7 July 1997 Income Tax Severed Letter 9636743 - Mutual fund partnership ruling

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.

SUMMARY: Mutual fund partnership ruling—ITA-96(2.1), 20(1)(c), 20(1)(e), 96(2.2), 53(1)—Advance income tax ruling—Tax treatment of brokers' selling commissions on mutual fund sales where the commissions are paid by a limited partnership in 1997. Effects of proposed s. 18.1 on the arrangement.

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) On what basis would brokers' selling commissions (on mutual fund sales) to be paid in 1997 by a limited partnership be deductible by the partnership, in view of proposed 18.1.

(2) Would proposed section 18.1 apply to the arrangement.

POSITION:

(1) Amortized and deductible over three years, provided funds the sale of whose units is arranged by the partnership is a "mutual fund trust" as defined under 132(6).

(2) No.

REASONS:

(1) Established policy of the Department.

(2) Ruling request received prior to November 18, 1996 and arrangement structured so as to qualify for grandfathering to the extent of $30 million of selling commissions incurred before August 1997.

XXXXXXXXXX 963674 XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1997

Dear Sirs:

Re: Advance Income Tax Rulings XXXXXXXXXX

We are writing in reply to your facsimile transmission dated XXXXXXXXXX requesting an advance income tax ruling on behalf of XXXXXXXXXX. We also acknowledge receipt of your correspondence dated XXXXXXXXXX as well as our various telephone conversations concerning this matter.

You have also provided copies of the Partnership Agreement, Distribution Agreement, Administrative Services Agreement, Investment Management Agreement and Agency Agreement, each as defined below.

You advise that, to the best of the knowledge of XXXXXXXXXX, the General Partner and the Partnership, none of the issues described herein is being considered by a Tax Services Office or a Taxation Centre in connection with any tax return already filed or the subject of any notice of objection or is under appeal.

Unless otherwise stated, all references to statute are to the Income Tax Act R.S.C. 1985 (5th Supp.), c.1 as amended to the date of this letter (the "Act").

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

FACTS AND PROPOSED TRANSACTIONS

1. XXXXXXXXXX is a taxable Canadian corporation, as defined in subsection 89(1) of the Act. It is the company resulting from the amalgamation on XXXXXXXXXX. Its head office is in XXXXXXXXXX, within the jurisdiction of the XXXXXXXXXX Tax Services Office. Its corporate account number is XXXXXXXXXX. XXXXXXXXXX, either directly or through its predecessor companies, has been actively engaged in structuring a mutual fund business since XXXXXXXXXX. 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.

2. The XXXXXXXXXX (defined below) was launched as of XXXXXXXXXX with the creation of XXXXXXXXXX funds and was increased by the addition of XXXXXXXXXX new funds created as of XXXXXXXXXX. The following is a list of the XXXXXXXXXX funds currently being promoted by XXXXXXXXXX:

XXXXXXXXXX

3. XXXXXXXXXX has filed a simplified prospectus dated XXXXXXXXXX, in respect of the Funds in all Canadian jurisdictions (the "XXXXXXXXXX Simplified Prospectus").

4. Each of the Funds is an open-end mutual fund established under the laws of XXXXXXXXXX.

5. Each of the Existing Funds is a unit trust within the meaning of paragraph 108(2)(a) of the Act and is a mutual fund trust within the meaning of subsection 132(6) of the Act.

6. Each of the New Funds is expected to be a "mutual fund trust" within the meaning assigned to that term under subsection 132(6) of the Act.

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

8. The Partnership was formed under laws of XXXXXXXXXX by registration under XXXXXXXXXX of a declaration of partnership on XXXXXXXXXX, pursuant to a limited partnership agreement, with XXXXXXXXXX (the General Partner) as the general partner and XXXXXXXXXX as the initial limited partner.

9. The initial limited partner has purchased one unit of the Partnership for a consideration of $XXXXXXXXXX as its capital contribution to the Partnership. Upon acceptance by the General Partner of the subscription for a Partnership Unit described in paragraph 22 below, such unit of the Partnership issued to the initial limited partner shall be redeemed and its capital contribution shall be returned.

10. The Partnership was formed for the purpose of arranging for the distribution, through registered dealers, of "XXXXXXXXXX Units", as the term is defined in paragraph 11 below.

11. An investor has XXXXXXXXXX options for making a purchase of units of the Funds ("unit(s) or Fund unit(s))" XXXXXXXXXX. These options are described as follows:

XXXXXXXXXX

12. 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

XXXXXXXXXX

13. The redemption charge payable in respect of XXXXXXXXXX Units of each of the Funds is expressed as a percentage of the purchase price per Fund unit, 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 XXXX% Deferred the XX% Volume Sales the Date of Purchase Sales Charge Option Charge Option

XXXXXXXXXX

14. XXXXXXXXXX

15. XXXXXXXXXX

16. 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.

17. Pursuant to the declaration of trust, as amended, 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 Fund units, 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.

18. 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 Fund 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.

19. XXXXXXXXXX provides investment advice and recommendations for

XXXXXXXXXX

XXXXXXXXXX

20. For the management and administrative services provided to the Funds, XXXXXXXXXX is entitled to receive from each Fund a management fee that is calculated and accrued daily. Such management fee which is to be paid monthly is 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.

21. Generally speaking, the "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.

PROPOSED TRANSACTIONS

22. Units of the Partnership ("Partnership Units") will be offered to the public (the "Offering") pursuant to the terms of a prospectus (the "Prospectus"). A subscriber for Partnership Units will become a limited partner of the Partnership for the purposes of XXXXXXXXXX (a "Limited Partner") upon (i) the acceptance of his subscription for a minimum of XXXXXXXXXX Partnership Units and the acceptance of other subscribers' subscriptions aggregating to a minimum of XXXXXXXXXX Partnership Units, (ii) the execution of the partnership agreement (the "Partnership Agreement") and (iii) the listing of the subscriber on the register of partners of the Partnership (the "Register"). A minimum of XXXXXXXXXX Partnership Units and a maximum of XXXXXXXXXX Partnership Units will be issued and outstanding upon completion of the Offering for proceeds of $XXXXXXXXXX, respectively.

The offering price of the Partnership Units will be $XXXXXXXXXX per Partnership Unit, with a minimum subscription of $XXXXXXXXXX. Subscriptions in excess of the minimum subscription must be in multiples of XXXXXXXXXX.

Immediately after a closing of this Offering, commencing with the initial closing (the "Initial Closing"), if any, each Limited Partner's interest will represent the same proportion of the total interest of all Limited Partners in the Partnership at that time as the number of Partnership Units held by such Limited Partner is of the total number of Partnership Units outstanding after the final closing of the Offering.

23. The Partnership, XXXXXXXXXX will enter into an agency agreement (the "Agency Agreement"). Pursuant to the agency agreement, XXXXXXXXXX and such other brokers or investment dealers as may be selected, (collectively, the "Agent"), will form and manage a selling group consisting of registered dealers and brokers to offer the Partnership Units for sale on a best efforts basis, as and when issued by the Partnership, in accordance with the Agency Agreement. The Agent will receive a fee of $XXXXXXXXXX representing XXXXXXXXXX% of each Partnership Unit purchased.

The Offering will take place during a period commencing after the filing by the Partnership of the final Prospectus and after the date of this ruling letter, and ending at the close of business on XXXXXXXXXX or such later date as may be agreed upon by the General Partner and the Agent, but in any event not later than XXXXXXXXXX (the "Offering Period"). The Initial Closing under the Offering will take place on or about XXXXXXXXXX, but in any event no later than XXXXXXXXXX (or, if the General Partner and the Agent so agree, on or before XXXXXXXXXX). All subsequent closings ("Subsequent Closings"), if any, will be completed by XXXXXXXXXX (or, if the General Partner and the Agent so agree, on or before XXXXXXXXXX).

It is expected that certificates evidencing the purchase of Partnership Units will be made available after payment of the final instalment (as described in paragraph 24) of the purchase price of such Partnership Units. 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 Partnership Units to such dealers.

24. XXXXXXXXXX

25. XXXXXXXXXX

26. As a condition of subscription, Limited Partners may not finance any portion of the subscription price for Partnership Units with borrowings, unless such borrowings contain at least the following terms:

(a) recourse for the borrowing is not limited, either immediately or in the future, or either absolutely or contingently;

(b) bona fide arrangements, evidenced in writing, are made at the time the borrowing arises for the repayment by the Limited Partner of the principal and interest on the borrowing within a reasonable period of time, not greater than XXXXXXXXXX years. For these purposes, the borrowing may not be part of a series of loans and repayments that ends more than XXXXXXXXXX years after it begins; and

(c) interest on the borrowing is payable at least annually, and will be paid no later than XXXXXXXXXX days after the end of the Limited Partner's taxation year, at a rate equal to or greater than the lesser of (i) the prescribed interest rate for tax purposes in effect at the time the borrowing arose; and (ii) the prescribed interest rate for tax purposes applicable from time to time during the term of the borrowing.

27. Pursuant to an agreement (the "Distribution Agreement") among the Funds, XXXXXXXXXX and the Partnership, the Partnership will be granted the exclusive right to arrange for the distribution of XXXXXXXXXX Units.

28. Under the Distribution Agreement, the Partnership will arrange for the distribution of XXXXXXXXXX Units only through registered dealers and will be required to pay registered dealers the Sales Commissions, as defined in paragraph 12, on each XXXXXXXXXX Unit distributed by the Partnership. The maximum amount of Sales Commissions payable by the Partnership pursuant to the Distribution Agreement shall not exceed in the aggregate $30 million. All Sales Commissions incurred by the Partnership under the Distribution Agreement must be incurred on or before XXXXXXXXXX and only in respect of services rendered by the registered dealers on or before XXXXXXXXXX.

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.

Upon the earlier of XXXXXXXXXX or the payment of $XXXXXXXXXX in Sales Commissions (or a lesser amount as determined by the amount of funds available to the Partnership), the Partnership's distribution right will cease. At that time, XXXXXXXXXX (or other entities) will have the right to continue to arrange for the distribution of Fund units. This particular right is not a right of the Partnership but may become a right of the Partnership after all losses of the Partnership resulting from the Sales Commissions incurred by the Partnership before XXXXXXXXXX have been allocated to the Limited Partners and the General Partner.

29. The Partnership's distribution right commenced on XXXXXXXXXX and will continue to a date which is not later than XXXXXXXXXX.

30. XXXXXXXXXX Units distributed by the Partnership, any units of the Funds issued upon the automatic investment 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".

31. In return for arranging for the distribution of XXXXXXXXXX Units and paying the Sales Commissions to registered dealers, the Partnership will be 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 which is payable out of the fees payable to XXXXXXXXXX; and (ii) a redemption fee (the "Redemption Fee") 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 Redemption Fees 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 Redemption Fees and Distribution Fees will be reported by the Partnership on an accrual basis commencing with the fiscal period ending XXXXXXXXXX.

32. 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.

33. The Partnership is entitled to receive the 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, the rate of the annual Distribution Fee charged by the Partnership will be XXXXXXXXXX% and for Distributed Units which are sold under the XXXXXXXXXX, the rate of such fee will be XXXXXXXXXX%.

34. The Redemption Fee payable monthly to the Partnership will be equal to the amount of any redemption charges paid by holders of Distributed Units redeemed during each month in accordance with the rates described in paragraph 13.

35. XXXXXXXXXX

XXXXXXXXXX

36. 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 (i) the annual free redemption right referred to in paragraph 14 above; or (ii) 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) a redemption charge is payable in the event of winding-up of a Fund as described in paragraph 35 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 15 above; and

(e) 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.

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.

37. Proceeds from the sale of Partnership Units will be applied to pay the Agent's commission, expenses of the Offering (including legal fees, auditors' fees, printing and advertising costs), Sales Commissions, interest on Partnership debt, Partnership debt and other operating expenses of the Partnership incurred in respect of such payments. Any proceeds not immediately required for the foregoing will be invested for the Partnership by XXXXXXXXXX as investment adviser.

38. The net proceeds to be received by the Partnership under the subscription procedure described above in paragraph 24, based upon the sale of a minimum of $XXXXXXXXXX of Partnership Units and a maximum of $XXXXXXXXXX of Partnership Units to be issued pursuant to the Offering, will be $XXXXXXXXXX, respectively, after payment of the Agent's commission of ($XXXXXXXXXX per Partnership Unit) $XXXXXXXXXX, respectively, and offering expenses estimated to be $XXXXXXXXXX. The maximum amount of the Offering has been determined based upon an estimate by XXXXXXXXXX of the amount required to pay Sales Commissions of up to $XXXXXXXXXX on sales of XXXXXXXXXX Units up to and including XXXXXXXXXX.

39. XXXXXXXXXX

40. Pursuant to an 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 Partnership 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 Partnership Units, any investment management fees or the cost of any third party providing any such services.

41. The business of the Partnership will be carried on with a view to profit. The General Partner, however, anticipates that certain expenses expected to be incurred by the Partnership during its fiscal period 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 Partnership Units, including the Agents' commissions, will exceed the fee and investment income of the Partnership for that fiscal period. In addition, for each of the fiscal periods ending XXXXXXXXXX, the General Partner expects that the amortization of Sales Commissions and other expenses incurred in the fiscal period ending XXXXXXXXXX, together with expenses incurred in the current fiscal period, will likely exceed the fee and investment income of the Partnership for the current fiscal period.

42. In fiscal periods 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.

43. Pursuant to the Partnership Agreement, the net income of the Partnership, as computed for tax purposes, for each fiscal period will be allocated as follows:

(a) XXXXXXXXXX% to the General Partner; and

(b) to each Limited Partner listed on the Register of the Partnership on the last day of such fiscal period, a portion of the balance of such net income equal to the amount obtained by multiplying the amount of the balance of such income by a fraction, the numerator of which is the number of Partnership Units listed on 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.

44. Under the Partnership Agreement, losses of the Partnership for each fiscal period will be allocated as follows:

(a) XXXXXXXXXX% thereof to the General Partner; and

(b) the balance of such losses 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.

45. Commencing XXXXXXXXXX (or earlier if the distribution right is terminated before XXXXXXXXXX) and ending XXXXXXXXXX, the Partnership will distribute, quarterly, 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 a calendar quarter his or her pro rata portion of XXXXXXXXXX% of the amount ("Distributable Cash") 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 exceeds 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 remaining XXXXXXXXXX% of the Distributable Cash shall be for the account of the General Partner. The General Partner has the authority to change the frequency of distributions from quarterly to no less frequently than annually. If made annually, the Partnership will distribute, within XXXXXXXXXX days of the end of each fiscal period of the Partnership to each Limited Partner who, at the end of that year, is listed on the Register, his or her pro rata share of the Distributable Cash for the year. Pursuant to the Partnership Agreement, the Partnership may, in addition, make a distribution at any other time. Distributions may be deferred without interest until all borrowings of the Partnership have been repaid.

46. Subject to the provisions outlined in the immediately following paragraph, any proceeds of the Offering remaining in the Partnership on the date the distribution right is terminated and not required to pay the amounts referred to in paragraph 37 will be distributed to the Limited Partners listed on the Register within XXXXXXXXXX days thereof.

The return of proceeds of the Offering remaining on the date the distribution right is terminated will be made solely to the Limited Partners listed on the Register on such termination date pro rata according to the number of Partnership Units held at that time.

47. 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, by means of an extraordinary resolution, require such dissolution; or

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

48. 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 Partnership Units.

49. 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.

50. 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 Partnership Units held by them, the amount in cash or kind of the capital contributions paid in respect of each Partnership 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% thereof to the General Partner and as to XXXXXXXXXX% thereof, 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.

51. 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.

52. Partnership Units are fully transferable, subject to the payment of an administrative fee. A transferee of the Partnership 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.

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

54. Pursuant to an investment management agreement (the "Investment Management Agreement') between XXXXXXXXXX, the Partnership and the General Partner, XXXXXXXXXX will agree to act as investment manager of such assets of the Partnership as are not immediately required for the payment of Sales Commissions, other operating expenses or repayment of amounts borrowed to make such payments. Such assets will be invested by XXXXXXXXXX in short-term investments,

XXXXXXXXXX

55. 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.

56. In accordance with generally accepted accounting principles, and for financial reporting purposes, Sales Commissions will be accounted for by the Partnership under the cost deferral method whereby such costs incurred during any period commencing on or after the date of issuance of this ruling letter will be deductible as to one-third in the fiscal period of the Partnership in which the Sales Commissions are incurred by the Partnership and one-third in each of the next two consecutive fiscal periods of the Partnership.

57. The Partnership will be a tax shelter within the meaning assigned by subsection 237.1(1 ) of the Act. The General Partner has obtained an identification number, number XXXXXXXXXX, in respect of the Partnership pursuant to subsection 237.1(2) of the Act. 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

58. XXXXXXXXXX

OTHER INFORMATION

59. The beneficial owner of Partnership Units may cause such Partnership 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 Partnership Units may request his nominee to take all necessary steps to cause the Register to be amended to record the beneficial owner of Partnership Units as the registered owner of such Partnership Units.

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

RULINGS GIVEN

Provided that the above statements of facts, proposed transactions and purpose of the proposed transactions are accurate and constitute complete disclosure of all of the relevant facts and proposed transactions, and that the proposed transactions are carried out as set forth herein and the Partnership is a partnership at law, the following rulings are given:

A. (i) Provided that each of the New Funds as described in paragraph 2 above is a mutual fund trust within the meaning of subsection 132(6) of the Act, the Sales Commissions described in paragraph 28 above, incurred by the Partnership on or after the date of this advance income tax ruling and during the distribution period described in paragraph 29, with respect to the XXXXXXXXXX Units of the New Funds for which it arranges distribution, will be amortized and deductible over three fiscal periods by the Partnership in computing its income or loss under the Act, in the following manner:

- 33 1/3% for the fiscal period in which the Sales Commissions are incurred; and

- 33 1/3% for each of the subsequent two fiscal periods after the fiscal period in which the Sales Commissions are incurred.

(ii) The Sales Commissions described in paragraph 28 above, incurred by the Partnership on or after the date of the advance income tax ruling and during the distribution period described in paragraph 29 above, with respect to XXXXXXXXXX Units of the Existing Funds for which it arranges distribution will be amortized and deductible over three fiscal periods by the Partnership in computing its income or loss under the Act, in the following manner:

- 33 1/3% for the fiscal period in which the Sales Commissions are incurred; and

- 33 1/3% for each of the subsequent two fiscal periods after the fiscal period in which the Sales Commissions are incurred.

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) pursuant to a legal obligation to pay interest in the year on money borrowed (as described in paragraph 39) 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 paragraph 37), pursuant to subparagraph 20(l)(c)(i) of the Act.

C. Reasonable Agents' commissions and the offering expenses (referred to above in paragraph 23 and paragraph 37, respectively) incurred in XXXXXXXXXX by the Partnership in the course of issuing or selling its Partnership Units pursuant to the Prospectus (as described above in paragraph 22) will, to the extent of the lesser of:

(a) that proportion of 20% of such Agents' commissions and offering expenses that the number of days in the year is of 365, and

(b) the amount, if any, by which such 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 or loss 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 Partnership Units 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 43, 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 44, 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 period of the Partnership:

(a) by reason of the Partnership's entitlement to the Distribution Fees and XXXXXXXXXX payable under the Distribution Agreement (as described above in paragraph 31), or

(b) by reason of the Partnership Agreement providing for the distribution of capital by the Partnership to Limited Partners in certain cases as described above in paragraphs 45 to 47.

F. Where only a portion of the number of Partnership Units 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 Partnership Units held by that Limited Partner would be proportionately allocated between the Partnership Units retained by that Limited Partner and the Partnership Units disposed of.

G. For the purpose of determining the adjusted cost base of a Partnership 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 Partnership 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 Partnership 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 Partnership 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 Partnership 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.

The above rulings are given subject to the general limitations and qualifications set forth in Information Circular 70-6R3 issued by Revenue Canada on December 30, 1996 and are binding on Revenue Canada, provided that the last closing of the Offering (as defined above in paragraph 22) is made 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.

Furthermore, these rulings are also based on our understanding that the final documents and agreements with respect to these facts and proposals will be in accordance with the facts and proposals set out above. A material difference between the final wording of one of these documents and the facts and proposals as set out above will affect the rulings given.

OPINIONS

I. If the provisions of draft section 18.1 are enacted as proposed in the Notice and Ways Means Motion tabled on November 18, 1996 by the Secretary of State (Finance) and the Department of Finance Press Release 96-099 dated December 19, 1996, it is our opinion that:

(a) the Sales Commissions otherwise deductible by the Partnership in accordance with Ruling A above will, notwithstanding proposed section 18.1 of the Act, continue to be amortized and deductible by the Partnership in computing its income or loss for its fiscal period as set out in Ruling A above, provided that such Sales Commissions (as well as any incurred after 1996 and prior to the date of this advance ruling) do not exceed $30,000,000. Should the Sales Commissions exceed $30,000,000, they will be deductible by the Partnership only as and to the extent provided in proposed subsection 18.1(4);

(b) except as provided in (a) above, no transitional relief from the application of proposed section 18.1 will be available with respect to an expenditure incurred after November 17, 1996 in respect of the distribution of shares of a mutual fund corporation or units of a mutual fund trust administered by XXXXXXXXXX or any person related thereto.

II. Notwithstanding the rulings given in this letter, if the provisions of proposed section 143.2 are enacted as proposed in Bill C-69 in the form which received first reading by the House of Commons on December 2, 1996, it is our opinion that

(a) the amount of any "expenditures" made by the Partnership, including, but not limited to, Sales Commissions and the issuance expenditures referred to in ruling A above, will be reduced by the total of

(i) the "limited-recourse amounts" of

(A) the Partnership, and

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

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

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

(iii) 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 that can reasonably be considered to relate to the particular expenditures;

(b) if any Limited Partner has limited-recourse amounts that can reasonably be considered to relate to the acquisition of his Partnership Units:

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

(ii) the expenditures made by the Partnership will also be considered to relate to those limited-recourse amounts and will be reduced by the total of such limited-recourse amounts;

(c) any indebtedness of the Partnership referred to above in paragraph 39 will, pursuant to subsection 143.2(8) of the Act but subject to proposed subsection 143.2(11), 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, for purposes of the Act including proposed section 18.1, to the extent of the amount of the repayment.

(d) proposed subsection 143.2(6) of the Act will not be applied to reduce the amount of a Limited Partner's expenditure to acquire Partnership Units by reason of:

(i) the Partnership Agreement providing for the distribution of capital by the Partnership to Limited Partners in cases such as described above in paragraphs 45 to 47, or

(ii) the Partnership's entitlement to the Distribution Fees and XXXXXXXXXX payable under the Distribution Agreement (as described above in paragraph 31).

The terms "expenditure", "limited-recourse amount" and "at-risk adjustment" as used above have the meanings assigned thereto by proposed section 143.2 of the Act.

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.

Yours truly,

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