TORONTO: Sentry Select Capital Inc. ("Sentry" or the "Manager"), the manager of Sentry Select MBS Adjustable Rate Income Fund II (the "Fund"), proposes that the Fund be restructured such that, among other things:
(collectively, the "Restructuring").
A Special Meeting is to be held at 3:00 pm on March 17, 2011 to consider the Restructuring or, alternatively, the termination of the Fund. Should the Restructuring be approved by unitholders, it is expected to become effective on or about March 25, 2011.
The Fund has continued to have difficulty in attracting a meaningful amount of new investments into the Fund. In addition, net redemptions of units of the Fund have continued consistently and the net asset value of the Fund as at February 16, 2011 stood at approximately $42.6 million. This has increased the risk that the Fund will experience difficulties in securing the necessary leverage on favourable terms from multiple counterparties to carry out its current investment objectives.
In addition, Sentry has recently received notice from BNY Mellon Alternative Investment Services Inc. ("BNY"), the custodian and administrator of Mortgage-Backed Securities Limited Partnership (the "Partnership"), the limited partnership in which the Fund invests, that they are terminating the existing administration and accounting services agreement with the Partnership effective March 31, 2011. The Manager has to date been unsuccessful in locating an administrator to replace BNY and does not expect to do so on a cost effective basis.
If the services of a new administrator cannot be secured and if neither the Restructuring of the Fund nor its termination is approved by the Fund's unitholders, the Fund will be unable to fulfill its current investment objectives. Redemptions of the Fund will likely continue and the resulting continued decline in the Fund's assets will result in higher proportionate expenses being borne by a smaller number of unitholders.
If the Restructuring is approved, it is proposed that effective March 25, 2011 the Manager be paid only that portion of the management fee that the Manager pays directly to investment dealers as a servicing fee for a period of five years. To that end, the management fee payable to the Manager by the Fund in respect of the Class X units (as consolidated with the Class A Units) of the Fund will be set at 0.40% per annum of the monthly average of the daily class net asset value per unit of the assets of the Fund.
It is further proposed that effective April 1, 2016 the management fees in respect of the Class X units be increased to 2.25% per annum of the monthly average of the daily class net asset value per unit of the assets of the Fund, of which 1.25% will be paid by the Manager to investment dealers as a servicing fee to bring it in line with the management fees and servicing fees of other equity funds within the Sentry Group of Funds.
Effective immediately, the Manager will no longer accept purchase orders for Class A and Class F units of the Fund until such time as the Fund's units are qualified for distribution under a simplified prospectus, which is expected to occur on or about May 27, 2011. At such time, it is expected that the Fund will offer Series A, Series F and Series I units of the Fund with applicable fees similar to those of other equity funds within the Sentry Group of Funds.
Should the Restructuring be approved, the Fund's current investment objectives would be changed to mandate that the Fund seek a balance of current income and long-term capital appreciation by investing primarily in a diversified portfolio of dividend-paying U.S. equity securities, including common and preferred shares and, to a lesser extent, interest bearing securities, such as bonds, bills or banker's acceptances. The Manager believes that the U.S. market offers an excellent investment opportunity for the application of Sentry's investment style.
Among other benefits to unitholders, the Restructuring will:
Sentry Investments: Sentry Investments is a Canadian asset management company that offers a diverse range of investment products including mutual funds, hedge funds, flow-through limited partnerships and other alternative investments, covering a variety of domestic and global mandates.
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