1999 Ruling 9924563 - SINGLE-CLASS TO MULTI CLASS MUTUAL FUND TRUST

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: Conversion of single class to multi-class units by renaming or reclassification & the addition of two new classes of units-

Issue 1-Does the reclassification from one type to another dictate a disposition of old units for new?

Issue 2-Does the addition of new series of funds create a disposition?

Position:

Issue 1-As the trust indenture are first being amended to permit the addition of classes & to permit reclassification upon the investor meeting certain criteria & the inherent bundle of rights of the unitholder is not being changed--No Disposition by existing unitholders & no disposition on conversion.

Issue 2- No disposition on addition of units

Reasons:

Issue 1- no change in inherent bundle of rights
Issue 2-change not so significant to cause a disposition

XXXXXXXXXX
XXXXXXXXXX 992456

Attention: XXXXXXXXXX

XXXXXXXXXX, 1999

Dear Sirs:

Re: Advance Income Tax Ruling
XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX requesting an advance income tax ruling on behalf of the above noted taxpayers. We also acknowledge your correspondence of XXXXXXXXXX.

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

i) is in an earlier return of the taxpayers or a related person,

ii) is being considered by an office of Revenue Canada in connection with a previously filed tax return of the taxpayers or a related person,

iii) is under objection by the taxpayers or a related person,

iv) is before the courts, or

v) is the subject of a ruling previously issued by the Directorate to the taxpayers or a related person.

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

"X Funds" means collectively the following funds:

XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

"Y Fund" means XXXXXXXXXX

"Z Funds" means collectively the following funds:

XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

"Existing Funds" means collectively the X Funds, the Y Fund and the Z Funds

"New Funds" means collectively:

XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

A list of the above funds and their tax account numbers is attached in Appendix A. The Existing Funds, the New Funds and ACO deal with the XXXXXXXXXX Tax Services Office. ACO files its return at the XXXXXXXXXX and the Funds file or will file their returns at the XXXXXXXXXX Tax Centre.

Our understanding of the relevant facts, proposed transactions and purposes thereof are as follows:

FACTS AND PROPOSED TRANSACTIONS

Facts

1. ACO is a mutual fund management company engaged in the management and distribution of the Existing Funds. ACO is also in the process of launching the New Funds. The Existing Funds and the New Funds are collectively referred to herein as the "Funds".

2. Each of the Existing Funds is a "mutual fund trust" within the meaning of subsection 132(6). Each of the New Funds expects to so qualify.

3. ACO is the trustee, promoter and manager of each of the Funds.

4. The sole undertaking of each of the Funds is to invest its assets for the benefit of its investors in accordance with its investment objectives.

5. Currently, investors purchasing units of the X Funds or the Y Fund must pay a commission at the time of purchase (the "Sales Charge Option"). Units of Z Funds may be purchased by investors either on the basis of the Sales Charge Option or through the payment of a sales commission at the time of the redemption of the units (the "Deferred Sales Charge Option"). The commissions referred to herein are paid to the investment dealer, broker, mutual fund specialist or financial institution which sells the Funds (the "Dealers").

6. Currently, each Fund has a single class of units of equal net asset value which entitle unitholders to participate pro rata, in accordance with their holdings of whole and fractional units, in distributions declared by each Fund and in the net distributable assets of the Fund on liquidation.

7. The trust deed governing each Existing Fund (the "Deed") allows ACO to amend the Deed.

Proposed Transactions

X Funds

8. The terms and conditions of the existing units of the X Funds, which will be renamed "XXXXXXXXXX" units, will not change in any material respect.

9. ACO proposes to amend the terms of the Deeds governing the X Funds to establish two new classes of units, to be named "XXXXXXXXXX" units and "XXXXXXXXXX" units.

10. The XXXXXXXXXX units will be identical to the XXXXXXXXXX units of the X Funds, except that the XXXXXXXXXX units may be purchased by investors only on a Deferred Sales Charge Option. It is anticipated that XXXXXXXXXX units will be issued in XXXXXXXXXX.

11. The XXXXXXXXXX units will be identical to the XXXXXXXXXX units of the X Funds except that

XXXXXXXXXX.

12. The amendments to the Deeds governing the X Funds will also provide that XXXXXXXXXX units of an X Fund may be converted into XXXXXXXXXX units of that Fund at the option of the investor after expiry of the time period during which the Deferred Sales Charge is payable for such XXXXXXXXXX units.

XXXXXXXXXX.

Z Funds

13. The terms and conditions of the existing units of the Z Funds, which will be renamed the "XXXXXXXXXX" units, will not change in any material respect.

14. ACO also proposes to amend the terms of the Deeds governing the Z Funds to create one new class of units, to be named "XXXXXXXXXX" units.

15. The XXXXXXXXXX units will be identical to the XXXXXXXXXX units of the Z Funds except that

XXXXXXXXXX.

16. The amendment to the Deeds governing the Z Funds will also provide that XXXXXXXXXX units of a Z Fund XXXXXXXXXX, will be convertible into XXXXXXXXXX units of that Fund, XXXXXXXXXX.

General

17. The management fees and expenses currently charged to the Funds in respect of units existing prior to the proposed transactions (namely, XXXXXXXXXX units of the X Funds and XXXXXXXXXX units of the Z Funds) will not increase as a result of the implementation of the proposed transactions.

XXXXXXXXXX.

18. The Deeds for each of the Funds will also be amended to provide for the creation of additional classes of units in the future, as determined by ACO and for such classes to bear different percentage management fees and expenses and conversion features. The Deeds currently allow Funds to charge particular investors lower management fees and to effectively "rebate" to such investors the management fee reduction through additional distributions. ACO proposes to continue to use this mechanism to effect management fee reductions amongst unitholders of a single class.

19. The existing units of the Funds will not be redeemed or cancelled as a result of the proposed transactions, nor will they be redeemed or cancelled as a result of the exercise of a conversion right as described above. Unitholders will not be entitled to proceeds of disposition upon any renaming or conversion of their units. The only change to the attributes of the units will be the management fees and expenses charged with respect to the particular classes. The rights, privileges and conditions attached to the various classes of units, the method of calculating the net asset value and the distributions payable in respect of each class of units, the nature of investments underlying such units and the investment objectives and portfolios of each Fund will not be affected by any renaming or conversion of the units.

20. XXXXXXXXXX.

New Funds

21. The New Funds will provide for various classes when created, which will contain conversion rights which are similar to those contemplated herein for the X and Z Funds.

Purpose of Proposed Transactions

The purpose of the proposed transactions is to enable ACO to offer separate classes of units of a particular Fund to different investors, XXXXXXXXXX. In the opinion of ACO, establishment of a multi-class structure will allow ACO to more effectively compete with other fund managers and protect the interests of unitholders
XXXXXXXXXX.

Rulings

Provided that the above statements of facts, proposed transactions and purpose of the proposed transactions are accurate and constitute complete disclosure thereof and that the proposed transactions are carried out as set forth herein, the following rulings are given:

A. Existing unitholders of a Fund will not be considered to have disposed of their units by virtue only of the implementation of the proposed transactions.

B. Unitholders of a Fund will not be considered to have disposed of their units by virtue only of the exercise of a conversion right whereby the equivalent value of units of a particular class of a Fund are converted into the equivalent value of units of another class of that Fund.

C. The provisions of subsection 245(2) will not apply by virtue only of the implementation of the proposed transactions.

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 the Department provided the proposed transactions are completed on or before XXXXXXXXXX. These rulings are based on the Act in its present form and do not take into account the effects of any proposed amendments thereto.

The above rulings should not be construed as providing the Department's views on whether the Funds will qualify as mutual fund trusts.

Yours truly,

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

XXXXXXXXXX
XXXXXXXXXX

XXXXXXXXXX