The information that follows is presented in a question and answer format to simplify our explanation and your understanding  of the 49 North Group of Funds and some of the basic concepts that you should be aware of if you are considering an investment in a 49 North Fund. This information is of a very general nature only. In particular, Canadian federal and provincial income tax legislation is very complicated and the questions and answers relating to income tax considerations are intended only to provide readers with a very basic understanding of some of the key, general tax considerations applicable to investments in flow-through shares and flow-through units. All information contained in these frequently asked questions is qualified in all respects by the detailed information contained in the prospectuses and other statutory filings of the 49 North Funds. Prospective investors are urged to consult their own investment, tax and other professional advisors for additionalinformation.

• What is 49 North?
• What is a flow through fund and what is a flow-through unit?
• What is the relationship between FNR and the 49 North Flow Through Funds?
• What tax incentives are there for investing in 49 North and how do they work?
• What is CEE and CDE?
• What is a flow-through share?
• How are flow-though shares taxed?
• What kind of companies issue flow-though shares?
• What is a super flow-through share?
• What are ITCs? How are super flow-through shares taxed?
• What's the difference between a flow-through share and a flow-through unit?
• Who should invest in flow-through shares and/or flow-through units?
• Why invest in a 49 North Flow Through Fund rather than investing in flow-through shares issued directly by a resource company?
• What kind of investments does 49 North make?
• Why invest in 49 North rather than another resource investment fund?
• What is a Liquidity Transaction?
• How can I invest in 49 North?
• Are investments in 49 North RRSP eligible?
• Do the tax incentives have to be repaid?

49 North is a group of Saskatoon, Saskatchewan based investment funds and companies designed to provide individual investors with a unique opportunity to participate in the vibrant mining and oil and gas sectors in Saskatchewan and beyond. The centerpiece of the 49 North Group is 49 North Resource Fund Inc. (the "Listed Fund" or "FNR"), a corporation formed under and governed by The Business Corporation Act (Saskatchewan) whose common shares trade on the TSX Venture Exchange (trading symbol FNR). The 49 North Group also includes a series of Flow Through Funds that are formed on an annual or more frequent basis and act as a tax advantaged window for investing in the listed shares of FNR.

Flow through funds are typically limited partnership that raise money by selling limited partnership units or interests - typically referred to as "flow-through units" - to investors and then invest the money raised in "flow-through shares" of resource companies. There are dozens - perhaps hundreds - of flow through funds in Canada and every fund is different. However, all flow-through funds are designed with the intent that the funds' investors will be able to take advantage of various Canadian federal and provincial Tax Incentives

49 North Flow Through Funds have been established in each year since 2005. Each 49 North Flow Through Fund is structured as a limited partnership and is governed by a limited partnership agreement and by The Partnership Act and The Business Names Registration Act (Saskatchewan).

FNR and the 49 North Flow Through Funds share common management. The members of the board of directors of FNR are also members of the boards of directors of the general partners of each of the 49 North Flow Through Funds and TMM Portfolio Management Inc. manages the investment portfolios of all of the 49 North Funds. Click here for more information about our management team.

More importantly, the 49 North Flow Through Funds are a window for investing in FNR in a tax advantageous matter. The Flow-Through Funds offer flow-through units to the public on an annual basis and invest the proceeds raised from those offerings in a portfolio of flow-through shares of resource companies under agreements whereby the resource companies agree to incur and renounce CEE to the Fund, which is in turn allocated by the Fund pro rata amongst its investors / limited partners. Generally, investors may deduct the CEE that is allocated to them in calculating their own taxable income. These CEE deductions, in combination with additional federal investment tax credits and, in some cases, provincial tax credits, (ITCs) that may be available in respect of investments by a Fund in so-called super-flow through shares, can reduce an investor's initial after tax cost of investment to less than one-half of the face amount of his investment.

49 North Flow Through Funds are structured so that most of these tax benefits are realized by investors in their first year of investment. In the following year, the 49 North Flow Through Fund is merged into the Listed Fund in a so-called Liquidity Transaction. In this way, investors get the tax advantages associated with flow-through investments and also get the opportunity to share in the growth of value of FNR's professionally managed investment portfolio.

Click here to view a diagram that explains this relationship between the 49 North Flow Through Funds and FNR.

The exploration activities of mining and oil and gas companies in Canada are a very important part of Canada's economy; employing thousands of Canadians and contributing billions of dollars to the Nation's gross domestic product. But bringing a new mine or oil or gas well into production is an expensive and risky business. Much of the resource exploration activity in Canada is carried out by junior companies that typically have huge upfront exploration costs. At the same time, these companies often do not have significant revenue during the exploration stage against which these exploration costs can be deducted - or written off. To encourage investment in resource companies, and thereby encourage the continued growth and development of Canada's vital resource and energy sectors, a number of mechanisms have been built into Canadian tax laws that, in effect, transfer to a resource company's investors / shareholders the deductions that the resource companies themselves would otherwise claim as a result of incurring these exploration expenses. By transferring these deductions to investors, the investors obtain tax advantages that may significantly lower the risk of investing in the resource exploration sectors.

 "Canadian exploration expenses" (or "CEE" for short) are certain types of expenses, as prescribed by the Income Tax Act (Canada) (the "Tax Act"), that are incurred by resource companies and that, in accordance with the Tax Act, are eligible for renunciation by the resource company that incurs the expense to the investors who purchase flow-through shares issued by the resource company. Also, certain expenses incurred by some resource companies which would ordinarily be characterized as "Canadian development expenses" ("CDE") may instead be deemed to be CEE to a limit of $1,000,000 per resource company, provided the resource company's "taxable capital employed in Canada" is not greater than $15,000,000.

A flow-through share is, typically, an ordinary common share of a resource company that qualifies as a "flow-through share" under the Tax Act by virtue of an agreement between the investor and the resource company whereby the resource company agrees to incur and renounce CEE (and/or if applicable CDE that qualifies as CEE) to the investor.

Where a resource company issues flow-though shares, CEE that is properly renounced by the resource company to the investor may be deducted by the investor in calculating his taxable income for the year in which the CEE is renounced; which is typically the year that the shares are subscribed for and issued, although the CEE may not actually be incurred until later. For example, if an investor subscribes $1,000 for flow-though shares in 2008 and the resource company agrees to incur and renounce to the investor $1,000 worth of CEE with an effective date in 2008, the investor can generally deduct that $1,000 in calculating his taxable income for the 2008 tax year even though the resource company may not actually incur the CEE until 2009. By deducting CEE, an individual in the top marginal tax rate can reduce his initial after tax cost of investment by between approximately 39% and 48% depending on the investor's province of residence.

Flow-through shares are normally issued by corporations whose principal business is mineral exploration, development and/or production or oil and/or natural gas exploration, development and/or production. Certain companies - commonly referred to as "alternative  energy companies" - engaged in the generation of electricity or other energy forms through alternative means or the development of projects for alternative energy generation such as "clean-coal" power production, wind power or solar power, or for the production of alternative fuels may also issue flow-through shares.

Investors in super flow-through shares are normally eligible to claim both the 100% CEE deduction that applies to flow-through shares generally, and a 15% non-refundable federal investment tax credit ("Federal ITC") that can be applied against federal income tax that would otherwise be payable; thereby further reducing the investor's after tax cost of investment. In addition, certain provinces - including British Columbia, Saskatchewan, Manitoba Ontario and Quebec - have (or have had) their own investment tax credit programs ("Provincial ITCs) that allow investors to claim non-refundable tax credits against their provincial income taxes otherwise payable, thereby potentially reducing an investor's after tax cost of investment still further. However, Provincial ITCs can normally only be claimed in respect of exploration activity conducted in the province that offers the tax credit and can normally only be claimed by investors who are resident of, or that otherwise pay provincial income tax in, that province  

Flow-through shares are issued directly by a resource company to an investor. Where the investor is an individual, the CEE is renounced directly to the individual investor and that CEE and, if applicable, related ITCs, are claimed directly by the investor. Flow-through units are securities that are issued by flow through funds that in turn invest the proceeds raised from selling the flow-through units in a portfolio of flow-through shares issued by numerous resource companies. When this is done, the CEE of all of the investee resource companies is renounced to the fund. The fund then allocates the CEE and any related ITCs to its investors pro rata and the investors then claim the CEE and ITCs allocated to them in computing their personal taxable income.

Any Canadian resident may invest in flow-though shares or flow-through units provided that the shares or units have been properly qualified for distribution to the public by a prospectus or are otherwise available for investment on a private placement basis in accordance with applicable securities laws. However, the tax benefits are greatest for investors whose incomes are subject to high marginal tax rates. Moreover, when investing in flow-through shares or units, investors should always consider the merits and risks of the investment and not just the potential tax benefits. Remember, you are investing, directly or indirectly, in the securities of what are often relatively small, early stage resource companies. These securities may appreciate in value a great deal but they may also decline in value. Shares in junior and intermediate resource companies may be illiquid and their market price or value may be very volatile. Prospective investors in 49 North Flow Through Funds are urged to consult their investment advisor to determine if an investment is appropriate in their personal circumstances and in light of their personal investment objectives.

There are several answers to this question. First, flow-through shares are often issued on a private placement basis, predominantly to flow through funds and other institutional investors. Accordingly, individual investors often don't have access to direct flow-through share investment opportunities. Second, shares issued on a flow-through basis are sometimes issued at a premium to the prices at which the same common shares would be sold on a non-flow-through "hard dollar" basis. Because institutional investors, such as the 49 Funds, invest in relatively large share blocks and one or more 49 North Funds may invest in several rounds of financing by a particular resource company, 49 North can often negotiate a better price for the shares it buys compared to the prices paid by individual investors and/or may negotiate better "sweeteners" such as warrants or other considerations that reduce the effective cost of the investment. Third, the constant presence of 49 North's management team in the resource securities market and its' almost 100 years combined experience, knowledge and contacts in the resource sector helps to ensure "deal flow" to 49 North which benefits all of its investors.  Fourth, 49 North provides diversification across a portfolio of resource companies that simply cannot practically be duplicated by most individual investors.

All 49 North Funds invest in resource companies with active exploration programs in Canada, with a particular emphasis on companies with exploration programs of merit in Saskatchewan. To maximize tax benefits, the 49 North Flow Through Funds initially invest exclusively in flow-through shares in accordance with investment guidelines that are spelled out in detail in the prospectuses of the respective Funds. FNR has a broader investment mandate and invests both in flow-through and non-flow through shares, as well as other resource sector related securities. 49 North Funds' investments tend to be weighted approximately 75% to the mining sector and 25% to the oil & gas sector, although the sectoral mix of the Funds' portfolios change over time as a result of changes in the market prices or values of portfolio securities and/or as a result of trading activity in response to evolving conditions in the resource sector and market opportunities.

The 49 North Funds focus on junior and intermediate resource companies, with investments made predominantly in resource companies that are listed on the TSXV, although investments are also made in TSX listed companies. Additionally, the 49 North Funds have a relatively heavy exposure to early stage, pre-IPO (Initial Public Offering) investment opportunities.

As the 49 North Group continues to evolve to maximize shareholder value, FNR expects to extend its activities beyond purely portfolio investing and towards becoming a more diverse investment, financial advisory and merchant banking company. Although its focus will remain on the resource sector, it expects to become more actively involved in the formation, management, strategic planning, growth and development of early stage resource companies and resource properties.  

We have designed and operate the 49 North Funds with the objective of becoming the vehicle of choice for ordinary Canadians interested in participating in the opportunities associated with early stage investment in Canada's dynamic resource sector. We believe there are several things that distinguish the 49 North Funds from other resource funds in Canada, including, to name a few, the following:

• 49 North Funds invest in resource companies active across Canada and, in the case of FNR, in companies with activities around the world. But our focus is mainly on Saskatchewan. 49 North's management team, led by a second generation resource financing specialist, provides unrivalled expertise and experience in Saskatchewan's resource sector and the 49 North Funds offer excellent exposure to investment opportunities in Saskatchewan's potash, uranium, diamond, base and precious metals, rare earth elements and oil & gas sectors.
• 49 North focuses on the small cap market. It invests (more so than many other investment funds) predominantly in resource companies that are listed on the TSXV and in early stage, pre-IPO investment opportunities. Investing in relatively smaller companies that are listed on a junior exchange (or are not listed) may be considered to be riskier than investing in securities of relatively larger companies whose securities are listed on a senior exchange such as the TSX. On the other hand, the potential returns on investment in smaller, early stage companies can be substantially greater.
•  Most other resource flow through funds are structured so that, after the year of investment in the fund, the flow-through units are exchanged for redeemable securities of a mutual fund. FNR is not a mutual fund. It is a closed-end investment company with investors in 49 North Flow Through Funds exchanging their flow-through units in a Liquidity Transaction for shares in FNR that can be freely traded on the stock exchange. The mutual fund structure may appeal to short term investors who are interested in a "quick flip" of their investment so as to profit on a short term basis from what is essentially a form of "tax arbitrage" resulting from the fact that, generally, 100% of the CEE allocated to the investor in flow-through units is deductible for income tax purposes, whereas only 50% of the capital gain resulting from the investors subsequent disposition of the mutual fund securities is taxable. However, this "quick flip" philosophy is counter-productive to 49 North's primary objective of achieving long-term capital appreciation of its investment portfolio since, if it was a mutual fund, it would need either to maintain significant, relatively non-productive cash reserves or sell portfolio securities at potentially inopportune times in order to fund redemptions of its securities. For this reason, 49 North has been structured as a closed-end, non-redeemable investment company rather than as a mutual fund.

Flow-through funds are designed as limited partnerships because, generally, limited partnerships do not pay income tax. Rather, the income (or loss) of limited partnerships is taxed in the hands of its investors / limited partners. As such, limited partnerships are very tax efficient investment vehicles for flow-through investments because the losses incurred in  the Fund's first year, including CEE and related investments tax credits, may be claimed directly by the investors, thereby significantly reducing their after tax cost of investment. However, after the CEE and ITCs are claimed, the limited partnership becomes a relatively inefficient and illiquid investment structure. Therefore, 49 North Flow Through Funds are designed so that in the year following the year of initial investment the Flow Through Fund is effectively merged into FNR in a so-called "Liquidity Transaction" (also sometimes called a "Reorganization Transaction" or a "Roll-over Transaction"). In a Liquidity Transaction all of the assets of the 49 North Flow Through Fund are transferred to FNR in exchange for common shares (on a tax deferred, "roll-over" basis). The Flow Through Fund is then dissolved and these shares are distributed pro rata to the investors / former limited partners of the Flow Through Fund. The end result of the Liquidity Transaction is that investors who initially invested in flow-through units of a 49 Flow Through Fund become shareholders in the Listed Fund, FNR. At that point, investors may continue to hold their shares in FNR indefinitely, transfer them to a self-directed RRSP and thereby obtain additional tax benefits, or sell their shares through the stock exchange.

49 North's previous Liquidity Transactions have been completed in February of the year following the year of investors' initial investment in the relevant annual 49 North Flow Through Fund, thus allowing investors to contribute their resulting FNR shares to a self-directed RRSP prior to the end of February deadlines. In this way, investors who wish to can get both the flow-through tax benefits and the RRSP benefits in the initial year of their investment. This is a record for the public flow-through fund industry in Canada.

There are two ways to invest in 49 North. FNR's common shares are listed on the TSX Venture Exchange and investors may purchase or sell common shares through the stock exchange by contacting their investment advisor. Trading prices change frequently and are determined by the "bid" and "ask" mechanisms of the exchange. 

Investors may also buy flow-through units in the initial public offering of a 49 North Flow Through Fund during the periods those units are being distributed. Currently there are no Flow Through's been offered. Investing in a 49 North Flow Through Fund is a tax advantaged way of investing, indirectly,  in FNR as after the tax benefits are allocated to investors in the IPO the  flow-through units are exchanged for FNR shares in a Liquidity Transaction and those shares can then be traded on the stock exchange as described above.

FNR's common shares are qualified investments for trusts governed by registered retirement savings plans ("RRSPs"), registered retirement income funds, deferred profit sharing plans and registered education savings plans.

Investments in flow-through units of a 49 North Flow Through Fund are not eligible investments for RRSPs and similar registered plans. However, once the flow-through units are exchanged for common shares of FNR in a Liquidity Transaction those shares can be contributed to an RRSP.

The tax savings that investors realize from deducting CEE and claiming ITCs do not normally have to be repaid. However, investors should appreciate that the tax payable and/or the deductions that may be claimed by any particular person depends, to a considerable degree, on the investors personal circumstances. Also, there are some risks associated with tax shelter investments, including the risk that resource companies that agree to incur and renounce CEE may fail to do so.  Prospective investors in a 49 North Flow Through Fund should  carefully review the  income tax considerations and  tax related risk factor sections in the Fund's  prospectus and obtain independent tax advise from an advisor who is knowledgeable in the area of income tax law.

Investors should also be aware that the adjusted cost base of their flow-through units will be reduced by the amount of the CEE they claim. Because investors in 49 North Flow Through Funds are generally allocated CEE equal to 100% their subscription price, they generally end up with a nil adjusted cost base on their flow-through units at the end of the year of initial investment and continue to have a nil adjusted cost base on the common shares of FNR they receive in the subsequent Liquidity Transaction. As a result, an investor who then sells or otherwise disposes of his units or FNR shares - such as by contributing  his FNR shares to an RRSP - will generally realize a capital gain equal to the full sale price or fair market value of the shares at the time of disposition. However, the investor still comes out ahead on an after tax basis since he can deduct 100% of the CEE when computing his taxable income in the year the investment is initially made but only has to include one half of the capital gain as a taxable capital gain in the year he disposes of the investment. Moreover, when shares are contributed to an RRSP the investor can normally again deduct 100% of the value of the shares at the time of the contribution, in accordance with and subject to the normal RRSP contribution rules. Additionally, where Provincial investment tax credits are available, the amounts claimed in one year are effectively taxed as income in the following year.