GLOBAL DIVERSIFIED INVESTMENT GRADE INCOME TRUST II

Transcription

1 All disclosure contained in a supplemented PREP prospectus that is not contained in the base PREP prospectus will be incorporated by reference into the base PREP prospectus as of the date of the supplemented PREP prospectus. This prospectus constitutes a public offering of these securities only in those jurisdictions where they may be lawfully offered for sale and therein only by persons permitted to sell such securities. No securities commission or similar regulatory authority in Canada has in any way passed upon the merits of the securities offered hereunder and any representation to the contrary is an offence. Initial Public Offering SUPPLEMENTED PREP PROSPECTUS March 4, 2005 GLOBAL DIVERSIFIED INVESTMENT GRADE INCOME TRUST II FIXED/RESETTING RATE UNITS, SERIES Maximum: $149,500,000 (14,950,000 Units) Minimum: $43,500,000 (4,350,000 Units) Global Diversified Investment Grade Income Trust II (the Trust ), a limited purpose income trust established under the laws of Ontario, proposes to issue and sell to purchasers pursuant to this prospectus transferable and redeemable fixed/resetting rate trust units, Series (the Units ), each of which represents an undivided beneficial interest in the underlying Trust assets. The purpose of the Trust is to provide holders of Units (the Unitholders ) with an economic interest in credit default swap agreements (the Credit Exposures ) in respect of four global diversified portfolios (collectively the Portfolio ) of mortgage-backed securities, asset-backed securities, structured finance securities, synthetic corporate exposures and other fixed-income securities (the Reference Obligations ). The Portfolio will have the following characteristics as of the closing date of this offering (the Closing Date ): (i) the four portfolios included in the Portfolio will contain a total of 249, 161, 208 and 619 Reference Obligations, respectively; (ii) at least 65% of the Reference Obligations in each portfolio will be rated AAA by Standard & Poor s Service, a division of The McGraw-Hill Companies, Inc. ( ), AAA by Moody s Investors Service, Inc ( Moody s ), AAA by Fitch, Inc. ( Fitch ) or AAA by Dominion Bond Service Limited ( DBRS ); (iii) no Reference Obligations will be rated lower than A- by, A3 by Moody s, A- by Fitch or A(low) by DBRS; and (iv) these portfolios will have a weighted average default probability equivalent to a rating of AA, AA, AA- and AA-, respectively, by.

2 The Trust s principal objectives are: (i) to provide Unitholders with a fixed rate stream of monthly distributions which are intended to equal $ per Unit (approximately $ per annum) up to on or about March 2, 2010 and, thereafter, a fixed rate stream of monthly distributions reset every five calendar years (the date of every such reset, including March 2, 2010, being a Reset Date ) intended to equal the five-year Government of Canada bond rate plus 4.0 to 4.5% (the Target Distributions ), consisting initially of capital reimbursements which will reduce the adjusted cost base of the Units purchased under this offering until such adjusted cost base is reduced to zero and, thereafter, of income payments; and (ii) to repay to Unitholders on the Reset Date falling on or after March 2, 2010 on which the Financial Contract (as defined below) is terminated by Silverstone Trust (such date being the Maturity Date ) an amount per Unit equal to the original subscription price of the Units (being $10.00 per Unit). To meet its objectives, the Trust will enter into three credit default swap agreements (collectively the Financial Contract ) with Silverstone Trust, a limited purpose trust established under the laws of Ontario ( Silverstone ), to provide the Unitholders with an economic interest in the Credit Exposures in respect of the Portfolio. The Trust s obligations under the Financial Contract will be collateralized by term financial instruments (the Permitted Investments ). The terms of the Financial Contract will reflect the terms of three Credit Exposures ( Credit Exposures A, B and C ) between Silverstone and Deutsche Bank AG ( Deutsche Bank ). See The Trust Investment Objectives and Strategy of the Trust, The Financial Contract and Deutsche Bank AG and Winchester Capital. Silverstone will also enter into a fourth Credit Exposure, rated AAA by and DBRS, with Deutsche Bank ( Credit Exposure D ). Credit Exposure D will be partially collateralized by other term financial instruments rated AAA by and DBRS (the AAA Collateral ). The Financial Contract will not be rated by any rating agencies. The assets of Silverstone will consist primarily of (i) Credit Exposures relating to the Reference Obligations in the Portfolio and (ii) the AAA Collateral. Deutsche Bank, acting through Winchester Capital, its principal finance unit which specializes in structured finance assets, will make decisions concerning the composition of the Portfolio, including the composition of certain Reference Obligations in the Portfolio and the addition and removal of Reference Obligations to or from the Portfolio, subject to certain investment restrictions. See Silverstone The Portfolio and Deutsche Bank AG and Winchester Capital. Any changes to the composition of the Portfolio made by Winchester Capital will be made solely in furtherance of Deutsche Bank s trading strategy and may have a positive or negative impact on the credit performance of the Portfolio and the Credit Exposures. Any such changes in the composition of the Portfolio or other actions undertaken by Deutsche Bank will not require the approval of or consultation with Silverstone, the Trust or the Unitholders. Moreover, irrespective of the amount of losses sustained in respect of the Credit Exposures, at no time shall Deutsche Bank, whether acting through Winchester Capital or otherwise, have any obligation to act in, or take account of, the interests of Silverstone, the Trust or the Unitholders. Deutsche Bank, whether acting through Winchester Capital or otherwise, is not acting as a fiduciary for, or an advisor to, Silverstone, the Trust or the Unitholders in respect of any aspect of this transaction. From the Closing Date until the Maturity Date, the Winchester Capital unit of Deutsche Bank will be required to maintain an unhedged exposure to Reference Obligations in the portfolios in an amount at least equal to 25% of the Outstanding Amount of Credit Exposures A, B and C. Consequently, the Winchester Capital unit of Deutsche Bank will be exposed to this extent, along with Unitholders, to losses arising from Credit Events occurring with respect to Reference Obligations in the portfolios during the term of the transaction. See Deutsche Bank AG and Winchester Capital. All Credit Exposures will be fully hedged to the Canadian dollar until the Maturity Date. All or part of such hedge will need to be terminated, subject to applicable termination costs, in the event of redemptions by Unitholders or an early redemption by the Trust. The Permitted Investments will pay a fixed rate of return until on or about March 2, 2010 after which date their rate of return will be reset for five years as of each Reset Date until the Maturity Date to reflect the then prevailing five-year interest rates for Permitted Investments. All or part of the Permitted Investments will need to be liquidated, subject to applicable costs, in the event of redemptions by Unitholders or an early redemption by the Trust. Silverstone will fund the AAA Collateral through the issuance of senior debt to financial institutions and collateralize Credit Exposures A, B and C by entering into the Financial Contract with the Trust. The obligations of the Trust under the Financial Contract will be collateralized by the Permitted Investments funded through the issuance of Units by the Trust

3 Silverstone expects to generate returns equal to (i) earnings on Credit Exposures A, B and C and the Permitted Investments, plus (ii) the spread between X) the earnings generated on Credit Exposure D and the AAA Collateral funded directly with senior debt from financial institutions and Y) the cost of such debt (net of all applicable costs, fees and expenses). The Trust expects to make distributions on the Units and to repay the subscription price of such Units at maturity from (i) first, the monthly sale to Silverstone of Permitted Investments, (ii) thereafter, ongoing payments received from Silverstone under the terms of the Financial Contract, and (iii) at maturity, a termination payment received from Silverstone under the terms of the Financial Contract (including any Residual Amount). Silverstone expects to make payments to the Trust under the terms of the Financial Contract from (i) first, the monthly sale to Deutsche Bank of Permitted Investments purchased from the Trust, (ii) thereafter, ongoing payments received from Deutsche Bank under the terms of the Credit Exposures and (iii) at maturity, a termination payment received from Deutsche Bank under the terms of Credit Exposures A, B and C. Units may be surrendered for redemption at any time prior to the 20 th Business Day preceding a quarterly Redemption Date or Annual Redemption Date, as applicable, subject to the conditions provided herein. Payment of the Redemption Price or Unwind Price will be made on the 10 th Business Day following the Redemption Date or Annual Redemption Date, as applicable. See Description of the Units Redemptions and Annual Redemption. There is currently no market through which the Units may be sold and purchasers may not be able to resell any Units purchased under this prospectus. The Toronto Stock Exchange (the TSX ) has conditionally approved the listing of the Units. Listing is subject to the Trust fulfilling all the requirements of the TSX on or before May 30, It is the intention of the Trust to authorize the commencement of the trading of the Units on the TSX on the Closing Date. On the Maturity Date, the Trust will redeem all outstanding Units at 100% of their then net asset value (the NAV of the Units ). See Description of the Units Redemption upon Maturity and Description of the Units Net Asset Value. Natcan Trust Company will be retained by the Trust to act as advisor of the Trust. Price: $10.00 per Unit Minimum Purchase: $1,000 (100 Units) Price to the Public (1) Agents Fees Proceeds to Trust (2) Per Unit... $10.00 $0.525 $9.475 Minimum Offering (3)... $43,500,000 $2,283,750 $41,216,250 Maximum Offering (3)... $149,500,000 $7,848,750 $141,651,250 (1) The offering price was established by negotiation between the Trustee on behalf of the Trust and the Agents. (2) Before deducting the expenses of this offering, estimated at $1,651,250 which, together with the Agents fees, will be paid by the Trust out of the proceeds of the offering. (3) There will be no closing unless a minimum of 4,350,000 Units are sold. In the opinion of Fasken Martineau DuMoulin LLP, counsel to the Trust and the Agents, provided that the Trust qualifies as a mutual fund trust within the meaning of the Income Tax Act (Canada) (the Tax Act ), the Units will be qualified investments under the Tax Act for trusts governed by registered retirement savings plans, registered retirement income funds, deferred profit sharing plans and registered education savings plans and will not constitute foreign property within the meaning of Part XI of the Tax Act. See Eligibility for Investment. There is no principal protection or guaranteed interest in respect of, or limit on the amount of the reduction that may be made to the original subscription price of the Units to be repaid to Unitholders on the Maturity Date or to the monthly cash distributions made on the Units. Although the Trust intends to make monthly cash distributions, these distributions are not assured. An investment in the Units is subject to a number of risks that should be considered carefully by an investor. See Risk Factors. An investment in the Units is appropriate only for investors who have the capacity to absorb a loss of some or all of their investment and who can withstand the effect of the monthly cash distributions not being made in any period or at all. The Trust is not considered a mutual fund pursuant to Canadian securities legislation and does not operate in accordance with the rules applicable to mutual funds enacted by the Canadian securities regulators. The Units are not deposits within the meaning of the Canada Deposit Insurance Corporation Act (Canada) and are not insured under - 3 -

4 provisions of that act or any other legislation. The Trust is not a trust company and does not carry on business as a trust company and, accordingly, the Trust is not registered under the trust company legislation of any jurisdiction. The credit ratings of the Reference Obligations and Credit Exposure D provided by rating agencies are not a recommendation to buy, sell or hold investments, and may be subject to revision or withdrawal at any time by the relevant rating agencies. While Credit Exposure D is rated by and DBRS, Credit Exposures A, B and C and the Units will not be rated by any rating agencies. National Bank Financial Inc., Canaccord Capital Corporation, Desjardins Securities Inc., Dundee Securities Corporation, Raymond James Ltd., Berkshire Securities Inc., First Associates Investments Inc., McFarlane Gordon Inc., Richardson Financial Partners Ltd. and Wellington West Capital Inc. (the Agents ) conditionally offer the Units, subject to prior sale, on a best efforts basis, if, as and when issued by the Trust and accepted by the Agents in accordance with the conditions contained in the Agency Agreement described under Plan of Distribution, and subject to the approval of certain legal matters by Fasken Martineau DuMoulin LLP, on behalf of the Trust and the Agents. See Plan of Distribution. OpenSky Capital, a division of National Bank Financial Inc., is the promoter of the Trust (the Promoter ). The Promoter has taken the initiative of organizing the Trust and of deciding to distribute the Units. Consequently, the Trust may be considered a connected issuer of National Bank Financial Inc. under applicable securities legislation. See Relationship between the Trust, Silverstone and the Agents. The Units do not represent an interest in, or an obligation of, Deutsche Bank, National Bank Financial Inc. or any affiliate thereof. Neither the Trust, nor the Unitholders, will have any recourse against Deutsche Bank, National Bank Financial Inc. or any affiliate thereof in respect of payments due to the Trust or the Unitholders. Subscriptions will be received for the Units offered hereby, subject to rejection or allotment in whole or in part, and the Agents reserve the right to close the subscription books at any time. Closing of this offering is expected to occur on or about March 11, 2005 but no later than March 31, Registrations and transfers of Units will be effected only through the Book-Entry System administered by The Canadian Depository for Securities Limited. A purchaser of Units will receive only a customer confirmation from a registered dealer which is a CDS Participant and from or through which Units are purchased. Beneficial owners of Units will not have the right to receive physical certificates evidencing their ownership of Units. See Description of the Units Registration and Transfer

5 TABLE OF CONTENTS Page ELIGIBILITY FOR INVESTMENT...5 PROSPECTUS SUMMARY...6 THE TRUST...25 SILVERSTONE...25 PRIORITY OF PAYMENTS...25 THE FINANCIAL CONTRACT...25 THE PORTFOLIO CALCULATION AGENT...25 MANAGEMENT OF THE TRUST...25 DEUTSCHE BANK AND WINCHESTER CAPITAL...25 DESCRIPTION OF THE UNITS...25 UNITHOLDER MATTERS...25 CANADIAN FEDERAL INCOME TAX CONSIDERATIONS...25 USE OF PROCEEDS...25 PLAN OF DISTRIBUTION...25 RELATIONSHIP BETWEEN THE TRUST, SILVERSTONE AND THE AGENTS...25 FEES AND EXPENSES...25 RISK FACTORS...25 LEGAL OPINIONS...25 PROMOTER OF THE TRUST...25 AUDITORS...25 Page CUSTODIAN, REGISTRAR AND TRANSFER AGENT MATERIAL CONTRACTS PURCHASER S STATUTORY RIGHTS AUDITORS REPORT...F-1 GLOBAL DIVERSIFIED INVESTMENT GRADE INCOME TRUST II...F-2 CERTIFICATE OF THE TRUSTEE AND THE PROMOTER... C-1 CERTIFICATE OF THE AGENTS... C-2 SCHEDULE A...S-1 PORTFOLIO 1...S-3 CREDIT EXPOSURE A...S-16 PORTFOLIO 2...S-17 CREDIT EXPOSURE B...S-26 PORTFOLIO 3...S-27 CREDIT EXPOSURE C...S-41 PORTFOLIO 4...S-42 CREDIT EXPOSURE D...S-68 ASSUMED RECOVERY LEVELS...S-69 SCHEDULE B...S-70 SCHEDULE C...S-79 SCHEDULE D...S-81 ELIGIBILITY FOR INVESTMENT In the opinion of Fasken Martineau DuMoulin LLP, in accordance with legislation in effect at the date hereof, provided that the Trust qualifies as a mutual fund trust within the meaning of the Tax Act, Units will be qualified investments under the Tax Act for trusts governed by registered retirement savings plans, registered retirement income funds, deferred profit sharing plans and registered education savings plans. In the opinion of such counsel, provided that the Trust qualifies as a mutual fund trust within the meaning of the Tax Act, and based upon information provided by the Trust, the Units will not constitute, on the Closing Date, foreign property within the meaning of Part XI of the Tax Act

6 PROSPECTUS SUMMARY The following summary does not purport to be complete and is qualified in its entirety be reference to the detailed information appearing elsewhere in this prospectus. Capitalized terms not defined in this summary are defined in the Glossary in Schedule D or elsewhere in the prospectus. Unless indicated otherwise, all amounts in this prospectus are expressed in Canadian dollars. The Trust Global Diversified Investment Grade Income Trust II is a limited purpose income trust established under the laws of Ontario. The Trust proposes to issue and sell to purchasers pursuant to this prospectus transferable and redeemable fixed/resetting rate trust units, Series , each of which represents an undivided beneficial interest in the underlying Trust assets. The Offering Issuer: Global Diversified Investment Grade Income Trust II (the Trust ). Offering: A minimum of 4,350,000 ($43,500,000) and a maximum of 14,950,000 ($149,500,000) transferable and redeemable fixed/resetting rate trust units, Series (the Units ). Use of Proceeds: The net proceeds to the Trust from the maximum offering of the Units are estimated to be $140,000,000, ($40,000,000 in the case of the minimum offering), and will be invested in Permitted Investments pursuant to the Financial Contract. The Permitted Investments will be pledged to secure the Trust s obligations to Silverstone under the Financial Contract. See Use of Proceeds. Financial Contract: Pursuant to the Financial Contract, the Trust will acquire an economic interest in credit default swap agreements (the Credit Exposures ) in respect of four global diversified portfolios (collectively the Portfolio ) of mortgage-backed securities, asset-backed securities, structured finance securities, synthetic corporate exposures and other fixed-income securities (the Reference Obligations ). See The Financial Contract and Silverstone The Credit Exposures. See also Schedule A for a detailed description of the Portfolio and the Credit Exposures. Price: $10.00 per Unit. Minimum Purchase: $1,000 (100 Units). Maturity Date: On the Reset Date (as defined below) falling on or after March 2, 2010 on which the Financial Contract (as defined below) is terminated by Silverstone (such date being the Maturity Date ), the Trust will redeem all outstanding Units at 100% of the NAV of the Units at such date. The Maturity Date will not be later than the date falling on the 40 th anniversary date of the Closing Date, subject to a postponement further to a Credit Event under the Financial Contract or a Financial Market Disruption. See Description of the Units Redemption upon Maturity. Objectives of the Trust: The Trust s principal objectives are: (i) to provide Unitholders with a fixed rate stream of monthly distributions which are intended to equal $ per Unit (approximately $ per annum) up to on or about March 2, 2010 and, thereafter, a fixed rate stream of monthly distributions reset every five calendar years (the date of every such reset, including March 2, 2010, being a Reset Date ) intended to equal the five-year Government of Canada bond rate plus 4.0% to 4.5% - 6 -

7 Silverstone s Investment Strategy: (the Target Distributions ), consisting initially of capital reimbursements which will reduce the adjusted cost base of the Units purchased under this offering until such adjusted cost base is reduced to zero and, thereafter, of income payments; and (ii) to repay to Unitholders on a Reset Date falling on the Maturity Date an amount per Unit equal to the original subscription price of the Units (being $10.00 per Unit). The Permitted Investments will pay a fixed rate of return until on or about March 2, 2010 after which date their rate of return will be reset for five years as of each Reset Date until the Maturity Date to reflect the then prevailing five-year interest rates for Permitted Investments. All or part of the Permitted Investments will need to be liquidated, subject to applicable costs, in the event of redemptions by Unitholders or an early redemption by the Trust. The monthly cash distributions made by the Trust are not assured. In addition, there are no assurances that the subscription price of the Units will be repaid in full on the Maturity Date. Unitholders will only be able to determine the final return on the Units, if any, upon the Maturity Date (or upon the Termination Date if there is any Holdback Amount). Silverstone will (i) enter into the Credit Exposures relating to the Reference Obligations in the Portfolio and (ii) acquire term financial instruments partially collateralizing Credit Exposure D (the AAA Collateral ). Silverstone will fund the AAA Collateral through the issuance of senior debt to financial institutions and collateralize Credit Exposures A, B and C by entering into the Financial Contract with the Trust. The obligations of the Trust under the Financial Contract will be collateralized by the Permitted Investments funded through the issuance of Units by the Trust. Silverstone expects to generate returns equal to (i) earnings on Credit Exposures A, B and C and the Permitted Investments funded indirectly through the issuance of Units by the Trust, plus (ii) the spread between X) the earnings generated on Credit Exposure D and the AAA Collateral funded directly with senior debt from financial institutions and Y) the cost of such debt (net of all applicable costs, fees and expenses). Silverstone expects to make payments to the Trust under the terms of the Financial Contract from (i) first, the monthly sale to Deutsche Bank of Permitted Investments purchased from the Trust, (ii) thereafter, ongoing payments received from Deutsche Bank under the terms of the Credit Exposures and (iii) at maturity, a termination payment received from Deutsche Bank under the terms of Credit Exposures A, B and C

8 Illustration of Silverstone s Investment Strategy (A) Credit Exposure D to Credit Exposures A, B and C ratio as of the Closing Date (B) Average Credit Exposure margin over applicable benchmark rate % (C) Average all-in senior debt margin over applicable benchmark rate % (D) Average Credit Exposure net spread (B minus C) % (E) Net spread (A multiplied by D) % (F) Earnings on Permitted Investments % (G) Silverstone Net return (E plus F) % This illustration is representative of Silverstone s general investment strategy until on or about March 2, Senior debt margins (C) shown are as of March 2, Future senior debt margins may differ materially. Earnings on Permitted Investments are based on an estimate as of March 2, 2005; actual earnings may differ. The Trust s Investment Strategy: The Portfolio: The Trust will provide Unitholders, through the Financial Contract, with an economic interest in the Credit Exposures. The obligations of the Trust under the Financial Contract will be collateralized by the Permitted Investments. To reach this objective, the Trust will enter into the Financial Contract with Silverstone. The terms of the Financial Contract will reflect the terms of three Credit Exposures ( Credit Exposures A, B and C ) between Silverstone and Deutsche Bank. Silverstone will also enter into a fourth Credit Exposure, rated AAA by and DBRS, with Deutsche Bank ( Credit Exposure D ). Credit Exposure D will be partially collateralized by term financial instruments rated AAA by and DBRS (the AAA Collateral ). The Trust expects to make distributions on the Units and to repay the subscription price of such Units at maturity from (i) first, the monthly sale to Silverstone of Permitted Investments, (ii) thereafter, ongoing payments received from Silverstone under the terms of the Financial Contract, and (iii) at maturity, a termination payment received from Silverstone under the terms of the Financial Contract (including any Residual Amount). Silverstone expects to make payments to the Trust under the terms of the Financial Contract from (i) first, the monthly sale to Deutsche Bank of Permitted Investments purchased from the Trust, (ii) thereafter, ongoing payments received from Deutsche Bank under the terms of the Credit Exposures and (iii) at maturity, a termination payment received from Deutsche Bank under the terms of Credit Exposures A, B and C. The Reference Obligations comprising the Portfolio will consist of highlyrated mortgage-backed securities, asset-backed securities, structured finance securities, synthetic corporate exposures and other fixed-income securities. The Portfolio will have the following characteristics as of the Closing Date: (i) the four portfolios included in the Portfolio will contain a total of 249, 161, 208 and 619 Reference Obligations, respectively; (ii) at least 65% of the Reference Obligations in each portfolio will be rated AAA by, AAA by Moody s, AAA by Fitch or AAA by DBRS; - 8 -

9 The Credit Exposures: (iii) (iv) no Reference Obligations will be rated lower than A- by, A3 by Moody s, A- by Fitch or A(low) by DBRS; and these portfolios will have a weighted average default probability equivalent to a rating of AA, AA, AA- and AA-, respectively, by. See Silverstone The Portfolio and Deutsche Bank AG and Winchester Capital. See also Schedule A for a detailed description of the Portfolio and the Credit Exposures. The Credit Exposures to the Portfolio will be entered into between Silverstone and Deutsche Bank. Deutsche Bank, acting through Winchester Capital, will make decisions concerning the composition of the Portfolio, including the composition of certain Reference Obligations in the Portfolio and the addition and removal of Reference Obligations to or from the Portfolio, subject to certain investment restrictions. See Silverstone The Portfolio and Deutsche Bank AG and Winchester Capital. Any changes to the composition of the Portfolio made by Winchester Capital will be made solely in furtherance of Deutsche Bank s trading strategy and may have a positive or negative impact on the credit performance of the Portfolio and the Credit Exposures. Any such changes in the composition of the Portfolio or other actions undertaken by Deutsche Bank will not require the approval of or consultation with Silverstone, the Trust or the Unitholders. Moreover, irrespective of the amount of losses sustained in respect of the Credit Exposures, at no time shall Deutsche Bank, whether acting through Winchester Capital or otherwise, have any obligation to act in, or take account of, the interests of Silverstone, the Trust or the Unitholders. Deutsche Bank, whether acting through Winchester Capital or otherwise, is not acting as a fiduciary for, or an advisor to, Silverstone, the Trust or the Unitholders in respect of any aspect of this transaction. From the Closing Date until the Maturity Date, the Winchester Capital unit of Deutsche Bank will be required to maintain an unhedged exposure to Reference Obligations in the portfolios in an amount at least equal to 25% of the Outstanding Amount of Credit Exposures A, B and C. Consequently, the Winchester Capital unit of Deutsche Bank will be exposed to this extent, along with Unitholders, to losses arising from Credit Events occurring with respect to Reference Obligations in the portfolios during the term of the transaction. See Deutsche Bank AG and Winchester Capital. As part of its ongoing trading businesses (and except to the extent described above in respect of Credit Exposures A, B and C), Deutsche Bank is not restricted from and may hold positions which serve to hedge its exposure to the Portfolio or to the Reference Obligations in the Portfolio. As a result of such positions, Deutsche Bank may not suffer any loss, or may even realize a gain, if the Reference Obligations in the Portfolio deteriorate, even though Unitholders themselves may suffer a loss. Deutsche Bank will have the right to terminate the Credit Exposures on any Reset Date. See Silverstone The Credit Exposures. Silverstone will have the right to terminate the Financial Contract on any Reset Date accordingly. See The Financial Contract. Moreover, Deutsche Bank, as buyer of protection under Credit Exposure D, will have the option in certain specified circumstances to request an increase in the amount of collateral provided by Silverstone in respect of Credit Exposure D. These circumstances include the - 9 -

10 Risk of Loss for Unitholders upon Credit Events: Credit Exposure occurrence of Credit Events in respect of the Reference Obligations for Credit Exposure D and increases in the market cost of obtaining credit protection equivalent to that provided to the Bank under Credit Exposure D. Deutsche Bank will have the right to terminate Credit Exposure D if Silverstone refuses or is unable to provide such additional collateral. See Silverstone The Credit Exposures. A termination of Credit Exposure D in such circumstances would result in material losses for Silverstone and consequently for the Trust and Unitholders as well. See Risk Factors. As of the Closing Date, Credit Exposure D and the AAA Collateral funded through senior debt by Silverstone are rated AAA () and AAA (DBRS). The rating of Credit Exposure D is based on a number of factors, including the diversification and credit quality of the Portfolio as well as the level of defaults net of recoveries that the Portfolio can tolerate without incurring losses on Credit Exposure D. The credit ratings of the Reference Obligations and Credit Exposure D provided by rating agencies are not a recommendation to buy, sell or hold investments, and may be subject to revision or withdrawal at any time by the relevant rating agencies. While Credit Exposure D is rated by and DBRS, Credit Exposures A, B and C and the Units will not be rated by any rating agencies. Portfolio Portfolio Size Credit Exposure Notional Amount The credit performance of the Credit Exposures, and therefore the credit performance of the Units, will be directly related to the credit performance of the Reference Obligations in the Portfolio. The main characteristics of the Credit Exposures are summarized in the table below (on an approximate basis, assuming notional amounts equal to an aggregate Initial Amount of $140,000,000 for Credit Exposures A, B and C). For a more detailed description of the Portfolio and the Credit Exposures, see Schedule A. Tranche Thickness (1) Portfolio Expected Loss (2) Implied Tranche Coverage (3) (4) A 1 $3,578,947,368 $34,000, % 0.158% 6.01x Not rated B 2 $3,680,000,000 $46,000, % 0.167% 7.49x Not rated C 3 $4,000,000,000 $60,000, % 0.152% 9.87x Not rated Total: $11,258,947,368 Average: 7.79x D 4 $80,000,000,000 $20,000,000, % 0.221% x AAA & AAA ( and DBRS) Total: $80,000,000,000 Average: x (1) Defined as the applicable Credit Exposure notional amount as a percentage of the Portfolio size. (2) Using the expected portfolio default rate for the Portfolio assuming a five-year time horizon (see Schedule B) and assuming recovery levels provided in Assumed Recovery Levels herein. (3) Defined as the applicable Tranche Thickness divided by the applicable Portfolio Expected Loss (See Schedule B). (4) Expected rating. Subject to the qualifications contained elsewhere in this prospectus (see Risk Factors ), if losses, net of any recoveries, are incurred as a result of Credit Events in the Portfolio, the notional amount of the Credit Exposures, and therefore the amount that will be repaid to Unitholders by the Trust on the Maturity Date, will decline, as will monthly distributions on the Units. These amounts will decline to zero if such losses equal or exceed, in aggregate, the Initial Amount of the Credit Exposures (the maximum loss on each of Credit Exposures A, B, C and D being limited to the notional amount of each such

11 Hedging of the Credit Exposures and Permitted Investments: Credit Exposure). The credit protection provided under the Credit Exposures is a relatively small amount in relation to the size of the Portfolio in respect of which such credit protection is being provided. Relatively small percentage losses on the Portfolio will result in proportionally larger tranche percentages being deducted from the Initial Amount in satisfaction of credit protection obligations under the Credit Exposures. Moreover, a partial or total loss may be incurred on Credit Exposures A, B and C without a total loss, or any loss, being incurred by an investor holding a more senior tranche of the credit exposures to the Portfolio, including providers of the senior debt used to fund the AAA Collateral collateralizing Credit Exposure D. Hence, Unitholders may suffer a partial or total loss on the Units without the financial institutions providing senior debt to Silverstone incurring any losses in respect of Credit Exposure D. Unitholders will suffer a total loss before such senior debt providers suffer any loss. A Credit Event will be, for a given Credit Exposure, the occurrence of one of the following events in respect of a Reference Obligation in the Portfolio: Bankruptcy, Failure to Pay and any other Loss Event in respect of such Reference Obligation. See The Financial Contract. The Trust s rights and obligations arise solely under the Financial Contract. Deutsche Bank, whether acting through Winchester Capital or otherwise, is not acting as a fiduciary for, or an investment advisor to, Silverstone, the Trust or the Unitholders in respect of any aspect of this offering. All Credit Exposures will be fully hedged to the Canadian dollar until the Maturity Date. All or part of such hedge will need to be terminated, subject to applicable termination costs, in the event of redemptions by Unitholders or an early redemption by the Trust. More specifically, any such redemption would require an unwind under the Unwind Agreement (and under the unwind agreement between Silverstone and Deutsche Bank relating to the corresponding Credit Exposures A, B and C) and a termination of the hedging agreements protecting Unitholders against exchange rate variations. Such a termination would expose redeeming (or redeemed) Unitholders to hedge termination costs reflecting such exchange rate variations and other changes in market conditions, unwind costs, as well as any unamortized issuance costs. The Permitted Investments will pay a fixed rate of return until on or about March 2, 2010 after which date their rate of return will be reset for five years as of each Reset Date until the Maturity Date to reflect the then prevailing five-year interest rates for Permitted Investments. All or part of the Permitted Investments will need to be liquidated, subject to applicable costs, in the event of redemptions by Unitholders or an early redemption by the Trust. Such a liquidation would expose Unitholders to interest rate variations and other changes in market conditions, liquidation costs, as well as any unamortized issuance costs. See The Financial Contract Unwind Agreement and Silverstone Hedging of the Credit Exposures and Permitted Investments

12 Distributions on the Units: Redemptions: The Trust intends to pay a fixed rate stream of monthly distributions which are intended to equal $ per Unit ($ per annum) up to on or about March 2, 2010 and, thereafter, a fixed rate stream of monthly distributions reset every five calendar years (the date of every such reset being a Reset Date) intended to equal the five-year Government of Canada bond rate plus 4.0 to 4.5% (the Target Distributions ). The Trust intends to pay such monthly distributions on the applicable Distribution Date to Unitholders of record on the applicable monthly Record Date. The initial distribution is anticipated to be payable on the 10th Business Day of April, 2005 and is targeted to be approximately $ per Unit. The distributions will first consist of capital reimbursements which will reduce the adjusted cost base of the Units purchased under this offering until such adjusted cost base is reduced to zero and, thereafter, of income payments. There can be no assurance that the Trust will make distributions in such amount on any dates. See Risk Factors. Units may be surrendered to the Administrative Agent for redemption at any time prior to the 20 th Business Day preceding a quarterly Redemption Date. Subject to the right of the Trust to suspend redemptions in certain circumstances, Units surrendered for redemption will be redeemed on such Redemption Date at the Redemption Price. Payment of the Redemption Price will be made on the 10 th Business Day following the Redemption Date. Units may also be surrendered to the Administrative Agent for redemption at any time prior to the 20 th Business Day preceding an Annual Redemption Date. Subject to the right of the Trust to suspend redemptions in certain circumstances, Units surrendered for redemption will be redeemed on such Annual Redemption Date at the Unwind Price. Payment of the Unwind Price will be made on the 10 th Business Day following the Annual Redemption Date. See Description of the Units Redemptions and Annual Redemption. Permitted Investments: Permitted Investments will consist of obligations or deposits in Canadian dollars that are any of: (i) negotiable obligations of the Government of Canada that are depository bills or notes within the meaning of the Depository Bills and Notes Act (Canada) ( DBNA ), evidenced through CDS; or (ii) deposits with one or more Canadian banks listed in Schedule I of the Bank Act (Canada); or (iii) negotiable obligations of one or more Canadian banks listed in Schedule I of the Bank Act (Canada) that are depository bills or notes within the meaning of the DBNA, evidenced through CDS. The Canadian banks mentioned in (ii) and (iii) above may be affiliated with one or more of the Agents or with the Promoter. All Permitted Investments acquired by the Trust as of the Closing Date will be rated at least A by, A2 by Moody s, A by Fitch or A by DBRS. The Permitted Investments acquired by the Trust as of the Closing Date will pay a fixed rate of return until on or about March 2, 2010 after which date the rate of return will be reset for five years as of each Reset Date until the Maturity Date to reflect the then prevailing five-year interest rates for Permitted Investments. The Trust expects to invest the net proceeds of this offering into Permitted

13 Investments of a single issuer of the type described in (ii) and (iii) above. Security Arrangements: Trustee: Administrative Agent: Advisor: Transfer Agent, Registrar and Custodian: Income Tax: Book-Entry System: The Trust will guarantee the obligations of Silverstone to Deutsche Bank under Credit Exposures A, B and C pursuant to a guarantee (the Guarantee ). The obligations of the Trust under the Guarantee and the Indemnity Agreement will be secured by a charge on the Permitted Investments pursuant to a security agreement between the Trust and Deutsche Bank (the Security Agreement ). Silverstone will charge to Deutsche Bank its rights in the Financial Contract, including its rights in the Permitted Investments pledged to it by the Trust, and the AAA Collateral to secure its obligations under the Credit Exposures. Silverstone s assets will also be charged to financial institutions under a subordinate charge to secure its obligations under the senior debt arrangements. The Trust, and therefore Unitholders, will not have any proprietary interest in, or charge on, any of Silverstone s assets under the terms of the Financial Contract. The relative priorities of the security of Deutsche Bank, the holders of senior debt and Silverstone over the assets of Silverstone and the Trust will be set out in an intercreditor agreement (the Intercreditor Agreement ). Global DIGIT II Management Inc. will act as trustee for the Trust. Metcalfe & Mansfield Alternative Investments II Corp. will act as issuer trustee for Silverstone. See Management of the Trust The Trustee. The Trustee will delegate its responsibility as administrative agent of the Trust to Natcan Trust Company. The Administrative Agent will be responsible for the day-to-day administration of the Trust. See Management of the Trust The Administrative Agent. Natcan Trust Company will be retained as investment advisor of the Trust. Natcan Trust Company will act as transfer agent and registrar of the Units and custodian of the assets of the Trust. See Custodian, Registrar and Transfer Agent. Unitholders will be taxable on any amount of net income, including taxable capital gains paid or payable to such Unitholders in the year. Dispositions of the Units by a Unitholder will trigger a capital gain (or a capital loss) to the extent that the proceeds of disposition exceed (or are less than) the adjusted cost base of the Units. On the Maturity Date, Unitholders will have to include in their income the pro rata portion of the income earned by the Trust, which income will correspond to the excess of the Outstanding Amount over the Outstanding Collateral Amount minus any Holdback Amount plus any Residual Amount (and minus any loss carry forwards). The Trust intends to make distributions consisting initially of capital reimbursements which will reduce the adjusted cost base of the Units purchased under this offering until such adjusted cost base is reduced to zero and, thereafter, of income payments. The adjusted cost base of the Units purchased under this offering is therefore expected to be less than the issue price per Unit prior to the Maturity Date. See Canadian Federal Income Tax Considerations. The Units will be evidenced by one nominative global certificate held by CDS, or on its behalf, as registered holder of the Units. Registration of the interests and transfers of the Units will be made only through the Book-Entry System of CDS. No Unitholders will be entitled to any certificate or other instrument

14 Risk Factors: from the Trust or CDS evidencing the ownership thereof and no Unitholders will be shown on the records maintained by CDS, except through an agent who is a CDS Participant. See Description of the Units Registration and Transfer. An investment in Units is subject to certain risks, including: (i) there can be no assurance that the Trust will be able to achieve its distribution or subscription price repayment objectives at any time. In particular, the following events may result in a decrease or termination of the monthly distributions on, and a decrease, possibly to zero, of the NAV and/or the subscription price repayment of, the Units: the occurrence of Credit Events; the downgrade of Reference Obligations; changes in the cost of senior debt issued by Silverstone; changes in the amount of collateral funded by Silverstone; the ability of Silverstone to issue senior debt; the ability of Silverstone to withhold amounts received from Deutsche Bank under the Credit Exposures (and which would in turn be payable to the Trust under the Financial Contract) and use such amounts to make payments to the financial institutions providing senior indebtedness to Silverstone or as otherwise provided in the trust indenture governing such senior indebtedness; and the ongoing costs incurred by Silverstone and the Trust; (ii) there is no guarantee that the Credit Exposures and the Units will yield any return. The Credit Exposures and the Units could be subject to losses, including the fact that if Credit Events occur with respect to the Reference Obligations in the Portfolio the notional amount of the Credit Exposures and the amounts payable on Units may be reduced, possibly to zero. Distributions on the Units may also be reduced materially or terminated if Reference Obligations are downgraded; (iii) the use of senior debt by Silverstone to fund Credit Exposure D and the investment of some of its assets in term financial instruments, including the AAA Collateral, could increase Unitholder s losses and may result in the termination of the transaction as well as losses for Silverstone and consequently for the Trust and the Unitholders as well; (iv) Silverstone may be unable to renew or replace its short-term senior debt or do so in sufficient amounts and on terms which allow it to generate a positive spread between (i) the earnings generated on Credit Exposure D and the AAA Collateral funded directly with senior debt from financial institutions (including any additional collateral required to be provided by Silverstone) and (ii) the cost of such debt (net of all applicable costs, fees and expenses), which may (i) lead to an early redemption of the Units and force Silverstone to replace, amend, sell or terminate Credit Exposures in possibly adverse market conditions which could negatively impact the NAV of the Units or (ii) force Silverstone to accelerate principal repayments to senior financial institutions and make other payments under the trust indenture relating to such indebtedness and suspend any payments to the Trust in relation to Credit Exposures A, B and C under the Financial Contract; (v) the credit performance of the Credit Exposures, and therefore the credit performance of the Units, will be directly related to the credit performance of the Reference Obligations in the Portfolio. To the extent that cumulative losses, net of any recoveries, are incurred as a

15 (vi) (vii) (viii) (ix) (x) result of Credit Events in the Portfolio, the notional amount of the Credit Exposures, and therefore the amount that will be repaid to Unitholders by the Trust on the Maturity Date, will decline, as will monthly distributions on the Units. These amounts will decline to zero if such losses equal or exceed, in aggregate, the Initial Amount of the Credit Exposures (the maximum loss on each of Credit Exposures A, B, C and D being limited to the notional amount of each such Credit Exposure); there can be no assurance that the Trust will make distributions in the amounts or on the dates set out in this prospectus. The Trust s ability to make distributions may be negatively affected by any Credit Events on a Credit Exposure or by the downgrade of one or more Reference Obligations in the Portfolio; the Trust will only redeem the Units if it has the financial resources to do so pursuant to the application of the Unwind Agreement, the use of any junior loan facility or the use of any cash reserves available to it on any applicable Redemption Date or Annual Redemption Date, taking into consideration all other existing or future financial commitments or undertakings; the NAV of the Units will fluctuate based on a number of factors such as general market conditions, interest rates, credit spreads, the cost of Silverstone s senior debt and the ability of Silverstone to issue such debt, the performance and creditworthiness of the Reference Obligations, the Credit Exposures and the Permitted Investments and the Aggregate Loss Determination Amount; the credit protection provided under the Credit Exposures is a relatively small amount in relation to the size of the Portfolio in respect of which such credit protection is being provided. Relatively small percentage losses on the Portfolio will result in proportionally larger tranche percentages being deducted from the Initial Amount in satisfaction of credit protection obligations under the Credit Exposures. Moreover, a partial or total loss may be incurred on the Credit Exposures without a total loss, or any loss, being incurred by an investor holding a more senior tranche of credit exposures to the Portfolio, including providers of the senior debt used to fund the AAA Collateral collateralizing Credit Exposure D. Hence, Unitholders may suffer a partial or total loss on the Units without the financial institutions providing senior debt to Silverstone incurring any losses in respect of Credit Exposure D. Unitholders will suffer a total loss before such senior debt providers suffer any loss; the proceeds of the issue of Units will be invested in negotiable obligations of the Government of Canada or negotiable obligations of or deposits with one or more Canadian banks listed in Schedule I to the Bank Act (Canada) and the NAV of the Units and the Unwind Price of the Units will be dependent upon the creditworthiness of any such counterparty or counterparties. A loss on the Permitted Investments would result in a loss on the Units. Deutsche Bank s obligation to make payments to Silverstone under the Credit Exposures and Silverstone s obligation to make payments to the Trust under the Financial Contract will terminate if there is a default under the Permitted Investments, including Permitted Investments sold to

16 fund the monthly distributions on the Units, or on the AAA Collateral, including any AAA Collateral purchased by Deutsche Bank pursuant to Credit Exposure D, leading to an unwinding of the transaction; (xi) the use of hedging arrangements will not insulate Silverstone, and therefore the Trust and Unitholders, from interest rate risks and currency exchange risks in case of redemptions by Unitholders or an early redemption by the Trust. In addition, after on or about March 2, 2010, the rate of return of the Permitted Investments will be reset for five years as of each Reset Date until the Maturity Date to reflect the then prevailing five-year interest rates for Permitted Investments. Monthly distributions on the Units after on or about March 2, 2010 will therefore vary in accordance with rates payable on the Permitted Investments; (xii) the Units will be redeemed upon the termination of the Financial Contract by Silverstone further to a termination of the Credit Exposures by Deutsche Bank, which will not allow Unitholders to continue their economic exposure to the Credit Exposures and generate the return that they would have generated if the Financial Contract had continued. Such termination could take place if Deutsche Bank is able to finance credit protection for the Portfolio at more favourable financial terms. The Units could also be redeemed in other circumstances described under Description of the Units Early Redemption. A redemption of the Units in such circumstances could lead to material losses being absorbed by Unitholders; (xiii) the reliance by the Trust and the Unitholders on the creditworthiness of Silverstone and Deutsche Bank; (xiv) the reliance on rating agencies opinions with respect to the quality of the Reference Obligations, the Credit Exposures and the Portfolio and the fact that no other independent investigation has been made as to the credit quality, terms and other characteristics of such Reference Obligations, the Credit Exposures or the Portfolio; (xv) there can be no assurance that Credit Exposure D will maintain its rating by and DBRS, and any lowering or withdrawal of such rating may have a significantly negative effect on the NAV per Unit, the price of the Units, the distributions made under the Units and the return to Unitholders, as well as the ability of Silverstone to issue senior debt at economic levels or at all (including a partial or total loss being incurred by Unitholders); (xvi) the absence of recourse of Unitholders against the Reference Obligations, the Portfolio or the Credit Exposures resulting from the absence of a proprietary interest of the Trust in such assets; (xvii) the absence of recourse against Silverstone, Deutsche Bank, the Promoter, the Agents or any affiliates thereof, the fact that the Trust will not have any proprietary interest in, or charge on, any of Silverstone s assets under the terms of the Financial Contract and the fact that there is no principal protection or guaranteed interest in respect of, or limit on the amount of the reduction that may be made to the original subscription price of the Units or to the distributions made on the Units; (xviii) the reliance on the Trustee, Metcalfe & Mansfield Alternative