Found on the net. Glad to finally have the tax thing explained.
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NCE Energy Trust is a closed-end income trust designed to acquire oil and gas assets primarily through the acquisition of oil and gas companies. The resulting cash flow from these properties flows back to the unitholders on a tax-deferred basis.
NCA.UN's monthly distribution for the month of May is $0.10 per unit. NCA.WT's is exercisable at $3.33 until February 2001. As the oil and gas sector reaps the rewards from higher oil prices nearly US$30 per barrel, NCA.UN will provide not only monthly tax-deferred income, but also tremendous potential for capital gains.
The distributions in the case of this particular oil and gas trust are treated for tax purposes as a return of capital and accordingly, the adjusted cost base of each unit held by the investor is reduced each month by the amount of the monthly distribution. The distributions out of the NCE Energy Trust
are currently NOT considered a dividend.
For illustration purposes, lets say an investor purchased on May 2, 2000, exactly 1,000 units of NCE Energy Trust (NCA.UN) for $4.05 per unit. On May 10, 2000, the trust declared the May 2000 distribution to be 10 cents per unit. The distribution is payable on May 31, 2000, to holders of record on May 17, 2000. Given the 3-day settlement rules, the unit must effectively be owned by the investor on May 12, 2000, to be entitled to the distribution. At the end of the month, the investor will receive a cash deposit of $100 in his brokerage account. The adjusted cost base for each unit he holds in the trust will decline to $3.95 ($4.05 - $0.10 distribution). This adjustment will occur each time the investor receives a return of capital distribution from the trust. The investor will only have tax implications once the units are actually sold in the market. Of course, he will have a larger capital gain or smaller capital loss given the regular reductions in the adjusted cost base of those units from the monthly distributions received. Until that time, his investment in the trust will be a source of regular cash flow for his portfolio.
The NCE Energy Trust is particularly attractive since it currently distributes $0.10 per month per unit, or $1.20 on a go-forward basis in the next year. This trust is effectively providing a cash flow annual return of 27.9 percent assuming a market price of $4.30 per unit.
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