North American Advantaged Convertibles Fund Provides Update on Forward Agreement and Amendments to Declaration of Trust
TORONTO, April 19, 2016 - First Asset Investment Management Inc. (the "Manager"), the manager of North American Advantaged Convertibles Fund (the "Fund") (TSX: NCD.UN), announces that the Fund's forward agreement (the "Forward Agreement") will expire on May 20, 2016 (the "Expiry Date"). The Fund currently obtains exposure to the portfolio (the "Portfolio") held by Convertibles Portfolio Fund (the "Reference Fund") through the Forward Agreement. The Portfolio is comprised primarily of convertible debentures of Canadian, U.S. and global issuers.The Income Tax Act (Canada) was amended in December 2013 to implement proposals that were first announced in the March 21, 2013 federal budget regarding the income tax treatment of character conversion transactions (the "Tax Changes"). Under the Tax Changes, the favourable tax treatment of character conversion transactions will be eliminated. In particular, if the Fund were to extend the term of the Forward Agreement past the Expiry Date or enter into a new forward agreement to obtain exposure to the Portfolio, gains (and losses) realized by the Fund under such an agreement would be treated as ordinary income (or loss) rather than a capital gain (or capital loss).
Upon the expiry of the Forward Agreement on the Expiry Date, the Manager intends to continue to pursue the Fund's investment strategy directly without the Forward Agreement. In order to do so, the Fund's investment objectives will be amended on or about the Expiry Date to remove all references to the use of forward agreements to gain exposure to the Reference Fund, to delete references to "tax-advantaged" and to clarify that the Fund will invest directly in securities similar to those held by the Reference Fund. The Fund's name will also change from "North American Advantaged Convertibles Fund" to "First Asset North American Convertibles Fund". The Fund's ticker symbol (NCD.UN) will remain unchanged.
The investment objectives of the Fund after any such amendments would be to provide holders of units with: (i) quarterly distributions, and (ii) the opportunity for capital appreciation.
Following the termination of the Forward Agreement, a greater portion of distributions paid by the Fund will be characterized primarily as income for tax purposes to the extent they exceed available non-capital losses of the Fund. However, it is anticipated that the Fund, and therefore its holders, will save approximately 0.87% of net asset value per annum in fees and expenses by not employing the Forward Agreement. The termination of the Forward Agreement will not affect the status of the Fund as a "mutual fund trust" under the Tax Act.
It is expected that the Fund will generate capital gains upon the termination of the Forward Agreement. To the extent the Fund realizes capital gains which exceed its distributions, the Fund intends to declare a special capital gains distribution to unitholders of record on December 31, 2016.
For further information, please call Investor Relations, First Asset at 416-642-1289 or 1-877-642-1289 or visit www.firstasset.com.
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