The Fund must generate enough cash flow income to cover: the monthly distribution, the monthly management fee, and have cash left over to reinvest back into the Fund.
This monthly income must be generated from: dividends, interest, and/or option premiums. This income can not come from the sale of securities.
In addition to the monthly distribution, the Fund's NAV should increase faster than inflation. The NAV should increase due to the reinvestment of the excess monthly cash flow and the appreciation of the underlying securities.
WAM monitors a database of 3,000 companies in North America. The database is scanned for high-yielding stocks and/or bonds of companies where the fundamentals are improving. WAM will not invest in a security only for the yield. WAM focuses on those companies where the underlying cash flow is improving so the fund will benefit from both the capital appreciation of the security and the increases in dividends and/or credit ratings.
WAM also writes monthly covered calls on stocks owned in the Fund, and/or writes monthly naked puts on stocks the manager is willing to own. WAM does not employ leverage and therefore must keep cash for the possible exercising of naked puts.
Monthly distributions are re-characterized as return of capital. This is advantageous as no taxes have to be paid on the distributions. The distributions received reduce the investor's Adjusted Cost Base (ACB). In addition, there are no annual distributions of capital gains. All capital gains and excess cash flow generated within the Fund are deferred until redemption. Taxes are only paid when the units are sold, at the capital gains tax rate on the difference between the Fund's NAV and the investor's ACB (see schematic below).
The re-characterization and deferral of taxes is achieved through a swap with National Bank of Canada.
In effect, the client is deferring taxes for as long as they hold the Fund and paying those taxes at the lowest possible capital gains rate.
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Webb Asset Management Enhanced Income Fund Fact Sheet
| Webb Enhanced Income Fund | |
| FundSERV codes | A Class WAM102 F Class WAM202 |
| Advisor Trailer Fee | 1% on A Class 0% on F Class |
| Asset Class | Canadian High Income |
| Risk Tolerance | Moderate |
| Distribution Objective | Monthly as Return of Capital |
| Monthly Distribution | 5 cents per unit |
| Geographic Exposure | Canadian-centric |
| Portfolio Manager | Derek Webb, CFA, MBA |
| Inception Date | January 2008 |
| Minimum Initial Investment | $2,000 |
| Subsequent Investment | $1,000 |
| Management Fee | 2% on A Class 1% on F Class |
| Performance Fee | 20% only when the NAV is at an all time high vs. the Benchmark |
| Benchmark 40% | S&P/TSX Preferred Share 40% MSCI World High Dividend 20% S&P/TSX Composite Bond |
| RSP Eligible | Yes |
Disclaimer: Commissions, trailing commissions, management fees and expenses all may be associated with mutual fundinvestments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequentlyand past performance may not be repeated. Date of first publication: January 2008. For more information, please call your financial advisor or contact Webb Asset Management directly.
The information contained herein should not be used in any actual transaction without the advice and guidance of a professional tax advisor who is familiar with all the relevant facts. The information contained here is general in nature and is not intended as legal, tax or investment advice. Furthermore, the information contained herein may not be applicable to or suitable for the individuals' specific circumstances or needs and may require consideration of other matters. Webb Asset Management assumes no obligation to inform any person of any changes in the tax law or other factors that could affect the information contained herein.
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