After-tax returns are calculated for two scenarios: (1) shares are purchased at the beginning of the period and held at the end of the period, with dividends reinvested after immediate reduction f or U.S. income taxes due, and (2) shares are purchased at the beginning of the period and sold at the end of the period, with deduction for U.S. capital gains taxes due (or credit for tax loss), with dividends reinvested after immediate reduction for U.S. income taxes due.
Presentation of after-tax returns is designed to help investors understand that U.S. income taxes may alter their net investment returns, and that fund management styles and dividend payments can influence an investor's net returns.
Actual after-tax returns depend on an investor's tax situation and will differ from those shown for several reasons:
- The returns shown imply that taxes are due and payable on the date dividends are reinvested, when actually several months normally will elapse.
- The returns shown are calculated using the highest individual U.S. federal marginal income tax rates for ordinary income and capital gains dividends. To pay the highest ordinary income rate (35% in 2004), a married couple would need taxable income (after deductions and credits) of at least $326,100.
- Current income tax rates are lower than historical rates, especially for dividends and capital gains.
- The returns shown do not reflect the impact of any U.S. state or local income taxes, or credits for such taxes against federal income taxes.
- The returns shown are not relevant to investors who hold their shares through tax-deferred arrangements, such as 401(k) plans or IRAs.
- The returns shown are not relevant to corporations, charities, or other entities with tax rates other than those for U.S. individuals.
