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Mutual Fund News

Tax-driven products gain traction

At least two new offerings are up for grabs, but they're not without risks, KEITH DAMSELL writes

MUTUAL FUNDS REPORTER

Tax cuts are at the top of the investment industry's wish list for today's federal budget.

The Investment Funds Institute of Canada wants the Conservative government to remember its campaign promise to eliminate taxation of capital gains that are reinvested within six months. The Independent Financial Brokers of Canada, along with the C.D. Howe Institute, are pushing for "capital gains deferral accounts" that would allow taxpayers to roll over investments and defer taxes until assets are withdrawn.

The fund industry has been grappling with tax issues for some time. About 10 years ago, Clarington Capital Management Inc. was an early leader with products that treated income as return of capital. Then, in 2002, Fidelity Investments Canada Ltd. launched T-SWP, a tax-efficient systematic withdrawal plan that's now become an industry standard.

Today, there are at least two new tax-focused mutual fund offerings fighting for attention.

Northern Rivers Capital Management Inc.'s Monthly Income and Capital Appreciation Fund, known as the MICA fund, is a six-month old fund with a few twists. The $20-million fund characterizes income as a return of capital and capital gains from a high-yield portfolio of income trusts, corporate bonds and global stocks. Capital gains are paid when the fund is sold but at a lower overall tax rate.

"A lot of the value of the fund depends on the structure. If you provide for tax efficiency and the potential for capital gains as well, you are addressing two of the main concerns that investors have," said Robert Cassels of Cassels Investment Management Inc., co-manager of the MICA fund.

Meanwhile, NexGen Financial LP's lineup of 13 tax-efficient mutual funds is gaining traction. The funds are available to investors through the Big Six banks and the firm is doing business with about 150 financial advisers.

The funds, launched last summer, have a series of shares, each structured to meet a client's tax planning objectives. A corporate fund group will allow taxable investors to switch between investment classes without triggering a taxable disposition. The larger the client's account, the lower the fee structure.

"We are building a track record and getting the message out," said Jim Hunter, NexGen's principal and founder, who is best-known on Bay Street for running Mackenzie Financial Corp. "It's like anything that's tax-driven . . . it takes a while for investors to get it and when they get it, it takes off."

A word of caution from industry consultant Dan Richards: It's important to remember the "long history of unhappy outcomes" when tax considerations drive investment decision-making, a list that includes real estate and film tax shelters, labour-sponsored funds, and most recently, income trusts.

"If someone does really find a way to invent a better mousetrap, there's always the risk that the feds will change the rules if it becomes too popular," Mr. Richards said.

Anniversaries are golden

The Goodmans and the Goldrings are making party plans.

This year, Dynamic Mutual Funds and AGF Management Ltd. each celebrate their 50th anniversaries. The two firms are mum on specifics but it's widely expected that AGF and its employees will be enjoying cake on April 18. Dynamic, meanwhile, is likely to host a birthday bash this fall.

Coincidentally, 2007 also marks the 50th anniversary of the RRSP. On March 14, 1957, then federal finance minister Walter Harris delivered his budget speech with the proposal that "an individual be allowed to deduct, in computing income, an amount paid by him as a premium under a registered retirement savings plan."

OSC's long-awaited town hall 2

Small investors can circle Oct. 24 on the calendar.

That night, the Ontario Securities Commission will be hosting its second Investor Town Hall meeting at the Metro Toronto Convention Centre. It's expected that OSC chairman David Wilson, along with representatives of the Mutual Fund Dealers Association of Canada, the Small Investors Protection Association and other groups, will be on hand to field questions.

It's been a long wait. More than 400 attended the OSC's first town hall in May, 2005. Dozens of angry investors spoke to the panel about what they see as a collection of securities regulators all unable or unwilling to protect small investors. At that time, the OSC pledged to make the meetings a regular event.

So why the 2½-year gap? The OSC says it wants to show results and has spent much of the past two years acting on advice from the first meeting, including the establishment of an Investor Advisory Committee.

kdamsell@globeandmail.com

© 2007 The Globe and Mail. All rights reserved.

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