TORONTO, June 18, 2013 /CNW/ - Return On Innovation Advisors Ltd. ("ROI Capital"), the manager of ROI Canadian Mortgage Income Fund (TSX: RIL.UN) (the "Fund"), announced today that a distribution of $0.867 per unit will be paid on July 15, 2013 to unitholders of record of the Fund on June 28, 2013.
The distribution includes the regularly scheduled monthly cash distribution of $0.042 per unit plus a special $0.825 per unit distribution paid by the issue of additional units of the Fund. All distributions made by the Fund in the 2013 tax year are expected to consist of capital gains, which are generally subject to tax in the hands of taxable unitholders.
The units of the Fund that are issued for the non-cash portion of the distribution will be consolidated immediately with all other units of the Fund outstanding, so that thereafter, in most cases, a unitholder of the Fund will hold the same number of units as were held before the issue of such units. The additional units would be issued at a value equal to the closing trading price on July 12, 2013, being the last trading day on the Toronto Stock Exchange ("TSX") before the payment date of the distribution. A non-resident unitholder of the Fund may have fewer units after the consolidation by reason of withholding tax requirements in respect of the distribution to be satisfied by the issue of units.
The March 2013 federal budget included proposed changes to eliminate character conversion transactions using forward agreements; they affect many funds in Canada that pursue tax advantaged distribution strategies, including the Fund, whose units are traded on the TSX.
"The special distribution reflects the realized capital gains from the matured forward contract of the Fund" says ROI Capital President and Founding Partner, Wilfred Vos. "This special distribution means our investors will realize their gains now and have more certainty as to the characterization of the distributed income of the Fund in 2013 in light of changes introduced in the March 2013 federal budget."
On May 6, 2013, the Fund's forward agreement settled in whole resulting in the realization of a capital gain of approximately $102 million. The Fund has determined that it is appropriate to effect a special distribution by way of issuing additional units of the Fund at the same time as the scheduled monthly cash distribution for June 2013, rather than to defer the distribution until the year end. A year-end additional distribution may still occur if the taxable income of the Fund for 2013 exceeds the aggregate of the cash distributions made during the year plus the amount of the June 2013 special distribution. The quantum of such additional distribution, if any, is uncertain at this time. As a result of the proposed changes introduced in the 2013 federal budget to eliminate character conversion transactions, it is expected that, beginning in 2014, the Fund's scheduled monthly distributions will consist primarily of ordinary income.
"Doing what is best for our unitholders is our paramount consideration. We have communicated openly, consistently and transparently about the Fund's value and holdings and we will continue to do so." said Vos. "The investments in the Fund remain sound, the portfolio continues to perform as expected and is well positioned to meet our distribution targets for the rest of the year."
ROI Capital entered into a new forward agreement on May 6, 2013, on behalf of the Fund, with a term of 179 days maturing on November 1, 2013. The intention was to permit the Fund to retain the previous structure of its arrangements while providing it more time to assess and implement appropriate arrangements beyond the short term that will appropriately address its individual situation and the effects on unitholders. ROI Capital is continuing to work with its lawyers and tax advisors to assess the consequences of the proposed changes for forward agreements under the March 2013 federal budget for the Fund and its unitholders. ROI Capital will continue to examine the potential implications of the proposed changes in the budget for the Fund and its unitholders and possible changes for the Fund resulting from such implications and will continue to act in the best interest of unitholders in addressing the new circumstances.
Certain statements included in this news release constitute forward-looking statements. The forward-looking statements are not historical facts but reflect 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 and, accordingly, readers are cautioned not to place undue reliance on such statements due to the inherent uncertainty therein. ROI Capital undertakes no obligation to update publicly or otherwise revise any forward looking statement whether as a result of new information, future events or other such factors which affect this information, except as required by law. Investment funds are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There is no guarantee that an investment in the Fund will earn any positive return in the short or long term nor is there any guarantee that the Fund's investment objectives will be achieved or that the net asset value per unit will appreciate or be preserved.
SOURCE ROI Capital