North American Financials Capital Securities Trust to eliminate forward structure on taxable basis

The TSX-listed North American Financials Capital Securities Trust achieved indirect exposure to a portfolio of subordinated bank debt instruments by entering into a forward purchase and sale agreement with BMO respecting Canadian securities (which it did not own).  The underlying portfolio was managed by its manager. This forward agreement will cease to be grandfathered from the character conversion rules at the end of 2014. Accordingly, it will be terminated, and there will be a special distribution of the resulting net realized capital gain – and the Trust will acquire the portfolio securities directly and start distributing the net interest income to the unitholders rather than making "tax efficient" distributions.

The disclosure seems to contemplate that the cash portion of the special distribution will be equal only to the tax liability of unitholders resulting from the associated allocation of taxable capital gains.

Neal Armstrong. Summary of North American Financials Capital Securities Trust Circular under Public Transactions – Other – Conversions – Forward Fund to Conventional Fund.