DPS.UN To Disappear

Sentry Investments has announced:

TORONTO, ONTARIO–(Marketwired – April 22, 2013) – The Board of Trustees (the “Trustees”) of Diversified Preferred Share Trust (the “Trust”) announces that, at the reconvened special meeting held on April 22, 2013, unitholders approved the restructuring of the Trust into an open-end mutual fund to be administered in compliance with National Instrument 81-102 – Mutual Funds, as well as other matters ancillary thereto, including a change in the Trust’s investment objective (the “Restructuring”). Full details regarding the proposed Restructuring are set out in the management information circular dated March 12, 2013 (the “Information Circular”) that was sent to unitholders of record on March 19, 2013. The following events, as disclosed in the Information Circular, will occur on or about the dates specified below:

Item Date(s)
Notice period in respect of initial redemption right (the “Notice Period”) Beginning April 23, 2013 and ending May 3, 2013
Initial redemption date (the “Valuation Date”) May 10, 2013
Initial redemption payment date (the “Redemption Payment Date”) May 15, 2013
Delisting the Trust’s units from the TSX May 10, 2013
Effective date of Restructuring May 24, 2013

DBRS comments:

DBRS has today placed the stability rating of STA-2 (low) for the retractable units (the Units) issued by Diversified Preferred Share Trust (the Trust) Under Review with Negative Implications following the Trust’s announcement that unitholders had approved the restructuring of the Trust into an open-ended mutual fund. The restructuring is expected to close on May 24, 2013.

The Trust is currently passively managed by Sentry Investments (the Administrator) and invests in investment-grade preferred shares and preferred securities that are listed on the Toronto Stock Exchange and meet a specific set of requirements (please refer to the latest rating report for the Trust). The limited flexibility in investments is considered a positive rating factor by DBRS and is consistent with stability ratings in the STA-1 and STA-2 range.

On February 15, 2013, the board of trustees of the Trust proposed a restructuring of the Trust that involved, among other things, changing the investment objectives and restrictions of the Trust and the elimination of the administration fee paid by the trust to the Administrator until June 1, 2016. While the reduction in expenses from removing the administration fee benefits income stability, the looser investment restrictions would allow the Trust to invest in a much broader range of assets (including fixed-income securities, equity securities, securities of other mutual funds (including those managed by the Administrator), derivatives, leveraged and unlevered exchange-traded funds and private placements) and gives the Trust the ability to engage in repurchase transactions and short selling. Furthermore, the Trust may invest up to all of its assets in foreign securities and is not expected to hedge its foreign currency exposure initially.

This significant increase in investment flexibility gives the Administrator considerable amounts of discretion as to what the Trust may invest in and is viewed as an increased risk to the stability of the stated distribution to holders of the Units of the Trust. As a result, the Units are being placed Under Review with Negative Implications.

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