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Sentry Select Capital Inc. announces increase in distribution and proposes changes to the declaration of trust of Sentry Select MBS Adjustable Rate Income Fund II (MGS.UN)
2009-03-24

TORONTO: The Board of Directors of Sentry Select Capital Inc. (“Sentry Select” or the “Manager”) is pleased to announce that, for the second quarter of 2009, the distribution for Sentry Select MBS Adjustable Rate Income Fund II (the “Fund”) will increase to $0.05 per Fund unit (“Unit”) per month, from $0.035 per Unit per month in the previous quarter. This is the second distribution increase since Pacific Income Advisors Inc. (“PIA”) took over as the Fund’s investment manager in July of 2008.

The Manager also announces that it will seek unitholder approval of certain amendments to the Fund’s declaration of trust.

If approved, the amendments would allow the Fund to:

  • provide monthly redemption rights for the Fund’s unitholders (“Unitholders”);
  • invest directly into Mortgage-Backed Securities Limited Partnership (the “Partnership”);
  • redesignate the outstanding Units as Class X Units and authorize the creation of new classes of Units;
  • eliminate the requirement to obtain the prior permission of the applicable securities regulatory authorities in order to impose a temporary suspension of the right to redeem Units; and
  • eliminate the Fund’s mandatory market purchase program (collectively, the “Amendments”).

If the Amendments are approved, the Manager would propose that the Units be de-listed from the Toronto Stock Exchange (the “TSX”).

Rationale for the Amendments: The Fund has benefitted from strong performance since hiring PIA as the Fund’s investment manager. Despite challenging lending markets PIA has facilitated the Fund’s ability to increase the distribution on two occasions, while increasing the net asset value (“NAV”) per Unit. The Fund’s strategy depends on the ability to borrow money at efficient levels in order to invest in pools of mortgages. In recent years the Fund has experienced significant redemptions which may adversely affected its ability to continue the investment strategy on a long term basis.

The Manager believes that the current attributes of the Units have hindered the ability of the Fund to raise new money through the issuance of Units. Potential purchasers are not likely to purchase new Units from the Fund at a price at or above NAV per Unit when they can purchase the Units on the TSX at a price that is less than NAV per Unit. The inability to sell new Units at NAV prevents the Fund from re-capitalizing.

The Manager believes that the Amendments will result in significant benefits to Unitholders for the following reasons:

  • this is an opportune time for the Fund's strategy because the spread between borrowing costs and return on the investments has improved;
  • the Fund has significant tax losses that can be used to make distributions to the Unitholders in a tax-efficient manner for the benefit of the existing and new Unitholders; it is expected that once the tax losses have been exhausted the Fund’s forward agreement will be added back as required;
  • the ability to bring in new money to the Fund would help spread the fixed operating costs over a larger base, thereby reducing the management expense ratio;
  • having more assets may enable the Partnership to obtain financing on more favourable terms and from potentially more counterparties; and
  • the actions taken by the U.S. government within the last year with respect to Fannie Mae and Freddie Mac (as they are commonly referred to), including the recapitalization of such entities, should positively affect the Fund's ability to execute its investment strategy.

Unitholder approval: The Amendments will require approval of two-thirds of the votes cast by Unitholders of the Fund at a special meeting of the Unitholders to be held in May 2009 (the “Meeting”).

Sentry Select Capital Inc.: Sentry Select Capital Inc. is a Canadian wealth management company that offers a diverse range of investment products including closed-end trusts, mutual funds, principal-protected notes and flow-through limited partnerships, covering a variety of domestic and global mandates.

More information: Investor Services (broker/investor inquiries)Tel: 1-888-730-4623Fax: 416-364-1197Email: info@sentryselect.com

Certain statements included in this news release constitute forward-looking statements, including, but not limited to, those identified by the expressions ‘‘expect’’, ‘‘intend’’, “will” and similar expressions to the extent they relate to Sentry Select. The forward-looking statements are not historical facts but reflect Sentry Select’s current expectations regarding future results or events. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations, including, but not limited to, the ability of Sentry Select to pay the indicated distribution, the proposed timing of the Meeting and the actual implementation of the Amendments, if approved by Unitholders. Although Sentry Select believes that the assumptions inherent in the forward-looking statements are reasonable, forward-looking statements are not guarantees of future performance and, accordingly, readers are cautioned not to place undue reliance on such statements due to the inherent uncertainty therein. Sentry Select undertakes no obligation to update publicly or otherwise revise any forward-looking statement or information whether as a result of new information, future events or other such factors which affect this information, except as required by law.


Documents (including press releases) regarding the various investment funds that are managed or advised by Sentry are provided for information purposes only and cannot be relied on to be complete, exhaustive or error-free unless the complete set of documents for any given investment fund with respect to which information is being sought is reviewed and then only on SEDAR (www.sedar.com).