HOW TO INVEST
How an
Investment in Magenta Works
Investment in Magenta is governed by rules prescribed by securities regulators. These rules restrict investment to investors in one of two categories as follows:
1. Accredited Investors
2. $150,000. Plus Investors
A number of criteria are utilized to define Accredited Investors, including assets ($1 million +, excluding real estate) and/or net income ($200,000 + annually). Investors holding their shares in a managed account maintained by an investment dealer are also considered “Accredited”. Investors need only satisfy one of the Accredited Investor criteria. Accordingly, anyone, regardless of their financial situation, can invest if their shares are held in a managed account.
Accredited investors may subscribe for either Magenta Class “A” or Magenta II Class “A” shares as outlined below.
Investment by non-Accredited Investors is prohibited unless the investor purchases not less than $150,000 in shares. Non-Accredited Investors may purchase Magenta Class "A" Shares subject to the minimum subscription requirements specified below.
Shares may be held directly, or in an RRSP, RRIF or TFSA.
Directly held shares may be held individually, jointly, in trust, or by a corporation.
Shares purchased directly or within a registered plan may be combined for the purpose of satisfying the minimum and incremental subscriptions rules specified below.
For example, an investor’s initial $150,000 Magenta Class "A" subscription could conceivably be comprised of $75,000 in RSP shares, $65,000 in directly held shares and $10,000 in TFSA shares.
Non-Accredited investors may purchase $150,000 or more in shares registered jointly with their spouse.
I. Direct
Cash Investment
(1) Magenta Mortgage Investment Corporation
Class “A” Participating Shares
Minimum initial share subscription is $150,000. Refer to FAQ (9.).
Shareholders may subscribe for additional shares at any time in amounts of not less than $22,000.
The shares have a constant par value of $10.00 each, and may be issued in any multiple of $10.00.
The shares are subject to the Management Fee applicable to all Magenta Participating Shares, specified in FAQ (6.): How much is paid for management?
A cash investment may be made either at Magenta’s offices, or by mail or courier. The investor executes a Share Subscription Agreement, and tenders a cheque payable to the Company. Upon receipt of the cheque, the Company issues a Share Certificate, and provides a copy of the accepted Subscription Agreement.
Dividend record date is the date the shares are issued, meaning that shares earn a pro rata share of the annual dividend from this date.
Example
$150,000. in shares are paid for and issued on November 15th.
The Company’s year end is May 31st.
Dividend yield, based on the audited financial statements, is ultimately determined to be 9.50%.
The investor would earn a dividend for the 197 days of the fiscal year during which the shares were outstanding (November 15 - May 31), in the amount of $7,691.10 ($150,000. x 9.50% x 197/365). The annual dividend is determined and declared annually on the basis of the audited financial statements.
Dividends may be received in the form of cash, additional stock or any combination thereof. Dividends are paid monthly at a fixed rate of 6.00%. The lion’s share of the residual annual dividend, calculated on the basis of management prepared financial statements, is paid at year end. A small ‘top-up’ dividend is paid once the annual dividend is finalized at the conclusion of the audit. The annual dividend cannot be finalized until the conclusion of the audit because the Income Tax Act stipulates that 100% of a MIC’s net income, as verified by audit, must be paid to shareholders by way of a dividend. For example, in fiscal 2010 the Magenta dividend payment schedule was as follows: (i) 6.00% paid monthly throughout the year; (ii) 3.00% at year end (May 31, 2010); (iii) .69% at the conclusion of the audit (July 31, 2010). Shares issued by way of stock dividends at the conclusion of the audit, are allotted on June 1st, and accordingly are fully eligible for dividends commencing on that date.
Both cash and stock dividends are considered as interest income for taxation purposes when earned outside of a registered plan.
The minimum holding period for the shares is 2 years. The minimum holding period may be shortened in the event of the shareholder’s death or disability or other exceptional circumstances.
(2) Magenta II Mortgage Investment
Corporation
Class “A” Participating Shares
Only “Accredited Investors” may subscribe for shares.
Minimum initial share subscription is $50,000.
The shares have a constant par value of $1.00 each, and may be issued in any multiple of $1.00.
In addition to the Management Fee applicable to all Magenta II Participating Shares (Refer to FAQ (6.): How much is paid for management?), the Class “A” Participating Shares are subject to an incremental annual management fee equivalent to 3.00% of the value of the shares. Accordingly, annual Class “A” Participating Share Return on Investment will be 3.00% less than that applicable to Magenta II Class “B” Participating Shares. For example, Class “A” and Class “B” fiscal 2010 dividend yields were 6.61% and 9.61% respectively.
Investors may exchange their Class “A” Participating shares for Class “B” Participating shares, once their total shareholdings, excluding re-invested dividends, reach $150,000.
All other terms and conditions are consistent with those specified above with respect to Magenta Class “A” Participating Shares.
II. RRSP/RRIF
INVESTMENT
Mortgage Investment Corporation (MIC) shares
are qualified RRSP and RRIF investments, as
prescribed within the Income Tax Act.
A Self-Directed RRSP
or RRIF is required
to hold the shares.
Investors should contact their RRSP
or RRIF trustee to ascertain their policies
and procedures with respect to the inclusion
of MIC shares within their plans. Alternatively,
Magenta can assist investors in establishing
a Self-Directed RRSP or RRIF with the trustee
it normally deals with. Magenta will
administer all aspects of registered plan related
share transactions, and interface directly with
the trustee. In short, the investor is only
required to execute the Subscription Agreement,
and supplementary documentation prescribed by
the Trustee, to complete the transaction.
A registered plan share transaction may take
a variety of forms, as follows:
(1) RRSP Contribution
Contribution In Kind
An investor may wish to utilize some or all of their current year’s RSP contribution room, to make a new investment in Magenta. The shares would be purchased directly from Magenta, but registered in the name of the RSP trustee. The duly registered share certificate would be delivered directly to the RSP trustee as a “contribution in kind”. For example, 2,200 Magenta Class “A” Participating Shares, worth $10.00 each, contributed in kind to an RSP, would represent a contribution of $22,000.00., and the trustee would issue a contribution receipt in this amount.
Cash Contribution
Alternatively, the investor could make a
cash contribution directly to their RSP, and
then utilize the cash, conceivably supplemented
by cash already in the plan, to purchase shares.
In this instance, a share certificate registered
in the name of the RSP trustee, would be delivered
to the trustee. Upon receipt, the Trustee
would forward payment directly to Magenta.
The “contribution in kind” method ensures that the shares are eligible for dividend payment for the maximum period possible. For dividend calculation purposes, the shares are not considered issued until payment in full is received.
RRSP Contribution Loans
Investors may arrange loans from their trustees,
wherein the proceeds are credited directly
to their plans as a new RSP contribution.
The resulting cash in the plan can then be
used to fund any qualified RSP investment.
Investors may also elect to utilize other
types of loans or mortgages to fund RSP contributions.
(2) RRSP/RRIF
Purchase From Cash on Hand
Investors may use existing RRSP and RRIF
assets to purchase shares. In this instance,
the trustee would be directed to liquidate
existing investments so as to generate the
requisite amount of cash required to complete
the share purchase.
Magenta would deliver the share certificate,
registered in the name of the RRSP/RRIF Trustee,
to the Trustee, and the Trustee would in turn
effect payment directly to Magenta.
(3) RRSP/RRIF Swap
Investors already holding Magenta shares
outside of their RRSP or RRIF, can exchange
these shares for cash in their registered
plans. In this instance, Magenta would re-register
the directly held shares in the name of the
RRSP or RRIF Trustee, and deliver the new
share certificate to the Trustee. The Trustee
would forward payment directly to the investor.
As in the case of “contributions in
kind”, the direct purchase of shares
from Magenta, and subsequent re-registration
in the name of the RRSP or RRIF Trustee, has
the advantage of maximization of the dividend
eligibility period.
Investors may elect to utilize both new RSP
contributions, and existing assets within
their RRSPs, to fund Magenta share purchases.
Investors should be mindful of the minimum
share subscription amounts, specified above.
III. TFSA Investment
Mortgage Investment Corporation (MIC) shares are qualified TFSA investments, as prescribed within the Income Tax Act.
Magenta can assist investors in establishing a low fee TFSA with the trustee it routinely deals with.
Please contact us concerning any aspect of either Direct Cash or RRSP/RRIF/TFSA share issuance, or to obtain a Subscription Agreement.
Prospective investors may also contact the
Companies’ auditors. Refer to Corporate
Info / Links.
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