Aug. 31, 2010 (Filing Services Canada) -- Proventure Income Fund (PVT.UN - TSX Venture), is pleased to announce that it intends to restructure its business affairs and/or discontinue certain of its activities, if necessary, prior to January 1, 2011 in order to qualify for the REIT Exemption (as defined below) to the SIFT Rules (as defined below) under the Income Tax Act (Canada) (the "Tax Act"). Implementation of the restructuring is conditional upon receipt of all required regulatory approvals, including the approval of the TSX Venture Exchange, and Proventure unit holder approval.
The SIFT Rules and the REIT Exemption
The Tax Act contains rules (the "SIFT Rules") applicable to certain publicly listed trusts or partnerships ("SIFTs") and their investors, which generally tax the SIFT at a rate similar to a taxable Canadian corporation on income from business carried on in Canada and on income (other than taxable dividends) or capital gains from non-portfolio properties (as defined in the Tax Act) and the distribution of such income to unit holders is generally treated as dividends received from a taxable Canadian corporation. In general, distributions paid as returns of capital will not be subject to this tax. The SIFT Rules are applicable beginning in 2007, except for a trust that would have been a "SIFT trust" (as defined in the Tax Act) on October 31, 2006 if the definition had been in force and applied to the trust on that date (the "Existing Trust Exemption"). For trusts that meet the Existing Trust Exemption, the SIFT Rules will apply commencing in the 2011 taxation year, assuming compliance with the "normal growth" guidelines issued by the Department of Finance (Canada) on December 15, 2006, as amended from time to time (the "Normal Growth Guidelines"). The SIFT Rules are not applicable to a real estate investment trust that meets certain specified criteria relating to the nature of its revenue and investments (the "REIT Exemption"). Proventure meets the Existing Trust Exemption and has not exceeded the Normal Growth Guidelines. Therefore Proventure is not currently subject to tax under the SIFT Rules. However, Proventure, as currently structured, does not qualify for the REIT Exemption, with the result that the SIFT Rules will apply to Proventure commencing in 2011. However, it is Proventure's intention to restructure its business affairs and/or discontinue certain of its activities, if necessary, prior to January 1, 2011, in order to qualify for the REIT Exemption.
Timing
Proventure intends to hold a special meeting of its unit holders in mid-November to approve certain aspects of the restructuring. Proventure then intends to complete the restructuring during the month of November. It is currently anticipated that an information circular providing more comprehensive details on the proposed restructuring will be filed on www.sedar.com and mailed to Proventure's unit holders in early to mid-October in advance of the special meeting of unit holders.
Proposed Restructuring Actions
The following is qualified in its entirety by the disclosure that will be included in the aforementioned information circular but it is currently contemplated that such restructuring by Proventure will include the following steps, among others:
* Creation of a Private Income Trust and transfer of certain assets to that Private Income Trust - Certain assets held by Proventure must be disposed of by Proventure in order for Proventure to qualify for the REIT Exemption. Proventure intends to create a Private Income Trust to own such assets to be transferred out of Proventure, with such Private Income Trust to meet the qualifications under the Tax Act to be a mutual fund trust but not be a reporting issuer under applicable Canadian securities legislation nor have its securities listed for trading on a recognized stock exchange such that the Private Income Trust will not be subject to the SIFT Rules. In order to qualify as a mutual fund trust under the Tax Act, the Private Income Trust must, among other conditions, have at least 150 unit holders each holding units of the Private Income Trust with a value of at least $500. In order to distribute its units and not become a reporting issuer under applicable Canadian securities legislation, the Private Income Trust can only sell its units under exemptions from the prospectus requirements of applicable Canadian securities legislation. Subject to the availability of an exemption from such prospectus requirements for each Proventure unit holder, it is intended that the Private Income Trust will allow each unit holder of Proventure to subscribe for a number of units of the Private Income Trust that is roughly proportionate to their current holdings in Proventure. However, to the extent that exemptions from the prospectus requirements are not available for each Proventure unit holder to acquire Private Income Trust units or that certain Proventure unit holders choose not to subscribe for units of the Private Income Trust, and to the extent that the Private Income Trust needs to raise additional capital or needs to have a greater number of unit holders in order to qualify as a mutual fund trust, the Private Income Trust may issue a greater or lesser number of units to any one Proventure unit holder or may issue units to persons who are currently not Proventure unit holders. The disposition of certain assets by Proventure to the Private Income Trust will be considered a "related party transaction" under applicable Canadian securities legislation and will require (i) preparation of an independent valuation on the assets to be transferred and a summary thereof in the aforementioned information circular to be provided to Proventure's unit holders and (ii) receipt of disinterested unit holder approval at the aforementioned meeting of Proventure's unit holders to be held to consider the restructuring.
* Elimination of Certain Internal Debt Obligations - In order to qualify for the REIT Exemption, Proventure will also be required to eliminate certain promissory notes and preferred limited partnership units within the Proventure subsidiary organizational structure. This step does not require unit holder approval but will be significant from tax liability perspective (see "Significant Tax Consequences below) and additional information will be included in the aforementioned information circular.
Amendments to the Declaration of Trust
In addition to the proposed restructuring transactions referred to above, Proventure also proposes to make certain amendments to the declaration of trust governing its affairs to ensure that the Proventure units are considered equity under International Financial Reporting Standards ("IFRS"). Reporting issuers in Canada will be required to report their financial statements under IFRS commencing in January 2011. There is some uncertainty as to whether or not the units of income trusts such as Proventure are considered debt or equity under IFRS. The proposed changes to Proventure's declaration of trust are intended to remove that uncertainty and ensure that they are treated as equity under IFRS. The aforementioned information circular will provide additional details on the proposed amendments. Approval of the amendments to the declaration of trust will require the approval of not less than 66 2/3% of the votes cast by Proventure's unit holders at the aforementioned special meeting of unit holders.
Significant Tax Consequences
It is anticipated that the restructuring transactions proposed to be implemented by Proventure, including the transferring of certain assets out of Proventure to the Private Income Trust and the elimination of certain debt obligations within the Proventure subsidiary organizational structure, may result in significant adverse tax consequences to Proventure that Proventure will then allocate to its unit holders. Consequently, unit holders of Proventure may incur significant adverse tax consequences pursuant to the aforementioned restructuring transactions unless the Proventure units are held in a type of tax-deferred account, such as a trust governed by a registered retirement savings plan, a registered retirement income fund, a registered education savings plan, a registered disability savings plan, a tax free savings account or a deferred profit sharing plan. Unit holders of Proventure may wish to consult with their tax advisors in this regard but they are strongly encouraged to consider holding their Proventure units in such a tax deferred account. Additional information with respect to the anticipated tax consequences will be included in the aforementioned information circular.
About Proventure
Proventure Income Fund is an open-ended mutual fund trust established under laws of the Province of Alberta. Proventure is in the commercial property development business and provides financing and leases real estate to Cervus Equipment Corporation. The units of Proventure Income Fund are listed on the TSX Venture Exchange and trade under the symbol "PVT.UN".
For further information, please contact:
Peter Lacey - President & CEO
of Proventure Income Fund
Telephone: (403) 567-0339
Fax: (403) 567-0392
Email: placey@cervuscorp.com
Randy Muth - Chief Financial Officer
of Proventure Income Fund
Telephone: (403) 567-0339
Fax: (403) 567-0392
Email: rmuth@cervuscorp.com
Forward Looking Information
This press release contains certain forward-looking information ("forward-looking information") within the meaning of applicable Canadian securities laws. Forward-looking information is often, but not always, identified by the use of words such as "anticipate", "believe", "plan", "intend", "objective", "continuous", "ongoing", "estimate", "expect", "may", "will", "project", "should" or similar words suggesting future outcomes. In particular, this press release includes forward-looking information relating to Proventure's intention to qualify for the REIT Exemption to the SIFT Rules, Proventure's intention to create a Private Income Trust to acquire certain assets of Proventure and the completion of an offering of securities of that Private Income Trust, whether or not Proventure will actually proceed with the restructuring in light of the fact that unitholder approval and regulatory approval for certain of the necessary steps will be required and the anticipated tax liability to unitholders of Proventure. Proventure believes the expectations reflected in such forward-looking information are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking information should not be unduly relied upon.
Forward-looking information is based on various assumptions. Those assumptions are based on information currently available to Proventure, including the current business and economic trends, and the opportunities this restructuring will provide for Proventure to qualify for the REIT exemption to the SIFT rules. You are cautioned that the preceding list of assumptions is not exhaustive.
Forward-looking information is not a guarantee of future performance and involves a number of risks and uncertainties some of which are described herein. Such forward-looking information necessarily involves known and unknown risks and uncertainties, which may cause Proventure's actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking information. Such risks include Proventure's ability to obtain unitholder and regulatory approval with respect to, and its ability to complete, the restructuring. A further risk to the proposed restructuring is whether or not the Private Income Trust is able to complete a satisfactory offering of its securities such that it is able to qualify as a mutual fund trust under the Tax Act and such that it is able to raise sufficient capital to complete the acquisition of certain assets from Proventure. Any forward-looking information is made as of the date hereof and, except as required by law, Proventure assumes no obligation to publicly update or revise such information to reflect new information, subsequent or otherwise.
The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.
Source: Proventure Income Fund (TSX-V: PVT.UN) http://www.cervuscorp.com
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