BlackRock Asset Management Canada Limited is proposing changes to the investment objective of the iShares S&P/TSX Income Trust Index Fund (TSX:XTR), as new tax rules are set to alter the income trust landscape in Canada.

BlackRock announced on Thursday that it has called a special meeting of unitholders of the exchange traded fund to be held on August 23, 2010, to approve changes to its investment objective and certain related matters.

The current investment objective of XTR is to seek to provide long-term capital growth by replicating, to the extent possible, the performance of the S&P/TSX Income Trust Index. But new tax rules coming into effect in 2011 are expected to prompt most of the issuers on this index to reorganize their affairs so that they’ll no longer be income trusts and will no longer be eligible for inclusion in the index.

BlackRock proposes a new investment objective of seeking to provide unitholders with a consistent monthly cash distribution, with the potential for some modest capital growth, through investment in a diversified portfolio of income-bearing investments.

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

The company also proposes changing the name of XTR to the iShares Diversified Monthly Income Fund, if the new investment objective is approved.

“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,” said Oliver McMahon, director of product management for iShares ETFs at BlackRock Canada.

In connection with the change to the investment objective and investment strategy of XTR, the method used to calculate the management fee in XTR will also change, BlackRock said.

The management fee will remain equal to 0.55% of the XTR’s net asset value per year, but the calculation of the fee will change to reflect the fact that XTR will hold investments in other ETFs. XTR’s management fee of 0.55% per year will include both the management fee paid directly by XTR, and any management fees paid indirectly through XTR’s holdings in other ETFs.

Unitholders of record on July 22, 2010 will be entitled to vote in respect of these matters. If the changes to the investment objective and related matters are approved by unitholders of XTR, BlackRock Canada expects that changes to be implemented by September 1st.

IE