NOTICE OF MEETING AND INFORMATION CIRCULAR

Transcription

1 20SEP NOTICE OF MEETING AND INFORMATION CIRCULAR FOR THE SPECIAL MEETING OF UNITHOLDERS OF SCITI TRUST TO BE HELD ON MARCH 14, 2013

2 February 6, SEP Dear Unitholders: You are invited to a special meeting (the Meeting ) of holders (the Unitholders ) of trust units (the Units ) of SCITI Trust (the Trust ) to be held on March 14, 2013 at 8:30 a.m. (Toronto time) at the McLeod Room, 63 rd floor Scotia Plaza, 40 King Street West, Toronto, Ontario. The purpose of the Meeting is to consider and vote upon a special resolution to implement a proposed extension to (i) extend the termination date of the Trust for an additional five years, (ii) amend the investment objectives and strategies of the Trust to limit the weighting in any one sector to 25% of total assets (iii) make certain amendments to the declaration of trust governing the Trust designed to facilitate future offerings and provide flexibility on borrowings; and (iv) to create a special retraction right which would enable Unitholders who do not wish to continue their investment to retract their Units on April 29, 2013 on the same terms that would have applied had the Trust redeemed all Units on such date as originally contemplated (collectively, the Extension ). Unitholders electing to retain their investment will continue to enjoy the benefit of regular monthly distributions from a diversified portfolio of high yielding equity securities listed on the TSX as well as a potential for price appreciation. In order to become effective, the Extension must be approved by a two-thirds majority of those Unitholders voting at the Meeting. In addition, holders of at least 8,000,000 Units (being approximately 37% of the issued and outstanding Units currently outstanding) must retain their Units and not retract them on April 29, 2013 in order for the Extension to proceed. If you wish to continue your investment in the Trust after April 29, 2013 you should submit the enclosed voting instruction form or proxy prior to 5:00 p.m. (Toronto time) on March 11, 2013 voting in favour of the special resolution of the Trust approving the Extension (the Special Resolution ). You should also contact your broker or other intermediary through which your Units are held who may have earlier deadlines. All Unitholders are encouraged to vote at the Meeting. A vote in favour of the Extension will not deprive any Unitholder of the right to retract Units on April 29, 2013 as originally contemplated. Unitholders who do not wish to continue their investment should vote in favour of the Extension and exercise their right to have their Units retracted on April 29, 2013 pursuant to an additional special retraction right which will be established as part of the Extension (the Special Retraction Right ). Unitholders who wish to exercise the Special Retraction Right must give notice of the retraction on or prior to March 27, Unitholders retracting their Units will still benefit from the Extension, since the Extension will enable such Unitholders to realize retraction proceeds that will not be reduced by any costs associated with the winding up of the Trust. Should the Extension not proceed, the redemption proceeds paid to Unitholders would reflect a reduction relating to such wind-up costs. Accordingly, the Board of Directors of SCITI Limited, the trustee of the Trust, recommends that you vote in favour of the Special Resolution, even if you wish to retract you Units. If the proposed Extension is not approved, or fewer than 8,000,000 Units remain outstanding upon the Extension, the Trust will redeem all of the Units on April 29, 2013 on the same terms as originally contemplated under the declaration of trust. If the Extension is successful, all costs associated with the Extension will be borne by the Unitholders that remain after the Extension. Unitholders who elect to retract their Units pursuant to the Special Retraction Right will not bear any of the costs associated with the Extension. Attached is a Notice of Special Meeting of Unitholders and an information circular (the Circular ) that contain important information relating to the proposed Extension. You are urged to read the Circular carefully. If you are in doubt as to how to deal with the matters described in the Circular, you should consult your advisors.

3 The Board of Directors of SCITI Limited, the trustee of the Trust, has determined that the proposed Extension is in the best interests of the Trust and the Unitholders, and recommends that all Unitholders vote in favour of the Special Resolution to be considered at the Meeting. Reference is made to the disclosure under the heading Recommendation of the Trustee in the attached Circular. Sincerely, 20DEC BRIAN D. McCHESNEY President, Chief Executive Officer and Director SCITI Limited, as trustee of SCITI Trust

4 TABLE OF CONTENTS Page NOTICE OF SPECIAL MEETING OF Recommendation of the Independent UNITHOLDERS... ii Directors of the Board of Directors of SUMMARY... 1 the Trustee... 8 DETAILS OF THE EXTENSION... 9 Summary of Key Dates... 1 Amendments in the Declaration of Trust.. 9 Date, Time and Place of Meeting... 1 Leverage... 9 Purpose of Meeting... 1 EXPENSES OF THE EXTENSION The Proposal... 1 TERMINATION OF THE EXTENSION Rationale and Benefits of the Proposed IF THE EXTENSION DOES NOT Extension for Unitholders... 2 PROCEED Recommendation of the Trustee... 2 INTEREST OF MANAGEMENT AND Votes and Minimum Required Number of OTHERS IN THE EXTENSION Units... 2 CANADIAN FEDERAL INCOME TAX If the Extension Does Not Proceed... 3 CONSIDERATIONS Costs of the Proposed Extension... 3 RISK FACTORS Solicitation Fees... 3 PRINCIPAL UNITHOLDERS THE TRUSTEE Tax Consequences of the Extension... 3 MANAGEMENT CONTRACTS Unitholder Action... 3 AUDITOR, CUSTODIAN, TRANSFER How Do I Vote?... 4 AGENT AND REGISTRAR SCITI TRUST... 5 MATERIAL CONTRACTS The Trust... 5 ADDITIONAL INFORMATION Historical Performance... 5 GENERAL PROXY INFORMATION PROPOSED EXTENSION... 7 Information Circular The Proposal... 7 Voting Rights, Record Date and Proxy Information Investment Objective and Strategy... 7 Appointment of Proxyholders Leverage... 7 Discretionary Authority of Proxies Rationale and Benefits of the Proposed Alternate Proxy Extension for Unitholders... 7 Revocation of Proxies RECOMMENDATION OF THE TRUSTEE 8 Advice to Beneficial Holders Declaration of Interest of the Administrator and the Board of How Do I Vote? Directors of the Trustee... 8 Approval by the Trustee Page i

5 NOTICE OF SPECIAL MEETING OF UNITHOLDERS TAKE NOTICE that a special meeting (the Meeting ) of holders (the Unitholders ) of trust units ( Units ) of SCITI Trust (the Trust ) will be held on March 14, 2013 at 8:30 a.m. (Toronto time) at the McLeod Room, 63 rd floor Scotia Plaza, 40 King Street West, Toronto, Ontario for the following purposes: 1. To consider and, if thought appropriate, approve, with or without variation, a special resolution in the form attached as Schedule A to the accompanying information circular (the Circular ) authorizing, among other things, amendments to the declaration of trust to: (a) extend the scheduled redemption date of the Units for an additional term of five years; (b) amend the investment objectives and strategies of the Trust to limit the weighting in any one sector to 25% of total assets, calculated at the time of inclusion and/or annual rebalancing; (c) make certain amendments to the declaration of trust governing the Trust designed to facilitate future offerings and provide flexibility on borrowings; (d) provide Unitholders who do not wish to continue their investment with a special retraction right to enable such Unitholders to retract their Units on April 29, 2013 on the same terms that would have applied had the Trust redeemed all Units on such date as originally contemplated; (e) provide that Unitholders who wish to exercise the special retraction right must give notice that they wish to exercise such right on or prior to March 27, 2013; (f) make certain other amendments consequential to the foregoing; all as more fully described in the accompanying Circular. 2. To transact such other business as may properly come before the Meeting, or any adjournment or adjournments thereof. DATED at Toronto, Ontario this 6 th day of February, BY ORDER OF THE BOARD 20DEC BRIAN D. McCHESNEY President, Chief Executive Officer and Director SCITI Limited, as trustee of SCITI Trust Note: Reference should be made to the accompanying Circular for details of the above matters. If you are unable to be present in person at the Meeting, you are requested to complete and sign the enclosed form of proxy or voting instruction form and to return it in the enclosed prepaid envelope provided for that purpose. ii

6 SUMMARY The following is a summary of certain information contained elsewhere in this information circular ( Circular ), including the attached schedule. Certain capitalized terms used in this summary are defined in this Circular. This summary is qualified in its entirety by the more detailed information appearing elsewhere in this Circular. Summary of Key Dates Proxy Due Date... March 11, 2013 (1) Meeting Date... March 14, 2013 Special Retraction Right Notice Date... March 27, 2013 Special Retraction Date... April 29, 2013 (1) Unitholders should contact their broker or other intermediary through which their Units are held well in advance of the Meeting, as brokers and other intermediaries may set deadlines earlier than March 11, 2013 for the receipt of voting instruction forms or proxies. Date, Time and Place of Meeting A special meeting (the Meeting ) of holders (the Unitholders ) of trust units (the Units ) of SCITI Trust (the Trust ) will be held on March 14, 2013 at 8:30 a.m. (Toronto time) at the McLeod Room, 63 rd floor Scotia Plaza, 40 King Street West, Toronto, Ontario. Purpose of Meeting The purpose of the Meeting is to consider, and if thought appropriate, to pass a special resolution in the form attached as Schedule A hereto (the Special Resolution ) approving an extension (the Extension ) which will include, among other things, amendments to the declaration of trust (the Declaration of Trust ) to extend the termination date of the Trust to April 30, In addition, the Special Resolution will provide Unitholders with an additional special retraction right (the Special Retraction Right ) in order to provide those Unitholders who do not wish to continue their investment in the Trust with an opportunity to have their Units retracted on April 29, 2013 (the Special Retraction Date ) on the same terms as originally contemplated. If the Special Resolution is approved, Unitholders who wish to retract their Units on the Special Retraction Date must give written notice to the Trust no later than 5:00 p.m. (Toronto time) on March 27, The Proposal Unitholders are being asked to pass the Special Resolution to, among other things, approve the Extension to: (a) extend the scheduled redemption date of the Units for an additional term of five years; (b) amend the investment objectives and strategies of the Trust to limit the weighting in any one sector to 25% of total assets, calculated at the time of inclusion and/or annual rebalancing; (c) make certain amendments to the Declaration of Trust designed to facilitate future offerings and provide flexibility on borrowings; (d) provide Unitholders who do not wish to continue their investment with a special retraction right to enable such Unitholders to retract their Units on April 29, 2013 on the same terms that would have applied had the Trust redeemed all Units on such date as originally contemplated; (e) provide that Unitholders who wish to exercise the special retraction right must give notice that they wish to exercise such right on or prior to March 27, 2013; (f) make certain other amendments consequential to the foregoing; 1

7 all as more fully described herein. See Details of the Extension. Rationale and Benefits of the Proposed Extension for Unitholders In proposing the Extension, the Board of Directors of the Trustee considered, among other things, the following factors and their benefits to Unitholders: (a) The Trust has successfully provided Unitholders with high monthly distributions from an investment in a diversified portfolio of high yielding equity securities. The Trust has paid monthly distributions totalling $12.73 per Unit since the completion of the Trust s initial public offering of Units on April 24, 2003 and the current yield on the Trust Units is 7.8% (based on the distributions paid in the last 12 months and the net asset value as of February 4, 2013). If the Extension is approved, Unitholders will continue to receive monthly distributions based on the 50 highest yielding equity securities included in the Scotia HYE Index. (b) Implementing an industry sector limit on the Trust s portfolio will prevent the Trust from becoming overly concentrated in one industry sector and will ensure that the portfolio remains in line with the Trust s investment objective of providing monthly distributions from a diversified portfolio. (c) The amendments to the Declaration of Trust will facilitate future offerings and enable the Trustee to issue different types of units (such as class F units) if it determines to do so, as well as bringing the Declaration of Trust into conformity with current practice. In addition, the amendments will enable the Trust to have flexibility in the methodology for obtaining leverage (subject to the existing 25% limit which will not change). (d) The Trust is expected to continue to operate with a low management expense ratio of between 0.47% and 0.75% of net asset value (depending on the number of Units outstanding after the Extension) if the Extension is implemented. (e) The extension of the scheduled redemption date of the Units will enable Unitholders to retain their investment and potentially defer some or all capital gains tax liability that would have otherwise been realized on the redemption of the Units until such time as the Units are either sold or retracted by a Unitholder or redeemed by the Trust. The Trust estimates that if the Units were redeemed on their scheduled redemption date, an investor resident in Ontario who is taxable at the top marginal tax rate and who purchased his or her Units on the initial public offering of the Trust would have an adjusted cost base per Unit of $10.49 and would incur a capital gain of $2.32 and capital gains tax payable of approximately $0.54 for each Unit redeemed (based on a Unit net asset value of $12.81 on February 4, 2013 and an effective capital gains tax rate of 23.21%). (f) The implementation of the Extension will have no material effect on the ability of Unitholders to retract their Units on the Special Retraction Date as originally contemplated. Recommendation of the Trustee The Board of Directors of SCITI Limited, the trustee of the Trust (the Trustee ), has determined that the proposed Extension is in the best interests of the Trust and the Unitholders and recommends that all Unitholders vote in favour of the Special Resolution to be considered at the Meeting. See Recommendation of the Trustee. Votes and Minimum Required Number of Units The Special Resolution requires the approval of two-thirds of the votes of Unitholders voting at the Meeting. In addition, holders of at least 8,000,000 Units (which represents approximately 37% of the Units currently outstanding) must retain their Units and not retract them on the Special Retraction Date in order for the Extension to proceed. 2

8 If the Extension Does Not Proceed If the Extension does not proceed, all Units will be redeemed by the Trust on April 29, 2013 as originally contemplated. The redemption proceeds paid to Unitholders will be funded by liquidating the current portfolio and the funds received will be paid to Unitholders after all liabilities of the Trust have been paid and provided for. If the Extension is not implemented, the costs associated with this proposal will be borne by the Trust and therefore ultimately by all Unitholders. Such costs are estimated to be $0.01 per Unit. For the purposes of the Income Tax Act (Canada) (the Tax Act ), the amount distributed by the Trust to a Unitholder on redemption will consist of the Unitholder s pro rata share of the Trust s net income and net realized capital gains for the taxation year ending on April 29, 2013 as determined under the Tax Act to the extent not previously distributed and the balance shall constitute proceeds of disposition of the Unitholder s Units. Costs of the Proposed Extension If successful, all costs of the Extension, consisting primarily of estimated soliciting broker fees, as described below, expenses relating to the extension of the redemption date, financial advisory fees and legal fees, will be borne by the Unitholders that remain outstanding after the Extension as described in the table below. Estimated Total Costs Estimated Cost per Unit Outstanding If all Units remain outstanding after the Extension... $3,410,000 $0.16 If the minimum number of 8,000,000 Units remain outstanding after the Extension $1,710,000 $0.21 If the Extension proceeds and a Unitholder retracts his or her Units pursuant to the Special Retraction Right, such Unitholder will not bear any costs of the Extension. See Expenses of the Extension. Solicitation Fees A solicitation fee will be paid by the Trust to properly designated brokers equal to $0.25 per Unit in respect of Units that are (i) voted in favour of the Special Resolution and (ii) not retracted upon the implementation of the Extension, provided the Extension is completed. No fee will be payable to brokers who s clients do not vote, regardless of whether or not they retract their Units. Tax Consequences of the Extension The Trust The Extension will not affect the status of the Trust as a mutual fund trust under the Tax Act. Unitholders The extension of the scheduled redemption date of the Units for an additional term of five years and other amendments to the Declaration of Trust should not result in the disposition of Units by a Unitholder. Unitholder Action If you wish to continue your investment in the Trust after April 29, 2013, you should submit a voting instruction form or proxy prior to 5:00 p.m. (Toronto time) on March 11, 2013 voting in favour of the Special Resolution. If you wish your Units to be redeemed by the Trust on April 29, 2013, you should nevertheless complete and return the voting instruction form or proxy. The Board of Directors of the Trustee of the Trust recommends that you vote in favour of the Special Resolution, even if you wish your Units to be redeemed by the Trust on the Special Retraction Date, since you will still be able to retract your Units by exercising the new Special Retraction Right. Unitholders who wish to redeem their Units on the Special Retraction Date will still benefit from the Extension, since the Extension will enable such Unitholders to realize retraction proceeds that 3

9 will not be reduced by any costs associated with the winding up of the Trust. Should the Extension not proceed, the redemption proceeds for Unitholders would reflect a reduction relating to such wind-up costs. If you wish to retract your Units pursuant to the Special Retraction Right, you should submit written notice of such intention to Computershare Investor Services Inc. prior to 5:00 p.m. (Toronto time) on March 27, Unitholders should contact their broker or other intermediary through which their Units are held well in advance of the Meeting, as brokers and other intermediaries may set deadlines earlier than March 11, 2013 for the receipt of voting instruction forms or proxies. How Do I Vote? All Unitholders other than CDS Clearing and Depository Services Inc. ( CDS ) are considered beneficial unitholders or non-registered unitholders ( Non-Registered Unitholders ) because their Units are held through a bank, trust company, securities broker or other intermediary. As a Non-Registered (or Beneficial) Unitholder, there are two ways that you can vote your Units: (1) By Providing Voting Instructions to Your Intermediary Your intermediary is required to seek voting instructions from you in advance of the Meeting. Accordingly, you will receive, or have already received, from your intermediary either a request for voting instructions for the number of Units you hold. If you are a non-objecting beneficial owner (and have permitted the disclosure of your ownership information to Broadridge Financial Solutions Inc. ( Broadridge )), you will receive a voting instruction form which includes a 12-digit control number that allows you to provide your voting instructions by telephone, on the Internet, by mail or by fax. If you want to provide your voting instructions on the Internet, go to Broadridge s website at and follow the instructions on the screen. You will need your 12-digit control number, which you will find on your voting instruction form. If you want to provide your voting instructions by telephone you may call (English) or (French). You cannot vote on the telephone or Internet on the day of the Meeting. Please contact your intermediary for instructions in this regard. Alternatively, if you are an objecting beneficial owner (and have not permitted the disclosure of your ownership information to Broadridge), you may be a Non-Registered Unitholder will receive from your intermediary a voting instruction form which: (i) is to be completed and returned as directed instructions provided; OR (ii) has been pre-authorized by your intermediary indicating the Units to be voted. This voting instruction form or proxy must be completed, dated and signed and returned to Broadridge by mail or fax. Please contact your intermediary for instructions in this regard. Every intermediary has its own procedures which should be carefully followed by Non-Registered Unitholders to ensure that their Units are voted at the Meeting. These procedures generally allow voting by telephone, on the Internet, by mail or by fax. Please contact your intermediary for instructions in this regard. (2) By Attending the Meeting in Person We do not have access to the names or holdings of our Non-Registered Unitholders. This means that you can only vote your Units in person at the Meeting if you have previously appointed yourself as the proxyholder for your Units. If you wish to vote at the Meeting, write your own name in the space provided on the request for voting instructions or proxy form to appoint yourself as proxyholder. Once completed, sign, date and return the request for voting instructions or proxy form as directed on the voting instruction form or proxy form in the envelope provided. Since your vote will be taken at the Meeting, do not complete any other sections of the request for voting instructions or proxy form. Your voting instructions or proxy form must be received in sufficient time to allow your voting instruction form or proxy form to be received by Computershare Investor Services Inc. by 5:00 p.m. (Toronto time) on March 11, Please contact your intermediary for instructions in this regard. On the date of the Meeting, you should present yourself to a representative of Computershare Investor Services Inc. so that you may be registered to vote at the Meeting. All Non-Registered Unitholders who receive materials through an intermediary should carefully follow the instructions that accompany the form of proxy or the voting instruction form. 4

10 SCITI TRUST The Trust SCITI Trust is an investment trust established under the laws of the Province of Ontario pursuant to a declaration of trust dated April 24, 2003 as amended and restated on April 29, 2008 (the Declaration of Trust ). SCITI Limited is the trustee of the Trust (the Trustee ). The Trust was initially created to invest in a portfolio of income funds reflecting the make up and weighting of the Scotia Capital Income Trust Index (the SCITI Index ). The Trust completed its initial public offering on April 24, 2003 issuing 30,000,000 units (each a Unit ) of the Trust at $10.00 per Unit. The Trust used the net proceeds from this offering, together with borrowings under a loan facility to acquire units of certain income funds listed on the Toronto Stock Exchange (the TSX ). On March 28, 2006, the investment objective and strategy of the Trust was amended to invest in securities that generally reflect the make up and float capitalization weighting of the 100 largest income funds that make up the SCITI Index. On March 28, 2008, Unitholders approved a reorganization allowing the Trust to extend its scheduled termination date and to amend its investment mandate to invest in a portfolio of equity securities ( Portfolio Securities ) of income funds, corporations and other entities (the Portfolio ) that reflect the makeup of the 50 highest yielding members of the Scotia Capital High Yielding Equity Index (the Scotia HYE Index ). The new investment mandate was designed to provide Unitholders with a well diversified, high yielding portfolio that would be responsive to changes in the income trust market resulting from the tax fairness plan introduced on October 31, On April 14, 2008, having met all required conditions of the reorganization, the term of the Trust was extended for an additional five years to April 29, 2013 and the portfolio was rebalanced in line with the new investment mandate. As at February 4, 2013, there were 21,350,104 Units issued and outstanding having a market capitalization of approximately $282.7 million. The Units are listed for trading on the TSX and trade under the symbol SIN.UN. The closing price of the Units on February 4, 2013 was $ The current yield on the Units is 7.8% based on the distributions paid in the last 12 months and the net asset value as of February 4, Historical Performance Total return on the Units from inception to February 4, 2013 is 149.0%. The following chart compares the historical performance of the Units relative to the historical performance of the S&P/TSX Composite Index, on a total return basis, each set at 100 at the close of markets on April 29, 2003, the first day of trading for the Units, and continuing to the close of markets on February 4,

11 Total Return of the Units vs. the S&P/TSX Composite Index $450 Base of $100 at April 29, 2003 $400 $350 $300 $250 $200 $150 $100 $50 $386 $248 $0 Apr-03 Jan-04 Oct-04 Jun-05 Mar-06 Nov-06 Aug-07 Apr-08 Jan-09 Oct-09 Jun-10 Mar-11 Nov-11 Aug-12 SCITI - Total Return S&P/TSX Composite Index - Total Return 6FEB The following chart represents the annual distributions paid on the Units since the Trust s inception to February 4, 2013, totalling $12.73 per Unit. In addition, the chart shows the yield of the Trust as a percentage of average annual net asset value, which over this period was 9.7%. Total Distributions Paid from IPO to February 4, 2013 $2.00 $ % Annual Distribution $1.80 $1.60 $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.71 $1.18 $1.34 $1.62 $1.51 $1.19 $1.25 $1.07 $ % 13% 12% 11% 10% 9% 8% 7% Yield on average annual NAV $0.20 6% $ % For the years ended December 31 6FEB

12 PROPOSED EXTENSION The Proposal Unitholders are being asked to consider the special resolution contained in Schedule A (the Special Resolution ) to, among other things, approve an extension (the Extension ) including amendments to the Declaration of Trust to: (a) extend the scheduled redemption date of the Units for an additional term of five years; (b) amend the investment objectives and strategies of the Trust to limit the weighting in any one sector to 25% of total assets, calculated at the time of inclusion and/or annual rebalancing; (c) make certain amendments to the Declaration of Trust designed to facilitate future offerings and provide flexibility on borrowings; (d) provide Unitholders who do not wish to continue their investment with a special retraction right to enable such Unitholders to retract their Units on April 29, 2013 on the same terms that would have applied had the Trust redeemed all Units on such date as originally contemplated; (e) provide that Unitholders who wish to exercise the special retraction right must give notice that they wish to exercise such right on or prior to March 27, 2013; (f) make certain other amendments consequential to the foregoing; all as more fully described herein. Investment Objective and Strategy The fundamental investment objective of the Trust is to provide Unitholders with monthly distributions from a diversified portfolio of high yielding equity securities listed on the TSX as well as a potential for price appreciation. The investment strategy of the Trust is to invest in securities of the issuers in a Portfolio that generally reflects the 50 highest yielding members of the Scotia HYE Index (or such other index calculated to replicate the Scotia HYE Index as described below) on an approximately equal weight basis. The investment strategy of the Trust will be amended so that the Portfolio will have maximum sector weighting of 25% in any given sector calculated at the time of inclusion and/or annual rebalancing. Implementing an industry sector limit on the Portfolio will prevent the Trust from becoming overly concentrated in one industry sector and will ensure that the portfolio remains in line with the Trust s investment objective of providing monthly distributions from a diversified portfolio. As of the date of this Circular, the sector weighting of the Portfolio is in line with 25% maximum. If this should change before the Special Retraction Date, the Trust may undertake a rebalancing of the Portfolio in order to comply with this additional investment objective. Leverage The Trust currently employs leverage of approximately 20% of the value of its Portfolio, and may employ total leverage up to 25% of total assets. If the Extension proceeds, the current Loan facility with the Bank of Nova Scotia (the Loan Facility ) will be extended for an additional term or a comparable leverage facility will be put in place. However, the Declaration of Trust will be amended to provide flexibility in the methodology for obtaining leverage (subject to the existing 25% limit which will not change). Rationale and Benefits of the Proposed Extension for Unitholders In proposing the Extension, the Board of Directors of the Trustee considered, among other things, the following factors and their benefits to Unitholders: (a) The Trust has successfully provided Unitholders with high monthly distributions from an investment in a diversified portfolio of high yielding equity securities. The Trust has paid monthly distributions totalling $12.73 per Unit since the completion of the Trust s initial public offering of Units on April 24, 2003 and the current yield on the Trust Units is 7.8% (based on the distributions paid in the last 12 months and the net asset value as of February 4, 2013). If the Extension is approved, Unitholders 7

13 will continue to receive monthly distributions based on the 50 highest yielding equity securities included in the Scotia HYE Index. (b) Implementing an industry sector limit on the Portfolio will prevent the Trust from becoming overly concentrated in one industry sector and will ensure that the Portfolio remains in line with the Trust s investment objective of providing monthly distributions from a diversified portfolio. (c) The amendments to the Declaration of Trust will facilitate future offerings and enable the Trustee to issue different types of units (such as class F units) if it determines to do so, as well as bringing the Declaration of Trust into conformity with current practice. In addition, the amendments will enable the Trust to have flexibility in the methodology for obtaining leverage (subject to the existing 25% limit which will not change). (d) The Trust is expected to continue to operate with a low management expense ratio of between 0.47% and 0.75% of net asset value (depending on the number of Units outstanding after the Extension) if the Extension is implemented. (e) The extension of the scheduled redemption date of the Units will enable Unitholders to retain their investment and potentially defer some or all capital gains tax liability that would have otherwise been realized on the redemption of the Units until such time as the Units are either sold or retracted by a Unitholder or redeemed by the Trust. The Trust estimates that if the Units were redeemed on their scheduled redemption date, an investor resident in Ontario who is taxable at the top marginal tax rate and who purchased his or her Units on the initial public offering of the Trust would have an adjusted cost base per Unit of $10.49 and would incur a capital gain of $2.32 and capital gains tax payable of approximately $0.54 for each Unit redeemed (based on a Unit net asset value of $12.81 on February 4, 2013 and an effective capital gains tax rate of 23.21%). (f) The implementation of the Extension will have no material effect on the ability of Unitholders to retract their Units on the Special Retraction Date as originally contemplated. RECOMMENDATION OF THE TRUSTEE Declaration of Interest of the Administrator and the Board of Directors of the Trustee Scotia Managed Companies Administration Inc. ( SMCAI ) is the administrator of the Trust and an affiliate of Scotia Capital Inc. ( Scotia Capital ). Scotia Capital will receive certain fees for structuring the proposed Extension and will receive additional fees if the Extension is successful. SMCAI is a wholly owned subsidiary of The Bank of Nova Scotia. If the Extension proceeds, the Loan Facility with The Bank of Nova Scotia will be extended for an additional term or a comparable leverage facility will be put in place. See Expenses of the Extension and Interest of Management and Others in the Extension. Each of Messrs. Brian D. McChesney and Stephen D. Pearce are officers and/or directors of the Trustee and are currently employees of Scotia Capital. Messrs. Robert C. Williams and Michael K. Warman are former employees of Scotia Capital. Consequently, each such person declared a conflict of interest with respect to the proposed Extension, did not participate in the determination of the Board of Directors of the Trustee recommending to proceed with the proposed Extension and abstained from voting on the resolution of the Board of Directors of the Trustee whereby the Trustee determined to recommend that Unitholders approve the Special Resolution. Recommendation of the Independent Directors of the Board of Directors of the Trustee The Board of Directors of the Trustee has reviewed the proposed Extension and has determined (Messrs. McChesney, Pearce, Warman and Williams abstaining from voting on the resolution due to a conflict of interest) that the proposed Extension is in the best interests of the Trust and the Unitholders. In arriving at such determination, consideration was given to, among other things, the factors set forth under Proposed Extension Rationale and Benefits of the Proposed Extension for Unitholders and Risk Factors, the expenses relating to the Extension and the management expense ratio upon implementation of the Extension, financial advice provided by Scotia Capital and advice as to legal matters provided by counsel to the Trust. 8

14 The Board of Directors of the Trustee (Messrs. McChesney, Pearce Warman and Williams refraining from participating in such determination and abstaining from voting) recommends that all Unitholders vote in favour of the Special Resolution to be considered at the Meeting. As required by National Instrument ( NI ) of the Canadian Securities Administrators, SMCAI, as administrator, presented the terms of the Extension which raise a conflict of interest for the purposes of NI and the process proposed for completion of the Extension to the Trust s Independent Review Committee for a recommendation. See Interest of Management and Others in the Extension. The Independent Review Committee reviewed such conflict of interest matters and, having regard to among other things the process proposed for the completion of the Extension including the requirement to obtain Unitholder approval and affording Unitholders the Special Retraction Right, recommended that such conflict of interest matters achieve a fair and reasonable result for the Trust. DETAILS OF THE EXTENSION Amendments in the Declaration of Trust Extension of Termination Date Currently, the Declaration of Trust provides that any Units outstanding on April 29, 2013 (the Termination Date ) will be redeemed by the Trust on such date. If the Special Resolution is approved, the Termination Date will become April 30, 2018 (the New Termination Date ) and, upon redemption of a Unit outstanding on such date, each Unitholder will receive their pro rata share of the remaining assets of the Trust represented by the Units held by such Unitholder. Amendments to Investment Strategy of the Trust The Declaration of Trust will be amended to modify the investment objectives and strategy of the Trust to limit the weighting in any one sector to 25% of total assets, calculated at the time of inclusion and/or annual rebalancing. Implementing an industry sector limit on the Portfolio will prevent the Trust from becoming overly concentrated in one industry sector and will ensure that the portfolio remains in line with the Trust s investment objective of providing monthly distributions from a diversified portfolio. The Ability to Create Classes of Units The Declaration of Trust will be amended to give the Trust the ability to issue more than one class of Unit. These amendments will facilitate future offerings and enable the Trustee to issue different types of units if it determines to do so. The provisions relating to new offerings contained in the Declaration of Trust will also be amended to bring the Declaration of Trust into conformity with current practice in the fund industry and in particular to ensure that when the pricing of a new issue is determined, distributions declared prior to the new issue closing date that will not be received by the subscribers are taken into account. Leverage The Trust currently employs leverage of approximately 20% of the value of its Portfolio, and may employ total leverage up to 25% of total assets. If the Extension proceeds, the current Loan Facility will be extended for an additional term or a comparable leverage facility will be put in place. However, the Declaration of Trust will be amended to provide flexibility in the methodology for obtaining leverage (subject to the existing 25% limit which will not change). Special Retraction Right for April 29, 2013 The Declaration of Trust will also be amended to provide Unitholders who wish to retract their Units with the Special Retraction Right, allowing such Unitholders to retract their Units on April 29, 2013 on the same terms that would have been applied had the Trust redeemed all Units on such date as originally contemplated. For each Unit submitted for retraction pursuant to the Special Retraction Right, Unitholders will receive a cash 9

15 amount equal to the net realized proceeds together with any unpaid distributions in respect of such Unit (payable to Unitholders of record on April 29, 2013), less any amount required to be withheld therefrom under applicable law. The Trustee may designate payable to retracting Unitholders, as part of the retraction price, capital gains realized by the Trust in the current taxation year of the Trust. Such designation will have no impact on the aggregate amount of capital gains realized by an Unitholder who retracts Units pursuant to the Special Retraction Right. A vote in favour of the Special Resolution does not deprive a Unitholder of the right to retract their Units. Consequently the Board of Directors of the Trustee recommends that Unitholders who wish to have their Units retracted on the Special Retraction Date also vote in favour of the Special Resolution. Such Unitholders can vote in favour of the Special Resolution and have their Units retracted on the Special Retraction Date by submitting written notice to the Trust no later than 5:00 p.m. (Toronto time) on March 27, 2013 (the Special Retraction Right Notice Date ). To fund the retraction, the Trust intends to sell securities included in the current Portfolio of the Trust after the Special Retraction Right Notice Date and prior to the Special Retraction Date. Where Portfolio Securities are sold to fund retractions, the retraction payment paid to retracting Unitholders will be based on the weighted average net realized proceeds received by the Trust from the sale of such securities. If for any reason SMCAI, as the administrator of the Trust, determines that it is not practicable for the Trust to sell certain Portfolio Securities, the calculation of the retraction price will be based on the closing price of the Portfolio Securities not sold by the Trust on April 23, Redemption Any Units outstanding on the New Termination Date will be redeemed by the Trust on such date. Each Unitholder will receive their pro rata share of the remaining assets of the Trust after paying or providing for all liabilities represented by the Units held by such Unitholder. Notice of redemption will be given to CDS Participants holding Units on behalf of the beneficial owners thereof at least 30 days prior to the New Termination Date. Unitholders will continue to be entitled to retract their Units on any Retraction Payment Date and receive the Net Realized Proceeds per Unit retracted (as such terms are defined in the Declaration of Trust). The Trust will be obligated to redeem Units only to the extent that the redemption would not be contrary to any applicable law. If the Trust is unable for this reason to redeem all of the Units surrendered for payment on a Retraction Payment Date, it will redeem on each Retraction Payment Date thereafter, on a pro rata basis from Unitholders who so surrendered Units, disregarding fractions, such number of Units not so redeemed as the Trust determines it is then permitted to redeem. The Trust will repeat such process on each successive Retraction Payment Date until all such Units have been redeemed. EXPENSES OF THE EXTENSION If the Extension is successful, all costs incurred by the Trust will be borne solely by the Unitholders outstanding after the Extension. The Trust has retained Scotia Capital to form a soliciting dealer group to solicit votes in favour of the Special Resolution. A fee will be paid by the Trust to properly designated soliciting broker dealers, including Scotia Capital, equal to $0.25 per Unit in respect of Units that are (i) voted in favour of the Special Resolution and (ii) not retracted upon the implementation of the Extension, provided the Extension is completed. No fee will be payable to brokers who s clients do not vote, regardless of whether or not they retract their Units. The estimate below assumes a 50% payout rate. In addition, in consideration of developing the Extension plan and providing related financial advisory services, Scotia Capital will be paid a fee equal to $525,000, of which only $75,000 is payable if the Extension does not proceed. If the Extension is approved and implemented, all costs of the Extension, consisting primarily of estimated soliciting broker fees, as described below, expenses relating to the extension of the redemption date, financial 10

16 advisory fees and legal fees, will be borne by the Unitholders that remain outstanding after the Extension as described in the table below. Estimated Total Costs Estimated Cost per Unit Outstanding If all Units remain outstanding after the Extension... $3,410,000 $0.16 If the minimum number of 8,000,000 Units remain outstanding after the Extension $1,710,000 $0.21 If the Extension is not implemented, the costs associated with this proposal will be borne by the Trust and therefore ultimately by all Unitholders. Such costs are estimated to be $0.01 per Unit. See also Interest of Management and Others in the Extension for a description of certain fees that will be paid to Scotia Capital in connection with the Extension. TERMINATION OF THE EXTENSION The Extension may, at any time before or after the holding of the Meeting, but no later than the effective date of the Extension, be terminated by the Trustee without further notice to, or action on the part of, Unitholders if the Board of Directors of the Trustee determines, in its sole judgment, that it would be inadvisable for the Trust to proceed with the Extension. IF THE EXTENSION DOES NOT PROCEED If the Extension does not proceed, all Units will be redeemed by the Trust on April 29, 2013 on the same terms as originally contemplated in the Declaration of Trust, or such later date as the Trustee may fix in order to ensure that any tax liabilities of the Trust are satisfied prior to termination and thereupon will terminate and the net assets of the Trust will be distributed to the Unitholders. Prior to the termination date, SMCAI, as the administrator of the Trust, will, to the extent practicable, convert the assets of the Trust to cash. Should the liquidation of certain portfolio securities not be practicable or should the Trustee consider such liquidation not to be appropriate on the termination date, such portfolio securities will be distributed to Unitholders in specie rather than in cash subject to compliance with any securities or other laws applicable to such distributions. Following such distribution, the Trust will be wound up. INTEREST OF MANAGEMENT AND OTHERS IN THE EXTENSION Scotia Capital, The Bank of Nova Scotia and SMCAI are connected to the Trust within the meaning of applicable securities legislation. If the Extension is completed, Scotia Capital will receive a fee as a designated broker in respect of Units that are (i) voted in favour of the Special Resolution and (ii) not retracted upon implementation of the Extension. Scotia Capital will also receive fees for acting as financial adviser as described under Expenses of the Extension. SMCAI will continue to receive an annual administration fee equal to 0.25% of value of portfolio of the Trust. The Bank of Nova Scotia will continue to receive interest payments on the Loan Facility. Finally, the Trust will also continue to reimburse Scotia Capital for the expenses of the calculation agent in connection with the calculation of the Scotia HYE Index. Certain of the officers and directors of the Trustee are employees or former employees of Scotia Capital. Such individuals did not participate in the determination to recommend the Extension and refrained from voting on the resolution of the Board of Directors of the Trustee recommending that Unitholders vote in favour of the Extension. 11

17 CANADIAN FEDERAL INCOME TAX CONSIDERATIONS In the opinion of Stikeman Elliott LLP, counsel to the Trust, the following fairly summarizes the principal Canadian federal income tax considerations relating to the Extension that are generally applicable to a Unitholder who is an individual (other than certain trusts) and, for purposes of the Income Tax Act (Canada) (the Tax Act ), is resident in Canada, holds Units as capital property, and deals at arm s length with, and is not affiliated with the Trust. Generally, Units will be considered to be capital property to a Unitholder provided the Unitholder does not hold the Units in the course of carrying on a business of trading or dealing in securities and has not acquired them in one or more transactions considered to be an adventure or concern in the nature of trade. Certain Unitholders whose Units might not otherwise qualify as capital property may be entitled to make the irrevocable election in the circumstances permitted by subsection 39(4) of the Tax Act to deem such Units (and all other Canadian securities owned by the holder) to be capital property. This summary is based on the assumptions that (i) the Trust currently qualifies as a mutual fund trust within the meaning of the Tax Act; and (ii) the Fund will at no time be a specified investment flow through trust within the meaning of the Tax Act. This summary is based on the current provisions of the Tax Act, the regulations thereunder (the Regulations ), all specific proposals to amend the Tax Act and Regulations publicly announced by or on behalf of the Minister prior to the date hereof and counsel s understanding of the current published administrative practices of the Canada Revenue Agency (the CRA ). This summary is not exhaustive of all possible Canadian federal income tax considerations and, except as mentioned above, does not anticipate any changes in law, nor does it take into account provincial, territorial or foreign tax considerations, which may differ significantly from those discussed herein. This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any particular Unitholder and no representations with respect to the income tax consequences to any particular Unitholder are made. Accordingly, Unitholders should consult their own tax advisors for advice with respect to the tax consequences to them of the Extension, including the application and effect of the income and other tax laws of any country, province, state or local tax authority. The Trust The Extension will not affect the status of the Trust as a mutual fund trust under the Tax Act. Extension of the Scheduled Redemption Date The extension of the scheduled redemption date for the Units for an additional term of five years and the other amendments to the Declaration of Trust described herein should not result in the disposition of Units by a Unitholder. Distributions Paid on Exercise of Special Retraction Right A Unitholder who exercises the Special Retraction Right on April 29, 2013, will generally be required to include in income for the Unitholder s taxation year any income received, including any net taxable capital gains of the Trust that are designated payable by the Trust on retraction to such Unitholder. The Board of Directors of the Trustee has advised that it expects that there will be no income other than taxable capital gains allocated to Unitholders on retraction. Provided that appropriate designations are made by the Trust, that portion of its net taxable capital gains as is paid or payable to a Unitholder will effectively retain its character and be treated as such in the hands of the Unitholder for purposes of the Tax Act. The non-taxable portion of any net capital gains of the Trust that is paid to a Unitholder will not be included in computing the Unitholder s income for the year. Redemption, Retractions and Other Dispositions of Units A Unitholder who disposes of or who is deemed to dispose of a Unit, including a disposition to the Trust (whether on retraction, redemption or otherwise), will realize a capital gain (or capital loss) to the extent that the proceeds of disposition exceed (or are less than) the aggregate of such Unitholder s adjusted cost base of such Unit and any reasonable costs of disposition. For this purpose, proceeds of disposition will not include any net taxable capital gains of the Trust that are designated payable by the Trust and required to be included in the 12