BlackRock has confirmed the previously announced expiry of the legacy equity forward agreement (of the iShares Advantaged US High Yield Bond Index ETF (CAD-Hedged) (CHB).
As previously announced, in response to recently enacted taxation rules that target certain financial arrangements that would deem gains on the settlement of certain forward agreements to be included in ordinary income rather than treated as capital gains (the “DFA rules”), CHB implemented an interim hybrid investment strategy. Through this strategy, the fund continued to maintain exposure to constituent securities of the Barclays US High Yield Very Liquid Index (hedged CAD) (the Index) indirectly through the use of the Forward, and invested the proceeds from the sale of new units of CHB directly in constituent securities of the Index.
Given the expiry of the Forward, as disclosed in the fund’s prospectus, CHB will now invest directly in constituent securities of the Index or otherwise in a manner that causes CHB to replicate the performance of the Index. CHB does not expect to seek to replicate the performance of the Index by entering into any forward agreements that will be subject to the DFA rules. CHB’s future distributions are expected to be fully taxable as ordinary income (net of allowable expenses) and unitholders will no longer benefit from the tax-advantaged (i.e. capital gain) character of the portion of CHB’s distributions that were funded through the partial settlement of the Forward.
In order to reflect the expiry of the Forward, CHB’s fund name has been changed to the iShares US High Yield Fixed Income Index ETF (CAD-Hedged).
