Split Share Corporations
Thomas Herbison
Janelle Tibbatts
Justina Williams
Matt Wood
Agenda
Definition of a Split Share
Benefits and Risks of this Investment
Big 8 Split Inc.
Top 10 Split Trust
Conclusion
– Type of investor
What is a Split Share?
Split Share Corporations have a portfolio of
common shares in a specific industry or sector
“The split share structure allows the risk-reward
component of common shares to be broken
down into two components and then allocated
differently for investors who are more or less risk
averse.” (TSX Group)
– The capital shares receive leveraged capital gains or
losses of the common share
– The preferred shares receive the constant dividends
of the common share
Benefits of Investing in a Split
Share Corporation
Allows the investment in a portfolio of a specific
industry or sector
Qualifies as a mutual fund corporation, thus
taxed similar to mutual fund corporations
– Preferred shareholders are taxed on their dividends
– Common shareholders’ gains are taxed as capital
gains
Leveraged capital gains
Risk of capital loss can be avoided while still
earning dividends
Risks of Investing in a Split Share
Corporation
Leveraged capital losses
Market fluctuations for capital shareholders
Concentration of portfolio in specific industry
No ownership interest
Interest Rate Fluctuations
Securities Lending
Mutual Fund Policies
Big 8 Split Inc.
Big 8 Split Inc.
Holds equal portion (12.5%) of the following
companies in its portfolio:
–
–
–
–
–
–
–
–
Bank of Montreal
Bank of Nova Scotia
Royal Bank of Canada
Toronto-Dominion Bank
Canadian Imperial Bank of Commerce (CIBC)
Great-West Lifeco Inc.
Manulife Financial Corporation
Sun Life Financial Services of Canada Inc.
Leverage Factor
Annual Growth
Rate of Common
Shares (%)
Assumed Unit
Value at
Redemption Date
($)
Capital Share
Redemption Price
Compound
Annual Return on
Capital Shares
(%)
Compound
Annual Return on
Portfolio Shares
-10
29.04
4.04
-31.5
-5.0
-5
37.34
12.34
-11.5
-0.7
0
48.01
23.03
0.1
3.7
5
61.69
36.69
9.0
8.2
10
79.18
54.18
16.6
12.8
15
101.46
76.46
23.4
17.4
20
129.78
104.78
29.8
22.1
Share Prices
Initial Public Offerings (IPOs)
– Preferred Shares = $ 25.00
– Common Shares = $22.92
– Offered 4.5 million shares of each type
Redemption Date: December 15, 2008
Current Prices (as of close on Tuesday,
January 30, 2007)
– Preferred Shares = $23.35
– Common Shares =$53.65
Source: Globe Investor
Administration Fees
0.15% administration fee to TD Securities
Interest Income “from time to time”
May lend Portfolio Shares to generate
additional income
Big 8 Preferred Shares
Source: Globe Investor
Big 8 Common Shares
Source: Globe Investor
Top 10 Split Trust
Top 10 Split Trust
Banks
–
–
–
–
–
–
Annual Total 5 year returns(%)
BMO
Bank of Nova Scotia
CIBC
National Bank of Canada
RBC
TD
14.64
20.31
14.08
20.94
15.01
10.25
Life Insurance Companies
- Great-West Lifeco
- Industrial Alliance Insurance and Financial Services
- Manulife Financial Corporation
- Sunlife Financial Corporation
Equally weighted average
13.73
12.76
12.49
9.01
14.32
Top 10 Split Trust
Equal number of Capital units and Preferred Securities:
– $76,757,812.50 (5,859,375 Capital Units)
– $73,242,187.50 (5,859,375 Preferred Securities)
Together issued as a combined unit, but separately
traded on the market.
Prices:
– $13.10 per Capital Unit
– $12.50 per Preferred Security
Minimum Purchase:
– 100 Capital Units or 100 Preferred Securities.
Terminates on March 31, 2011
Top 10 Split Trust
The Trust will generally invest between 5% and
15% of the Trust’s assets in the securities of
each issuer in the Financial Portfolio.
Utilizes Derivatives in the form of covered call
and put options for additional return in the
market or to protect from declines in the
individual securities or the portfolio as a whole.
Top 10 Preferred Shares
Source: Globe Investor
Top 10 Common Shares
Source: Globe Investor
Type of Investor for Split Share
Corporations
Capital Shares
– Risky investors
– If you believe an industry is going to do well,
you can leverage your gains
Preferred Shares
– Risk-adverse investors
– Receive dividends without the risk of losing
capital
Thank you!