30 November 1995 Ruling 9630983 - MUTUAL FUND LIMITED PARTNERSHIP

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:

1. Public mutual fund limited partnership formed to fund selling commissions. Basically the same deal as file #960027, dated XXXXXXXXXX, 1996. In file #962168, dated XXXXXXXXXX, 1996, the prospectus was being amended to raise additional capital to fund selling commissions. The present ruling is in respect of another amendment to the prospectus to raise additional capital to fund selling expenses. Also clarified who reports interest earned on escrowed funds (see file #963755 for revisions to the Subsequent Ruling on this same point).

Position:

1. Rulings and opinions given as in file #962168.

Reasons:

1. Consistent with prior rulings for same taxpayer.

XXXXXXXXXX 963098

Attention: XXXXXXXXXX

XXXXXXXXXX, 1996

Dear Sirs:

Re: XXXXXXXXXX
Advance Income Tax Rulings

This is in reply to your letter dated XXXXXXXXXX, wherein you requested advance income tax rulings on behalf of the above mentioned taxpayers in connection with the proposed transactions described below.

The facts and proposed transactions described herein are the same as those stated in our letter to you dated XXXXXXXXXX, 1996, as amended XXXXXXXXXX, 1996 (our file numbers 960027 and 961003, respectively, and together referred to herein as the "Original Ruling") and as amended in our letter to you dated XXXXXXXXXX, 1996, as amended XXXXXXXXXX, 1996 (our file numbers 962168, 962711 and 963755, respectively, and together referred to herein as the "Subsequent Ruling"), except as detailed herein.

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

FACTS AND PROPOSED TRANSACTIONS

XXXXXXXXXX is a taxable Canadian corporation, as defined in subsection 89(1) of the Income Tax Act (Canada) (the "Act"). XXXXXXXXXX Its head office is in XXXXXXXXXX, within the jurisdiction of the XXXXXXXXXX Tax Services Office. Its corporate account number is XXXXXXXXXX, has been actively engaged in structuring a mutual fund business since XXXXXXXXXX is the promoter of certain funds (described below in paragraph 2) and is the manager and trustee thereof. XXXXXXXXXX provides professional, investment management, administrative and advisory services to these funds.

The funds currently being promoted by XXXXXXXXXX are as follows:

XXXXXXXXXX

XXXXXXXXXX has filed a final simplified prospectus dated XXXXXXXXXX, in respect of the Funds in all Canadian jurisdictions.

XXXXXXXXXX

Each of the Funds is established as a unit trust within the meaning of paragraph 108(2)(a) of the Act and it is anticipated that each of the Funds will be a mutual fund trust within the meaning of subsection 132(6) of the Act.

XXXXXXXXXX (the "General Partner") was incorporated on XXXXXXXXXX. The General Partner is a taxable Canadian corporation, as defined in subsection 89(1) of the Act, all of the shares of which are owned by XXXXXXXXXX. Its head office is in XXXXXXXXXX, within the jurisdiction of the XXXXXXXXXX Tax Services Office. Its corporate account number is XXXXXXXXXX. Its business activity consists of acting as general partner of the Partnership.

The Partnership was formed under laws of XXXXXXXXXX by registration under XXXXXXXXXX of a declaration of partnership on XXXXXXXXXX.

The Partnership was formed for the purpose of arranging for the distribution, through registered dealers, of XXXXXXXXXX Units, as defined in paragraph 9 below. On XXXXXXXXXX, the Partnership raised capital of $XXXXXXXXXX by issuing units of the Partnership ("Units") to the public, pursuant to the terms of the Prospectus, described in paragraph 20 of the Original Ruling. On XXXXXXXXXX, the Partnership raised additional capital of $XXXXXXXXXX, by issuing additional Units to the public, pursuant to the terms of the Previously Amended Prospectus, described below in paragraph 20.

A purchaser of units of a Fund has XXXXXXXXXX options for making a purchase of units of certain of the Funds. These options are:

XXXXXXXXXX.

There are two types of compensation available to dealers as a result of the sale of units of the Funds, namely, a sales commission and a service fee.

XXXXXXXXXX.

The redemption charge payable in respect of XXXXXXXXXX Units of each of the Funds is expressed as a percentage of the purchase price per unit of the Fund, which percentage declines over time from the date of issue as set out in the following table:

Redemption Charge Redemption Charge
as a Percentage of as a Percentage of
If Redeemed During the Purchase Price for Purchase Price for
Following Period After the XX% Deferred the XX% VolumeSales
the Date of Purchase Sales Charge Option Charge Option

XXXXXXXXXX

XXXXXXXXXX

XXXXXXXXXX

Fund units issued upon the automatic reinvestment of distributions in respect of XXXXXXXXXX Units will be XXXXXXXXXX Units and will be deemed to have been issued on the date of issue of the XXXXXXXXXX Units on which such distributions were made.

Pursuant to the declaration of trust for the Funds, XXXXXXXXXX has been appointed manager of each Fund. The responsibilities of XXXXXXXXXX include brokerage arrangements relating to the purchase and sale of portfolio securities of the Funds, dealer arrangements for the distribution of units of the Funds, undertaking or arranging for the undertaking of investment analysis and investment decisions in respect of the purchase and sale of portfolio investments of the Funds and the provision of office services and facilities.

XXXXXXXXXX responsibilities as manager may be terminated with respect to a Fund either (i) at the request of XXXXXXXXXX on XXXXXXXXXX days' notice or (ii) with the consent of XXXXXXXXXX and the approval of the unit holders of such Fund, such approval to be expressed by the affirmative vote of a majority of the votes cast at a meeting duly called for that purpose. Any change of manager requires the prior approval of Canadian securities authorities.

XXXXXXXXXX provides investment advice and recommendations for

XXXXXXXXXX.

For the management and administrative services provided to the Funds, XXXXXXXXXX is entitled to receive from each Fund a management fee calculated and accrued daily and paid monthly expressed as a percentage of such Fund's net assets at the following annualized rates:

Fund Annual Management Fee

XXXXXXXXXX

Management fees are based on the average daily Net Asset Value of units of the Funds.

Generally speaking, the net asset value ("Net Asset Value") of a Fund is the value of all assets of that Fund less its liabilities. The Net Asset Value per unit of a Fund is calculated on each day upon which The XXXXXXXXXX Stock Exchange is open for trading and is determined by dividing the Net Asset Value by the total number of units of that Fund outstanding at that time. The Net Asset Value per unit will be the basis for all sales of units of a Fund as well as for the automatic reinvestment of distributions and for redemptions.

The Prospectus referred to in paragraph 20 of the Original Ruling has been amended by amendments dated XXXXXXXXXX, to among other matters, increase the maximum offering amount from $XXXXXXXXXX (with a corresponding increase in the maximum number of Units from XXXXXXXXXX) and to include an escrow arrangement, described below in paragraph 22 (collectively, the "Previously Amended Prospectus"). The Prospectus was amended a third time on XXXXXXXXXX, increasing the maximum offering amount from $XXXXXXXXXX (with a corresponding increase in the maximum number of Units from XXXXXXXXXX) and to include an escrow arrangement, described below in paragraph 22 (collectively, the "Currently Amended Prospectus").

PROPOSED TRANSACTIONS

Units ("Third Offering Units") will be offered to the public pursuant to the terms of the Currently Amended Prospectus. A subscriber for a Third Offering Unit will become a limited partner of the Partnership (along with those which are already Limited Partners, as contemplated in paragraph 20 of the Subsequent Ruling) for the purposes of XXXXXXXXXX (a "Limited Partner") upon the Release Date (as hereinafter defined in paragraph 22) and the listing of the subscriber on the record of partners of the Partnership (the "Register"). Immediately after this offering, each Limited Partner's interest will equal the proportion of the total interest of all Limited Partners in the Partnership at that time that the number of units held by such person is of the total number of units of the Partnership outstanding after this offering.

Pursuant to an agency agreement (the "Agency Agreement") among the Partnership, the General Partner, XXXXXXXXXX and such other brokers or investment dealers to be selected (the "Agents"), the Agents will form and manage a selling group consisting of registered dealers and brokers to offer the Third Offering Units for sale on a best efforts basis, if, as and when issued by the Partnership, in accordance with the Agency Agreement. The closing of the Third Offering Units (the "Third Offering") will, conditional upon obtaining the rulings and opinions below in paragraphs 59 and 60, take place after the date of this letter and not later than XXXXXXXXXX (the "Third Closing Date"). The offering price of the Third Offering Units will be $XXXXXXXXXX per unit, with a minimum subscription of $XXXXXXXXXX Subscriptions in excess of the minimum subscription must be in multiples of XXXXXXXXXX. The Agents will receive a fee of $XXXXXXXXXX for each Third Offering Unit purchased. The proceeds from the sale of the maximum of XXXXXXXXXX currently unissued Third Offering Units will be held in escrow by XXXXXXXXXX until the date (the "Release Date") which is the earlier of: (a) the date upon which XXXXXXXXXX receives written notice from the General Partner that all of the escrowed proceeds are immediately required by the Partnership to pay sales commissions on XXXXXXXXXX Units, other operating expenses, expenses incurred in relation to the Third Offering, the Agent's commission or to repay amounts borrowed (and related expenses) (collectively, the "Use of Proceeds"); and (b) XXXXXXXXXX. If, prior to XXXXXXXXXX receives notice ("Prior to XXXXXXXXXX Notice") specifying that all of the escrowed proceeds are immediately required by the Partnership in connection with the Use of Proceeds, all escrowed proceeds will be released to the Partnership (together with interest earned thereon). If XXXXXXXXXX does not receive Prior to XXXXXXXXXX Notice, then on XXXXXXXXXX, the General Partner shall notify XXXXXXXXXX as to the amount of escrowed proceeds immediately required by the Partnership in connection with the Use of Proceeds as at XXXXXXXXXX (the "XXXXXXXXXX Notice Amount") and:

(i)an amount of the escrowed proceeds equal to the XXXXXXXXXX Notice Amount will be released to the Partnership (together with interest earned thereon), and

(ii)any amount of the escrowed proceeds not immediately required in connection with the Use of Proceeds, will be returned from escrow to subscribers of Third Offering Units (together with interest earned thereon) on a pro rata basis.

The Partnership, and the Limited Partners to the extent that they receive from escrow a portion of the escrowed proceeds, will be required to include interest income relating to the escrowed proceeds so received in calculating their respective amounts of income for tax purposes.

Third Offering Units will be issued to subscribers as of the Release Date on a pro rata basis to the extent to which escrowed proceeds (for greater certainty, exclusive of interest earned thereon) are released from escrow to the Partnership at such time. Certificates evidencing the Third Offering Units will be available for delivery effective on the Release Date. XXXXXXXXXX and the General Partner wish to encourage registered dealers which sell units of the Funds to invest in the Partnership and, as a result, the Agency Agreement provides that the Partnership will be permitted to issue Third Offering Units to such dealers.

XXXXXXXXXX

XXXXXXXXXX

XXXXXXXXXX

The Partnership will arrange for the distribution of XXXXXXXXXX Units only through registered dealers and will be required to pay registered dealers a Sales Commission on each XXXXXXXXXX Unit distributed under the Distribution Agreement. Each Fund has agreed that if XXXXXXXXXX ceases for any reason to be the manager, or if XXXXXXXXXX ceases for any reason to be the principal distributor of that Fund, any new manager or principal distributor will, as a condition of becoming manager or principal distributor, assume all of XXXXXXXXXX obligations to the Partnership.

The Partnership's distribution right will continue up to the earlier of XXXXXXXXXX, or until the Partnership is unable to pay Sales Commissions on XXXXXXXXXX Units out of cash available from the proceeds of any closings of the sale of Units, amounts borrowed by the Partnership, and fee and investment income.

XXXXXXXXXX

XXXXXXXXXX Units distributed by the Partnership, any units of the Funds issued upon the automatic reinvestment of distributions in respect of such units, or any units issued upon the exchange of XXXXXXXXXX Units are referred to in the following paragraphs as "Distributed Units".

Commencing in XXXXXXXXXX, in return for arranging for the distribution of XXXXXXXXXX Units and paying the Sales Commissions to registered dealers, the Partnership is entitled to receive under the Distribution Agreement, on a monthly basis (i) a distribution fee (the "Distribution Fee") which is based on the aggregate Net Asset Value of each outstanding Distributed Unit and is payable out of the fees payable to XXXXXXXXXX; and (ii) XXXXXXXXXX in an amount equal to any redemption charges paid by holders of Distributed Units upon the redemption of Distributed Units. XXXXXXXXXX has assigned to the Partnership and the Funds have agreed to pay all such Distribution Fees and XXXXXXXXXX directly to the Partnership as soon as practicable and, in any event, within XXXXXXXXXX days of the end of each calendar month. All amounts earned on account of the Distribution Fee and the XXXXXXXXXX will be reported by the Partnership for income tax purposes on an accrual basis, commencing in XXXXXXXXXX.

The Partnership is entitled to receive Distribution Fees in respect of outstanding Distributed Units until XXXXXXXXXX, or the date on which there are no outstanding Distributed Units, unless the Partnership is terminated earlier, at which time the right to receive such Distribution Fees terminates under the Distribution Agreement.

The Partnership is entitled to receive a Distribution Fee with respect to each outstanding Distributed Unit based on a specified annual percentage of the aggregate daily average Net Asset Value of outstanding Distributed Units. For Distributed Units which are sold pursuant to the XXXXXXXXXX% Deferred Sales Charge Option, the annual Distribution Fee charged by the Partnership will be XXXXXXXXXX% and for Distributed Units which are sold under the XXXXXXXXXX% Volume Sales Charge Option, such fee will be XXXXXXXXXX%.

The XXXXXXXXXX equals the amount of any redemption charges paid by holders of Distributed Units during each month (see paragraph 11 above for the schedule of redemption charges).

XXXXXXXXXX

For purposes of calculating the redemption charges payable by holders of XXXXXXXXXX Units, the following rules apply:

(a) no redemption charge is payable if XXXXXXXXXX Units are redeemed in accordance with (a) the annual free redemption right referred to in paragraph 12 above; or (b) National Policy No. 39 of the Canadian Securities Administrator due to failure of an investor to make timely payment for securities of a Fund;

(b) no redemption charge is payable in the event of winding-up of a Fund as described in paragraph 33 above;

(c) XXXXXXXXXX Units issued first (based on the date of issue), will be considered to have been redeemed first;

(d) no redemption charge is payable for Fund units issued on the transfer of XXXXXXXXXX Units from one Fund to another Fund as described under the exchange privilege in paragraph 13 above; and

(e) no redemption charge is payable for Fund units issued on the automatic reinvestment of distributions upon XXXXXXXXXX Units as described in paragraph 14 above.

Accordingly, Fund units issued on the exchange of Distributed Units or on the reinvestment of distributions on Distributed Units will be treated as Distributed Units in accordance with the foregoing rules.

As described above in paragraph 22, net proceeds from the sale of Third Offering Units will be applied to pay the Sales Commissions incurred on the sale of XXXXXXXXXX Units, and other operating expenses of the Partnership and to repay amounts borrowed (and related expenses) to make such payments.

The net proceeds to be received by the Partnership under the subscription procedure described above in paragraph 23, based upon the sale of a maximum of XXXXXXXXXX Third Offering Units, will be $XXXXXXXXXX after payment of the Agents' commission of $XXXXXXXXXX per Third Offering Unit. The maximum amount of the Third Offering has been determined based upon an estimate by XXXXXXXXXX of the amount required to pay Sales Commissions on sales of XXXXXXXXXX Units during XXXXXXXXXX.

XXXXXXXXXX

Pursuant to the agreement between the Partnership, the General Partner and XXXXXXXXXX, (the "Administrative Services Agreement") XXXXXXXXXX will provide administrative services to the Partnership, including arranging for registrar and transfer agency services with respect to the Third Offering Units. XXXXXXXXXX will be reimbursed by the General Partner on behalf of the Partnership for all expenses incurred by XXXXXXXXXX on behalf of the Partnership, including professional fees and general office and administrative expenses which are fairly allocable to the services rendered by it on behalf of the Partnership. XXXXXXXXXX will receive a fee equal to XXXXXXXXXX% of the on-going expenses of the Partnership other than the following expenses: interest or any other expenses related to borrowings by the Partnership, the Sales Commissions payable by the Partnership, the costs of any offerings of Third Offering Units, any investment management fees or the cost of any third party providing any such services.

The General Partner and XXXXXXXXXX will carry on the business of the Partnership with a view to profit. The General Partner, however, anticipates that certain expenses expected to be incurred by the Partnership during its fiscal year ending XXXXXXXXXX, principally consisting of the sales commissions paid to registered dealers on XXXXXXXXXX Units, other operating expenses, interest on amounts borrowed to pay sales commissions, and the expenses of issuing units of the Partnership, including the agency commissions, will exceed the fee and investment income of the Partnership for that fiscal year. In addition, for each of the particular fiscal years ending XXXXXXXXXX, the General Partner expects that the amortization of sales commissions and other expenses incurred in the fiscal year ending XXXXXXXXXX, together with expenses incurred in the particular fiscal year, will likely exceed the fee and investment income of the Partnership for the particular fiscal year.

In fiscal years of the Partnership ending after XXXXXXXXXX, until the year in which the Partnership is dissolved, the General Partner expects that the income of the Partnership (fee and investment income) will exceed its operating expenses and the portion, if any, of issue expenses including agency commissions.

Net income of the Partnership for each fiscal period will be allocated as follows:

XXXXXXXXXX% to the General Partner; and

to each Limited Partner listed on the Register of the Partnership on the last day of such fiscal year, a portion of XXXXXXXXXX% of the net income for tax purposes of the Partnership for such fiscal year equal to the amount obtained by multiplying such percentage of the income by a fraction, the numerator of which is the number of Partnership units listed in the Register as being held by such Limited Partner on that last day and the denominator of which is the aggregate number of Partnership units listed in the Register as being held by all the Limited Partners on that last day.

Losses of the Partnership for each fiscal period shall be allocated as to XXXXXXXXXX% to the General Partner and XXXXXXXXXX% among the Limited Partners whose names appear on the Register at the end of the fiscal period in proportion to the number of Partnership Units held by each of them at that time.

Commencing XXXXXXXXXX (or earlier if the distribution right is terminated before XXXXXXXXXX) the Partnership will distribute as soon as practicable and, in any event, within XXXXXXXXXX days of the end of each calendar quarter, to each Limited Partner listed on the Register on the last day of each calendar quarter his or her pro rata portion of Distributable Cash as defined hereafter. After XXXXXXXXXX, the foregoing quarterly distributions may be made annually on the first business day of each calendar year commencing XXXXXXXXXX, to Limited Partners on the Register at the end of the previous fiscal year of the Partnership. Distributions may be deferred without interest until all borrowings of the Partnership have been repaid. "Distributable Cash" means the amount by which the aggregate of all revenues earned by the Partnership in respect of a calendar quarter and the amount of any reserves retained at the end of the previous calendar quarter exceed the expenses of the Partnership for the current calendar quarter, any reserves established by the General Partner at the end of the current calendar quarter and amounts used to repay outstanding borrowings in the current calendar quarter.

The Limited Partners and the General Partner are entitled to XXXXXXXXXX%, respectively, of any distributions. Subject to the provisions outlined above in this paragraph, the Partnership has the power to make other distributions at any time.

The Partnership will continue, subject to earlier termination on the occurrence of certain events, until XXXXXXXXXX, at which time it will be dissolved. The Partnership will be dissolved earlier upon the first to occur of the following events:

(a) the date on which there are no outstanding Distributed Units;

(b) the removal or deemed removal of the General Partner pursuant to the terms of the Partnership Agreement, unless the General Partner is replaced in accordance with the Partnership Agreement;

(c) if the Limited Partners require such action by means of an extraordinary resolution; or

(d) upon the termination of all of the Funds.

The Partnership shall not come to an end by reason of the death, bankruptcy, insolvency, mental incompetency or other disability of any Limited Partner or upon the transfer of any units of the Partnership.

The Partnership will not dissolve until: (a) the net assets of the Partnership have been distributed; (b) a declaration of dissolution has been filed with the appropriate authority; and (c) the applicable formalities prescribed by the laws of the other jurisdictions where the Partnership may be registered have been satisfied.

Upon the dissolution of the Partnership, the General Partner (or in the event that dissolution is caused by the dissolution or bankruptcy of the General Partner, such other person as may be appointed by ordinary resolution of the Limited Partners) will act as a receiver and liquidator of the assets of the Partnership and will:

(a) sell or otherwise dispose of such part of the Partnership's assets as the receiver shall consider appropriate;

(b) pay or provide for the payment of the debts and liabilities of the Partnership and liquidation expenses;

(c) if there are any assets of the Partnership remaining, distribute to the Limited Partners of record on the date of dissolution, proportionate to the number of units held by them, the amount in cash or kind of the capital contributions paid in respect of each unit held, less any amount of capital previously distributed to Limited Partners pursuant to Partnership Agreement;

(d) distribute the remaining assets of the Partnership, if any, as to XXXXXXXXXX% to the General Partner and as to XXXXXXXXXX%, among the Limited Partners of record on the date of dissolution, in the same proportions as distributions paid or payable to them; and

(e) file the declaration of dissolution prescribed by XXXXXXXXXX and satisfy all applicable formalities in such circumstances as may be prescribed by the laws of other jurisdictions where the Partnership is registered. In addition, the General Partner will give prior notice of any dissolution of the Partnership by publishing such notice in newspapers which the General Partner deems appropriate and by mailing to each Limited Partner and to the Registrar and Transfer Agent such notice 21 days prior to such proposed dissolution.

In the event of the termination of a Fund, the Partnership will receive any applicable XXXXXXXXXX on the redemption of the outstanding Distributed Units of that Fund. If all of the Funds are terminated, the General Partner will thereafter take all necessary steps to wind up the Partnership and distribute the assets of the Partnership to the Limited Partners. Third Offering Units are fully transferable, subject to the payment of an administrative fee. A transferee of the Third Offering Unit will become a Limited Partner and will be subject to the obligations and entitled to the rights of a Limited Partner under the Partnership Agreement on the date on which the General Partner records the transfer on the Register.

The fiscal year-end for income tax and financial reporting purposes of the Partnership is XXXXXXXXXX.

The beneficial owner of Third Offering Units may cause such Third Offering Units to be registered in the name of a nominee, which would usually be the investment dealer or broker (or its nominee) of the beneficial owner. A beneficial owner of Third Offering Units may request his nominee to take all necessary steps to cause the Register to be amended to record the beneficial holder of Third Offering Units as the registered owner of such Third Offering Units.

Where Third Offering Units beneficially owned by a person are registered in the name of a nominee, references in the Rulings to Limited Partners are to be read as references to the beneficial owner of such Third Offering Units and not the nominee.

Pursuant to an investment management agreement (the "Investment Management Agreement') between XXXXXXXXXX, the Partnership and the General Partner, XXXXXXXXXX has agreed to act as investment manager of such assets of the Partnership which are not immediately required for the payment of Sales Commissions, other operating expenses or repayment of amounts borrowed to make such payments. Such assets (which for greater certainty do not include funds held in escrow, as described above in paragraph 22) will be invested by XXXXXXXXXX in short-term investments, XXXXXXXXXX

The Investment Management Agreement will be for a term ending on XXXXXXXXXX. The Investment Management Agreement will also terminate in the event of the resignation or insolvency of XXXXXXXXXX and may terminate in the event of the failure of XXXXXXXXXX to perform its obligations under the Investment Management Agreement. Any change of investment manager (other than to an affiliate of XXXXXXXXXX) or material change of the Investment Management Agreement will require the prior approval of the Limited Partners by an "Ordinary Resolution" as defined in the Partnership Agreement.

XXXXXXXXXX

The Partnership will be a tax shelter within the meaning assigned by subsection 237.1(1 ) of the Act. The General Partner has obtained the following identification number in respect of the Partnership pursuant to subsection 237.1(2) of the Act: XXXXXXXXXX The General Partner will file annual tax shelter information returns and provide copies to the persons listed on the Register pursuant to subsection 237.1(7) of the Act.

PURPOSE OF THE PROPOSED TRANSACTIONS

XXXXXXXXXX.

OTHER INFORMATION

To the best of your knowledge and that of the taxpayers involved, none of the issues involved in this ruling are being considered by a Tax Services Office or a Taxation Centre in connection with a tax return already filed, and none of the issues are under appeal or objection.

RULINGS

Provided the above statements of fact and proposed transactions are accurate and constitute complete disclosure of all of the relevant facts and proposed transactions, and assuming the proposed transactions are carried out as described above and the Partnership is a partnership at law, we confirm the following:

A.Sales Commissions paid or payable by the Partnership to registered dealers for the distribution of XXXXXXXXXX Units sold on or after the date of this letter and ending on XXXXXXXXXX, will be amortized and deductible by the Partnership in computing its income or loss for tax purposes as to 33-1/3% for each of the fiscal periods ending XXXXXXXXXX.

B.The Partnership will be entitled to deduct in computing its income or loss for tax purposes for its XXXXXXXXXX taxation year, interest of a reasonable amount paid or payable in XXXXXXXXXX (depending on the method to be regularly followed by the Partnership) on money borrowed to fund the payment of the Partnership's Sales Commissions, Agents' commissions, offering expenses and other reasonable amounts attributable to operating expenses of the Partnership (as described above in paragraphs 22 and 37), pursuant to subparagraph 20(l)(c)(i) of the Act, provided the interest is paid or payable pursuant to a legal obligation to pay.

C.Reasonable Agents' commissions and the offering expenses, (referred to above in paragraph 36) incurred in XXXXXXXXXX by the Partnership in the course of issuing or selling its Third Offering Units pursuant to the Currently Amended Prospectus (as described above in paragraph 21) will, to the extent of the lesser of:

(a)that proportion of 20% of the expenses that the number of days in the year is of 365, and

(b)the amount, if any, by which the expenses exceeds the aggregate of all amounts each of which is an amount deductible by the Partnership in respect of these expenses in computing its income for a preceding taxation year,

be deductible in computing the income or loss of the Partnership pursuant to and in accordance with paragraph 20(l)(e) of the Act.

D.Each Limited Partner who owns units of the Partnership at the end of a fiscal period of the Partnership will (i) be required to include the amount of net income of the Partnership for a fiscal period of the Partnership allocated to the Limited Partner in accordance with the Partnership Agreement, as described above in paragraph 41, and (ii) subject to the provisions of subsections 96(2.1) and 237.1(6) of the Act, be entitled to deduct the amount of the losses of the Partnership for that fiscal period which are allocated to the Limited Partner in accordance with the terms of the Partnership Agreement, as described above in paragraph 42, in computing the Limited Partner's income or loss for tax purposes for the taxation year in which that fiscal period ends.

E.The provisions of paragraph 96(2.2)(d) of the Act will not be applied to reduce a limited partner's "at-risk" amount in respect of the Partnership at the end of any fiscal year thereof

(a)by reason of the Partnership's entitlement to the Distribution Fees and XXXXXXXXXX payable under the Distribution Agreement (as described above in paragraph 29), or

(b)by reason of the Partnership Agreement providing for the distribution of capital by the Partnership to Limited Partners in certain cases such as described above in paragraph 44.

F.Where only a portion of the number of units in the Partnership acquired by a Limited Partner is disposed of, for the purposes of subsection 100(2) of the Act, the adjusted cost base in respect of all the units held by that Limited Partner would be proportionately allocated between the units retained by that Limited Partner and the units disposed of.

G.For the purpose of determining the adjusted cost base of a Unit owned by a Limited Partner at any time, any income or loss of the Partnership allocated to the Limited Partner (other than a share of income or loss under an agreement referred to under subsection 96(1.1) or such portion of a loss that may reasonably be considered to have been included in the Limited Partner's limited partnership loss in respect of the partnership for the Limited Partner's taxation year in which that fiscal period ended) for each fiscal period ending before that time would increase or reduce the adjusted cost base of the Unit at that time, pursuant to subparagraphs 53(1)(e)(i) and 53(2)(c)(i) of the Act, respectively.

H.For greater certainty, for the purposes of subsection 40(3.1) of the Act, the adjusted cost base of a Limited Partner's Third Offering Units must be calculated in a manner consistent with Ruling G., above.

I.For the purpose of determining the adjusted cost base, at any time, of a Third Offering Unit owned by a Limited Partner, the amount in respect of each fiscal period of the Partnership ending before that time that is a limited partnership loss in respect of the Partnership, and that was deducted in computing the Limited Partner's taxable income for any taxation year that commenced before that time, would reduce the adjusted cost base of the Unit at that time, pursuant to subparagraph 53(2)(c)(i.1) of the Act.

J.As a result of the proposed transactions, in and by themselves, subsection 245(2) of the Act will not be applied to redetermine the tax consequences in the Rulings given.

These Rulings are given subject to the general limitations and qualifications set forth in Information Circular 70-6R2 issued by Revenue Canada, Taxation on September 28, 1990 (as amended by Special Release dated September 30, 1992) and are binding provided the Third Closing Date (as defined above in paragraph 22) is not later than XXXXXXXXXX. These Rulings are based on the Act in its present form and do not take into account the effect of any proposed amendments.

Except as expressly stated, our Rulings do not imply acceptance, approval or confirmation of any income tax implications of the facts or proposed transactions. In particular, nothing in this letter should be interpreted as confirming, either expressly or implicitly: (a) the reasonableness of any of the expenses of the Partnership; and (b) the existence of a reasonable expectation of profit of the Partnership or any partner of the Partnership.

OPINIONS

Notwithstanding the Rulings given in this letter, if the provisions of draft section 143.2 of the Act are enacted as proposed in the Notice of Ways and Means Motion tabled on June 20, 1996, by the Minister of Finance, it is our opinion that

The amount of any expenditures made by the Partnership, including, but not limited to, Sales Commissions and the issuance expenditures referred to in Rulings A and C above, would be reduced by the total of

the "limited-recourse amounts" of

the Partnership, and

all taxpayers not dealing at arm's length with the Partnership

that can reasonably be considered to relate to the particular expenditures,

the Partnership's "at-risk adjustment" in respect of the particular expenditures, and

the limited-recourse amounts and at-risk adjustments of each taxpayer who deals at arm's length with and holds an interest in the Partnership, directly or indirectly, that can reasonably be considered to relate to the particular expenditures.

For greater certainty, if any Limited Partner has limited-recourse amounts that can reasonably be considered to relate to the acquisition of his Third Offering Units:

draft subsection 143.2(6) of the Act (not subparagraph 53(2)(c)(i.3)) would apply to reduce that Limited Partner's cost of the Third Offering Units, and

the expenditures made by the Partnership would also be considered to relate to those limited-recourse amounts and would be reduced by the total of such limited-recourse amounts.

Indebtedness of the Partnership, referred to above in paragraph 37, will, pursuant to subsection 143.2(8), be considered to be a limited-recourse amount so as to reduce the amount of any expenditure of the Partnership that would otherwise be deductible in computing its income. If a repayment of such borrowing is not part of a series of loans or other indebtedness and repayments by the Partnership, the repayment at any time by the Partnership of such indebtedness will, pursuant to subsection 143.2(10) of the Act, result in the said expenditure being deemed to have been made or incurred at that time to the extent of the amount of the repayment.

Subsection 143.2(6) of the Act will not be applied to reduce the amount of a Limited Partner's expenditure to acquire Third Offering Units of the Partnership

by reason of the Partnership Agreement providing for the distribution of capital by the Partnership to Limited Partners in certain cases such as described above in paragraph 43, or

by reason of the Partnership's entitlement to the Distribution Fees and XXXXXXXXXX payable under the Distribution Agreement (as described above in paragraph 29).

The opinions expressed above are provided in accordance with paragraph 22 of Information Circular 70-6R2. Such opinions do not constitute advance income tax rulings and are not binding on the Department.

As stated in paragraph 6 of Information Circular 70-6R2, binding rulings are not provided for transactions that are not seriously contemplated and are hypothetical in nature. Accordingly, no rulings have been provided in respect of transactions relating to a possible subsequent offering(s) that may occur, as described above in paragraphs 26 and 27, nor with respect to the right to distribute other funds, not listed above in paragraph 2.

Yours truly,

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