Congress Passes Tax Cut Bill

Washington, DC, August 9, 1999 - On August 5, both the Senate and the House of Representatives approved a tax relief package that contains a number of provisions of interest to the mutual fund industry and its shareholders. President Clinton has indicated that he will veto the tax cut bill. H.R. 2488, the "Financial Freedom Act of 1999," includes the following:

Increased IRA and Retirement Plan Contribution Limits
The annual IRA contribution limit is raised in stages to $5,000 by 2006. The 401(k), 403(b) plan, and 457 plan annual contribution limits are increased in stages to $15,000 by 2005. The annual SIMPLE plan limit is raised in stages to $10,000 by 2004.

Expanded IRA and Roth IRA Eligibility
Income limits on eligibility to make Roth IRA contributions are increased from $95,000 to $100,000 for individuals and from $150,000 to $200,000 for couples, beginning in 2003. Also in 2003, the income limit on eligibility to convert a regular IRA to a Roth IRA is increased from $100,000 to $200,000 for couples. (There is no change in eligibility limits for deductible IRAs.)

New After-Tax "Plus" Accounts
Both 401(k) and 403(b) plans are permitted to allow participants to make after-tax contributions whose eventual distributions are taxed similar to Roth IRA distributions.

"Catch-Up" Contributions
Persons 50 and older are eventually permitted to contribute an additional 50 percent more than the standard limit to IRAs and salary deferral pension plans. The "catch-up" amount is phased in over five years in 10 percent increments.

Other Pension Provisions
Portability is enhanced among the various types of defined-contribution plans and IRAs, top-heavy rules are modified, and regulatory burdens are reduced under other provisions.

"Flow-Through" Provision
A provision is included that eliminates a tax barrier discouraging foreign investors from investing in U.S. securities through U.S. mutual funds. Foreign investors are allowed to receive the same tax treatment for interest and short-term received capital gains from U.S. mutual funds as they would receive if they invested either directly or through a foreign mutual fund.

Capital Gains Tax Reduction
The maximum rate of tax on net capital gains realized by individuals after December 31, 1998 is reduced from 20 percent to 18 percent; gains currently taxed at a 10-percent rate will be taxed at an 8 percent rate. In addition, the basis of assets acquired after December 31, 1999 is indexed for inflation.

Education IRAs
The annual limit on contributions to Education IRAs is increased from $500 to $2,000, and withdrawals are permitted for elementary and secondary education expenses. Corporations are also permitted to contribute to Education IRAs.