RE:RE:DFN unit NAV to OCt 7 = approx: $15.20Split share funds (“Splits”) are unique investment corporations that offer two distinct classes of shares and typically invest in an
underlying portfolio of dividend paying companies.
The two distinct classes of shares are classified as 1) Class A shares and 2) Preferred shares. Both classes of shares trade
separately on the TSX.
Typically an investor buys a stock to receive dividends and to take advantage of any gains on a stock price.
Split share funds split, or effectively reallocate, these two benefits between the two separate classes of shares. Preferred shares
receive fixed, cumulative quarterly payments. Class A shares capture the movement of the underlying stocks, but in a more
magnified way than if an investor owned the underlying portfolio of securities directly. This magnification of return is commonly
known as “leverage”.
As an example, if the underlying stocks go up 5%, the Class A share’s value increases more than 5%. That is because the Class A
shares receive all growth in the fund, even on the Preferred share portion. The reverse is also true.
Unlike a traditional split share fund, Brompton designs Splits where the Class A shares receive a steady monthly distribution when
the net asset value is above a specified threshold (as well as participating in a levered way on the return of the portfolio securities).1
Class A share distributions are funded by capital appreciation, additional income earned from a covered call writing program and
any excess dividend income earned in the underlying portfolio that is over and above what is needed to fund the Preferred share
dividends.