Foreign Asset Income Funds and LPs

Overview

DRI Healthcare Trust, which will be a mutual fund trust trading on the TSX, will establish a wholly-owned Irish subsidiary to acquire a portfolios of pharmaceutical royalties, either directly or through purchasing the LP units and general partner of Delaware partnerships holding such royalties. It expects to make cash distributions that are significantly lower than its income (which will be mostly in the form of FAPI) and will distribute the resulting “dry income” through making additional unit issuances, which will then be promptly consolidated to get back to the initial number of units. Given the offshore situs of its assets, it will not be subject to SIFT tax.

The Treaty between Ireland and the U.S. (where most of the royalties may be sourced) is expected to reduce the U.S. withholding tax rate on such royalties to nil. The PFIC rules will apply.

DRI Healthcare Trust (the Trust)

A newly-formed unit trust that, following the closing of the offering, will be a mutual fund trust for purposes of the Tax Act.

Concurrent offerings

Completion of a concurrent private placement is conditional upon the completion of this offering and this offering is conditional upon the completion of the concurrent private placement. The combined gross proceeds from this offering and the concurrent private placement will be approximately $400 million.

Seed Assets

Approximately $292.7 million of the net proceeds of this offering and the concurrent private placement will be used to indirectly acquire a portfolio of 18 royalties derived from the sales of 14 different pharmaceutical products focused on eight therapeutic areas (the “Seed Assets”).

Structure for holding Seed Assets

A wholly-owned Irish subsidiary of the trust (DRI Healthcare) will hold the Seed Assets through the following structure:

• 100% of a Delaware LP (Drug Royalty LP 2)
• 100% of a second Delaware LP (Drug Royalty III, L.P.)
• Directly-held royalty interest (the RMF 2 Portfolio)

Growth plans

The objective is to acquire between $650 million to $750 million of pharmaceutical royalty interests over the next five years, through the remaining net proceeds of this offering, internally generated cash flow and debt financing through additional asset securitizations.

Distribution policy

Cash distributions are anticipated to equal approximately 20% to 30% of available cash generated on an annual basis (i.e., cash generated from operating activities, less interest paid, debt repayment obligations on securitization indebtedness and debt issuance costs). Such distributions are anticipated to be sufficient to cover Canadian-resident taxable unitholders’ Canadian income tax liabilities. Given that it is expected that the cash annually distributed will be less than the Trust’s net income for Tax Act purposes, the Trust will make distributions in the form of additional units to the unitholders, which may be immediately consolidated.

Proposed TSX trading symbols

Canadian dollars – “DHT.UN”
U.S. dollars – “DHT.U

Unit terms

Units may be redeemed for a redemption price equal to the lesser of 90% of the “market price” (generally reflecting a trailing 10-day weighted average closing price, on the principal exchange) and their closing market price on such exchange, payable in cash, except that if a monthly cap of $50,000 is exceeded, the redemption price may be paid in notes of the Trust or a subsidiary.

Canadian tax consequences

SIFT Tax

The Trust’s investment restrictions prohibit it or any of its subsidiaries from investing in any entity other than a “portfolio investment entity” or holding any “non-portfolio property”, so that the SIFT Rules should not apply.

FAPI

Dividends paid to the Trust by DRI Healthcare will be included in computing the income of the Trust. To the extent that DRI Healthcare, or an indirect “controlled foreign affiliate” (“Indirect CFA”) of the Trust, earns income that is characterized as “foreign accrual property income” (“FAPI”) in a particular taxation year of DRI Healthcare or the Indirect CFA, the FAPI allocable to the Trust under the rules in the Tax Act must be included in computing the income of the Trust for the fiscal period of the Trust in which the taxation year of DRI Healthcare or the Indirect CFA ends. The amount of any FAPI included in computing the income of the Trust, net of the amount of any deduction in respect of “foreign accrual tax”, will increase the adjusted cost base to the Trust of its shares of DRI Healthcare. At such time as the Trust receives dividends from DRI Healthcare, such dividends will effectively not be included in computing the income of the Trust to the extent that they do not exceed the net amounts that were previously included in the Trust’s income as FAPI, and there will be a corresponding reduction in the adjusted cost base to the Trust of its DRI Healthcare shares.

Distribution of dry income through unit issuances

Where income of the Trust in a taxation year, including net FAPI income inclusions, exceeds the total cash distributions for that year, such excess income may be distributed to unitholders in the form of additional units. Income of the Trust payable to unitholders, whether in cash, additional units or otherwise, will generally be deductible by the Trust in computing its taxable income.

U.S. tax consequences

PFIC rules

The Trust’s income, which consists primarily of passive royalty income and interest income, and the Trust’s assets, which consists primarily of assets that produce passive royalty income and interest income, are expected to result in the Trust being treated as a PFIC.

Treaty withholding

DRI Healthcare is expected to be eligible for benefits under the United States Tax Convention with Ireland and will generally not be subject to any U.S. withholding taxes on such U.S.-source payments.

Overview

The existing unitholders of the Starlight Funds Nos. 1 to 4 will transfer their units into a new fund (the Starlight No. 5 fund) under Alberta Plans of Arrangement, with eligible Canadian residents able to do so on a s. 97(2) rollover basis. (Combining the multiple funds is attended with significant complexity.) The new Fund will have a multiple unit structure similar to that of the old funds and hold its indirect US apartment buildings under a similar structure. Ontario LPs beneath it will have elected to be corporations for U.S. tax purposes, and the underlying properties (or, to be more precise, the US LLCs holding each property) generally will be held by Maryland corporations which are intended to qualify as US private REITs. Recognition of FAPI is targeted to be avoided through reliance on the more-than-five full time employee exception and the s. 95(2)(a)(i) rule. The Fund is anticipated to have a lifetime of three years, subject to extension. The Fund will enter into FX derivatives, having a term of three years, so that the return of one of the Classes of units will be generated in Canadian dollars (e.g., if the U.S. dollar weakens over the three-year term, this will not adversely affect the return on those units).

Fund

A "closed-end" Ontario limited partnership, sponsored and asset managed by the Manager. The Fund will indirectly own the Existing Portfolio, being a property portfolio comprising an aggregate of 5,882 multi-family residential apartment suites in 20 properties located in the States of Florida, Georgia, North Carolina and Texas, which properties it will have acquired through its acquisition of the Existing Starlight Funds and Campar. The Fund LP Agreement provides for the management and control of the Fund by a general partner, which is an Alberta corporation. The directors of the General Partner, upon closing of the Offering, will be Daniel Drimmer, Graham Rosenberg and Harry Rosenbaum.

Manager

Starlight Investments Ltd. The Manager is owned by Daniel Drimmer. The Manager and President of the Fund as holders of the Class B partnership units of SIP, are entitled to a 25% carry.

Initial structure

The Fund will initially own all of the issued and outstanding units of the Existing Starlight Funds, all of the issued and outstanding Investment LP5 Units, all of the shares of Campar and the Class A partnership interests in SIP. The Existing Starlight Funds will own all of the issued and outstanding units of the Investment LPs, other than Investment LP5. The Investment LPs will initially own all of the issued and outstanding limited partnership interests of the Holding LPs, except in the case of Holding LP5, of which all of the issued and outstanding limited partnership interests are owned by Investment LP5 and Campar. The Holding LPs will initially own all of the issued and outstanding U.S. REITs Common Stock and U.S. REITs ROC Shares and may also own U.S. REITs Notes. Holding LP5 will, following the Reorganization, own all of the issued and outstanding Series C U.S. REIT 5 Preferred Stock. The Property known as Travesia Apartments is indirectly owned by the Fund through Fund2 and Travesia ULC.

Existing Starlight Funds

Collectively, Fund1, Fund2, Fund3 and Fund4 (namely, Starlight U.S. Multi-Family Core Fund; Starlight U.S. Multi-Family (No. 2) Core Fund; Starlight U.S. Multi-Family (No. 3) Core Fund; and Starlight U.S. Multi-Family (No. 4) Core Fund; respectively). The combined appraised value of the Existing Starlight Funds' portfolio is in aggregate US$882,400,000.

Fund1, Fund2 and Fund3

The Manager, as promoter, closed its first, second and third offerings on April 18, 2013, November 15, 2013 and July 9, 2014 through Fund1, Fund2 and Fund3, respectively and raised approximately US$47.2 million, US$32.7 million and US$49.6 million, respectively. These funds were substantially deployed in a portfolio of recently constructed, stabilized, Class "A", multi-family assets in Texas within five months of the closing of each offering.

Fund4

The Manager, as promoter, closed its fourth offering on April 10, 2015 through Fund4 and raised approximately US$51.4 million. These funds were substantially deployed to acquire four recently constructed, stabilized, Class "A", multi-family assets in Orlando and Tampa, Florida.

Fund2

The structure of Fund2 is different from the organizational structure of the other Existing Starlight Funds in that Travesia Apartments, a Property included as part of the Existing Portfolio, is indirectly owned by Fund2 through Travesia ULC, which is the sole limited partner of Starlight Investments Acquisition (No. 2) Partnership, a limited partnership formed pursuant to and governed by the laws of Ontario, and not through any of the Investment LPs, Holding LPs and U.S. REITs. Starlight Investments Acquisition (No. 2) Partnership's ownership interest in Travesia Apartments is indirectly held through its interest in Travesia Multi-Family Holding Limited Partnership, a Delaware LP, which in turn owns Travesia Acquisition Limited Partnership, also a Delaware LP, being the entity that owns Travesia Apartments.

The Investment LPs

The Investment LPs are Ontario LPs which will make an election to be classified as a corporation for Code purposes effective on the date of formation. The general partner of each Investment LP is an Ontario corporation. All of the issued and outstanding shares of the Investment GP5 are owned by the Fund and all of the issued and outstanding shares of the other Investment GPs are owned by the Existing Starlight Funds.

Campar

Campar Capital Corporation, a "capital pool company" which as its "qualifying transaction" (as per Exchange Policy 2.4) acquired an indirect 80% interest in Boardwalk Med Center, which is held by Boardwalk Acquisition LLC, a Delaware LLC, which prior to the Reorganization, was indirectly owned as to 80% by Campar and 20% by an entity formerly known as Boardwalk Acquisition Partnership, an entity owned principally by senior management of the Manager.

Holding LPs

The Holding LPs are Delaware LPs whose general partners are also Delaware LPs, whose general partner is Holding GP is ULC GP, an Alberta unlimited liability corporation. All of the issued and outstanding limited partnership units of the Holding GPs and all of the outstanding shares of ULC GP are owned by SIP.

SIP

Starlight Investments Partnership, an Ontario partnership all of whose outstanding units of SIP are owned directly or indirectly by the Fund, SIP GPco, the Manager and the President of the Fund. SIP indirectly owns all of the Carried Interests and directly owns the Travesia Carried Interest.

U.S. REITs

Starlight U.S. Multi-Family Core REIT Inc., Starlight U.S. Multi-Family (No. 2) Core REIT Inc., Starlight U.S. Multi-Family (No. 3) Core REIT Inc., Starlight U.S. Multi-Family (No. 4) Core REIT Inc. and U.S. REIT5. To assist each of the U.S. REITs in qualifying as a REIT under the Code, each U.S. REIT has issued shares of 12.5% Series A Cumulative Non-Voting Preferred Shares. Similarly, U.S. REIT5 expects to issue up to 125 shares of Series A U.S. REIT Preferred Stock at US$1,000 per share, with a liquidation preference of US$1,000 per share, or up to US$125,000 in the aggregate.

U.S. REITs ROC Shares

Shares in the capital of the U.S. REITs which are designated within such capital as Series B Cumulative Voting Preferred Shares; it is expected that, in addition to the Series A U.S. REIT5 Preferred Stock, U.S. REIT5 will issue 5% Series B Cumulative Voting Preferred Stock. Each share is entitled to a liquidation preference of US$1,000 per share, dividends accrue thereon on a daily basis at the rate of 5% per annum, it is voting on the basis that all votes in the aggregate for all outstanding U.S. REIT ROC Shares for the applicable U.S. REIT shall represent 10% of the total voting power of all classes of stock of the applicable U.S. REIT that are entitled to vote, and it is subject to redemption by the applicable U.S. REIT.

Offering proceeds by Unit classes

The forecast assumes that the Fund will raise gross proceeds of $49,658K pursuant to the Offering through the issuance of the Canadian dollar equivalent of $17,877K of Class A Units at C$10.00 per Unit, $4,469K of Class U Units at $10.00 per Unit, the Canadian dollar equivalent of $4,966K of Class C Units at C$10.00 per Unit and the Canadian dollar equivalent of $8,938K of Class D Units and the Canadian dollar equivalent of $5,810K of Class F and the Canadian dollar equivalent of $1,788K of Class H Units and $5,810K of Class E Units at $10.00 per Unit.

Application of offering proceeds

Investment LP5 will invest the proceeds from the issuance of Investment LP5 Units to the Fund to acquire Holding LP5 Units. Holding LP5 will invest the proceeds from such issuance to acquire U.S. REIT5 Common Stock and U.S. REIT5 ROC Shares. Holding LP5 may also acquire U.S. REIT5 Notes. U.S. REIT5 will use the proceeds from the issuance of U.S. REIT5 Common Stock, U.S. REIT5 ROC Shares and U.S. REIT5 Notes (if any) to directly or indirectly acquire, from time to time, one or more additional Properties. The New Portfolio will be acquired indirectly by the Fund through its investment in Investment LP5 with the Investable Funds flowing down to U.S. REIT5. The fair value of the net assets thereby indirectly acquired by the Fund is $142.3M.

Reorganization

As a result of the Reorganization prior to Closing of the Offering, the Fund will have issued approximately 18,230,428 Class A Units, 2,582,853 Class U Units, 6,131,333 Class D Units, 1,047,476 Class E Units, 2,121,072 Class F Units, 344,553 Class H Units and 13,162,407 Class C Units to the former security holders of the Existing Starlight Funds and Campar and the former indirect holders of the "Carried Interests" in the Existing Starlight Funds, assuming an effective exchange rate of C$1.325 to US$1.00. As a consequence of the Reorganization, the tax cost of the Properties in the Existing Portfolio to the Fund and its Subsidiaries is expected to be significantly less than their fair market value.

Distributions

The Fund will target an annual pre-tax distribution yield of 6.5% (based on the original subscription price under the Offering and calculated in the currency of the Units held) across all Unit classes and aim to realize a targeted 12% pre-tax, investor internal rate of return across all Unit classes upon disposition (directly or indirectly) of the Fund's interests in its assets at or before the end of the targeted three-year investment horizon, although each of these figures will necessarily vary as between classes of Units based on the proportionate entitlements of each class of Unit, applicable Unit Class Expenses (as defined herein) and any unhedged exposure to Canadian/U.S. dollar exchange rates. In the case of the Class H Units, the targeted annual pre-tax distribution yield of 6.5% is to be reduced by the cost of the Class H Unit Liquidation Hedge which is expected to result in a targeted annual pre-tax distribution yield of 3.5%, with any additional costs in respect of such hedge to be accounted for upon termination or liquidation of the Fund.

Class H Unit Liquidation Hedge

The Fund intends to purchase U.S. dollar put options and/or Canadian dollar call options pursuant to which it will have the option to sell U.S. dollars and to buy Canadian dollars at the end of the Fund’s targeted three year investment horizon based on a reference notional amount equal to the net proceeds received by the fund from the issuance of Class H units. This hedge is intended to provide Class H unitholders with protection against the weakening of the U.S. dollar to the target date for the termination of the Fund.

Internal distributions and withholding tax

Each Investment LP has elected, or will elect, to be classified as a corporation for U.S. federal income tax purposes. Accordingly, each Investment LP will be subject to applicable U.S. income and withholding taxes. The Investment LPs will make sufficient reserves for its applicable U.S. taxes, prior to making distributions to the applicable Existing Starlight Fund or the Fund, as the case may be. The Fund will then distribute the Distributable Cash Flow (including distributions received from the Existing Starlight Funds) to the Unitholders, based, initially, on the proportionate interest of the Net Subscription Proceeds attributable to each class of Units. Dividends paid by the “Subsidiary Canadian Corporations” (Campar and Travesia ULC) will be subject to Canadian withholding tax to the extent attributable to Unitholders who are non-residents of Canada for purposes of the Tax Act.

Potential co-investments

If the General Partner determines that it is in the best interests of the Fund (i) to make a co-investment with a Canadian real estate investment trust, such a co-investor would be expected to subscribe for Investment LPs Units, and (ii) to make a co-investment with a Canadian pension fund, such a co-investor would be expected to subscribe for or purchase U.S. REITs Common Stock, U.S. REITs ROC Shares and U.S. REITs Notes (to the extent U.S. REITs Notes may be issued to the applicable Holding LP).

FX hedging

The Manager intends to monitor the exchange rate between the Canadian dollar and U.S. dollar and may acquire derivative instruments to hedge, in whole or in part, its foreign currency risk in respect of the U.S. dollar amounts the Fund will be required to convert into Canadian dollars to pay expected distributions on the Canadian Dollar Units.

Canadian tax consequences

SIFT taxation

The Funds believe that they will not hold any "non-portfolio property" and should not be SIFT partnerships.

Canadian corporate taxation

The Fund has estimated the entity-level income tax to be payable by the Canadian subsidiary corporations (Campar and Travesia ULC) under the ITA to be $0.384M for the 12 months ended September 30, 2017, taking into account foreign taxes expected to be payable by and foreign tax credits expected to be available to such corporations. While the subsidiary Canadian corporations will generally themselves be entitled to claim foreign tax credits or foreign tax deductions in respect of such taxes, the maximum credit available to the subsidiary Canadian corporations will generally be limited to their Canadian tax otherwise payable in respect of the underlying U.S. source income.

Internal withholding tax

Each of the Fund and Fund2 will be deemed to be a non-resident person in respect of certain amounts paid or credited to it by a person resident or deemed to be resident in Canada, including dividends paid by the Subsidiary Canadian Corporations. Such dividends will be subject to withholding tax under Part XIII at the rate of 25%. However, the CRA's administrative practice in similar circumstances is to permit the rate of Canadian federal withholding tax applicable to such payments to be computed by looking through a partnership and taking into account the residency of its partners (including partners who are resident in Canada) and any reduced rates of Canadian federal withholding tax that any non-Canadian limited partners may be entitled to under an applicable income tax treaty or convention, provided that the residency status and entitlement to treaty benefits can be established. The Canadian Subsidiary Corporations intends to rely on this administrative practice.

Foreign accrual property income

FAPI does not include income from a business carried on by a CFA that is an "active business" within the meaning of the FAPI provisions. This should generally include income of a CFA where, throughout the period in the taxation year during which the business was carried on, the business is the leasing of property conducted principally with persons with whom the CFA deals at arm's length for purposes of the Tax Act and the CFA employs more than five employees full-time in the active conduct of the business (the "Employee Exception") and should also generally include income derived by a CFA from activities that can reasonably be considered to be directly related to active business activities carried on in a country other than Canada by another CFA (including a CFA that is considered to carry on an active business by virtue of the Employee Exception) to the extent that such income would, if it were earned by such other CFA, be included in computing amounts prescribed to be its earnings or loss from an active business carried on in a country other than Canada for purposes of the FAPI provisions of the Tax Act (the "Direct Relation Exception"). The Fund has represented that it intends that any CFA held by each Holding LP will either meet the Employee Exception or the Direct Relation Exception at all relevant times.

Foreign tax credits

Taxes paid or considered to have been paid by Investment L.P.'s or SIP will be allocated pursuant to their limited partnership agreements and the Fund's allocated share will be allocated to Unitholders pursuant to the Fund limited partnership agreement. Although the foreign tax credit provisions are designed to avoid double taxation, the maximum credit is limited. Because of this, and because of timing differences in recognition of expenses and income and other factors, double taxation may arise.

Consent dividends

In the Tax Certificate, the General Partner has stated that it intends to consent on behalf of the Fund, and to cause the Fund's Subsidiaries to similarly consent, where necessary to the filing of "consent dividend" U.S. tax elections under section 565 of the Code in respect of shares of any U.S. REIT, where such consent dividends are necessary for such U.S. REIT to distribute any balances of taxable income for U.S. tax purposes that have not been distributed by dividends paid with cash. In general terms, a "consent dividend" election would give rise to a dividend deemed paid by the applicable U.S. REIT for U.S. tax purposes (without a corresponding amount of cash being distributed to the Fund, through the applicable Holding LP, the applicable Investment LP and, except in the case of U.S. REIT5, the applicable Existing Starlight Fund) together with a U.S. withholding tax liability to be paid by such U.S. REIT or Holding LP on behalf of its shareholders. The CRA has stated that generally, "consent dividends" under the Code in respect of shares of U.S. corporations are not dividends required to be included in the income of the holders of such shares for purposes of the Tax Act, nor would such consent dividends result in an increase to the adjusted cost base of such shares. However, the CRA has also expressed the view that the amount of any U.S. tax remitted by a U.S. corporation on behalf of a shareholder in respect of dividends deemed paid for U.S. tax purposes by virtue of a consent dividend election would constitute a taxable benefit conferred on such shareholder, but such amount would also qualify as non-business income tax for purposes of the provisions of the Tax Act governing foreign tax credits and foreign tax deductions.

U.S. tax consequences

Funds

The Manager expects that 90% or more of the Fund's gross income will consist of qualifying income each year and that the Fund will not elect to be treated as a corporation for U.S. federal income tax purposes. Therefore, the Fund should be treated as a partnership for U.S. federal income tax purposes.

U.S. REITs

The U.S. REITs generally will not be subject to U.S. federal income tax on their taxable income to the extent such income is distributed as a dividend to its stockholders annually. The Funds intend to operate the U.S. REITs in such a manner so as to qualify as real estate investment trusts on a continuous basis in the future. The U.S. REITs own the properties indirectly through Delaware limited liability companies which have elected to be taxed as partnerships for United States Federal income tax purposes.

Investment LPs

The Investment LPs are treated as partnerships for Canadian tax purposes but will elect to be treated as corporations for Code purposes. As such, the Investment LPs are generally subject to U.S. tax in respect of their allocable share of (i) capital gains distributions made by the U.S. REITs, (ii) gain upon a sale of the shares of U.S. REITs and (iii) distributions made by the U.S.REITs in excess of both their (a) current and/or accumulated earnings and profits (as determined under U.S. tax principles) and (b) the adjusted tax basis in the U.S. REITs' shares held by the Holding LPs. The Investment LPs are also liable for U.S. withholding tax with respect to the ordinary dividends from the U.S. REITs received through the Holding LPs to the extent that the amount exceeds the current and/or accumulated earnings and profits of the U.S. REITs as determined under U.S. tax principles.

Texas franchise tax

Texas imposes an annual franchise tax on modified gross income of taxable entities known as the Texas Margin Tax, which is equal to one percent of the lesser of: (i) 33.1% of a taxable entity's total revenue; or (ii) 100% of total revenue less, at the election of the taxpayer: (a) cost of goods sold; (b) compensation; or (c) one million dollars. A taxable entity is defined to include partnerships, corporations, limited liability companies and other legal entities.

Overview. Brookfield Asset Management, which is a Canadian-resident corporation listed on the NYSE, NYSE Euronext and TSX, will distribute the (non-voting) LP units of BBP LP to its shareholders as a special dividend, with such distribution being referred to as the spin-off. Brookfield Asset Management will retain an approximate 70% economic interest in the business by virtue of holding approximately 45% of the units of BBP LP directly and by virtue of holding an approximate 45% partnership interest in Holding LP, which will be the subsidiary LP of BBP LP. Holding LP will be Brookfield's primary vehicle for business services and industrial operations, with most of those businesses held (indirectly) outside Canada. BBP LP will apply for TSX and NYSE listings.

See link to detailed summary below.

Overview

The Fund will invest in three apartment buildings, with a purchase price of U.S.$92 million, in Texas, through wholly-owned LLCs of Starlight U.S. Multi-Family Core REIT Inc. (the "U.S. REIT"), an indirectly owned Maryland corporation; and intends to make further acquisitions of apartment buildings in the southern US. It is issuing up to 6.0M units (allocated among different classes) for up to US$60M. The U.S. REIT is intended to be a REIT for Code purposes, and its income is targeted not to give rise to foreign accrual property income for Canadian purposes in reliance on the over-five full-time employee/rental business exclusion. 3.5% of the targeted returns of 12% per annum are from anticipated capital appreciation to be realized from the sale of the portfolio within three years, with the balance to come from 65% leveraging of apartments purchased at a cap rate of 6% using mortgage financing at 2.5%.

This is similar to the Fund No. 1 (summarized below) and No. 2 offerings.

The Fund

The general partner of the Fund (an Ontario LP) will be an Ontario corporation owned by Starlight Investments Ltd. (the "Manager"), an Ontario corporation, which is controlled and indirectly owned by Daniel Drimmer. The term of the Fund will be three years subject to two one-year extensions at the discretion of the general partner. Deployment of unallocated subscription proceeds is targeted within nine months.

Structure

An Ontario LP ("Investment LP") owned directly and through the GP thereof, will hold all of the LP units of a Delaware holding partnership ("Holding LP") which, in turn, will hold 100% of the common shares of the U.S. REIT and may also acquire U.S. REIT Notes. The GP of Holding LP will be a Delaware partnership directly and indirectly owned by the Manager. In order that the U.S. REIT will qualify as a REIT for Code purposes, the U.S. REIT will issue up to 125 preferred shares at U.S.$1,000 per share to accredited investors. The preferred shares are non-voting, have a redemption and liquidation amount of $1,000 per share and have a dividend yield of 12.5%. Holding LP also will be issued ROC shares (bearing a compounding dividend and redeemable for the subscription amount) by the U.S. REIT, which may also issue interest-bearing REIT Notes. The U.S. REIT's Charter provides that, subject to certain exceptions, no person may beneficially or constructively own more than 9.8% in value or in number of shares, whichever is more restrictive, of the outstanding shares of any class or series of the U.S. REIT's capital stock.

Fund Units

The Class A and U units of the Fund will be listed and will pay distributions in Canadian and US dollars, respectively. The Class D Units and Class F Units are denominated in Canadian dollars and designed for institutional investors and fee based accounts, respectively, wishing to make their investments and to receive distributions in Canadian dollars and differ from the Class A Units and Class U Units in being subject to lower fees, being unlisted and being convertible into Class A Units. The Class C Units are denominated in Canadian dollars and are designed for an affiliate of the Manager, certain other investors known to the Manager and "Lead Investors," if any, and differ from the Class A Units in not being required to pay fee, being unlisted, being convertible into Class A Units, may not be sold or converted for four months after the Closing Date and will represent a 9.99% voting interest in the Fund.

Debt

After giving effect to the further proposed property acquisitions (of approximately U.S.$64M), the overall mortgage to value ratio will be approximately 60% to 70% of the property acquisitions costs (as increased by any property improvement reserves).

Distributions

"The Fund will target an annual pre-tax distribution yield of at least 7% across all Unit classes and aim to realize a minimum 12% pre-tax, investor internal rate of return across all Unit classes upon disposition of the Properties at or before the end of the targeted three year investment horizon." Investment LP, as the holder of the LP units of Holding LP, will be entitled to receive a 7% preferred return on those units, and 75% of the excess, with the balance of 25% going to the GP of Holding LP as a carried interest. No FX hedging of the income of the Fund will occur.

Canadian tax consequences

SIFT tax. The Fund (as well as Investment LP) is not expected to hold any non-portfolio property, so that no SIFT tax is anticipated. As it will not hold any taxable Canadian property, it is not subject to non-resident ownership restrictions.

Consent dividends

Any consent dividend deemed to be received by the Fund from the U.S. REIT as a result of an election under Code s. 565 would not be income to the Fund. However, the Fund would include in its income as a shareholder benefit any U.S. tax remitted by the U.S. REIT with respect to consent dividend elections, and the amount of any such U.S. tax attributable to a particular Fund unitholder would be treated as non-business income tax from a U.S. source for foreign tax credit purposes.

FAPI

The Fund expects that any CFA will satisfy the more-than-five full-time employee test directly or under s. 95(2)(a)(i).

Income allocations

Taxable income of the Fund will be allocated to unitholders based on relative distributions.

FTCs

Any U.S. withholding tax on distributions by Holding LP to Investment LP generally will be eligible for foreign tax credits as non-business income taxes, subject to various limitations. The FTC generator proposals are not expected to apply.

Unit conversions

"Holders of Convertible Units should consult their own tax advisors regarding the consequences of converting their Convertible Units into Class A Units, including whether or not such a conversion will constitute a taxable disposition."

U.S. tax consequences

Investment LP/FIRPTA. Investment LP (but not Holding LP) will elect to be treated as a corporation. Distributions made by the U.S. REIT that are attributable to the sale or exchange of U.S. real property interests by the U.S. REIT, and distributions made by it in excess of both its earnings and profits and Holding LP's adjusted basis in U.S. REIT shares may be subject to Code s. 1445 withholding. The IRS may grant permission to reduce such withholding where it is in excess of the FIRPTA tax applicable to such capital gains dividends or other distributions received from the U.S. REIT. Holding LP will be required to withhold Code s. 1446 withholding at 35% on Investment LP's allocable share of gain from either Holding LP's disposition of U.S. REIT common stock and U.S. REIT ROC shares, or from the U.S. REIT's capital gains dividends and/or distributions made by the U.S. REIT in excess of both its earnings and profits and Holding LP's adjusted basis in U.S. REIT shares. However, Regulations provide that where a partnership is subject to both s. 1445 and 1446 withholding, it will only be subject to the payment and reporting requirements of s. 1446 with respect to partnership gain from the disposition of US real property interests. Investment LP may also be subject to branch tax - but potentially only at a reduced Treaty rate based on the Treaty residence of the Fund unitholders.

Unitholder tax

Non-U.S. unitholders generally will not be subject to tax upon a disposition of their Fund units.

U.S. REIT FDAP Distributions

Interest and dividends paid to Holding LP will be treated as paid directly to Canadian-resident unitholders of the Fund (through Investment LP and the Fund) because each of Holding LP, Investment LP and the Fund will be treated as fiscally transparent entities in their respective jurisdictions - so that such unitholders who are eligible for benefits under the Canada-U.S. Treaty likely will be treated as the beneficial owners of such "FDAP" income (i.e., for purposes of Article IV, para. 6). Accordingly, ordinary REIT dividends treated as being paid by the U.S. REIT will be subject to U.S. withholding at a rate (subject to documentary requirements) of: - generally 0% for RRSPs; 15% for individuals owning less than 10% of the stock of the U.S. REIT including TFSAs or RESPs with individual beneficiaries; and 30% for corporations provided that the U.S. REIT is not "diversified." Interest on the U.S. REIT Notes will be eligible for 0% withholding if the Fund unitholder is eligible for Treaty benefits and provides appropriate withholding tax documentation.

Interest deduction

Holding LP and the U.S. REIT intend to treat the U.S. REIT Notes as debt, so that the U.S. REIT will claim interest deductions. Discussion of s. 163(j) earnings strippings rule.

Interest withholding

"[A] payment of interest income on the U.S. REIT Notes by U.S. REIT to Holding LP will be treated as being paid directly to the Non-U.S. Unitholders because each of Holding LP, Investment LP and the Fund are treated as fiscally transparent under the laws of their respective jurisdictions of formation (and notwithstanding that Investment LP has elected to be treated as a corporation for U.S. federal income tax purposes) and, as a result, such Non-U.S. Unitholders are likely to be treated as the beneficial owners of the U.S. Notes interest income (which is U.S. source FDAP income) for purposes of the Treaty (provided that they are not themselves treated as fiscally transparent under the laws of their respective jurisdictions of formation). A Non-U.S. Unitholder that is the beneficial owner of the U.S.REIT Notes interest income should be eligible for the 0% U.S. withholding tax rate on interest income provided that such beneficial owner is eligible for benefits under the Treaty and provides the appropriate withholding tax documentation to the withholding agent."

FATCA discussion.

REIT status

The U.S. REIT intends to make and maintain an election as a real estate investment trust under the Code in its first taxation year, and management anticipates that the U.S. REIT will qualify as a REIT under the Code.

RRSPs/TFSAs

"This summary assumes RRSPs, RESPs and TFSAs are treated as either grantor trusts, or as investments of the individual annuitants or holders which are not separate entities from the individuals for U.S. federal income tax purposes."

Structure

This is structurally almost identical to the Slate U.S. Opportunity (No. 2) offering.

The Trust (an Ontario trust) will use the offering proceeds (of up to U.S.$75M) to invest in the units and interest-bearing notes (the "Investment LP Notes") of an Ontario LP ("Investment LP") which, in turn, will invest in the units of a Delaware LP ("Holdings LP"). Holdings LP will (on a blind pool basis) use the offering proceeds and mortgage financing to invest in US commercial real estate rental properties with a focus on anchored retail properties (and with each property being held in a special purpose subsidiary LP). Corporations controlled by the Toronto-based manager (Slate Properties Inc., or the "Manager") will be the general partners of Investment LP and Holdings LP with a 0.01% GP interest (but with a 20% carry over the 8% p.a. minimum return in the case of the Holdings LP general partner.)

Units and listing

The Trust will issue different classes of units (some on a private placement basis) in order to reflect different fee structures, and currency (Canadian dollars or US dollars) for the quarterly distributions and redemption amounts. The units initially will not be listed. However, the Manager intends to complete a liquidity event by June 30, 2019: a listing of the units or an exchange of the units for listed units; or a sale of the units or assets.

There is a standard 49% non-resident-ownership restriction, notwithstanding that it is not contemplated that the Trust will hold taxable Canadian property (p.57).

Redemption rights

If a retraction occurs before a listing, the unitholder receives the redemption proceeds, calculated as 95% of the NAV at the end of the quarter preceding the retraction date by the end of the month following the quarter in which the retraction occurred. If the retraction occurs after a listing, the redemption proceeds are based on the lesser of the units' closing market price on the retraction date and 95% of their 10-day VWAP following the retraction date. In either case, if monthly redemptions exceed $100,000, or if total redemptions in any 12-month period exceed 1% of the aggregate unit subscription proceeds, the redemption price shall be paid by way of an in specie distribution of property or distribution of unsecured subordinated notes of the Trust, as determined by the trustees in their sole discretion.

Distributions

To be paid quarterly.

Management fees

The Manager will be paid annual fees of 1.5% of the gross subscription proceeds (0.5% of which will be used to pay a trailer) plus a 0.75% acquisition fee on each property acquisition.

Canadian tax treatment

The summary assumes An officer has advised that the Trust expects to qualify as a mutual fund trust (and the risk factors disclosure implies that there are expected to be at least 150 unitholders acquiring whole blocks under the offering). A s. 132(6.1) election will be made by the Trust for it to be deemed to be a mutual fund trust from its settlement date to the date it actually so qualifies.

The investment restrictions of the Trust and Investment LP prohibit them from holding any non-portfolio property.

There will be pro rata designations of net taxable capital gains and foreign source income allocated to the Trust by Investment LP so that inter alia each partner's share of business income taxes and non-business-income taxes paid by Investment LP potentially will be creditable. However, no assurance can be given that the foreign tax credit generator rules will not apply.

Although the disclosure (at p. 35) addresses "maximizing disposition proceeds," the risk factors indicate (p. 114) that Canadian capital gains treatment is expected on property dispositions (so that the US tax rate on such dispositions would be higher than the Canadian rate).

U.S. tax treatment

The Trust and Investment LP will elect to be corporations under the Code. Accordingly, Investment LP (as a foreign corporation) will be subject to U.S. federal income tax at the highest applicable rate (35%) on the income it derives (through Holdings LP) from a U.S. trade or business. Income or gains of Holding LP allocable to Investment LP (including from any sale of U.S. real property owned by the special purpose LPs or a sale of such LPs) will be subject under Code s. 1446 to withholding at the 35% rate in lieu of any FIRPTA withholding requirements, with such withholding being allowed as a credit on Investment LP's U.S. federal income tax return. Investment LP also will be liable for a 5% branch profits tax (subject to the $500,000 Treaty exemption) on its after-tax earnings.

The Trust and Investment LP intend to treat the Investment LP Notes as debt allocable to Investment's LP's interest in Holding LP for Code purposes. The earnings stripping rules (Code s. 163(j)) may apply. Interest received by the Trust on the Investment LP Notes will be subject to 0% withholding by virtue of the Canada-U.S. Treaty.

Overview

The Trust will be an Ontario unit trust listed on the TSX. It will indirectly acquire interests in nine operating wind projects (with a purchase price of US$120 million) from US tax shelter investors - and expects to purchase further such interests. It will rely on not holding non-portfolio property; and on US co-investors in the wind projects not being considered to be investors in it for purposes of the US inversion rules.

Overall structure

The Trust will hold all the units of a subsidiary Ontario unit trust ("Commercial Trust") which, in turn, will hold all the shares of an Ontario holding company ("Can Holdco"). Can Holdco will hold all the shares of a Delaware holding corporation ("Threshold Power") and the Trust will hold a note of Threshold Power (the Threshold Power Note) for C$78M bearing interest at 7.5%.

Trust structure

Computershare will be the Trustee. The Trust Indenture empowers the Trustee to delegate most of the responsibilities regarding the governance of the Trust to the Administrator, which it has done. The Administrator shareholder (namely, the Administrator CEO who thus is the Threshold CEO) has agreed to elect all of the Administrator directors at the direction of the Unitholders.

LLP structure

An LLC subsidiary of Threshold Power (Wind I) will hold 100% of one subsidiary LLC (TH3), and a partnership interest in two subsidiary Delaware limited liability partnerships (THLLP1 and THLLP2). The other partner in THLLP1 and THLLP2 will be a subsidiary of JPM Capital Corporation (JPM). THLLP1 and THLLP2 will hold all of the Tax Equity Interests (described below) in the project LLCs, and TH3 will hold a Project Principal Interest (also described below) in one of the project LLCs. Under the LPA for THLLP1, Wind I will be entitled to 95% of the cash distributions and 1% "of tax benefits and profits" to the end of 2017, and thereafter will be entitled to 87.5% of both cash distributions and such tax benefits and profits. Under the LPA for THLLP2, Wind I will be entitled to 95% of the cash distributions and 1% of tax benefits and profits to the end of 2015, and thereafter will be entitled to 95% of all such distributions, attributes and profits. Wind I will enter into a credit agreement with Union Bank, N.A. with a committed amount of U.S.$100M.

Project structure

Wind I and a JPM subsidiary will jointly fund THLLP1 and THLLP2, which will then purchase "Tax Equity Interests" in project LLCs from the US Vendors, which in the case of THLLP1 will be JPM. These project LLCs utilize a "flip" structure under which: in Stage 1 the project owners/operators (Project Principals), who also are the managing members of the project LLCs, receive 100% of the cash flow on the LLC interests and "Tax Equity Investors" receive substantially all the tax attributes (e.g., tax credits and depreciation); in Stage 2 the Tax Equity Investors receive substantially all the tax flow and tax attributes; and Stage 3 where the Project Principals receive between 75% and 95% of the cash distributions and most of the tax attributes. The Tax Equity Interests acquired in the project LLCs will mostly be close to the beginning of Stage 2. The management committee of THLLP1 and THLLP2 consists of one representative of each of Wind I and JPM. TH3 will purchase its Project Principal Interest directly from a Vendor for US$3.5M.

Closing transactions

• The Trust will settle Commercial Trust, and apply substantially all the proceeds of the offering to subscribe for additional units
• Commercial Trust will apply these proceeds to subscribe for Can Holdco shares
• Can Holdco will use a portion of these proceeds to subscribe for Threshold Power shares and lend the balance of Cdn.$78M for the Threshold Power Note
• Can HOldco will distribute the Threshold Power Note to Commercial Trust, which will distribute it to the Trust
• Threshold Power will contribute most of its funds to subscribe for additional membership interests in Wind I
• Wind I will fund THLLP1, THLLP2 and TH3 in order to complete the purchase of the (mostly Tax Equity) Interests in the Project LLCs

Immediately following closing, private placement investors will transfer 4.14M of their units of Commercial Trust to the Trust in exchange for 425,781 Trust units, and redeem 130K of their Commercial Trust units for $130K of cash.

Distributions

Quarterly, expected to be over 60% tax-deferred for 2013. Pro forma (based on the year ended March 31, 2013) net loss and total cash distributions from the project LLCs are estimated as U.S.$7.0M and U.S.$51.9M, with cash distributions to Wind I being U.S.$18.0. After deduction of expenses of U.S.$2.6M, cash available for distribution would be U.S.$15.4M (C$16.1M), of which C$11.8M would be distributed representing a payout ration of 72.8%. The Threshold group will hedge at least 12 monts of anticipated Trust distributions.

Canadian tax

It is assumed that the Trust will not be subject to SIFT tax on the basis that it will not hold non-portfoio property.

No opinion is given as to whether foreign accrual property income will be generated to Can Holdco or as to whether dividends paid to it by Threshold Power will come out of exempt surplus or taxable surplus. It is expected that Can Holdco will designate the dividends paid by it as eligible dividends to the extent that it was entitled to deductions under s. 113 for dividends received from Threshold Power.

US Tax

. The Trust. The Trust will elect to be a corporation. It expects to be eligible for Treaty benefits, so that interest on the Threshold Power Note should not be subject to withholding. As the FATCA rules do not apply to payments under an obligation that is outstanding on January 1, 2014 and was not thereafter materially modified, there also should be no FATCA withholding tax on interest on the Threshold Power Note.

US inversion tax

It is not expected that Code s. 7874 wil apply to the Trust. None of the Vendors will hold an interest in it, and it will not initially acquire substantially all the interests in the project LLCs (although s. 7874 could apply if the Trust later were considered to have acquired substantially all the interests of the project LLCs as part of the same plan, and the Vendors acquired Trust units). Even though the Trust is not expected to acquire substantially all of the interests in the project LLCs (given the Project Principal Interests therein), it could be treated as a US corporation for purposes of Code s. 7874. The Vendors could be viewed as holding interests in the Trust if their distribution rights with respect to the project LLCs were substantially similar in all material respects to the distribution rights attributable to interests in the Trust. However, the distribution rights with respect to the project LLCs will be substantially different in material respects from those in respect of the Trust.

Although the JPM subsidiary will have certain rights with respect to the transfer of its partnership interests such as a right to retract for fair market value; and a purchase option of Wind I, such rights will not be determined by reference to, and will not be dependent on, any transfer or other rights at the Trust level; and any consideration to be paid to the JPM subsidiary will not be calculated in any way by reference to the Trust. Accordingly, neither JPM nor its subsidiary should be deemed to hold interests in the Trust by virtue of a rule that stock or other interest of an entity (other than an acquiring non-US corporation) may be treated as stock of such acquiring non-US corporation if such interests provide the holder with distribution rights (dividend, redemption and liquidation rights) which are substantially similar in all material respects to the distribution rights provided by stock of the acquiring non-US corporation.

Commercial Trust

Will elect to be disregarded as an entity separate from the Trust.

Can Holdco

Is expected to be treated as a Canadian-resident corporation eligible for Treaty benefits, so that distributions from Threshold Power will be treated first as dividends subject to 5% withholding. Discussion of consequences if presumption that Threshold Power is a USRPHC is not rebutted.

Threshold Power Note

Baker & McKenzie will provide an opinion (supported by interest rate and debt feasibility studies) to the underwriters that the Threshold Power Note is debt. Such studies will also support the interest rate being an arm's length rate. The earnings stripping rules in s. 163(j) limit the deduction of interest paid to related non-US persons exempt from US federal income tax (as determined under Code s. 267(b) or 707(b)(1)) in years that the corporation's debt-to-equity ratio is more than 1.5:1, and that its "net interest expense" (interest expense minus interest income) is no more than 50% of its "adjusted taxable income" (taxable income before the deduction of certain items, including net interest expense). Threshold Power expects to have an initial debt-to-equity ratio of approximately 1.8:1, and it and the Trust likely will be related, so that the deductibility of interest payments may be so limited.

Overview

The Fund will hold three apartment buildings, with a purchase price of U.S.$80.6 million, in Texas, through wholly-owned LLCs of Starlight U.S. Multi-Family Core REIT Inc. (the "U.S. REIT"), an indirectly owned Maryland corporation; and intends to make further acquisitions of apartment buildings in the southern US. It is issuing up to 7.5M units (allocated among different classes) for up to US$75M.

Structure

The general partner of the Fund will be an Ontario corporation owned by Starlight Investments Ltd. (the "Manager"), an Ontario corporation, which is controlled and indirectly owned by Daniel Drimmer. An Ontario LP ("Investment LP") owned directly and through the GP thereof, will hold all of the LP units of a Delaware holding partnership ("Holding LP") which, in turn, will hold 100% of the common shares of the U.S. REIT. The GP of Holding LP will be a Delaware partnership directly and indirectly owned by the Manager. In order that the U.S. REIT will qualify as a REIT for Code purposes, the U.S. REIT will issue up to 125 preferred shares at U.S.$1,000 per share to accredited investors. The preferred shares are non-voting, have a redemption and liquidation amount of $1,000 per share and have a dividend yield of 12.5%. Holding LP also will be issued ROC shares (bearing a compounding dividend and redeemable for the subscription amount) by the U.S. REIT, which may also issue interest-bearing REIT Notes.

Fund Units

The Class A and U units of the Fund will pay distributions in Canadian and US dollars, respectively. The Class I units (designed for institutional investors) will not be required to pay a service fee, will be unlisted and convertible into Class A units. Class C units, to be held by an affiliate of the Manager, will not be required to pay a service fee or the agent's fee, will be unlisted, will be convertible into Class A units and will represent a 9.99% voting interest in the Fund.

Debt

After giving effect to the further proposed property acquisitions, the overall mortgage to value ratio will be approximately 60% to 70% of the property acquisitions costs (as increased by any property improvement reserves).

Distributions

Investment LP, as the holder of the LP units of Holding LP, will be entitled to receive a 7% preferred return on those units, and 75% of the excess, with the balance of 25% going to the GP of Holding LP as a carried interest. As around half of the 2013 property purchases are not yet committed, the annual distributions are not estimated. The GP of the Fund will receive 0.01% of cash distributions. No FX hedging of the income of the Fund will occur.

Canadian tax consequences

SIFT tax. The Fund is not expected to hold any non-portfolio property, so that no SIFT tax is anticipated. As it will not hold any taxable Canadian property, it is not subject to non-resident ownership restrictions.

Consent dividends

Any consent dividend deemed to be received by the Fund from the U.S. REIT as a result of an election under Code s. 565 would not be income to the Fund. However, the Fund would include in its income as a shareholder benefit any U.S. tax remitted by the U.S. REIT with respect to consent dividend elections, and the amount of any such U.S. tax attributable to a particular Fund unitholder would be treated as non-business income tax from a U.S. source for foreign tax credit purposes.

FAPI

The Fund expects that any CFA will satisfy the more-than-five full-time employee test directly or under s. 95(2)(a)(i).

Income allocations

Taxable income of the Fund will be allocated to unitholders based on relative distributions (p. 97).

FTCs

Any U.S. withholding tax on distributions by Holding LP to Investment LP generally will be eligible for foreign tax credits as non-business income taxes, subject to various limitations. The FTC generator proposals are not expected to apply.

U.S. tax consequences

Investment LP/FIRPTA. Investment LP (but not Holding LP) will elect to be treated as a corporation. Distributions made by the U.S. REIT that are attributable to the sale or exchange of U.S. real property interests by the U.S. REIT, and distributions made by it in excess of both its earnings and profits and Holding LP's adjusted basis in U.S. REIT shares may be subject to Code s. 1445 withholding. The IRS may grant permission to reduce such withholding where it is in excess of the FIRPTA tax applicable to such capital gains dividends or other distributions received from the U.S. REIT. Holding LP will be required to withhold Code s. 1446 withholding at 35% on Investment LP's allocable share of gain from either Holding LP's disposition of U.S. REIT common stock and U.S. REIT ROC shares, or from the U.S. REIT's capital gains dividends and/or distributions made by the U.S. REIT in excess of both its earnings and profits and Holding LP's adjusted basis in U.S. REIT shares. However, Regulations provide that where a partnership is subject to both s. 1445 and 1446 withholding, it will only be subject to the payment and reporting requirements of s. 1446 with respect to partnership gain from the disposition of US real property interests. Investment LP may also be subject to branch tax - but potentially only at a reduced Treaty rate based on the Treaty residence of the Fund unitholders.

Unitholder tax

Non-U.S. unitholders generally will not be subject to tax upon a disposition of their Fund units.

U.S. REIT FDAP Distributions

Interest and dividends paid to Holding LP will be treated as paid directly to Canadian-resident unitholders of the Fund (through Investment LP and the Fund) because each of Holding LP, Investment LP and the Fund will be treated as fiscally transparent entities in their respective jurisdictions - so that such unitholders who are eligible for benefits under the Canada-U.S. Treaty likely will be treated as the beneficial owners of such "FDAP" income (i.e., for purposes of Article IV, para. 6). Accordingly, ordinary REIT dividends treated as being paid by the U.S. REIT will be subject to U.S. withholding at a rate (subject to documentary requirements) of: - generally 0% for RRSPs; 15% for individuals owning less than 10% of the stock of the U.S. REIT; and 30% for corporations provided that the U.S. REIT is not "diversified." Interest on the U.S. REIT Notes will be eligible for 0% withholding if the Fund unitholder is eligible for Treaty benefits and provides appropriate withholding tax documentation.

Interest deduction

Holding LP and the U.S. REIT intend to treat the U.S. REIT Notes as debt, so that the U.S. REIT will claim interest deductions. Discussion of s. 163(j) earnings strippings rule.

REIT status

The U.S. REIT intends to make and maintain an election as a real estate investment trust under the Code in its first taxation year, and management anticipates that the U.S. REIT will qualify as a REIT under the Code.

Overview

Brookfield Asset Management Inc. ("Brookfield Asset Management"), which is listed on the NYSE and TSX, will distribute the LP units of BPP LP to its shareholders as a special dividend, with such distribution being referred to as the spin-off. BPP LP will hold an approximate 16% economic interest in the Property Partnership, which will indirectly acquire substantially all of the commercial real estate portfolio of Brookfield Asset Management, including its office (56%), retail (39%), multi-family and industrial assets – with a geographic distribution of 63%-U.S., 15%-Australia, 10%-Europe, 9%-Canada, and 3%-Brazil. The other economic interest of approximately 90% in the Property Partnership will be held by Brookfield Asset Management directly or through the GP. BPP LP will apply for TSX and NYSE listings.

Special dividend

Brookfield Asset Management will declare a special dividend, to holders of its (620M) Class A limited voting shares and (85.1M) Class B limited voting shares, comprising approximately 47% of the units of the Property Partnership on the basis of 5.74 units for every 100 shares. Holders who otherwise would be entitled to receive a fractional unit will receive a cash payment.

Withholding on special dividend

To satisfy withholding tax liabilities in respect of registered shareholders, Brookfield Asset Management will withhold a portion of the BPP LP units which otherwise would be distributed (plus a portion of the cash distribution), and purchase the withheld units at a price equal to the fair market value of the unit determined by reference to the five day VWAP of the BPP LP units following closing of the spin-off. For non-Canadian beneficial owners, the withholding tax obligations will be satisfied in the ordinary course through arrangements with their brokers or other intermediaries.

Shareholder approvals/exemptions

BPP LP has applied for exemptive relief from the minority approval and valuation requirements for transactions that would have a value of less than 25% of BPP LP's market capitalization if the indirect equity interest of Brookfield Asset Management in BPP LP, through its ownership of the Redemption-Exchange Units, were included in the calculation of BPP LP's market capitalization. BPP LP will be a reporting issuer in Canada, and expects to be an SEC foreign issuer.

Structure

BPP LP. BPP LP is Bermuda exempted limited partnership. It will hold Class A LP units of the Property Partnership representing an approximate 15.9% interest therein. The general partner of BPP LP (holding a 0.2% GP interest) is a Bermuda company ("BPY GP") which was 1648285 Alberta ULC and, following the completion of the spin-off, will be Brookfield Property Partners Limited, a wholly-owned subsidiary of Brookfield Asset Management. The central management and control of BPY GP is expected to be outside Canada. It will have sole authority for the management and control of BPP LP. Income allocations will be made on a quarterly basis.

Property Partnership

Brookfield Asset Management will hold non-voting units (the "Redemption-Exchange Units"), representing an 83.1% interest in the Property Partnership. The Redemption-Exchange Units will be redeemable for cash subject to a right of BPP LP to acquire such units in exchange for units of BPP LP.

Property GP LP

The general partner of the Property Partnership will be a Bermuda limited partnership ("Property GP LP") holding a 1% GP interest. It has the sole authority for management and control of the Property Partnership. The general partner of Property GP LP is the Property General Partner. The Property General Partner (which initially was an Alberta ULC, but will become a Bermuda company) will be wholly-owned by Brookfield Asset Management, but will be controlled by BPP LP pursuant to a voting agreement.

Holding Entities

The Holding Entities are newly-created entities held by the Property Partnership. They include CanHoldco, an Ontario corporation in which Brookfield Asset Management will hold $1.25B of Class B and C redeemable preferred shares "received as partial consideration for causing the Property Partnership to directly acquire all of Brookfield Asset Management's commercial property operations." BPP LP will use commercially reasonable efforts to cause the redemption of the Class C preferred shares (of $0.5B bearing a cumulative dividend of 6.75%) as soon as reasonably practicable. Each class of preferred shares is entitled to 1% of the total votes of CanHoldco. Also included are two Bermuda holding companies.

Operating Entities

The direct and indirect holdings of the Holding Entities include various wholly- or partially-owned private or public non-resident companies, U.S. REITs and publicly traded trusts.

Distributions

Initially quarterly, amounting to $1.00 per annum per BPP LP unit, representing 80% of FFO, and 4% of the initial estimated BPP LP unit value of $25. A DRIP will be adopted.

Managers

The managers (the "Managers') will be Brookfield Global Management Limited and other wholly-owned subsidiaries of Brookfield Asset Management. The Managers receive a base fee of $12.5M per quarter, plus 0.3125% of each quarterly increase of BPP LP's total capitalization, plus (in the case of Property GP LP) further incentives of 15% then 25% based on exceeding distribution thresholds.

Canadian tax consequences

Dividend. The reported amount of the dividend will be based on the fair market value of the unit BPP LP units determined by reference to the five day VWAP of the BPP LP units following closing of the spin-off (pp. 38, 184).

Partnership taxation/SIFT tax

BPP LP and the Property Partnership would be considered to be "Canadian resident partnerships" and, therefore taxable as SIFT partnerships, if their central management and control were in Canada. BPY GP and the Property General Partner intend to take appropriate steps so that this does not occur (p. 39). Such GPs also intend to manage the affairs of the two partnerships so that, to the extent possible, they are not considered to carry on business in Canada (p. 40). BPP LP will include its share of fapi of the Property Partnership in computing its income.

Withholding tax

The Holding Entities intend to withhold on a reduced (look-through) basis taking into account the treaty-residence of the ultimate partners of the Property Partnership , including that of the unitholders of BPP LP.

TCP

It is not expected that the BPP LP units will be taxable Canadian property (p. 41).

U.S. tax consequences

Entity classification. BPP LP and the Property Partnership will make protective elections to be classified as partnerships for Code purposes. Their affairs will be managed so that they meet the Qualifying Income Exception (so as to not be deemed to be corporations under rules otherwise applicable to publicly-traded partnerships).

Distribution

The distribution will be treated as a dividend to the extent of current and accumulated earnings and profits of Brookfield Asset Management, which it does not calculate. Brookfield Asset Management does not believe it was a PFIC in the current or preceding taxable year, so that such dividend should qualify as a qualified dividend subject to exceptions.

Partnership taxation

BPP LP and the Property Partnership intend to make the Code s. 754 election (to step up or down inside basis respecting a transferee of units based on outside basis). BPP LP's functional currency will be the U.S. dollar.

Non-resident unitholders

BPP LP is unlikely to earn effectively connected income, so that non-US holders who are not otherwise engaged in a U.S. trade of business should not be subject to U.S. tax return filing requirements. However, there will be U.S. withholding tax on the gross amount of certain U.S. source income.

Overview

The Issuer, an Ontario LP, will hold 32 hotel properties, with an appraised value of $159.6M, in 19 states in the U.S. through American Hotel Income Properties REIT Inc. (the "U.S. REIT") and its subsidiaries. For FAPI purposes, this business is expected to be a services business rather than a property income business on general principles. It is issuing 10M units for $100M (assuming exercise of over-allotment option).

Structure

The Issuer will hold 100% of the common shares of the U.S. REIT. In order that the U.S. REIT will qualify as a REIT for Code purposes, on or before January 30, 2014 the U.S. REIT will issue Class B shares to at least 100 accredited investors. The Class B shares are non-voting, have a redemption and liquidation amount of $1,000 per share and have a yield of around 12.5%. The U.S. REIT may also issue a single ROC share to the Issuer.

The U.S. REIT will have two LLC subsidiaries. "Lodging Enterprises" is intended to be a taxable REIT subsidiary under the Code U.S. REIT rules. It will lease the properties of the second subsidiary ("Lodging Properties"), which will not be a TRS.

The shareholders of the GP of the Issuer will enter into a voting agreement so that their voting rights with respect to the GP will be voted in favour of the election of directors approved by the unitholders.

The underwriters will use their commercially reasonable efforts to distribute the Issuer units to not less than 3,000 unitholders.

Debt

At closing, the Issuer's consolidated indebtedness of approx. $71.5M will represent approx. 48.9% of gross book value.

Management

The Issuer will be internally managed and the lodging activities of the Issuer's U.S. subsidiaries will be managed by indirect wholly-owned U.S. subsidiaries of O'Neill Hotels & Resorts Ltd. ("OHR") who founded CHIP REIT. The Issuer CEO was co-founder of CHIP REIT. Management fees are 3.5% of gross hotel revenues plus incentive fees of up to 50% of such fees. There also is a per-property administrative charge, initially of $15,000 per property escalating to $25,000.

The Issuer also will enter into a development agreement with an affiliate of OHR.

Distributions

The Issuer intends to pay monthly cash distributions, estimated to be $0.075 per unit, to initially provide a yield of 9% (representing perhaps 90% of AFFO). The GP of the Issuer will receive 0.01% of cash distributions to a maximum of $100 per annum.

Canadian tax consequences

SIFT tax. The Issuer is not expected to hold any non-portfolio property, so that no SIFT tax is anticipated.

Consent dividends

Any consent dividend deemed to be received by the Issuer from the U.S. REIT as a result of an election under Code s. 565 would not be income to the Issuer. The Issuer would include in its income as a shareholder benefit any U.S. tax remitted by the U.S. REIT with respect to consent dividend elections, and the amount of any such U.S. tax attributable to a particular Issuer unitholder would be treated as non-business income tax from a U.S. source for foreign tax credit purposes.

FAPI

The U.S. REIT will not satisfy the more-than-five full-time employee test because, due to U.S. tax requirements, hotel managers will be employed by the OHR subsidiaries rather than by the U.S. REIT and its subsidiaries. However, it is considered that the hotel business of the U.S. REIT (i.e., Lodging Enterprises) will qualify as a business of providing services rather than of renting real property, so that the income of the U.S. REIT (including presumably rental income of Lodging Properties recharacterized under s. 95(2)(a)(ii)(B)(I)) will not be foreign accrual property income.

U.S. tax consequences

Issuer as Partnership. The Issuer (whose units will trade on the OTC QX - viewed as an "established securities market," and will derive 90% or more of its income from interest, dividends and other qualifying income) intends to make an election to be treated as a partnership for Code purposes, and should not generally be subject to U.S. income tax.

FIRPTA

A U.S. tax reporting requirement will not arise to a non-U.S. unitholders as a result of their disposition of Issuer units provided that they owned 5% or fewer of the units that were listed for trading at the time of disposition and at all times during the immediately preceding five-year period the Issuer met the regularly traded requirement for that quarter. Management expects the regularly traded test to be met.

Although distributions made by the U.S. REIT to the Issuer that are attributable to the sale or exchange of U.S. real property interests by the U.S. REIT, and distributions made by the U.S. REIT in excess of both its earnings and profits and the Issuer's adjusted basis in U.S. REIT shares may be subject to Code s. 1445 withholding, dispositions of property by the U.S. REIT will, to the extent practicable, be made by way of non-recognition transactions, and management has no intention for the U.S. REIT to make distributions as described above.

Distributions

Ordinary REIT dividends received by the Issuer from the U.S. REIT will, to the extent of the distributive share of an Issuer unitholder who holds 5% or fewer of the units, be eligible for a Treaty-reduced rate of withholding - generally 0% for RRSPs, and 15% for individuals including TFSAs. Corporate unitholders should consult their tax advisors.

REIT status

The U.S. REIT intends to make and maintain an election as a real estate investment trust under the Code in its first taxation year, and management anticipates that the U.S. REIT will qualify as a REIT under the Code. An election will be filed for Lodging Enterprises to be a TRS of the U.S. REIT. The OHR manager is intended to qualify as an "eligible independent contractor." No assurance is given that the IRS will not challenge the leases from Lodging Properties to the TRS (Lodging Enterprises) as not having arm's length terms.

Structure

A TSX-listed mutual fund trust ("Trust) will hold, through a Canadian Holdco and a US Holdco, one third of the membership units, including a right (as managing member) to appoint the majority of directors, in a US LLC ("Crius Energy LLC" or the "Company"). The Company's business will be the sale of electricity and natural gas to retail and small commercial customers in the US.

Holders (the "pre-offering members") of the securities of two companies ("Regional Energy" a C-Corp., and "Public Power," an LLC - each having about 250,000 customers) will contribute a portion of those securities to the Company in consideration for the issuance to them of membership interests in the Company. The Trust will use the net offering proceeds to subscribe for shares of Cdn Holdco. Cdn Holdco will use such proceeds to subscribe for interest-bearing US-dollar debt (the "US Holdco Notes") and shares of US Holdco, a Delaware "C Corp." US Holdco will use such proceeds to subscribe for its 1/3 interest in the Company, which will use such proceeds to purchase (or cause the redemption of) the balance of the interests in Regional Energy and Public Power. Cdn Holdco will then distribute the US Holdco Notes to the Trust as a distribution of paid-up capital, and the Trust will settle an Ontario trust (the Commercial Trust) with the US Holdco Notes.

Following the closing of the offering, the Company will make a loan to a wholly-owned subsidiary of the Company prior to the merger of that subsidiary with Regional Energy.

Distributions

Monthly.

Management and Trustee

The Administrator (Crius Energy Administrator Inc.) will receive no fees for its services, and its shares will be voted at the direction of the Trust unitholders, as communicated to the Trustee (Computershare). Units under a restricted trust unit plan will vest as to 1/3 on each of the first, second and third annivesary of the date of grant.

Shareholders' agreement

There will be a "Company LLC Agreement" (effectively, a shareholders' agreement) containing various contingent buy-sell obligations and an obligation for the Company to make distributions. Commencing in 2019, the Company will be required to offer to purchase the membership units of the pre-offering members for a price based on five times the Company's consolidated cash flow, plus its consolidated cash, and minus its debt.

Canadian tax treatment

The Trust will not be subject to the SIFT tax, as its only assets will be its Canadian subsidiaries, which will be "portfolio investment entities" as defined in s. 122.1(1) - the Commercial Trust's and Cdn Holdco's only assets will be securities of US Holdco, which will not be a "subject entity." As it will not hold taxable Canadian property, the Trust's declaration of trust does not contain non-resident ownership restrictions.

Distributions of the net interest income of Commercial Trust (and any FX gains realized by it on the US Holdco Notes) will be included in the income of the Trust (before deducting the corresponding income distributions made to Trust unitholders). Return-of-capital payments received by the Trust from Cdn Holdco and Commercial Trust will not be included in its income (but will reduce the adjusted cost base of its investment).

Based on the activities of US Holdco and the Company, and as a consequences of the deductions under s. 113(1) for dividends paid out of exempt surplus, taxable surplus or pre-acquisition surplus, it is anticipated that "Cdn Holdco will not be subject to a material amount of Canadian federal income tax on the dividends received by it on the US Holdco Shares." To the extent that Cdn Holdco is entitiled to a s. 113 deduction with repect to dividends from US Holdco, it generally will be entitled to designate corresponding amounts of taxable dividends paid by it to the Trust as eligible dividends.

US tax treatment

Trust as partnership. The Trust (perhaps having regard to the earnings-stripping rules) will elect to be treated as a partnership for Code purposes (and will be eligible to do so as more than 90% of its gross income will be dividends).

Anti-inversion rules

However, the Trust will be treated as a foreign corporation for purposes of the anti-inversion rules in Code s. 7874. Under this provisions, it may not be subject to tax as a US domestic corporation (under the 80% ownership test) or subject to tax (the "Toll Charge") on an "inversion gain" (under the 60% ownership test) on the basis that it only acquired 1/3 of the interests in the Company (and, thus, only 1/3 of the Company's subsidiaries) - assuming that it did not acquire additional interests therein "as part of the same plan." However, the the Company's pre-offering members could be viewed as holding interests in the Trust if their distribution rights were substantially similar to the Trust distribution rights - in which event, the 80% ownership test under s. 7874 could be met. However, based on various differences in the prospective rights of Trust unitholders and pre-offering members, "the Trust has been advised that the pre-offering members of the Company should not be viewed as holding interests in the Trust for purposes of applying the 80%-ownership test or 60%-ownership test under section 7874."

Commercial Trust

The Commercial Trust will be treated as a corporation resident in Canada; and it is expected that it will be eligible for the benefits of the Canada-US Income Tax Convention (the "Treaty"), so that interest on the US Holdco Note will be exempt from withholding under the Treaty. "If financing transactions that include the US Holdco Notes were treated as part of a conduit financing arrangement, and the participation of the Commercial Trust ignored, interest paid by US Holdco to the Commercial Trust on the US Holdco Notes could be subject to a 30% federal withholding tax...."

US Holdco

US Holdco will be treated as a corporation for Code purposes. The shares of US Holdco are not expected to be US real property interests. US Holdco has been advised that the US Holdco Notes should be treated as debt for Code purposes, so that interest thereon should be deductible subject to the usual limitations, including Code s. 163(j). US Holdco's debt-to-equity ratio initially wil be in excess of 1.5 to 1 - however, note that the Commercial Trust may not be related to US Holdco for s. 163(j) purposes.

Regional Energy dividends

As US Holdco (which will be treated as a partnership for Code purposes) will own more than 20% of the Company, it should be deemed to own more than 20% of the shares of Regional Energy, and should be entitled to an 80% deduction with respect to dividends indirectly received from Regional Energy.

Section 246A provides that the dividends-received deduction for "debt-financed portfolio stock" is reduced to the extent that there is indebtedness directly attributable to investment in the portfolio stock. Although US Holdco is issuing the US Holdco Note, the Trust believes that is is more likely than not that section 246A should not apply in the present situation, as the proceeds of such note are not directly traceable to the investment in the stock of Regional Energy.

US Holdco is expected to make the election under Code s. 1059(c)(4) to have its basis in the shares of Regional Energy considered to be their much higher fair market value, for purposes of determining whether dividends from Regional Energy during the first two years of US Holdco's indirect investment therein are an extraordinary dividend (otherwise potentially giving rise to a negative basis gain).

Company

As a partnership, the Company is not subject to federal income tax. "It is expected that the allocations of such items [e.g., income] under the Company LLC Agreement should be deemed to have substantial effect," so that the amounts of income allocated to US Holdco will be respected. US Holdco will be the tax matters partner.

Regional Energy

Regional Energy will be treated as a corporation. The Regional Energy Notes will be treated as debt, and the interest thereon as deductible, for Code purposes. "This treatment is supported by certain interest rate and debt feasibility studies...."

Public Power

Public Power will not be regarded as an entity separated from the Company for Code purposes.

A TSX-listed mutual fund trust ("Meranex"), through a Canadian Holdco, will hold a US Opco which will carry on a US oil and gas business, with the internal interest-bearing debt owing by US Opco directly to the Canadian Trust. Structure and tax disclosure are essentially identical to Argent Energy.

Structure

Slate Trust (an Ontario trust) will use the offering proceeds (of up to U.S.$50M) to invest in the units and interest-bearing notes (the "Investment LP Notes") of an Ontario LP ("Investment LP") which, in turn, will invest in the units of a Delaware LP ("Holdings LP"). Holdings LP will (on a blind pool basis) use the offering proceeds and mortgage financing to invest in US commercial real estate rental properties with a focus on anchored retail properties (and with each property being held in a special purpose subsidiary LP). Corporations controlled by the Toronto-based manager (Slate Properties Inc., or the "Manager") will be the general partners of Investment LP and Holdings LP with a 0.01% GP interest (but with a 20% carry over the 8% p.a. minimum return in the case of the Holdings LP general partner.)

Units and listing

Slate Trust will issue different classes of units (some on a private placement basis) in order to reflect different fee structures, and currency (Canadian dollars or US dollars) for the quarterly distributions and redemption amounts. The units initially will not be listed. However, the Manager intends to complete a liquidity event by September 30, 2018: a listing of the units or an exchange of the units for listed units; or a sale of the units or assets.

There is a standard 49% non-resident-ownership restriction, notwithstanding that the contemplated structure does not entail Slate Trust holding significant taxable Canadian property.

Redemption rights

Where the units are not listed, they will be retractable based on 95% of the most recent quarter-end value of the units held in Holdings LP prior to retraction. If monthly redemptions exceed $100,000, or if total redemptions in any 12-month period exceed 1% of the aggregate unit subscription proceeds, the redemption price shall be paid by way of an in specie distribution of property or distribution of unsecured subordinated notes of the Slate Trust, as determined by the trustees in their sole discretion.

Distributions

To be paid quarterly.

Management fees

The Manager will be paid annual fees of 1.5% of the gross subscription proceeds plus a 0.75% acquisition fee on each property acquisition.

Canadian tax treatment

The summary assumes that Slate Trust will qualify as a mutual fund trust (and the risk factors disclosure implies that there are expected to be at least 150 unitholders acquiring whole blocks under the offering.) A s. 132(6.1) election will be made by Slate Trust for it to be deemed to be a mutual fund trust from its settlement date to the date it actually so qualifies.

Slate Trust's investment restrictions prohibit it from holding any non-portfolio property.

There will be pro rata designations of net taxable capital gains and foreign source income allocated to Slate Trust by Investment LP so that inter alia each partner's share of business income taxes and non-business-income taxes paid in the U.S. potentially will be creditable. However, no assurance can be given that the August 27, 2010 foreign tax credit generator proposals will not apply.

Although the disclosure addresses "maximizing disposition proceeds," the risk factors indicate that Canadian capital gains treatment is expected on property dispositions (so that the US tax rate on such dispositions would be higher than the Canadian rate).

U.S. tax treatment

Slate Trust and Investment LP will elect to be corporations under the Code. Accordingly, Investment LP (as a foreign corporation) will be subject to U.S. federal income tax at the highest applicable rate (35%) on the income it derives (through Holdings LP) from a U.S. trade or business. Income or gains of Holding LP allocable to Investment LP (including from any sale of U.S. real property owned by the special purpose LPs or a sale of such LPs) will be subject under Code s. 1446 to withholding at the 35% rate in lieu of any FIRPTA withholding requirements, with such withholding being allowed as a credit on Investment LP's U.S. federal income tax return. Investment LP also will be liable for a 5% branch profits tax (subject to the $500,000 Treaty exemption) on its after-tax earnings.

Slate Trust and Investment LP intend to treat the Investment LP Notes as debt allocable to Investment's LP's interest in Holding LP for Code purposes. The earnings stripping rules (Code s. 163(j)) may apply. Interest received by Slate Trust on the Investment LP Notes will be subject to 0% withholding by virtue of the Canada-U.S. Treaty.

Basic structure

Brookfield Asset Management Inc. ("Brookfield Inc.) will distribute a portion of the LP units of the newly-formed BPY (a Bermuda LP) to its shareholders as a special dividend. BPY will hold most of its commercial real estate assets (mostly minority interests in various funds and companies located in various jurisdictions) through a subsidiary Bermuda LP ("Property LP").

Brookfield Inc. will hold "Redemption-Exchange Units" of Property LP that are exchangeable into BPY units. After giving effect to such exchange and units of BPY held by it directly, Brookfield Inc. will have a 90% interest in BPY. BPY (which is described as a non-resident partnership) is expected to be listed on the TSX and NYSE.

Fees and management

The Brookfield Inc.-owned and Bermuda-domiciled GP of BPY ("BPY GP") will have sole control of BPY (i.e., no voting rights for the public unitholders of BPY) and is targeting annual distributions equal to 4% of FFO ($1.00 per unit). Brookfield managers are entitled to base management fees of $50 million p.a. plus reimbursements, and the Brookfield Inc.-owned GP of Property LP will be entitled to receive "quarterly equity enhancement distributions equal to 0.3125% of the amount by which [BPY's] total capitalization value exceeds an initial reference value."

As the distribution (referred to as a "spin-off") is a dividend, shareholders will not vote on the transaction (p. 63).

Canadian taxation

The spin-off will not be a distribution of paid-up capital (e.g., under s. 84(2) or 86). Accordingly, Canadian-resident shareholders will be subject to dividend treatment, and non-residents will be subject to Part XIII tax on the distribution - which will be satisfied by the applicable portion of the BPY units being withheld and sold to Broookfield Inc. for cash based on the 5-day VWAP following closing of the spin-off.

BPY income will be allocated to unitholders based on their proportionate share of total distributions received. Includes a discussion of the Foreign Tax Generator Proposals. The withholding tax applicable to various payments made to BPY or Property LP under s. 212(13.1)(b) likely will be reduced to take into account the residency or Treaty status of BPY unitholders.

US taxation

BPY and Property LP will make protective elections to be classified as partnerships for purposes of the Code - and they intend to manage their affairs so that they satisfy the Qualifying Income Exception for being treated as partnerships. They will make s. 754 elections.

The spin-off will be treated as a dividend to US holders based on E&P. A non-US holder generally should not recognize gain or loss upon the spin-off.

BPY is not expected to earn effectively connected income, so that there should be no US-return filing requirements for non-US holders - but distributions to BPY or Property LP of dividends or interest could subject non-US holders to US withholding tax, subject to treaty exemptions or the portfolio interest exemption. One or more of the subsidiaries is likely a PFIC.

A TSX-listed mutual fund trust ("Trust"), through a Canadian Holdco, will hold a US Opco which will carry on a US oil and gas business. Structure is similar to Eagle Energy, except that the US energy business is held through a Canadian holding corporation holding a US operating company rather than a Canadian sub trust holding a Delaware LP.

Canadian Tax

The Trust is not contemplated to be subject to SIFT tax on the basis that Can Holdco is a portfolio investment entity.

Based on the nature of the activities of US Opco and on it maintaining its central management and control in the US, its earnings are expected to give rise to exempt surplus rather than taxable surplus, so that dividends from US Opco can be received free of Canadian tax. It is expected that Can Holdco will designate the dividends paid by it as eligible dividends.

US Tax

US Opco anticipates that it will be entitled to deduct interest payments on the notes held by Trust, based inter alia on the CT Notes being treated as debt and satisfying the earnings stripping rules in s. 163(j). In particular, s. 163(j) requires that US Opco's debt-to-equity ratio be no more than 1.5:1, and that US Opco's "net interest expense" (interest expense minus interest income) be no more than 50% of its "adjusted taxable income" (taxable income before the deduction of certain items, including net interest expense). US Opco expects to have an initial debt-to-equity ratio of 1.6:1, so its deductions will be initially limited. The interest payments are expected to be exempt from US withholding tax, in accordance with the Treaty.

Risk Factors

• In the event that Can Holdco is found to be a Canadian-controlled private corporation and it makes excessive eligible dividend designations, it could be subject to penalty tax.
• If the units were found to be financing transactions under US Treasury regulations, then the US Opco notes and units together would likely be a financing arrangement under US conduit financing rules. Unit holders would have to provide a Tax Certification or else the notes would be subject to US withholding tax.
• As the Trust does not expect to hold taxable Canadian property, it will not be subject to the non-resident ownership restrictions in s. 132(7).
• As the Trust does not derive income from real property in Canada, Canadian resource property, or timber resource property, Part XIII.2 withholding tax will not apply.

Article

Brian Kearl and Eugene Friess, "Will Cross-border Income Trusts Be Next in the Department of Finanace's Cross-hairs?" Internation Tax Planning, Vol XVII, No. 4, p. 1204: In comparing the Eagle Energy trust-on-trust-on-LP structure to the Argent Energy trust-on-Canco-on-US Opco structure, they state (p. 1208):

...it is understood through discussions with U.S. counsel that using a U.S. Opco as opposed to a U.S. LP to carry on the U.S. business may be preferred in order to, inter alia, attract U.S. institutional investment and acquire U.S. federal oil and gas leases.

REIT subscriptions

REIT offering of 27M units at $10 per unit (with over-allotment option for 4M units) and $140M principal amount of convertible debentures - plus Dundee Corporation and Dundee Realty Corporation ("DRC") will purchase 12M units - for total net proceeds of perhaps $565M.

Caymans/Lux structure

The main asset of the REIT will be its units of a Caymans subsidiary LP (Dundee LP) which, in turn, will hold a Gibralter corporation (Dundee Gibralter), which will hold a Luxembourg s.à r.l. (Dundee Lux Holdco) that invests in the Dundee FCP Unitholders described below.

German structure

Real estate that is purchased from Lorac Investment Management S.à r.l. ("Lorac") for €736M (€60 per sq. foot of gross leasable area) will be leased to Deutsche Post under 15 "contractual co-ownership arrangement" (i.e., with 15 Dundee s.à r.l. co-owners, referred to as "Dundee FCP Unitholders," each of which will be the sole unitholder of the respective Dundee FCP) that are governed by Luxembourg law and constitute mutual investment funds without legal personality. These arrangements are referred to as "fonds commun de placement" or "FCPs."

Dundee Lux Holdco will acquire 50% of the shares of Lorac for €62,500 (with the acquisition of a further 44.9% contemplated), and a separate company for holding any trade fixtures included in the properties (Dundee Fixtures) will purchase the trade fixtures for €702,500 (presumably in order to avoid municipal trade tax on the net rental income).

Exchangeable notes

Notes totalling the euro equivalent of $80M are issued by Dundee Lux Holdco to a Lorac-group company (LSF REIT Holdings s.à r.l., or "LSF"). They are exchangeable into 8M REIT units, bear interest which tracks the distributions on those units and have a term of 10 years. Until exchange, LSF also will hold 8M special voting units of the REIT.

Distributions

Expected to be $.06667 per unit per month (45% tax deferred for 2012), representing approx. 90% of AFFO (i.e., 90% of $.89 p.a.) including interest on the exchangeable notes. A DRIP with 4% bonus distributions, with the right to make additional optional cash purchases of up to $250,000 per year. Where the Canadian taxable income is not otherwise fully distributed in a year, additional units will be issued.

Management

DRC is the asset manager and is entitled to fees: a base annual fee of .35% of the purchase price of the assets; an incentive fee of 15% of the per unit AFFO in excess of $.85 per unit (50% indexed to inflation); a capital expenditure fee of 5%; and a finacing fee of .25%. Lorac will act as management company of the Dundee FCPs.

Two wholly-owned subsidiaries of of Dundee Lux Holdco (Dundee Lux Manager - a s.à r.l.; and Dundee Germany Sub-Manager - a GmbH) will be portfolio managers.

The senior management team will consist of DRC employees (not REIT employees). Deferred Unit Incentive Plan.

Convertible debentures

Bear 5.5% semi-annual interest (with typical Unit Interest Payment Option provision). Convertible at $13.00 per unit (i.e., a 30% conversion premium). Conversion can be forced after August 31, 2014 based on the weighted-average unit trading price exceeding 125% of this conversion price for 20 consecutive trading days. May be redeemed at par (plus accrued interest) after August 31, 2016. On the July 31, 2018 maturity date, the REIT may elect to repay in units.

Canadian taxation

Because it does not hold taxable Canadian property, the REIT is not subject to restrictions on ownership by non-resident investors. It will not invest in Canadian business assets or Canadian resident entities that are not portfolio investment entities, so that it will not be required to comply with the Canadian REIT rules in order to not be subject to taxation under the SIFT rules.

The Dundee FCPs will be characterized as contractual co-ownership arrangements so that income or loss of the Dundee FCPs will be computed at the level of the FCP Unitholders. Income earned by the Dundee FCP Unitholders will be foreign accrual property income that is included in the income of Dundee LP. The adjusted cost base to Dundee LP of its shares of Dundee Gibralter will be increased by the net fapi amount included in the income of Dundee LP. At such times as Dundee LP receives a dividend of amounts that previously were included in its income as fapi, that amount effectively will not be taxable to it, and will reduce the adjusted cost base of of its shares of Dundee Gibralter.

If a Dundee FCP Unitholder makes a distribution to Dundee Lux Holdco that is in excess of the fapi of the Dundee FCP Unitholder, such excess amount will reduce Dundee Lux Holdco's adjusted cost base of its shares of the Dundee FCP Unitholder, thereby potentially giving rise to a capital gain under the negative ACB rules, with a resulting 1/2 inclusion in the fapi of Dundee Lux Holdco. Fapi (other than fapi attributable to FX) will be fully distributed.

German taxation

Each Dundee FCP should be fiscally transparent, so that the FCP Unitholders will be considered to be a Luxembourg-resident holders of ownership interests in the German properties. Although whether such FCP Unitholders are subject to German income taxation on net rental income or capital gains from such properties is not clear, they will take the position that they are not subject to German income tax on such income and will not file returns unless demanded. The rate of German corporate income tax if it were applicable to the FCP Unitholders would be 15.825%. No municipal trade tax is applicable as there is no permanent establishment in Germany.

It is proposed that a TSX-listed mutual fund trust (Eagle Energy Trust), through a sub trust ("CT"), will hold a Delaware LP which will carry on a US oil and gas business.

Canadian taxation

Eagle Energy Trust is not subject to the SIFT tax because its only asset is a portfolio investment entity (CT) as defined in s. 122.1(1); i.e., the only assets of CT are the Delaware LP, which is not a "subject entity" as defined in s. 122.1(1) (see p. 92). Eagle Energy Trust is not subject to a Canadian-ownership requirement (s. 132(7)) as the units and debt of CT are not taxable Canadian property.

US taxation

Both trusts will elect to be treated as corporations (see p. 96). Eagle Energy Trust will have no business activity in the U.S. and, therefore, no effectively connected income. LP will be disregarded for US tax purposes (its GP is an LLC). Accordingly, CT will be treated as carrying on the oil and gas business, thereby potentially giving rise to US corporate income taxes and 5% branch tax to it. CT anticipates that it will be entitled to deduct the interest it pays to Eagle Energy Trust on the CT Notes (based inter alia on the CT Notes being treated as debt and satisfying the earnings stripping rules in s. 163(j)). The interest on the CT Notes should be exempt from US withholding tax under the Treaty.