Ironically, the SEC's new rules went into effect April 16, the same day Americans faced the deadline for their 2000 tax returns. Briefly, here's how the new rules apply. Stock and bond mutual funds (not money market funds) must post in standardized tables in their prospectuses the after-tax returns of the funds for the past year, five years and ten years. This is in addition to pre-tax returns the funds already must report.

The after-tax reports come in two versions. One, called the preliquidation method, assumes that the shareholder is not selling fund shares. The one-year, after-tax figure reflects all taxable interest, dividends and short-term (assets held one year or less) capital gains or losses that the fund generates from its sale of securities. The SEC requires that funds calculate the tax on these distributions using the highest ordinary income tax rate at the time of distributions, not at the time of calculation. Currently that top federal rate is 39.6 percent. Under the five- and ten-year scenarios, the capital gains are assumed to be long-term and taxed at the maximum capital gains rate in effect at the time of distributions, which currently is 20 percent.

Some critics feel that use of the 39.6 percent income tax rate overstates the impact of taxes on returns for most investors, and that 28 percent should be used instead because more investors fall into that tax bracket. However, the SEC wanted to use a "worst-case scenario," and regardless of the rate used, the comparisons have value because all funds must use the same rate.

The second after-tax reporting method, called post-liquidation, assumes that the shareholder has sold all shares at the end of the three holding periods, with short-term capital gains (or losses) for the one-year period, and long term for the five- and ten-year periods.

Be aware that these new rules only apply to taxable mutual funds. They won't affect funds whose prospectuses are used only for tax-favored accounts such as 401(k) plans and individual retirement accounts, because those investors don't pay taxes on the earnings until they withdraw funds.

So, how might you benefit as an investor from these new rules? The major rationale the SEC gives for this new requirement is that "taxes are one of the most significant costs of investing in mutual funds," and that these after-tax return numbers should better inform shareholders how their funds are doing in this area. The SEC says more than 2.5 percent of the average stock fund's total return is lost to taxes, which is more than is lost to fund fees. The SEC also noted that the impact of these taxes varies tremendously among funds, from zero to as high as 5.6 percent, according to some studies. The tax impact depends on several factors, including how often the fund trades, the amount of gains accumulated (many tech funds selling in 2000 had run up large accumulations) and whether the fund manager tries to offset gains with losses.

While most investment experts are applauding the SEC's rules (even as they may disagree with the 39.6 percent tax rate required), some point out that the rules don't require the funds to spell out their tax policies. How exactly does the fund handle tax issues, or does it even pay any attention to them?

Many CFP professionals also emphasize that while the tax bite is certainly important when looking at a fund, you should not make investment decisions based on taxes alone. For example, more important is whether the investment objectives of a specific mutual fund fit your individual needs. Also keep in mind that when you pay annual taxes on share earnings, and you reinvest those earnings in the same fund, those earnings add to your cost basis and won't be taxed again when you ultimately sell the fund shares.

Nonetheless, the after-tax reporting rules will help inform investors, say investment experts, and perhaps in the long run such disclosure will compel more funds to be tax sensitive.