ROI/Dream Hard Asset

Documents
(SEDAR filing: 4 July 2014) Prospectus of Dream Hard Asset Alternative Trust (the "Trust") for distribution of 72,617,739 units ("Units") of the Trust (the "Trust") by ROI Canadian High Income Mortgage Fund, ROI Canadian Mortgage Income Fund and ROI Canadian Real Estate Fund (collectively, the "ROI Public Funds") and ROI Institutional Private Placement Fund ("ROI IPP" and, together with the ROI Public Funds, the "Distributing ROI Funds") (4883 K). Wilson
(SEDAR filing: 14 May 2014) Circular of the ROI Public Funds for their reorganization and effective merger into the Trust (3606 K). Wilson
Summaries
Summary Under
Tax Topics - Public Transactions - Mergers & Acquisitions - REIT/Income Fund/LP Acquisitions - Taxable Trust Mergers
Merger of ROI Canadian High Income Mortgage Fund, ROI Canadian Mortgage Income Fund and ROI Canadian Real Estate Fund into Dream Hard Asset Alternative Trust and termination of their forward/mirror fund structure
Overview

Return on Innovation Advisors Ltd. ("ROI Capital") agreed with DREAM Asset Management Corporation ("DREAM"), a subsidiary of DREAM Unlimited Corp. (TSX:DRM), that DREAM would acquire the rights to manage the ROI Public Funds and the privately held ROI IPP. There will be a reorganization of the Distributing ROI Funds and their relevant underlying "Reference Funds" involving the transfer of assets of each Distributing ROI Fund to the newly-formed Trust (an Ontario open-end unit trust with conventional retraction terms and targeted to be a mutual fund trust) in exchange for units of the Trust. As a result of the transaction, all the assets of the Distributing ROI Funds (including those of the relevant underlying reference funds) will be combined in the Trust on a taxable basis, and on the termination of the Distributing ROI Funds, unitholders of the Distributing ROI Funds will receive units of the Trust pro rata based on the relative net asset values of the Distributing ROI Funds. "The Trust benefits from a flexible structure: it is not restricted or limited by the SIFT Legislation that applies to REITs, nor is it required to comply with the regulations governing mortgage investment corporations."

Existing Structure

Each ROI Public Fund has made an election under subsection 39(4) of the Tax Act so that all of its Canadian securities (including securities in its Canadian Securities Portfolio) will be deemed to be capital property to the ROI Public Fund and has entered into forward agreements with the "Counterparty" (a Canadian chartered bank) to sell those Canadian securities for prices based on the value of assets held in the corresponding Reference Funds held by the Counterparty. A significant portion of the Distributing ROI Funds' assets (i.e., the "Co-owned Properties") are already managed by DREAM as they are co-owned by one or more of the Funds and Dream Office REIT, which is managed by DREAM.

Post-closing assets

The Trust will have approximately $725 million of (mostly Canadian) net assets, including approximately: (a) $240 million of (principally Ontario) commercial income-producing properties as co-owner with Dream Office REIT ("Co-owned Properties"); (b) $220 million of real estate loans with fixed interest payments and terms; (c) $15 million of limited partnership equity investments in retail real estate properties; (d) $160 million of equity and participating mortgage and co-ownership investments in retail and residential development projects that do not currently produce any cash income; and (e) $90 million of short-term investments. The Trust, which will be TSX-listed, will focus on investing in Canadian real estate, real estate loans and infrastructure including renewable power.

Distributions

The Trust expects to pay a monthly distribution of $0.033 per Unit on each Distribution Date. This equates to an implied cash flow yield of 4.0% per annum, based on an initial price per Unit of $10.00.

Reorganization Steps
  1. Various newly-formed subsidiary LPs ("New Real Estate LPs") of Dream Alternative Master LP (the subsidiary LP of the Trust) will acquire real estate assets held indirectly by the Reference Funds through their "Property LPs" in consideration for assuming liabilities and issuing limited partnership units ("New Real Estate LP Units") to the respective Property LPs.
  2. Each ROI Public Fund will pre-settle the Forward Agreement to which it is a party, by delivering its Canadian securities to the Counterparty for cash.
  3. Each ROI Public Fund will use such cash to subscribe for units of the Trust.
  4. The Trust will contribute such cash to Dream Alternatives Master LP.
  5. Dream Alternatives Master LP will then acquire from each Property LP all the New Real Estate LP Units it holds and the applicable New Real Estate LP will acquire remaining assets held by each Reference Fund (mezzanine loans, mortgages, debentures, limited partnership interests and referenced cash).
  6. Each Reference Fund will then distribute all of its cash to its unitholders (being the Counterparty and other Reference Funds) as the redemption price for its units, and will be terminated.
  7. Certain of the New Real Estate LPs will acquire the assets held indirectly by the ROI Public Funds through the Property LPs in consideration for assuming liabilities and issuing New Real Estate LP Units to the transferor of the applicable assets.
  8. New Real Estate LPs will purchase from the ROI Public Funds, in exchange for additional New Real Estate LP Units, all the remaining assets that are held by such ROI Public Fund, including cash, mezzanine loans, mortgages, debentures and limited partnership interests (but excluding the cash necessary to fund the Special Distribution described in 14, units of other ROI Public Funds and New Real Estate LP Units held by such ROI Public Fund).
  9. New Real Estate LPs will purchase from IPP LP all of the assets held by IPP LP, including cash, mezzanine loans, mortgages, debentures and limited partnership interests (but excluding units of other ROI Public Funds) in consideration for New Real Estate LP Units, following which, IPP LP will distribute all its assets, being the New Real Estate LP Units, to its sole limited partner, ROI IPP.
  10. New Real Estate LPs will purchase from ROI IPP all the remaining assets that are held by ROI IPP other than the cash necessary to fund the Special Distribution, units of other ROI Public Funds and New Real Estate LP Units received above.
  11. Each ROI Investor Fund will enter into an asset transfer agreement pursuant to which it will transfer all the New Real Estate LP Units held by such Fund to the Trust and the Trust will assume all liabilities of such Fund in exchange for Trust Units. The Trust will transfer its New Real Estate LP Units to Dream Alternatives Master LP.
  12. The Distributing ROI Funds will then distribute the after-tax amount, if any, of any income or gains realized as a result of the above transactions to its Unitholders by the issuance of additional units of the applicable ROI Investor Fund. These units will automatically consolidate. In the case of each ROI Public Fund, such distribution will include the net capital gain, if any, realized by the ROI Public Funds as a result of its pre-settlement of its Forward Agreement.
  13. The appointment of DREAM as the new manager will occur.
  14. Upon termination, each of the ROI Public Funds and IPP will distribute all of such Fund's remaining trust property, being the cash Special Distribution of $80.7M (based on 10% of NAV of the applicable Fund) and Trust Units held by such Fund, to such Fund's Unitholders. Unitholders of the Distributing ROI Funds will receive the 72,617,739 Units pro rata based on the relative net asset values of the Distributing ROI Funds.
  15. The ROI Public Funds and ROI IPP, which now have no units or assets, will be terminated.
Canadian tax consequences

Trust. The Trust will be a taxable SIFT trust. Renewable power and real estate assets generate tax depreciation often sufficient to shelter their income. Of the monthly cash distributions to be made by the Trust to Unitholders, approximately 75% in 2014 and approximately 90% in 2015 will be tax deferred.

SIFT tax under Reorganization

"Each ROI Public Fund is a SIFT Trust and will therefore be subject to the SIFT Rules. However, the Manager does not expect ROI Canadian Mortgage Income Fund and ROI Canadian Real Estate Fund to have a tax liability determined in accordance with the SIFT Rules solely by virtue of the Reorganization. The Manager expects that ROI Canadian High Income Mortgage Fund may have a nominal amount of tax liability determined in accordance with the SIFT Rules by virtue of the Reorganization, which is expected to be less than $100,000 or 0.03% of ROI Canadian High Income Mortgage Fund's NAV.…."

Excluded subsidiary entity

Dream Alternatives Master LP expects to qualify at all times as an "excluded subsidiary entity."

Character conversion rules

"[T]he Manager believes that the Grandfathering Rules should apply to the Forward Agreements and should continue to apply to each Forward Agreement until the time that each ROI Public Fund pre-settles the Forward Agreement to which it is a party pursuant to the Reorganization."

Distribution

[E]ach investor Fund generally will be able to claim a deduction from its income under Part I of the Tax Act in the taxation year of the Reorganization for the amount distributed to Holders in respect of such income or gains except for, in the case of the ROI Public Funds, any income or gain that is SIFT Income. Each ROI Public Fund may realize SIFT Income as a result of the Reorganization but the amount of such income is not expected to be material….

Summary Under
Tax Topics - Public Transactions - Offerings - REIT, Trust and LP Offerings - Domestic SIFTs
Merger of ROI Canadian High Income Mortgage Fund, ROI Canadian Mortgage Income Fund and ROI Canadian Real Estate Fund into Dream Hard Asset Alternative Trust and termination of their forward/mirror fund structure
Overview

Return on Innovation Advisors Ltd. ("ROI Capital") agreed with DREAM Asset Management Corporation ("DREAM"), a subsidiary of DREAM Unlimited Corp. (TSX:DRM), that DREAM would acquire the rights to manage the ROI Public Funds and the privately held ROI IPP. There will be a reorganization of the Distributing ROI Funds and their relevant underlying "Reference Funds" involving the transfer of assets of each Distributing ROI Fund to the newly-formed Trust (an Ontario open-end unit trust with conventional retraction terms and targeted to be a mutual fund trust) in exchange for units of the Trust. As a result of the transaction, all the assets of the Distributing ROI Funds (including those of the relevant underlying reference funds) will be combined in the Trust on a taxable basis, and on the termination of the Distributing ROI Funds, unitholders of the Distributing ROI Funds will receive units of the Trust pro rata based on the relative net asset values of the Distributing ROI Funds. "The Trust benefits from a flexible structure: it is not restricted or limited by the SIFT Legislation that applies to REITs, nor is it required to comply with the regulations governing mortgage investment corporations."

See full summary under Mergers & Acquisitions – REIT/Income Fund/LP Acquisitions – Taxable Trust Mergers.