Phantom Distributions

Phantom Distributions:  A distribution declared by a fund or trust where no cash is paid to unitholders.  Phantom distributions are declared to avoid paying taxes on income earned within a fund or trust, but where the fund manager does not wish to deplete the resources of the fund or trust by paying distributions in cash.  Non-cash or “phantom” distributions are taxable in the year declared, and will increase the adjusted cost base of the security. Phantom distributions are declared in additional units of the trust, and then the trust completes a share consolidation such that the number of units outstanding after the phantom distribution has been declared, is equal to the number of units outstanding before the phantom distribution was declared.  Example:  1 million units outstanding.  10% phantom distribution declared in additional units.  Total number of units outstanding after the declaration of the phantom distribution, 1.1 million.  Immediate share consolidation, on the basis of 1 new for each 1.1 units outstanding.  New total of units outstanding, 1 million.