Duke Energy Income Fund - MRRS Decision

Headnote

Mutual Reliance Review System for Exemptive Relief Applications --issuer income fund to offer subscription receipts to fund acquisition from related party - issuer income fund to transfer funds to wholly-owned entity, which in turn will subscribe for units of partnership - partnership jointly owned by issuer income fund and related party - subscription a related party transaction - issuer income fund to comply with valuation and minority approval requirements for acquisition - issuer income fund to comply with minority approval requirement for subscription of partnership units - issuer income fund exempt from valuation requirement in connection with subscription of partnership units

Applicable Ontario Rules

OSC Rule 61-501 Insider Bids, Issuer Bids, Business Combinations and Related Party Transactions, ss. 1.3, 1.4, 5.4, 9.1.

August 16, 2006

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO AND QUÉBEC (the "Jurisdictions")

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

DUKE ENERGY INCOME FUND (the "Filer")

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the "Decision Maker") in each of the Jurisdictions has received an application from the Filer for a decision under Ontario Securities Commission Rule 61-501 Insider Bids, Issuer Bids, Business Combinations and Related Party Transactions and Section 263 of the Securities Act (Québec) (the "Legislation") that the valuation and related disclosure requirement (the "Valuation Requirement") applicable to a "related party transaction" under the Legislation shall not apply to the Subscription (as defined below).

Under the Mutual Reliance Review System (the "System") for Exemptive Relief Applications:

(a) the Ontario Securities Commission is the principal regulator for this application, and

(b) this MRRS decision document evidences the decision of each Decision Maker.

Interpretation

Defined terms contained in National Instrument 14-101 Definitions have the same meaning in this decision as therein ascribed unless they are defined in this decision.

Representations

This decision is based on the following facts represented by the Filer:

1. The Filer was constituted as an open-ended trust on November 2, 2005 under the laws of the Province of Alberta and its head office is located at 2600 Fifth Avenue Place, East Tower, 425 -- 1 Street SW, Calgary, Alberta. The Filer is a reporting issuer in each of the provinces of Canada.

2. The beneficial interests in the Filer are represented and constituted by two classes of units described and designated as "Units" and "Special Voting Units". An unlimited number of Units and Special Voting Units may be issued pursuant to the Filer's trust indenture. The Units are listed on the Toronto Stock Exchange (the "TSX") under the symbol "DET.UN".

3. The Filer holds all of the trust units and notes of Duke Energy Commercial Trust ("CT"). The Filer also holds, indirectly through CT, a 42.41% interest in Duke Energy Facilities LP (the "Partnership"), a limited partnership formed under the laws of the Province of Alberta, through its ownership of ordinary limited partnership units of the Partnership ("Ordinary LP Units").

4. The Partnership owns all of the issued and outstanding shares of Duke Energy Midstream Services Canada Corporation (the "Corporation"), which has interests in nine raw gas processing plants and over 1,400 km of natural gas gathering pipelines.

5. Concurrent with the initial public offering of Units, the Partnership issued 20,913,750 exchangeable LP units of the Partnership (the "Exchangeable LP Units"), which represents a 57.59% interest in the Partnership, to DEGT Midstream Holdings Partnership ("DEGT MHP"), a wholly-owned subsidiary of Westcoast Energy Inc. ("Westcoast").

6. As described in detail below, the Exchangeable LP Units are exchangeable, directly or indirectly, on a one-for-one basis for Units of the Filer at the option of the holder at any time.

7. Each Exchangeable LP Unit is accompanied by a Special Voting Unit that entitles the holder to receive notice of, attend and to vote at all meetings of Unitholders. The Special Voting Units entitle holders thereof to vote in respect of all resolutions of Unitholders (including resolutions in writing) as if they were the holder of the number of Units that they would receive if all their Exchangeable LP Units were exchanged for Units. However, the holders of Special Voting Units are not entitled to any interest or share in the Filer, in any distributions of any nature whatsoever from the Filer nor do they have any beneficial interest in any assets of the Filer on termination or winding-up of the Filer. There are 20,913,750 Exchangeable LP Units outstanding and therefore, the same number of Special Voting Units outstanding. As at the close of business on August 10, 2006, 36,313,750 units of the Filer were outstanding, comprised of 15,400,000 Units and 20,913,750 Special Voting Units.

8. All of the Units of the Filer are registered in the name of CDS & Co. All of the outstanding Special Voting Units are held by DEGT MHP. To the best of the knowledge of the officers of the administrator of the Filer, no person beneficially owns or exercises control or direction over units of the Filer which carry more than 10% of the voting rights attached to all units of the Filer other than DEGT MHP which owns 20,913,750 Special Voting Units representing 57.59% of the votes attaching to all of the units of the Filer.

9. The Ordinary LP Units and the Exchangeable LP Units entitle the holder thereof to one vote for each whole unit held at all meetings of the partners of the Partnership and have economic rights that are equivalent in all material respects, except that Exchangeable LP Units are exchangeable, directly or indirectly, on a one-for-one basis (subject to customary anti-dilution protections) for Units at the option of the holder at any time.

10. Ordinary LP Units and Exchangeable LP Units may not be transferred to a person who is not resident in Canada for purposes of the Income Tax Act (Canada).

11. Pursuant to an administration and governance agreement among the Administrator (as defined below), the Filer, CT, the Partnership, the general partner of the Partnership, Westcoast and the trustee of the Filer (the "Administration and Governance Agreement"), DEGT MHP is not permitted to transfer its Exchangeable LP Units unless: (i) such transfer would not require that the transferee make an offer to holders of Units to acquire such Units on the same terms and conditions under applicable securities legislation, if such Exchangeable LP Units, and all other outstanding Exchangeable LP Units, were duly converted into Units immediately prior to such transfer; or (ii) the offeror acquiring such Exchangeable LP Units makes a contemporaneous identical offer for the Units (in terms of price, timing, proportion of securities sought to be acquired and conditions) and does not acquire such Exchangeable LP Units unless the offeror also acquires a proportionate number of Units actually tendered to such identical offer. Notwithstanding the foregoing, DEGT MHP may transfer all or a portion of its Exchangeable LP Units to one or more of its affiliates, provided that such affiliate becomes bound by the Administration and Governance Agreement.

12. The Administration and Governance Agreement also provides that the Filer will not accept any offer or agree to support any other proposal involving the Ordinary LP Units unless the same offer or proposal is made to the holders of the Exchangeable LP Units for a consideration based on the consideration for the Exchangeable LP Units which reflects the percentage of interest of the holders of the Exchangeable LP Units in the Partnership, without discount for minority position or restrictions on exchange for Units. DEGT MHP is entitled to participate, on a pro rata basis, in any sale by the Filer of its direct or indirect interest in the Partnership.

13. Westcoast is the holder, directly or indirectly, of all the interests of Duke Energy Facilities Management LP (the "Administrator"), the administrator of the Filer and also the manager of CT and the Partnership.

14. Westcoast is also the holder of all the issued and outstanding shares of Westcoast Gas Services Inc. ("WSGI"). WGSI owns interests in four raw gas processing plants and related gas gathering systems located primarily in British Columbia.

15. The Filer is proposing to purchase, indirectly, all of the outstanding shares of WGSI (the "Acquisition") for cash consideration (the "Acquisition Price").

16. The Filer expects to finance the Acquisition in part from the proceeds of a distribution (the "Offering") of subscription receipts of the Filer by way of a short-form prospectus.

17. Assuming all of the conditions to the closing of the Acquisition are satisfied or waived, the Filer will use the proceeds of the Offering to subscribe for securities of CT. CT will use these funds to subscribe for additional Ordinary LP Units (the "Subscription"). The Partnership will use the proceeds of the Subscription, plus funds drawn under its existing credit facility with third party Canadian chartered banks, to lend an amount equal to the Acquisition Price to the Corporation which the Corporation will in turn use to fund the Acquisition.

18. The Acquisition is a "related party transaction" under the Legislation.

19. The Filer will comply with the requirements of the Legislation in respect of the Acquisition. As such, a special committee of independent trustees of CT has retained RBC Dominion Securities Inc. to prepare a formal valuation and a fairness opinion in respect of the Acquisition. Furthermore, the unitholders of the Filer (excluding the holders of Special Voting Units) will be asked to approve the Acquisition at a special meeting (the "Meeting") which is currently proposed to be held on or about September 11, 2006. The Acquisition will require the approval of the majority of the minority of the Unitholders of the Filer.

20. The Filer, CT, DEGT MHP and the Partnership are "related parties" within the meaning of the Legislation.

21. The Subscription would constitute a "related party transaction" under the Legislation.

22. Pursuant to the Legislation, a "related party transaction", including the Subscription, must be approved by a majority of the minority of affected securityholders unless an exemption is available. The Filer will be seeking such approval at the Meeting for the Subscription.

23. The Legislation requires that a formal valuation be obtained for a "related party transaction" unless an exemption is otherwise available.

24. The Legislation requires that an issuer that is required to obtain a formal valuation shall provide the valuation in respect of the non-cash assets involved in a related party transaction. In the case of the Subscription, a valuation would accordingly be required of the Ordinary LP Units.

Decision

Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the decision has been met.

The decision of the Decision Makers under the Legislation is that the Valuation Requirement applicable to a "related party transaction" under the Legislation shall not apply to the Subscription provided that:

(i) the management proxy circular (the "Circular") for the Meeting will state that the Filer, the general partner of the Partnership and DEGT MHP have no knowledge of any material information concerning the Partnership or the Ordinary LP Units that has not been generally disclosed, and

(ii) the Circular will include a description of the effect of the distribution of the Ordinary LP Units issued pursuant to the Subscription on the voting interests of the CT and DEGT MHP in the Partnership.