End of year distribution comment
24 May 2016
On Sunday, 29 May 2016 the last distribution for the 2016 financial year will be made to investors in the funds that comprise the MLC MasterKey Unit Trust (Funds), including those in the MLC MasterKey Investment Service.
The purpose of this note is to flag in advance of the final distributions that we are generally expecting:
- Funds with exposure to global shares to pay significantly larger final distributions than in previous years.
Most of this distribution will be taxed favourably, and
- lower distributions for MLC IncomeBuilder, MLC-Vanguard Australian Share Index Fund and the MLC-Platinum Global Fund compared with last year.
What is causing the large capital gains?
Our global shares strategy has had a large outflow due to:
- an investor reallocating its significant investments across a number of MLC funds, and
- changes we made to the investment managers during the year.
To fund the outflow of money, securities – most of which had grown substantially over time – were sold resulting in the realisation of capital gains.
The Funds must distribute all income, including realised capital gains, by the end of the financial year.
We anticipate most, and in some cases all, of the capital gains will be concessional capital gains which have favourable tax treatment.
This is because many of the Funds have carried-forward capital losses and most of the securities sold were held for more than a year, resulting in the distribution of discounted capital gains.
Based on our estimates, the Funds most affected by large capital gains this year are:
- MLC Horizon portfolios 3 to 7 – mostly concessional capital gains
- MLC Global Share Fund – all concessional capital gains, and
- MLC Global Share Growth Style Fund – all concessional capital gains.
Investors who have their distributions paid into their bank account, rather than reinvested into their Fund, can expect the income in their account within two weeks after the distribution.
Why are some funds expecting a smaller distribution?
Based on our estimates, the following Funds are expected to pay smaller distributions of income:
- MLC IncomeBuilder
- MLC-Vanguard Australian Share Index Fund, and
- MLC-Platinum Global Fund.
This is because there has been a reduction in capital gains received from the sale of securities compared to last year.
What are the distributions expected to be?
We can’t provide the precise amount of the distributions at this stage, as there are several trading days before the Funds’ end of year.
How is the level of distributions determined?
Distributions are made up of income from the underlying investments held by the managed fund and are paid to investors after fees are deducted.
These investments may be shares, property, bonds or cash, or a combination of these.
This means a distribution could include interest earned, franked and unfranked dividends, tax deferred income, rental income and any realised capital gains (after deducting any capital losses) made from selling investments (which usually occurs in the last quarter of the financial year).
For global investments, currency movements resulting in changes in the value of hedging contracts can also affect income distributions.
What do I need to do?
We are advising you of the large changes in the distributions so that you can assess the impact on your portfolio. As the distribution is at the end of May, there is a month before the end of the Australian taxation year on 30 June.
If you have questions, please speak to your financial or tax adviser.
In the week following the distributions, we will prepare commentary with details of the final amount and income components.
This information will be available on mlc.com.au.
This information has been provided by MLC Investments Limited (ABN 30 002 641 661), a member of the National Australia Bank group of companies, 105–153 Miller Street, North Sydney 2060.
Do you have any questions about Investments?
This communication contains general information and may constitute general advice. Any advice in this communication has been prepared without taking account of individual objectives, financial situation or needs.
Introduction to Unit Trust Funds
It should not be relied upon as a substitute for financial or other specialist advice.
Before making any decisions on the basis of this communication, you should consider the appropriateness of its content having regard to your particular investment objectives, financial situation or individual needs. You should obtain a Product Disclosure Statement or other disclosure document relating to any financial product issued by MLC Investments Limited, and consider it before making any decision about whether to acquire or continue to hold the product.
A copy of the Product Disclosure Statement or other disclosure document is available upon request by phoning the MLC call centre on 132 652 or on our website at mlc.com.au.
Actual results may differ materially from any estimates or forecasts set out in this communication. The actual outcomes are dependent on future events which may be radically different from those predicted for reasons not within MLC Investments Limited’s control.
Past performance is not a reliable indicator of future performance. The value of an investment may rise or fall with the changes in the market.
An investment in any product offered by a member company of the National Australia Bank group of companies does not represent a deposit with or a liability of the National Australia Bank Limited ABN 12 004 044 937 or other member company of the National Australia Bank group and is subject to investment risk including possible delays in repayment and loss of income and capital invested.
None of the National Australia Bank Limited, MLC Investments Limited or other member company in the National Australia Bank group guarantees the capital value, payment of income or performance of any financial product referred to in this publication.
The specialist investment managers are current as at the date this communication was prepared.
Investment managers are regularly reviewed and may be appointed or removed at any time without prior notice to you.
 MLC MasterKey Investment Service Fundamentals also invests in MLC Wholesale funds, which have a June year end.
The MLC Inflation Plus – Assertive Portfolio, MLC Diversified Debt Fund, MLC Global Property Fund and MLC Hedged Global Share Fund in MLC MasterKey Investment Service are accessed through the MLC Wholesale funds, so they also have a June year end.
As a result, this commentary does not cover those products.