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Heritage Product Knowledge Course 050 Module 3

Module 3 - Getting To Know Your Product

Registered Education Savings Plans (RESPs)

Now, let's move on to the Plans. There are typically two (2) types of RESPs:
group plans like the Heritage Plans and individual plans similar to the Impression
Plan. In almost all cases, RESPs are offered by Prospectus only.

The Prospectus is the legal disclosure document that explains how the plans
work in detail for the Plans. It must be approved annually, by all of the
jurisdictions where the Plans are distributed; that is, the ten provincial and three
territorial securities commissions. A copy of the Prospectus must be left with
clients upon application for the Plans. Heritage Education Funds has adopted
the practice that a Prospectus is left with each sales presentation when an
enrolment occurs and when additional units are sold. You must be completely
familiar with the Prospectus.

In general, there are two (2) parts in any RESP. The first part is the time the
Member makes contributions into the savings plan (Contribution Period) and the
second, when money is received from the plan (Pay-out Period), principal and
Education a__istance Payments. In Individual Plans, the contributor determines
both parts, following the guidelines established by the Federal Government. In
group or scholarship-type plans, there are specific schedules that are determined
by the various providers or dealers.

In a Group Plan, like the Heritage Plans, (or Scholarship Plan), one of the most
important facts to remember is this: "the engine that drives the Plan" is that the
investment income earned, per Unit, at the Plan's Maturity (typically in the year
the child turns 18), is approximately equal to the income earned, per Unit, for all
other Units maturing in the same year. Every contribution code and Plan process
is based on this concept (see Prospectus -Contribution Schedule). As you will
note, there are 7 different contribution modes for the Heritage Plans and 15
different age codes for each. When you combine this with the previous
sentence, put simply, regardless of when a plan is started or which contribution
method is selected, each unit with the same Maturity Date will attract
approximately the same amount of interest over the life of the respective plan. In
the Heritage Plans, it is the income that counts; the contribution schedule is
simply the method of getting there. Plan operations such as conversions, re-
dating, reactivations, early maturities, etc. are based on this requirement.

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©Heritage Learning Systems May 2005. All rights reserved. The information contained herein is for the
exclusive use of Heritage Education Funds Inc., their licensed representatives and representatives in
training. Unauthorized duplication in whole or in part by any means for any reason without the expressed
consent of Heritage Education Funds Inc. is strictly prohibited.

The Education a__istance Payments or Scholarships in group plans are the
same on a per Unit basis as all other students qualifying with the same year of
eligibility which is supported by each Plan having earned approximately the same
income by the Maturity Date.

In some group plans like ours, one can transfer from the Group or "Scholarship"
Plan to the Self-Determined Option just prior to the Maturity date for the Pay-out
Period. At that time the Plan becomes an individual Plan or a self-directed plan.
In this case, the Member has given up the right to share in the pooled income,
given up the right to share in the interest income of Plans that have terminated
and given up the possibility of receiving any "top-up" from the Enhancement
Fund. The payout or Education a__istance Payments are based upon the
investment return of their own Plan and the Member gains control over these
payments.

In the Impression Plan, the focus is still on the year of Maturity; however, the
concept of the "Unit" is not used. Since the Impression Plan does not participate
in a pooled investment as the Group Plan does, the Education a__istance
Payments ("EAPs") are based solely on the investment return of their own Plan
and not on the number of Units purchased.

The "Heritage Plans" are instalment contracts that have a defined set of
contributions for a defined period. Annual statements of account have historically
been sent to each Member together with the Annual Report. Commencing in
2004, the Annual Report became available upon request rather than sent
When the contribution schedule is completed at Maturity, the Savings (total
contributions less Membership and Depository Fees, and, if applicable, insurance
premiums, and any other special processing fees) are returned to the Member,
tax-free, having been paid in "after-tax" dollars in the first place. There are no
qualifications required for the return of net Savings (see Prospectus - How Do I
Get Money Out for Post-Secondary Education?). However, a maturity
application form must be completed by the Member to verify enrolment of the
Nominee, if the student would like to remain eligible for the Canada Education
Savings Grant, which will be discussed later in this module.

There is a generic line that has been used for years by promoters of Group
RESPs, i.e. "You save for the first year. We pay for the next three".(providing the
member selects a 4 year plan). The idea is that the Savings going back to the
Member at Maturity would be used by that Member to a__ist with the student's
first year of post-secondary education. The investment income is pooled in the

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respective Scholarship Fund and used to fund the Education a__istance
Payments (EAPs or Scholarships), payable to Qualified Students, for the next
three years (in Scholarship Option 3). That is, when the student is enroled into
the second academic year level, she/he gets EAP #1, when she/he is enroled
into third academic year level, she/he gets EAP #2, and when she/he is enroled
into the fourth academic year level, she/he gets EAP # 3 (see Prospectus - How
are the Scholarships Calculated?).

When the Group Plan's investment income becomes part of their Scholarship
Fund, at Maturity, the investment income earned on the income in each pool is
paid to a separate fund called the "Enhancement Fund". The Enhancement
Fund is used to "top-up" the calculated pool share to provide the EAP that is
ultimately paid out to Students. It is important to note that there is no contractual
right to the "top-up" portion of the Enhancement Fund and it is only used to
"top-up" the Group Plan. It is totally discretionary on the part of The Foundation.
As well, there is no guarantee as to what the amount of the top-up will be. It is
also the intention of The Foundation to return an amount equal to all or a portion
of the Membership Fee in the Group Plan with the EAPs, depending on the
Scholarship Option selected. The Membership Fee portion is not taxable.

The Individual RESPs (Self-Determined Option and Impression Plan) do not
receive any "top-up" from the Enhancement Fund. Their EAPs are based solely
on the income accumulated in their individual Plans. (Membership Fees are not
returned to a Member who has selected the Self-Determined Option. The
Impression Plan does not have Membership Fees, but rather a 1.95% service
charge).

If a Member cancels the Group Plan at any time prior to Maturity, the investment
income is paid into the Scholarship Fund for the particular Plan's Year of
Maturity. If, for example, the Member started the Plan in 1995, having selected
the Year of Maturity as 2010, then terminated the Plan in 1999, the investment
income earned would go into the Year of Maturity Pool for that Plan, the 2010
pool, in this example. If an Impression Plan is canceled prior to Maturity, the
investment income will be paid to a Designated Educational Institution or if the
Member qualifies, he/she may receive Accumulated Income Payment (AIP).

While Heritage Education Funds has been providing Education Savings Plans
since 1965, they only became registered by the Federal Government in 1972.
Let's take a look at some of the changes that have taken place in the last little
while to improve the products you will represent. Keep in mind that when these
plans were first introduced, the payments from the plans could be used for

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University attendance only. If the child didn't go to University, the income from
the plan was forfeited.

The 1997 Federal Budget and RESPs

There have been many changes to RESP legislation over the past few years to
encourage parents and grandparents to begin a savings program. In the 1997
Federal Budget, these enhancements were made:

The annual contribution limit was doubled to $4,000, with a lifetime maximum
limit of $42,000. This increase in the annual limit gave contributors more
flexibility in the timing of their contributions, and often allowed them to make up
for missed contributions.

Siblings could benefit from the accumulated income saved for their brothers or
sisters. Should contributions be made for brothers and sisters within a family
unit, and, for some reason, some siblings do not continue on to post-secondary
education, a student replacement can be done without triggering the RESP over
contribution penalty. This change eliminates the myth that the plans are highly
restrictive in the sense that the student replacement is not permitted should the
original student not pursue post-secondary education.

Distance education courses may qualify for education a__istance payments. Full
time students enroled in a qualifying educational program, including
distance-learning courses, such as correspondence courses, at an eligible
institution are eligible for education a__istance payments. Remember that in the
beginning, plans were only for university programs. While the current rules still
require the program to be full time and a minimal duration (except in some cases
of student disability). Generally most programs that require high school
completion as a minimum will qualify.

Access to unused accumulated income is now available to the contributor, in
certain situations. If all intended beneficiaries are not pursuing higher education
by age 21, and the Plan has been in existence for at least 10 years, a Member
resident in Canada is allowed to withdraw the accumulated income from the plan
(AIP). The withdrawal from the RESP plan may be transferred either to the
contributor's RRSP or their spouse's RRSP, to a limit of $40,000 per Member
subject to available RRSP contribution room. Alternatively, the withdrawal can
be added to the contributor's income, subject to a penalty of 20% (12% in
Quebec) in addition to the regular taxes. This feature is applicable if the Self-

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Determined Option was selected at the appropriate time (within 180 days prior to
the Maturity Date of the "Heritage Plans") or if enroled in the Impression Plan.
This virtually eliminates the concern that if the student did not go to postsecondary
education, the parent or grandparent would lose all of the
accumulated income built up in the trust.

The 1998 Federal Budget and RESPs

In February 1998, there were further significant changes introduced affecting
RESPs. While these are reviewed in detail within the prospectus, the following
provides the highlights of the most significant items.

Canada Education Savings Grant (CESG)

In the 1998 budget, the Federal Government announced their intention to provide
additional a__istance to those people who are saving for their children's
post-secondary education by introducing the Canada Education Savings Grant
(CESG). Details of the grant are as follows:

-A grant of 20% of the first $2,000 of annual contributions made per student
will be available on contributions made after January 1, 1998.

-The grant money, in addition to the income earned on the grant money, will
be available to qualified students as part of their Education a__istance
Payment (EAP). Students may receive up to a lifetime maximum of $7,200 in
grant money.

-The grant is only available for students up to and including the year in which
they turn 17 years of age, and who reside in Canada each time a contribution
is made. The Nominee requires a Social Insurance Number and the Member
must sign an application form in order to apply for the grant.

-In the "Heritage Plans", after the plan matures and the Nominee confirms
enrolment into a recognized program, any grant that is not paid to the student
will belong to the respective pool. This presents a tremendous advantage for
those students in a group plan, as they will receive the benefit of not only the
EAPs forfeited to the pool, but also the grant money and interest of
non-qualified students.

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-In the Impression Plan and Self-Determined Option, if a Nominee does not
qualify upon plan maturity, the grant must be returned to the government.
However, under certain conditions, the income earned on the grant money
can remain to the credit of the Member(s) and can be transferred into their
RRSP, along with the plan investment income, or if withdrawn, be subject to a
20% tax penalty (12% in Quebec).

RRSP Transfer Limit

To further reduce the risk a__ociated with loss of interest should the student not
become qualified, the government increased the RRSP transfer limit to $50,000
per Member in 1999.

Relief from Over-Contribution Penalty

As of January 1998, a Member may transfer a RESP from one student to another
without attracting an over-contribution penalty provided that both students are
under the age of 21 at the time of transfer and are related to the Member by
blood or adoption in order to receive CESG.. Similar relief was provided in the
1997 Budget under the condition that the students were brother and sister. This
has been expanded in 1998 to include students related to the Member as defined
in the Income Tax Act.

SIN for Nominee Required for Plan Registration

As of January 1, 1999, the government requires that a SIN be provided for the
Nominee in order to register a Plan as a RESP. The SIN provided for the
Nominee is then validated against the government's database to ensure that the
name, birth date and gender on our files match exactly their files. To help ensure
that all new enrolments get registered, please refer to the Nominee's SIN card
when completing the application form. If the Nominee does not yet have a SIN,
the parent(s) or guardian(s) will have to request one. As of January 2001, all
new enrolments must be registered with a Nominee S.I.N. within 24 months
following enrolment or the plan will be automatically terminated. A suggestion
might be to carry SIN application forms with you when you visit families. This
way, you can complete your enrolment application using the same information as
is submitted on the SIN application form, which will ensure that the Plan is
registered.

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Members must provide their SIN at the time of enrolment in the RESP as well as
be a resident of Canada and both Member and Nominee continue to be a
resident of Canada each time a contribution is made.

A Plan WILL NOT be registered without the Member(s) and Nominee's SINs.
Any contributions made for a child without a SIN at the time of enrolment will be
placed in an interest bearing escrow account in the name of the Member. The
funds from the escrow account (contributions and any income earned)
contributed to the "Heritage Plans" or the Impression Plan, will be invested in the
same way as the a__ets in the Plans. At that time, the contributions will be
eligible for CESG and the tax status of the plans will take effect.

"Heritage Plans" Fees

Membership Fee

There is a Membership fee of $100 per unit, which is remitted to Heritage
Education Funds as the Distributor (see Prospectus - What are the Fees and
Expenses?). The fee is fixed, per unit, no matter what the size or method of
contribution, since the income received from the "Heritage Plans" are designed to
receive the same amount of interest by Maturity.

The Membership Fee is a one-time expense. It is included in the Member's
Contribution Schedule and is deducted from early contributions. The
Membership Fee is collected in installments as follows: 100% of contributions go
directly to Membership Fees until $50 per unit has been collected. 50% of
subsequent contributions are collected towards the Membership Fee, with the
other 50% going towards savings, until the total Membership Fee of $100 per unit
has been collected.

If, for example, the Member has two Units in the Plan, Membership Fees would
total $200. When the Member starts making Contributions in his/her Plan, the
first few Contributions go directly to reducing outstanding Membership Fees.
Actual Savings won't start to accumulate until the Member has paid one-half of
his/her Membership Fees. Once half of the total amount, or $100 in this case, is
paid, the Member's Savings (principal) starts to accumulate. The rest of the
Membership Fees are collected using 50% of subsequent contributions until all
Membership Fees are collected.

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Once 100% of the Membership Fees are paid, the Member's remaining
Contributions accumulate as Savings. For example, if the Member has two Units
and is on a monthly Contribution Schedule paying $50 a month, the first two
Contributions go entirely toward paying one-half of the Membership Fees (two
Contributions x $50 = $100). Then, one-half of the next four Contributions go
toward paying the rest of the Membership Fees (Four Contributions x $25 =
$100). After the sixth Contribution, all of the Membership Fees have been paid.
The seventh Contribution, and every Contribution after that, is put directly into the
Savings portion of the Member's Plan.

The length of time required to collect the Membership Fee will differ depending
on the amount of the Contribution, the Contribution Method and the number of
units.

The following chart demonstrates the application of periodic contributions
towards Membership Fees and Savings:

Purchase: One Unit Total Membership Fees: $100

Membership Fee Savings
Contribution Applied c__ulative Applied c__ulative
$25.00 $25.00 $25.00 0 0
$25.00 $25.00 $50.00 0 0
$25.00 $12.50 $62.50 $12.50 $12.50
$25.00 $12.50 $75.00 $12.50 $25.00
$25.00 $12.50 $87.50 $12.50 $37.50
$25.00 $12.50 $100.00 $12.50 $50.00
$25.00 0 0 $25.00 $75.00

The advantages of our "front-end load" Plans are sometimes misunderstood.
You should note that all Canadian Group RESPs have an identical fee structure.
This fee structure and the method of capturing the fees are provided under
National Policy 15, paragraph 7. The benefit of a "front-end load" is that it allows
for a much lower management fee, compared to mutual funds (see module on
competition). With a long-term investment like ours, the fee structure can be
significantly less onerous than higher annual Management Expense Ratios
(MERs). In addition, an amount equivalent to all or a portion of the Membership
Fee may be returned to the Nominee with the EAPs, depending on the
Scholarship Option selected.

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As long as the Member has made all of the required contributions and continues
in the Plan until the Maturity Date, the following percentage of the Membership
Fee may be returned based on the Scholarship Option selected.

Potential Rate of Membership Fees Returned

Scholarship Option Membership Fee Returned

Option 1 25%
' Option 2 50%
Option 3 100 %

Depository Fee

There is a nominal annual depository fee paid by the Member, per contract (not
per unit), of $3.50 for one-time contributions, $6.50 for annual and $10.00 for
monthly contributions (plus applicable taxes). This fee is deducted annually, in
advance, from the contributions. An important benefit is that the depository fee
ceases at maturity even though we continue to administer the agreement after
Maturity until all EAPs are paid out to students.

The Membership and Depository fees form part of the $4,000 annual contribution
limit available to the Member, and can attract the CESG.

Administration Fee

There is an Administration Fee of 1/2 of 1% (50 basis points) calculated on the
total of the Members' savings accounts, the Scholarship Fund, the CESG
account, the CESG income accounts, and the Enhancement Fund of the Group
Plan. Although this fee is calculated based on the total of these accounts, it is
charged against the income accounts only to ensure that the Members'
contributions and grant principal is not reduced by this fee.

In the same way, the Portfolio Management and Trustee's fees are charged to
the plans' income before allocation to the various plan accounts, as discussed
under Administration Fee above.

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Portfolio Management Fee

A range of .05% to .20% of the average market value of a__ets in the plan is
charged for the management of the "Heritage Plans" fund.

Special Process Fees

There are additional special process fees charged for certain special transactions
including:

•
full or partial transfer of funds,
•
a__ignment
•
adding or removing a Member,
•
suspension of Contributions,
•
substitution of Nominee,
•
change of date of enrolment,
•
change of Maturity Date,
•
sub-division of Units to enrol an additional Nominee,
•
conversion to another Contribution schedule,
•
returned cheques and
•
each Self-Determined Option withdrawal after the first in each
calendar year,
Insurance Premiums

"Heritage Plans" contributions may be covered under a Group Death and Total
Disability Insurance policy. While the insurance is optional, each contribution
made by a Member under the contribution schedule outlined in the Prospectus
includes the insurance premium (except for Single Contributions). This premium
does not attract CESG, as it never forms part of the trust. The insurance
premium is not included as part of the $4,000 annual maximum contribution
amount. It is discontinued at the time the Plan terminates or matures (more on
this later) and after a claim is entered into.

Special Plan Processes

Remember that in all Group Plans, the "engine that drives the plan" is the
investment income earned per unit by maturity. All processes that we use, such
as reinstatements, conversion, etc. are driven by the requirement for investment
income per unit being approximately equal at maturity. Let's review how this
applies to our Group Plan.

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Conversions

Remembering the basic principle of the Group Plans (the investment income
earned per unit being equal for all plans at maturity), the Member who "converts"
contribution methods must have his/her plan's investment income accumulation
per unit, balanced with what the plan would have accumulated, had it been
enroled in the new contribution code from the plan's original effective date.
Similarly, the principal accumulation, per unit, in the Member's plan is balanced
with the per unit principal balance for these same contracts in the new
contribution code. The reason the principal and investment incomes are treated
separately is that RESPs are structured so that the investment income is inside
the tax shelter while the principal is outside of the shelter. The Member must
either pay the difference required (principal and investment income) or receive a
refund (principal only), as appropriate. The Member can choose to apply any
refund to purchase additional units. Under the Income Tax Act (ITA), investment
income cannot be returned to the Member unless she/he is also the (qualified)
Nominee of the plan (exceptions now possible in the Impression Plan and Self-
Determined Option, to be covered later). (See Prospectus - What are the
Contribution Methods under the Group Plan?).

Before any conversion is performed, it is extremely important to clearly explain
the impact the conversion may have on the principal amount which is returned at
Maturity. Many Members plan to use the return of principal to help fund the
child's first year of post-secondary education and a reduced amount may not fit
their requirements.

A conversion is not done for the Impression Plan as Members are not required to
make up any interest deficiency (there is no contribution schedule). Remember
that the income earned on their plan at Maturity is the interest that is returned as
their EAP. Each Plan does not have to accumulate an equal amount of income
as in the Group Plan.

Temporary Suspensions

Should a Member find that due to temporary financial circumstances they are
unable to make contributions for a period of time, they may request to
temporarily suspend their contributions. In the "Heritage Plans", the suspension
is allowed if the Member has fully paid the Membership Fee and is limited to two
years in length. They must pre-pay the insurance premium and all interest that
otherwise would have been accumulated on the plan. The sum of these two

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must not exceed the annual RESP contribution maximum of $4,000. At the end
of the suspension, they must either make up all missed contributions or restructure
the Plan details.

In the Impression Plan, there is no structured contribution schedule, contributions
after the first one are entirely voluntary, so "suspension" is not needed.

Discontinuation/Termination

If a plan is cancelled within 60 days of the date of application, the total of the
contributions will be returned to the Member (except insurance premiums, if
applicable) and the Plan will be terminated.

If a plan is discontinued after the 60th day, the contributions to date, net of the
Membership Fees, Depository Fees, and, if applicable, insurance premiums paid
will be returned to the Member (see Prospectus - What Happens if I Terminate
the Plan?).

If the Nominee does not have a SIN at enrolment, the contributions will be placed
in an interest bearing account as previously outlined.

A plan can be discontinued by written request from the Member (either/or both
Members, if a Joint Plan), or after two years of temporary suspension if the plan
is not reactivated (Group Plans). A plan can also be discontinued if a
contribution is not made in accordance with the contribution schedule.

In the "Heritage Plans", if contributions are not made in accordance with the
contribution schedule after 90 days, the Plan will not terminate by default, but
simply become Inactive. If a "Heritage Plan" is discontinued by request or if
contributions are not resumed in accordance with the contribution schedule
within three years of inactivity, the Plan will become terminated. If Savings are
not claimed, they are donated to the Enhancement Fund.

When a "Heritage Plan" terminates at any time prior to Maturity and had been
terminated for 3 years or more, the investment income goes into the Scholarship
Account for the year of maturity pool for that particular plan. Since the plan has
been terminated, any eligibility for EAPs is lost.

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Reactivation

A plan can only be reactivated providing a refund cheque has not been cashed.
To reactivate a "Heritage Plan", the Member must have his/her plan's principal
and investment income accumulation, per unit, balanced with the amounts that
the plan would have accumulated, per unit, had the Plan not been suspended or
discontinued. A reactivation occurs after a Plan has been inactive, or after a
Plan has been in a period of temporary suspension. The Member must pay the
difference required (principal and investment income) before the Plan can be
reactivated. The reactivation amount will represent the reimbursement to the
fund of the refund received on discontinuation/suspension (if any), the
Contributions that would have been made during the period of
discontinuation/suspension and the investment income that would have been
earned on the refund as well as the missing Contributions had the Plan not been
discontinued/suspended in the first place. In the Heritage Plans, if the Member
cannot make up missed Contributions, the Plan may be re-structured (re-dated,
converted to another Contribution method, or Units reduced to provide for a
lower Contribution amount).

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Impression Plan Fees

Impression Management Fee

There is an annualized management fee (MER) of 1.95% charged against the
funds held in the Impression account. Included in this fee are ALL
administrative, trustee and portfolio management fees.

Impression Deferred Sales Charges

If funds in the Impression Plan are withdrawn within six years of contributing into
the plan, a deferred sales charge will apply to the amount withdrawn, unless the
amount is withdrawn more than 4 years after the plan was established and is
used as an education a__istance payment. The sales charge is relative to the
length of time between withdrawal and contribution. They are as follows:

Date of Withdrawal
From Date of Enrolment
Sales Charge
1 year or less 5.0%
2 years 4.5%
3 years 4.0%
4 years 3.0%
5 years 2.0%
6 years 1.0%
7 years 0.0%

Returned Cheque Fee

A returned cheque fee is charged at a rate of $10.00 per occurance. The
returned cheque fee is paid by the Member only if the cheque is returned by the
Member's bank because of 'insufficient funds'.

Termination of the Impression Plan

If an Impression Plan is terminated (with written notice) within 60 days of the first
contribution, a full refund of the initial contribution will be issued.

If termination occurs after 60 days and within the first 6 years of enrolment and
the withdrawal is used for an education a__istance payment paid 4 years after
the enrolment date, a Deferred Sales Charges will apply.

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Substitution of Nominee - "Heritage Plans"

A Member can change a Nominee to another Nominee, up to age 21, for any
reason. If the new Nominee is not a brother or a sister of the original Nominee or
related to the Member by blood or adoption, accumulated CESG is repaid to the
government.

The Income Tax Act specifies what is the maximum amount that can be
contributed to a RESP and how long the Plan can be open. The income from the
Plan must be taken by the end of the 25th year following the year of enrolment.
It also says that if you change from one Nominee to another, the change will be
considered to be within the above limits and the ensuing Plan must continue to
satisfy those limits prior to and following the change. The final provision is that
the application date for the original Nominee remains as the effective date for the
new Nominee for the purposes of these regulations.

To illustrate, if you were to change from one child to another where there is a
wide age difference and the original Plan was taken out when the first child was
a newborn, we must determine whether the 25 year limit would occur before the
second child could complete their post-secondary school education. For
example, if the first child (the original Nominee) is age 13, and you want to
change their plan to a second child who is age 8, there is a five-year difference.
This would take 5 years off the 25-year maximum allowable life of a Plan. In this
example, the second child would have to qualify for all of the income from the
plan by age 20. This, of course, is not practical. So, while our Plans are the
most flexible available, we must work within the guidelines of the Income Tax
Act.

Substitution of Nominee - Impression Plan

Any person (any age) may be nominated in place of the original Nominee at any
time. If the new Nominee is not a brother or sister of the original Nominee and is
under 21 years of age, or both persons are under the age of 21 and are related
to the Member by blood or adoption, all accumulated CESG would be repaid to
the government.

Over Contribution Rules for Family Members

When a change of Nominee takes place, all of the Contributions made on behalf
of the first Nominee are now considered to have been made on behalf of the new
Nominee. A change in Nominee will not be permitted if, as a result of the

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change, the new Nominee would be considered to have excess contributions in
prior years. This could occur if both Nominees had a Plan and the sum of
Contributions between them exceeds $4,000 in any year. However, under
proposals in the Income Tax Act, a Nominee can be replaced with a brother or
sister, (or other person connected to the Member by blood or adoption), who is
under 21 years old, without having to take into account the contributions made
for the first Nominee in determining the amount of over contributions for the new
Nominee.

Grant Repayments and Loss of Contribution Room Penalties

We must caution that some of these special Plan processes may result in a
CESG (grant) penalty. Specifically, we will have to return a CESG to the
government in the following circumstances:

1.
If the Member withdraws funds from a Plan for non-educational purposes;
2.
If the Plan is terminated or discontinued;
3.
If the Nominee is changed and the new Nominee is not related to the Member
by blood or adoption and is not 21 years old or younger;
4.
If the Member transfers some, but not all funds from one contract to another;
5.
If the Nominee does not become a qualified Nominee under the Self-
Determined Option or the Impression Plan.
Further, if the Member withdraws funds in excess of $200, which were
contributed before January 1, 1998, the Nominee will not be able to collect grant
money for the rest of the year and for the next two years. Any grant carry
forward room for the same period would be lost as well. Any withdrawals result
in the return of the appropriate amount of CESG with no restoration of grant
contribution room.

Maturity

a__uming that the Contribution schedule is completed, the Plan matures on the
Maturity Date at which point the principal (total contributions made less the
Membership Fees, Depository Fees, and insurance premiums paid) is returned
to the Member tax-free (having been paid in "after-tax" dollars in the first place).

Module 3-Page 16

As well, depending on the Scholarship Option that has been selected, all or a
portion of the Membership Fees may be returned to the Nominee with the
EAP(s). There is no return of Membership Fees in the Impression Plan or in the
Self-Determined Option. The Maturity Date is July 31 in the year of maturity
which in most cases is the year in which the child turns 18. There are no
qualification requirements for the return of the principal. However, to retain
accumulated Grant the Nominee must be enroled in an eligible institution when
withdrawing the principal. In the Scholarship Options, the investment income
goes into its year of maturity Scholarship pools. In the Self-Determined Option
and Impression Plan, the investment income goes into the Scholarship Account
for the particular Nominee(s).

In the "Heritage Plans", prior to Maturity, the Foundation will send the Member a
questionnaire to determine if they wish to remain in the Scholarship Plan or
transfer to the Self-Determined Option. If they select the Scholarship Plan, they
also advise if they wish to be in Scholarship Option 1, 2 or 3. The interest will go
to the Scholarship pool. If they select the Self-Determined Option or are in the
Impression Plan, the interest will go to a personal account for payouts. In the
personal account, the Member can tell us when they want their interest back and
in what amounts. They determine the timing, as this is totally their own option.
Their choice will not affect other Members or Nominees. They can take some or
all of their Plan Income for first year, subject to the Income Tax Act limits. (See
Prospectus - Scholarship Option and Self-Determined Option)

Scholarships (Education a__istance Payments)

There is a separate pool for each year of eligibility and one for each Scholarship
Option. In the Scholarship Option, investment income begins to flow into a pool
with the first Plan termination related to that pool. It builds slowly, over time, until
the maturity of all Plans for that pool. At this point, it becomes its maximum size.
At any time, there are at least 21 Scholarship pools. We still have the remainder
of the pool from two years ago, to make the third payment, this year, two-thirds of
last year's pool, from which we make the second payment this year, last year's
maturity pool (for the first payment, this year) on out to the last pool for years of
maturity 18 years from now. Each pool is distinct and cannot be used for any
purpose other than to pay Scholarships to its own participants. The same
process exists for Scholarship Options 2 and 1. There is no cross-subsidization
from one pool to another. Once a member makes a Scholarship Option
selection, they will not be able to change it at a later date. All funds in the pool
would have already been allocated according to the selection first made.

Module 3-Page 17

Enhancement Fund

In the Scholarship Option Plans, the investment income earned on the pools
awaiting disbursement goes to the Enhancement Fund, and is used to "top-up"
the Nominees Scholarships. It is the intent of the Foundation that the return of
the amount equivalent to all or a portion of the Membership Fees in the
Scholarship Options be made from the Enhancement Fund. By maintaining
separate Enhancement Fund balances for each year of eligibility pool, we will
allow for these payments to be made. The Enhancement Fund also receives,
from time to time, funds from donations as well as the Foundation's affinity
programs.

The basic Scholarship calculation that comes out of the pool is supplemented by
amounts from the Enhancement Fund. It is important to note that there is no
contractual right to the moneys in the Enhancement Fund by anybody in the
Plans. These supplements are totally discretionary on the part of the
Foundation, which uses the Enhancement Fund to supplement the payments.

With the Impression and Self-Determined Option, the income earned on the
Member's Contributions is transferred to a personal account for the Nominee(s)
nominated under the Plan. The EAPs are made from this personal account as
the Nominee progresses successfully through post-secondary school.

Over the history of the Plans, the majority of the capital in the Enhancement
Fund has been used for these purposes, but there is no guarantee as to what the
amount of the top-up will be. In addition to its general supplement function, it is
designed to smooth "b__ps" in the levels for reasons such as changes in
qualified numbers of Nominees etc.

Example of Scholarship Calculation:

It is very likely that the EAP levels for the Self-Determined Option and Impression
Plan will be lower than those of the Scholarship Options. The interest is pooled
and is metered out, 1st, 2nd and/or 3rd EAPs for 2nd, 3rd and/or 4th year of a
qualifying program. There will also be a top-up from the Enhancement Fund.
Depending on the Scholarship Option selected, an amount equivalent to 25%,
50% or 100% of the Membership Fees may be returned with the
Scholarship(s). This is at the discretion of the Foundation and is therefore, not
guaranteed.

Module 3-Page 18

Let's take the Scholarship Option #3 pool for a 2003 Maturity. The Savings
(Member's principal less applicable fees) could be used for first year of postsecondary
education, beginning in 2003. When the eligible Nominees
successfully complete their 1st year and are enroled in the second academic
year level, we take the first third of the pool and divide it by the number of units
for qualified Nominees for that year. From this we get the basic EAP amount for
2004. When they successfully complete their 2nd year and are enroled in the
third academic year level, (in 2005), we will take one half of the remainder (the
second third of the 2003 year of eligibility pool) and divide it by the qualified units
to get the 2003 pool's #2 EAP. Finally, if they successfully complete their third
year and are enroled in their fourth year level, they will qualify for EAP #3 in 2006
(the remaining portion of the 2003 year of eligibility pool). And 1/3 of the
Membership Fees may be returned with each of the 3 EAPs at the discretion of
the Foundation.

To become a Qualified Student under the Scholarship options, a Nominee must
attend a program of study of at least two (2) years in duration requiring full-time
attendance for at least six months of the year at a recognized institution.

The Members in the Self-Determined Option and Impression Plan have the
option of leaving their principal or Savings on deposit with their Plan, after
Maturity, to earn more tax-deferred interest for their personal account.

The Income Tax Act stipulates that the minimum a student must be in attendance
to be recognized as a full-time student is at least 10 hours a week for 3
consecutive weeks, in Canada, or 13 consecutive weeks outside of Canada.
While this may not seem "full-time", it is the term used by the Income Tax Act.
Once the Nominee enrols in the program and has the EAP application form
validated by the institution's Registrar, they send us the original form identifying
when they wish to receive EAP(s). The Income Tax Act has recently stated that
the total of EAPs that a Nominee can receive from an RESP during any
12-month period is limited to $5,000 unless the Nominee has been enroled as a
full-time student in a post-secondary program of at least 13 consecutive weeks in
the 12-month period before a payment. We must remember that "enrolment"
does not have the same meaning as "completion of a course".

In the Self-Determined Option and Impression Plans, the Nominees do not
receive any top-up from the Enhancement Fund. The potential return of the
amount equivalent to the Membership Fees does not apply and there is no top-
up from the Enhancement Fund.

Module 3-Page 19

In addition to the above, where applicable, a portion of the Nominee's CESG and
the income earned on the CESG will be added to each EAP. For example, if
Scholarship Option 3 was selected, one-third of the CESG money will be added
to each EAP. For the Self-Determined Option and Impression Plan, the amount
of the CESG will be based on the ratio of grant paid into their agreement to the
total accumulated income held in their agreement.

Delay of Maturity

A Member or a Nominee may request in writing to the Foundation to delay the
Maturity Date of "Heritage Plans" where the Nominee will not become a qualified
Nominee during the year following the year of maturity. It is the Foundation's
policy to grant this change as long as it is well before the 22nd birthday of the
Nominee (that is going into 2nd year) provided that it does not result in the 25
year maximum Plan lifetime being exceeded. This rule does not apply to the
Impression Plan, as the Member solely determines the disbursement of the
funds, however, these Plans must be paid-out by the 25th year as per the
Income Tax Act.

Early Maturity and Advance:

A Nominee who requires EAPs earlier than the year following their original year
of maturity (i.e. the Year of Eligibility) can advance the start of their eligibility for
EAPs. As above, s/he may revise the Maturity Date by changing their Plan to the
Pool for the year that they will go to school.

"Heritage Plans" EAPs cannot be made to Nominees before the contribution
schedule is completed or the contract matures. Since the per unit payouts are
equal for all qualifiers, regardless of where they live or attend school, it follows
that the contributions to the Scholarship pool, per unit, must likewise be equal. If
the Member wishes to advance the maturity, a plan adjustment must be
prepared, signed by the member(s) and processed.

Remembering the basic principle of the Scholarship Plan that the investment
income earned per unit should be equal for all Plans at maturity, the early
maturing Member must make up the difference between his/her Plan's
investment income accumulation per unit and the average investment income
earned per unit for contracts that have a Maturity Date in the current year. This
investment income deficiency is normally deducted from the Members net
principal accumulation with the balance of the principal being returned to the
Member. The investment income deficiency amount is added to the Plan's

Module 3-Page 20

investment income earnings and transferred to the new Scholarship Fund.
Important: the investment income deficiency is not a penalty. Rather, it is a
feature that allows for EAPs to be made earlier than contracted in the original
agreement.

The Member may receive less principal than they would have at the regular
maturity date but they also save having to make the remaining contributions from
their early Maturity Date to the normal contracted date of maturity.

With either Delay or Advance, the nominee will now be entitled to qualify for the
same EAPs as the others in the current year of maturity pool (remember, the
Income Tax Act's 25 year limit!).

Postponement:

If the Nominee will not be entering the second year of post-secondary school by
September of the Year of Eligibility, the year may be postponed by up to two
years. Written instructions to the Foundation are required to accomplish this.
Once granted, the investment income is moved to the pool for the new Year of
Eligibility.

Deferral:

After a nominee has received an EAP, they can "defer" subsequent payments.
An EAP can be deferred only if they have already received at least one EAP.
The deferral can be for virtually any good reason. Their units are included in the
subsequent calculation and the EAP amount(s) are "parked" in the deferral
account for their eventual qualification. If a Nominee has failed to gain
acceptance to their next higher academic level, they can defer, make up the lost
year, within twelve months, at their own expense and continue in the program.
Unclaimed deferrals are donated to the Enhancement Fund. Remember that all
EAPs must be paid by the 25th year of the Plan's existence.

Qualifying Educational Program:

The Scholarship Plan requires that the Nominee be enroled in a program that
requires:

•
graduation from secondary school as a pre-requisite,
•
which leads to a degree, diploma or certificate,
•
and which requires a minimum of two years with full-time attendance at a
recognized institution.
Module 3-Page 21

The institution may be anywhere in the world. Scholarships are eligible for up to
four one-year programs e.g. if the student is initially enroled in a 4 year Arts
program and then switches to a 4 year Science program, changing disciplines
would not disqualify the student from receiving their scholarships.

Note: Quebec has a different educational structure than that used throughout the
rest of North America. In that province, elementary school is defined as
Kindergarten through grade 6 while Secondary I through V is equivalent to
grades 7 through 11. "CEGEP" then follows, in either a 2-year general
(pre-university) or 3-year technical (community college) stream. In the
Scholarship Plan, Quebec Nominees are eligible for their first EAP upon
acceptance into their second year of "CEGEP".

As stated previously, the Self-Determined Option and Impression Plan accepts a
full time program which must be at least, in Canada, 10 hours a week for 3
consecutive weeks (13 weeks out of Canada). Remember that Income Tax Act
limits still apply as discussed previously.

Other Related ITA provisions:

We have already dealt with annual and lifetime contribution limits, as well as the
limitations on Plan life and the substitution of a Nominee.

Let's review the other tax considerations:

The Foundation and the pools' trust funds are non-taxable. Under the Income
Tax Act, the EAPs are taxable in the hands of the Nominee. This is a great
benefit since a Nominee's tax rate is usually minimal (if any).

a)
there is no withholding tax at source if the Nominee is a Canadian
resident for tax purposes; they are expected to declare this as income
when filing their personal Canadian return. They will receive a T-3 tax
form to a__ist them with this calculation.

b)
Nominees, who are not Canadian residents for tax purposes, will be
subject to the Income Tax Act's Non-Resident Withholding Tax of 10%
to 25% (of the taxable portion of the education a__istance payments)
depending on the tax treaty status of their country with Canada. S/he will
receive a Revenue Canada NR-4 slip detailing the payments received and
the tax withheld to a__ist in claiming available offsets when filing his/her
local tax return. NOTE: We cannot give tax advice to clients! They

Module 3-Page 22

verify their status with their own advisors. On this point, please note that
the complete non-taxable nature of the Canadian Plans, prior to maturity,
combined with our historically high, secure, investment returns should
more than compensate for the non-resident Nominee's residual tax liability
(if any). Note: the RESP status results in tax sheltering on income under
Canadian tax law but not under tax law for the country in which the student
or Member "resides."

We now have two Plans with many different options giving us the greatest
flexibility in the industry!

We have the flexible payout options of the "Heritage Plans", where, if you enrol
before age 15, you have the choice of the Scholarship Options or Self-
Determined Option. Members who want flexibility with some of the potential for
increased EAPs can select the Scholarship Option. Those who are averse to
risk and wish to receive only their own Plan's income can select the Self-
Determined Option. The important point is that this is a decision that is made
when the Nominee's Education Plans are closer to being finalized (180 days up
to Maturity) - around age 18. Each Plan has its own features, but all of the Plans
shelter income from taxes for the pursuit of a program at a later date. If the
Member would like to enrol a Nominee over the age of 21, or even himself, or
have more flexibility in the amount and timing of Contributions, the Impression
Plan is available.

Self-Directed Plans in the marketplace cannot offer the benefits of a Group Plan.
Let's never forget our advantages!

Heritage Plans

Now that we have reviewed the general RESP structure, let's look at specifics as
they apply to the Heritage Plans.

The "Heritage Plan" includes many options and alternatives, making it one of the
most flexible Plans in the industry.

Enrolment

A Member makes an application for a contract on behalf of a Nominee who need
not be related to the Member but is under the age of 15. The Member maybe
one person or two persons (joint). In the latter case, the joint Member must be
the spouse of the first Member and, all items requiring signatures must have both

Module 3-Page 23

Members' signatures. A separate Application Form must be used for each
Nominee, for all Plans; they cannot be combined on one application form. Under
the Income Tax Act (Canada) ("ITA"), the maximum contribution per Nominee is
$4,000 per year for all RESPs. A Member may take Plans for any number of
Nominees, so long as the contributions for each Nominee do not exceed the
$4,000 per year maximum. There is also a lifetime limit of $42,000 per Nominee.

Units

The Plans are sold in "units". The unit is how we divide the Plan up into "bites".
Plans can be sold in fractions of a unit. A unit is an equal part of a "pool" that
matures in a given year, a unit of payment at a future date. In the case of
RESPs, the unit that you are buying is a contract for a share of a pool beginning
at the Year of Eligibility and ending with the final EAP from that Pool. The unit
cannot be evaluated until the Member and Nominee have received all of their
payments from the Plan. We do know, however, that regardless of when a plan
is started, or which contribution method is selected, each unit in the contribution
schedule has been actuarially designed to earn approximately the same amount
of interest over the life of that unit (from the start of contributions to Maturity).

We are often asked why we have an equal Membership Fee per unit when the
contribution amounts vary widely across the contribution schedule. Here is a
good rationale to use for explaining why the fee is equal, regardless of the
contribution schedule amount. There is an equal membership fee per unit,
because you are buying a unit that will be eligible to receive an equal share of
the year of Eligibility Pool.

We are often confronted with the question; "What is the value of your unit?"
Under securities regulations, we cannot predict future payouts, but we can
disclose our historical track record. Past results are not an indication of future
returns, but may a__ist in the planning process. It is only possible to evaluate a
unit's "return" after the Nominee has actually received all of his/her EAPs.
Naturally, the "return" will be lower if only one or two EAPs are received. As well,
there are a number of other variables in each Plan, including changes to
numbers of units or payment structures that can affect the Plan's ROI (return on
investment). Therefore, each Plan has its own individual "return" and we cannot
provide figures on a "general return" from the Plan. We do, however, publish 5
year and 10 year investment portfolio performances as information to our
Members. There is no minimum required contribution for Plans in any
Contribution schedule.

Module 3-Page 24

Members select the number of units for their Plan, which they feel are the best
match between; their projected financial requirements for post-secondary
education, their present financial resources and the Income Tax Act restrictions
on RESP contributions to a maximum of $4,000 per Student per annum
(regardless of the number of Members and/or Plans) with a lifetime maximum of
$42,000 per student. Many Members like to choose the Contribution amount that
they can comfortably afford and allow us to determine the number of units this
produces.

Because the Heritage Plans are in most cases (excluding Single Contribution
Plans) based on a schedule of contribution