax Performance