Over the past few years, following investor feedback, Forager and the Responsible Entity introduced new distribution policies for the Forager Australian Shares Fund and the Forager International Shares Fund, aimed at delivering a smoother and more predictable income stream for investors.
What Changed?
Under the current policies, the Funds both:
- Target an annual distribution yield of approximately 4%, based on the Fund’s Net Asset Value per unit at the beginning of the financial year.
- Pay ordinary distributions semi-annually.
- Pay special distributions in years where the Fund’s taxable income materially exceeds the amount paid via ordinary distributions, ensuring that at least 50% of taxable income is distributed in cash in those years.
Why the Change?
The previous approach to distributions meant payments could be volatile - large in years of high realised gains, and minimal in low-income years. The new policy smooths this volatility, offering investors more consistent cash flow. Forager believes this makes the Fund more attractive to those seeking a steadier income stream, while still preserving the Fund’s focus on long-term capital growth.
It’s important to note that this change did not and does not alter the Fund’s investment objective or the nature of its returns, which are still expected to be primarily driven by capital gains and may remain lumpy year-to-year.
What About Compounding?
Investors who don’t need regular income can continue to reinvest their distributions via the Distribution Reinvestment Plan (DRP). This allows for automatic compounding of returns. DRP preferences can be managed through your Automic account under “Reinvestment Plans”.
Tax Implications and the Role of AMIT
The Fund operates under the Attribution Managed Investment Trust (AMIT) regime. Under AMIT, investors are taxed on their share of the Fund’s taxable income, not just what they receive in cash.
This means:
- In years where taxable income exceeds cash distributions, you will pay tax on the full taxable income and the difference between that amount and the cash distribution is added to the cost base of your investment, reducing capital gains when you sell.
- In years where distributions are greater than taxable income, you pay tax on the lower amount in that year and the difference between the taxable income and the cash distribution reduces your cost base, potentially increasing capital gains in the future.
Your annual AMMA (Annual Member Statement) will outline these adjustments for your tax return. The new policy does not change your total taxable income, just the timing and format of the cash distributions.
A Reminder
As always, investors should consult a financial adviser or tax professional before making decisions based on distribution policies or tax impacts.