CANADA: Announcement relating to the following iShares Funds:
iShares Advantaged U.S. High Yield Bond Index Fund (CAD-Hedged) (“CHB”)
iShares Advantaged Short Duration High Income Fund (“CSD”)
iShares Advantaged Canadian Bond Index Fund (“CAB”)
iShares Broad Commodity Index Fund (CAD-Hedged) (“CBR”)
iShares Advantaged Convertible Bond Index Fund (“CVD”)
iShares Global Monthly Advantaged Dividend Index Fund (“CYH”)
iShares Managed Futures Index Fund (“CMF”)
(collectively, the “Forward-using iShares ETFs”)
BlackRock Asset Management Canada Limited (“BlackRock Canada”), an indirect, wholly-owned subsidiary of BlackRock, Inc. (“BlackRock”), announced changes today to seven forward-using Canadian iShares exchange-traded funds (“ETFs”) in response to proposed new federal taxation rules first introduced in conjunction with the 2013 Federal Budget (the “Proposed Amendments”).
If enacted as proposed, the Proposed Amendments, which were initially outlined on March 21, 2013 (the “Budget Date”) by the Department of Finance (Canada) and subsequently released in the form of draft legislation on September 13, 2013, would eliminate the ability of investment funds to use forward agreements to convert fully-taxable ordinary income to capital gains (“character conversion transactions”). The Proposed Amendments generally apply to forward agreements entered into on or after the Budget Date, so that in certain circumstances (generally depending on the term and notional amount of the forward agreement), forward agreements that existed prior to the Budget Date, or replacements of such agreements that have a final settlement date that is before 2015, will be “grandfathered”, meaning that the Proposed Amendments will not apply to them. The forward agreements (the “Legacy Forwards”) of the Forward-using iShares ETFs that were in effect as of the Budget Date or, in the case of CYH, that replaced a forward agreement then in effect, are currently grandfathered. Accordingly, the new rules under the Proposed Amendments would not apply to the Forward-using iShares ETFs during the term of the Legacy Forwards, provided that the Legacy Forwards do not exceed certain prescribed growth limits.
As previously announced, as a result of the initial announcement, each of the Forward-using iShares ETFs has temporarily stopped accepting subscriptions, except in certain limited circumstances. The changes announced today, which we believe are in the best interests of the funds, will enable the Forward-using iShares ETFs (unless otherwise noted below) to resume operating as open-ended ETFs by accepting new subscriptions following their implementation while respecting the growth limits for forward agreements set out in the Proposed Amendments.
“BlackRock has reviewed its affected iShares product range over the past several months to ensure we deliver products that will continue to meet the needs of our clients and play a role in today’s investment portfolios,” says Mary Anne Wiley, Managing Director, Head of iShares, BlackRock Canada. “Decisions about our mix of products are based on a variety of factors including fit within an investment portfolio, operational structure and complexities and client demand.”
The seven Forward-using iShares ETFs represent approximately 3% of assets under management out of iShares Canada’s line-up of 90-plus ETFs. Overall, changes will be made to six of the seven Forward-using iShares ETFs: CHB, CSD, CAB, CBR, CVD and CYH, while CMF, the seventh affected fund, will be terminated. With respect to CHB and CSD, BlackRock Canada will change each fund’s investment strategy to pursue a new interim hybrid investment strategy as further described below. For CBR, CAB and CVD, their respective Legacy Forwards will be terminated and each fund will change its investment strategy to transition to investing in a portfolio of directly-held securities. CYH’s Legacy Forward expires in November 2013, in connection with which BlackRock Canada expects to change its investment strategy to invest in a portfolio of directly-held securities and to change the fund’s index.
All changes described below are subject to receipt of any required regulatory or other approvals.
Summary of Proposed Changes
The Hybrid Investment Strategy
Each of CHB and CSD will implement a new interim investment strategy (the “Hybrid Strategy”), through which the funds will preserve their Legacy Forwards until their termination date, while permitting the funds to invest proceeds from the sale of new units in a portfolio of directly-held securities, in accordance with each fund’s investment objective.
With the implementation of the Hybrid Strategy, unitholders will continue to benefit from the tax-advantaged (i.e., capital gain) character of that portion of each fund’s distributions that are funded through the partial settlement of its Legacy Forward until it is terminated. Upon investing the proceeds from new subscriptions directly through the Hybrid Strategy, BlackRock Canada expects that these tax benefits will diminish over time as each fund accepts new subscriptions and the tax benefit is spread over the fund`s larger asset base. The portion of future distributions derived from each fund’s direct investments is expected to be fully taxable as ordinary income (net of allowable expenses).
Following the expiry or earlier termination of each of CHB and CSD’s Legacy Forward, BlackRock Canada expects that each fund will invest in a portfolio of directly-held securities in accordance with its investment objective and neither fund will engage in any further character conversion transactions.
iShares Advantaged U.S. High Yield Bond Index Fund (CAD-Hedged)
CHB will preserve its Legacy Forward until its scheduled expiry on January 9, 2015 or earlier termination and, until that time, will implement the Hybrid Strategy described above.
BlackRock Canada expects that CHB will be re-opened to new subscriptions during the fourth quarter of 2013 and will begin implementing the Hybrid Strategy at that time.
iShares Advantaged Short Duration High Income Fund
CSD will preserve its Legacy Forward in relation to the Canadian dollar-denominated classes of units (CSD and CSD.A) until its scheduled expiry on February 24, 2016 or earlier termination and, until that time, will implement the Hybrid Strategy described above.
In connection with implementing the Hybrid Strategy, the U.S. dollar-denominated common units of CSD (“CSD.U”) and the U.S. dollar-denominated advisor class units of CSD (“CSD.V” and together with CSD.U, the “USD Units”) will be terminated during the fourth quarter of 2013 and the proceeds received from the liquidation of the assets referable to each class of the USD Units, less all liabilities and obligations referable to each class, will be distributed to holders of the respective classes of the USD Units on or after the date of such termination. In addition, the USD Units will be de-listed from the Toronto Stock Exchange (the “TSX”) and will no longer be offered and sold by CSD. The Legacy Forward (the “USD Forward”) entered into by CSD and a Canadian chartered bank or an affiliate thereof in relation to the USD Units will also be terminated.(...)Click here to continue reading the original ETFDailyNews.com article: BlackRock Canada Announces Changes to Forward-Using iShares ETFsYou are viewing an abbreviated republication of ETF Daily News content. You can find full ETF Daily News articles on (www.etfdailynews.com)
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