Tax smart Sentry Select delivers steady payouts: fund produces a high cash-on-cash yield for steady, tax advantaged distributions

Money Digest, Sept, 2002 by Doug Hawkins

The Sentry Select Canadian Income Fund was established in February; 2002, with the objective of generating a high rate of return by providing steady, monthly, tax-advantaged distributions.

This mutual fund, which is available on a front-end sales charge basis, invests in treasury bills, bonds, income trusts, and equities to generate returns. It pays out $0.8 in monthly distributions, which equates to a 10.2% cash-on-cash yield--a higher level of income than is available on most GICs and bonds.

Although the per unit value of the fund has fallen slightly since inception, it does offer significant tax savings over other income alternatives. A large portion of the fund's distributions is anticipated to be classified as return of capital, with the advantage of no immediate tax consequences. Return of capital reduces the tax cost of the investment, so that when sold there may be a larger gain, taxed as a capital gain, not income. Tax efficiency is also boosted by the fund's buy-and-hold strategy, which minimizes the amount of realized capital gains distributed to investors.

The Sentry Select Canadian Income Fund is managed by Sandy McIntyre, who takes a conservative, balanced, low-volatility approach as an alternative to pure high-yield investments. The fund offers daily liquidity at net asset value. At present, the fund remains over 50% in cash, and is thereby prepared to capitalize on special opportunities. McIntyre aims to keep the fund well-diversified, employing a proprietary quantitative methodology in portfolio selection strategy. Several strategic investments have been made in income-producing holdings such as the Riocan REIT and ARC Energy Trust.

This open-end fund may be an appropriate solution for investors seeking to receive steady, monthly, tax-advantaged distributions.

Doug Hawkins, MBA, is an investment advisor with Canaccord Capital, a member of major stock exchanges and the Canadian Investor Protection Fund. Phone (905) 6839824; email: doug-hawkins@rogers.com.