5OCT $125,000,004 (maximum) (maximum 10,416,667 Combined Units) $12.00 per Combined Unit

Transcription

1 No securities regulatory authority has expressed an opinion about these securities and it is an offence to claim otherwise. This prospectus constitutes a public offering of these securities only in those jurisdictions where they may be lawfully offered for sale and only by persons permitted to sell these securities. The securities offered by this preliminary prospectus have not been, and will not be, registered under the United States Securities Act of 1933, as amended, and, subject to certain exceptions, may not be offered or sold within the United States of America. See Plan of Distribution. Initial Public Offering October 28, 2009 PROSPECTUS 5OCT $125,000,004 (maximum) (maximum 10,416,667 Combined Units) $12.00 per Combined Unit Pathfinder Convertible Debenture Fund (the Fund ), an investment trust established under the laws of the Province of Alberta, hereby offers its combined units (the Combined Units ) at a price of $12.00 per Combined Unit (the Offering ). Each Combined Unit consists of one trust unit of the Fund (each a Unit ) and one Unit purchase warrant (each a Warrant ). Each Warrant entitles the holder to purchase one Unit at a subscription price of $12.00 on or before 5:00 p.m. (Toronto time) on November 30, 2010 (the Expiry Time ). Warrants not exercised by the Expiry Time will be void and of no value. The Units and the Warrants comprising the Combined Units will separate immediately following the earlier of the closing of the Over-Allotment Option (as defined below) and 30 days after the closing of the Offering, and thereafter may be transferred separately. The Fund will obtain exposure to a diversified portfolio (the Portfolio ) comprised primarily of convertible debentures of Canadian issuers. The Advisor (as defined below) believes that convertible debentures represent an appealing investment opportunity, providing: high levels of stable current income and attractive yields to maturity additional stability and safety of a senior security position relative to an investment in equities, income trust securities or preferred securities the potential for common equity-like returns The Fund intends to provide holders of Units ( Unitholders ) with monthly cash distributions on a tax-advantaged basis, initially targeted to be $0.065 per Unit per month, representing a yield of 6.5% per annum on the original issue price of a Unit, or approximately 9.3% per annum on a pre-tax income equivalent basis, assuming Unitholders are subject to a 46.4% marginal tax rate. Such distributions will be payable to Unitholders of record on the last day of each month and will be paid on or before the last business day of the first month following each such month. It is expected that monthly distributions received by Unitholders will consist primarily of returns of capital for Canadian federal income tax purposes. Distributions in excess of such returns of capital are expected to be taxable capital gains. Assuming the gross proceeds of the Offering are $100 million and the fees and expenses of the Offering are as described in this prospectus, the Portfolio (based on its initial anticipated composition) is expected to generate income of approximately 7.6% per Unit per annum. This income after the deduction of expenses and the addition of leverage at the initially intended level of approximately 20% of Total Assets, should be sufficient to enable the Fund to receive sufficient amounts on the sale of the Canadian securities acquired under the Forward Agreement (as defined below) to fund the monthly cash distributions at the initially targeted level. The initial distribution is expected to be declared payable to Unitholders of record on December 31, 2009 and will reflect the period from the closing of the Offering to December 31, Commencing in November 2010, the Fund will determine and announce at least annually the distribution amount for the following twelve months, based on the Manager s estimate of distributable cash flow. The amount of monthly distributions may fluctuate from month to month and there can be no assurance that the Fund will make any distributions in any particular month or months. See Distribution Policy, Income Tax Considerations and Risk Factors. The Fund s investment objectives are to: pay monthly distributions to Unitholders on a tax-advantaged basis initially targeted to be 6.5% per annum on the original issue price of $12.00 per Combined Unit; and maximize total after-tax returns for Unitholders over the life of the Fund. See Investment Objectives. The Fund will seek to achieve its investment objectives by obtaining exposure to the Portfolio. The Advisor will employ an active management strategy, which is intended to reduce risk and enhance returns. Through the implementation of bottom-up fundamental analysis, the Advisor will endeavour to invest in high quality issuers that possess the following characteristics: stable historical and expected future cash flows strong balance sheets robust financial ratios, with an emphasis on debt coverage superior prospects for growth The Advisor expects that the initial Portfolio will be comprised almost entirely of convertible debentures. However, the Advisor expects that the allocation of the Portfolio to convertible debentures may decrease from time to time as a result of receiving equity securities upon the conversion or maturity of convertible debentures held within the Portfolio, or as a result of a direct investment in equity and other income producing securities. See Investment Strategy. The Fund and Convertible Debenture Trust (the Underlying Fund ) will each be managed by Middlefield Fund Management Limited (in such capacity, the Manager ). Middlefield Capital Corporation ( MCC or the Advisor ) will act as investment advisor in respect of the Portfolio. The Manager will be responsible for managing all of the Fund s and the Underlying Fund s activities. The Advisor will select securities for the Portfolio and will determine the portions of the Portfolio to be allocated between convertible debentures and other securities. In addition, the Advisor will provide advice regarding the Underlying Fund s leverage and its cash position. See Organization and Management Details of the Fund Manager of the Fund and Investment Strategy. The return to the Unitholders and the Fund will be determined by reference to the return on the Portfolio (or a notional portfolio (the Notional Portfolio ) of securities which will be maintained by the Advisor in the event that the Counterparty (as defined below) or an affiliate thereof does not acquire units of the Underlying Fund with an initial principal amount equal to the net proceeds of the Offering) by virtue of one or more forward purchase and sale agreements (a Forward Agreement ) with a Canadian chartered bank or any one of its affiliates whose obligations are guaranteed by the Canadian chartered bank (the Counterparty ). If the Counterparty hedges its exposure under the Forward Agreement, it will acquire units of the Underlying Fund, which will be a newly formed Alberta trust that will acquire the Portfolio. If the Counterparty does not acquire units in the Underlying Fund, the Advisor will maintain a Notional Portfolio with an initial invested amount equal to the amount of the net proceeds of the Offering. There can be no assurance that the Counterparty will maintain a hedge or that it will do so with respect to the full amount or term of the Forward Agreement. The Fund will use the net proceeds of the Offering for the pre-payment of its purchase obligations under the Forward Agreement. Pursuant to the Forward Agreement, the Counterparty has agreed to deliver to the Fund on November 28, 2014, being the Termination Date, a specified portfolio of securities of Canadian public issuers (the Canadian Securities Portfolio ) that are Canadian securities as defined in subsection 39(6) of the Income Tax Act (Canada) (the Tax Act ) and are listed on the Toronto Stock Exchange (the TSX ) with an aggregate value equal to (i) the redemption proceeds of a corresponding number of units of the Underlying Fund and/or the proceeds realized by the Counterparty or an affiliate on the disposition of the assets in the Portfolio to the Counterparty or an affiliate; or (ii) the value of the Notional Portfolio, as applicable, net of any leverage provided through the Forward Agreement and any amount owing by the Fund to the Counterparty or an affiliate. On or about the Closing Date, the Underlying Fund expects to issue units to the Counterparty or an affiliate having an aggregate value equal to the net proceeds of the Offering, the proceeds of which the Underlying Fund will use to acquire the Portfolio. The initial value of the Portfolio will be equal to the net proceeds of the Offering. In such case, the return to the Fund will, by virtue of the Forward Agreement, be based on the return of the Underlying Fund, which, in turn, will be based on the performance of the Portfolio. If no such Underlying Fund units are acquired by the Counterparty or an affiliate, the return to the Fund, by virtue of the Forward Agreement, will be based on the performance of the Notional Portfolio. The Fund is fully exposed to the credit risk associated with the Counterparty in respect of the Forward Agreement. The Fund may settle the Forward Agreement in whole or in part prior to the (continued on next page) Merrill: ZDR BE72401A.;13 - Seq 1 - CL 3 Proof: 30-OCT-09 12:16 Comp: 30-OCT-09 11:50 Chksum: 52427

2 (continued from cover) Termination Date (i) to fund distributions on the Units; (ii) to fund redemptions and repurchases of Units from time to time; (iii) to fund operating expenses and other liabilities of the Fund; and (iv) for any other reason. The Forward Agreement will also allow the Fund to leverage its exposure to the Underlying Fund by up to 25% of the assets ( Total Assets ) of the Fund or the Underlying Fund, as applicable. See Overview of the Investment Structure The Forward Agreement. The Underlying Fund will be a newly created investment trust established under the laws of the Province of Alberta prior to the closing of the Offering (the Closing ) for the purpose of acquiring and holding the Portfolio. The initial beneficial owner of all of the units of the Underlying Fund is expected to be the Counterparty or one of its affiliates. On the Closing Date (as defined below), the Counterparty or one of its affiliates is expected to subscribe for units of the Underlying Fund with an aggregate purchase price of not less than the amount received from the Fund as the pre-payment of its purchase obligations under the Forward Agreement. The Underlying Fund will use any subscription proceeds it receives to acquire the Portfolio. See Overview of the Investment Structure The Underlying Fund. Price: $12.00 per Combined Unit Minimum Purchase: 100 Combined Units Price to the Agents Net Proceeds Public (1) Fees to the Fund (2) Per Combined Unit... $12.00 $0.63 $11.37 Total Maximum Offering (3)(4)... $125,000,004 $6,562,500 $118,437,504 Total Minimum Offering (3)(5)... $20,000,004 $1,050,000 $18,950,004 (1) The Offering price was established by negotiation between the Manager and the Agents (as defined below). (2) Before deducting the expenses of the Offering, estimated to be $600,000 (and subject to a maximum of 1.5% of the gross proceeds of the Offering), which, together with the Agents fees, will be paid by the Fund from the proceeds of the Offering. (3) The Fund has granted to the Agents an option (the Over-Allotment Option ), exercisable for a period of 30 days from the Closing, to offer additional Combined Units in an amount up to 15% of the aggregate number of Combined Units sold on the closing of the Offering on the same terms as set forth above. This prospectus also qualifies the grant of the Over-Allotment Option and the distribution of the Combined Units issuable on the exercise of the Over-Allotment Option. Any investors who acquire Combined Units forming part of the Agents over-allocation position will acquire those Combined Units under this prospectus, regardless of whether the over-allocation is ultimately filled through the exercise of the Over-Allotment Option or through secondary market purchases. See Plan of Distribution. (4) If the Over-Allotment Option is exercised in full, under the maximum Offering, the price to the public, the Agents fees and the net proceeds to the Fund will be $143,750,005, $7,546,875 and $136,203,129, respectively. (5) There will be no closing unless a minimum of 1,666,667 Combined Units are sold. If subscriptions for a minimum of 1,666,667 Combined Units have not been received within 90 days following the date of issuance of a final receipt for this prospectus, the Offering may not continue unless an amendment to this prospectus has been filed. The value of Units will be reduced if the net asset value of the Fund per Unit exceeds $11.70 and Warrants are exercised (as the Fund will pay Warrant exercise fees totalling $0.30 per Warrant to certain agents and brokers). If a Unitholder does not exercise Warrants, the Unitholder s pro rata interest in the assets of the Fund will be diluted. In order to maintain a Unitholder s pro rata interest in the assets of the Fund, the Unitholder will be required to pay in connection with the exercise of the Warrants an additional amount equal to the amount originally invested by the Unitholder on the Closing Date. While a Unitholder may sell the Warrants acquired hereunder, no assurance can be given that the proceeds of such sale would compensate the Unitholder for such dilution. See Warrant Considerations. The Manager intends to implement a liquidity transaction on or before November 28, 2014 (the Liquidity Transaction ). The Liquidity Transaction may be implemented by way of a conversion of the Fund to an open-ended mutual fund or by way of a merger with any other fund managed by the Manager or an affiliate thereof (including a fund formed after the date of this prospectus). The Liquidity Transaction will be implemented on not less than 30 days prior written notice to Unitholders. If a Liquidity Transaction is implemented, Unitholders will have the right to surrender Units for redemption at an amount equal to Redemption NAV (as defined below) per Unit less any costs and expenses associated with the redemption as at a specified date on or prior to the Implementation Date (as defined below). If a Liquidity Transaction is not implemented, the Fund will terminate on December 31, 2014 (the Termination Date ). Notwithstanding the foregoing, the Manager may, in its discretion, terminate the Fund without the approval of Unitholders if, in its opinion, it is no longer economically practical to continue the Fund or it would be in the best interests of Unitholders to terminate the Fund or if there is an early termination of the Forward Agreement. Upon termination, the Fund will distribute to Unitholders their pro rata portions of the remaining assets of the Fund after all liabilities of the Fund have been satisfied or appropriately provided for. See Liquidity Transaction and Termination of the Fund. In the opinion of McCarthy Tétrault LLP, counsel for the Fund, and Stikeman Elliott LLP, counsel for the Agents, provided that the Fund qualifies as a mutual fund trust within the meaning of the Tax Act or the Units are listed on a designated stock exchange for purposes of the Tax Act, the Units will be qualified investments under the Tax Act for trusts governed by registered retirement savings plans, tax-free savings plans, deferred profit sharing plans, registered disability savings plans, registered retirement income funds and registered education savings plans ( Registered Plans ). Provided that the Warrants are listed on a designated stock exchange for purposes of the Tax Act, or provided that the Units are qualified investments for plan trusts and the Fund is not, and deals at arm s length with each person who is, an annuitant, a beneficiary, an employer or a subscriber under or a holder of a plan trust, the Warrants will be qualified investments for Registered Plans. See Income Tax Considerations Status of the Fund and Income Tax Considerations Taxation of Registered Plans. There currently is no market through which the Units or Warrants may be sold and purchasers may not be able to resell securities purchased under this prospectus. This may affect the pricing of the securities in the secondary market, the transparency and availability of trading prices, the liquidity of the securities and the extent of issuer regulation. The Toronto Stock Exchange (the TSX ) has conditionally approved the listing of the Combined Units and, following the separation thereof, the Units and the Warrants, subject to the Fund fulfilling all of the requirements of the TSX on or before January 21, See Risk Factors. There is no assurance that the Fund will be able to achieve its objectives. The Units may trade at a significant discount to the net asset value per Unit. See Risk Factors for a discussion of various risk factors that should be considered by prospective purchasers of Combined Units, including with respect to the use of leverage. The Fund is not a trust company and is not registered under legislation of any jurisdiction governing trust companies as it does not carry on, nor does it intend to carry on, the business of a trust company. The Units are not deposits within the meaning of the Canada Deposit Insurance Corporation Act (Canada) and are not insured under the provisions of that Act or any other legislation. CIBC World Markets Inc., RBC Dominion Securities Inc., BMO Nesbitt Burns Inc., National Bank Financial Inc., Scotia Capital Inc., TD Securities Inc., Canaccord Capital Corporation, GMP Securities L.P., HSBC Securities (Canada) Inc., Manulife Securities Incorporated, Middlefield Capital Corporation, Raymond James Ltd., Blackmont Capital Inc., Dundee Securities Corporation and Wellington West Capital Markets Inc. (collectively, the Agents ) conditionally offer the Combined Units, subject to prior sale, on a best efforts basis, if, as and when issued by the Fund and accepted by the Agents in accordance with the conditions contained in the Agency Agreement referred to under Plan of Distribution, and subject to the approval of certain legal matters by McCarthy Tétrault LLP on behalf of the Fund and Stikeman Elliott LLP on behalf of the Agents. In connection with this Offering and in accordance with and subject to applicable laws, the Agents are permitted to engage in transactions that stabilize or maintain the market price of the Combined Units at levels other than those which might otherwise prevail on the open market. Such transactions, if commenced, may be discontinued at any time. See Plan of Distribution. This prospectus also qualifies the distribution of the Directors Retainer Right referred to under Fees and Expenses Fees and Other Expenses and the distribution of the right granted by the Fund to the Manager to receive payment of the management fee in Units. See Fees and Expenses Fees and Other Expenses. Middlefield Capital Corporation, which is one of the Agents and the Advisor, is an affiliate of Middlefield Group Limited, a promoter of the Fund, and of Middlefield Fund Management Limited, the trustee, the Manager and a promoter of the Fund. Consequently, the Fund may be considered a related issuer and connected issuer of Middlefield Capital Corporation under applicable securities legislation. Middlefield Capital Corporation will receive no benefit in connection with this Offering other than receiving from the Manager the Advisor s fee and receiving from the Fund a portion of the Agents fee and a portion of the service fee described under Fees and Expenses. On closing of the Offering, the Fund will enter into the Forward Agreement with the Counterparty, which will be a Canadian chartered bank affiliate (or other affiliate) of one of the Agents. Accordingly, the Fund may be considered to be a connected issuer of such Agent. See Plan of Distribution. Subscriptions will be received for the Combined Units offered hereby, subject to rejection or allotment in whole or in part, and the right is reserved to close the subscription books at any time. Closing of the Offering is expected to occur on or about November 20, 2009 and, in any event, no later than November 30, 2009 (the Closing Date ). The closing of the Offering is conditional upon receipt of subscriptions for the minimum number of Combined Units. If subscriptions for a minimum of 1,666,667 Combined Units have not been received within a period of 90 days following the date of issuance of a receipt for this prospectus, the Offering may not continue unless an amendment to this prospectus has been filed. The Agents will hold funds received from subscribers and if the closing of the Offering has not occurred within 90 days after the issuance of a receipt for this prospectus, the Offering may be withdrawn in which case subscription proceeds received from prospective purchasers in respect of the Offering will be returned to such purchasers promptly without interest or deduction. Book-based certificates representing the Combined Units will be issued in registered form to CDS Clearing and Depository Services Inc. ( CDS ) or its nominee and will be deposited with CDS on the date of the closing of the Offering, although the Fund may, in its sole discretion and upon the request of a holder of Combined Units, issue one or more certificates registered in the name of such holder, in which case any such certificates are expected to be available for delivery within two weeks following the closing of the Offering. A purchaser of Combined Units will receive a customer confirmation from the registered dealer from or through whom the Combined Units are purchased. See Plan of Distribution. Although units of the Underlying Fund are not being offered to the public, the Fund has agreed to obtain a receipt for a prospectus of the Underlying Fund from each of the Autorité des marches financiers and the Ontario Securities Commission. The Fund has also agreed to deliver a copy of such prospectus to purchasers of Combined Units in the Province of Québec prior to the purchase of such Combined Units. 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3 TABLE OF CONTENTS Page PROSPECTUS SUMMARY... 1 Distribution Reinvestment Plan The Offering... 1 REDEMPTIONS OF SECURITIES Investments and Portfolio Composition... 1 Annual Redemption of Units Organization and Management of the Fund... 2 Monthly Redemption of Units Other Features of the Fund and of the General Underlying Fund... 3 Pre-Settling the Forward Agreement Risk Factors... 8 Additional Redemptions Summary of Fees and Expenses Payable by the Fund... 9 Recirculation of Units Surrendered for Redemption Caution Regarding Forward-Looking Information. 11 Suspension of Redemptions OVERVIEW OF THE STRUCTURE OF THE INCOME TAX CONSIDERATIONS FUND Status of the Fund INVESTMENT OBJECTIVES Taxation of the Fund Investment Rationale Taxation of Holders Investment Objectives of the Fund Taxation of Registered Plans INVESTMENT STRATEGY Tax Implications of the Fund s Distribution Policy 37 Initial Portfolio ORGANIZATION AND MANAGEMENT Leverage DETAILS OF THE FUND Use of Derivative Instruments Officers and Directors of the Fund and the Securities Lending Underlying Fund OVERVIEW OF THE INVESTMENT Manager of the Fund and the Underlying Fund.. 38 STRUCTURE Duties and Services to be Provided by the The Underlying Fund Manager The Forward Agreement Details of the Management Agreements Investment Restrictions of the Underlying Fund.. 16 The Advisor OVERVIEW OF THE SECTOR THAT THE Details of the Portfolio Advisory Agreements FUND INVESTS IN Conflicts of Interest Convertible Debentures Independent Review Committee INVESTMENT RESTRICTIONS The Trustee FEES AND EXPENSES Custodian Fees and Expenses of the Fund Auditors Initial Expenses Transfer Agent and Registrar; Warrant Agent Fees and Other Expenses Promoters Additional Services CALCULATION OF NET ASSET VALUE Fees and Expenses of the Underlying Fund Valuation Policies and Procedures RISK FACTORS Reporting of Net Asset Value No Assurances on Achieving Objectives DESCRIPTION OF THE SECURITIES Commodity Price Fluctuation DISTRIBUTED Sensitivity to Interest Rates Units Concentration Risk Warrants Oil and Gas and Energy Investments Warrant Considerations Performance of the Portfolio SECURITYHOLDER MATTERS Credit Risk Meetings of Securityholders General Risks of Equity Investments Matters Requiring Securityholder Approval Reliance on the Advisor Amendments to the Declaration of Trust Illiquid Securities Potential Fund Mergers Use of Derivative Instruments Information and Reports to Unitholders Counterparty Risk LIQUIDITY TRANSACTION AND Forward Agreement Termination TERMINATION OF THE FUND Securities Lending USE OF PROCEEDS Fluctuations in Net Asset Value PLAN OF DISTRIBUTION Trading Price of Units and Warrants INTEREST OF MANAGER AND OTHERS IN Valuation Risk MATERIAL TRANSACTIONS No Ownership Interest PROXY VOTING DISCLOSURE Marketability and Operating History MATERIAL CONTRACTS Use of Leverage EXPERTS Risks Related to Redemptions EXEMPTIONS AND APPROVALS Risks Related to Warrants PURCHASERS STATUTORY RIGHTS OF Loss of Investment WITHDRAWAL AND RESCISSION Status of the Fund AUDITORS REPORT... F-1 Nature of Units STATEMENT OF FINANCIAL POSITION... F-2 Foreign Currency Exposure NOTES TO STATEMENT OF FINANCIAL Foreign Market Exposure POSITION OCTOBER 28, F-3 Taxation of the Fund AUDITORS CONSENT... F-5 Treatment of Proceeds of Disposition CERTIFICATE OF THE FUND, THE Changes in Legislation MANAGER AND THE PROMOTERS... C-1 DISTRIBUTION POLICY CERTIFICATE OF THE AGENTS... C-2 Page i Merrill: ZDR BG72401A.;12 - Seq 1 - CL 3 Proof: 30-OCT-09 12:16 Comp: 30-OCT-09 12:01 Chksum: 53854

4 PROSPECTUS SUMMARY The following is a summary only of the principal features of this offering and should be read together with the more detailed information and financial data and statements appearing elsewhere in this prospectus. All references in this prospectus to dollars or $ are to Canadian dollars unless otherwise indicated. The Offering Issuer: Offering: Pathfinder Convertible Debenture Fund (the Fund ) is an investment trust established under the laws of the Province of Alberta. This offering consists of combined units ( Combined Units ) of the Fund (the Offering ). Each Combined Unit consists of one trust unit of the Fund (each a Unit ) and one Unit purchase warrant (each a Warrant ). Each Warrant entitles the holder to purchase one Unit at a subscription price of $12.00 on or before 5:00 p.m. (Toronto time) on November 30, 2010 (the Expiry Time ). Warrants not exercised by the Expiry Time will be void and of no value. The Units and the Warrants comprising the Combined Units will separate immediately following the earlier of the closing of the Over-Allotment Option (as defined below) and 30 days after closing of the Offering, and thereafter may be transferred separately. See Plan of Distribution and Attributes of Securities. The value of Units will be reduced if the net asset value ( NAV ) of the Fund per Unit exceeds $11.70 and Warrants are exercised (as the Fund will pay Warrant exercise fees totalling $0.30 per Warrant to certain agents and brokers). If a Unitholder does not exercise Warrants, the Unitholder s pro rata interest in the assets of the Fund will be diluted. In order to maintain a Unitholder s pro rata interest in the assets of the Fund, the Unitholder will be required to pay in connection with the exercise of the Warrants an additional amount equal to the amount originally invested by the Unitholder on the Closing Date. While a holder of Units ( Unitholder ) may sell the Warrants acquired hereunder, no assurance can be given that the proceeds of such sale would compensate the Unitholder for such dilution. See Attributes of Securities Description of Securities to be Distributed Warrants. Amounts: Price: Maximum $125,000,004 (10,416,667 Combined Units) Minimum $20,000,004 (1,666,667 Combined Units) $12.00 per Combined Unit Minimum Subscription: 100 Combined Units ($1,200) Investments and Portfolio Composition Investment Rationale: The Fund will obtain exposure to a diversified portfolio (the Portfolio ) comprised primarily of convertible debentures of Canadian issuers. The Advisor (as defined below) believes that convertible debentures represent an appealing investment opportunity, providing: high levels of stable current income and attractive yields to maturity additional stability and safety of a senior security position relative to an investment in equities, income trust securities or preferred securities the potential for common equity-like returns

5 Investment Objectives: The Fund s investment objectives are to: pay monthly distributions to Unitholders on a tax-advantaged basis initially targeted to be 6.5% per annum on the original issue price of $12.00 per Combined Unit; and maximize total after-tax returns for Unitholders over the life of the Fund. See Investment Objectives. Investment Strategy: The Fund will seek to achieve its investment objectives by obtaining exposure to the Portfolio. The Advisor will employ an active management strategy, which is intended to reduce risk and enhance returns. Through the implementation of bottom-up fundamental analysis, the Advisor will endeavour to invest in high quality issuers that possess the following characteristics: Organization and Management of the Fund stable historical and expected future cash flows strong balance sheets robust financial ratios, with an emphasis on debt coverage superior prospects for growth The Advisor expects that the initial Portfolio will be comprised almost entirely of convertible debentures. However, the Advisor expects that the allocation of the Portfolio to convertible debentures may decrease from time to time as a result of receiving equity securities upon the conversion or maturity of convertible debentures held within the Portfolio, or as a result of a direct investment in equity and income producing securities. See Investment Strategy. See Investment Strategy and Risk Factors. Trustee and Manager: Middlefield Fund Management Limited, a corporation governed by the laws of Ontario, is the trustee of the Fund and the Underlying Fund and also is the manager of the Fund and the Underlying Fund and is responsible for managing all of the Fund s and the Underlying Fund s activities. The Manager is a member of Middlefield Group ( Middlefield ) which has taken the initiative in founding and organizing the Fund and is a promoter of the Fund within the meaning of applicable securities legislation. Formed in 1979, Middlefield is involved in a number of business activities and has assets under management of approximately $3.0 billion. It manages investment funds and assets on behalf of a wide range of clients which include Canadian and international financial institutions, corporations and individuals. Its services are provided in Canada primarily through Middlefield Capital Corporation in Toronto and internationally through Middlefield International Limited in London, England (which is registered as a member firm with the Financial Services Authority in the United Kingdom). Middlefield manages income funds, high yield funds, resource funds, mutual funds, real estate funds, a merchant banking corporation and other investments. Other services provided by Middlefield include corporate finance, mergers and acquisitions, financial advisory and securities placement activities

6 The address of the Manager is 1 First Canadian Place, 100 King St. West, 58th Floor, Toronto, Ontario, M5X 1A6. See Organization and Management Details of the Fund Manager of the Fund and Organization and Management Details of the Fund Promoters. Advisor: Middlefield Capital Corporation ( MCC or the Advisor ), at its principal office in Toronto, Ontario, has been retained to act as Advisor for the Fund and the Portfolio. The Advisor will implement the investment strategy of the Portfolio and make the investment decisions on behalf of the Underlying Fund, including decisions in respect of securities selection and asset allocation. The portfolio managers of MCC who will be primarily responsible for managing the Portfolio will be Dean Orrico and Robert Lauzon. MCC is a member of Middlefield. Dean Orrico is an Executive Vice-President, Managing Director and Chief Investment Officer of Middlefield Capital Corporation. Mr. Orrico is responsible for overseeing the ongoing management of all of Middlefield s investment funds. Mr. Orrico is an MBA graduate of the Schulich School of Business (York University). Robert Lauzon is a Managing Director, Trading of Middlefield Capital Corporation. Mr. Lauzon is a lead portfolio manager on a number of investment funds focused on the resource sector and is responsible for overseeing Middlefield s trading operation. Mr. Lauzon is an MBA graduate of the Rotman School of Management (University of Toronto) and holds the Chartered Financial Analyst designation. See Organization and Management Details of the Fund The Advisor. Management of the Fund and the Underlying Fund Manager: Advisor: Promoters: Custodian: Transfer Agent and Registrar; Warrant Agent: Auditors: Services Provided to the Fund and the Underlying Fund Middlefield Fund Management Limited is the manager of the Fund s and the Underlying Fund s activities. See Organization and Management Details of the Fund Manager of the Fund. Middlefield Capital Corporation is the Fund s investment advisor responsible for providing the Fund with investment management advice, and also the investment advisor for the Underlying Fund. See Organization and Management Details of the Fund The Advisor. Middlefield Fund Management Limited and Middlefield Group Limited are the promoters of the Fund. See Organization and Management Details of the Fund Promoters. RBC Dexia Investor Services Trust is the custodian of the assets of the Fund and the Underlying Fund. See Organization and Management Details of the Fund Custodian. MFL Management Limited is the registrar and transfer agent for the Units and the warrant agent for the Warrants. See Organization and Management Details of the Fund Transfer Agent and Registrar. Deloitte & Touche LLP are the auditors of the Fund and the Underlying Fund. See Organization and Management Details of the Fund Auditors. Municipality of Residence The Manager is located at 1 First Canadian Place, 58th Floor, P.O. Box 192, Toronto, Ontario, M5X 1A6. Toronto, Ontario. Toronto, Ontario. Toronto, Ontario. Toronto, Ontario. Toronto, Ontario. Other Features of the Fund and of the Underlying Fund Monthly Distributions: The Fund intends to provide Unitholders with monthly cash distributions on a taxadvantaged basis, initially targeted to be $0.065 per Unit per month, representing a yield of 6.5% per annum on the original issue price of a Unit, or approximately 9.3% per - 3 -

7 annum on a pre-tax income equivalent basis, assuming Unitholders are subject to a 46.4% marginal tax rate. Such distributions will be payable to Unitholders of record on the last day of each month and will be paid on or before the last business day of the first month following each such month. It is expected that monthly distributions received by Unitholders will consist primarily of returns of capital for Canadian federal income tax purposes. Distributions in excess of such returns of capital are expected to be taxable capital gains. Assuming the gross proceeds of the Offering are $100 million and the fees and expenses of the Offering are as described in this prospectus, the Portfolio (based on its initial anticipated composition) is expected to generate income of approximately 7.6% per Unit per annum. This income after the deduction of expenses and the addition of leverage at the initially intended level of approximately 20% of Total Assets, should be sufficient to enable the Fund to receive sufficient amounts on the sale of the Canadian securities acquired under the Forward Agreement (as defined below) to fund the monthly cash distributions at the initially targeted level. The initial distribution is expected to be declared payable to Unitholders of record on December 31, 2009 and will reflect the period from the closing of the Offering to December 31, Commencing in November, 2010, the Fund will determine and announce at least annually the distribution amount for the following twelve months, based on the Manager s estimate of distributable cash flow. The amount of monthly distributions may fluctuate from month to month and there can be no assurance that the Fund will make any distributions in any particular month or months. See Distribution Policy, Income Tax Considerations and Risk Factors. Distribution Reinvestment: Subject to obtaining any required regulatory approvals, the Fund intends to provide Unitholders with the opportunity to elect to reinvest monthly cash distributions made by the Fund in additional Units and to purchase additional Units for cash through participation in the distribution reinvestment plan of the Fund. See Distribution Policy Distribution Reinvestment Plan. The Forward Agreement: The return to the Unitholders and the Fund will be determined by reference to the return on the Portfolio (or a notional portfolio (the Notional Portfolio ) of securities which will be maintained by the Advisor in the event that the Counterparty (as defined below) or an affiliate thereof does not acquire units of the Underlying Fund with an initial principal amount equal to the net proceeds of the Offering) by virtue of one or more forward purchase and sale agreements (a Forward Agreement ) with a Canadian chartered bank or any one of its affiliates whose obligations are guaranteed by the Canadian chartered bank (the Counterparty ). If the Counterparty hedges its exposure under the Forward Agreement, it will acquire units of the Underlying Fund, which will be a newly formed Alberta trust that will acquire the Portfolio. If the Counterparty does not acquire units in the Underlying Fund, the Advisor will maintain a Notional Portfolio with an initial invested amount equal to the amount of the net proceeds of the Offering. There can be no assurance that the Counterparty will maintain a hedge or that it will do so with respect to the full amount or term of the Forward Agreement. The Fund will use the net proceeds of the Offering for the pre-payment of its purchase obligations under the Forward Agreement. Pursuant to the Forward Agreement, the Counterparty has agreed to deliver to the Fund on November 28, 2014, being the Termination Date, a specified portfolio of securities of Canadian public issuers (the Canadian Securities Portfolio ) that are Canadian securities as defined in subsection 39(6) of the Income Tax Act (Canada) (the Tax Act ) and are listed on the TSX with an aggregate value equal to (i) the redemption proceeds of a corresponding number of units of the Underlying Fund and/or the proceeds realized by the Counterparty or an affiliate thereof on the disposition of the assets in the Portfolio to the Counterparty or an affiliate thereof; - 4 -

8 or (ii) the value of the Notional Portfolio, as applicable, net of any leverage provided through the Forward Agreement and any amount owing by the Fund to the Counterparty or an affiliate thereof. On or about the Closing Date, the Underlying Fund expects to issue units to the Counterparty or an affiliate having an aggregate value equal to the net proceeds of the Offering, the proceeds of which the Underlying Fund will use to acquire the Portfolio. The initial value of the Portfolio will be equal to the net proceeds of the Offering. In such case, the return to the Fund will, by virtue of the Forward Agreement, be based on the return of the Underlying Fund, which, in turn, will be based on the performance of the Portfolio. If no such Underlying Fund units are acquired by the Counterparty or an affiliate, the return to the Fund, by virtue of the Forward Agreement, will be based on the performance of the Notional Portfolio. The Fund is fully exposed to the credit risk associated with the Counterparty in respect of the Forward Agreement. The Fund may settle the Forward Agreement in whole or in part prior to the Termination Date (i) to fund distributions on the Units; (ii) to fund redemptions and repurchases of Units from time to time; (iii) to fund operating expenses and other liabilities of the Fund; and (iv) for any other reason. The Forward Agreement will also allow the Fund to leverage its exposure to the Underlying Fund by up to 25% of the assets ( Total Assets ) of the Fund or the Underlying Fund, as applicable. The Forward Agreement. The Underlying Fund: Leverage: Annual Redemption: Market Purchases: The Underlying Fund will be a newly created investment trust established under the laws of the Province of Alberta prior to the closing of the Offering (the Closing ) for the purpose of acquiring and holding the Portfolio. The initial beneficial owner of all of the units of the Underlying Fund is expected to be the Counterparty or one of its affiliates. On the Closing Date (as defined below), the Counterparty or one of its affiliates is expected to subscribe for units of the Underlying Fund with an aggregate purchase price of not less than the amount received from the Fund as the pre-payment of its purchase obligations under the Forward Agreement. The Underlying Fund will use any subscription proceeds it receives to acquire the Portfolio. See Overview of the Investment Structure The Underlying Fund. The Fund s exposure to the securities in the Portfolio through the Forward Agreement may be increased to 25% of Total Assets (tested daily) for the purposes of adding leverage to the Portfolio and such other short term funding purposes as may be determined by the Manager from time to time and in accordance with the Investment Strategy. The use of leverage has the potential to enhance or reduce returns. The Fund initially intends to increase its exposure to the Portfolio by 20% through the use of such leverage. The maximum amount of leverage that the Fund could be exposed to is 1.33 to 1 ((total long positions including leveraged positions) divided by net assets of the Underlying Fund). See Investment Strategy Leverage. Commencing in 2011, subject to the Fund s right to suspend redemptions in certain circumstances, Units may be surrendered for redemption in each year during the period from and including the first business day in April until 4:00 p.m. (Toronto time) on April 15 in each year (the Notice Period ) in order for the Units to be redeemed on May 31 of such year (each, an Annual Redemption Date ). Each Unit properly surrendered for redemption by a Unitholder during the Notice Period will be redeemed at the Annual Redemption Amount (as defined under Redemptions of Securities ). A Unitholder who properly surrenders Units for redemption will receive payment on or before the 15th business day following the Annual Redemption Date. See Redemptions of Securities. The Fund will be required, subject to certain limitations and exceptions, to purchase Units offered on the TSX if, at any time following the closing of the Offering, the price at which Units are offered on the TSX is less than 95% of the NAV per Unit as at the close of business in Toronto, Ontario on the immediately preceding business day. In addition, the Fund will have the right, but not the obligation, to purchase Units in the - 5 -

9 market at its sole discretion, subject to applicable regulatory requirements and limitations. See Attributes of Securities Description of Securities Distributed Units Market Purchases. Liquidity Transaction and Termination: Agents: Over-Allotment Option: The Manager intends to implement a Liquidity Transaction on or before November 28, 2014 (the Liquidity Transaction ). The Liquidity Transaction may be implemented by way of a conversion of the Fund to an open-ended mutual fund or by way of a merger with any other fund managed by the Manager or an affiliate thereof (including a fund formed after the date of this prospectus). The Liquidity Transaction will be implemented on not less than 30 days prior written notice to Unitholders. If a Liquidity Transaction is implemented, Unitholders will have the right to surrender Units for redemption at an amount equal to the Redemption NAV (as defined below) per Unit less any costs and expenses associated with the redemption as at a specified date on or prior to the Implementation Date (as defined below). If a Liquidity Transaction is not implemented, the Fund will terminate on the Termination Date. The Manager may, in its discretion, terminate the Fund without the approval of Unitholders if, in its opinion, it is no longer economically practical to continue the Fund or it would be in the best interests of Unitholders to terminate the Fund or if there is an early termination of the Forward Agreement. Upon termination, the Fund will distribute to Unitholders their pro rata portions of the remaining assets of the Fund after all liabilities of the Fund have been satisfied or appropriately provided for. See Liquidity Transaction and Termination of the Fund. CIBC World Markets Inc., RBC Dominion Securities Inc., BMO Nesbitt Burns Inc., National Bank Financial Inc., Scotia Capital Inc., TD Securities Inc., Canaccord Capital Corporation, GMP Securities L.P., HSBC Securities (Canada) Inc., Manulife Securities Incorporated, Middlefield Capital Corporation, Raymond James Ltd., Blackmont Capital Inc., Dundee Securities Corporation and Wellington West Capital Markets Inc. (collectively, the Agents ) will act as agents for the Offering. The Fund has granted to the Agents an option (the Over-Allotment Option ), exercisable for a period of 30 days from the closing of the Offering, to offer additional Combined Units in an amount up to 15% of the aggregate number of Combined Units sold on the closing of the Offering. Agents Position Over-Allotment Option and total securities under option to the Agents Number of Combined Units Available Exercise Period Exercise Price Up to 15% of the number of Up to 30 days after $12.00 per Combined Units sold under Closing Combined Unit the Offering Use of Proceeds: The net proceeds from the sale of Combined Units (prior to the exercise of the Over- Allotment Option granted by the Fund to the Agents) will be as follows: Maximum Offering Minimum Offering Gross proceeds to the Fund $125,000,004 $20,000,004 Agents fees $6,562,500 $1,050,000 Estimated expenses of issue $600,000 1 $300,000 1 Net proceeds to the Fund $117,837,504 $18,650,004 The Fund will use the net proceeds of the Offering (including any net proceeds from the exercise of the Over-Allotment Option) for the pre-payment of its purchase obligations under the Forward Agreement with the Counterparty. Under the Forward Agreement, the Fund will, on or about the Termination Date, acquire the Canadian Securities Portfolio having an aggregate value equal to the redemption proceeds of a corresponding 1 Subject to a maximum of 1.5% of the gross proceeds of the Offering - 6 -

10 number of units of the Underlying Fund or the value of the Notional Portfolio, as applicable. See Use of Proceeds. Income Tax Considerations: A Unitholder who is an individual resident in Canada will generally be required to include in computing income for a taxation year that part of the net income of the Fund, including net taxable capital gains, if any, that is paid or becomes payable to the Unitholder by the Fund in the year (whether in cash or in Units). To the extent that amounts payable to a Unitholder are designated by the Fund as taxable dividends from taxable Canadian corporations and the taxable portion of net realized capital gains, those amounts will retain their character and be treated as such in the hands of the Unitholder. Distributions by the Fund to a Unitholder in excess of the Unitholder s share of the Fund s net income and net realized capital gains will generally not result in an income inclusion, but will reduce the adjusted cost base of the Unitholder s Units. To the extent that the adjusted cost base of a Unit held as capital property would otherwise be less than zero, the Unitholder will be deemed to have realized a capital gain equal to such negative amount. A Unitholder who disposes of Units held as capital property (on a redemption or otherwise) will realize a capital gain (or capital loss) to the extent that the proceeds of disposition (other than any amount payable by the Fund which represents an amount that is otherwise required to be included in the Unitholder s income) exceed (or are less than) the aggregate adjusted cost base of the Units disposed of and any reasonable costs of disposition. Each investor should satisfy himself or herself as to the federal, provincial and other tax consequences of an investment in Units by obtaining advice from his or her tax advisor. A reasonable allocation of the purchase price of the Combined Units between the Units and the Warrants will be required for purposes of the Tax Act. The exercise of Warrants held as capital property will not constitute a disposition of property for purposes of the Tax Act and, consequently, no capital gain or capital loss will be realized on the exercise of Warrants. Upon the disposition of a Warrant held as capital property by a Unitholder, other than pursuant to the exercise thereof, the Unitholder will realize a capital gain (or capital loss) to the extent that the proceeds of disposition, net of reasonable costs of disposition, exceed (or are less than) the adjusted cost base of the Warrant to the Unitholder. See Income Tax Considerations. Eligibility for Investment: Provided that the Fund qualifies as a mutual fund trust within the meaning of the Tax Act or the Units are listed on a designated stock exchange for purposes of the Tax Act, the Units will be qualified investments under the Tax Act for trusts governed by registered retirement savings plans, tax-free savings plans, deferred profit sharing plans, registered disability savings plans, registered retirement income funds and registered education savings plans ( Registered Plans ). Provided that the Warrants are listed on a designated stock exchange for purposes of the Tax Act, or provided that the Units are qualified investments for plan trusts and the Fund is not, and deals at arm s length with each person who is, an annuitant, a beneficiary, an employer or a subscriber under or a holder of a plan trust, the Warrants will be qualified investments for Registered Plans. See Income Tax Considerations Status of the Fund and Income Tax Considerations Taxation of Registered Plans