June 30, 2000
Mr. Jonathan G. Katz, Secretary
U.S. Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549
Re: Disclosure of Mutual Fund After-Tax Returns (File No. S7-09-00)
Dear Mr. Katz:
INVESCO Funds Group, Inc. ("IFG") wishes to take this opportunity to comment on the March 15, 2000, proposal of the Securities and Exchange Commission to adopt several rule and form amendments under the Securities Act of 1933, Securities Exchange Act of 1934, and the Investment Company Act of 1940 contained in Release No. 33-7809. The purpose of this proposal is to require mutual funds to disclose certain specified after-tax return information in their prospectuses and other public documents. IFG and its wholly-owned subsidiary, INVESCO Distributors, Inc., are the investment adviser, transfer agent and distributor of the INVESCO group of mutual funds, which currently consists of 47 individual funds offering multiple classes of shares to investors. In the aggregate, the INVESCO group of mutual funds presently have net assets of approximately $43 billion and some 1,121,000 shareholder accounts.
IFG supports the SEC's recent efforts (e.g., the "plain English" initiative) to provide more useful information, including tax impact disclosure, to persons considering investing in mutual funds. In this regard, IFG in 1999 completed a 1½ year project to redraft all of the INVESCO Funds' prospectuses and statements of additional information under the format contained in amended Form N-1A. IFG is concerned that the SEC's proposal to require all mutual funds (subject to certain exceptions) to include extensive disclosure concerning after-tax returns in their prospectuses will reverse the desirable movement we have seen to simplified, more easily understood prospectuses containing only fund information that is essential for investors to be able to make informed investment decisions. We fear that the effect of adopting the current SEC proposal regrettably will be to begin the process of again making mutual fund prospectuses ineffective and unattractive sources of key fund information for investors.
IFG agrees with the SEC that mutual funds which advertise their after-tax returns should be held to a single standard in calculating such returns, and that additional disclosure in the tax section of these funds' prospectuses may provide useful information to investors about the potential impact of taxes. However, even in the case of this type of mutual fund, we believe the additional, required disclosure should be much less extensive than that contained in the SEC's proposal. Simply put, we question the wisdom of requiring that all mutual funds include in their prospectuses the complicated, voluminous additional disclosure that is contained in the SEC's proposal on what is only one of many aspects of mutual fund investing. Indeed, IFG believes that requiring the extremely detailed disclosure on the one, narrow issue of tax efficiency contained in the SEC's proposal will result in seriously unbalanced mutual fund prospectuses, which will actually confuse, and potentially mislead, investors as they consider investing in mutual funds.
With respect to the specific elements of the SEC's proposal to require mutual funds to disclose certain specified after-tax return information, IFG concurs with the comments of the Investment Company Institute on this matter. In particular, IFG believes that:
(1) Disclosure of mutual fund after-tax returns should only be required in a fund's prospectus, and not also in a fund's MDFP;
(2) Within a mutual fund's prospectus, any after-tax return disclosure should be required to appear in the tax section, and not the risk/return summary;
(3) The SEC should not require disclosure of three new sets of mutual fund return numbers - two after-tax and one before-tax numbers; and
(4) The proposed standardized formula for calculating a mutual fund's after-tax return number should reflect only federal tax rates for ordinary income and capital gains that are representative of the rates paid by average fund investors, and not the maximum federal tax rate, which is not applicable to the vast majority of mutual fund investors.
IFG appreciates the opportunity to present its comments on this proposal of the SEC. If any member of the SEC Staff has questions concerning the views expressed herein, or would like additional information on any matter discussed in this letter, they should contact Mark Williamson or me at the address or telephone number set forth above.
Glen A. Payne
Senior Vice President, Secretary
and General Counsel
cc: Mark Williamson, President
INVESCO Funds Group, Inc.
Neil Williams, General Counsel
Craig S. Tyle, General Counsel
Investment Company Institute