2000 Ruling 2000-0041563 - Redesignation - Multiclass Mutual Fund

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 request involves proposed transactions that will be undertaken by a group of mutual funds. Under the proposals, the mutual funds will be governed by a newly established master declaration of trust that will represent an amended and restated declaration of trust for each of the mutual funds. The master declaration of trust the funds will allow a fund to create additional classes of units; to rename certain of their existing units; and to add a redesignation feature to each class of units which will allow these units to be redesignated as another class of units of the same fund in certain circumstances. The purpose of the proposed transactions is to provide these mutual funds with more flexibility to meet the needs of a broader range of investors. This multi-class structure will allow the manager to more effectively market the funds to different segments of the investor market and to tailor the fees and expenses applicable to such segments by offering a separate class of units of each such fund. In this ruling, the principal issues are:

1) Will the implementation of the proposed transactions result in a resettlement of the trust or a disposition of units?

2) Will subsection 104(7.1) and subsection 245(2) apply to the proposed transactions?

Position TAKEN

1) The amendments to each funds declaration of trust, as reflected in the master declaration of trust, to permit the creation of additional classes of units are not significant enough to result in a resettlement of the trust. Unitholders are not considered to have disposed of their units because of the addition of a redesignation feature to the existing units or because of the redesignation of the units from one class to another class of units of the same fund.

2) Subsection 104(7.1) subsection 245(2) will not apply to the proposed transactions.

Reasons FOR POSITION TAKEN

1) Amendments to the declaration of trust, as reflected in the master declaration of trust, which will allow the trustee to create new classes of units and the creation of a new class of units with a redesignation feature will not result in the disposition of the existing units of a fund held by a unitholder as the rights of the unitholders have not been significantly changed. Also, since a unitholder will not be entitled to proceeds of disposition on the redesignation of the units, the units will not be redeemed or cancelled upon the redesignation and the rights, privileges and conditions attached to the redesignated units will be substantially the same as the existing units, the redesignation of units will not result in a disposition. Similar positions were taken in 2000-002298, 2000-000551, 9905003, 9827053, and 9818043.

2) Similar positions were taken 2000-002298, 2000-000551, 9930143, 9905003, 9818043 and 9827053.

XXXXXXXXXX 2000-004156

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 on behalf of the above-noted taxpayers and your subsequent correspondence of XXXXXXXXXX, in respect of the income tax consequences arising out of the proposed transactions described below.

We understand that to the best of your knowledge, and that of the taxpayers involved, none of the matters considered in this ruling request are:

(a) in an earlier return of the taxpayers or related persons;

(b) being considered by a tax services office or tax centre in connection with a previously filed tax return of the taxpayers or related persons;

(c) under objection by the taxpayers or related persons;

(d) before the courts; or

(e) the subject of a ruling previously issued by this Directorate to the taxpayers or related persons.

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

"ACo" means XXXXXXXXXX.

"BCo" means XXXXXXXXXX.

"PCo" means XXXXXXXXXX.

"Exchange" means the XXXXXXXXXX Stock Exchange.

"Fund" means a fund listed in Appendix A.

"Funds" means, collectively, the funds listed in Appendix A.

"Fund A" means XXXXXXXXXX.

"Fund B" means XXXXXXXXXX.

"Fund C" means XXXXXXXXXX.

"Fund D" means XXXXXXXXXX.

"Index Fund" means, individually, Fund A, Fund B and Fund C.

"Index Funds" means Fund A, Fund B and Fund C collectively.

"Index" means the XXXXXXXXXX.

"Class I Units" means XXXXXXXXXX.

"Class II Units" means XXXXXXXXXX.

"Class III Units" means XXXXXXXXXX.

"Class X Units" means XXXXXXXXXX.

"Class Y Units" means XXXXXXXXXX.

"Class Z Units" means XXXXXXXXXX.

ACo files its returns with the XXXXXXXXXX Tax Centre. The Funds file their returns at the Ottawa Technology Centre and deal with the XXXXXXXXXX Tax Services Office.

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

FACTS

1. The Funds were formed under declarations of trust, as amended by supplemental declarations of trust, (the "Declarations of Trust") governed by the laws of the province of XXXXXXXXXX.

2. The Funds (other than Fund A) are open-end mutual fund trusts, as defined in subsection 132(6), that offer a variety of investment objectives. Fund A is a unit trust, as defined in subsection 108(2).

3. ACo is the manager and trustee of the Funds. ACo is a corporation that was incorporated under the laws of Canada. XXXXXXXXXX.

4. Each of the Funds, other than an Index Fund, is divided into an unlimited number of identical units. Each of the Index Funds is divided into two classes of units, namely Class I Units and Class II Units. Each unit represents an undivided interest in the assets of the Fund.

5. Each Fund is valued at 4:00 p.m. (eastern standard time) on each day that the Exchange is open for trading (a "Valuation Date"). The net asset value of a Fund is equal to the value of its assets less its liabilities. The net asset value per unit of a Fund, other than the Index Funds, is described with more specificity in the Declarations of Trust, but generally is calculated by dividing the net asset value of the Fund by the total number of units of that Fund then outstanding. In the case of the Index Funds, the net asset value of a class is described with more specificity in the Declarations of Trust, but generally is the quotient obtained by dividing the total number of units of the Index Fund outstanding by the number of units of the class outstanding, multiplying that factor by the total assets of the Index Fund minus the common liabilities of the Index Fund and subtracting from that factor the management fees specific to that class. The net asset value per unit of a class of an Index Fund is calculated by dividing the class net asset value by the total number of units of that class. The net asset value per unit, or class net asset value per unit, is the basis for all purchases and redemptions of units of the Funds and the reinvestment of distributions, if any, from the Funds.

6. In the case of the Index Funds, the management fees charged by the manager in respect of a class of units and allocated to that class of units, the applicability of sales and redemption charges on the acquisition and redemption of units, the commissions and trailer fees payable by the manager to the unitholder's financial adviser, the applicability of transfer fees payable by the unitholder to his or her financial adviser for redeeming units and reinvesting the proceeds in units or shares of another fund managed by the manager and the minimum investment requirements are currently different for each class of units. The classes also have separate class voting rights in certain circumstances. The management fee payable by an Index Fund in respect of its Class II Units and allocated to the Class II Units is less than the management fee payable in respect of the Class I Units and allocated to the Class I Units. All other Index Fund expenses are currently allocated between the classes based on the class net asset values. Investors in Class I Units may choose either to pay a negotiated initial sales charge to their financial adviser on purchasing Class I Units or to purchase the Class I Units on a deferred sales charge basis. If Class I Units are purchased on a deferred sales charge basis, the manager or a third party will pay a selling commission to the unitholder's financial adviser on the purchase of the units and the unitholder may pay a redemption charge to the manager on redeeming the Class I Units, depending on the date of the redemption. Investors in Class II Units do not pay any initial sales charges or deferred sales charges. The manager pays financial advisors trailer fees for ongoing services provided by the financial advisor to the unitholder of Class I Units, such as investment advice, account statements and newsletters. The manager does not pay commissions or trailer fees to financial advisers in respect of Class II Units. There are different minimum investment requirements for Class I Units and Class II Units. In the event that a matter affects only one class of units of an Index Fund, that class will have separate class voting rights.

7. The manager has entered into management and distribution agreements with the Funds to provide portfolio management and administrative services and to arrange for the distribution of the securities of the Funds. The remuneration paid by each Fund to the manager for providing these services is provided for in the management and distribution agreements with the Funds. That remuneration is equal to a percentage of the average daily net assets of the relevant Fund. The fee is computed and paid by the Funds daily. The management fee rate differs depending on the Fund. At present, the management fees paid by the Funds, other than the Index Funds, range from XXXXXXXXXX% to XXXXXXXXXX% per annum. In the case of the Index Funds, management fees paid in respect of the Class I Units are currently XXXXXXXXXX% and the management fees paid in respect of the Class II Units are currently XXXXXXXXXX%. To encourage large purchases in the Funds, the manager may reduce the management fee that it would otherwise be entitled to receive from a Fund with respect to an investment in the Fund, provided that the amount of the management fee reduction is distributed to the investor for whose benefit the fee was reduced. These are referred to as management fee distributions.

8. The manager has engaged BCo to act as the investment adviser to each of the Funds. BCo is remunerated by the manager and not directly by the Funds. All other portfolio investment sub-advisers are paid by the manager or BCo, except that Fund D pays a performance incentive fee directly to its portfolio investment sub-adviser. Fund D's performance incentive fee is paid monthly. The manager also pays advertising costs, costs of providing marketing support to dealers and costs of dealer compensation programs in respect of the Funds.

9. In addition to management fees payable by the Funds to the manager and the incentive fees payable by some of the funds to portfolio sub-advisers, each Fund is responsible for its own administrative and operating expenses, including but not limited to, audit and legal fees, directors fees, custodian fees, registry and transfer agency fees, portfolio and investment costs, expenses of communications with security holders, all costs imposed by statute or regulation, taxes and applicable GST and other administrative expenses.

PROPOSED TRANSACTIONS

Amendments to the Declarations of Trust for the Funds

10. It is proposed that a master declaration of trust (the "Master Declaration") will be created for the Index Funds and a separate Master Declaration will be created for the Funds other than the Index Funds. The Master Declarations will represent an amended and restated declaration of trust for each of the Funds listed in Appendix A and will:

(a) permit each of the Funds to issue additional classes of units and permit the trustee of each Fund, in its sole discretion, to redesignate classes of units from time to time, and

(b) provide that units of one class of a Fund may be redesignated as an equivalent value of units of another class of the same Fund in certain circumstances (the "redesignation feature") as described in 17 below.

The Master Declaration for the Funds other than the Index Funds will:

(c) designate the issued and outstanding units of each such Fund on the effective date of the amendments as Class X Units of the same Fund, and

(d) allow each of these Funds to issue three classes of units, namely Class X Units, Class Y Units and Class Z Units, with the attributes set out below.

The Master Declaration for the Index Funds will:

(e) rename the issued and outstanding Class I Units of each Index Fund on the effective date of the amendments as Class III Units of the same Index Fund, and

(f) allow each Index Fund to issue an additional class of units, namely new Class I Units, with the attributes set out below.

Classes of units

11. For Funds other than the Index Funds, Class X Units will be available to all investors investing a minimum of $XXXXXXXXXX in a Fund. Class Y Units will be offered primarily to investors who participate in fee-based programs through their financial adviser. A fee-based program is a program in which investors pay their financial adviser an annual fee for ongoing financial planning advice and do not pay any sales commissions. Class Y Units may also be made available to employees of ACo and related companies. In all cases, the availability of Class Y Units is subject to the approval of ACo. Class Z Units will be offered primarily to certain large institutional investors investing a minimum of $XXXXXXXXXX in the Funds and who have entered into a Class Z Unit Account Agreement with the manager. Class X, Class Y and Class Z Units will be offered pursuant to the terms of a simplified prospectus, a copy of which was included with your ruling request.

12. The attributes of each class of units of a Fund, other than an Index Fund, will be similar, except for differences such as the management fees charged by the manager in respect of a class of units and allocated to that class, whether the management fees are charged to the Fund or directly to the investor, the availability of discretionary management fee distributions to unitholders, the allocation of other administrative and operating expenses of a Fund, the fees, charges and commissions paid by the unitholder and the manager, minimum investment requirements and separate class voting rights in certain circumstances. The percentage management fee charged by the manager to a Fund with respect to the Class Y Units and allocated to Class Y Units will be less than the percentage management fee charged to a Fund with respect to Class X Units and allocated to Class X Units. No management fee will be charged by the manager to a Fund with respect to Class Z Units; instead management fees may be charged by the manager directly to the holder of Class Z Units and negotiated on a case-by-case basis. Discretionary management fee distributions will be available to holders of Class X Units and Class Y Units only. The other administrative and operating expenses paid by the Funds will be allocated by the manager among the classes of units in a manner that reflects the actual administrative and operating costs of each class. Common expenses will be allocated between the classes based on each class net asset value relative to the aggregate net asset value of all classes of the Fund as of 4:00 p.m. (eastern standard time) on the preceding Valuation Date. In addition to the above expense allocation method, some common expenses, such as audit, custody and brokerage fees, may also be allocated to each class based on the amount of such expenses calculated by the Fund to have been actually incurred in respect of the class or in such other manner as the trustee considers appropriate and equitable. Expenses attributable specifically to a given class of units will be allocated to that class directly. In the case of Class X Units, an investor may choose either to pay a negotiated initial sales charge to the investor's financial adviser on purchasing the units or to purchase the Class X Units on a deferred sales charge basis. If Class X Units are purchased on a deferred sales charge basis, the manager will pay a selling commission to the investor's financial adviser on the purchase of the units and the investor may pay a deferred sales charge to the manager on redeeming the Class X Units or on a redesignation of the Class X Units into another class of units of the same Fund, depending on the date of redemption or redesignation. The manager will pay financial advisers trailer fees for ongoing services provided by the financial adviser to a unitholder of Class X Units, such as investment advice, account statements and newsletters. An investor in Class Y Units will not be charged an initial sales charge on the purchase of the units or a deferred sales charge on a redemption or redesignation of the units. The manager will not pay any commissions or trailer fees to financial advisers with respect to Class Y Units. An investor in Class Z Units may be charged a negotiated initial sales charge on the purchase of units. The range of potential initial sales charges for Class Z Units will be different from the range for Class X Units. The manager will not pay any commissions or trailer fees to financial advisers with respect to Class Z Units. Where the nature of the business to be transacted at a unitholder meeting concerns an issue relevant only to the unitholders of a particular class or classes, only unitholders of those classes to which such business is relevant will be entitled to vote and such units will be voted separately as a class.

13. For the Index Funds, new Class I Units will be available to investors investing a minimum of $XXXXXXXXXX in a Fund. Class II Units will be available to certain investors who have invested a minimum of $XXXXXXXXXX in the Index Funds and Class III will be available to investors who have invested a minimum of $XXXXXXXXXX in the Index Funds. The new Class I, Class II and Class III Units will be offered pursuant to the terms of a simplified prospectus, a copy of which was included with your ruling request.

14. The attributes of each class of units of an Index Fund will be similar, except for differences such as the management fees charged by the manager in respect of a class of units and allocated to that class, the allocation of other administrative and operating expenses of an Index Fund, the fees, charges and commissions paid by the unitholder and the manager, minimum investment requirements and separate class voting rights in certain circumstances. The percentage management fee charged by the manager to an Index Fund with respect to the Class II Units and allocated to the Class II Units will be less than the percentage management fee charged to the Index Fund with respect to the Class III Units and allocated to the Class III Units. The percentage management fee charged by the manager to an Index Fund with respect to the Class III Units and allocated to the Class III Units will be less than the percentage management fee charged to the Index Fund with respect to the new Class I Units and allocated to the new Class I Units. The other administrative and operating expenses paid by an Index Fund will be allocated by the manager among the classes of units in a manner that reflects the actual administrative and operating costs of each class. Common expenses will be allocated between the classes based on each class net asset value relative to the aggregate net asset value of all classes of the Index Fund as of 4:00 p.m. (eastern standard time) on the preceding Valuation Date. In addition to the above expense allocation method, some common expenses, such as audit, custody and brokerage fees, may also be allocated to each class based on the amount of such expenses calculated by the Index Fund to have been actually incurred in respect of the class or in such other manner as the trustee considers appropriate and equitable. Expenses attributable specifically to a given class of units will be allocated to that class directly. In the case of new Class I Units and Class III Units, an investor may chose either to pay a negotiated initial sales charge to the investor's financial adviser on purchasing the units or to purchase the units on a deferred sales charge basis. If the units are purchased on a deferred sales charge basis, the manager will pay a selling commission to the investor's financial adviser on the purchase of the units and the investor may pay a deferred sales charge to the manager upon redeeming the units or on a redesignation of the units into another class of units of the same Index Fund, depending on the date of redemption or redesignation.

The ranges of possible initial sales charges and the deferred sales charges will be different for new Class I Units and Class III Units. The manager will pay financial advisors trailer fees for ongoing services provided by the financial adviser to a unitholder of new Class I Units or Class III Units. The trailer fees will be different percentages depending on whether they relate to new Class I Units or Class III Units. An investor in Class II Units will not be subject to an initial sales charge on the purchase of units or a deferred sales charge on a redemption or redesignation of units. The manager will not pay any commissions or trailer fees to financial advisers with respect to Class II Units. Where the nature of the business to be transacted at a unitholder meeting concerns an issue relevant only to the unitholders of a particular class or classes, only unitholders of those classes to which such business is relevant will be entitled to vote and such units will be voted separately as a class.

15. The units of each class of a Fund will be redeemable at the option of the unitholder at the net asset value per unit calculated for the relevant class of units, less any applicable deferred sales charge charged to an investor who has purchased units on a deferred sales charge basis. Each whole unit of a class of a Fund will entitle the unitholder to one vote, except where an issue is relevant only to the unitholders of a particular class. The units of each class of a Fund will rank on a parity with the units of the other classes of the Fund with respect to property received on a termination or winding up of the Fund, based on the relative net asset value of each class of units.

16. Each class of units of each Fund will have a separate net asset value calculated for that class. A class' proportionate share of assets and liabilities, income, common expenses and realized and unrealized gains and losses are calculated daily and is the basis of determining the net asset value of each class. The proportion allocated to each class is determined by reference to that class' net asset value relative to the aggregate net asset value of all classes of the Fund as of 4:00 p.m. (eastern standard time) on the preceding Valuation Date. In addition to the above expense allocation method, some common expenses, such as audit, custody and brokerage fees, may also be allocated to each class based on the amount of such expenses calculated by the Fund to have been actually incurred in respect of the class or in such other manner as the trustee considers appropriate and equitable. Expenses attributable specifically to a given class of units will be allocated to that class directly and will be included in the calculation of the net asset value of that given class. The net asset value per unit of each class of units of a fund will be computed by dividing the aggregate net asset value of the class by the number of units of that class outstanding at the time.

17. The units of each class will have a redesignation feature which will permit them to be redesignated as units of another class of the same Fund as described in paragraphs 19, 20, 21 and 22 below.

18. Each Master Declaration will be entered into as soon as possible after the granting of the rulings requested herein and, in any event, within six months of the date such rulings are granted.

Redesignation of Units of the Funds

19. For Funds other than the Index Funds, if a unitholder holds Class X Units in a fee-based account, those units may, at the request of the unitholder and with the agreement of the manager and the unitholder's financial adviser, be redesignated as Class Y Units of the same Fund having a net asset value equal to the net asset value of the units being redesignated. Also, if an employee of ACo or a related company holds Class X Units, those units may, at the request of the unitholder and with the agreement of the manager, be redesignated as Class Y Units of the same Fund having a net asset value equal to the net asset value of the units being redesignated. Where a holder of Class Y Units no longer qualifies, at the option of the manager, to hold Class Y Units, those units may be redesignated as Class X Units of the same Fund having a net asset value equal to the net asset value of the units being redesignated, after the manager gives 30 days notice to the unitholder. Alternatively, if a holder of Class Y Units no longer qualifies to hold Class Y Units, those units may, at the request of the unitholder, be redesignated as Class Z Units of the same Fund having a net asset value equal to the net asset value of the units being redesignated, provided that the unitholder meets the minimum investment requirement to hold Class Z Units and has entered into a Class Z Unit Account Agreement with the manager. Class X Units may, at the request of the unitholder and with the agreement of the manager, be redesignated as Class Z Units of the same Fund having a net asset value equal to the net asset value of the units being redesignated, provided that the unitholder meets the minimum investment requirement to hold Class Z Units and has entered into a Class Z Unit Account Agreement with the manager. Class Z Units may be redesignated as Class X Units of the same Fund having a net asset value equal to the net asset value of the units being redesignated, at the option of the manager, after the manager gives 30 days notice to the unitholder. This may occur, for example, where the holdings of Class Z Units of a unitholder fall below the minimum investment requirement to hold Class Z Units. Alternatively, Class Z Units may be redesignated as Class Y Units of the same Fund having a net asset value equal to the net asset value of units being redesignated, at the request of the unitholder and with the agreement of the manager and the unitholder's financial adviser, provided that the unitholder holds those units in a fee-based account.

20. In the case of the Index Funds, if a unitholder holds Class III Units those units may, at the request of the unitholder and with the consent of the unitholder's financial advisor, be redesignated as Class II Units of the same Index Fund having a net asset value equal to the net asset value of units being redesignated, provided that the unitholder meets the minimum investment requirement to hold Class II Units. If a unitholder holds Class III Units, those units may, at the request of the unitholder and with the consent of the unitholder's financial advisor, be redesignated as new Class I Units of the same Index Fund having a net asset value equal to the net asset value of the units being redesignated. If a unitholder holds Class II Units, the Class II Units may be redesignated as Class III Units of the same Index Fund having a net asset value equal to the net asset value of the units being redesignated, at the option of the manager, after the manager gives 30 days notice to the unitholder. This may occur, for example, where the holdings of Class II Units of unitholder fall below the minimum investment requirement to hold Class II Units. Alternatively, the Class II Units may be redesignated as new Class I Units if the unitholder and the unitholder's financial adviser so agree and advise the manager. If a unitholder holds new Class I Units, those units may, at the request of the unitholder and with the consent of the unitholder's financial advisor, be redesignated as Class III Units of the same Index Fund having a net asset value equal to the net asset value of the units being redesignated. If a unitholder holds new Class I Units, those units may, at the request of the unitholder, be redesignated as Class II Units of the same Fund having a net asset value equal to the net asset value of the units being redesignated, provided that the unitholder meets the minimum investment requirement to hold Class II Units.

21. On any redesignation of units, the unitholder will not be entitled to proceeds of disposition for the units and the redesignated units will not be cancelled or redeemed.

22. In the case of the Funds, other than the Index Funds, prior to the redesignation of Class X Units as Class Y Units or Class Z Units, a unitholder must pay any deferred sales charges owing in respect of the Class X Units purchased on a deferred sales charge basis. In addition, prior to the redesignation of Class X Units or Class Y Units as Class Z Units, a unitholder may have to agree to pay an initial sales charge with respect to the Class Z Units. Prior to a redesignation of Class Y Units or Class Z Units as Class X Units, the unitholder must agree to pay an initial sales charge or a deferred sales charge with respect to the Class X Units. In the case of the Index Funds, prior to the redesignation of Class III Units as Class II Units or new Class I Units, or the redesignation of new Class I Units as Class III Units or Class II Units, the unitholder must pay any deferred sales charges owing in respect of Class III Units or the new Class I Units purchased on a deferred sales charge basis. Prior to the redesignation of units of an Index Fund as new Class I Units or Class III Units, the unitholder must agree to pay either an initial sales charge or a deferred sales charge with respect to the new Class I or Class III Units into which the unitholder is being redesignated. Where a unitholder agrees to pay an initial sales charge on the redesignation of units from one class to another class of units of the same Fund, the amount of such charge is negotiable with, and payable to, the unitholder's financial advisor. Also, on any redesignation of units of a class of a Fund into units of another class of the same Fund, the unitholder may have to pay a change fee which is negotiable with, and payable to, the unitholder's financial advisor.

PURPOSE OF PROPOSED TRANSACTIONS

23. Currently, each Fund is effectively charged the same management fee with respect to all units (except with respect to management fee distributions). Also, each Fund effectively divides other administrative and operating expenses equally among all units. The ability to issue units in classes will provide the Funds with greater flexibility to meet the needs of a broader range of investors. In particular, the multi-class structure will provide greater ability to charge differing management fees depending on the nature of the investor. This should benefit all investors in the Funds in a number of ways. The investor and his or her financial advisor will be able to select the fee structure most appropriate for their situation. Attracting new investors to the Funds will increase the asset base of the Funds which, in turn, should generally increase investment flexibility and diversification and may lower some fixed costs on a per unit basis. Having multiple classes of units will allow the other operating expenses to be allocated more equitably between different types of investors. The classes will have different fee structures and will incur certain expenses that are properly attributable on a class-by-class basis. Common expenses of a Fund will be allocated to each class based on the class net asset value relative to the aggregate net asset value of all classes of the Fund on the preceding Valuation Date. In addition to the above expense allocation method, some common expenses, such as audit, custody and brokerage fees, may also be allocated to each class based on the amount of such expenses calculated by the Fund to have been actually incurred in respect of the class or in such other manner as the trustee considers appropriate and equitable. Expenses attributable specifically to a given class of units will be allocated to that class directly.

RULINGS GIVEN

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

A. The creation of each Master Declaration for the purposes described in 10 above will not, in and by itself, result in the resettlement of the Funds, a disposition of the property of the Funds or a disposition of the issued and outstanding units, or any part of the units, of the Funds for the purposes of the Act.

B. A redesignation of units of a class of a Fund pursuant to the redesignation feature into an equivalent value of units of another class of the same Fund as described in 19 to 22 above will not result in a disposition of those units, or any part of those units, for the purposes of the Act.

C. The implementation of the proposed transactions described herein will not, in and by themselves, cause subsection 104(7.1) to apply so as to deny the Funds a deduction in computing their income under paragraph 104(6)(b).

D. Subsection 245(2) will not apply to redetermine the tax consequences of the above rulings as a result of the implementation of the proposed transactions described herein.

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 Canada Customs and Revenue Agency (CCRA) provided that the proposed transactions are completed 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 if enacted into law, could have an effect on the rulings provided herein.

The above rulings should not be construed as providing the CCRA's views on whether a Fund qualifies as a mutual fund trust or a unit trust for purposes of the Act.

Yours truly,

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

XXXXXXXXXX

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