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BlackRock proposes changes to iShares S&P/TSX Income Trust Index Fund

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BlackRock Asset Management Canada has called a special meeting of unitholders of the iShares S&P/TSX Income Trust Index Fund to be held on 23 August to approve changes to the exchange-traded fund’s investment objective and certain related matters.

“At iShares, we are constantly seeking solutions to better meet the needs of investors,” says Oliver McMahon, director of product management for iShares ETFs at BlackRock Canada.

“As income trusts assess their conversion strategies in time for the January 2011 deadline, we believe that making this change will ensure investors receive a reliable income stream while still enjoying the benefits they’ve come to associate with iShares ETFs including diversification, transparency, lower costs, tax efficiency and the ability to use value-adding trading strategies such as limit and stop orders.”

BlackRock Canada is proposing to change the investment objective of the fund from its current investment objective of seeking to provide long-term capital growth by replicating the performance of the S&P/TSX Income Trust Index to an investment objective of seeking to provide a consistent monthly cash distribution, with the potential for some modest capital growth, through investment in a diversified portfolio of income-bearing investments.

The investment strategy would change from investing primarily in issuers which make up the index to a fund strategy, whereby it would seek to achieve its investment objective by holding a portfolio of income-bearing ETFs.

The fund was established to provide long-term capital growth by replicating the performance of the index. To carry out its investment objective, it has acquired and held securities issued by income trusts included in the index. However, new tax rules will come into effect in 2011 that are expected to result in most of these issuers reorganising their affairs so that they will no longer be income trusts and will no longer be eligible for inclusion in the index.

Although the fund could continue to invest in any issuer that remains in the index, BlackRock Canada believes that the resulting portfolio would serve investor needs less effectively than the portfolio that will result from the proposed changes to XTR’s investment objective.

BlackRock Canada has determined that it is in the best interests of unitholders to change the fund’s investment objective and the related investment strategy in an effort to continue to provide unitholders with a diversified source of regular income without relying on investments in income trusts.

In connection with the change to the investment objective and investment strategy of the fund, the method used to calculate the management fee will also change. The management fee will remain equal to 0.55 per cent of the ETF’s net asset value per year. However, the calculation of the fee will change to reflect the fact that it will hold investments in other ETFs.

The management fee of 0.55 per cent per year will include both the management fee paid directly by the fund, and any management fees paid indirectly through its holdings in other ETFs.

If the new investment objective is approved, BlackRock anticipates that the name of the fund will be changed to the iShares Diversified Monthly Income Fund.

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