Briefly, these trusts are designed to provide an income stream that is higher than you would receive from conventional fixed-income securities like GICs or bonds. In some cases, such as royalty trusts that are based on the energy sector, you're looking at current yields in the 10% - 15% range. Some (or sometimes all) of that income is received on a tax-deferred basis, which means you don't have to pay anything to the government at the time you collect. However, if you sell your units in the future, your liability for tax on capital gains will be higher which is why we use the term "tax-deferred" rather than "tax-sheltered".

The disadvantages start with the fact that the income stream is not guaranteed. These are not government bonds we're talking about. For example, the Luscar Coal Income Fund has suspended all payments to unit holders because the depressed price of coal has eaten away its profits. Also, unit values can fluctuation dramatically. These shares are traded on the TSE, and will rise or fall in value depending on how well the trust is doing. So you're taking on extra risk for the additional income. You have to decide if the trade-off is worth it. - G.P.

Briefly, most reverse mortgages in Canada are made available under the Canadian Home Income Plan (CHIP) and are distributed through several major banks. You take a mortgage on your home and receive a lump sum payment which can then be invested in an annuity for tax-free income (the rules that make this possible are complicated, but they work). You make no payments against the mortgage. Instead, the accrued interest is added to the principal, thereby increasing the liability against the home. When the last surviving spouse dies, the property is sold, the bank is repaid, and if any money is left over it goes to the heirs.

Reverse mortgages work best for people over 70. Before applying for one, I suggest you review the terms carefully with a lawyer and discuss the matter with the family. The children might prefer to give their parents a monthly allowance rather than see the family home encumbered in this way.

The Canada Trust line of credit you refer to is in no way like a reverse mortgage. It is simply a home equity loan. Virtually every financial insitution offers these in some form or another. - G.P.

The reason is that no one can predict with certainty which funds will outperform over time. We do our best based on historical results, managerial track records, style, volatility and the like, but there are no guarantees.

Having two separate RRSPs provides the opportunity for diversification. If a fund in one plan doesn't do well, perhaps its counterpart in the other plan will make up for it.

For example, suppose it were decided that a global value fund should be part of both portfolios. One portfolio might have held Templeton Growth Fund, which had a very poor year, gaining just 0.9% for the 12 months to July 31. The other might have held AGF International Value Fund. Its performance wasn't sensational (value funds have been out of favour), but its one-year gain was 8.6%, a heck of a lot better than Templeton produced. If both plans had been in the Templeton fund, it would have been a pretty miserable year.

Now suppose a Canadian growth fund was also part of the overall portfolio mix. One RRSP held AGF Canadian Stock Fund. One-year gain: 50.8%. The other held Universal Canadian Growth Fund. One year gain: 18.5%. Big difference!

Diversification is the key to successful investing. When you have an opportunity to buy two good funds instead of one, take it. - G.P.

If the time horizon is relatively short (three years or less) and safety of principal is paramount, the money should be invested in ultra low risk securities like GICs. If he's prepared to sacrifice some potential income in exchange for possible higher returns, he could choose an index-linked GIC that guarantees full return of principal. But there may be no interest paid if the stock market does poorly.

The best investment he could make would be to keep the money in something safe until he starts working and then use it for RRSP contributions. - G.P.

I was told, and it is being repeated to me again and again, that mutual funds are a long term investment. I don't know how long is long enough for them to notice that my account is steadily shrinking, albeit it slowly. But the set of funds they purchased for me should by now show the broker that those funds will never repay even the capital invested in them, let alone bring some gains. After 36 to 48 months in the funds, my investment is today worth less then the capital invested there and I believe I have the right to call it a scam.

Another mantra the broker keeps repeating is that my particular mutual funds depend on the Dow for gains. When I ask questions, he changes the mantra to say that I depend in fact more on the TSE.

The market however gives the lie to both claims because when I invested the money, both the Dow and the TSE were at about the 7,000 level and today they are at the 11,000 level. Yet my investment in those recommended funds not only didn't grow accordingly, but they are worth today less then the capital invested in them.

Our portfolios are small, but that's all we have at this late age in life and at this state of affairs.

I am ready to take my losses and run. But I remember they told me that I can't get my investment back for three years. That keeps changing and now I am told it is there for six years. What should I do? - M.M.

I also find it strange that you are apparently locked in to your investments. This is not typical of mutual funds; they can normally be bought and sold within a business day. It sounds like you are holding some type of security that is not a mutual fund at all. Perhaps it is some type of market-indexed GIC?

In your situation, may I suggest the following approach. Call the office of the brokerage firm you are dealing with and ask for an appointment with the manager. At the meeting, review the portfolio performance and make your dissatisfaction with the results clear. Find out exactly what you are invested in and why you don't have the liquidity that normally applies to mutual funds. Try to determine with the manager where the problem lies. Discuss alternatives, including moving your account to another broker within the firm who may be better tuned to your needs. It is always easier to make a switch within a company than to transfer an account to a completely different firm.

Alternatively, or conjointly, set up an appointment with a fee-for-service financial planner, one who does not sell securities so has no vested interest in trying to earn commissions from you. Ask him or her to review your portfolio and to make recommendations. This may also be helpful in determining your direction. - G.P.

I know that my other mutual funds held inside and outside my RRSP carry a penalty for "early" redemption. This is a good restriction for more than one reason. But do dividend funds (more specifically CT/TD dividend funds) allow for the same flexibility and low/zero cost of regular selling that money market funds do? - J.K.

However, there's a larger question here. I am certainly not advocating dividend funds as a short-term holding place for emergency cash. In my comments, I was discussing the chances of loss over a long period, five to ten years. Short-term, dividend funds can be subject to significant swings (up or down) in net asset value. That's because many invest primarily in interest-sensitive stocks, such as banks. When those stocks hit a rough patch, as they did last year, a dividend fund can take a hit. Historically, we know that these funds recover over time from such losses and do well. But you certainly should not be investing emergency money that you may need quickly in something like this. These are for long-term investors only. - G.P.

First, you will be liable for tax at the capital gains rate if you sell the Nortel shares. The trick is figuring out what you owe.

Start with the original purchase price of your BCE shares, prior to the Nortel spin-off. To make this simple, let's say you paid $100 a share. Each "new" (post-spin-off) BCE share is allocated 30.79% of that amount. So the adjusted cost base (ACB) of your $100 BCE share is now $30.79.

The Nortel adjusted cost base is 69.21%, or $69.21 based on an original purchase price of $100. However, you received 1.57 Nortel shares for each BCE share. So the ACB for each Nortel share in this example is $69.21 divided by 1.57, or $44.08.

Plug in your own original BCE price to do your personal calculation. You then subtract that ACB from the net amount you receive from the sale of the Nortel shares. The difference is subject to tax at the capital gains rate (which means only 2/3 of the profit is included in income). - G.P.

As you are aware as a subscriber, we currently have several funds of this type on the Mutual Funds Update Recommended List. Among them is the Guardian Monthly High Income Fund, which you mention and which is one of the best of this type as far as I am concerned. I like the broad diversification of the portfolio, the good cash flow and the tax advantages that are available if the fund is held outside a registered plan. The Atlas fund is much newer, but its initial results look good. - G.P.

There's a full chapter on this subject in my 2000 Buyer's Guide to RRSPs if you want more details. - G.P.