December 12, 2004

Year-end distributions
Few funds plan fat payouts

It used to be that every December, fund investors would scurry to see how much of their funds' gains would be paid out as realize capital gains. Then, investors would wine about how much of their profits went to taxes. Well, it's that time of year again, but most investors would be happy to have a fat tax bill, because it would mean they were making big investment gains. Here are notable cases where investors should pay attention to expected distributions.

Canadian funds

Funds investing in smaller companies - all over world - have been on quite a run and 2004 has been no exception. But valuations have generally risen to the point where small caps are no longer the screaming bargain they were a few years ago. So, it's likely that a number of managers took some profits off the table during 2004.

Clarington Canadian Small Cap, for instance, is expecting to pay a capital gains distribution of $1.69 per unit on December 22. At 7.2 percent of recent its unit price, recent buyers of this fund may find it worthwhile to avoid the distribution. While the fund is up more than 12 percent on the year, it's only up about 4 percent since the end of March.

Mackenzie Universal Canadian Resources fund has gained more than 16 percent this year. It's expecting to pay a total distribution of $2.5457 per unit (almost all capital gains), which is 10.4 percent of its recent unit price. However, those that bought the fund more recently - perhaps at the end of February or August - will be sitting on roughly 8 percent gains. So, again there is potential for some modest tax savings this year depending on individual circumstances.

As it has for years, Franklin Templeton's Bissett Microcap fund is expecting a distribution of roughly 10 percent of its recent unit price - which is modestly below its year-to-date gain.

Foreign funds

Mackenzie's Cundill Value fund is one that has had good success through the bear market, thanks to its strict value style of picking stocks. But its planned $0.52 per-unit distribution is about 5.5 percent of its recent price. However, the fund is up more than 9 percent so far this year. Again, recent buyers may still have the opportunity for some tax savings since it's been a choppy year. And the 'capital class' version of this fund may be used to make sure short-term upside is not missed while making tax manoeuvres. In this context, Mackenzie's 'Growth' and Cundill Canadian Security funds are in similar positions.

Templeton Emerging Markets is expecting to pay a $0.86 capital gain distribution. At 9.6 percent of its recent price, the distribution is just shy of the fund's 10.4 percent gain through December 9 of this year. Surely recently buyers of this fund will have some tax planning opportunities.

Tax optimization strategies

It seems there may well be opportunities for some recent buyers of these and other funds to make some manoeuvres to save some taxes for 2004. Investors sitting on paper losses that are less than expected distribution may want to consider exiting the fund long enough to avoid the payout. Recent purchasers of many funds may be in this position.

Those sitting on paper losses that would like to avoid distributions to save tax this year should revisit last year's article on this topic. It reviews some things to watch when implementing tax-related trades. Also pay attention to the dates associated to each fund's distribution. Some will pay out in mid-December while others may pay about a week later.