Adrian Day Asset Management

Adrian Day Asset Management

April 13, 2015 18:38 ET

Long-Term Central GoldTrust Investor Joins Mounting Support Opposing Polar Proposal

TORONTO, ONTARIO--(Marketwired - April 13, 2015) - Adrian Day, president of Adrian Day Asset Management, announces opposition to the proposals filed by Polar Securities for Central GoldTrust (TSX:GTU.U)(TSX:GTU.UN)(NYSE MKT:GTU). Adrian Day Asset Management holds units in the trust on behalf of clients and intends to vote against the proposals.

The proposals are intended to narrow the discount at which the trust trades. However, they are more likely to destroy the vehicle, raise costs, and impose burdens on smaller shareholders.

Our primary objection however is to opportunistic shareholders who buy shares in vehicles with stated objectives, knowing full well the objectives and investment principles of such vehicles, as well as their trading patterns, in order to overturn the fundamental purpose and role of those vehicles. If Polar Securities is against funds trading at a discount, it should not have purchased units that frequently trade at discounts. If Polar Securities wanted to own gold or silver bullion, without a discount, it should simply have purchased bullion in the market, rather than attempt to destroy known and well-respected vehicles that allow small shareholders to hold gold and silver in liquid units. At present, GoldTrust offers access to unencumbered, low-cost and tax-efficient bullion holdings. The proposal, if enacted, would increase costs and reduce tax efficiency.

"If you don't like listed vehicles that can trade at discounts," said Mr. Day, "my message is simple: Don't buy them. Don't ruin it for the rest of us."

Allowing unitholders to redeem units for bullion sounds, on the surface, fair and reasonable. However, we would note that under its proposal, the redemption option is available only to very large unitholders (holding approximately $500,000 in units). The feature, available to less than 1% of unitholders, would however have negative tax consequences for U.S. unitholders who would receive a tax bill for the gain on the bullion sold in order to satisfy the demands of large redeeming holders.

To add insult to injury, Polar Securities is seeking to have their costs for pursuing this proposal reimbursed by the Trust (i.e., by the long-term unitholders who like the trust the way it is).

For long-term investors, the discount enables investors to buy more gold for their money, and provides leverage in a rising market.

If Polar takes over the trust, it may eventually be closed, to their short-term gain but the detriment of long-term gold and silver investors.

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