To provide unitholders with a stable stream of monthly distributions targeted at $0.07 per month ($0.84 per annum);
To mitigate the impact of significant interest rate increases on the net asset value of the portfolio;
To preserve the net asset value per unit; and
To enhance the total return per unit by actively managing the portfolio.
The Fund is invested in a diversified portfolio of investment grade preferred securities and corporate bonds. The majority of the portfolio is invested in fixed income securities from the banking, financial services, insurance and utilities sectors (industries which have regulatory oversight).
Actively managed between corporate debt and preferred securities to take advantage of pricing anomalies and market inefficiencies. Preferred securities are not highly correlated with other asset classes resulting in improved diversification and potentially lower risk within an investment portfolio.
Units of the Fund are rated P-2f by Standard & Poor's.
Safety Net Hedge
The Safety Net Hedge is designed to mitigate the impact of significant, rapid increases in long-term interest rates on the net asset value of the portfolio while permitting it to appreciate when interest rates decline. This strategy allows for potential increases in distributions if interest rates rise significantly while keeping income relatively resistant to falling interest rates. Recent market conditions have reduced the effectiveness of the strategy as the correlation between the Fund's portfolio and US Treasury bonds has declined substantially and an increase in market volatility has significantly increased the strategy's cost. Consequently, the safety net hedging strategy has been suspended.
The portfolio will be hedged back to Canadian dollars to protect against currency risk.
- Thorough analysis of securities’ terms and structure, with a preference for issues offering attractive, sustainable income over high current yields;
- Actively repositioning the portfolio both horizontally between issuers as well as vertically among issuers’ preferred and debt securities; and
- Consistent use of hedging strategies to help manage the interest rate risk while avoiding strategies that require anticipating the direction of interest rates.
The Fund may borrow up to 35% of the total assets of the Fund to purchase additional securities to enhance the total return of the portfolio. In addition, the Fund may borrow up to 2.5% of its total assets for working capital purposes.
Investors may elect to automatically reinvest their distributions in additional units of the Fund and realize the benefits of compound growth. Any units acquired pursuant to the distribution reinvestment program qualify for the service fee. Currently, no commissions or brokerage fees are allocated to plan participants. DRIP Plan
Annually on the second last business day of November, provided units are tendered 20 business days prior. Units may be redeemed annually at the option of the unitholder by tendering units of the Fund at least twenty business days prior to the second last business day of November ("Redemption Valuation Date"). Redemption of tendered units will be settled based on the net asset value per unit on the Redemption Valuation Date, less associated costs of the redemption, including brokerage costs. Units tendered for redemption will be redeemed effective the Redemption Valuation Date and will be settled on or before the tenth business day in December, subject to the Manager's right to suspend redemptions in certain circumstances. For the purpose of calculating the net asset value per unit, the value of the securities comprising the portfolio will be equal to the latest available bid price for such securities on the Redemption Valuation Date.
Units may be redeemed monthly on the second last Business Day of each month (the “Monthly Redemption Date”),, other than an Annual Redemption Date, at a redemption price per Unit equal to the lesser of: (i) 96% of the Market Price (the weighted average trading price of the Units for the 10 Business Days immediately preceding a Monthly Redemption Date) and (ii) 100% of the Closing Market Price of the Units on the applicable Monthly Redemption Date less, in each case, any costs and expenses associated with the redemption. Units must be surrendered no later than 5pm (Toronto time) at least 10 Business Days prior to a Monthly Redemption Date.