Two New Choices from Canadian Medical Discoveries.

One of the country’s leading venture capital funds, Canadian Medical Discoveries, plans to offer two spin-offs to Ontario investors this RRSP season. Both are expected be eligible for that province’s bonus tax credit, which means that anyone who invests in them can deduct 35% of the total amount from their 2001 tax payable.

The CMDF Early Stage Fund will focus on health science businesses that are in the earliest stages of development. The CMDF Venture Fund will build a portfolio of health-related companies that are in the later stages of advancement. The original Canadian Medical Discoveries Fund invests in companies in all stages of development.

Both new funds are expected to qualify as research-oriented investment funds (ROIFs), a designation that provides for an extra 5% tax credit in Ontario, over and above the 15% federal credit and the 15% provincial credit. The parent fund also qualifies. However, check with your financial advisor before investing to be sure the newcomers received the ROIF designation, as no formal announcement of this year’s qualifiers had been made at the time of writing.

As to which fund to choose, here’s hoto judge:

If you are prepared to accept a higher degree of risk in exchange for a potentially greater return, opt for CMDF Early Stage Fund. However, you’ll need to be patient because the portfolio will hold only fledgling companies.

If you prefer the prospect of faster returns on your investment, choose CMDF Venture Fund. The companies in its portfolio will be those closest to going public.

For a mix of everything, the original fund is the best choice. However, it has been a disappointment to date, despite its blue-ribbon management team. Average annual compound rate of return over the five years to Nov. 30 was a paltry 0.3%. The bottom line is that investors received the initial tax breaks and little more, at least so far. And remember, the minimum holding time for these funds is eight years. That’s a long time to have your money sit idle.