17JAN CANADIAN RESOURCES INCOME TRUST

Transcription

1 17JAN CANADIAN RESOURCES INCOME TRUST NOTICE OF MEETING AND INFORMATION CIRCULAR FOR THE SPECIAL MEETING OF UNITHOLDERS TO BE HELD ON FEBRUARY 17, 2010

2 17JAN January 15, 2010 Dear Unitholders: You are invited to a special meeting (the Meeting ) of holders (the Unitholders ) of trust units (the Units ) of Canadian Resources Income Trust ( CaRIT or the Trust ) to be held on February 17, 2010 at 8:30 a.m. (Toronto time) in the Ratcliffe Room, 63rd floor, Scotia Plaza, 40 King Street West, Toronto, Ontario. The purpose of the Meeting is to consider and vote upon a special resolution to implement a proposed reorganization of CaRIT (the Reorganization ) in order to extend the termination date of the Trust for an additional five years, to approve a one-time adjustment to the portfolio, and to approve the adoption of certain portfolio adjustment rules. The Trust has provided a compound annual total return of 15.4% since March of 2002 and has outperformed both the Scotia Capital Income Trust Index and the S&P/TSX Composite Index over the same time period. In light of this performance, the Board feels it is in Unitholders best interest to extend the Trust. The one-time adjustment to the portfolio is intended to increase the diversification of the Trust s portfolio and improve its current yield. The portfolio adjustment rules are intended to deal with the impending changes to the income trust market as a result of the changes to the tax rules relating to income trusts that will apply to most income trusts on January 1, Specifically, upon the implementation of the Reorganization the portfolio will be revised to include the 30 highest yielding Canadian issuers regardless of their corporate structure focused on the Canadian natural resource industry with float capitalizations greater than $350 million (as at December 15, 2009). Holdings will initially be weighted approximately equally with the exception of Canadian Oil Sands Trust, which will hold a higher weighting to minimize tax consequences, due to its strong historical performance, and consistent with its historically higher weighting in the portfolio. Although it is intended that the portfolio continue to be passive, the portfolio adjustment rules will give the Trust the ability to replace issuers in the portfolio in response to corporate actions such as a suspension of distributions/dividends or merger and acquisition activity. As part of the Reorganization, the Trust will also create a special retraction right (the Special Retraction Right ) which will enable Unitholders who do not wish to continue their investment to retract their Units on March 31, 2010 on the same terms that would have applied had the Trust redeemed all Units on such date as originally contemplated. Ongoing Unitholders will continue to have the right to redeem their Units at net asset value on an annual basis. The Reorganization also includes a change to the existing retraction notice deadline to no later than noon (Toronto time) on the 15 th day of the month in which the retraction occurs, in order to give the Trust more flexibility in the funding of retractions. Following the successful completion of the Reorganization, the Trust intends to issue to Unitholders one warrant for each Unit then outstanding. It is expected that the warrants will have an exercise price based on net asset value per Unit at the time of filing the prospectus relating to the warrant issue. In order to become effective, the Reorganization must be approved by a two-thirds majority of those Unitholders voting at the Meeting. In addition, holders of at least 1,655,000 Units (being approximately 66% of the issued and outstanding Units currently outstanding) must retain their Units and not retract them on March 31, 2010 in order for the Reorganization to proceed. If you wish to continue your investment in the Trust after March 31, 2010 you should submit the enclosed voting instruction form or proxy prior to 9:00 a.m. (Toronto time) on February 16, 2010 voting in favour of the special resolution of the Trust approving the Reorganization (the Special Resolution ). You should also contact your broker or other intermediary through which your Units are held who may have earlier deadlines. All Unitholders are encouraged to vote at the Meeting. A vote in favour of the Reorganization will not deprive any Unitholder of the right to retract Units on March 31, 2010 as originally contemplated. Unitholders who do not wish to continue their investment should vote in favour of the Reorganization and exercise their right to have their Units retracted on March 31, 2010 pursuant to the Special Retraction Right which will be (i)

3 established as part of the Reorganization. Unitholders who wish to exercise the Special Retraction Right must give notice of the retraction on or prior to March 3, Unitholders retracting their Units will still benefit from the Reorganization since the Reorganization will enable such Unitholders to realize retraction proceeds that will not be reduced by any costs associated with the winding up of the Trust. Should the Reorganization not proceed, the redemption proceeds for Unitholders would reflect a reduction relating to such wind-up costs. Accordingly, the Board of Directors of CaRIT Limited, the trustee of the Trust, recommends that all Unitholders vote in favour of the Special Resolution even if you wish to retract your Units. If the proposed Reorganization is not approved or fewer than 1,655,000 Unitholders retain their Units upon the Reorganization, the Trust will redeem all of the Units on March 31, 2010 on the same terms as originally contemplated under the declaration of trust. If the Reorganization is successful, all costs associated with the Reorganization will be borne by the Unitholders that remain after the Reorganization. Under such circumstances, Unitholders who elect to retract their Units pursuant to the Special Retraction Right will not bear any of the costs associated with the Reorganization. Attached is a Notice of Special Meeting of Unitholders and an information circular (the Circular ) that contain important information relating to the proposed Reorganization. You are urged to read the Circular carefully and consult your advisors with respect to the matters to be considered at the Meeting. The Board of Directors of CaRIT Limited, the trustee of the Trust, has determined that the proposed Reorganization is in the best interests of the Trust and the Unitholders, and recommends that all Unitholders vote in favour of the Special Resolution to be considered at the Meeting. Reference is made to the disclosure under the heading Recommendation of the Trustee in the attached Circular. Sincerely, 20DEC BRIAN D. McCHESNEY President, Chief Executive Officer and Director CaRIT Limited, as trustee of Canadian Resources Income Trust (ii)

4 TABLE OF CONTENTS Page FORWARD LOOKING STATEMENTS... iv If the Reorganization is not Completed NOTICE OF SPECIAL MEETING OF TERMINATION OF THE UNITHOLDERS... 1 REORGANIZATION SUMMARY... 2 IF THE REORGANIZATION DOES NOT CANADIAN RESOURCES INCOME PROCEED TRUST... 9 INTEREST OF MANAGEMENT AND The Trust... 9 OTHERS IN THE REORGANIZATION. 18 Historical Performance... 9 CANADIAN FEDERAL INCOME TAX CONSIDERATIONS Distributions RISK FACTORS PROPOSED REORGANIZATION PRINCIPAL UNITHOLDERS The Proposal THE TRUSTEE Background to the Proposed Reorganization MANAGEMENT CONTRACTS The Revised Portfolio AUDITOR, CUSTODIAN, TRANSFER AGENT AND REGISTRAR Tax Considerations of One-Time Adjustment and Special Distribution MATERIAL CONTRACTS Portfolio Adjustment Rules ADDITIONAL INFORMATION Retraction Notice GENERAL PROXY INFORMATION Benefits of the Proposed Reorganization for Unitholders RECOMMENDATION OF THE TRUSTEE 15 Recommendation of the Trustee DETAILS OF THE REORGANIZATION.. 15 Amendments in the Declaration of Trust.. 15 Amendment to Administration Agreement 16 Amendment to Custodian Agreement EXPENSES OF THE REORGANIZATION 17 Page Information Circular Voting Rights, Record Date and Proxy Information Appointment of Proxyholders Discretionary Authority of Proxies Alternate Proxy Revocation of Proxies Advice to Beneficial Holders How Do I Vote? If the Reorganization is Completed Approval by the Trustee ADDENDA SCHEDULE A CANADIAN RESOURCES INCOME TRUST SPECIAL RESOLUTION (iii)

5 FORWARD LOOKING STATEMENTS Certain statements contained in this Circular constitute forward-looking statements. The use of any of the words anticipate, continue, estimate, expect, may, will, project, should, believe, and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors, including those relating to the performance of the portfolio that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. The Trust believes the expectations reflected in forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this Circular should not be unduly relied upon. These statements speak only as of the date of this Circular. In particular, the Circular may contain forward-looking statements pertaining to distributions on the Trust s units. The actual results could differ materially from those anticipated in these forward-looking statements. The Trust does not undertake any obligation to publicly update or revise any forward-looking statements. (iv)

6 NOTICE OF SPECIAL MEETING OF UNITHOLDERS TAKE NOTICE that a special meeting (the Meeting ) of holders (the Unitholders ) of trust units ( Units ) of Canadian Resources Income Trust ( CaRIT or the Trust ) will be held on February 17, 2010 at 8:30 a.m. (Toronto time) at the Ratcliffe Room, 63 rd floor, Scotia Plaza, 40 King Street West, Toronto, Ontario for the following purposes: 1. To consider and, if thought appropriate, approve, with or without variation, a special resolution in the form attached as Schedule A to the accompanying information circular (the Circular ) authorizing, among other things, amendments to the declaration of trust to: (a) extend the scheduled redemption date of the Units for an additional term of five years; (b) make a one-time adjustment to the portfolio such that it includes the 30 highest yielding Canadian issuers regardless of their corporate structure focused on the Canadian natural resource industry with float capitalizations greater than $350 million as at December 15, 2009, initially weighted approximately equally, with the exception of Canadian Oil Sands Trust which will hold a higher weighting; (c) adopt certain portfolio adjustment rules that will give the Trust the ability to replace issuers in the portfolio in response to corporate actions such as suspension of distributions/dividends and merger and acquisition activity, all as more specifically described in the Circular; (d) provide Unitholders who do not wish to continue their investment with a special retraction right to enable such Unitholders to retract their Units on March 31, 2010 on the same terms that would have applied had the Trust redeemed all Units on such date as originally contemplated provided that they give notice on or prior to March 3, 2010; (e) change the existing retraction notice deadline to no later than noon (Toronto time) on 15 th day of the month in which the retraction occurs, in order to give the Trust more flexibility in the funding of retractions; (f) take into account the issuance of warrants, including in relation to the calculation of basic and diluted net asset value and retraction price; and (g) make certain other amendments consequential to the foregoing; all as more fully described in the accompanying Circular. 2. To transact such other business as may properly come before the Meeting, or any adjournment or adjournments thereof. DATED at Toronto, Ontario this 15 th day of January, BY ORDER OF THE BOARD BRIAN D. McCHESNEY President, Chief Executive Officer and Director CaRIT Limited, as trustee of Canadian Resources Income Trust Note: Reference should be made to the accompanying Circular for details of the above matters. If you are unable to be present in person at the Meeting, you are requested to complete and sign the enclosed form of proxy or voting instruction form and to return it in the enclosed prepaid envelope provided for that purpose. 1

7 SUMMARY The following is a summary of certain information contained elsewhere in this information circular ( Circular ), including the attached schedule. Certain capitalized terms used in this summary are defined in this Circular. This summary is qualified in its entirety by the more detailed information appearing elsewhere in this Circular. Summary of Key Dates Proxy Due Date... February 16, 2010 (1) Meeting Date... February 17, 2010 Special Retraction Right Notice Date... March 3, 2010 Valuation Date for Special Retraction Right... March 25, 2010 Special Retraction Date... March 31, 2010 (1) Unitholders should contact their broker or other intermediary through which their Units are held well in advance of the Meeting, as brokers and other intermediaries may set deadlines earlier than February 16, 2010 for the receipt of voting instruction forms or proxies. Date, Time and Place of Meeting A special meeting (the Meeting ) of holders (the Unitholders ) of trust units (the Units ) of Canadian Resources Income Trust ( CaRIT or the Trust ) will be held on February 17, 2010 at 8:30 a.m. (Toronto time) in the Ratcliffe Room, 63 rd floor, Scotia Plaza, 40 King Street West, Toronto, Ontario. Purpose of Meeting The purpose of the Meeting is to consider, and if thought appropriate, to pass a special resolution in the form attached as Schedule A hereto (the Special Resolution ) approving a reorganization of CaRIT (the Reorganization ) which will include, among other things, amendments to the declaration of trust (the Declaration of Trust ) to extend the termination date of the Trust to March 31, 2015, to approve a one-time adjustment to the portfolio, and to approve the adoption of certain portfolio adjustment rules. The one-time adjustment is intended to increase the diversification of the Trust s portfolio and improve its current yield. The portfolio adjustment rules are intended to deal with the impending changes to the income trust market as a result of the changes to the tax rules relating to income trusts that will apply to most income trusts on January 1, 2011 (the Tax Changes ). Although it is intended that the portfolio continue to be passive, the portfolio adjustment rules will give the Trust the ability to replace issuers in the portfolio in response to corporate actions such as a suspension of distributions/dividends or merger and acquisition activity. The Reorganization will allow Unitholders to continue to enjoy the benefit of regular monthly distributions from a diversified portfolio of high yielding equity securities focused on the Canadian natural resource industry and listed on the Toronto Stock Exchange (the TSX ) as well as the potential for price appreciation. In addition, the Special Resolution will provide Unitholders with an additional special retraction right (the Special Retraction Right ) in order to provide those Unitholders who do not wish to continue their investment in the Trust with an opportunity to have their Units retracted on March 31, 2010 (the Special Retraction Date ) on the same terms as originally contemplated. If the Special Resolution is approved, Unitholders who wish to retract their Units on the Special Retraction Date must give written notice to the Trust no later than 5:00 p.m. (Toronto time) on March 3, The Reorganization also includes a change to the existing retraction notice deadline for the Trust to no later than noon (Toronto time) on the 15 th day on the month in which the retraction occurs, in order to give the Trust more flexibility in the funding of retractions. 2

8 The Proposal Unitholders are being asked to pass the Special Resolution to, among other things, approve the Reorganization to: (a) extend the scheduled redemption date of the Units for an additional term of five years; (b) make a one-time adjustment to the portfolio such that it includes the 30 highest yielding Canadian issuers regardless of their corporate structure focused on the Canadian natural resource industry with float capitalizations greater than $350 million (as at December 15, 2009), initially weighted approximately equally, with the exception of Canadian Oil Sands Trust which will hold a higher weighting as more particularly described below under the heading The Revised Portfolio ; (c) adopt certain portfolio adjustment rules that will give the Trust the ability to replace issuers in the portfolio in response to corporate actions such as a suspension of distributions/dividends and merger and acquisition activity; (d) provide Unitholders who do not wish to continue their investment with the Special Retraction Right to enable such Unitholders to retract their Units on March 31, 2010 on the same terms that would have applied had the Trust redeemed all Units on such date as originally contemplated provided that they give notice on or prior to March 3, 2010; (e) change the existing retraction notice deadline to no later than noon (Toronto time) on the 15 th day of the month in which the retraction occurs, in order to give the Trust more flexibility in the funding of retractions; and (f) make certain other amendments consequential to the foregoing; all as more fully described herein. See Details of the Reorganization. Following the successful completion of the Reorganization, the Trust intends to issue to Unitholders one warrant for each Unit then outstanding. It is expected that the warrants will have an exercise price based on net asset value per Unit at the time of filing the prospectus relating to the warrant issue. See Proposed Reorganization The Proposal. Background to the Proposed Reorganization The Trust was initially created in November 1996 to provide investors with high current yield and low cost diversification through the acquisition of a fixed portfolio of trust units of selected Canadian income funds focused on the natural resource industry. In March 2002, the portfolio was adjusted to include all oil and gas, resource, power, and infrastructure income trusts included in the Scotia Capital Income Trust Index with a weighting greater than 1.5%. On November 18, 2009, the Trust announced that Scotia Capital Inc. had been retained to advise the Trust on a possible extension past the Trust s scheduled termination on March 31, In considering a possible extension, a review of the Trust s current portfolio was undertaken to determine an appropriate portfolio for the extended term. In addition, the investment strategy was reviewed in light of the changes expected to occur in the income trust industry due to the Tax Changes, the provisions of which will remove the current advantageous tax treatment for all income funds as of January Since the announcement of this new tax regime in October 2006, a number of consolidations and conversion transactions have occurred in the income fund sector, some of which have resulted in changes to or elimination of distributions. Based on, among other things, the advice of Scotia Capital Inc., the trustee, CaRIT Limited (the Trustee ) believes that there will continue to be an investment opportunity in holding a passive portfolio of high yielding equity securities (regardless of corporate structure) focused on the Canadian oil and gas, resource, power and infrastructure sectors prior to and after Accordingly, it is proposed that the Trust extend the termination date for an additional five years, make a one-time adjustment to the portfolio in order to increase the diversification of the Trust s portfolio and improve its current yield, and adopt certain portfolio adjustment rules 3

9 in order to deal with the impending changes to the income trust market as a result of the Tax Changes, all as more particularly described below. The Revised Portfolio As part of the Reorganization, a review of the current portfolio was undertaken. As a result of corporate actions, including mergers and going private transactions, and the varying market performance of the portfolio holdings, the current portfolio no longer provides a well-diversified exposure to the Canadian resource sector. Certain issuers are heavily weighted and a number of appropriate issuers are not represented in the current portfolio. The current portfolio also holds issuers that no longer pay a distribution. In determining the constituents and weightings of the revised portfolio (the Revised Portfolio ), the board of directors of the Trustee (the Board ) considered a number of factors including the original investment objective of the Trust, which was to hold a fixed and passive portfolio of issuers representative of the Canadian resource industry, the size and diversification of the Revised Portfolio, the current yield of the Revised Portfolio and the expected tax consequences from changes to the current portfolio. In response to the above issues, the Revised Portfolio includes the 30 highest yielding Canadian issuers regardless of corporate structure focused on the natural resource industry with float capitalizations greater than $350 million (collectively, the Portfolio Selection Criteria ) as at December 15, Resource issuers are considered to be issuers that operate in the oil and gas, resource, power, and infrastructure sectors. In order to maximize diversification, holdings will initially be weighted approximately equally at 2.76% each, with the exception of Canadian Oil Sands Trust, which will hold a 20% weighting to minimize tax consequences, due to its strong historical performance, and consistent with its historically higher weighting in the portfolio. Assuming the Reorganization is approved and all Units remain outstanding, the monthly distribution per Unit is expected to be approximately $0.075 (using prices and most recent distribution levels as of January 15, 2010), representing a yield of 7.06% on the net asset value per Unit as of January 15, 2010 (if the minimum number of Units remain outstanding, the monthly distribution per Unit is expected to be approximately $0.074, representing a yield of 6.77%). See Proposed Reorganization The Revised Portfolio. Tax Considerations of One-Time Adjustment and Special Distribution It is expected that the one-time adjustment to the portfolio will generate a net capital gain within the Trust and this capital gain may be allocated to Unitholders. The amount of capital gains to be allocated to continuing Unitholders, if any, will depend upon the net gains generated on the rebalancing of the portfolio, the number of Units that are retracted pursuant to the Special Retraction Right and other losses and deductions that the Trust might have. To the extent that the Trust realizes a capital gain from the one-time portfolio adjustment that cannot otherwise be sheltered, the Trust currently intends to declare a special capital gains distribution to continuing Unitholders rather than pay tax in the Trust. In such circumstances, the Board intends that a portion of any such capital gains distribution will be paid in cash in order to offset all or part of the tax liability of Unitholders resulting from any such capital gains distribution. See Details of the Reorganization Tax Considerations of One-Time Adjustment and Special Distribution. Portfolio Adjustment Rules It is generally expected that as a result of the proposed Tax Changes, which will come into effect on January 1, 2011, there will be a substantial number of changes to the income trust market which may result in some trusts being acquired and others eliminating their distributions. These changes have the potential to reduce the diversification and yield of the portfolio. While the investment objective of the Trust is to hold the portfolio on a passive basis, the Trustee believes it would be prudent to adopt certain portfolio adjustment rules to give the Trust the ability to respond to corporate actions such as mergers and acquisitions or in the case of the suspension of distributions. 4

10 The portfolio adjustment rules are as follows: In the case where the Trust receives cash upon the acquisition of a portfolio holding, the Board will generally reinvest the proceeds in one or more issuers that meet the Portfolio Selection Criteria; In the case where the Trust receives securities upon the acquisition of a portfolio holding, the Board will retain or dispose of such securities, in whole or in part, having regard to the Trust s investment objective, the resulting level of portfolio diversification, yield, and tax consequences. Generally, the Board only expects to dispose of securities received in whole when such securities do not meet the Portfolio Selection Criteria. To the extent that the Board elects to dispose of securities, the proceeds will be used to acquire securities of one or more issuers that meet the Portfolio Selection Criteria; In the case where an issuer suspends distributions, the Board will retain or dispose of securities of such issuer having regard to the Trust s investment objective, the resulting level of portfolio diversification, yield, and tax consequences. To the extent that the Board elects to dispose of securities, the proceeds will be used to acquire securities of one or more issuers that meet the Portfolio Selection Criteria. Retraction Notice In order to provide the Trust with additional flexibility in funding retractions, a change is proposed to the existing deadline when the Trust must receive a written notice (the Retraction Notice ) indicating the Unitholder s intention to retract such Units. Going forward, the Trustee must be in receipt of a Retraction Notice no later than noon (Toronto time) on the 15 th day of the month in order for such Units to be retracted in that month. Benefits of the Proposed Reorganization for Unitholders In proposing the Reorganization, the Board considered, among other things, the following factors and their benefits to Unitholders: (a) The Trust has provided a compound annual total return of 15.4% since the Merger in 2002, outperforming both the Scotia Capital Income Trust Index and the S&P/TSX Composite Index over the same time period. (b) The Trust has successfully provided Unitholders with high monthly distributions from an investment in a diversified portfolio of high yielding equity securities focused on the Canadian resource sector. The Trust has declared monthly distributions totaling $13.61 per Unit since the completion of the Trust s initial public offering of Units on November 28, 1996 and the current yield on the Trust Units is 5.88% (based on the net asset value as of January 15, 2010). If the Reorganization is approved and all Units remain outstanding, the indicative yield of the Units, based on the proposed initial Revised Portfolio and expected expenses, is approximately 7.06%. See Proposed Reorganization The Revised Portfolio. (c) Adopting an equal weighted investment approach (with the exception of Canadian Oil Sands Trust) to the Revised Portfolio will increase single name diversification, reducing the risk associated with exposure to any single issuer and may result in a lower volatility than the current portfolio. Currently, four issuers comprise approximately 63% of the portfolio with the largest, Canadian Oil Sands Trust, comprising 37%. Under the Revised Portfolio each issuer will initially constitute approximately 2.76% of the Revised Portfolio, with the exception of Canadian Oil Sands Trust, which will constitute approximately 20%. Canadian Oil Sands Trust will hold a higher weighting in order to minimize tax consequences, due to its strong historical performance, and consistent with its historically higher weighting in the portfolio. (d) The Trust is expected to continue to operate with a low management expense ratio of between 0.88% and 1.17% of net asset value (depending on the number of Units outstanding after the Reorganization) if the Reorganization is implemented. 5

11 (e) The extension of the scheduled redemption date of the Units will enable Unitholders to retain their investment and potentially defer some or all capital gains tax liability that would have otherwise been realized on the redemption of the Units until such time as the Units are either sold or retracted by a Unitholder or redeemed by the Trust in The Trust estimates that if the Units were redeemed on their scheduled redemption date, an investor who purchased his or her Units on the initial public offering of CaRIT or on the initial public offering of CaRIT II would incur a capital gain of $8.22 or $6.96, respectively. (f) The implementation of the Reorganization will have no material effect on the ability of Unitholders to retract their Units on the Special Retraction Date as originally contemplated. Recommendation of the Trustee The Board (Messrs McChesney, Warman and Williams declaring their interest and refraining from voting) has determined that the proposed Reorganization is in the best interests of the Trust and the Unitholders and recommends that all Unitholders vote in favour of the Special Resolution to be considered at the Meeting. See Recommendation of the Trustee. Votes and Minimum Required Number of Units The Special Resolution requires the approval of two-thirds of the votes of Unitholders voting at the Meeting. In addition, holders of at least 1,655,000 Units (which represents approximately 66% of the Units currently outstanding) must retain their Units and not retract them on the Special Retraction Date in order for the Reorganization to proceed. If the Reorganization Does Not Proceed If the Reorganization does not proceed, all Units will be redeemed by the Trust on March 31, 2010 as originally contemplated. The redemption proceeds paid to Unitholders will be funded by liquidating the current portfolio and the funds received will be paid to Unitholders after all liabilities of the Trust have been paid and provided for. If the Reorganization is not implemented, the costs associated with the Reorganization will be borne by the Trust and therefore ultimately by all Unitholders. Such costs are estimated to be $0.09 per Unit. Solicitation Fees Provided the Reorganization is completed, a solicitation fee will be paid by the Trust to properly designated brokers equal to $0.27 per Unit in respect of Units that are both: (i) voted in favour of the Special Resolution; and (ii) not retracted upon the implementation of the Reorganization. Costs of the Proposed Reorganization If approved and implemented, all costs of the Reorganization, consisting primarily of soliciting broker fees, expenses relating to the implementation of the Reorganization, portfolio trading commissions, financial advisory fees and legal fees, will be borne by the Unitholders that remain outstanding after the Reorganization as described in the table below. Estimated Total Costs Estimated Cost per Unit Outstanding If all Units remain outstanding after the Reorganization... $1,185,000 $0.47 If the minimum number of 1,655,000 Units remain outstanding after the Reorganization... $ 955,000 $0.58 If the Reorganization proceeds and a Unitholder retracts his or her Units pursuant to the Special Retraction Right, such Unitholder will not bear any costs of the Reorganization. 6

12 If the Reorganization is not implemented, the costs associated with the proposal will be borne by the Trust and therefore ultimately by the Unitholders. Such costs are expected to be $0.09 per Unit. See Expenses of the Reorganization and Interest of Management and Others in the Reorganization for a description of certain fees that will be paid to Scotia Capital Inc. in connection with the Reorganization. Tax Consequences of the Reorganization The Trust The Reorganization will not affect the status of the Trust as a mutual fund trust under the Tax Act. Unitholders The extension of the scheduled redemption date of the Units for an additional term of five years and other amendments to the Declaration of Trust should not result in the disposition of Units by a Unitholder. See also Tax Considerations of One-Time Adjustment and Special Distribution. Unitholder Action If you wish to continue your investment in the Trust after March 31, 2010, you should submit a voting instruction form or proxy prior to 9:00 a.m. (Toronto time) on February 16, 2010 voting in favour of the Special Resolution. If you wish your Units to be redeemed by the Trust on March 31, 2010, you should nevertheless complete and return the voting instruction form or proxy. The Board recommends that you vote in favour of the Special Resolution, even if you wish your Units to be redeemed by the Trust on the Special Retraction Date, since you will still be able to retract your Units by exercising the new Special Retraction Right. Unitholders who wish to redeem their Units on the Special Retraction Date will still benefit from the Reorganization since the Reorganization will enable such Unitholders to realize retraction proceeds that will not be reduced by any costs associated with the winding up of the Trust. Should the Reorganization not proceed, the redemption proceeds for Unitholders would reflect a reduction relating to such wind-up costs. If you wish to retract your Units pursuant to the Special Retraction Right, you should submit written notice of such intention to Computershare Investor Services Inc. prior to 5:00 p.m. (Toronto time) on March 3, Unitholders should contact their broker or other intermediary through which their Units are held well in advance of the Meeting, as brokers and other intermediaries may set deadlines earlier than February 16, 2010 for the receipt of voting instruction forms or proxies. How Do I Vote? All Unitholders other than CDS Clearing and Depository Services Inc. ( CDS ) are considered beneficial unitholders or non-registered unitholders ( Non-Registered Unitholders ) because their Units are held through a bank, trust company, securities broker or other intermediary. As a Non-Registered (or Beneficial) Unitholder, there are two ways that you can vote your Units: 1. By Providing Voting Instructions to Your Intermediary Your intermediary is required to seek voting instructions from you in advance of the Meeting. Accordingly, you will receive, or have already received, from your intermediary either a request for voting instructions or a proxy form for the number of Units you hold. If you are a non-objecting beneficial owner (and have permitted the disclosure of your ownership information to Broadridge Investor Communication Solutions, Canada ( Broadridge )), you will receive a voting instruction form or proxy which includes a 12-digit control number that allows you to provide your voting instructions by telephone, on the Internet, by mail or by fax. If you want to provide your voting instructions on the Internet, go to Broadridge s website at and follow the instructions on the screen. You will need your 12-digit control number, which you will find on your voting instruction form. If you want to provide your voting instructions by telephone you may call 7

13 (English) or (French). You cannot vote on the telephone or Internet on the day of the Meeting. Please contact your intermediary for instructions in this regard. Alternatively, if you are an objecting beneficial owner (and have not permitted the disclosure of your ownership information to Broadridge), you may be a Non-Registered Unitholder and will receive from your intermediary a voting instruction form or proxy which: (i) is to be completed and returned as directed instructions provided; OR (ii) has been pre-authorized by your intermediary indicating the Units to be voted. This voting instruction form or proxy must be completed, dated and signed and returned to Broadridge by mail or fax. Please contact your intermediary for instructions in this regard. Every intermediary has its own procedures which should be carefully followed by Non-Registered Unitholders to ensure that their Units are voted at the Meeting. These procedures generally allow voting by telephone, on the Internet, by mail or by fax. Please contact your intermediary for instructions in this regard. 2. By Attending the Meeting in Person We do not have access to the names or holdings of our Non-Registered Unitholders. This means that you can only vote your Units in person at the Meeting if you have previously appointed yourself as the proxyholder for your Units. If you wish to vote at the Meeting, write your own name in the space provided on the request for voting instructions or proxy form to appoint yourself as proxyholder. Once completed, sign, date and return the request for voting instructions or proxy form as directed on the voting instruction form or proxy form in the envelope provided. Since your vote will be taken at the Meeting, do not complete any other sections of the request for voting instructions or proxy form. Your voting instructions or proxy form must be received in sufficient time to allow your voting instruction form or proxy form to be received by Computershare Investor Services Inc. by 9:00 a.m. (Toronto time) on February 16, Please contact your intermediary for instructions in this regard. On the date of the Meeting, you should present yourself to a representative of Computershare Investor Services Inc. so that you may be registered to vote at the Meeting. All Non-Registered Unitholders who receive materials through an intermediary should carefully follow the instructions that accompany the form of proxy or the voting instruction form. 8

14 CANADIAN RESOURCES INCOME TRUST The Trust Canadian Resources Income Trust ( CaRIT or the Trust ) is an open-ended investment trust established under the laws of the Province of Ontario and governed by an amended and restated declaration of trust dated as of November 28, 1996 (the Declaration of Trust ), created to provide investors with high current yield and low cost diversification through a fixed portfolio of trust units and limited partnership interests of selected Canadian income funds. CaRIT Limited is the trustee of the Trust (the Trustee ) and is responsible for managing the affairs of the Trust. On November 28, 1996 the Trust raised net proceeds of $191,300,000 through the issuance of 20,000,000 transferable, retractable trust units (the Units ). The net proceeds of this issue of Units were used by the Trust to pay the acquisition costs relating to the purchase of the portfolio. As at January 15, 2010, there were 2,510,008 Units issued and outstanding having a market capitalization of approximately $31,826,901. On March 25, 2002 the Unitholders of CaRIT and Canadian Resources Income Trust II ( CaRIT II ) approved a merger of the two trusts (the Merger ) effective April 7, 2002, with CaRIT being the continuing trust. As part of the Merger, the Unitholders of CaRIT and CaRIT II also approved, among other things, (i) a one-time adjustment of the portfolios of CaRIT and CaRIT II so that the portfolio of the Trust replicated the Scotia Capital Income Trust Index at that time (excluding real estate investment trusts and any securities with an index weighting of less than 1.5%), (ii) an extension of the termination date of the Trust to March 31, 2007, (iii) an amendment to the Declaration of Trust which governs the Trust to permit the Trustee, at its discretion, to issue additional Units of the Trust and (iv) certain amendments to the retraction rights available to Unitholders of the Trust. At a special meeting held on March 20, 2007, Unitholders approved the Trust s extension for an additional three years. On April 5, 2007, having met all required conditions, the Trust extended the term of the Trust for an additional three years to March 31, Under a special retraction right, 574,044 Units were tendered to the Trust for retraction. The holders of the remaining 3,217,698 Units continued their investment beyond the originally scheduled termination date of March 31, Since inception, the Trust has declared distributions totaling $13.61 per Unit. The current yield on the Units is 5.88% based on the net asset value for the Trust as at January 15, The net asset value of the Units on January 15, 2010 was $13.26, which represents a 32.6% appreciation over the issue price. The total return on the Units from the effective date of the Merger to January 15, 2010 is 204%. Historical Performance The Units are listed for trading on the Toronto Stock Exchange (the TSX ) and trade under the symbol RTU.UN. The following chart compares the historical performance of the Units relative to the historical performance of the Scotia Capital Income Trust Index (the SCITI ) and the S&P/TSX Composite Index, on a total return basis (assuming reinvestment of distributions), each set at 100 at the close of markets on April 8, 2002, the first day of trading after the effective date of the Merger, and continuing to the close of markets on January 15, As shown below, the Trust has provided Unitholders with 15.4% compound annual total return performance over the time period. (Base $100 as at April 8, 2002) Total Return of the Units vs. the SCITI and the S&P/TSX Composite Index 0 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 CaRIT Total Return SCITI Total Return S&P/TSX Composite Total Return % % % 17JAN The information in the above chart is historical in nature and is not intended to, and should not be construed as, an indication of any future returns, yields or distributions on the Units. 9

15 Distributions The Trust pays monthly distributions as declared by the Trustee to the extent of distributions received on the portfolio less estimated expenses and any taxes payable by the Trust. Since inception, the Trust has declared cash distributions totaling $13.61 per Unit to Unitholders. The following chart sets forth the cash distributions declared per Unit since inception. Dividends Paid ($) $1.80 $1.60 $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 $ (I month) $1.69 $1.28 $1.28 $1.21 $1.02 $1.04 $0.89 $0.91 $0.98 $0.88 $0.83 $0.71 $0.65 $0.14 (1) JAN (2 months) (1) Includes $0.065 distribution payable on February 12, PROPOSED REORGANIZATION The Proposal Unitholders are being asked to consider the special resolution contained in Schedule A (the Special Resolution ) to, among other things, approve the Reorganization including amendments to the Declaration of Trust to: (a) extend the scheduled redemption date of the Units for an additional term of five years; (b) make a one-time adjustment to the portfolio such that it includes the 30 highest yielding Canadian issuers regardless of their corporate structure focused on the Canadian natural resource industry with float capitalizations greater than $350 million, initially weighted approximately equally, with the exception of Canadian Oil Sands Trust which will hold a higher weighting as more particularly described under the heading The Revised Portfolio ; (c) adopt certain portfolio adjustment rules that will give the Trust the ability to replace issuers in the portfolio in response to corporate actions such as a suspension of distributions/dividends or merger and acquisition activity; (d) provide Unitholders who do not wish to continue their investment with a special retraction right to enable such Unitholders to retract their Units on March 31, 2010 on the same terms that would have applied had the Trust redeemed all Units on such date as originally contemplated provided that they give notice on or prior to March 3, 2010; (e) change the existing retraction notice deadline to no later than noon (Toronto time) on the 15 th day of the month in which the retraction occurs, in order to give the Trust more flexibility in the funding of retractions; and (f) make certain other amendments consequential to the foregoing; all as more fully described herein. The Trust intends to issue warrants within 90 days following the successful completion of the Reorganization. It is expected that each Unitholder will receive one warrant for each Unit held on the record date of the warrant offering. The record date will be set on the filing of the warrant prospectus. The warrants will be priced at the most recently published net asset value per Unit prior to the date of filing the warrant prospectus plus the per Unit fees and expenses of the offering (which fees and expenses will be borne by the Trust to the extent warrants are not exercised). In addition a warrant fee equal to 2.5% of the exercise price may be paid by the Trust to investment dealers for each warrant exercised. An application will be made to list the warrants on the TSX. The Trust has indicated that it will complete the warrant offering in accordance with all applicable requirements of Canadian securities laws. As part of the Special Resolution, Unitholders will be 10

16 asked to approve amendments to the Declaration of Trust (including in relation to the calculation of basic and diluted net asset value and retraction price) to take into account the issuance of warrants. Background to the Proposed Reorganization On November 18, 2009, the Trust announced that Scotia Capital Inc. had been retained to advise the Trust on a possible extension past the Trust s scheduled termination on March 31, In considering a possible extension, a review of the Trust s current portfolio was undertaken to determine an appropriate portfolio for the extended term. In addition, the investment strategy was reviewed in light of the changes expected to occur in the income trust industry due to the changes to the tax rules relating to income trusts that will apply to most income trusts on January 1, 2011 (the Tax Changes ), the provisions of which will remove the current advantageous tax treatment for all income funds as of January Since the announcement of this new tax regime in October 2006, a number of consolidations and conversion transactions have occurred in the income fund sector, some of which have resulted in changes to or elimination of distributions. Based on, among other things, the advice of Scotia Capital Inc., the Trustee believes that there will continue to be an investment opportunity in holding a passive portfolio of high yielding equity securities (regardless of corporate structure) focused on the Canadian oil and gas, resource, power and infrastructure sectors prior to and after Accordingly, it is proposed that the Trust extend the termination date for an additional five years, make a one-time adjustment to the portfolio in order to increase the diversification of the Trust s portfolio and improve its current yield, and adopt certain portfolio adjustment rules in order to deal with the impending Tax Changes, all as more particularly described below. The Revised Portfolio As part of the Reorganization, a review of the current portfolio was undertaken. As a result of corporate actions, including mergers and going private transactions, and the varying market performance of the portfolio holdings, the current portfolio no longer provides a well-diversified exposure to the Canadian resource sector. Certain issuers are heavily weighted and a number of appropriate issuers are not represented in the current portfolio. The current portfolio also holds issuers that no longer pay a distribution. In determining the constituents and weightings of the revised portfolio (the Revised Portfolio ), the board of directors of the Trustee (the Board ) considered a number of factors including the original investment objective of the Trust, which was to hold a fixed and passive portfolio of issuers representative of the Canadian resource industry, the size and diversification of the Revised Portfolio, the current yield of the Revised Portfolio, the expected tax consequences from changes to the current portfolio. In response to the above issues, the Revised Portfolio includes the 30 highest yielding Canadian issuers regardless of corporate structure focused on the natural resource industry with float capitalizations greater than $350 million (collectively, the Portfolio Selection Criteria ) as at December 15, Resource issuers are considered to be issuers that operate in the oil and gas, resource, power, and infrastructure sectors. In order to maximize diversification, holdings will initially be weighted approximately equally at 2.76% each, with the exception of Canadian Oil Sands Trust, which will hold a 20% weighting to minimize tax consequences, due to its strong historical performance, and consistent with its historically higher weighting in the portfolio. Assuming the Reorganization is approved and all Units remain outstanding, the monthly distribution per Unit is expected to be approximately $0.075 (using prices and most recent distribution levels as of January 15, 2010), representing a yield of 7.06% on the net asset value per Unit as of January 15, 2010 (if the minimum number of Units remain outstanding, the monthly distribution per Unit is expected to be approximately $0.074, representing a yield of 6.77%). 11

17 The following table shows the weightings, current yields and float capitalizations of the constituents of the current portfolio and the 30 constituents to be included in the Revised Portfolio. Float Capitalization Current Pro Forma Yield (1) (C$ millions) Weight Weight Oil & Gas Issuers Paramount Energy Trust % $ % Zargon Energy Trust % $ % Freehold Royalty Trust % $ % Peyto Energy Trust % $ 1, % Penn West Energy Trust % $ 7, % 2.76% Enerplus Resources Fund % $ 4, % 2.76% Provident Energy Trust % $ 2, % 2.76% Daylight Resources Trust % $ 1, % Bonavista Energy Trust % $ 2, % Pengrowth Energy Trust % $ 3, % 2.76% NAL Oil & Gas % $ 1, % Crescent Point Energy Corp % $ 6, % Baytex Energy Trust % $ 3, % Vermillion Energy Trust % $ 2, % ARC Energy Trust % $ 4, % 2.76% Oil & Gas Total 25.75% 41.38% Resource Issuers Canadian Oil Sands Trust % $14, % 20.00% Labrador Iron Ore Royalty Income Fund % $ 1, % TimberWest Forest Corp... $ % Resource Total 46.11% 20.00% Power Issuers Capital Power Income LP % $ % 2.76% Atlantic Power Corp % $ % Northland Power Income Fund % $ % 2.76% Brookfield Renewable Power Fund % $ 1, % 2.76% Algonquin Power Corp % $ % TransAlta Corp % $ 4, % Power Total 7.65% 13.79% Infrastructure Issuers AltaGas Income Trust % $ 1, % Superior Plus Corp % $ 1, % 2.76% Westshore Terminals Income Fund % $ % 2.76% Fort Chicago Energy Partners % $ 1, % 2.76% Parkland Income Fund % $ % Pembina Pipeline Income Fund % $ 2, % 2.76% Inter Pipeline Fund % $ 2, % Gaz Metropolitan & Co % $ % 2.76% Keyera Facilities Income Fund % $ 1, % Infrastructure Total 20.49% 24.83% Note: (1) Yield is calculated using the most recent distribution paid by the issuer annualized, divided by the closing price on the TSX as at January 15,