Canfor Pulp Income Fund (TSX: CFX-U, OTC: CFPUF) has produced a solid gain since joining the Portfolio in October. Two reasons: a sound and growing business, and a huge dividend that’s still likely to be in the teens after conversion to a corporation on Jan. 1. Unfortunately, management seems set on enforcing an incongruous quirk in their plan to convert. Namely, only US investors who meet the definition of “qualified investor” under the Investment Company Act of 1940 will be allowed to receive Canfor stock for their trust units. The key requirement is to have USD5 million in investments, including real estate held for investment purposes. Everyone else will be cashed out at the market price.

As I wrote last month, no other trust has written such a provision into their conversion plan. Nor is there any clear rationale why management has chosen this route, other than the obvious ultra-caution toward any potential US litigation. But there’s now the very real possibility that some US investors are going to get caught up in a snafu that could turn an otherwise profitable investment into a loser.

I therefore advise the following. If you’re a Canadian investor or meet the definition of “qualified investor” in the US, hold onto your Canfor Pulp Income Fund. My outlook for the company remains solid as Asian demand for its products surges.

On the other hand, if you’re a US investor and there’s any doubt you meet the definition of “qualified investor,” go ahead and sell your position now, with the idea of buying back in after conversion. Note that I’m going to keep Canfor in the Aggressive Holdings.

As an alternative, I’m adding a new closed-end mutual fund to the CE Portfolio this month, Precious Metals & Mining Trust (TSX: MMP-U, OTC: PMMTF). As its name suggests, the fund holds a mix of securities of metals and minerals mining and exploration issuers traded in North America. The monthly distribution of CAD0.10 per unit equates to a yield of around 11 percent and is paid mostly from capital gains. As a result, it shouldn’t be considered as safe as my other fund selections but is a solid play on gold prices. And it pays dividends in Canadian dollars as well. Buy Precious Metals & Mining Trust up to USD12.

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