Private ruling: Dividend Run-Up Fund
Published: June 2015
Ruling period: Income year ending 30 June 2016 | Income year ending 30 June 2017 | Income year ending 30 June 2018 | Income year ending 30 June 2019 | Income year ending 30 June 2020
Date scheme commenced: The scheme has commenced

Ruling: Q1: Is the Fund considered to hold the stock and associated hedging positions on revenue account? | A1: Yes | Q2: Is the Fund subject to the streaming rules in Division 6E of the Income Tax Assessment Act 1936 (ITAA 1936)? | A2: Yes | Q3: Is the effect of the streaming rules that the investors should continue to be entitled to their proportionate share of the distributions and franking credits of the Fund? | A3: Yes | Q4: Is an investor's share of the franked distribution which flows indirectly from the Fund dependent on the Fund having positive 'net income'? | A4: Yes | Q5: Does the Fund meet the test for eligibility for franking credits under former Part IIIAA? | A5: Yes | Q6: Are the investors eligible for their share of franking credits pursuant to former section 160APHL? | A6: Yes | Q7: Does the Commissioner exercise the discretion under former subsection 160APHL(14) and also subsection 272-5(3) of Schedule 2F by making a determination that each investor's interest in the Fund is to be taken as vested and indefeasible? | A7: Yes | Q8: Does section 177EA operate to deny the Fund and/or its investors entitlement to the franking credits? | A8: No

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You have established a Fund of which you are the Trustee and Responsible Entity. The Fund is open-ended and primarily marketed in Australia to retail investors. It is an unlisted, registered managed investment scheme for the purposes of the Corporations Act 2001 (Corporations Act). The strategy The Fund's investment strategy involves buying Australian equities listed on the Australian Securities Exchange (ASX) that are expected to experience abnormal returns over their earnings and dividend announcement dates and ex-dividend dates. To limit share specific risk and volatility, the Fund will partially hedge its exposure to these equity positions. The Fund is designed to exploit the theory of the "dividend run-up" phenomenon, which they describe in the following terms • there is an increase in the share price in the lead up to the ex-dividend date, being the "run-up" factor; and • there is a fall or "drop-off" in the share price on the ex-dividend date by an amount that is less than the amount of the dividend (the "drop-off ratio"). The Fund will use a combination of quantitative screening and qualitative research to select ASX listed shares. Over the medium to long term, the objective of the investment strategy is to provide investors with (a) a regular income above a benchmark; and (b) lower volatility than the S&P/ASX 100 Accumulation Index. Shares may be sold prior to dividend entitlement Where the share that has been acquired pursuant to the strategy has appreciated significantly in price prior to the ex-dividend date, the Fund manager may dispose of the share to lock in the run-up gain. Conversely, it is also possible that the Fund manager will retain a particular share with the hope of making a gain from a favourable drop-off ratio. As such, the investment strategy of the Fund would be expected to result in a level of franked distributions flowing to investors. Assumptions For the purposes of this ruling it is assumed that (a) where the Fund falls within the managed fund exception to Division 230 of the Income Tax Assessment Act 1997 (ITAA 1997), having assets of less than $100 million, it will not specifically elect into TOFA; (b) the Fund is a 'widely held unit trust' for the purposes of section 272-105 of Schedule 2F and 'a widely held trust' for the purposes of former section 160APHD; (c) the Fund will have an amount of net income each year that will be wholly distributed to investors on a proportionate basis; (d) investors in the Fund will have an individual delta of at least 0.3 and will hold their units for at least 45 days (not including the date of acquisition or disposal); (e) the investors are: • an individual; or • a corporate tax entity; or • the trustee of a trust that is liable to be assessed on a share of, or all or a part of, the trust's net income under section 98, 99 or 99A; or • the trustee of an FHSA trust; or • the trustee of a complying or non-complying superannuation fund, a complying or non-complying approved deposit fund, or a pooled superannuation trust; or • an exempt institution that is eligible for a refund (as defined in section 207-115 of the Income Tax Assessment Act 1997 (ITAA 1997)); (f) the investors have not invested in the Fund through an investor directed portfolio service operator; and (g) all transactions entered into will be on arm's length terms.

Relevant legislative provisions: Income Tax Assessment Act 1936 | Income Tax Assessment Act 1936 Division 6 | Income Tax Assessment Act 1936 section 95 | Income Tax Assessment Act 1936 section 97 | Income Tax Assessment Act 1936 paragraph 97(1)(a) | Income Tax Assessment Act 1936 section 98 | Income Tax Assessment Act 1936 section 99 | Income Tax Assessment Act 1936 section 99A | Income Tax Assessment Act 1936 Division 6E | Income Tax Assessment Act 1936 former Division 1A, Part IIIAA | Income Tax Assessment Act 1936 former section 160APHD | Income Tax Assessment Act 1936 former paragraph 160APHJ(10)(c) | Income Tax Assessment Act 1936 former paragraph 160APHJ(10)(d) | Income Tax Assessment Act 1936 former section 160APHL | Income Tax Assessment Act 1936 former paragraph 160APHL(2)(c) | Income Tax Assessment Act 1936 former subsection 160APHL(10) | Income Tax Assessment Act 1936 former subsection 160APHL(11) | Income Tax Assessment Act 1936 former subsection 160APHL(14) | Income Tax Assessment Act 1936 former subsection 160APHO(2) | Income Tax Assessment Act 1936 former subsection 160APHO(3) | Income Tax Assessment Act 1936 former subsection 160APHU(1) | Income Tax Assessment Act 1936 subsection 177D(2) | Income Tax Assessment Act 1936 paragraph 177D(2)(a) | Income Tax Assessment Act 1936 paragraph 177D(2)(c) | Income Tax Assessment Act 1936 section 177EA | Income Tax Assessment Act 1936 subsection 177EA(3) | Income Tax Assessment Act 1936 paragraph 177EA(3)(a) | Income Tax Assessment Act 1936 paragraph 177EA(3)(b) | Income Tax Assessment Act 1936 paragraph 177EA(3)(c) | Income Tax Assessment Act 1936 paragraph 177EA(3)(d) | Income Tax Assessment Act 1936 paragraph 177EA(3)(e) | Income Tax Assessment Act 1936 subsection 177EA(14) | Income Tax Assessment Act 1936 paragraph 177EA(14)(a) | Income Tax Assessment Act 1936 paragraph 177EA(14)(b) | Income Tax Assessment Act 1936 paragraph 177EA(14)(c) | Income Tax Assessment Act 1936 paragraph 177EA(14)(d) | Income Tax Assessment Act 1936 paragraph 177EA(14)(e) | Income Tax Assessment Act 1936 paragraph 177EA(14)(f) | Income Tax Assessment Act 1936 subsection 177EA(17) | Income Tax Assessment Act 1936 paragraph 177EA(17)(a) | Income Tax Assessment Act 1936 paragraph 177EA(17)(i) | Income Tax Assessment Act 1936 paragraph 177EA(17)(j) | Income Tax Assessment Act 1936 subsection 272-5(1) of Schedule 2F | Income Tax Assessment Act 1936 subsection 272-5(3) of Schedule 2F | Income Tax Assessment Act 1936 paragraph 272-5(3)(b) of Schedule 2F | Income Tax Assessment Act 1936 subparagraph 272-5(3)(b)(i) of Schedule 2F | Income Tax Assessment Act 1936 subparagraph 272-5(3)(b)(ii) of Schedule 2F | Income Tax Assessment Act 1936 subparagraph 272-5(3)(b)(iii) of Schedule 2F | Income Tax Assessment Act 1936 section 272-105 of Schedule 2F | Income Tax Assessment Act 1997 | Income Tax Assessment Act 1997 Subdivision 207-B | Income Tax Assessment Act 1997 section 207-37 | Income Tax Assessment Act 1997 subsection 207-37(2) | Income Tax Assessment Act 1997 subsection 207-37(3) | Income Tax Assessment Act 1997 subsection 207-50(3) | Income Tax Assessment Act 1997 section 207-55 | Income Tax Assessment Act 1997 subsection 207-55(3) | Income Tax Assessment Act 1997 section 207-57 | Income Tax Assessment Act 1997 section 207-115 | Income Tax Assessment Act 1997 paragraph 207-145(1)(a) | Income Tax Assessment Act 1997 Division 230 | Corporations Act 2001 | Corporations Act 2001 Chapter 5C | Corporations Act 2001 section 601FA | Corporations Act 2001 subsection 601FC(1) | Corporations Regulations 2001 regulation 7.6.04

Reasons for decision: Summary: The shares and associated hedging positions are held by the Fund on revenue account, as reflected by the relatively short-term holding period of these assets, the level of turnover in the overall portfolio, and the profit-making purpose of the Fund whereby it seeks to take advantage of the dividend run-up phenomenon to generate an above benchmark return. Any gain or loss on the disposal of the share and associated hedging positions will therefore be assessable income or an allowable deduction for the Fund, for the purposes of calculating its net income under Division 6 and related purposes. Division 6E will apply to the Fund on the basis that the net income of the trust exceeds nil and includes franked distributions or franking credits. The effect of Division 6E is to carve out franked distributions and franking credits from the net income of the Fund for the purposes of determining the assessable income of investors under section 97. Franked distributions and attached franking credits are dealt with under Subdivision 207-B of the ITAA 1997. The investors will be presently entitled at the end of each respective distribution period to their proportionate share of the distributable income of the Fund and at the end of the income year will, in accordance with section 97, include in their assessable income their proportionate share of the Division 6E net income of the Fund. In addition, the Investors will also be entitled to their share of franked distributions and franking credits determined under Subdivision 207-B of the ITAA 1997 - see Question 3. Franked distributions and franking credits are carved out of the Division 6E net income of the Fund and are dealt with under Subdivision 207-B of the ITAA 1997. Broadly, the 'attributable franked distribution' of the investor pursuant to section 207-37 of the ITAA 1997 is equal to the total franked distribution of the Fund (net of any directly relevant deductions) multiplied by the beneficiary's proportionate share of the franked distribution (as determined under section 207-55 of the ITAA 1997). As there is no 'specific entitlement' to franked distributions under the Constitution of the Fund, this percentage will be equivalent to the investor's original Division 6 percentage of net income. The investor's share of the franking credit attaching to the franked distribution is worked out pursuant to section 207-57 of the ITAA 1997 such that the investor's notional allocation of franking credits is equal to their proportionate share of the franked distribution. Pursuant to subsections 207-37(2) and 207-37(3) of the ITAA 1997, where the net income of the trust estate is less than the total of all franked distributions included in the assessable income of the trust estate then the 'attributable franked distribution' is reduced to ensure investors' assessable income will equal the net income of the Fund. The investor's notional allocation of franking credits pursuant to section 207-57 of the ITAA 1997 is unaffected by subsections 207-37(2) and 207-37(3) of the ITAA 1997. Under subsection 207-50(3) of the ITAA 1997, a franked distribution only flows indirectly to a beneficiary if during that year the distribution is made to the Trustee of the trust; the beneficiary has a share of the trust's net income that is covered by paragraph 97(1)(a) (that is, inclusive of franked distributions); and the beneficiary's share of the franked distribution under section 207-55 of the ITAA 1997 is a positive amount. It is implicit in the wording of subsection 207-50(3) of the ITAA 1997 that in order for a franked distribution to flow indirectly to a beneficiary the trust must have a positive amount of net income for the purposes of section 95 in respect of which the beneficiary has a share. Furthermore, it is expressly stated in Item 3 of the table at subsection 207-55(3) of the ITAA 1997 that the trust has a positive amount of net income for that year in order for the amount of the franked distribution to be taken into account in determining the beneficiary's share of the franked distribution. You (as Trustee of the Fund) are required to satisfy the 'qualified person' test in relation to any franked distributions you receive in order for beneficiaries to be entitled to tax offsets in respect of such franking credits (paragraph 207-145(1)(a) of the ITAA 1997 and TD 2007/11). You will meet the 'qualified person' test on the basis of the features of the associated hedging positions as set out in the relevant facts and circumstances, including the assumptions, of this ruling: (a) the cumulative exposure of all the shares and associated hedging positions held in relation to each stock will have a delta of at least 0.3; (b) the terms of the associated hedging positions will not result in a related payment that would impact the 'qualified person' test (former paragraphs 160APHJ(10)(c) and 160APHJ(10)(d)); and (c) the shares will be held for a minimum of 45 days (not including the date of acquisition or disposal) (former subsection 160APHO(2)) over which the Fund would not be considered to have 'materially diminished risks of loss or opportunities for gain in respect of the shares' (former subsection 160APHO(3)). Investors will be entitled to their 'share' of the franking credits of the Fund as determined under section 207-57 of the ITAA 1997 provided they also meet the 'qualified person' test in respect of their interest in the underlying shares, as modified by former section 160APHL. The following requirements are applicable in the context of the Fund • the Trustee of the Fund is a 'qualified person' in respect of any dividends received on the underlying shares (former subsection 160APHU(1)); • the Fund is a 'widely held trust' for the purposes of former section 160APHD; • there is a trust amount in respect of the trust in relation to a beneficiary that is wholly or partly attributable to dividend income (former paragraph 160APHL(2)(c)); and • the investors hold a 'fixed interest' in the shares held by the Fund for the purposes of former subsection 160APHL(10). Pursuant to former subsection 160APHL(11) a vested and indefeasible interest constitutes a fixed interest. Where an interest is not vested and indefeasible the Commissioner may determine an interest to be vested and indefeasible pursuant to former subsection 160APHL(14). In this instance, the Commissioner deems an interest in the Fund to be vested and indefeasible - see Question 7. For the purposes of subsection 272-5(1) of Schedule 2F, the 'trust instrument' of the Fund consists of the Constitution. It is accepted that the Constitution provides the unit holders with a vested interest in • all of the income that the Fund derives; and • all of the capital of the Fund. For the purposes of the 'vested and indefeasible' definition in subsection 272-5(1) of Schedule 2F, the key question is whether the Trustee or manager holds a power that, if exercised, would result in a defeasance of some or all of a unit holder's (or beneficiary's) rights to the income and/or capital of the trust. The Constitution of the Fund contains certain clauses by which a beneficiary's interest in a share of the income or capital of the trust may be defeased. Therefore, in accordance with subsection 272-5(1) of Schedule 2F, the beneficiaries do not have fixed entitlements to all of the income and capital of the Fund. Subsection 272-5(3) of Schedule 2F Subsection 272-5(3) of Schedule 2F contains a discretion, whereby in cases where beneficiaries do not have a fixed entitlement, the Commissioner may, for the purposes of the Act, treat such beneficiaries as having a fixed entitlement, having regard to the factors prescribed in paragraph 272-5(3)(b). Paragraph 272-5(3)(b) states that the Commissioner may treat a beneficiary as having a fixed entitlement having regard to: (i) the circumstances in which the entitlement is capable of not vesting or the defeasance can happen; and (ii) the likelihood of the entitlement not vesting or the defeasance happening; and (iii) the nature of the trust. Subparagraph 272-5(3)(b)(i) Factors that are relevant to the circumstances in which the entitlement is capable of not vesting or the defeasance can happen include: • the Fund is a registered managed investment scheme for the purposes of the Corporations Act; • the Constitution of the Fund is comparable and commensurate to the trust instruments of other registered managed investment schemes; and • no clause includes an express or implied power which would enable the Trustee of the Fund to issue or redeem units without valuable consideration passing from, or to, the affected unit holder. Subparagraph 272-5(3)(b)(ii) The likelihood of the entitlement not vesting or the defeasance happening in respect of the relevant clauses of the Constitution is minimal because of the protections afforded to beneficiaries and the duties imposed on the Trustee of the Fund by the Corporations Act. Subparagraph 272-5(3)(b)(iii) Factors regarding the nature of the trust in the context of whether the Commissioner may treat a beneficiary as having a fixed entitlement include: • The Fund is a registered managed investment scheme under the Corporations Act. • As such, the Trustee has certain duties, and is subject to controls, under Chapter 5C of the Corporations Act, and in particular those specified in subsection 601FC(1). • Under section 601FA of the Corporations Act, the Trustee of the Fund (as the Responsible Entity) has to be a public company that holds an Australian Financial Services Licence (AFSL) authorising it to operate a managed investment scheme. As such it is required to meet the AFSL conditions, as set out in ASIC Pro Forma 209 as well as the prescribed conditions under Regulation 7.6.04 of the Corporations Regulations 2001 . • The Trustee (as the Responsible Entity) has to comply with the terms of any ASIC Class Orders or other forms of ASIC relief. • The Trustee does not have any discretion in relation to the unit holders' rights to income or capital, as these are governed by the formulae in the Constitution. Pursuant to paragraph 272-5(3)(b) of Schedule 2F, and after having regard to the requirements of subparagraphs 272-5(3)(b)(i), (ii) and (iii), it is submitted that it is appropriate that the beneficiaries of the Fund should be treated as having fixed entitlements to the Fund and have fixed entitlements to all of the income and capital of the Fund during the relevant period. The Fund is considered to be a fixed trust for the purposes of the ITAA 1936 and the ITAA 1997 during the relevant period. In light of the above discussion, it follows that the Commissioner also exercises the discretion under former subsection 160APHL(14) to deem an interest held by a beneficiary in the Fund to be vested and indefeasible. The scheme The first requirement of subsection 177EA(3) is that there is a scheme for a disposition of membership interests, or an interest in membership interests, in a corporate tax entity: paragraph 177EA(3)(a). Subsection 177EA(14) defines a "scheme for a disposition" of membership interests or an interest in a membership interest inclusively, by reference to a scheme which involves any of the matters set out in paragraphs 177EA(14)(a) to (f). The creation and issuance of units in the Fund together with the acquisition of an ASX listed share by the Fund is a scheme for a disposition of a relevant interest: see paragraphs 177EA(14)(b) and (c). Entering into the associated hedging positions in relation to the share may give rise to a scheme within paragraph 177EA(14)(e) to the extent it substantially alters the risks of loss, or opportunities for gain, in the interest in membership interests, or may be included within the scheme identified above. Therefore paragraph 177EA(3)(a) is satisfied. The elements in paragraphs 177EA(3)(b), 177EA(3)(c) and 177EA(3)(d) are also satisfied. The investment strategy of the Fund is expected to result in frankable distributions being paid to the Fund, which in turn would give rise to frankable distributions flowing to the investors through their investment in units in the Fund. As the shares will be in publicly listed Australian companies, it is expected that any such frankable distribution will bear franking credits. Paragraph 177EA(3)(e) remains to be considered. The requirements of that paragraph will be satisfied if: ...having regard to the relevant circumstances of the scheme, it would be concluded that the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme did so for a purpose (whether or not the dominant purpose but not including an incidental purpose) of enabling the relevant taxpayer to obtain an imputation benefit. In this case, there are 3 types of 'gains' that might be made: gains referable to dividends, gains referable to franking credits and trading gains. The ability to make trading gains is impacted by cumulative features such as the adoption of the hedging arrangements and the relatively short period of time of that shareholding. The tax benefits and the taxpayers For the purposes of identifying the "relevant taxpayer" under paragraph 177EA(3)(d), frankable distributions are expected to be paid to the Fund and the frankable distributions are expected to flow indirectly to the investor in the Fund. | Detailed Reasoning - Weighing each of the factors in applying the applicable purpose test: The relevant circumstances of a scheme The application of section 177EA to an investment in units in the Fund turns on whether, after consideration of the relevant circumstances, it would be concluded that a person who entered into or carried out the scheme did so for a more than an incidental purpose of enabling the investors to obtain an imputation benefit. The relevant circumstances of a scheme for a disposition of an investment in units in the Fund and subsequent acquisition of shares likely to pay franked distributions are considered below in light of the factors listed in subsection 177EA(17). Of those factors, only the following are considered relevant. First relevant matter - paragraph 177EA(17)(a) Paragraph 177EA(17)(a) states that the relevant circumstances of a scheme include: the extent and duration of the risks of loss, and the opportunities for profit or gain, from holding membership interests, or having interests in membership interests, in the corporate tax entity that are respectively borne by or accrue to the parties to the scheme, and whether there has been any change in those risks and opportunities for the relevant taxpayer or any other party to the scheme (for example, a change resulting from the making of any contract, the granting of any option or the entering into of any arrangement with respect to any membership interests, or interests in membership interests, in the corporate tax entity); The terms upon which units in the Fund are issued and the strategy to be followed limit the ordinary risks and opportunities of ownership of a company through the use of hedging positions. The Fund will enter into associated hedging positions to partially hedge its exposure to movements in the market price of the share. The Trustee acknowledges that the associated hedging positions will have an impact upon the risks of loss and opportunities for gain. The Commissioner considers that the investors will remain exposed to a sufficient level of risk and opportunity to both satisfy the 'qualified person' rules in former Division 1A, Part IIIAA. There also remains a risk that the dividend payable in respect of the share may be less (or more) than expected. Paragraph 177EA(17)(a) also requires an examination of whether there has been any change in the risks and opportunities for a relevant taxpayer (for example, by the use of the associated hedging positions). The associated hedging positions entered into by the Fund have the effect of limiting the Fund's (and the investor's) exposure to those risks and opportunities during the period for which it holds the shares. The duration of risks of loss and opportunities of gain for the unit holder in relation to a particular share also falls for consideration under paragraph 177EA(17)(a). Under the Fund's investment strategy, the Fund will hold the underlying shares for a relatively short period of time and it may dispose of shares prior to the ex-dividend date. If the Fund disposes of shares at any point prior to the end of the proposed holding period, the associated hedging positions must be unwound at an additional cost to the Fund. The limitation of the investors' exposure to the risks of loss and opportunities for gain that ordinarily attach to equity interests in a company is consistent with a purpose of enabling the investors to obtain an imputation benefit. However, it is also noted that the associated hedging positions will operate in a way that the Fund and investors will remain at risk in relation to share price movements to some degree. Second relevant matter - paragraph 177EA(17)(i) Paragraph 177EA(17)(i) states that the relevant circumstances of a scheme include: the period for which the relevant taxpayer held membership interests, or had an interest in membership interests, in the corporate tax entity; The Fund will hold its shares for a relatively short period. Regardless of whether the investor has satisfied the rules in former Division 1A, Part IIIAA for being a 'qualified person' in relation to the distribution, the short holding period is a relevant circumstance that weighs in favour of there being a more than incidental purpose of obtaining a franking benefit. This may be contrasted with a situation where an investor has no predetermined strategy of buying, and then selling the shares within a short period but actually does so to take advantage of price movements in the shares. Third relevant matter - paragraph 177EA(17)(j) Paragraph 177EA(17)(j) states that the relevant circumstances of a scheme include: any of the matters referred to in subsection 177D(2). Paragraph 177EA(17)(j) imports the eight factors listed in subsection 177D(2) to the list of relevant factors to be considered in determining purpose under section 177EA. Of these factors, two are relevant to the Fund: • the manner in which the scheme was entered into or carried out (paragraph 177D(2)(a)); and • the time at which the scheme was entered into and the length of the period during which the scheme was carried out (paragraph 177D(2)(c)). Manner The acquisition of the shares and entry into the associated hedging positions by the Fund is principally to capture, on a partly protected basis, the dividend and associated franking credit on those shares and at the same time take advantage of the dividend run-up phenomenon. The investment strategy involves trading within the 45 day holding period rule and structuring the associated hedging positions in such a way that it also complies with the qualified person rules under the former Part IIIA. There is a real possibility that the Fund might make trading gains resulting from the disposal of shares. The reduced risk of loss and opportunity for profit afforded by the associated hedging positions and the further reduction in 'equity risk' as a result of the short holding period are factors that suggest the fundamentals of the stock are not a primary consideration for the portfolio manager. It is accepted that the intention of the Fund is to make a before tax return that consists of run-up gains and that achieving the investment benchmark is its primary objective. On that basis, this matter does not indicate that the Trustee has a more than incidental purpose of obtaining franking credits. Timing The Fund intends to capture the perceived dividend run-up phenomenon by investing in stocks when financial results are announced and also prior to the ex-dividend date. Implicit in this strategy is the intention to capture dividends and any associated franking benefits however it is accepted that part of the strategy is also geared towards making trading gains in the run up to the ex-dividend date. In this case, this matter is co-extensive with paragraph 177EA(17)(i). | Detailed Reasoning - Weighing up the circumstances: Having regard to the relevant circumstances discussed above, it is then necessary to determine whether the Fund and/or its investors entered into the scheme with a more than incidental purpose of obtaining a franking benefit. The Fund aims to achieve a positive amount of income through receiving interest income and purchasing, on a partly protected basis, ASX listed stocks and either selling them for a profit prior to the ex-dividend date or holding them over the ex-dividend date. The presence of the associated hedging positions combined with a short holding period reduces the risk ordinarily associated with holding shares. Despite this, the making of modest trading gains prior to the ex-dividend date is consistent with the Fund's desire to take advantage of the dividend run-up phenomenon and achieve its investment benchmark. Similarly, the Fund anticipates that a dividend drop-off ratio of less than 1 should ensure that the expected yield (absent franking) is attractive. Provided that the scheme ruled on is entered into and carried out in the manner described in the 'relevant facts and circumstances' section of this ruling, including the assumptions, on balance section 177EA will not deny the Fund its entitlement to franking credits or deny its investors their allocation of franking credits attaching to their share of the franked distributions of the Fund. If the scheme is enacted with any material variations to that described in the ruling, the ruling will be invalid.