Toronto, July 30, 2007 – BAM Split Corp. (the “Company”) announced today that, in accordance with its obligations to shareholders of the Company, it will provide notice to its preferred shareholders of its intention to commence the use of certain derivatives for hedging purposes only. These changes will take place on or about October 10, 2007 and will also be disclosed in future regulatory filings.
The Company may, in the future, use derivatives for foreign currency hedging. For example, the Company receives dividends on shares of Brookfield Asset Management Inc. (“Brookfield”) that are paid in U.S. dollars. The Company may hedge the Canadian-U.S. dollar exchange rate in order to reduce the impact that future appreciation in the Canadian dollar may have on the cash available to the Company to pay its distributions. In addition, the Company may engage in interest rate hedging. Hedging using derivatives is intended to mitigate market or portfolio risk. Examples of derivatives that may be used by the Company include but are not limited to options, futures, swaps and forward contracts. Securities legislation sets limits on the amount and types of derivative instruments that mutual funds can hold. The use of derivatives involves risks discussed further below.
A hedging strategy may be used by a mutual fund in an effort to reduce the overall risk of currency fluctuations (currency hedging), to reduce the risk of a market or portfolio or to reduce interest rate exposure. However, there can be no assurance that a fund’s currency, market or interest hedging transactions will be effective. There may be an imperfect historical correlation between changes in the market value or attribute of the investment (including currency risk) being hedged and the instrument with which the investment or attribute is hedged, and any historical correlation may not continue for the period during which the hedge is in place. Hedging against a decline in the value of a currency does not eliminate fluctuations in the prices of portfolio securities or prevent losses if the prices of such securities decline. It also precludes the opportunity for gain if the value of the hedged currency should rise. Moreover, it may not be possible for a fund to hedge against generally anticipated devaluations, as the fund may not be able to contract to sell the currency at a price above the devaluation level generally anticipated.
Whether derivatives are used as part of either hedging or non-hedging strategies, there can be no assurance that a liquid exchange or over-the-counter (“OTC”) market will exist to permit a mutual fund to realize its profits or limit its losses by closing out positions. A fund is subject to the credit risk that its counterparty (whether a clearing corporation in the case of exchange traded instruments, or other third party in the case of OTC traded instruments) may be unable to meet its obligations. In addition, there is the risk of loss by a fund of margin deposits in the event of bankruptcy of a dealer with whom the fund has an open derivative position. Derivative instruments traded in foreign markets may offer less liquidity and greater credit risk than comparable instruments traded in North American markets. The ability of a fund to close out its positions may also be affected by exchange-imposed daily trading limits on exchange-traded derivatives.
BAM Split Corp. owns a portfolio consisting of 45,022,950 Class A Limited Voting shares of Brookfield in order to generate quarterly fixed cumulative preferential dividends for the holders of the Company's Preferred shares and to enable the holders of the Company's Capital shares to participate in any capital appreciation of Brookfield Shares. Brookfield, focused on property, power and infrastructure assets, has over US$70 billion of assets under management and is co-listed on the New York and Toronto Stock Exchanges under the symbol BAM.
For inquiries on this press release, please call 416-363-9491.
This news release contains forward-looking statements concerning the company's business and operations. The company cautions that, by their nature, forward-looking statements involve risk and uncertainty and the company's actual results could differ materially from those expressed or implied in such statements. Reference should be made to the most recent Annual Information Form for a description of the major risk factors.