Fidelity Investments Canada Ltd. will soon offer a unique tax-efficient cash flow service designed for investors seeking to supplement their income from investments.

Available January 2002, Fidelity’s Tax-Efficient Systematic Withdrawal Plan, or T-SWP enables investors to receive monthly cash flow from their mutual fund investments on a tax-deferred basis.

T-SWPs provide investors with monthly cash distributions through an investment in any one of Fidelity’s three balanced funds included in the new retail fund series T: Fidelity Canadian Balanced Fund, Fidelity Canadian Asset Allocation Fund and Fidelity Global Asset Allocation Fund.

Like traditional systematic withdrawal plans, T-SWPs are also intended for non-registered assets. The cash flow from T-SWPs will be composed primarily of return of capital which, for tax purposes, can be paid to investors without triggering immediate tax consequences.

Fidelity says T-SWPs are more tax-efficient than fixed income funds or regular SWPs because the portion of T-SWP cash flow classified as ROC is generally tax-deferred until the units are sold.

T-SWP may be suitable for an investor who wants to use non-registered investments to supplement their income and prefers to minimize the applicable taxes today and defer them to some point in the future.

The T-SWP monthly cash flow rate is different from and should not be confused with the return or yield on a mutual fund. The rate aims to achieve a balance between the tax-efficiency of ROC and the potential for capital preservation and growth.

At launch, Fidelity says investors using T-SWPs will receive a monthly cash flow of approximately 10¢ per unit or 8% of the starting NAV of $15. It is important to note that 10¢ per unit is not guaranteed and will be adjusted from time to time. The aim is to keep the cash flow rate in the range of 7.5% to 9% of the Net Asset Value each year, though this range may fluctuate with the actual NAV.

“With interest rates at record low levels, investors who depend on interest-bearing investments for their income are looking for ways to supplement current flows,” says Wilfred Vos, vice president of Product Development.