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TORONTO, Sept. 3, 2013 /CNW/ - First National Mortgage Investment Fund (TSX:FNM.UN) today indicated that upon review, it does not expect any immediate impact on Fund unitholders from proposed changes found in the March 2013 Federal Budget covering "Character Conversion Transactions".
Such transactions typically use forward contracts to convert interest income into returns of capital and capital gains for the benefit of Fund investors. The budget effectively removed the tax legislation which permitted these transactions as of March 21, 2013, and eliminated the extension of any existing transactions on or after March 21, 2013.
The Fund utilizes a forward contract to create tax-advantaged returns for unitholders such that distributions are taxed on account of capital (return of capital and capital gains) rather than the interest income generated by the mortgage assets of the Fund. The forward contract that allows for this tax treatment expires on December 19, 2017 and given the current Federal Government proposal will not be available for renewal or extension at that time.
Although the final tax rules may differ from current proposals, the Fund has determined it believes that there is no immediate impact for unitholders of the Fund given that the forward contract was in place prior to the proposed tax changes and given that the current forward agreement has more than four years remaining until maturity. To preserve the current tax treatment of the Fund, the Fund expects that there will be no new units issued which will allow investors in the Fund to continue to benefit from the capital treatment of returns until December 19, 2017 when the forward agreement expires. After expiry of the forward agreement, the Fund will consider the best way to continue into the future, however it is anticipated that distributions to investors will be then treated as "on account of interest" or ordinary business income.
These rule changes have not been finalized and the Canadian Federal Government continues to consult with the industry and other stakeholders. The Fund, along with its legal counsel and tax advisors, will continue to monitor developments and assess new proposals and any regulatory changes. As always, the Fund will seek to provide the most cost-effective structure it can for its unitholders and will provide further updates when they become available.
About First National Mortgage Investment Fund
The Fund provides unitholders with tax-advantaged monthly distributions by investing in Canadian mortgage loans originated by First National Financial LP. Today, the Fund is fully invested in a diversified portfolio of mortgages on multi-unit residential, industrial, and retail properties as well as land. To deliver an attractive yield, the Fund invests primarily in short-term bridge mortgages, which typically bear higher rates of interest than traditional debt financing, and the Fund's manager applies leverage. To achieve its objective of preserving capital, the portfolio's weighted average loan-to-value ratio will not exceed 75%. For more information, visit the Fund's website at http://www.firstnational.ca/default.aspx?menuId=15&catId=7
About Stone Asset Management Limited
Stone Asset Management Limited ("SAM") manages the Fund. Established in 1999, SAM is an independent, Canadian-owned asset management company that specializes in structuring and managing high quality investment products. Its professionals are well regarded in the Canadian investment community for their disciplined investment process. The Fund's daily unit price can be found at http://www.stoneco.com/products/first-national/first-national-mortgage-investment-fund.
About First National Financial Corporation
First National Financial Corporation (TSX: FN) is the parent company of First National Financial LP, a Canadian-based originator, underwriter and servicer of predominantly prime residential (single-family and multi-unit) and commercial mortgages. With over $71 billion in mortgages under administration, First National is Canada's largest non-bank originator and underwriter of mortgages and is among the top three in market share in the mortgage broker distribution channel. For more information, please visit www.firstnational.ca.
Certain information included in this news release may constitute forward-looking information within the meaning of securities laws. In some cases, forward-looking information can be identified by the use of terms such as "may", "will, "should", "expect", "plan", "anticipate", "believe", "intend", "estimate", "predict", "potential", "continue" or other similar expressions concerning matters that are not historical facts.. This forward-looking information should not be read as providing guarantees of future performance or results, and will not necessarily be an accurate indication of whether or not, or the times by which, those results will be achieved. While management considers these assumptions to be reasonable based on information currently available, they may prove to be incorrect. Forward looking-information is subject to certain factors, including risks and uncertainties. This forward-looking information is as of the date of this release, and is subject to change after such date. However, management and First National Mortgage Investment Fund disclaim any intention or obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required under applicable securities regulations.
SOURCE: First National Mortgage Investment Fund
For further information:
Chief Financial Officer
First National Financial Corporation
905 648 9354