Buying US Mutual Funds from Canada - I

Subject: Buying US Mutual Funds from Canada
From:Bylo Selhi
Date: 15-Jul-97-09:39 PM

The Barron's thread didn't seem like an appropriate place to talk about buying US Mutual Funds from Canada, so here's one that's dedicated to Buying US Mutual Funds from Canada.

Their website is Jack White & Co

Call 1-800-323-3263 and ask for a free information kit or e-mail your request to jackwhite@jackwhiteco.com

Do it now -- they're open 24hrs a day!

BTW, I just called them to order a kit. They confirmed that yes they'll do business with Canadians and yes they sell Vanguard funds.

[Editor's note: Bylo has since moved his account to

Read these threads to find out why.]

Subject: RE: Buying US Mutual Funds from Canada
From:S.E.D.
Date: 16-Jul-97-01:16 AM

Bylo:

Thanx for the leg work.

As I recall, you are also with Greed Line, so I ran them a quick E-mail to ascertain any possibility of American fund purchases through thier U.S. brokerage firm. Obviously, It would be ideal to hold and track through our existing Green Line accounts. I'm not optimistic and will advise further if warranted.

P.S: Did you ever further explore the WEBS or PINS? If you monitor the daily's on the Morgan Stanley site, I would suggest that there is a strong argument for select WEBS and/or Options on same.

Subject: RE: Buying US Mutual Funds from Canada
From:Bylo Selhi
Date: 16-Jul-97-07:58 AM

S.E.D.

I got the WEBS prospectus off the web(!) but decided not to invest. The primary reason was that WEBS are country-specific. My objective is to find regional index funds, e.g. Europe, Asia-Pacific, Latin America(!!?), with low MERs.

For example, Vanguard's International Equity Index Fund European Portfolio tracks the MSCI EAFE-Europe (Free) index with an MER of just 0.35% plus "a 1% transaction fee on purchases, paid directly to the portfolio, to more fairly allocate the costs of investing new cash flow."

Subject: RE: Buying US Mutual Funds from Canada
From:The Outlaw
Date: 16-Jul-97-05:19 PM

Now this is my kinda thread!!!!

For those interested, the following is a list of the various global equity index funds that Vanguard offers (according to Barron's) along with their respective MERs: Index 500 (S&P Index) 0.20%

Index Extd Mkt (Midcap) 0.25%

Index Growth (Growth) 0.20%

Index Sm Cap St (Small Cap Growth) 0.25%

Intl Idx Emerg (Emerging Markets) 0.60%

Intl Idx Euro (European Region) 0.35%

Intl Idx Pac (Pacific Region) 0.35%

Bylo, I recently purchased Bogle On Mutual Funds and am looking forward to giving it a read.

Re. US-based mutual funds, one of the reasons Canadian mutual fund companies give as to why Canadian MERs are higher than those in the US is that US-based funds do not include certain types of expenses in their calculation....anyone know specifically what types of expenses they're referring to and how US fund companies account for these expenses to unitholders given that they're not included in the MER?

Subject: RE: Buying US Mutual Funds from Canada
From:Bylo Selhi
Date: 16-Jul-97-08:59 PM

Outlaw,

On the Jack White site many of the Vanguard "no-load", low MER funds you listed above have a 1% acquisition fee and/or 1% redemption fee. That shouldn't be a major issue for a buy-and-hold investor. Do you know if these fees are imposed by Jack White or by Vanguard?

As I recall Bogle on Mutual Funds has a chapter on fund charges (can't tell you for sure; I lent out my copy.) Each fund's prospectus is supposed to list these charges, although like in Canada one has to be both a lawyer and an accountant to make sense out of the bovine scatology. I'm sure you'll enjoy the book.

Subject: RE: Buying US Mutual Funds from Canada
From:The Outlaw
Date: 16-Jul-97-09:46 PM

Bylo, right on re. the 1% acquisition/redemption fee...it's a lot better paying 1% once at the beginning and 1% again at the end than having 1% extra tacked on the MER each year you hold the fund (provided that the 1% redemption fee is based on net amount invested, not final market value).

To be honest, my interest here centres on the Vanguard funds themselves rather than being able to access any US-based fund via Jack White. I prefer purchasing funds offered for sale in Canada and even the lure of Vanguard isn't enough to entice me to use a broker south of the border. As Bylo mentioned in another thread, wouldn't it be nice if the gang from Vanguard came to us by opening up shop in Canada.....we can dream, can't we.....

Subject: RE: Buying US Mutual Funds from Canada
From:The Outlaw
Date: 16-Jul-97-10:00 PM

Sorry Bylo, in my ramblings above I forgot to respond to your inquiry.

Y'got me re. who imposes the 1% charge (in fact, I didn't even know there was a 1% charge until you noted it). However, given the wording of the quote you included in your second posting to this thread, it appears that it would have to be Vanguard who charges the 1% since it's "...paid directly to the portfolio...". It may be similar to what Scudder does with its Emerging Markets fund: redemption fee of 2% if you hold it for less than a year, with the proceeds put back into the fund for the benefit of remaining unit holders.

Subject: RE: Buying US Mutual Funds from Canada
From:Bylo Selhi
Date: 17-Jul-97-08:10 AM

Outlaw et al,

Perhaps we Vanguard fans should phone/e-mail them and ask why it is that we Canucks can buy their funds through a third party (e.g. Jack White) but not directly from them? Seems to me that we determined Canucks would help Vanguard keep their costs down by buying direct.

The phone number is: 1-800-860-8394 (yes, it works from the GWN)

For e-mail: Vanguard - General Information

Vote early, vote often!

Subject: RE: Buying US Mutual Funds from Canada
From:Bylo Selhi
Date: 18-Jul-97-01:13 PM

Vanguard's reply to my e-mail concerning sale of Vanguard funds to Canadians:

We are not registered for sale in Canada and such cannot sell our funds to those who reside in Canada. Your point regarding Jack White and Company is noted. However, please note that Jack White and Company is home based in California and as such when they buy our funds we are selling them to a corporation located in the U.S and not Canada.

If you have any additional questions, please feel free to e-mail us again or call our Investor Information Department collect at 610-669-1000 and select option number one from the menu selection. An Associate will be pleased to assist you.

Deborah Lyle Registered Representative The Vanguard Group

Subject: RE: Buying US Mutual Funds from Canada
From:Jerry
Date: 18-Jul-97-09:44 PM

At the risk of repeating myself I thought I'd repost to this thread ---

In addition one thing I read (can't remember where) is that the US goverment taxes foreign redemptions at source to the tune of 5%. Can anyone comfirm this?

Hello everyone - thanks for the fine thread and thanks Rick for displaying the FP article. I've been investigating this option recently - here's my story

I was reading an article in the Fund Counsel newsletter about tthe Global Manager family of funds -- they are off-shore in Bermuda and apart of the Bank OF Berm.. They run Bond (GIlt), Index, Geared and a Bear fund in 5 countries - US, UK, Germany,Hong Kong, Japan. Fortunately I missed the part about a minimum $150,000 Can starter package.

Anyways I gave them a call (just curious) and was talking to their representative and funnily enough, because I solicited him independently and if I were to purchase the fund directly the minimum would be $25,000 American. All well and good, so I had him fax me some material--- well let me tell you the profit and losses on their Geared and Bear funds were eye popping (and much too rich for me) however they started one new fund (and the reason I am writing about this here) this month which is called the Tactical Growth Fund whose objective (I quote) --is to outperform the MSCI - World index (US$) by 2%, net of all fees and expenses. --

Andrew Vaucrosson is his name and he's gonna be in Toronto July 21st 1 441 299 5542

Happy Hunting!

Subject: RE: Buying US Mutual Funds from Canada
From:Bylo Selhi
Date: 27-Jul-97-02:21 PM

I'm bringing this up in connection with the MSCI Europe thread.

Jerry, yes there's withholding tax on distributions. It was 15% last year, and may actually be lower this year as NAFTA reforms take effect. In any case, all withheld amounts can be credited against tax owing to RevCan. Although foreign dividends don't qualify for the dividend tax credit, foreign capital gains can be sheltered within the fund and when realised they do qualify for special capital gains tax treatment. (At least today -- no telling how RevCan may change the rules in the future.)

BTW, I prefer a low-MER fund that tracks the MSCI indexes over an active fund "whose objective is to outperform the MSCI World index (US$) by 2%, net of all fees and expenses." The former is a "sure thing"; the latter is only the fund manager's best guesstimate!

Subject: RE: Buying US Mutual Funds from Canada
From:Jerry
Date: 28-Jul-97-07:27 AM

Bylo

Thanx for the info --- Can't really say if the Global Manager Index Funds are actively managed but the MER at 1% is certainly higher -- the Tactical Growth has a stop loss trigger at 5% and also is willing to go to 100% cash if necessary --- that seems like a well protected fund. Another thing is that it never makes distributions or dividends payments --just rolls it all over. My understanding (just from what I read not what anybody told me) is that these nondistributing funds make no difference to we Canadians cause Rev Can will tax it anyways. By the by I'm not arguing for or against--I just want as complete a picture for myself as possible.

Subject: RE: Buying US Mutual Funds from Canada
From:Bylo Selhi
Date: 28-Jul-97-01:55 PM

I received JW&Co's info package last week and phoned them this morning to confirm some details regarding Vanguard. Some of the highlights (good and bad):

• They offer thousands of US MFs -- the book that lists them is over 80 pages!
• Most NL funds (about 1,200 of them) are available without fees, but with Vanguard they charge a "transaction fee" of $27 for <$5K, $35 for <$25k and $50 for >$50k. This applies to both purchases and redemptions. I didn't ask about switches, but the amount seems reasonable. (Let the active traders pay for the costs they incur.)
• If you buy Vanguard funds direct there is a minimum -- typically $3k per fund. But if you buy through JW&Co there is no minimum.
• Unfortunately JW&Co do not carry all of Vanguard's funds. For instance, while they do carry the MSCI Europe and Pacific index funds, they don't carry the Emerging Markets or "Total Index" (a blend of the first three.) I couldn't get a straight explanation as to why.
• Similarly, while they do carry the US Index Value Portfolio (which tracks the S&P500/BARRA value index), they don't carry the International Index Value fund. :-(
• Someone asked in another thread about the Russell n000 indexes. Well they carry funds that track these.
• They carry about 50 Vanguard funds, including a wide variety of bond, equity, balanced, index, active-managed, etc. Most are no load and have MERs between 0.2% and 0.5%.
• They carry about 35 Scudder funds. All are no load and incur no transaction fees.
• They also carry other well known US no loads like T. Rowe Price, et al
• BTW, if you buy Vanguard funds through JW&Co you also receive statements, reports, newsletters, etc. from Vanguard.

Subject: RE: Buying US Mutual Funds from Canada
From:The Outlaw
Date: 28-Jul-97-06:46 PM

Bylo, thanks for the info.

I hear there's quite a bit of office space available in the Metro Toronto area these days. Maybe we could ask a real estate agent to get us an MLS listing summary to mail to Vanguard along with pictures of us on our knees with money in our hands...maybe this would at least get them thinking about expanding into this great country...c'mon in Vanguard, the weather's fine!

Subject: RE: Buying US Mutual Funds from Canada
From:Bylo Selhi
Date: 29-Jul-97-10:57 AM

From the Ernst&Young website (someone asked about this in regards to investing abroad):

Investment Income Earned in the U.S.

Q. I am currently in the process of opening an account at an Internet brokerage company in the USA. (I have received the forms and now just have to sign them and send them back). I have a question regarding my status as a Non-US Citizen (I believe the legal term is that I am a 'nonresident alien') -- I am a Canadian citizen living in Canada. My question is about the IRS W-8 form I have to fill out. The instructions state:

Caution: Form W-8 does not exempt the payee from the 30% (or lower treaty) nonresident withholding rates.

What exactly is this 30% withholding rate? Is this simply a 30% tax on any dividends I may receive and on interest in my cash account at the brokerage?

Or is this 30% rate also applicable to any capital gains I may generate with the buying/selling of stocks? Finally, do you know if this rate is 30% with Canada, or is there a treaty (perhaps related to the FTA/NAFTA agreements) that reduces this rate between the US and Canada? Also, how does this tax (if applicable) relate to Canadian taxes I have to pay? (ie. I am worried about possible double-taxation - is there a way to avoid this?)

A. The 30% withholding rate is the U.S. tax applicable to investment income (interest and dividends) paid to non-resident aliens under U.S. domestic law. However, under the Canada-U.S. Tax Treaty, the withholding tax rates are generally reduced as follows:

dividends - 15%
interest - 10%

The investment income you receive from the U.S. will be net of withholding tax. The brokerage firm should withhold at the reduced treaty rate. If they withhold at the higher 30% rate you will have to contact them and advise them of your eligibility for a reduced treaty rate. When you complete your Canadian income tax return, you should include the gross amounts in your income and the U.S. taxes paid will be eligible for a foreign tax credit claim which should eliminate double taxation.

There is generally no U.S withholding tax on capital gains realized on trading U.S. securities. The capital gains should be reported in your Canadian tax return and you will pay any related Canadian tax.

Subject: RE: Buying US Mutual Funds from Canada
From:Jake The Snake
Date: 29-Jul-97-03:56 PM

I've had an account with Buying US Mutual Funds from Canada for over a year now. I also enlisted early on with their Internet reporting and transaction facility through the PAWWS Network.

JWC services, prices and access to world stock markets are simply unequalled in Canada. Most US mutual funds are available through JWC including, for market timers, access to the Rydex funds.

For nayone wishing to buy US stocks, mutual funds or even offshore funds I would highly recommend opening an online Web account with JWC.

Subject: RE: Buying US Mutual Funds from Canada
From:Ted Chen
E-mail: ted_e_bare@.com
Date: 29-Jul-97-04:37 PM

Does this company require a US bank account?

Ted

Subject: RE: Buying US Mutual Funds from Canada
From:Bylo Selhi
Date: 29-Jul-97-07:07 PM

Ted,

You have to send them a $US cheque (check to an Amurrrican) or money order which they deposit into a money market fund. Then you can buy/sell securities by phone or over the Internet.

Subject: RE: Buying US Mutual Funds from Canada
From:thomas
Date: 30-Jul-97-03:53 PM

I will be moving down to the states. Which discount broker has the lowest commisions, best service and widest selection of mutual funds ?

Subject: RE: Buying US Mutual Funds from Canada
From:Bylo Selhi
Date: 30-Jul-97-08:36 PM

thomas

Call JW&Co (1-800-233-3411) and ask them to send you an account application package. In it you'll find a full reprint from Smart Money magazine July 1996, "The Best & Worst Discount Brokers". They want you to know that they won overall for the last three years. However, the article rates 20 discount brokers on criteria like costs, breadth of products, statements, etc. so you can select a broker based on what's most important to you. Enjoy and good luck in Amurrica.

Subject: RE: Buying US Mutual Funds from Canada
From:Mehrad
Date: 04-Aug-97-10:41 AM

re: post from Bylo Selhi, on 29 July, 97

I was referred to this thread thru a response I received from a "USA Tax..." thread I started last week. I use a Canadian discount broker (Action Direct) for my RRSP. I asked them about their policy on taxation on USA stocks purchased through them, and they told me that they can not offer tax advice/info! So, I started that thread.

Thank you for the info, Bylo. This thread is about Buying US Mutual Funds from Canada. So, I do not want to cause a topic digression. But, does anybody know whether USA stocks purchased through Buying US Mutual Funds from Canada. and a Canadian discount broker (Action Direct) are treated differently as far as USA taxes are concerned? Action Direct did not answer whether they do "at source" deductions or not! I wonder about dividends only, since according to the referenced post, there are no deductions for Capital gains.

Thanks! Mehrad

Subject: RE: Buying US Mutual Funds from Canada
From:Bylo Selhi
Date: 14-Aug-97-06:58 AM

Here's the Jack White thread for Jan.

BTW, I mailed them an account application and cheque a couple of weeks ago, but as of yesterday they still claimed they hadn't received it. Good thing I didn't send it by UPS.

OTOH, the Dow's dropped 300+ points in the last few days so maybe the posties are doing me a favour.

Q: did you hear that postal rates are about to go up again?
A: no, why?
Q: because of the increased cost of renting warehouses

Subject: RE: Buying US Mutual Funds from Canada
From:Bylo Selhi
Date: 23-Sep-97-07:22 AM

Some more info regarding Owning U.S. Securities and U.S. Estate Tax. (This was in response to a query I sent to E&Y's Tax Mailbag before I went on vacation. Caveat investor.)

Subject: RE: Buying US Mutual Funds from Canada
From:Rick
Date: 23-Nov-97-12:40 PM

Bringing this thread up for Sam.

Subject: RE: Buying US Mutual Funds from Canada
From:Ray Manbert
E-mail: trebnam@aol.com
Date: 30-Nov-97-10:32 PM

Please send me an account application form to Ray Manbert 347 The Kingsway Etobicoke Ontario M9A 3V3

(As soon as the mail strike is over please with a listing of the funds you sell and the fees)

Subject: RE: Buying US Mutual Funds from Canada
From:Butkus
Date: 01-Dec-97-12:25 PM

When you sell stocks through a US broker, does Revenue canada lose control.? There has to be some notification other than our unabashed canadian honesty. i mean, I am sure that Senator that spends six months in Mexico, todays Globe, and gets payed $40,000 a year Senator's salary, declares his interest income.????

Subject: RE: Buying US Mutual Funds from Canada
From:bkb
Date: 03-Dec-97-01:58 PM

Just like other international investors, is it not possible for Canadians to open trading accounts at any U.S. broker (such as Etrade, Fidelity, Schwab, etc) and invest in instruments that are available on the southern side of the fence but not here? Is there a special reason to be limited to Jack White and Co.? (Maybe I am missing the major point of this thread. I regarded it to be "trading south of the border by those from the north.".)

Subject: RE: Buying US Mutual Funds from Canada
From:Bylo
Date: 03-Dec-97-02:45 PM

bkb,

I wish it was indeed "possible for Canadians to open trading accounts at any U.S. broker (such as Etrade, Fidelity, Schwab, etc)" but alas it's not. I've tried to open accounts at the websites of E*Trade, Datek and (sigh) Vanguard Brokerage Services. They all declined to do business with us GWN furriners.

Calling Helms and Burton: did you know that E*Trade US will let evil Cubans, Libyans, Iranis and Iraqis sign up, but they force us Canadians to go to E*Trade Canada? (And of course E*Trade Canada does not sell any US-based mutual funds.)

The only US broker that I've found willing to do business with us is Buying US Mutual Funds from Canada. Their fees are not the most competitive, they offer only a limited selection of Vanguard funds and it usually takes a while for them to answer their (1-800) phone, but as far as I know they're the only game in town (or rather, "out-of-the-country".)

If anyone knows of another, better US broker please speak up.

Subject: RE: Buying US Mutual Funds from Canada
From:Colt
Date: 03-Dec-97-03:58 PM

Bylo,

Rick mentioned on the "Buying US Mutual Funds Not Available in Canada" thread that Waterhouse Securites (owned by TD Bank)offers a number of Vanguard funds on a no load basis with a transaction fee of $25 US - that sounds like a pretty good deal, does it better Jack White?

Rick,

Does Waterhouse allow Canadians to open up an account directly with them, or does TD want us locals to deal with Green Line only, thus preventing Canadians from being able to buy US-based mutual funds through them?

Subject: RE: Buying US Mutual Funds from Canada
From:Bylo
Date: 03-Dec-97-04:47 PM

Colt,

I just surfed over to their website. It appears that Waterhouse is a better deal. JW&Co charges $25 for transactions up to $5K and then $35+ for larger amounts. Also, Waterhouse says they charge the $25 only once when you do a swap (sell one fund in order to buy another) while JW&Co apparently charges separately for each half of the transaction.

And if you want to buy SPDRs, WEBs or even discrete stocks Waterhouse charges a flat US$12. That's way less than Waterhouse.

Waterhouse has online trading available NOW (they call it webBroker -- wonder who came up with that name first?) AND they can download data to Quicken 98. By contrast, I've been wait-listed to beta-test JW&Co's online trading system for the past few months (it was supposed to go live in September, so maybe I ought to count my blessings.)

What I can't determine yet is which company offers the better selection of the MFs I want to own, i.e. no-load, low-MER.

Also, I called Waterhouse (1-800-934-4410 general, 1-800-934-4443 mutual funds). They say they're happy to deal with Canadians. They're mailing (ha!) me an account application and list of available funds today.

Thanks for the info. I'll keep you posted on this.

Subject: RE: Buying US Mutual Funds from Canada
From:Bylo
Date: 03-Dec-97-04:50 PM

And if you want to buy SPDRs, WEBs or even discrete stocks Waterhouse charges a flat US$12. That's way less than JW&Co.

Subject: RE: Buying US Mutual Funds from Canada
From:Rick
Date: 03-Dec-97-08:58 PM

Colt,I can confirm that Waterhouse is happy to deal with Canadians.I particularly like the fact that they are owned by TDGL since I am a Greenline client and I hopeful that I will eventually be able to deal seamlessly between my accounts when tranferring funds...I may be dreaming here.

Bylo,Waterhouse offers the same 56 Vanguard Funds that are offered by Jack White.Another cost advantage of Waterhouse is that they don't charge the 0.5% or 1.0% front load on the Small Cap Index,European Index and Pacific Index Funds that Jack White charges.

The Waterhouse Mutual Fund Guide is excellent.For example,it divides the equity funds into 26 categories including large growth,large blend,large value...as well as mid-cap and small-cap in each of these 3 sub-categories.It also sets out load adjusted returns for each fund for 3mos,6mos,1yr,5yrs and 10yrs,as well as the rank w/i category for 1yr and 5yrs.

Subject: RE: Buying US Mutual Funds from Canada
From:Scooby
Date: 03-Dec-97-11:34 PM

The question is, when are we going to get that level of service in Canada? I suppose never, unless we demand it.

Subject: RE: Buying US Mutual Funds from Canada
From:Bylo
Date: 04-Dec-97-08:06 AM

"I particularly like the fact that they are owned by TDGL since I am a Greenline client and I hopeful that I will eventually be able to deal seamlessly between my accounts when tranferring funds...I may be dreaming here."

Rick,

It's probably a dream, albeit a pleasant one. I suspect there are too many regulatory hurdles to jump -- in both countries -- for that to happen in this millennium.

Nevertheless, I sure hope Waterhouse's apparent scrappiness and deep-discount fee structure rubs off on TD's arrogance and greed.

Subject: RE: Buying US Mutual Funds from Canada
From:thomas
Date: 04-Dec-97-08:11 AM

Rick,

Could you please tell me the link for the "Waterhouse Mutual Fund Guide" you mentioned

Subject: RE: Buying US Mutual Funds from Canada
From:canadian club
Date: 04-Dec-97-09:35 AM

I am surprised that a US broker handles Canadian business. Who sends the tax slips to Ottawa? Which country collects taxes on Capital gains? Smells of evasion?

Subject: RE: Buying US Mutual Funds from Canada
From:Bylo
Date: 04-Dec-97-10:06 AM

No tax evasion. Just scroll up and read the posts on this thread from Jul/Aug.

Subject: RE: Buying US Mutual Funds from Canada
From:Rick
Date: 04-Dec-97-10:12 AM

Thomas,the Waterhouse Mutual Fund Guide is a 100 page hard copy booklet which is included with the account opening package I believe that it is updated twice a year.You can order the account opening package by phoning the 800 number that Bylo sets out above.

CC,I think you'll find that the information exchange agreements between the IRS and Revenue Canada are more than enough to dissuade tax evasion attempts by most investors.For tax considerations,including withholding taxes,go to the E&Y Tax Mailbag site to review Q&A's put to E&Y by contributors to this forum.