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FPA Capital/Queens Road Small Cap Value Funds registration filing (combination)
The "combo" actually is just the proxy that incorporates the registration (prospectus) by reference. It does contain links to the prospectuses on p. F-13 (near the bottom of the file Shadow linked to).
"Any sales by the Target Fund [FPA Capital], including those made in anticipation of the Reorganization, of portfolio holdings prior to the Reorganization may generate capital gains that are expected to be distributed to shareholders prior to the Reorganization, which distribution may be taxable to shareholders." (p. 4)
"Because there are differences in the Funds’ principal investment strategies, if the Reorganization is approved by shareholders of the Target Fund, it is anticipated that substantially all of the investments held by the Target Fund will have to be sold prior to the Reorganization and reinvested in accordance with the investment strategies of the Acquiring Fund." (p. F-14)
M* reports a negative 17% cap gains exposure in FPPTX, so in theory this should not be a problem. The downside of having capital losses is that they will be carried over (I think) to the merged fund and thus apportioned among a larger base of shareholders.
Passing on the loss is a plus; the problem is that while this is a loss existing shareholders have "earned", they now have to share that benefit with other shareholders. Their benefit (an embedded capital loss) is getting diluted. Were the fund not to be acquired, or were the fund to have offsetting gains, then all the losses would stay with the existing shareholders.
FPPTX has been a laggard for years since Robert Rodriguez left managing the fund. Only good news was I was able to get in the fund while Bob was still managing the fund (and pay a load) before it closed for the last time.
Also, the asset base of FPPTX is nearly double that of QRSVX. There should be a sizeable capital gain loss remaining for a little while after the funds merge.
@msf@TheShadow: Thanks for your comments. So with all the new assets moving to QRSCVF all that is needed now is some great investments ideas. With value being knocked to the curb over the last 10 years, it may be time to invest there. Stay Safe, Derf
Comments
Here's the link to the acquiring fund's (Queens Road Small Value Fund's) new prospectus:
https://www.sec.gov/Archives/edgar/data/1170611/000139834420019562/fp0058114_497.htm
Tax issue, from the proxy statement:
"Any sales by the Target Fund [FPA Capital], including those made in anticipation of the Reorganization, of portfolio holdings prior to the Reorganization may generate capital gains that are expected to be distributed to shareholders prior to the Reorganization, which distribution may be taxable to shareholders." (p. 4)
"Because there are differences in the Funds’ principal investment strategies, if the Reorganization is approved by shareholders of the Target Fund, it is anticipated that substantially all of the investments held by the Target Fund will have to be sold prior to the Reorganization and reinvested in accordance with the investment strategies of the Acquiring Fund." (p. F-14)
M* reports a negative 17% cap gains exposure in FPPTX, so in theory this should not be a problem. The downside of having capital losses is that they will be carried over (I think) to the merged fund and thus apportioned among a larger base of shareholders.
Stay Safe, Derf.
Also, the asset base of FPPTX is nearly double that of QRSVX. There should be a sizeable capital gain loss remaining for a little while after the funds merge.
Stay Safe, Derf