Calloway AIF -- summary under Subtrust Elimination.

See also Calloway REIT elimination of subtrust through s. 107.4 transfer and s. 132.2 merger (including diagram)below.

Overview

Calloway currently is a listed open-end mutual fund trust holding rental limited partnerships through a subsidiary trust ("Holdings Trust"). To facilitate "Exchangeable Securities" (including exchangeable LP units held in the subsidiary LPs as well as "development options") not being characterized as debt for accounting purposes, Calloway wishes to convert to a closed-end fund. However, to so qualify under s. 108(2)(b), Calloway must get rid of Holdings Trust, which it intends to do in 2014. Eliminating Holdings Trust presumably would increase the rental revenues which are allocated to Calloway for gross REIT revenue purposes.

Elimination of Subtrust

Accordingly, Holdings Trust will transfer its assets under s. 107.4 to a newly-formed subsidiary unit trust ("MFT") of Calloway, with 3% of MFT's units then being distributed to the Calloway unitholders in order to qualify MFT as a mutual fund trust. MFT then will be merged into Calloway under s. 132.2. These transactions are not discussed other than very elliptically in Calloway's AIF and instead are disclosed in a 1 November 2013 OSC Order for Exemptive Relief respecting Calloway, summarized and diagrammed further below. Immediately below we quote relevant extracts from Calloway's February 2014 AIF for its 2013 year.

Tax Ruling

Calloway intends to eliminate Holdings Trust in order to enhance Calloway's flexibility to comply with the restrictions governing its income trust status as a REIT (the "Reorganization"). To effect the Reorganization, Calloway has obtained the Tax Ruling [dated August 13, 2013]. Calloway intends to implement the Reorganization in 2014 in accordance with the Tax Ruling.

Potential debt character of Exchangeable Securities

Under IFRS, it was possible that, without certain amendments to the terms thereof including the exchange provisions, the various Exchangeable Securities of Calloway LP, Calloway LP II and Calloway LP III (i.e. the various series of Class B and Class D limited partnership units of Calloway LP, Calloway LP II and Calloway LP III that are convertible or exchangeable directly for Units without the payment of additional consideration therefor) would be considered debt instead of equity (as they are currently classified since they are intended to be the economic equivalent of Units).

Addition of Calloway option and potential conversion to closed-end fund

Consequently, in order to negate that impact on Calloway's financial statements, Calloway and SmartCentres agreed to amend the exchange provisions relating to certain of the Exchangeable Securities. The exchange procedure for certain of the Exchangeable Securities now provides that Calloway shall have the option (…the "Calloway Option") to make a cash payment to the holder of certain Exchangeable Securities in lieu of delivering Units, in an amount equal to the market value of the Units such holder would otherwise be entitled. The holder of the Exchangeable Securities shall have the right to accept or reject the determination by Calloway to make a cash payment to the holder in lieu of the delivery of Units. In the event that Calloway does not elect to exercise the Calloway Option, or the holder of the Exchangeable Securities rejects the determination by Calloway to pay cash in lieu of the delivery of Units, Calloway shall undertake all necessary and required actions, including of a regulatory nature, in order to effect a conversion from an open-end to a closed-end mutual fund trust (…the "Conversion Process"). Such actions shall include… obtaining an advanced tax ruling from the Canada Revenue Agency confirming that the conversion from an open-end to a closed-end mutual fund trust does not result in a disposition of Units. The exchange procedure shall be deferred until completion of the Conversion Process. In addition to the completion of the exchange of Exchangeable Securities for Units on the completion of the Conversion Process, Calloway may also be required to make a cash payment to the holder on the Exchangeable Securities in the event that the market value of Units falls over the time required to effect the Conversion Process. The Calloway Option provisions may be terminated by Mitchell Goldhar at any time. Upon receipt of a termination notice, Calloway shall immediately initiate a Conversion Process.