Horizons Leveraged Commodity ETFs will replace share sale forwards with cash-settled forwards in response to Budget character conversion rules

The Horizons Leveraged Commodity ETFs have made s. 39(4) elections and entered into forward sales of their Canadian portfolio share investments to a Canadian bank at prices which are tied to the performance of notional long or short rolling futures positions in the underlying commodity rather than on the value of the shares, thereby achieving capital gains treatment.  The March 2013 federal budget provided that this type of "derivative forward agreement" will now give rise to income account gains, subject to transitional relief (with modest additional transitional relief announced on July 11, 2013).

After running through the applicable transitional periods, the ETFs will now replace the existing forward contracts with cash-settled forward contracts, and will use any new unit issuance proceeds to invest in cash equivalents (to be pledged under the cash-settled forwards) rather than in Canadian equities.

Any gains on the new contracts will be on income account.  This may not be a concern to taxable investors (who for other reasons are encouraged to trade rather than invest in their units) if they do not hold units on the record date for any distribution of any net annual gains.

Neal Armstrong.  Summary of Prospectus for Leveraged Horizons Commodity ETFs under Forward Sale Funds.