Managed Money Reporter Newsletter — Issue 230, September 2006

Editors: Carl Spiess & Allan McGlade

Featured Articles

T-SWPs can provide retirement income from non-RSP investments

By Mutual Fund Reporter Co-Editor, Allan McGlade

At retirement, it is a simple matter to regularly redeem a portion of your mutual fund holdings to provide an income stream. Systematic Withdrawal Plans (SWPs) have long been used for this purpose. Now, many fund companies offer T-SWP funds which take this concept to the next level.

If you are a retired investor or approaching retirement, T-Series Mutual Funds are a great way to generate tax efficient income from your non-registered portfolio. To find out more, read on:

Over the past year, several fund companies have introduced a new version of their most popular mutual funds to help investors generate monthly income in a tax efficient manner. The T-Series, or T-SWP version, of some of the most widely held mutual funds in Canada now offer a regular monthly distribution that is typically 6-8% of the funds net asset value at the beginning of the calendar year. So for every $10,000 held in a T-Series fund, one can expect to receive $600-800 per year in distributions. The key benefit of the T-Series funds is the tax efficiency of the distributions.

Generally, a significant portion of the monthly distributions are considered a return of capital and as such are not taxable when received. Receiving nontaxable income results in a higher monthly after-tax cash flow and could potentially reduce the clawback of government benefits such as Old Age Security. The return of capital mechanism also allows for all of your units to remain invested, versus a traditional systematic withdrawal arrangement which sells units each month. Maintaining the units in the fund typically results in higher investment values over the long term. This is not a free lunch situation, however. The value of the nontaxable portion of the distributions reduces the original cost base of the units each year, resulting in some capital gains tax later when the units are sold or deemed to have been sold as a result of an ownership change (an estate transfer would be an example of an ownership change). Nonetheless, the T-Series mutual funds are worth consideration for incorporating into your retirement income strategy.

Are T-Series funds worth considering for a RRIF account? The short answer is yes. T-Series funds are worth considering for the pure convenience factor and the simplicity of the structure. With a traditional SWP, there are typically forms that need to be completed for set up and any future changes to the scheduled income amount. The T-SWP funds do not require any paperwork. So while you do not enjoy the tax advantages a regular investment account enjoys, you can generate a regular income without the administrative burden associated with a regular SWP program.

If you are a conservative investor, the T-SWP version may not be the right choice for you. Like any equity based investment, there is the risk that your investment might be negatively impacted by a prolonged downturn in the equity markets. Annuities, interest bearing investments and dividend paying securities such as preferred shares are likely more appropriate for you, due to the guarantees that are inherent to these investment vehicles.

Give us a call and we will be pleased to help you determine which investment options are best suited for your retirement income needs.

More on T-SWPs

AGF International Value – New Manager Announcement

AGF has replaced US-based Harris Associates with new management on their flagship AGF International Fund. The appointed managers are John Arnold and Rory Flynn, who currently run several other funds for AGF including the better performing AGF International Stock Class.

Based on information provided by the managers about the transition, the portfolio will be revamped to focus more on the new manager's European experience.

We are pleased with the change, and will continue to monitor the fund and provide updates as necessary.

More on AGF International Value

Manager Changes and Fund consolidation at IA Clarington

Clarington has announced manager changes, proposed fund consolidations and fee reductions in their line. Two very small funds, IA Crystal Enhanced Index America Fund and Clarington Canadian Resources Class will be wound up. This consolidation is an expected result of the takeover by Industrial Alliance, and we welcome management fee reductions that result from fund mergers.

More on affected funds

  • Clarington press release

RESP Reminder

After RESPs were introduced in 1998, for the first three or four years, we generally only saw clients adding to RESPs. This fall, for the first time in a major way, we are seeing many clients actually taking significant money out of RESPs to help pay for children's education. As the amount in RESPs continues to grow, and with tuition costs rising, we expect to see ever increasing RESP contributions. As a reminder, the deadline for RESP contributions is December 31st, but if you miss a year or you are just starting out, we can always apply for the Canada Education Savings Grant (CESG) for you retroactively.

More on RESPs

Staff Profile Update – Andrew McGoey

We are pleased to announce that Andrew McGoey has successfully completed the Certified Financial Planner (CFP) designation. We congratulate Andrew on his hard work and dedication to serving our clients at the most professional level.

Andrew continues to help clients with day to day account management, with a focus on completing detailed financial plans, RESPs, and helping meet our clients' insurance needs.

More on Andrew

Recommended Reading - Old King Coal

In this month's recommended reading, Bill Sterling of CI Global fund writes about future sources of energy, and concludes that investing in clean coal technology firms may provide good returns. Ironically, the coal that started the industrial revolution may still be powering us 100 years from now. It is a different view than the current Canadian mindset of ever higher oil prices driving our markets ever higher. With world oil stocks on hand at record levels, prices could actually decline, which we have all been seeing recently at the gas pumps. We recommend you take a look at Sterling's reasoning. View the report at:

Mutual Fund Reporter Recommended Website of the Month

Like most major fund companies, CI Investments has a great deal of information on their site. Their Learning Centre is a good base resource for how registered plans work, investment basics, estate planning and more. In addition, their fund manager commentaries are extensive and regularly updated. And from time to time, we include their world report as our recommended reading (see above).

  • CI home page
  • CI learning centre
  • Fund manager commentaries
  • Sterling's World Reports Archive


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