Managed Money Reporter Newsletter — Issue 166, December 2000

Editors: Carl Spiess & Allan McGlade

Featured Articles

The New Tax Efficient Money Market Funds

Looking for a tax efficient substitute for a Money Market Fund, T-bill, GIC or Coupon?

Whether you are saving to buy a car, planning on doing home renovations or simply want to have a safety net in case of emergency, non-registered investments are something you may want to consider when you think of your long and short-term goals. We often recommend that you place your guaranteed investments within your RRSP to defer any taxes as well as shelter any income that comes your way. However, when looking at a shorter time frame, where you simply need to save and earn a better rate of return than your 0.2% bank account can offer you, consider the new Mackenzie Funds that are now available. They may give you the tax-efficient return you have been looking for, or perhaps should be.

Happy Holidays!

The team at Mutual Fund Reporter would like to wish you a happy and safe Holiday Season. 

When purchasing investments outside 
of an RRSP, taxes are often a 
consideration. When the funds need 
to be invested for the short-term this 
usually results in the purchase of an 
interest bearing investment, such as 
T-Bills, Coupons, GICs or Money Market Mutual Funds, which are taxed at the highest rate. Alternatively, you could purchase a stock or an equity fund, where capital gains are incurred and are the most tax efficient form of investing. The problem lies in volatility, if you are investing for the short-term, you likely want your money to be stable but earning as much as possible with minimal risk.

Mackenzie Financial Corporation has introduced a truly different, tax efficient form of money market fund. The earnings on the fund are taxed as capital gains as opposed to interest. Since interest is taxed at a much higher rate than capital gains, this could make your overall rate of return on your portfolio significantly higher.

What are they?

The mutual funds are called Mackenzie Canadian Managed Yield Capital Class and Mackenzie U.S. Managed Yield Capital Class. The funds are an attractive alternative to traditional money market funds.


Traditional T-Bill Fund
45% Marginal Rate

Mackenzie Managed Yield
45% Marginal Rate

Pre-Tax Return 5.00% (interest income) 5.30% (capital gain)
Tax 2.25% (fully taxable) 1.19% (50% taxable)
After Tax Return 2.75% 4.11%

Projected returns as originally published by Mackenzie

Why own these funds?

For one thing, the returns are expected to be similar to that of Bankers' Acceptance investments. These are the obligations of major banks, and typically pay slightly more than T-bills. Often, these investments are available only to larger investors. So the pre-tax returns are attractive if you have short-term needs.

How are they more tax-efficient?

Short-term funds usually earn monthly interest paying mainly capital gains as their earnings. These funds are more tax efficient because of their unique structure. So what this means to you is that while the monthly yield is expected to be higher than usually offered by T-Bills, and while the price of the fund will be highly stable, the earnings will be taxed at a lower rate. That's because capital gains are only 50% taxable while interest income is fully taxable at your marginal rate. You may also be able to offset your capital gain with previously incurred losses. 

Are they right for me?

The funds are mainly geared towards the following types of investors:

  • Non-Registered investors with short-term time horizons, or preservation of capital concerns,
  • Tax-Sensitive, income oriented investors,
  • Clients wishing to move out of equity funds during periods of market uncertainty, without realizing capital gains in the process, and market-timers,
  • Parents wishing to transfer property to a related minor can avoid having returns attributed back to them as occurs with interest income,
  • Corporate investors seeking relief from capital tax costs which apply to fixed-income instruments.

These tax-friendly investments are part of a new group of funds being offered by Mackenzie that allow you to do switches without incurring capital gains and are called Mackenzie Capital Class Funds.

Mackenzie Capital Class Funds are designed to give you the freedom to move from one equity to another without realizing a capital gain. Within the structure, you can move among thirty-two Capital Class funds without triggering the capital gain that can hamper the growth potential of your portfolio.

Other fund companies including AIM and C.I. Group of Funds have been offering similar funds for quite awhile, although the managed yield funds are a new and unique innovation.

Fund News

AIM Funds have announced a management change in regards to the Trimark Indo-Pacific Fund, the new fund managers will be AIM's Henry Chan and Robert Lloyd George. AIM has also renamed AIM Canada Value Class to AIM Canadian First Class.

Mackenzie has merged a few of their funds:

  • Industrial American will be merged into Universal U.S. Blue Chip
  • Industrial Mortgage Securities will be merged with Industrial Yield Advantage
  • Mackenzie Sentinel Global will be merged with Universal International Stock

All Strategic Value, O'Donnell, Nova and Navigator funds will be grouped under a new company named Strategic Nova Mutual Funds.

Talvest has renamed Talvest Canadian Equity Value Fund to Talvest Canadian Leaders Fund.

Global Strategy, which is now owned by AGF Group of Funds has replaced Tony Massie on the Global Strategy Income Plus Fund with Bob Farquharson.


Contact Us

T.  416.863.RRSP (7777)
F.  416.863.7479

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