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News Frequently Asked Questions: Distributions from iMGP ETFs

What is the amount to be distributed?

Estimates of the capital gain portion of the distribution will be posted on the IMGP Fund website in mid to late November.  The income portion of the distribution will not be known until late December.

When will the distribution occur?

The Ex-Dividend Date for the ETFs is December 28, 2022.  This is the date that the NAV will be reduced to reflect the pending distribution.

The Record Date for the ETFS is December 29, 2022.  Shareholders that own the fund as of this date will receive the distribution.

The Payment Date for the ETFs is December 30, 2022.  This is the date the distribution is paid to shareholders.

When will shareholders know the breakdown of the distribution?

IM Global Partner Fund Management will provide a preliminary breakdown on its website on the Ex Dividend Date.  A final breakdown in a format consistent with form 1099 will be posted on the website on January 20, 2023.

When will shareholders who receive the distribution receive their 1099 tax forms?

Tax forms will be distributed by the brokers that hold the ETF shares on behalf of their customers, not by IM Global Partner Fund Management.  IM Global Partner Fund Management will provide the breakdown of the distribution to the broker/dealer community no later than January 20, 2023.

ETFs vs Mutual Funds

Why are ETFs known to be more tax efficient that regular mutual funds?

ETFs that invest in debt and equity securities are able to satisfy creation and redemption requests by accepting securities from Authorized Participants for creation requests distributing appreciated securities to their Authorized Participants on redemption requests.   By taking in securities the ETFs have a supply of securities that have a cost basis close to current market value, so that if they are sold, gains have the potential to be minimized.    By distributing low cost securities with unrealized gains, these ETFS are able to dispose of securities with embedded gains without having to realize the embedded gains for tax purposes.   In general, Equity and Debt based ETFs have the potential to be more tax efficient than similarly styled mutual funds, but this is not always the case.

ETFs that invest in derivatives such as futures contracts cannot distribute futures contracts to satisfy redemptions, they must do so in cash, which may result in the recognition of gains that must be distributed to shareholders.

Are realized gains the only gains that must be distributed to shareholders?

For ETFs that only invest in equity or debt securities, yes.  For ETFs that invest in derivative contracts such as financial futures contracts and broad based index options (Section 1256 contracts), those contracts must be “marked to market” as of October 31 and any unrealized gains must be included in the capital gains distribution as if the contract was actually sold.  These marked to market gains or losses are combined with actually realized gains and losses to determine the amount to be distributed.

Are “marked to market” gains distributed as Net Investment Income and taxed as Ordinary Income?

Marked to Market gains and actually realized gains on Section 1256 contracts are afforded a special tax treatment.  Such gains are taxed as 40% Short Term Capital Gains and 60% Long Term Capital gains when distributed to shareholders regardless of the holding period by the ETF.

Are Commodities Futures taxed the same way as financial futures?

There are limits to how much income a mutual fund or ETF can earn from investing in commodities and still qualify as a pass-through entity for tax purposes.  One strategy that many funds and ETFs use to preserve their pass-through status is to create an offshore subsidiary that only invests in commodity futures contracts.  By doing so, any gains (actual and marked to market) are considered dividend income by the parent fund or ETF.  As such, gains from commodities are treated as Ordinary Income when distributed to the shareholders of the fund or ETF.  A special note, the subsidiary is marked to market as close to the calendar year end as possible.

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