Commodity Funds

Overview

The Fund is an Ontario trust whose units will be listed on the TSX and that will invest substantially all of its assets in bitcoin. It will acquire an initial bloc of bitcoin from another fund (with the same name as its manager) potentially on a s. 132.2 rollover basis, so that there was the potential for the acquired bitcoin to have an accrued gain.

It is contemplated that the bitcoin would not constitute non-portfolio property (no SIFT tax). Since the Fund intends to be a long-term holder of bitcoin, it is anticipated that it will treat its bitcoin as capital property. In addition to an annual redemption right at NAV (to be paid in U.S. dollars rather than in specie), there is a monthly redemption right (at a generally discounted redemption price) so that the Fund can qualify as a mutual fund trust. The disclosure notes that proposed s. 132(5.1) might effectively require the Fund to allocate capital gains realized by it on a redemption of units to non-redeeming unitholders.

The Fund

An Ontario unit trust to be listed on the TSX that will invest substantially all of its assets in bitcoin.

Unit structure

The Fund proposes to offer three classes of units: Class A Units, which are available to all investors; Class F Units, which are designed for fee-based and/or institutional accounts, will not be listed on a stock exchange, and will be reclassified, upon the closing of the Offering, as that number of Class A Units based on the Net Asset Value per Class F Unit divided by the Net Asset Value per Class A Unit.”); and Class B Units, which will be issued to 3iQ Bitcoin Trust and distributed to its unitholders in connection with the merger of 3iQ Bitcoin Trust into the Fund (the “Merger”) and which will be reclassified, on the closing of the Offering. into that number of Class A Units based on the Net Asset Value per Class B Unit divided by the Net Asset Value per Class A Unit.

The Manager

3iQ Corp.

Annual redemption right

Units may be redeemed at the option of Unitholders on the first business day following the 15th day of June in each year, commencing on June 16, 2021, subject to the Fund’s right to suspend redemptions in certain circumstances. Units so redeemed will be redeemed at a redemption price equal to the Net Asset Value per Unit on the redemption date, less any costs and expenses associated with the redemption. Payment will be made in U.S. dolllars.

Monthly redemption right

Units may be surrendered at the option of Unitholders at any time for redemption on a Monthly Redemption Date, Unitholders surrendering a Class A Unit for redemption will receive a redemption price (the “Class A Redemption Price”) equal to the lesser of: (i) 95% of the Closing Market Price of a Class A Unit; and (ii) the Net Asset Value per Class A Unit on the applicable Monthly Redemption Date less, in each case, any costs and expenses associated with the redemption. Payment will be made in U.S. dolllars.

Merger

The merger of 3iQ Bitcoin Trust into the Fund, which was approved at a special meeting of unitholders of 3iQ Bitcoin Trust on March 16, 2020 and which will be effective upon the closing of the Offering.

Tax consequences of Merger

If the Merger takes place on a (s. 132.2) tax-deferred basis, the adjusted cost base to the Fund for tax purposes of bitcoin received from 3iQ Bitcoin Trust may be less than its fair market value at the Closing of the Offering. As of March 31, 2020, the aggregate adjusted cost base of the bitcoin held by 3iQ Bitcoin Trust is the Canadian dollar equivalent of US$6,705.59 per bitcoin, being C$9,513.22 (or the Canadian dollar equivalent of US$8,882,688.25 in the aggregate, being C$12,601,869.82). Therefore, if the price of bitcoin expressed in Canadian dollars is below C$9,513.22 per bitcoin as of the valuation time for the Merger, 3iQ Bitcoin Trust will realize a capital loss on the bitcoin transferred to the Fund at the time of the Merger (which capital loss will not be available to the Fund), and the Fund will acquire such bitcoin at a cost per bitcoin equal to such lower valuation price as of the time of the Merger. If the price of bitcoin expressed in Canadian dollars is above C$9,513.22 per bitcoin as of the valuation time for the Merger, and the Merger occurs on a fully tax-deferred basis, the Fund will acquire such bitcoin at a cost per bitcoin equal to the adjusted cost base of the bitcoin to 3iQ Bitcoin Trust of C$9,513.22 per bitcoin and there will be a latent capital gain on the bitcoin transferred to the Fund.

If the Merger does not occur on a tax-deferred basis, the Fund will acquire such bitcoin from 3iQ Bitcoin Trust at a cost equal to its then fair market value.

Price fluctuation risk on Merger

The Merger will take place on the morning of the Offering, prior to the opening of the TSX. The Fund will be exposed to the risk of fluctuations in the price of bitcoin (and, in the case of holders of Series A Units of 3iQ Bitcoin Trust, the risk of fluctuations in the Canadian dollar to U.S. dollar exchange rate) during the period between the final valuation of the Fund and the time of the Merger, which is expected to be approximately 16 to 18 hours. If the price of bitcoin goes down during that time period, the Fund could pay more for the bitcoin acquired from 3iQ Bitcoin Trust than it would pay to acquire such bitcoin from third party Bitcoin Sources in the secondary trading markets.

Canadian tax consequences

SIFT rules

Counsel believes that the SIFT Rules were not intended to apply to trusts such as the Fund and the Fund is subject to investment restrictions intended to restrict its ability to hold “non-portfolio property.”

Capital gains treatment of bitcoin

The CRA has expressed the opinion that gains (or losses) of mutual fund trusts resulting from transactions in commodities should generally be treated for tax purposes as ordinary income rather than as capital gains, although the treatment in each particular case remains a question of fact to be determined having regard to all the circumstances. As the Fund intends to be a long-term holder of bitcoin, the Manager anticipates that the Fund will generally treat gains (or losses) as a result of any disposition of bitcoin as capital gains (or capital losses) although, depending on the circumstances, the Fund may instead include the full amount in (or deduct the full amount from) income. Gains or losses on derivatives entered into by the Fund as a substitute for direct investment will be treated by the Fund on income account.

Distribution of capital gains

If s. 132(5.3) is enacted in its proposed form and the Fund realizes capital gains as a result of a transfer or disposition of its property undertaken to permit an exchange or redemption of Units by Unitholders, any taxable capital gains that would otherwise have been designated to the redeeming Unitholders may be made payable to the remaining, non-redeeming Unitholders to ensure the Fund will not be liable for non-refundable income tax thereon. Accordingly, the amounts of taxable distributions made to Unitholders may be increased.

Overview

Evolve ETF proposes to track the most current month of Bitcoin futures, except that it will be necessary, as the contract approaches maturity each month, to sell it and purchase the next month’s contract. The Bitcoin futures trade in Chicago, and the Trust will take the position that it is not a "SIFT trust." The gains (on income account) realized monthly on the futures’ rollovers (or annually, if it elects under draft s. 10.1(1)), will be distributed in the last half of December each year in cash or in Units – and to this end it will elect under s. 132.11(1) to have a December 15 year-end (so that such distributions are back-dated to December 15.) Units are redeemable at any time at NAV provided that they are tendered in multiples of a specified minimum number (a “PNU”). Units in smaller quantities are redeemable at any time at 95% of their trading price.

Evolve ETF

The Evolve ETF is a mutual fund established under the laws of Ontario which has applied to have its units listed on the TSX.

Manager and trustee

Evolve Funds Group Inc. is the promoter, manager, trustee and portfolio manager of the Evolve ETF and is responsible for the administration of the Evolve ETF.

Offering of Units

The Evolve ETF is offering units (“Units”) consisting of hedged units ("Hedged Units") and U.S. dollar denominated unhedged units ("Unhedged Units"). Hedged Units are denominated in Canadian dollars and Unhedged Units are denominated in U.S. dollars. Evolve ETF will enter into FX hedging contracts in order to deliver Canadian dollar returns on the Hedged Units.

Rolling of CBOE Bitcoin Futures

In order to achieve its investment objective, the Evolve ETF obtains exposure to CBOE Bitcoin Futures expiring in the current month or the next following month of the contract. It will typically invest in or obtain exposure to the nearby-month CBOE Bitcoin Futures, and periodically the positions in that contract that will expire in the near future will be sold, with the nearby-month CBOE Bitcoin Futures for the next following month being purchased.

95% redemption right

In addition to the ability to sell Units on the TSX, Unitholders may also on any Trading Day redeem Units for cash at a redemption price per Unit equal to 95% of the closing price for the Units on the TSX on the effective day of redemption, subject to a maximum redemption price per Unit equal to the NAV per Unit on the effective day of redemption, less any applicable administrative fee determined by the Manager, in its sole discretion, from time to time.

PNU redemptions

The Prescribed Number of Units (PNU) means the number of Units determined by the Manager from time to time for the purpose of subscription orders, redemptions or for other purposes. Unitholders may redeem the PNU (or an integral multiple thereof) of the Evolve ETF on any Trading Day for cash.

Redemption suspension

The Manager may suspend the redemption of Units or payment of redemption proceeds of the Evolve ETF: (i) during any period when normal trading is suspended on a stock exchange or other market on which securities owned by the Evolve ETF are listed and traded, if these securities represent more than 50% by value or underlying market exposure of the total assets of the Evolve ETF, without allowance for liabilities, and if these securities are not traded on any other exchange that represents a reasonably practical alternative for the Evolve ETF; or (ii) with the prior permission of the securities regulatory authorities where required, for any period not exceeding 30 days during which the Manager determines that conditions exist which render impractical the sale of assets of the Evolve ETF or which impair the ability of the Custodian to determine the value of the assets of the Evolve ETF.

Distributions

The Evolve ETF is not expected to make regular cash distributions.

Fees

The management and administration fees are 0.80% and 0.15%, respectively, of NAV.

Contango/backwardation

Because bitcoin and bitcoin Futures Contracts have an extremely limited price history, the extent to which contango or backwardation may exist in bitcoin futures markets is unclear. Extended periods of contango or backwardation could cause significant losses for the Evolve ETF.

Canadian tax consequences

Disposition or redemption of Units

A Unitholder who disposes of a Unit held as capital property, including on a redemption, will generally realize a capital gain (or capital loss) to the extent that the proceeds of disposition (other than any amount payable by the Evolve ETF which represents income allocated and designated to the redeeming Unitholder), net of costs of disposition, exceed (or are less than) the adjusted cost base of that Unit.

Status as MFT

The Evolve ETF is expected to meet the mutual fund trust requirements on or before the 91st day after the end of its first taxation year. If the Evolve ETF does not qualify as a "mutual fund trust" throughout a taxation year, it may be liable to pay alternative minimum tax and Part XII.2 tax, and may be subject to the "mark-to-market" rules if more than 50% of the fair market value of its Units are held by "financial institutions."

Status as non-SIFT trust

Bitcoin Futures trade on the CBOE (in Chicago). The Evolve ETF intends to take the position that it will not use its derivative instruments (or any other property) in the course of carrying on a business in Canada and, therefore, will not be a "SIFT trust." On that basis, it is anticipated that the Evolve ETF will make sufficient distributions in each year of any income realized by the Evolve ETF for Canadian tax purposes in the year so as to ensure that it will not be subject to Canadian income tax on such income.

Taxation year

The Evolve ETF will elect to have a taxation year that ends on December 15 of each calendar year.

Taxation of gains on Futures’ rollover

The Evolve ETF must pay tax on its net income for a taxation year, less the portion thereof that it deducts in respect of the amount paid or payable to its Unitholders in the calendar year in which the taxation year ends. In general, gains and losses realized by the Evolve ETF from Derivative transactions will be on income account, and such gains and losses will be recognized for tax purposes at the time they are realized by the Evolve ETF. Under the 8 September 2017 draft legislation, an election to realize gains and losses on "eligible derivatives" of the Evolve ETF on a mark-to-market basis may be available under draft s. 10.1. The Manager will consider whether such election, if available, would be advisable. If the Evolve ETF experiences a "loss restriction event," it will become subject to the loss restriction rules generally applicable to a corporation that experiences an acquisition of control.

Late December distributions of income

If, for any taxation year there otherwise be remaining income, the Evolve ETF will be required to pay or make payable in December after the 15^th such net income as one or more special year-end distributions of Units or cash to Unitholders as is necessary to ensure that it will not be liable for income tax on such amounts.

Income allocation on redemptions

Pursuant to the Declaration of Trust, the Evolve ETF may allocate and designate as payable any income realized by the Evolve ETF as a result of any disposition of property of the Evolve ETF undertaken to permit or facilitate the redemption of Units to the redeemed Unitholder. In addition, the Evolve ETF has the authority to distribute, allocate and designate any income to a Unitholder who has redeemed Units during a year in an amount equal to the Unitholder's share, at the time of redemption, of the Evolve ETF's income for the year. Any such allocations and designations will reduce the redemption price otherwise payable to the Unitholder and, therefore, the proceeds of disposition.

Taxation of income distributions to Unitholders

A Unitholder will generally be required to include in computing income for a taxation year the net income of the Evolve ETF as is paid or becomes payable to the Unitholder (whether in cash, in Units or a management fee distribution). Amounts paid or payable in December after the 15^th are deemed to have been paid on December 15.

Overview

The Sprott Physical Uranium Trust was formed in April 2021 to acquire all the common shares of Uranium Participation Corporation (“UPC”), an OBCA corporation, under a Plan of Arrangement (on the basis on ½ of a Trust unit for each UPC common shares). UPC held over US$600 million in uranium through a Bermuda subsidiary, which will be wound-up under s. 88(3). The Trust has now issued a Short Form Base Shelf Prospectus for the further issuance of units by it, which will continue to be listed on the TSX.

As it is a closed-end trust, it does not qualify as a s. 108(2)(a) unit trust or as a mutual fund trust. However, in order to avoid a deemed disposition on its 21^st anniversary, it is directed in its trust agreement to become a unit trust before then.

It does not expect to be subject to SIFT tax on the basis that the Uranium held by it and UPC will not be non-portfolio property. It and UPC do not expect to dispose of uranium except to fund administrative expenses, so that the uranium is expected to be capital property.

The Trust

The Trust is a closed-end Ontario trust established on April 23, 2021 with only one class of units. It was created in connection with the acquisition of the common shares of Uranium Participation Corporation (“UPC”), an OBCA corporation, under an Arrangement (on the basis on ½ of a Trust unit for each UPC common shares), and to invest and hold substantially all of its assets in physical uranium. The trust units are listed and posted for trading on the Toronto Stock Exchange (the “TSX”) under the symbols “U.UN”(Canadian dollar denominated) and “U.U” (U.S. dollar denominated). On August 9, 2021, the total NAV of the Trust and the NAV per unit of the Trust were US$623,262,959

UPC and UPBL

The Trust holds uranium directly as well as indirectly through a wholly-owned subsidiary of UPC, Uranium Participation Bermuda Limited (“UPBL”). UPBL was formed pursuant to a certificate of amalgamation issued by the Bermuda Register of Companies effective July 19, 2021 to invest directly in and hold uranium. The Trust intends to wind-up UPC on or around the date hereof such that UPBL will be a direct subsidiary of the Trust and the Trust will assume all of the assets and liabilities of UPC. The Manager, as investment fund manager of the Trust, has control and direction over UPC and UPBL and the financial statements of the Trust will be prepared on a consolidated basis with UPC (as applicable) and UPBL.

Manager

Sprott Asset Management LP is the Manager of the Trust. The Manager is an Ontario LP with Sprott Inc. (an Ontario corporation listed on the TSX and the New York Stock Exchange) as the limited partner and a wholly-owned Ontario subsidiary of Sprott Inc. as the general partner.

Canadian tax consequences

Deferred unit trust status

Although interests in the Trust are described by reference to units, the Trust is not a “unit trust” as defined in ITA s. 108(2) and, therefore, is not a mutual fund trust.” Pursuant to the Trust Agreement, the Trust shall take such steps as necessary or advisable so that the Trust may qualify as a unit trust prior to April 22, 2042, as determined by the Manager in its discretion. If the Trust does not qualify as a unit trust on its 21^st anniversary, it generally will be deemed at that time to have disposed of, and reacquired, its capital property at fair market value. Because the Trust does not qualify as a unit trust, it may not deduct expenses incurred to issue Trust Units.

Dividend income an FAPI

Dividends paid to the Trust by UPC, or, after the wind-up of UPC, UPBL, will be included in computing the income of the Trust. The Trust may also be required to include foreign accrual property income (“FAPI”) of UPBL. A deduction will be available to the extent dividends received by the Trust are considered to have been paid out of FAPI that has previously been included in the Trust’s income. In addition, the Trust will also be required to take into account capital gains and losses realized on dispositions of the common shares of UPC, or, after the wind-up of UPC, UPBL, or physical uranium.

Uranium as capital property

As the Manager intends for the Trust to be a long-term holder of physical uranium and does not anticipate that the Trust will sell its physical uranium (otherwise than where necessary to fund expenses of the Trust), the Manager anticipates that the Trust generally will treat gains (or losses) as a result of dispositions of physical uranium as capital gains (or capital losses), although depending on the circumstances, the Trust may instead include (or deduct) the full amount of such gains or losses in computing its income.

SIFT rules

The Trust will be a “SIFT trust” if it holds one or more “non-portfolio properties.” The mere holding by the Trust of physical uranium as capital property (or as an adventure in the nature of trade) would not represent the use of such property in carrying on a business in Canada and, therefore, would not by itself cause the Trust to be a SIFT trust. Similarly, provided that the physical uranium owned by UPBL is not used in carrying on a business, the common shares of UPBL should also not be non-portfolio property.

General

Issuance of units of a unit trust and mutual fund trust (listed on the TSX and NYSE Arca) which will invest substantially all its assets in platinum and palladium bullion (on approximately a 50/50 basis). Subject to a minimum redemption quantity of 25,000 units, the units may be redeemed on a monthly basis for bullion (with partial cash payments made based on 100% of NAV). They also may be redeemed on a monthly basis for cash (with notice required to be given by the 15th day of the month) for 95% of the lesser of the VWAP for the last five days of the month and the closing NAV for the month.

Canadian income taxation

There is no restriction on non-resident ownership of the Trust as platinum and palladium bullion are not taxable Canadian property. As the Trust does not intend to dispose of bullion except on physical redemption and to raise cash for incidental expenses, it expects to treat its bullion as capital property. The Trust should not be subject to SIFT tax as the mere holding of bullion as capital property (or as an adventure in the nature of trade) should not represent the use of such property in carrying on a business in Canada.

As the bullion is not taxable Canadian property, redemption gains should not be subject to withholding tax under s. 132(5.1) and 212(1)(c) - provided that the bullion is held on capital account.

US income taxation

The Trust is expected to be a PFIC.

Gains of US individuals on the sale of units may be taxable as long-term capital gains (at a maximum rate of 15% under current law - scheduled to increase to 20% for taxable years beginning after December 31, 2012), compared to a long-term capital gains tax rate of 28% applicable to the disposition of physical platinum and palladium bullion and other "collectibles" held for more than one year), provided that the US investor has held the units for more than one year prior to the sale and the US investor has made a timely and valid Qualified Election Fund election.

Commodity taxation

The palladium (whose purchase in Canada would be subject to HST) likely will be stored in Europe. Platinum will be stored at the Royal Canadian Mint. Unitholders who physically redeem are responsible for the HST/GST on the palladium received as well as for any out-of-province PST.