Introducing. NexGen Financial. the better way to invest.

Transcription

1 Introducing NexGen Financial the better way to invest.

2 FROM THE ACORN DOES THE MIGHTY OAK TREE GROW... Canadian investors understand the power of long term growth be it in the forests or in their investment portfolios. We invite readers to discover the power of the acorn an acorn called Tax Managed investing. We re confident that your investment acorn can blossom into your own mighty oak tree with a little help from your financial advisor... and NexGen.

3 N EXG E N F INANCIAL THE BETTER WAY TO INVEST introduction CANADIAN INVESTORS HAVE CONSISTENTLY TOLD researchers that they are concerned about their financial futures and their ability to fund a comfortable retirement. Facing pressure to pay down the mortgage, rising post secondary educational costs for children, RSP funding needs, parents to care for and average life expectancy on the rise Canadians are asking themselves how can I manage to do it all? It s a fair question and it s why more Canadians are turning to Financial Advisors for help. To reach their financial objectives, investors and their advisors need to be relentless in their search for high quality, cost effective investment products. An incremental 1 or 2% in return over 25 years can make a significant difference to a retirement plan. At NexGen Financial, we have a new mutual fund investment approach that can help investors achieve their goals faster. It s a new tool for your financial tool box. NexGen Financial is an exciting new mutual fund company, backed by an experienced executive team with a long and successful track record in the Canadian mutual fund industry. Why another mutual fund company you ask? Good question. The answer is, quite simply, we think we have come up with a better way for Canadians to invest. To understand why, you ll need a brief refresher on how traditional mutual funds are structured and how they work before we explain how we ve improved them. 1

4 N EXG EN F INANCIAL creating a better mutual fund product WORKING TOWARD A BETTER WAY TO INVEST Over the past 20 years mutual funds have become a financial staple for many Canadian investors and for good reason. For most small to mid sized portfolios, mutual funds are an ideal product choice. Funds provide a wide range of well known investor benefits. Yet, the obvious success of mutual funds did not deter the founders of NexGen in their quest to take a good product and make it even better. They started by challenging a few of the we ve always done it this way operating principles of mutual funds. The first point of challenge concerned the pooling of investors into common funds without concern as to their account s tax status be it taxable or non-taxable. With traditional funds, while not widely advertised, investors effectively lose control over their tax destiny. Their funds are lumped together with non taxable investors who obviously have a very different tax situation and everyone receives, at year end, mutual tax treatment. This one size fits all approach to taxation, while convenient for fund companies, carries a significant cost to investors. In contrast, more sophisticated high net worth taxable investors insist on receiving tax treatment customized to meet their individual needs which can change over time. NexGen s founders knew there had to be a way to mass customize a mutual fund so investors could regain control over their tax destiny and make it flexible enough to meet future tax needs - and set about to do so. Why is NexGen so concerned about mutual fund taxation? Because annual fund taxation, even for buy and hold investors, represents a significant drag on fund performance in taxable accounts which is NexGen s second point of challenge to the traditional fund structure. We believe we can reduce that cost. HOW TAXES HURT FUND RETURNS Many mutual fund investors, are unaware of the heavy toll that taxes take on their investments. By design, mutual funds distribute all taxable income to their shareholders at year end so the fund does not have to pay any taxes. An investor s share of these taxable gains is recorded on the T3 and T5 slips received each February and March from fund companies. When an investor files a tax return, these amounts are added to their income and taxed even if they have not sold a single share or unit of the fund. The table below shows tax rates by income type paid on your taxable mutual fund investments. MUTUAL FUND TAX RATES (Based on top marginal tax rates Ontario 2006) INCOME TYPE ASSUMED FUND TAX RATE RESULTING PRE-TAX RETURN AFTER-TAX RETURN ORDINARY INCOME Interest Income Foreign Source (eg. US Dividends, etc.) Income Trusts 10% 46% 5.4% CANADIAN DIVIDENDS Current 10% 30% 7% Proposed * 10% 20% 8% CAPITAL GAINS 10% 23% 7.7% NO ANNUAL DISTRIBUTION 10% 0 10% * Based on federal government proposed changes to the dividend tax credit. Rates will vary by province and income bracket. 2

5 THE BETTER WAY TO INVEST Unfortunately, taxable mutual fund investors pay a heavy and often annual tax burden just to stay invested in a fund. They have no say or warning with respect to the amount of the tax generated or the type of income. Taxable mutual fund investors have effectively lost control of their tax destiny. The magnitude of the problem is staggering. Over the 10 year period from , mutual fund investors in the US lost over 20% of their pre-tax returns to taxes on equity funds and almost 38% on fixed income funds according to a study conducted by Lipper, a leading US fund research firm. A quote from the study is most enlightening We estimate that taxable mutual fund shareowners paid at least $3.6 billion to government coffers in 2004 because of capital gains distributions. Considering most mutual fund investors reinvest their distributions back into the fund, that is a large price to pay for a buyand-hold strategy. While a comparable 10 year Canadian study does not exist, our tax losses per capita are likely similar. The table below summarizes the high costs of taxation over the 10 year Lipper US study period. US MUTUAL FUND INDUSTRY IMPACT OF TAXATION more tax sensitive to a client s tax situation FUNDS ACTUAL FUNDS ACTUAL AVERAGE AVERAGE FUND TYPE PRE-TAX RETURN AFTER-TAX RETURN % LOST TO TAXES Equity Funds 9.78% 7.70% 21% Fixed Income Funds 6.52% 4.04% 38% SOURCE: Lipper Study Taxes in the Mutual Fund Industry 2005 Tax losses of the degree illustrated above, when compounded year after year, significantly impact an investor s rate of return and ultimately their lifestyle. The chart below illustrates the 10 year impact of the tax costs above on a $50,000 investment. ILLUSTRATIVE PRE AND AFTER-TAX FUND RETURNS GROWTH IN INVESTMENT $130, ,000 90,000 70,000 $127,117 $104,985 $94,033 $74,297 50, YEAR Equity Fund Pre-Tax 9.78% Equity Fund After-Tax 7.70% Fixed Income Fund Pre-Tax 6.52% Fixed Income Fund After-Tax 4.04% IMPORTANT INFORMATION The rate of return shown on the above graph, while an actual historical return, is used only to illustrate the effects of taxation on the compound growth rate on an investment. It is not intended to reflect future values or returns on investment of NexGen s Funds. 3

6 N EXG EN F INANCIAL offering two types of funds NEXGEN FUNDS A TAX SENSITIVE SOLUTION In contrast, NexGen s funds were structured with a simple objective to be more tax sensitive to a client s situation. In setting up the funds, NexGen had a clean sheet of paper to work with to structure the funds in a way that aligned investors and offered improved tax treatment compared to a traditional fund. Our first step was simple, but fundamental we separated taxable investors from non taxable investors. Why? Because TWO TYPES OF INVESTORS CALLS FOR TWO TYPES OF FUNDS As discussed above, traditional mutual funds co-mingle both investor types within the same funds. NexGen believes that these two different investor types deserve two different types of funds one that specifically serves their tax interests. With NexGen Funds, nontaxable investors will invest in one of our 13 Registered Funds while taxable investors will invest in one of our 13 Tax Managed Funds and while the portfolios are common and linked due to similar investment mandates (through a fund on fund structure in which the active portfolio management is conducted for most of the Funds at the Taxable Managed fund level), the tax accounts are separate and distinct. THE BETTER WAY TO INVEST TAXABLE INVESTORS... Investors separated by tax status... NON-TAXABLE INVESTORS NexGen Tax Managed Funds NexGen Registered Funds Under our model, taxable and registered investors invest in separate fund structures which will allow us to better manage their respective tax needs. But that s just the start of the better way to invest. ACTIVE TAX MANAGEMENT PROCESS Traditional mutual funds with their co-mingling of investor types within a fund, have a difficult time of actively managing the funds tax liability. At NexGen, with investors separated by tax status, we can actively manage the Fund s tax situation to ensure efficiency. NexGen s Tax Managed Funds employ an active tax management process that helps reduce and defer taxes. As well, the NexGen tax management process actively converts taxes from high rate to low rate on behalf of NexGen s investors. As a result, taxable investors should, over time, see a better after tax rate of return for a given investment return. 4

7 THE BETTER WAY TO INVEST REGAIN CONTROL OVER YOUR TAX DESTINY With traditional mutual funds, investors receive mutual tax treatment on their taxable investments. With that, however, comes a loss of one s tax destiny. At NexGen, we believe investors deserve the right to chart their own tax course which is why we allow investors to self-select their income and year end tax treatment. When investors select a NexGen Tax Managed Fund, they have the added advantage of making a second decision selecting between the following tax class options. NEXGEN TAX CLASSES Compound Growth Class Capital Gains Class Dividend Tax Credit Class Return of Capital Class Realizing the benefits of Tax Managed investing with NexGen Funds is easier than you think. Working with your financial advisor, investors simply ask themselves a few simple questions such as; What is my tax objective on this particular investment? Do I require regular income from my investment? Do I have any tax loss carry forwards? Is long term tax deferral my best strategy? Your financial advisor and NexGen Funds do the rest. The chart below details some of the tax saving opportunities available with NexGen Funds. TAX CLASS OBJECTIVE FEATURES IDEAL FOR Capital Gains Class Capital appreciation Annual distributions Maximizing long-term that generates realized will be primarily after-tax growth capital gains capital gains Helping harvest Low rate of taxation current or historical Only income type to tax losses absorb capital losses Income splitting with children (no attribution back to adult) Return of Capital appreciation Monthly distributions Higher income Capital Class and monthly tax will be primarily return investors looking efficient income of investor s principal for tax efficient cash Annual distribution flow (monthly income) rate 7.5% Investors looking to Tax efficient since defer capital gains investor does not get liabilities taxed on original Investors looking to principal returned manage claw back ACB is lowered as concerns on old age distributions paid security payments Dividend Tax Credit Capital appreciation Monthly distributions Maximizing dividend Class and monthly tax will be primarily tax credit and creating efficient income taxable Canadian tax-effective income dividends (especially investors Annual distribution who structure their rate 6% income as dividends Up to $40,000/year* only) in dividend income may be received tax free if no other income is earned Compound Growth Capital appreciation Designed to minimize Maximizing long-term Class with minimum and defer all after-tax growth tax costs distributions Investors who do not Keeps as much have a short-term investment capital as investment income need possible in the fund Investors who want to compound tax to defer annual tax bill deferred growth * Investors may receive a significant amount of dividend income tax free if they have no other income up to $40,000 / year in most provinces. Based on federal government proposed changes to the dividend tax credit. Rates will vary by province and income bracket. Speak with your financial advisor for more details about how you can structure your affairs to take advantage of this planning opportunity. 5

8 N EXG EN F INANCIAL providing unequalled tax planning flexibility MULTI-DIMENSIONAL TAX FREE SWITCHING NexGen Tax Managed fund investors are able to move within the family of 13 funds tax free. This tax free switching feature comes in handy when re-balancing a portfolio. But NexGen has added an additional dimension of tax free switch capability. Recognizing that tax objectives change over time, NexGen Tax Managed funds also provide a tax free exchange feature between the four tax classes that provides unequalled planning flexibility. So investors may switch tax free between fund mandates and tax classes a first for the industry. NexGen Tax Managed funds offer tax free switching between both fund mandates and tax classes giving investors unequalled tax planning flexibility. Your financial advisor would be pleased to tell you more about the tax planning features embedded in the NexGen family of funds. 6

9 THE BETTER WAY TO INVEST meet our investment team NEXGEN FUNDS INDUSTRY-LEADING INVESTMENT MANAGEMENT As powerful as the NexGen tax managed investment structure may be, there is one more relevant concern: the quality of the investment management team. NexGen has assembled three talented teams of investment professionals, both in-house and through well known sub-advisors, to manage NexGen s fund portfolios. JZechner Associates Inc. is a well known and successful Investment Counselor serving high net worth and institutional investors. Established in 1993, the firm has built an entrepreneurial organization focused on providing a growth at a reasonable price approach to asset management. Led by well known founder, John Zechner, the firm manages over $2.3 billion in assets from their offices in Toronto. Mr. Zechner emphasizes a team approach coupled with strong economic research and fundamental analysis, focusing on three types of investment management: North America Equity, Balanced and Fixed Income Investing. JOHN ZECHNER Selective Asset Management Inc. was founded in 2004 by Robert J. McWhirter, F.C.S.I., CFA. Mr. McWhirter has more than 25 years experience in the securities industry and is a well known money manager in his sector. A fund managed by Mr. McWhirter was recently honoured with the prestigious Science & Technology Equity Fund of the Year award at the December 2005 Canadian Investment Awards, for the second year in a row. Selective Asset Management Inc. is headquartered in Toronto, Canada. ROBERT McWHIRTER NexGen Financial s asset management team was founded in 2005 with a focus on North American equity investing. Portfolio Manager Jeffrey Young, MBA, CFA is supported by an investment committee whose members have been active in the asset management industry for over 15 years. NexGen invests in larger capitalization firms that possess strong financial fundamentals combined with an attractive price. The NexGen team will manage the funds under their purview from their head office in Toronto. JEFFREY YOUNG 7

10 N EXG EN F INANCIAL N E X G E N F I N A N C I A L better pricing options for long-term investors BETTER PRICING OPTIONS NexGen s better way to invest also includes better pricing options for long-term investors and those clients with larger portfolios. All Funds are available on a front end load or a deferred load basis to further craft your portfolio to meet your needs. Your financial advisor can provide full details on all pricing and purchase options. BETTER FUND SELECTION NexGen s family of funds includes a full range of 13 Canadian and North American investment mandates ranging in capitalization size from small to large and in investment style from value to growth. The Tax Managed funds, other than the fixed income funds, are actively managed investments while the corresponding Registered Funds invest, through a fund on fund structure, in debt and equity of the applicable Tax Managed Fund to effectively replicate the performance of that Tax Managed Fund. The remaining Tax Managed fixed income funds, which are not part of a fund on fund structure, use derivatives and other instruments to effective replicate the performance of the corresponding Registered fixed income fund, where the active portfolio management occurs. NEXGEN FUNDS FUND FAMILY OVERVIEW RETURN Taxable Investors Non-Taxable Investors NexGen Tax Managed Funds NexGen Registered Funds ACTIVE PORTFOLIO MANAGED BY Canadian Cash Funds Canadian Bond Funds 1. Canadian Balanced Growth Funds 2. Canadian Growth and Income Funds Zechner Zechner 1. Zechner 2. Selective and Zechner 1. Canadian Large Cap Funds 2. North American Large Cap Funds 3. Canadian Dividend and Income Funds 4. North American Dividend and Income Funds 1. NexGen 2. NexGen 3. Selective 4. Zechner 1. Canadian Growth Funds 2. American Growth Funds 3. North American Growth Funds 4. North American Value Funds 1. Selective 2. Zechner 3. Zechner 4. Selective North American Small / Mid Cap Funds Selective VOLATILITY NEXGEN FOUNDERS BENEFIT THE BETTER WAY TO PARTNER NexGen is inviting all investors in our funds and their financial advisors to participate in the growth of our firm through a unique Founders Benefit program. Speak with your financial advisor or refer to the NexGen fund prospectus for full details. NEXGEN FUNDS THE BETTER WAY TO INVEST FROM AN EXPERIENCED MANAGEMENT TEAM While the ideas behind NexGen Financial are new to the industry, the management team is not. NexGen Financial s executive team helped lead one of the Canadian mutual fund industry s most innovative and successful public companies for over a decade. Ask your financial advisor for more information about them. 8

11 the NexGen executive team The NexGen executive team has drawn upon a collective 95 years of industry experience - in creating NexGen s better way to invest. Jim Hunter MBA, FCA Pat Lincoln BA, BCL, LLB Jeffrey Young MBA, CFA Laurie Munro BBA, MBA Moira Saganski MBA, MTax, CFA Patti Doolan BA IMPORTANT INFORMATION - Tax liabilities on investment income and capital gains earned by a mutual fund cannot be mitigated nor can they be fully managed in all circumstances. The risk increases the greater the investment return earned by the mutual fund. As a result, a mutual fund may be required to make taxable distributions to investors in a NexGen Tax Class for which a distribution or type of distribution is not optimal or in accordance with their tax preference. The tax efficiency of the Return of Capital Class and the Compound Growth Class is enhanced the greater the demand for the Capital Gains Class, Dividend Tax Credit Class and the Registered Fund Class. The payment of distributions for Dividend Tax Class and the Return of Capital Class should not be confused with a mutual fund s performance, rate of return or yield. If distributions paid by a mutual fund are greater than the performance of the fund, then your investment will decline. Distributions paid as a result of capital gains realized by a mutual fund and income and dividends earned by a fund are taxable in your hands in the year they are paid. For Return of Capital Class, your adjusted cost base will be reduced by the amount of any returns of capital. If your adjusted cost base goes below zero, then you will have to pay capital gains tax on the amount below zero. Sales commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

12 Don t leave your mutual fund taxes to chance... manage them with NexGen Financial Limited Partnership 36 Toronto Street, Suite 1070 Toronto, Ontario M5C 2C For more information contact your financial advisor or NexGen at [email protected] June 2006