2000 Ruling 2000-0008363 - Mutual Fund Large Investor Incentive

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: This ruling involves the discontinuance of the large investor rebate program and the replacement of this program by the addition of a new class of units that will enable a negotiated management fee reduction payable directly by the Investor.

1) Does the creation of a new series of units result in a disposition of exisiting units by current unitholders?

2) Do the proposed amendments cause a resettlement of the existing trusts?

3)Will 104(7.1) apply to the transactions?

4)Will the new program confer a benefit to Investors?

Position: Unitholders are not considered to have disposed of their units ; there is no resettlement of the existing trusts due to the proposed amendments; 104(7.1) does not apply; There is no benefit or advantage to unitholders as a result of the proposed transactions.

Reasons: The changes to the declaration of trust are not so significant to cause a resettlement of the existing trusts.

The unitholders will not be deemed to have disposed of their units as a unitholder will not be entitled to proceeds of disposition on any conversion and the rights, privileges and conditions attached to the converted units will be substantially the same as the existing units with the exception of the reduced management fee being charged.

The purpose test in 104(7.1) is not met, namely the main purpose of the proposed transactions is to reduce the administrative complexity of the Reduced Management Fee program & to enable the manager to effectively market the units to differing groups of Investors.

XXXXXXXXXX
XXXXXXXXXX 2000-000836
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 2000

Dear Sirs/Mesdames:

Re: Advance Income Tax Ruling XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX, in which you requested an advance income tax ruling in respect of the income tax consequences arising out of the proposed transactions described below. We also acknowledge your correspondence of XXXXXXXXXX.

We understand that, to the best of your knowledge, none of the issues involved in this ruling request are:

(a) in an earlier return of the taxpayer or a related person;

(b) being considered by a tax services office and/or a tax centre in connection with a tax return previously filed by the taxpayer or a related person;

(c) under objection by the taxpayer or a related person;

(d) before the courts; or

(e) the subject of a ruling previously issued by this Directorate to the taxpayer or a related person with the exception of ruling #952451.

In this letter, unless otherwise indicated, all statute references are to the Canadian Income Tax Act and Regulations (R.S.C. 1985, 5th Supplement, c.1, as amended) (the "Act"), and the following terms have the meanings specified:

"Manager" means XXXXXXXXXX. The Manager's tax account number is XXXXXXXXXX. The Manager deals with the XXXXXXXXXX.

"Trustee" means the XXXXXXXXXX.

The following "Trusts" have been established by the Trustee (their respective tax accounts appear below):

"Fund 1" means XXXXXXXXXX

XXXXXXXXXX
XXXXXXXXXX

"Fund 2" means XXXXXXXXXX

XXXXXXXXXX
XXXXXXXXXX

"Fund 3" means XXXXXXXXXX

XXXXXXXXXX

"Fund 4" means XXXXXXXXXX

XXXXXXXXXX

"Fund 5" means XXXXXXXXXX

XXXXXXXXXX
XXXXXXXXXX

"Fund 6" means XXXXXXXXXX

XXXXXXXXXX

"Fund 7" means XXXXXXXXXX

XXXXXXXXXX

The Trusts deal with the XXXXXXXXXX Taxation Centre.

Our understanding of the relevant facts, proposed transactions and purpose thereof is as follows:

Facts

1. The Trustee is a corporation incorporated under the laws of Canada, and registered and licensed under the laws of Canada to carry on the business of a trust company.

2. The Manager is a corporation incorporated under the laws of Canada.

3. The Trusts, Funds 1 through 7 have been established by the Trustee. The trust agreement governing the Trusts is governed by the laws of the Province of XXXXXXXXXX and the laws of Canada applicable therein.

4. Each Trust has or will qualify at all relevant times as a "unit trust" as defined in subsection 108(2) of the Act. Moreover, each Trust, other than Fund 7, has at all relevant times qualified as a "mutual fund trust" as defined in subsection 132(6) of the Act. In accordance with the requirements of that subsection, units of each such Trust are broadly held by a variety of investors including taxable and non-taxable persons, both residents and non-residents of Canada ("Investors"). Fund 7 was established on XXXXXXXXXX. It is intended that Fund 7 will before XXXXXXXXXX meet such conditions as will permit the Manager to file an election under subsection 132(6.1) of the Act so that Fund 7 will be a mutual fund trust from the inception of the Trust.

5. The assets of each Trust are held in trust by the Trustee for Investors. The capital of each Trust is currently divided into and the interests of Investors in each Trust are currently described by reference to only one class of units.

6. The net asset value per unit of each Trust is currently obtained by dividing the aggregate value of the net assets of each Trust (that is, the excess of the value of the assets over the liabilities) by the total number of units of each Trust outstanding at the time as of which the calculation is made. The net asset value of the units of each Trust is calculated by the Manager as at XXXXXXXXXX on each "Valuation Date". "Valuation Date" means (a) each Trading Day, and (b) XXXXXXXXXX in each year, or (c) such other dates as may be notified to the Trustee from time to time by the Manager and specified in the current simplified prospectus of the Trusts. For this purpose, a "Trading Day" means, in the case of Fund 5 and Fund 6, a day on which the XXXXXXXXXX are open for trading and, in the case of the other Trusts, a day on which the XXXXXXXXXX is open for trading. The current method of calculating the net asset value per unit reflects the fact that the Investors of each Trust effectively bear the cost of the Common Expenses, as defined in the paragraph 8 below, of the Trust on a proportionate basis based on the number of units held by the Investor.

7. Pursuant to a Management Agreement, the investment activities of each Trust are managed by the Manager and reports of investment results are made to Investors by the Manager. In consideration for its management activities relating to each of the Trusts, the Manager earns a fee (a "Management Fee"). The Management Fee in respect of each Trust is calculated and payable monthly in arrears on an estimated basis and is adjusted as at the last Valuation Date of each year at the annualized rate of the average net asset value of the Trust. The rates applicable are set out below:

Fund 4 not to exceed XXXXXXXXXX%

Fund 3 not to exceed XXXXXXXXXX%

Fund 1 not to exceed XXXXXXXXXX%

Fund 2 not to exceed XXXXXXXXXX%

Fund 5 not to exceed XXXXXXXXXX%

Fund 6 not to exceed XXXXXXXXXX%

Fund 7 not to exceed XXXXXXXXXX%

8. Each Trust is responsible for the payment of its Management Fee, certain expenses relating to the operation of the Trust such as borrowing costs, brokerage commissions on portfolio investments made by the Trust and charges relating to the operation of the Trust's bank accounts ("Common Expenses") and, until XXXXXXXXXX, administrative expenses. Effective XXXXXXXXXX, the Manager assumed responsibility for payment of all of the administrative expenses of the Trusts. These expenses include the cost of complying with regulatory requirements (including periodic reports to unitholders, meetings of unitholders, proxy solicitation material, the renewal of the annual information form and prospectus and keeping the units qualified for sale to the public in all jurisdictions in which they are offered), the fees or expenses charged to the Manager for calculation of net asset value, the fees of the Trustee, custodian, auditors and legal counsel and other administrative costs arising in the ordinary course of the operation of the Trust.

It is presently intended that the Manager will continue to assume responsibility for the payment of the administrative expenses, however, the Manager may, upon giving not less than 60 days' prior notice to Investors, cease to do so and such expenses would become Common Expenses.

9. Investors of each Trust effectively bear the cost of the Common Expenses of the Trust and, prior to XXXXXXXXXX, bore the administrative expenses of the Trust on a proportionate basis (based on the number of units of the Trust held by the Investor expressed as a percentage of the total number of units of the Trust outstanding).

10. In order to encourage prospective major Investors ("Major Investors") to invest substantial amounts in and remain invested in the Trust, the Manager currently offers a program to reduce the Management Fee attributable to Major Investors (the "Management Fee Rebate Program"). Major Investors include registered retirement savings plans ("RRSPs"), registered retirement income funds ("RRIFs"), deferred profit sharing plans ("DPSPs"), other taxable and non-taxable financial intermediaries, groups of such financial intermediaries and high net worth individuals. The investment by Major Investors in the Trusts is commercially advantageous to the Manager for the following reasons. First, the Manager will earn additional Management Fees from the additional assets held in the Trusts, resulting in potential additional profit to the Manager. Second, the increase in size of the Trusts resulting from the additional assets held in the Trusts permits increased economies of scale in respect of the costs of the management of the trades undertaken by the Trusts. The Manager also benefits from administrative savings related to dealing with a single investor in comparison to the cost of dealing with multiple investors in respect of the same aggregate number of units through a reduction of the Manager's per unit cost of managing the Trusts.

11. The Canada Customs and Revenue Agency (the "CCRA") issued an advance income tax ruling dated XXXXXXXXXX, 1995, #952451 ( the "Prior Ruling") to the Manager and the Trusts in existence at the time in respect of the introduction of the Management Fee Rebate Program.

12. Currently, in consideration for a Major Investor investing substantial amounts in a Trust, the Manager may agree to reduce the Management Fee charged to the Trust in respect of the investment made by such Major Investor. The amount of the reduction in the Management Fee is negotiated between the particular Major Investor and the Manager, and accordingly the amount of the Management Fee reduction negotiated with a particular Major Investor could differ from that negotiated with another such Major Investor. The amount of such reduction in the Management Fee is based primarily upon the amount invested in the Trust by the particular Major Investor.

13. In allocating income of the Trust to Investors, the income of the Trust is first computed as if there were no reductions in the Management Fee, and this amount of income is allocated and distributed to all Investors pro rata based upon their respective holdings of units of the Trust (the "primary income allocation"), all as contemplated by the relevant trust agreement governing the Trust. A further allocation is then made equal to the amount of the aggregate of all negotiated reductions in the Management Fee ("RMF"), with the amount thereof allocated and distributed among Major Investors in accordance with their respective negotiated arrangements ("RMF Agreements").

Specifically, in accordance with the relevant trust agreement governing each Trust:

(a) The net income (determined by subtracting the Common Expenses of each Trust and, prior to XXXXXXXXXX, the administrative expenses of each Trust from the revenues of each Trust that have been included in computing the Trust's income), if any of Fund 1 and Fund 3 for each financial quarter shall be payable by or under the supervision of the Manager on behalf of the Trustee as of the last Valuation Date in each quarter on a pro rata basis, to the Investors of the Trust of record at the close of business on the next preceding XXXXXXXXXX Stock Exchange trading day ("XXXXXXXXXX Trading Day").

(b) The net income, if any of Fund 5, Fund 2, Fund 6 and Fund 7 for each financial year shall be payable by or under the supervision of the Manager on behalf of the Trustee as of the last valuation date in each year on a pro rata basis, to the Investors of the Trust of record at the close of business on the next preceding XXXXXXXXXX Trading Day.

(c) Subject to (f), the net realized capital gains, if any, of each Trust for each financial year shall be payable by or under the supervision of the Manager on behalf of the Trustee as of the last Valuation Date in each year on a pro rata basis, to the investors of the Trust of record at the close of business on the next preceding XXXXXXXXXX Trading Day.

(d) Subject to (g), each Major Investor's share, if any, of the RMF of each Trust for each financial quarter determined by the Trustee having regard to the relevant RMF Agreement shall be payable by or under the supervision of the Manager on behalf of the Trustee as of the last Valuation Date in each quarter on a pro rata basis, to such Major Investors of the Trust of record at the close of business on the next preceding XXXXXXXXXX Trading Day.

(e) The net income, if any, of Fund 4 from but not excluding one Valuation Date to and including the next following Valuation Date shall be paid as of the latter Valuation Date by the Trustee to the Investors of the Trust of record at the close of business on the next preceding XXXXXXXXXX Trading Day next preceding the date as of which the payment is made.

(f) The net realized capital gains, if any, of Fund 4 from but not excluding one Valuation Date to and including the next following Valuation Date shall be paid as of the latter Valuation Date by the Trustee to the Investors of the Trust of record at the close of business on the next preceding XXXXXXXXXX Trading Day next preceding the date as of which the payment is made.

(g) Each Major Investor's share, if any, of the RMF of Fund 4 from but excluding one Valuation Date to and including the next following Valuation Date shall be paid as of the latter Valuation Date by the Trustee to such Major Investors of the Trust of record at the close of business on the next preceding XXXXXXXXXX Trading Day next preceding the date as of which the payment is made.

14. Any Investor will have the right to enforce payment of an amount payable to him without demand to the Trustee, however unless an Investor requests, in writing, not less than fifteen days prior to a distribution day, that a Trust pay their distributions in cash, all distributions will be automatically reinvested in additional units of the Trust computed at the net asset value at that date.

15. Distributions in excess of net income and net realized capital gains of a Trust will be made by the Trustee from the capital of the Trust.

Proposed Transactions

16. The Manager proposes to amend the trust agreement governing the Trusts on or before XXXXXXXXXX to:

(a) create a second class of units for each Trust which will be convertible into units of the Trust of the existing class;

(b) discontinue the Management Fee Rebate Program with respect to the existing class of units of each Trust;

(c) add a conversion feature to the existing class of units of each Trust, all as more particularly described below. For purposes of this ruling request, the existing units of each Trust will be reclassified as "Class A units" of the Trust and the new class of units of each Trust will be referred to as "Class B units" of the Trust.

17. Pursuant to the trust agreement governing the Trusts, the proposed amendments to the trust agreement do not require the prior approval of the Investors and it is proposed that the proposed amendments will become effective, subject to receiving the rulings requested herein, on or before XXXXXXXXXX (the "Effective Date"). Investors who have an agreement with the Manager to participate in the Management Fee Rebate Program will be advised of the proposed discontinuance of the Program and of the introduction of the conversion feature to their existing units.

18. The attributes of the Class A units of each Trust will be substantially identical to the attributes of the units of the Trust before the amendments to the trust agreement, except that the Manager will no longer offer the Management Fee Rebate Program in respect of the Class A units of each Trust and the Class A units of each Trust will be convertible on any Valuation Date, at the option of a unitholder who has entered into an acceptable agreement with the Manager relating to the payment of Management Fees as described below, into Class B units of the Trust having an aggregate net asset value equal to the aggregate net asset value of the Class A units being converted, after taking into consideration the payment of any applicable redemption or exchange fees.

19. A unitholder will not be entitled to receive any consideration upon the conversion of Class A units to Class B units other than Class B units.

20. Where the aggregate net asset value of the Class B units of a Trust held by a particular Investor falls below a threshold established by the Manager, or the Investor otherwise cease to be qualified to hold Class B units in accordance with the terms of the agreement between the Investor and the Manager relating to the payment of Management Fees as described below, such Class B units will be automatically converted into Class A units of the Trust having aggregate net asset value equal to the aggregate net asset value of the Class B units being converted. The conversion of Class B units held by a particular Investor into Class A units may also be at the option of the Investor in accordance with the terms of the agreement between the particular Investor and the Manager relating to the payment of Management Fees as described below. A unitholder will not be entitled to receive any consideration upon the conversion of Class B units to Class A units other than Class A units. The other attributes of the Class B units of each Trust will be substantially identical to the attributes of the existing units of the Trust and the Class A units of the Trust except with respect to the payment of the Management Fees as described below.

21. The basic difference between the Class A units of each Trust and the Class B units thereof will be with respect to the Management Fee referable to such Classes as described below. The Fund will continue to be responsible for the payment of the Common Expenses and the Manager will continue to pay the administrative expenses (except in circumstances described in paragraph 8 above). Holders of Class A units and holders of Class B units of each Trust will effectively bear the cost of the Common Expenses of the Trust on a proportionate basis effectively based on the number of units of the Trust held by such holder expressed as a percentage of the total number of units of the Trust outstanding.

22. Each Trust will be responsible for the Management Fee payable to the Manager in respect of the Class A units (the "Class A Expenses") at the following percentage of the net asset value of the Class A units:

Fund 4 not to exceed XXXXXXXXXX%

Fund 3 not to exceed XXXXXXXXXX%

Fund 1 not to exceed XXXXXXXXXX%

Fund 2 not to exceed XXXXXXXXXX%

Fund 5 not to exceed XXXXXXXXXX%

Fund 6 not to exceed XXXXXXXXXX%

Fund 7 not to exceed XXXXXXXXXX%

23. Each Trust will also be responsible for a portion of the Management Fee payable to the Manager in respect of the Class B units of the Trust (the "Class B Expenses"). The portion of such Management Fee for which each Trust will be responsible will not exceed XXXXXXXXXX% of the net asset value of the Class B units of the Trust. The remaining portion of the Management Fee in respect of the Class B units of each Trust of up to XXXXXXXXXX% of the net asset value of the Class B units of each Trust will be charged directly or through an intermediary by the Manager to the Class B unitholders of each Trust and will be negotiated by the Manager with each holder (or an intermediary) of Class B units of each Trust separately to achieve a level of total Management Fee payable which is conducive to encouraging Major investors to invest in Class B units of the Trust. That is, the total Management Fee payable in respect of the Class B units of each Trust held by a particular Investor (that is, including the portion payable by the Trust and the portion payable by the Investor) will be lower than the Management Fee payable in respect of the Class A units of the Trust.

24. The Class A unitholders of each Trust will effectively bear the cost of the Class A Expenses of the Trust described in paragraph 22 above and their proportionate share (effectively based on the number of Class A units held) of the Common Expenses of the Trust as described in paragraph 21 above. The Class B unitholders of the Fund will effectively bear the cost of the Class B Expenses of the Trust, the remaining portion of the Management Fee as described in paragraph 23 above and their proportionate share (effectively based on the number of Class B units held) of the Common Expenses of the Trust as described in paragraph 21 above.

25. The foregoing allocation of expenses of each Trust will be achieved by way of the determination of the net asset value of the Class A units and the Class B units of the Trust and the allocation and distribution of income and capital gains of the Trust to unitholders of each class of units. The net asset value of each Class of units of each Trust will be computed separately as follows:

(a) The net asset value of the Class A units (the "Class A net asset value") of the Trust will be computed by subtracting the liabilities of the Trust referable specifically to Class A units of the Trust from the Class A units' proportionate share of the difference between the assets of the Trust and liabilities of the Trust not specifically referable to any class of units of the Trust. This calculation will ensure that the Class A net asset value reflects the fact that the Class A unitholders alone will effectively bear the cost of the Class A Expenses of the Trust but will effectively bear the cost of the Common Expenses of the Trust on a proportionate basis together with the Class B unitholders.

(b) The net asset value of the Class B units (the "Class B net asset value") of the Trust will be computed by subtracting the liabilities of the Trust referable specifically to Class B units of the Trust from the Class B units' proportionate share of the difference between the assets of the Trust and liabilities of the Trust not specifically referable to any class of units of the Trust. This calculation will ensure that the Class B net asset value reflects the fact that the Class B unitholders alone will effectively bear the cost of the Class B Expenses of the Trust but will effectively bear the cost of the Common Expenses of the Trust on a proportionate basis together with the Class A unitholders.

26. The net asset value per Class A unit of each Trust will be determined by dividing the Class A net asset value of the Trust by the number of Class A units outstanding at the determination time. The net asset value per Class B unit of each of each Trust will be determined by dividing the Class B net asset value of the Trust by the number of Class B units outstanding at the determination time. The net asset value per Class A or Class B unit of each Trust will be the price at which such unit may be purchased or redeemed by a unitholder.

27. The Class A net asset value and the Class B net asset value of each Trust will be determined by the Manager as at XXXXXXXXXX time on each Valuation Date.

28. The amount of net income (loss) of each Trust which will be attributable to Class A unitholders ("Class A Net Income (Loss)") from time to time generally will be determined by subtracting the Class A Expenses of the Trust and the Class A units' proportionate share of the Common Expenses of the Trust from the Class A units' proportionate share of the revenues of the Trust that have been included in computing the Trust's income. Similarly, the amount of net income (loss) of each Trust which will be attributable to Class B unitholders ("Class B Net Income (Loss)") from time to time generally will be determined by subtracting the Class B Expenses of the Trust and the Class B units' proportionate share of the Common Expenses of the Trust from the Class B units' proportionate share of the revenues of the Trust that have been included in computing the Trust's income.

29. The amount of net realized capital gains of each Trust attributable to Class A unitholders of the Trust ("Class A Gains") and Class B unitholders of the Trust ("Class B Gains") will be computed separately from the amount of net income (loss) of the Trust attributable to such unitholders and will be determined on a proportionate basis.

30. The Class A Net Income and Class B Net Income, if any, of Fund 1 and Fund 3 for each financial quarter shall be payable by or under the supervision of the Manager on behalf of the Trustee as of the last Valuation Date in each quarter, to the Class A unitholders and Class B unitholders of the Trust of record respectively at the close of business on the next preceding XXXXXXXXXX Trading Day.

31. The Class A Net Income and Class B Net Income, if any, of Fund 5, Fund 2, Fund 6 and Fund 7 for each financial year shall be payable by or under the supervision of the Manager on behalf of the Trustee as of the last Valuation Date in each year on a pro rata basis, to the Class A unitholders and Class B unitholders of the Trust of record respectively at the close of business on the next preceding XXXXXXXXXX Trading Day.

32. Subject to paragraph 34 below, the Class A Gains and Class B Gains, if any, of each Trust for each financial year shall be payable by or under the supervision of the Manager on behalf of the Trustee as of the last Valuation Date in each year on a pro rata basis, to the Class A unitholders and Class B unitholders of the Trust of record respectively at the close of business on the next preceding XXXXXXXXXX Trading Day.

33. The Class A Net Income and Class B Net Income, if any, of Fund 4 from but not excluding one Valuation Date to and including the next following Valuation Date shall be paid as of the latter Valuation Date by the Trustee to the Class A unitholders and Class B unitholders of the Trust of record respectively at the close of business on the next preceding XXXXXXXXXX Trading Day next preceding the date as of which the payment is made.

34. The Class A Gains and Class B Gains, if any, of Fund 4 from but not excluding one Valuation Date to and including the next following Valuation Date shall be paid as of the latter Valuation Date by the Trustee to the Class A unitholders and Class B unitholders of the Trust of record respectively at the close of business on the next preceding XXXXXXXXXX Trading Day next preceding the date as of which the payment is made.

35. Any Class A unitholder will have the right to enforce payment of an amount payable to him without demand to the Trustee, however, unless the Class A unitholder requests, in writing, not less than fifteen days prior to a distribution day, that a Trust pay their distributions in cash, all distributions will be automatically reinvested in additional Class A units of the Trust computed at the net asset value per Class A unit at that date. Similarly, any Class B unitholder will have the right to enforce payment of an amount payable to him without demand to the Trustee, however, unless the Class B unitholder requests, in writing, not less than fifteen days prior to a distribution day, that a Trust pay their distributions in cash, all distributions will be automatically reinvested in additional Class B units of the Trust computed at the net asset value per Class B unit at that date.

36. Investors holding the existing class of units of each Trust and who have an existing RMF Agreement with the Manager on the Effective Date will be invited to exchange their existing class of units (which will be reclassified as Class A units) for Class B units at the earliest opportunity after the Effective Date. The Manager and each Investor who has exchanged its Class A units into Class B units will negotiate the portion of the Management Fee payable directly by such Investor to the Manager which will result in a total amount of Management Fee (including the portion payable by the Trust and the portion payable by the Investor) which is equal to or less than that payable under the applicable RMF Agreement existing on the Effective Date.

Purpose of Proposed Transactions

37. The purposes of the proposed transactions are twofold:

(a) first, to eliminate the difficulties relating to the administration of the Management Fee Rebate Program as described below while achieving the same objectives of the Management Fee Rebate Program to encourage prospective Major Investors to invest and remain invested in the Trusts; and

(b) second, to allow Investors in the Trusts who were not entitled to a lower Management Fee at the time they first invested in the Trust but have now increased their investments in the Trusts to benefit from a lower Management Fee, and to allow the Manager to receive the full Management Fee in respect of Investors in the Trusts whose investments have decreased in size and who are no longer entitled to a lower Management Fee.

38. These two purposes are to be accomplished by creating a separate class of units for each Trust, the Class B units, which are intended for investment by Major Investors. Thus, the total Management Fee payable in respect of Class B units of each Trust held by a particular Major Investor is intended to be generally the same as that which would be negotiated and payable under the Management Fee Rebate Program if the Major Investor had invested the same amount in the existing units of the Trust. The Class A units are intended for investment by Investors who would not be offered a RMF under the Management Fee Rebate Program.

39. The Management Fee Rebate Program is difficult to administer for the following reasons:

(a) as described above, two allocations of income, one computed on the basis of no reductions in the Management Fee and a further allocation equal to the RMFs, are currently required under the Management Fee Rebate Program and such computations are cumbersome; and

(b) these two separate allocations need to be distributed to two different groups of investors, the primary allocation of income to all Investors and the RMFs only to the Major Investors with RMF Agreements; and

(c) the allocation with respect to the RMFs to each Major Investor has to be calculated based on the size of investment by each individual Major Investor. After the implementation of the proposed transactions, only one allocation of income will be required to be made with respect to each of the Class A units and Class B units of each Trust which is easier to calculate. In addition, such allocations of income will simply be distributed on a pro rata basis to all Class A unitholders and Class B unitholders of each Trust respectively.

40. The ability of Class A unitholders to convert the Class A units into Class B units allows Class A unitholders whose investments have increased to a significant amount as to entitle them to a lower Management Fee to negotiate such a lower Management Fee with the Manager. The conversion of the Class B units of a Trust held by an Investor to Class A units of the Trust in accordance with the terms of the agreement between the Investor and Manager with respect to the payment of the Management Fee allows the Manager to receive the full Management Fee in respect of Investors in the Trusts who are no longer entitled to a lower Management Fee.

Ru1ings Given

Provided that the preceding statements are accurate and constitute complete disclosure of all relevant facts, proposed transactions and purpose thereof and the proposed transactions are carried out as herein described, our advance income tax rulings are as follows:

A. The elimination of the Management Fee Rebate Program with respect to existing units of each Trust, the addition of a conversion feature to the existing units of each Trust, the reclassification of the existing units of each Trust as Class A units and the creation of Class B units for each Trust will not, in and of themselves, result in a disposition of the existing units of each Trust by holders of such units for purposes of the Act.

B. The elimination of the Management Fee Rebate Program with respect to existing units of each Trust, the addition of a conversion feature to the existing units of each Trust, the reclassification of the existing units of each Trust as Class A units and the creation of Class B units for each Trust will not, in and of themselves, result in a disposition of the property of each Trust by each Trust for purposes of the Act.

C. The conversion of Class A units, at the option of the Class A unitholder in the circumstances described above, into an equivalent value of Class B units will not, in and of itself, result in a disposition, for purposes of the Act, of the Class A units being converted.

D. The conversion of Class B units held by a Class B unitholder in the circumstances described above into an equivalent value of Class A units will not, in and of itself result in a disposition, for purposes of the Act, of the Class B units being converted.

E. Subsection 12(2.1) of the Act will not apply to deem an amount to have been received by a Trust by virtue of the fact that the total Management Fee payable in respect of the Class B units of each Trust held by a particular Investor (that is, including the portion payable by the Trust and the portion payable by the Investor) will be lower than the Management Fee payable by the Trust in respect of the Class A units of the Trust.

F. The proposed transactions described herein will not, in and by themselves, cause the provisions of subsection 104(7.1) of the Act to apply so as to deny a Trust a deduction in computing its income under paragraph 104(6)(b) of the Act.

G. Provided each Trust otherwise qualifies as a "unit trust" within the meaning of subsection 108(2) of the Act, it will not cease to so qualify as a consequence of the proposed transactions.

H. If a Class B unitholder is a RRSP, the fact that total Management Fee payable in respect of the Class B units of each Trust held by a particular Investor (that is, including the portion payable by the Trust and the portion payable by the Investor) will be lower than the Management Fee payable by the Trust in respect of the Class A units of the Trust will not be regarded as an "advantage" extended to any annuitant of such Class B unitholder or to a person with whom any annuitant of such Class B unitholder was not dealing at arm's length within the meaning of paragraph 146(2)(c.4) or subsection 146(13.1) of the Act.

I. If a Class B unitholder is a RRIF, the fact that total Management Fee payable in respect of the Class B units of each Trust held by a particular Investor (that is, including the portion payable by the Trust and the portion payable by the Investor) will be lower than the Management Fee payable by the Trust in respect of the Class A units of the Trust will not be regarded as a "benefit" extended to any annuitant of such Class B unitholder or to a person with whom any annuitant of such Class B unitholder was not dealing at arm's length within the meaning of paragraph 146.3(2)(g) or subsection 146.3(13) of the Act.

J. If a Class B unitholder is a DPSP, the fact that total Management Fee payable in respect of the Class B units of each Trust held by a particular Investor (that is, including the portion payable by the Trust and the portion payable by the Investor) will be lower than the Management Fee payable by the Trust in respect of the Class A units of the Trust will not be regarded as a "benefit" extended to any beneficiary of such Class B unitholder or to a person with whom any beneficiary of such Class B unitholder was not dealing at arm's length within the meaning of paragraph 147(2)(k.l) or subsection 147(14.1) of the Act.

K. Subsection 245(2) of the Act will not apply to redetermine the tax consequences arising from the above rulings.

The above rulings are given subject to the general limitations and qualifications set out in Information Circular 70-6R3, Advance Income Tax Rulings, and are binding on the CCRA provided that the amendments to the Trust indentures are signed and effective within six months of the date of this letter. These rulings are based on the law as it currently reads and do not take into account any proposed amendments to the Act, which could, if enacted into law, have an effect on the rulings provided herein.

The above rulings should not be construed as providing our views on whether the Funds will qualify as unit trusts, mutual fund trusts or registered investments for purposes of the Act.

Opinion on the December 17, 1999 Proposed Amendments

We also confirm that Rulings A to D will not be affected by the proposed amendments to the definition of "disposition" in subsection 248(1) released by the Department of Finance on December 17, 1999.

Yours truly,

XXXXXXXXXX
for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch