MONEDA LATAM FIXED INCOME FUND ANNUAL INFORMATION FORM. Class A Units. Class U Units

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1 MONEDA LATAM FIXED INCOME FUND ANNUAL INFORMATION FORM Class A Units Class U Units March 6, 2014

2 FORWARD LOOKING INFORMATION Information in this annual information form that is not current or historical factual information may constitute forward looking information within the meaning of securities laws, and actual results may vary from the forward looking information. Implicit in this information are assumptions regarding future operations, plans, expectations, anticipations, estimates and intentions. These assumptions, although considered reasonable by the Fund at the time of preparation, may prove to be incorrect. Readers are cautioned that actual future operating results and economic performance of the Fund are subject to a number of risks and uncertainties. See Section 14.1 Risk Factors for a list of material risk factors. Forward looking information contained in this annual information form is based on current estimates, expectations and projections, which the Fund believes are reasonable as at the date of this annual information form. The Fund uses forward looking statements because it believes such statements provide useful information with respect to the future operation and financial performance of the Fund, and cautions readers that the information may not be appropriate for other purposes. Readers should not place undue importance on forward looking information and should not rely upon this information as at any other date. While the Fund may elect to, it does not undertake to update this information at any particular time. 2

3 TABLE OF CONTENTS GLOSSARY OF TERMS NAME, FORMATION AND HISTORY Declaration of Trust Investment Objectives Investment Strategy General INVESTMENT RESTRICTIONS DESCRIPTION OF SECURITIES The Units Conversion of Class U Units Take-Over Bids Distributions Amendment of the Declaration of Trust Amending of the Declaration of Trust by the Trustee Amending of the Declaration of Trust by the Unitholders Termination of the Fund VALUATION OF PORTFOLIO SECURITIES CALCULATION OF NET ASSET VALUE PURCHASES OF UNITS General Issuer Bid REDEMPTION OF UNITS Annual Monthly General Suspension of Redemptions Funding Redemption Price RESPONSIBILITY FOR OPERATIONS Trustee Duties and Services Provided by the Trustee Officers and Directors of the Trustee Manager to the Fund Duties and Services to be Provided by the Manager and details of the Management Agreement Termination of the Management Agreement Directors and Officers of the Manager Independent Review Committee Portfolio Manager and the Portfolio Management Agreement Duties and Services to be Provided by High Rock and details of the Portfolio Management Agreement Termination of the Portfolio Management Agreement Custodian Registrar and Transfer Agent Auditor CONFLICTS OF INTEREST Principal Holders of Securities Affiliated Entities Securities Held by Members of the Independent Review Committee FUND GOVERNANCE Composition of the Independent Review Committee Proxy Voting Policy Use of Derivatives, Short-Selling and Securities Lending Short-Term Trades INCOME TAX CONSIDERATIONS Status of the Fund Taxation of the Fund Taxation of Unitholders Taxation of Registered Plans Tax Implications of the Fund s Distribution Policy REMUNERATION OF DIRECTORS, OFFICERS, IRC AND TRUSTEES MATERIAL CONTRACTS Forward Agreement OTHER MATERIAL INFORMATION Risk Factors

4 Risk Factors of the Investment Strategy Risk Factors of the Fund Future Accounting Changes

5 GLOSSARY OF TERMS In this Annual Information Form, the following terms shall have the meanings set forth below, unless otherwise indicated. Annual Redemption Date means the second last business day of November of each year, commencing in 2013, on which Units may be redeemed. Audit Committee means the Audit Committee appointed by the MLF Board. Business Day means any day except Saturday, Sunday or a statutory holiday in Toronto, Ontario or any other day on which the TSX is not open for trading. Canadian Securities Portfolio means a portfolio of securities that are Canadian securities as defined in subsection 39(6) of the Tax Act. CDS means CDS Clearing and Depository Services Inc. CDS Participant means a participant in CDS, being a broker, dealer, bank or other financial institution or other person for whom, from time to time, CDS effects book entries for the Units deposited with CDS. Character Conversion Rules has the meaning assigned in Section 11.2, Taxation of the Fund. CICA means the Canadian Institute of Chartered Accountants. Character Conversion Rules has the meaning assigned in section 11.2 Taxation of the Fund closing market price in respect of a security on a Monthly Redemption Date means: (i) the closing price of such security on the stock exchange on which such security is listed on such Monthly Redemption Date if there was a trade on the Monthly Redemption Date and the market provides a closing price; (ii) the average of the highest and lowest prices of such security on the stock exchange on which such security is listed on such Monthly Redemption Date if there was trading on the Monthly Redemption Date and the market provides only the highest and lowest prices of the security traded on a particular day; or (iii) the last bid price of the security on the stock exchange on which the security is listed on such Monthly Redemption Date if there was no trading on the applicable Monthly Redemption Date. Conversion Date means the first Business Day of each week. Counterparty means The Bank of Nova Scotia and/or such other Schedule I Canadian chartered bank(s) and/or affiliate(s) thereof that enters into the Forward Agreement. CRA means the Canada Revenue Agency. Custodian means State Street Trust Company Canada, organized pursuant to the laws of Canada, in its capacity as Custodian under the Custodian Agreement or if applicable its successor. Custodian Agreement means the custodian contract dated May 10, 2010, and as amended by an amending agreement dated June 19, 2012, between the Manager and the Custodian and the instrument of accession, dated June 19, 2012, adding the Fund as a party thereto. DBRS means DBRS Limited. 5

6 Declaration of Trust means the declaration of trust governing the Fund made as of May 30, 2012, as it may be amended or amended and restated from time to time. Distribution Payment Date means a Business Day designated by the Manager that will be no later than the 15th day of the month following the Distribution Record Date. Distribution Record Date means the last Business Day of each month or such other date as may be designated by the Manager. Extraordinary Resolution means a resolution passed by the affirmative vote of at least 66 2 / 3 % of the votes cast, either in person or by proxy, at a meeting of Unitholders called for the purpose of approving such resolution. Forward Agreement means one or more forward purchase agreements entered into by the Fund with a Counterparty. Forward Date means the settlement date of the Forward Agreement, being on or about June 19, Fund means Moneda LatAm Fixed Income Fund, an investment trust established under the laws of the Province of Ontario pursuant to the Declaration of Trust. Fund Property means the property and assets of the Fund. GAAP means generally accepted accounting principles. Grandfathering Rules has the meaning assigned in Section 11.2 Taxation of the Fund. IASB means the International Accounting Standards Board. IFRS means International Financial Reporting Standards. Independent Review Committee or IRC means an independent review committee established under NI Investment Objectives means the investment objectives of the Fund as set forth in the Declaration of Trust, including without limitation those described in Section Investment Objectives ; Investment Restrictions means the investment restrictions of the Fund as set forth in the Declaration of Trust, including without limitation those described in Section 2.0 Investment Restrictions ; LatAm or Latin American means South American, Central American and Caribbean countries and Mexico. MAM means Moneda Asset Management S.A. MAF means Moneda S.A. Administradora de Fondos de Inversion. Management Agreement means a management agreement dated May 30, 2012 among the Fund and the Manager. 6

7 Management Fee means a fee from the Fund equal to 0.25% per annum of the Net Asset Value of the Fund calculated and paid as soon as practicable after the end of each calendar quarter, plus applicable taxes. Manager means Scotia Managed Companies Administration Inc., a wholly-owned subsidiary of Scotia Capital, in its capacity as manager of the Fund or, if applicable, its successor. MLF Board means the board of directors of the Trustee. Moneda or Sub-Advisor means Moneda International Inc. Moneda Fund means Moneda Deuda Latinoamericana Fondo de Inversion. Monthly Redemption Date means the second last Business Day of each month other than a month in which an Annual Redemption Date occurs. Net Asset Value or NAV means the net asset value of the Fund, as determined by subtracting the aggregate liabilities of the Fund from the total assets of the Fund, as more fully described under Section 5.0 Calculation of Net Asset Value. Net Asset Value per Unit or NAV per Unit means, for a class of Units on any date, the number obtained by dividing the NAV attributable to that class of Units on such date by the total number of Units of the class outstanding on such date (before giving effect to any issue or redemption of Units of that class to be issued or redeemed on that date). NI means National Instrument Mutual Funds of the Canadian Securities Administrators. NI means National Instrument Investment Fund Continuous Disclosure of the Canadian Securities Administrators. NI means National Instrument Independent Review Committee for Investment Funds of the Canadian Securities Administrators. Ordinary Resolution means a resolution passed by the affirmative vote of at least 50% of the votes cast, either in person or by proxy, at a meeting of Unitholders called for the purpose of approving such resolution. Portfolio means the portfolio of securities, consisting primarily of U.S. dollar-denominated high yield fixed income securities of companies in Latin America, acquired and held by MLF Trust from time to time. Portfolio Management Agreement means the portfolio management agreement dated June 19, 2012 between the Fund, the Manager and the Portfolio Manager, as it may be amended from time to time. Portfolio Manager or High Rock means High Rock Capital Management Inc. in its capacity as portfolio manager of the Fund or, if applicable, its successor. Portfolio Securities means the 20 highest yielding equity securities included in Dow which comprise the Portfolio. 7

8 Redemption Payment Date means the 15 th day following an Annual Redemption Date or a Monthly Redemption Date, as applicable. Registered Plans means registered retirement savings plans, registered retirement income funds, deferred profit sharing plans, registered education savings plans, registered disability savings plans and tax-free savings accounts. Registrar and Transfer Agent means Computershare Investor Services Inc., organized pursuant to the laws of Canada, in its capacity as registrar and transfer agent under the Registrar and Transfer Agency Agreement or if applicable its successor. Registrar and Transfer Agency Agreement means a transfer agent, registrar and distribution disbursing agent agreement made as of June 19, 2012, between the Fund and the Registrar and Transfer Agent. Reference Exchange Rate means the Bank of Canada closing rate as found on Scotia Capital means Scotia Capital Inc. S&P means Standard & Poor s Financial Services LLC, a subsidiary of The McGraw-Hill Companies, Inc. Section 3855 means Section 3855, Financial Instruments Recognition and Measurement of the CICA Handbook Accounting issued by CICA on April 1, SIFT Rules means the provisions of the Tax Act providing for a tax on certain income earned by a SIFT Trust or a specified investment flow-through partnership. SIFT Trust means a specified investment flow-through trust under the SIFT Rules. Special Distribution means a distribution that will, if necessary, be made in each year to Unitholders of record on December 31 of that year in order that the Fund will generally not be liable to pay income tax in respect of that year. Tax Act means the Income Tax Act (Canada), as now or hereafter amended, or successor statutes, and includes regulations promulgated thereunder. Tax Proposals means all specific proposals to amend the Tax Act publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof. Termination Date means the date upon which the Fund is terminated, as more fully described under Section 3.4 Termination of the Fund. Trustee means MLF Ltd., in its capacity as trustee under the Declaration of Trust or, if applicable, its successor. TSX means the Toronto Stock Exchange. Unitholders means the holders of Units. Units means the Class A Units and Class U Units of the Fund. 8

9 Valuation Date means each Business Day on which the NAV per Unit shall be calculated. Valuation Time means 4:00 p.m. (Toronto time) on each Valuation Date, or such other time as the Manager deems appropriate on each Valuation Date. weighted average trading price in respect of a security for any period means the volume weighted average price at which such security trades during such period provided that if there are no trades of such security during the period the weighted average trading price shall be the last bid price of such security on the last day of such period. 9

10 1.0 NAME, FORMATION AND HISTORY Moneda LatAm Fixed Income Fund (the Fund ) is an investment trust with a registered office located at 40 King Street W., 26 th Floor, P.O. Box 4085, Station A, Toronto, Ontario M5W 2X6. The Fund was established under the laws of the Province of Ontario pursuant to a declaration of trust dated as of May 30, On June 19, 2012, pursuant to the initial public offering of the Fund, 4,350,000 Class A Units and 440,970 Class U Units were issued for gross proceeds of Cdn.$43,500,000 and U.S.$4,409,700, respectively. An additional 280,000 Class A Units were issued on July 6, 2012 under an over-allotment for gross proceeds of $2,800,000. On February 6, 2013, the Fund completed a follow-on public offering of 5,700,000 Class A Units and 529,055 Class U Units at a price of Cdn.$10.61 per Class A Unit and U.S.$10.58 per Class U Unit for gross proceeds of Cdn.$60,477,000 and U.S.$5,597,401.90, respectively. An additional 40,000 Class A Units were issued on February 20, 2013 under an over-allotment for gross proceeds of $4,244,000. As of March 6, 2014, 186,894 Class U Units had been converted into 189,457 Class A Units. 1.1 Declaration of Trust Investment Objectives The Fund s investment objectives are to: (i) (ii) preserve and enhance the net asset value (the Net Asset Value or NAV ) of the Fund; and with quarterly tax-advantaged distributions consisting primarily of returns of capital; in each case through exposure by virtue of the Forward Agreement to a diversified portfolio (the Portfolio ) consisting primarily of U.S. dollar-denominated high yield fixed income securities of companies in Latin America Investment Strategy To pursue its investment objectives, the Fund obtains economic exposure on a tax-advantaged basis to the Portfolio through the Forward Agreement with one or more Schedule I Canadian chartered banks or affiliates thereof (each a Counterparty ), which initially is The Bank of Nova Scotia. The Fund is therefore fully exposed to the credit risk associated with the Counterparty; however, the Counterparty has pledged collateral in favour of the Fund to secure its obligations under the Forward Agreement. By virtue of the Forward Agreement, the performance of the Fund is dependent on the performance of the Portfolio. The Portfolio is held by MLF Trust, an investment fund established for the purpose of acquiring and holding the Portfolio. The Portfolio consists primarily of U.S. dollar-denominated high yield fixed income securities of companies in Latin America, and is actively managed by Moneda International Inc. ( Moneda or the Sub-Advisor ) who seeks both income and capital appreciation for Unitholders in the Fund. The Portfolio is invested in various Latin American regions involving a diversified portfolio of primarily public high yield corporate bonds. The Portfolio may also invest in other credit securities in the public and private market in the form of promissory notes, loans and other debt securities. From time to time, 10

11 the Portfolio may be invested in fixed income securities of companies in distress or default and also participate in the restructuring process of such companies. The investment strategy for the Portfolio is substantially the same investment strategy followed by Moneda S.A. Administradora de Fondos de Inversion ( MAF ), an affiliate of the Sub-Advisor with the same officers and investment team and a wholly-owned subsidiary of Moneda Asset Management S.A. ( MAM ), in managing the Moneda Deuda Latinoamericana Fondo de Inversion (the Moneda Fund ), a Chilean listed investment fund established in February General The Declaration of Trust provides for the administration of the Fund and governs matters including, without limitation, the powers of the Trustee, the issue and sale of Units, the registration and the transfer of Units, the redemption and repurchase of Units, distributions to Unitholders, the provision of management, administration and custodial services to the Fund, the limitation on the liability of the Unitholders, the Trustee and other parties and the termination of the Fund. Pursuant to the Declaration of Trust, the Trustee retained Scotia Managed Companies Administration Inc. (the Manager ) as the manager of the Fund and the Manager, on behalf of the Fund, retained State Street Trust Company Canada (the Custodian ) as the custodian of the Fund Property. The Sub-Advisor also advises an offshore fund called the Moneda Latin American Corporate Debt fund (the Cayman Fund ), which is registered under the laws of the Cayman Islands as an exempted limited liability company. The investment objective of the Cayman Fund is similar to the Fund and the Moneda Fund, however the Cayman Fund is subject to relatively few investment restrictions and has a substantially different fee structure when compared to the Fund and the Moneda Fund. Moneda s primary investment strategy is to perform bottom-up company analysis, supplemented with top-down macroeconomic analysis of Latin American countries and their industry sectors. Using its bottom-up analysis, Moneda selects the companies it considers to be the most attractive risk-adjusted investments in the LatAm region. In addition, Moneda performs top-down macroeconomic analysis in order to identify the LatAm countries and industries which it believes will outperform and, accordingly, will make investment decisions and diversify the Portfolio between countries and industries based on the outcome of its analysis 2.0 INVESTMENT RESTRICTIONS The Fund is not a mutual fund for securities law purposes. As a result, some of the protections provided to investors in mutual funds under such laws will not be available to investors in the Units and restrictions imposed on mutual funds under Canadian securities laws, including NI , will not apply to the Fund. However, the Fund is subject to certain other requirements and restrictions contained in securities legislation, including NI , which governs the continuous disclosure obligations of investment funds, such as the Fund. The Fund is managed in accordance with such applicable requirements and restrictions and the Investment Restrictions set out in the Declaration of Trust. Any change to the investment objectives of the Fund mentioned above may be undertaken only with the approval of Unitholders by an Extraordinary Resolution, unless such changes are necessary to ensure compliance with applicable laws, regulations or other requirements imposed by applicable regulatory authorities from time to time. 11

12 The Units are qualified investments under the Tax Act for trusts governed by Registered Plan. During 2013, the Fund did not deviate from the rules under the Tax Act that apply to the status of the Units qualifying for inclusion in such plans. The Units will generally not be a prohibited investment for trusts governed by a tax-free savings account, registered retirement savings plan or registered retirement income fund unless the holder of the tax-free savings account or the annuitant under the registered retirement savings plan or registered retirement income fund, as applicable, (i) does not deal at arm s length with the Fund for purposes of the Tax Act or (ii) has a significant interest as defined in the Tax Act in the Fund. Generally, a holder or annuitant, as the case may be, will not have a significant interest in the Fund unless the holder or annuitant, as the case may be, owns interests as a beneficiary under the Fund that have a fair market value of 10% or more of the fair market value of the interests of all beneficiaries under the Fund, either alone or together with persons and partnerships with which the holder or annuitant, as the case may be, does not deal at arm s length. The Units will generally not be a prohibited investment if the Units are excluded property as defined in the Tax Act for trusts governed by a tax-free savings account, registered retirement savings plan or registered retirement income fund. Holders or annuitants should consult their own tax advisors with respect to whether Units would be prohibited investments, including with respect to whether the Units would be excluded property. 3.0 DESCRIPTION OF SECURITIES 3.1 The Units The beneficial interest in the net assets and net income of the Fund is divided into two classes of units, Class A Units and Class U Units. The Fund is authorized to issue an unlimited number of Units of each class. The Class A Units are designed for investors wishing to make their investment in Canadian dollars and the Class U Units are designed for investors wishing to make their investment in U.S. dollars. Each Unit entitles the holder to the same rights and obligations as a Unitholder and no Unitholder is entitled to any privilege, priority or preference in relation to any other holder of Units, subject to Unitholders of each class being entitled to distributions or redemptions based on the Net Asset Value of the Units of a particular class. Each Unitholder is entitled to one vote for each Unit held and is entitled to participate equally with respect to any and all distributions made by the Fund, including distributions of net realized capital gains, if any. On the redemption of Units, however, the Fund may in its sole discretion, designate payable to redeeming Unitholders, as part of the redemption price, any income of and capital gains realized by the Fund in the taxation year in which the redemption occurred. On termination or liquidation of the Fund, the Unitholders of record are entitled to receive on a pro rata basis all of the assets of the Fund remaining after payment of all debts, liabilities and liquidation expenses of the Fund. Unitholders will have no voting rights in respect of securities held by the Fund. The Counterparty has delegated to the Manager the responsibility for voting on matters for which the Counterparty receives, in its capacity as a securityholder, proxy materials for a meeting of securityholders of an issuer included in the Portfolio. See Section 7.0 Redemption of Securities for greater detail regarding the redemption rights of the Units. On December 16, 2004, the Trust Beneficiaries Liability Act, 2004 (Ontario) came into force. This statute provides that holders of units of a trust are not, as beneficiaries, liable for any act, default, obligation or liability of the trust if, when the act or default occurs or the liability arises: (i) the trust is a reporting issuer under the Securities Act (Ontario); and (ii) the trust is governed by the laws of Ontario. The Fund is a reporting issuer in each of the provinces and territories of Canada, and it is governed by the laws of Ontario by virtue of the provisions of the Declaration of Trust. 12

13 The Declaration of Trust provides that the Fund will only issue additional Units (other than pursuant to any warrants or rights issued by the Fund to existing Unitholders, or any distribution reinvestment plan which may be established by the Fund): (i) for net proceeds per Unit of a class of not less than 100% of the NAV per Unit of that class most recently calculated prior to setting the subscription price for such issuance, (ii) by way of Unit distributions or any offering of rights, warrants or options to acquire Units to all Unitholders, (iii) with the approval of Unitholders voting together and voting separately as a class by Extraordinary Resolution, or (iv) pursuant to a distribution reinvestment plan. Immediately after a pro rata distribution of Units of a class to all Unitholders of that class in satisfaction of any non-cash distributions allocable pro rata to that class, the number of outstanding Units of that class will be consolidated such that each Unitholder will hold, after the consolidation, the same number of Units of that class as the Unitholder held before the non-cash distribution, except in the case of a non-resident Unitholder to the extent tax was required to be withheld in respect of the distribution. Subject to the foregoing, the Fund may allot and issue additional Units and additional classes of units and other securities of the Fund at such time or times, and in such manner, as the Manager in its sole discretion shall determine Conversion of Class U Units A holder of Class U Units may convert such Class U Units into Class A Units on a weekly basis for liquidity purposes. It is expected that liquidity for the Class U Units will be obtained primarily by means of conversion into Class A Units and the sale of such Class A Units on a stock exchange. Class U Units may be converted in any week on the first Business Day of such week (the Conversion Date ) by delivering a notice to the Manager and surrendering such Class U Units by 3:00 p.m. (Toronto time) at least five Business Days prior to the applicable Conversion Date. For each Class U Unit so converted, a holder will receive that number of Class A Units equal to the Net Asset Value per Class U Unit as at the close of trading on the Business Day immediately preceding the Conversion Date divided by the Net Asset Value per Class A Unit as at the close of trading on the Business Day immediately preceding the Conversion Date. For such purpose, the Fund will utilize the Reference Exchange Rate as of the Business Day immediately preceding the conversion day. No fraction of a Class A Unit will be issued upon any conversion of Class U Units and any fractional amounts will be rounded down to the nearest whole number of Class A Units. A conversion of Class U Units into Class A Units will constitute a disposition of such Class U Units for the purposes of the Tax Act Take-Over Bids The Declaration of Trust contains provisions to the effect that if a take-over bid is made for the Class A Units and not less than 90% of the aggregate of the Class A Units (but not including any Class A Units held at the date of the take-over bid by or on behalf of the offeror or associates or affiliates of the offeror) are taken up and paid for by the offeror, the offeror will be entitled to acquire the Class A Units held by the Unitholders who did not accept the take-over bid on the terms offered by the offeror. The Declaration of Trust also provides that if, prior to the termination of the Fund, a formal bid (as defined in the Securities Act (Ontario)) is made for all of the Class U Units and such bid would constitute a formal bid for all Class A Units if the Class U Units had been converted to Class A Units immediately prior to such bid and the other offer does not include a concurrent identical take-over bid, including in terms of price (relative to the Net Asset Value per Unit of the class), for the Class A Units then the Fund shall provide the holders of Class A Units the right to convert all or a part of their Class A Units into Units of the applicable class and to tender such units to the other offer, as applicable. In the circumstances described above, the Fund shall by press release provide written notice to the holders of the Class A Units that such an offer has been made and of the right of such holders to convert all or a part of their Class A Units into Units of the applicable class and to tender such units to other offer. 13

14 3.2 Distributions The Fund will not have a fixed distribution but intends to make quarterly cash distributions to Unitholders of record generally on the last Business Day of each calendar quarter (each, a Distribution Record Date ) through pre-settlement of the Forward Agreement based on, among other things, the actual and expected returns on the Portfolio less the actual and expected direct and indirect expenses of the Fund. Distributions will be paid on a Business Day designated by the Manager that will be on or about the 15th day of the month following the Distribution Record Date. It is expected that the quarterly distributions received by Unitholders will be characterized primarily as returns of capital and capital gains for tax purposes. Amounts distributed on the Units that represent returns of capital are generally nontaxable to a Unitholder but reduce the Unitholder s adjusted cost base of the Units for tax purposes. The amount of distributions may fluctuate from quarter to quarter and there can be no assurance that the Fund will be able to achieve its quarterly distribution objective or make payments on any Distribution Payment Date. If the Fund s net income for tax purposes, including net realized capital gains, for any year exceeds the aggregate amount of the regular quarterly distributions made in the year to Unitholders, the Fund will also have the discretion to pay one or more special distributions (in cash or reinvested in additional Units) as is necessary to ensure that the Fund will not be liable for income tax (other than any refundable taxes) under the Tax Act on December 31st of that year to Unitholders of record on that date. In order to ensure that the Fund will not generally be liable for income tax under Part I of the Tax Act, the Declaration of Trust provides that a special distribution (the Special Distribution ) will, if necessary, be automatically payable in each year to Unitholders. The Special Distribution may be necessary where the Fund realizes income for tax purposes which is in excess of any distributions paid or made payable to Unitholders during the year and the net realized capital gains of the Fund, the tax on which would be recovered by the Fund in the year by reason of the capital gains refund provisions of the Tax Act. The Fund may make a Special Distribution, in whole or in part, through the issuance of Units having a value equal to such Special Distribution or part thereof. Immediately following any such Special Distribution, the number of Units outstanding will automatically be consolidated such that the number of Units outstanding after the Special Distribution will be equal to the number of Units outstanding immediately prior to the Special Distribution, except in the case of a non-resident Unitholder to the extent tax was required to be withheld in respect of the distribution. Any such Special Distribution and consolidation will increase the aggregate adjusted cost base of Units to Unitholders. Additional information regarding tax matters is set out in Section 11.0 Income Tax Considerations. 3.3 Amendment of the Declaration of Trust Amending of the Declaration of Trust by the Trustee The Trustee at the request of the Manager may, without the approval of or notice to Unitholders, amend the Declaration of Trust in order to: a) change the Fund s taxation year-end as permitted under the Tax Act; b) remove any conflicts or other inconsistencies which may exist between any terms of the Declaration of Trust and any provisions of any law or regulation applicable to or affecting the Fund; 14

15 c) make any change or correction in the Declaration of Trust which is of a typographical nature or is required to cure or correct any ambiguity or defective or inconsistent provision, clerical omission, mistake or manifest error contained therein; d) reflect changes to the Tax Act or bring the Declaration of Trust into conformity with applicable laws, rules and policies of Canadian securities regulators or with current practice within the securities industry, provided that any such amendment does not adversely affect the rights, privileges or the interests of the Unitholders or restrict any protection for the Trustee or the Manager to increase their respective responsibilities; e) maintain the status of the Fund as a mutual fund trust for the purposes of the Tax Act, including providing the Fund with the right to acquire Units from any Unitholder, or to respond to amendments to the Tax Act or to the interpretation thereof; f) divide the capital of the Fund into additional classes or series of Units and establish the attributes of each class or series; g) make such modifications as may be necessary or desirable in connection with the termination of the Forward Agreement prior to the Forward Date; or h) make any change to the terms of the Declaration of Trust to provide added protection to Unitholders, provided that such amendments may be made only if they will not adversely affect the interest of any existing Unitholders, and provided that they are disclosed in the next regularly scheduled report made to Unitholders Amending of the Declaration of Trust by the Unitholders The Declaration of Trust provides that except as otherwise required by or contemplated in the Declaration of Trust, which exceptions are summarized below, the Declaration of Trust may be amended by an Ordinary Resolution of the Unitholders. Pursuant to the Declaration of Trust, the following matters may be undertaken only with the approval of Unitholders by an Extraordinary Resolution: a) any change in the Investment Objectives, unless such changes are necessary to ensure compliance with applicable laws, regulations or other requirements imposed by applicable regulatory authorities from time to time; b) any change in the Investment Restrictions, unless such changes are necessary to ensure compliance with applicable laws, regulations or other requirements imposed by applicable regulatory authorities from time to time; c) a change of the trustee of the Fund, other than a change resulting in an affiliate of such person assuming such position; d) any material change in the Management Agreement or a change of the manager of the Fund, other than a change resulting in an affiliate of such person assuming such position; 15

16 e) any change in the basis of calculating fees or other expenses that are charged to the Fund which could result in an increase in charges to the Fund or the Unitholders other than a fee or expense charged by a person or company that is at arm s length to the Fund; f) amendment to the Declaration of Trust, other than those amendments that are permitted under the Declaration of Trust or that require unanimous Unitholder approval or the consent of the Manager as discussed in Section above; g) a reorganization with, or transfer of assets to, a mutual fund trust, if i) the Fund ceases to continue after the reorganization or transfer of assets; and ii) the transaction results in Unitholders becoming securityholders in the mutual fund trust; h) a reorganization (other than a Permitted Merger (as defined below)) with, or acquisition of assets of, a mutual fund trust, if i) the Fund continues after the reorganization or acquisition of assets; ii) the transaction results in the securityholders of the mutual fund trust becoming Unitholders of the Fund; and iii) the transaction would be a significant change to the Fund; i) any amendment, modification or variation in the provisions or rights attaching to the Units; j) any issue of Units (other than pursuant to (i) any warrants or rights issued by the Fund to existing Unitholders, or (ii) any distribution reinvestment plan which may be established by the Fund) when the net proceeds per Unit are less than the most recently calculated Net Asset Value per Unit prior to the date of setting the subscription price for such issuance; k) a reduction in the frequency of calculating the Net Asset Value or Net Asset Value per Unit which results in it being calculated less frequently than once per week; and l) the termination of the Fund, other than as described under Section 3.4 Termination of the Fund. In addition, the Manager may, without obtaining Unitholder approval, merge the Fund (a Permitted Merger ) with another fund or funds, provided that: a) the fund(s) with which the Fund is merged must be managed by the Manager or an affiliate of the Manager; b) Unitholders are permitted to redeem their Units at a redemption price equal to 100% of the Net Asset Value per Unit of the applicable class, less any costs of funding the redemption, including commissions prior to the effective date of the merger; c) the funds being merged have similar investment objectives as set forth in their respective declarations of trust, as determined in good faith by the Manager in its sole discretion; d) the Manager must have determined in good faith that there will be no increase in the management expense ratio borne by the Unitholders as a result of the merger; 16

17 e) the merger of the funds is completed on the basis of an exchange ratio determined with reference to the net asset value per unit of each fund; and f) the merger of the funds must be capable of being accomplished on a tax-deferred rollover basis for Unitholders. If the Manager determines that a merger is appropriate and desirable, the Manager can affect the merger, including any required changes to the Declaration of Trust, without seeking Unitholder approval for the merger or such amendments. If a decision is made to merge, the Manager will issue a press release at least 30 days prior to the proposed effective date thereof disclosing details of the proposed merger. While the funds to be merged will have similar investment objectives, the funds may have different investment strategies, guidelines and restrictions and, accordingly, the units of the merged funds will be subject to different risk factors Notwithstanding the foregoing, no amendment may be made to the Declaration of Trust which would have the effect of (i) reducing the interests in the Fund of the Unitholders, increasing the liability of any Unitholder, or changing the right of any Unitholder to vote at any meeting unless all of the Unitholders consent thereto, or (ii) reducing the fees payable to the Manager unless the Manager, in its sole discretion, consents thereto. Except for the foregoing changes to the Declaration of Trust which require the approval of Unitholders or which require neither approval of nor prior notice to Unitholders, all other amendments to the Declaration of Trust which may be made from time to time by the Trustee at the request of the Manager shall only be made upon not less than 30 days prior written notice to Unitholders. 3.4 Termination of the Fund The Fund does not have a fixed termination date (the Termination Date ) but may be terminated at any time with the prior approval of Unitholders obtained by a two-thirds majority vote at a meeting of Unitholders called for that purpose. The Manager may also, in its discretion, terminate the Fund on not less than 21 days prior notice by way of press release to Unitholders without the approval of Unitholders if, in the opinion of the Manager, it is no longer economically feasible to continue the Fund or it would be in the best interest of Unitholders to terminate the Fund. The Fund will issue a second press release in respect thereof at least 10 Business Days in advance of such Termination Date. The Fund will include a description of the entitlement of the Unitholders in such notice and press release. Immediately prior to the Termination Date, the Manager will, to the extent possible, settle the Forward Agreement and convert the other assets of the Fund to cash and, after paying or making adequate provision for all of the Fund s liabilities, shall distribute in cash the net assets of the Fund to Unitholders of each class on a pro rata basis based on the Net Asset Value of each class of Units as soon as practicable after the Termination Date. The Declaration of Trust provides that the Manager may, in its discretion, postpone any Termination Date by a period of up to 180 days if the Manager determines that it will be unable to convert all of its assets to cash prior to any Termination Date and the Manager determines that it would be in the best interests of the Unitholders to do so. In addition to the termination described above, the Declaration of Trust also provides that in the event that the Manager resigns and no new manager is appointed by the Trustee within 120 days of the Manager giving notice to the Trustee of such resignation, the Fund will automatically terminate on the date which is 60 days following the end of such 120 day period. The Manager may also terminate the Fund in connection with a Permitted Merger. 17

18 4.0 VALUATION OF PORTFOLIO SECURITIES The fair market value of the assets and the amount of the liabilities of the Fund shall be calculated in such manner as the Manager in its sole discretion shall determine from time to time and the following (as applicable): a) the value of any cash on hand, deposit or call, prepaid expenses, cash dividends declared and interest accrued but not yet received, shall be deemed to be the face amount thereof, unless the Manager determines that any such deposit or call loan is not worth the face amount thereof, in which event, the value thereof shall be deemed to be such value as the Manager determines to be the reasonable value thereof; b) short-term investments including notes and money market instruments shall be valued at cost plus accrued interest; c) mutual fund units held shall be valued at the net asset value of such units; d) the value of any fixed income security shall be calculated as the average mid prices (average of a set of quoted bid and ask prices) from investment dealers who provide such prices. The Manager may, in its best judgment, exclude sources in any of the following instances: the quote is older than nine calendar days, a quote with a bid price which is higher than the ask of another quote (or other outliers), a quote with only either a bid or ask quote, or a quote with a bid higher than the ask; e) the value of any non-listed equity position shall be valued according to the IFRS definition of fair value ; f) all MLF Trust property valued in a foreign currency and all liabilities and obligations payable by MLF Trust in a foreign currency will be converted into the U.S. dollar value by applying each day s closing exchange rate as per Bloomberg; g) the value of the Forward Agreement shall be the total amount that would be realized if, on the Valuation Date, the Forward Agreement were to be closed out; h) the value of a forward contract (other than the Forward Agreement) or a futures contract shall be the gain or loss with respect thereto that would be realized if, on the Valuation Date, the position in the forward contract or futures contract were to be closed out unless daily limits are in effect in which case fair value shall be based on the current market value of the underlying interest; i) all property valued, and all liabilities and obligations payable, by the Fund in currency other than Canadian dollars (or U.S. dollars in the case of the Class U Units) shall be converted into Canadian currency (or U.S. currency in the case of the Class U Units) by applying the rate of exchange obtained from the best available sources to the Manager; j) all expenses or liabilities (including fees payable to the Manager) of the Fund and MLF Trust shall be calculated on an accrual basis; and k) the value of any security or property to which, in the opinion of the Manager, the above valuation principles cannot be applied (whether because no price or yield equivalent quotations are available as above provided, or for any other reason) shall be the fair value thereof determined in such manner as the Manager from time to time provides. 18

19 For the purposes of financial statement reporting, the Fund is required to calculate NAV in accordance with Canadian GAAP. On April 1, 2005, the CICA issued Section 3855 of the CICA Handbook Accounting, which establishes standards for the fair valuation of investments as well as the accounting treatment of transaction costs. The adoption of Section 3855 results in the use of different valuation techniques for certain investments. Canadian securities regulatory authorities had previously granted relief to investment funds from the requirement to comply with Section 3855, for the purposes of calculating and reporting of NAV used for investor transactions. Effective September 8, 2008, amendments to NI came into force to address the implications of Section The amendments permit investment funds to have two different NAVs: (i) one for financial statements, which will be prepared in accordance with Canadian GAAP including Section 3855 (referred to as net assets ); and (ii) another for all other purposes, including unit pricing for investor transactions (referred to as net asset value ). In accordance with the relief granted by the Canadian securities regulatory authorities, disclosure of differences between net assets and net asset value of an investment fund is required for financial reporting purposes. For investments that are traded in an active market where quoted prices are readily and regularly available, Section 3855 requires bid prices (for investments held) and ask prices (for investments sold) to be used in the fair valuation of investments, rather than the use of closing sale prices currently used for the purpose of determining net asset value used for investor transactions. For investments that are not traded in an active market, Section 3855 requires the use of specific valuation techniques rather than the use of valuation techniques by virtue of general practice in the investment funds industry to determine fair value. The Manager has not exercised its discretion to determine fair market value since inception of the Fund. 5.0 CALCULATION OF NET ASSET VALUE The Net Asset Value on a particular date will be equal to the value of the total assets of the Fund less the aggregate value of the liabilities of the Fund. The assets of the Fund include the value of the Forward Agreement. Since the value of the Fund s rights and obligations under the Forward Agreement are determined by reference to the value of the Portfolio to which the Fund is exposed under the Forward Agreement, the Net Asset Value is linked to the value of the Portfolio. The NAV per Unit for each class of Units is determined as at 4:00 pm (Toronto time) on each Business Day (each such day a Valuation Date ). Such values are also calculated as of December 31 in each year (if not otherwise a Valuation Date) for the purposes of the distribution of net income and net realized capital gains of the Fund to Unitholders. The Net Asset Value and NAV per Unit for each class of Units are also calculated as of any such other day or days as determined from time to time by the Manager. The Net Asset Value per Unit of any class of Units on a Valuation Date will be calculated in Canadian dollars in the case of Class A Units and U.S. dollars in the case of Class U Units, and will be obtained by dividing (i) the then fair market value of the assets of the Fund less the aggregate amount of its accrued liabilities, including any income, net realized capital gains or other amounts made payable to Unitholders on or before such Valuation Date, in each case attributable to that class of Units, by (ii) the total number of Units of the class outstanding at the time the calculation is made on the Valuation Date. The estimated operating expenses shall be accrued to the date as of which the NAV per Unit is being determined. The result is adjusted to a maximum of four decimal places. The Manager will review and, if satisfactory, approve the valuation and will, from time to time, consider the appropriateness of the valuation policies adopted by the Fund, as such policies are modified from time to time in the discretion of the Manager, acting reasonably, and in the best interests of Unitholders. 19

20 The NAV per Unit will be calculated as at each Valuation Date and made available on the Manager s website at The Manager will also provide such information at no cost to Unitholders who so request by calling the Manager at (416) PURCHASES OF UNITS 6.1 General The Class A Units are listed for trading on the TSX under the symbol TUT.UN and may be purchased through the facilities of the TSX. The Class U Units are not listed on any exchange but may be converted into Class A Units on a weekly basis. Registration of interests in and transfers of the Units are made only through CDS and the Units must be purchased, converted, transferred and surrendered for redemption through a CDS Participant. All rights of holders must be exercised through, and all payments or other property to which such holders are entitled are made or delivered by CDS or the CDS Participant through which the holder holds such Units. Upon purchase of any Units, holders receive only a customer confirmation from the registered dealer which is a CDS Participant and from or through which the securities are purchased. 6.2 Issuer Bid The Declaration of Trust provides that the Fund may, in its sole discretion, from time to time, purchase (in the open market or by invitation for tenders) Units for cancellation subject to applicable law and stock exchange requirements, based on the Manager s assessment that such purchases are accretive to Unitholders, in all cases at a price per Unit not exceeding the most recently calculated Net Asset Value per Unit immediately prior to the date of any such purchase of Units. It is expected that these purchases will be made as normal course issuer bids through the facilities and under the rules of the TSX or such other exchange or market on which the Units are then listed. 7.0 REDEMPTION OF UNITS 7.1 Annual Commencing in 2013, Units may be redeemed on the Annual Redemption Date in any year. Units properly surrendered for redemption at least 45 days prior to an Annual Redemption Date will be redeemed at a redemption price per Unit equal to 100% of the Net Assets per Unit of the applicable class on an Annual Redemption Date (less any costs associated with the redemption including brokerage costs, and less any net realized capital gains or income of the Fund that are distributed to a Unitholder concurrently with the proceeds of disposition on redemption). Payment of the redemption price will be made on or before the Redemption Payment Date, subject to the Manager s right to suspend redemptions in certain circumstances. Concurrently with the payment of the redemption price, the Fund may pay to the redeeming Unitholder a cash distribution in the amount of the net realized capital gains or income of the Fund incurred by it to fund the payment of the redemption price. 7.2 Monthly In addition to the annual redemption right, Unitholders may choose to redeem Units on the second last Business Day in a month (a Monthly Redemption Date ), subject to certain conditions. In order to effect such a redemption, the Units must be surrendered by no later than 5:00 p.m. (Toronto time) on the date which is the last Business Day of the month preceding the Monthly Redemption Date. Payment of the redemption price will be made on or before the 15th day following such Monthly Redemption Date, subject to the Manager s right to suspend redemptions in certain circumstances. Concurrently with the payment of the redemption price, the Fund may pay to the redeeming Unitholder a cash distribution in the 20