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Fund writedowns anger advisers

Colonial First State Investments has earned the wrath of advisers for the way it has written down the value of three funds involved in its product rationalisation.

Thursday, September 2nd 1999, 12:00AM

by Philip Macalister

Colonial First State Investments has earned the wrath of advisers for the way it has written down the value of three funds involved in its product rationalisation.

The manager has written to advisers telling them three former Prudential funds - the New Zealand Equity Income, Japanese Opportunities and Asia Pacific Opportunities funds - are all having their unit prices written down.

A lack of clear information makes it difficult to determine how much is being chopped off the unit prices, however information from advisers suggest it is 16 per cent for the New Zealand fund and around 18 per cent and 8 per cent for the Japanese and Asia Pacific funds respectively.

"This is bad news for people in Pru's equity income and Asian funds," one Auckland-based adviser says.

The reasons for the write-downs are less clear at this stage, however it appears to be due to the status of tax losses carried by these funds.

In its letter Colonial First State says the prices it has struck for the funds is based on "the proceeds from realisation after taking into account the anticipated liabilities of the trusts."

"For some trusts this has resulted in small increases in unit prices, for others it has lead to reductions in the unit price. For one fund, the Equity Income Trust, this has lead to a significant drop in unit price."

A number of advisers say the amount of information provided by Colonial First State on the issue has been poor. One described it as "dismissive and offhand". He says the explanations "just don't hold water".

There is also concern expressed that this information was not made available to advisers at the start of the rationalisation process.

Colonial First State announced in May that it was freezing the funds involved in the process while advisers made decisions on whether to cash up their investments or move them to new funds. Advisers found out about the writedowns at the end of the process when Colonial First State announced the termination prices for the funds.

They say Colonial First State must have known about the liabilities, which date back to fund losses recorded in the period 1995-1998, when they announced the rationalisation.

They also point out that the writedowns are contrary to Colonial First State's desire to run an equitable rationalisation process. Essentially any unitholders who exited before the freeze have had a better deal than those who were trapped in the fund.

Good Returns has had difficulty getting information from Colonial First State on the matter, however it will report the manager's views as soon as they are made available.

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