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Tax changes force fund closure

Money Managers has decided to close its First Step income funds as impending tax changes are likely to disadvantage investors.

Tuesday, December 5th 2006, 5:14AM

by Philip Macalister

The four funds, each with different risk profiles, have a total of around $450 million in funds under management invested on behalf of around 7000 clients.

Money Managers managing director Alasdair Scott says the company wrote to investors recently telling them of the change. The funds will be liquidated and the proceeds returned to investors with the first payment, totalling around $100 million, due to be paid early next year.

Scott anticipates around 80% of the proceeds will be reinvested with Money Managers.

He says investors were expecting some changes as the tax advantage First Step had was removed in 2004 when the government stopped AUT’s making tax free bonus issues to clients that were not taxable in their hands.

“Impending tax changes will disadvantage these funds,” Scott says. “Closing First Step is in the best long-term interest of investors.”

He says New Zealand investors holding fixed interest assets in Australian unit trusts are likely to be disadvantaged under the impending tax changes.

Good Returns understands Parliament’s Finance and Expenditure select committee is due to finalise its report on the tax bill this week.

First Step investors will be offered reinvestment in either Orange Finance debentures or Orange Insurance tax paid bonds. Also Money Managers is offering a new fund, the Totara First Mortgage Fund. Totara, which is managed by Matrix Funding Group, invests funds in first mortgages.

Matrix has been managing a variety of loan portfolios for more than six years. It aims to generate returns in excess of what is available at the bank.

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