PROSPECTUS. PineBridge Investment Grade Preferred Securities Fund

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1 No securities regulatory authority has expressed an opinion about these securities and it is an offence to claim otherwise. This prospectus constitutes a public offering of these securities only in those jurisdictions where they may be lawfully offered for sale and only by persons permitted to sell these securities. These securities have not been and will not be registered under the United States Securities Act of 1933, as amended, the Investment Company Act of 1940, as amended or any state securities laws and may not be offered or sold in the United States or to U.S. persons except pursuant to an exemption from the registration requirements of those laws. See Plan of Distribution. PROSPECTUS Initial Public Offering May 28, 2014 PineBridge Investment Grade Preferred Securities Fund Maximum $100,000,000 (4,000,000 Units) PineBridge Investment Grade Preferred Securities Fund (the Fund ) is a closed-end investment fund established under the laws of the Province of Ontario that proposes to issue transferable units of the Fund (the Units ) at a price of $25.00 per Unit (the Offering ). The investment objectives of the Fund are to: (i) provide holders of the Units (the Unitholders ) with monthly cash distributions; (ii) preserve the net asset value per Unit; and (iii) reduce the risk of rising interest rates by managing Portfolio duration. The Fund has been created to invest in a global portfolio (the Portfolio ) of securities comprised primarily of Investment Grade (as defined below) preferred securities. See Investment Objectives. PineBridge Investments LLC (the Portfolio Manager or PineBridge ) has been retained as the portfolio manager of the Fund and will be responsible for implementing the investment strategy of the Fund. PineBridge is a U.S. registered investment advisor. BMO Nesbitt Burns Inc., as manager of the Fund (the Manager or BMONBI ), will be responsible for, or arrange for, the management and administration of the Fund. See Organization and Management Details of the Fund. Price: $25.00 per Unit Minimum purchase: 40 Units Price to the Public (1) Net Proceeds to the Fund (2) Per Unit... $25.00 $25.00 Total Minimum Offering (3)... $20,000,000 $20,000,000 Total Maximum Offering (3)(4)... $100,000,000 $100,000,000 Notes: (1) The Offering price was established by negotiation between the Manager and the Agents (as defined below). (2) The Manager will pay all fees and expenses of the Offering including fees payable to the Agents of $1.125 per Unit. As a result, the Fund will receive the total gross proceeds of the Offering and the net asset value per Unit immediately following the Closing will be $ A Unitholder who redeems a Unit on an Annual Redemption Date (as defined below) occurring in 2023 or earlier, or on a Monthly Redemption Date (as defined below), will be required to pay a redemption fee to the Manager. See Use of Proceeds and Fees and Expenses Payable by Unitholders.

2 (3) There will be no Closing unless at least 800,000 Units are sold. If subscriptions for a minimum of 800,000 Units have not been received within 90 days following the date of issuance of a receipt for this prospectus, this Offering may not continue without the consent of the securities authorities and those who have subscribed for Units on or before such date. (4) The Fund has granted the Agents an option (the Over-Allotment Option ), exercisable for a period of 30 days following the closing of the Offering (the Closing ), to purchase additional Units in an amount up to 15% of the aggregate number of Units issued at the Closing on the same terms as set forth above. If the Over-Allotment Option is exercised in full, under the maximum Offering, the price to the public, the Agents fees and the net proceeds to the Fund will be $115,000,000, $5,175,000 and $115,000,000, respectively. This prospectus also qualifies the grant of the Over-Allotment Option and the distribution of the Units issuable on the exercise of the Over-Allotment Option. A purchaser who acquires Units forming part of the Agents over-allocation position acquires those Units under this prospectus, regardless of whether the over-allocation position is ultimately filled through the exercise of the Over-Allotment Option or secondary market purchases. See Plan of Distribution. The Manager will pay all fees and expenses of the Offering. As a result, the Fund will receive the total gross proceeds of the Offering and the net asset value per Unit immediately following the closing of the Offering will be $ There is no assurance that the Fund will be able to achieve its investment objectives. See Risk Factors for a discussion of certain factors that should be considered by prospective investors in the Units including with respect to the Fund s use of leverage. There is currently no market through which the Units may be sold and purchasers may not be able to resell securities purchased under this prospectus. This may affect the pricing of the securities in the secondary market, the transparency and availability of trading prices, the liquidity of the securities and the extent of issuer regulation. The Fund is not a trust company and, accordingly, is not registered under the trust company legislation of any jurisdiction. Units are not deposits within the meaning of the Canada Deposit Insurance Corporation Act (Canada) and are not insured under provisions of such legislation or any other legislation. See Risk Factors. The Toronto Stock Exchange (the TSX ) has conditionally approved the listing of the Units. The listing is subject to Fund fulfilling all of the TSX requirements on or before August 22, 2014, including distributions of Units to a minimum number of public holders. BMO Nesbitt Burns Inc., CIBC World Markets Inc., Scotia Capital Inc., National Bank Financial Inc., TD Securities Inc., Canaccord Genuity Corp., GMP Securities L.P., Raymond James Ltd., Desjardins Securities Inc., Mackie Research Capital Corporation, Manulife Securities Incorporated, Burgeonvest Bick Securities Limited, Dundee Securities Limited, Industrial Alliance Securities Inc. and Laurentian Bank Securities Inc. (collectively, the Agents ) conditionally offer the Units on a best efforts basis, subject to prior sale, if, as and when issued by the Fund and accepted by the Agents in accordance with the conditions contained in the Agency Agreement (as defined below), and subject to the approval of certain legal matters on behalf of the Fund and the Manager by Blake, Cassels & Graydon LLP and on behalf of the Agents by McCarthy Tétrault LLP. See Plan of Distribution. BMO Nesbitt Burns Inc. is one of the Agents in connection with the Offering. BMO Nesbitt Burns Inc. is also the promoter of the Fund, may enter into the Recirculation Agreement (as defined below) with the Fund, may provide leverage to the Fund and administers the operations of the Fund pursuant to the Management Agreement (as defined below), and receives fees therefor. BMO Asset Management Inc. ( BMOAM ) will provide fund accounting and valuation services to the Fund. Each of BMO Nesbitt Burns Inc. and BMOAM is an affiliate of Bank of Montreal. Accordingly, the Fund may be considered a connected issuer of BMO Nesbitt Burns Inc. under applicable securities legislation by virtue of BMO Nesbitt Burns Inc. s relationship with the Fund. See Relationship between the Fund and Agents. Subscriptions for Units will be received subject to acceptance or rejection in whole or in part and the right is reserved to close the subscription books at any time without notice. Closing of the Offering is expected to occur on or about June 27, 2014 (the Closing Date ), or such later date as the Fund and the Agents may agree, but in any event not later than 90 days after the issuance of a receipt for the final prospectus of the Fund. Registrations and transfers of Units will be effected through the book-entry only system administered by CDS Clearing and Depository Services Inc. Beneficial owners will not have the right to receive physical certificates evidencing their ownership. See Plan of Distribution and Attributes of the Units - Registration of Units. - ii -

3 TABLE OF CONTENTS PROSPECTUS SUMMARY...1 SUMMARY OF FEES AND EXPENSES...7 INFORMATION FROM THIRD-PARTY SOURCES...10 FORWARD LOOKING STATEMENTS...10 OVERVIEW OF THE LEGAL STRUCTURE OF THE FUND...14 Status of the Fund...14 INVESTMENT OBJECTIVES...14 INVESTMENT STRATEGIES...14 PineBridge s Investment Process...14 Performance During Periods of Rising Treasury Rates...17 Use of Derivatives...18 Currency Hedging...18 Leverage...18 Lending of Portfolio Securities...18 US Preferred Securities Income Fund...18 Indicative Portfolio...19 SECTORS IN WHICH THE FUND INVESTS...20 Preferred Securities...20 Diversification Benefits of Preferred Securities...23 INVESTMENT RESTRICTIONS...24 FEES AND EXPENSES...25 Fees and Expenses Payable by the Fund...25 Fees and Expenses Payable by the Manager...26 Fees and Expenses Payable by Unitholders...26 RISK FACTORS...26 DISTRIBUTION POLICY...34 PURCHASE OF UNITS...35 REDEMPTION OF UNITS...35 Exercise of Redemption Right...36 Resale of Units Tendered for Redemption...36 Suspension of Redemptions...36 INCOME TAX CONSIDERATIONS...37 Status of the Fund...37 Taxation of the Fund...38 Taxation of Unitholders...39 Tax Implications of the Fund s Distribution Policy...40 Taxation of Registered Plans...40 ORGANIZATION AND MANAGEMENT DETAILS OF THE FUND...40 The Manager...40 Page

4 Directors and Certain Executive Officers of the Manager...41 The Portfolio Manager...42 Brokerage Arrangements...45 Conflicts of Interest...46 Independent Review Committee...46 The Trustee...47 The Custodian...47 Fund Accounting...48 Auditor...48 Transfer Agent and Registrar...48 Promoter...48 Accounting and Reporting...48 CALCULATION OF NET ASSET VALUE...49 Calculation of Net Asset Value and NAV per Unit...49 Valuation Policies and Procedures of the Fund...49 Reporting of Net Asset Value...50 ATTRIBUTES OF THE SECURITIES...50 Description of the Securities Distributed...50 Registration of Units...50 Voting Rights in the Portfolio Securities...51 Purchase for Cancellation...51 UNITHOLDER MATTERS...51 Meetings of Unitholders...51 Matters Requiring Unitholder Approval...51 Permitted Merger...52 Amendments to the Declaration of Trust...53 Reporting to Unitholders...53 TERMINATION OF THE FUND...53 USE OF PROCEEDS...54 PLAN OF DISTRIBUTION...54 RELATIONSHIP BETWEEN THE FUND AND AGENTS...55 INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS...55 PROXY VOTING DISCLOSURE FOR PORTFOLIO SECURITIES HELD...55 MATERIAL CONTRACTS...56 EXPERTS...56 PURCHASERS STATUTORY RIGHTS OF WITHDRAWAL AND RESCISSION...56 INDEPENDENT AUDITOR S REPORT... F-1 PINEBRIDGE INVESTMENT GRADE PREFERRED SECURITIES FUND STATEMENT OF FINANCIAL POSITION... F-2

5 PINEBRIDGE INVESTMENT GRADE PREFERRED SECURITIES FUND NOTES TO THE STATEMENT OF FINANCIAL POSITION... F-3 CERTIFICATE OF THE FUND, THE MANAGER AND THE PROMOTER...C-1 CERTIFICATE OF THE AGENTS...C-2

6 PROSPECTUS SUMMARY The following is a summary of the principal features of the offering (the Offering ) and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Unless otherwise indicated, all references to dollar amounts in this prospectus are to Canadian dollars. Issuer: Offering: Maximum Issue: Minimum Issue: Price: PineBridge Investment Grade Preferred Securities Fund (the Fund ) is a closed-end investment fund established as a trust under the laws of the Province of Ontario pursuant to a declaration of trust (the Declaration of Trust ) dated as of May 28, See Overview of the Legal Structure of the Fund. The Offering consists of transferable units of the Fund (the Units ). $100,000,000 (4,000,000 Units). $20,000,000 (800,000 Units). $25.00 per Unit. Minimum Subscription: 40 Units ($1,000). Investment Objectives: The investment objectives of the Fund are to: (i) provide holders of Units ( Unitholders ) with monthly cash distributions; (ii) preserve the net asset value per Unit; and (iii) reduce the risk of rising interest rates by managing Portfolio duration. The Fund has been created to invest in a global portfolio (the Portfolio ) of securities comprised primarily of Investment Grade (as defined below) preferred securities. See Investment Objectives. Investment Strategies: The Portfolio will be actively managed by the Portfolio Manager. The Portfolio Manager will seek to exploit the broad opportunity set currently present in preferred securities around the globe. The Portfolio Manager believes that these securities are attractively priced in the current market and that an actively managed portfolio of these securities could provide a stable source of income. In an effort to reduce the adverse effects and limit the Portfolio s sensitivity to rising interest rates, under normal market conditions, the Fund will maintain a weighted average Portfolio duration of less than 4.5 years for the 12 month period subsequent to the Closing and thereafter will announce at least annually, the targeted weighted average Portfolio duration. The Fund will invest at least 80% of the Total Assets in preferred securities, 75% of the Total Assets in Investment Grade securities and 50% of the Total Assets in securities of U.S. domiciled companies. The Fund will initially invest primarily in preferred securities issued by companies in the financial services sector but will also invest in securities issued by companies in other sectors. Preferred Securities. Preferred securities generally pay fixed or adjustable rate distributions to investors and have preference over common shares in the payment of distributions and the liquidation of a company s assets, but are junior to most forms of such company s debt. Preferred securities include traditional preferred shares and hybrid securities. Hybrid securities generally pay fixed-rate or adjustable-rate distributions to investors and are junior to most forms of a company s debt, including senior and frequently subordinated debt. Both traditional preferred and hybrid securities typically permit an issuer to defer payments, in some instances indefinitely, without triggering an event of default. Because of their subordinated position in the capital structure of an issuer, the issuer s ability to defer dividend or interest payments for extended periods of

7 time without triggering a default, and certain other features, traditional preferred and hybrid securities are often treated as equity-like instruments by both issuers and investors. Many traditional preferred and hybrid securities are issued through trusts or other special purpose entities established by issuer companies. The Portfolio may also include other income-producing securities such as debt instruments, U.S. government securities, commercial paper and other equity securities. See Investment Strategies. In order to maintain its target duration and reduce the interest rate risk when it believes it is warranted, the Portfolio Manager will pursue several investment strategy options including the following: (i) target fixed-to-floating rate or floating-rate preferred securities, which tend to be less sensitive to interest rates than fixed-rate securities; (ii) target other short duration assets; and (iii) obtain short exposure to U.S. Treasury Futures for hedging purposes. The Portfolio Manager may also employ other hedging instruments and techniques such as the use of options on treasury futures, forwards, interest rate swaps or options thereon. In managing the Portfolio, PineBridge will employ substantially the same investment strategy as it employs in managing PineBridge US Preferred Securities Income Fund / Unhedged, a fund advised by PineBridge since inception on September 9, See Investment Strategies US Preferred Securities Income Fund. Portfolio Manager: Currency Hedging: Leverage: PineBridge Investments LLC (the Portfolio Manager or PineBridge ) has been retained as the portfolio manager of the Fund. PineBridge is a global asset management organization majority-owned by a subsidiary of Pacific Century Group, an Asia-based private investment group. PineBridge s legacy in investment management dates back to the early 1960s, managing assets for companies around the world. PineBridge is a U.S. registered investment advisor with approximately US$73.5 billion of assets under management as of December 31, 2013, including US$29.4 billion in fixed income securities. PineBridge offers a broad range of investment strategies in a variety of asset classes, including global equities and fixed income, asset allocation and alternative investments. See Organization and Management Details of the Fund the Portfolio Manager. The Portfolio will be exposed to foreign currencies. From time to time, between 0% and 100% of the value of the Portfolio s foreign currency exposure may be hedged back to the Canadian dollar. Initially, the Portfolio Manager intends to hedge substantially all of the Portfolio s foreign currency exposure back to the Canadian dollar. It is not intended that the distributions on the Portfolio Securities will be hedged. See Investment Strategies Currency Hedging. The Fund may utilize various forms of leverage, including through borrowings and margin facilities. It is anticipated that the leverage employed by the Fund will be achieved primarily by way of margin facilities. The maximum aggregate amount of leverage that the Fund will employ is 33.3% of Total Assets. Accordingly, at the time such leverage is incurred, the maximum amount of leverage that the Fund could employ is 1.50:1 (total long positions (including leveraged positions) divided by the net assets of the Fund). Derivatives and shorting used solely for purposes of hedging (as defined in NI ) will not be included in the leverage threshold calculation. If at any time leverage exceeds the threshold, the Portfolio Manager will cause the leverage to be reduced to below such threshold as soon as reasonably practicable. The amount of leverage, if any, utilized by the Fund will vary from time to time based on the Portfolio Manager s assessment of market 2

8 conditions and cash flow requirements. Initially, the Fund is expected to employ leverage of approximately 32% of Total Assets. See Investment Strategies Leverage and Risk Factors. Distribution Policy: The Fund will not have a fixed distribution but intends to pay monthly cash distributions based on, among other things, the actual and expected returns on the Portfolio. The Manager, in consultation with the Portfolio Manager, will annually determine in June of each year an indicative distribution amount for the year based upon the prevailing market conditions and an estimate of distributable cash flow from the Portfolio for such year. The Fund intends to make monthly distributions to Unitholders of record on the last Business Day of each month. Distributions will be paid on a Business Day designated by the Manager that will be on or about the 15th day of the following month. Based on the assumptions set out below, the monthly distributions are initially targeted to be $0.125 per Unit ($1.50 per annum per Unit) representing an annual yield of 6.0% on the $25.00 per Unit issue price. The initial cash distribution of $0.125 is anticipated to be payable on or about September 15, 2014 to Unitholders of record on August 29, 2014, based on an anticipated closing date of June 27, Assuming (i) gross proceeds of the Offering of $75 million, (ii) the fees and expenses are as described under Fees and Expenses, (iii) exchange rates remain constant, and (iv) initial leverage utilization of 32% of Total Assets, the Portfolio would be required to generate an average annual total return of approximately 5.77% in order to maintain a stable NAV of the Fund while funding distributions at the initial targeted level. As of May 27, 2014, the current cash yield on the Indicative Portfolio is 6.59%, the yield to call is 5.77%, and the yield to maturity is 4.37%. It is anticipated that returns on the Portfolio over the life of the Fund will be derived primarily from dividends, interest and other distributions received on the Portfolio Securities and net realized capital gains from the sale of the Portfolio Securities. It is expected that a significant portion of distributions will be designated by the Fund as foreign source income; however, distributions may also include, among other things, amounts designated by the Fund as taxable capital gains and returns of capital. It is not expected that a significant portion of distributions, if any, will be designated by the Fund as taxable dividends from taxable Canadian corporations that would be subject to the gross-up and dividend tax credit rules in the Tax Act. If the return on the Portfolio or the increase in the value of the Portfolio is less than the amount necessary to fund the monthly distributions and all expenses of the Fund and if the Manager chooses nevertheless to ensure that the monthly distributions are paid to Unitholders, this will result in a portion of the capital of the Fund being returned to Unitholders and, accordingly, the Net Asset Value per Unit and the adjusted cost base per Unit would be reduced. If the projected distributable cash flow over time is not sufficient to fund the monthly distributions, the Manager, in consultation with the Portfolio Manager, would expect to reduce the targeted distribution amount. If in any taxation year, after the monthly distributions, there would remain in the Fund additional net income or net realized capital gains, the Fund will, after December 15 but on or before December 31 of the calendar year in which such taxation year ends, be required to pay or make payable such net income and net realized capital gains as one or more yearend special distributions to Unitholders as is necessary to ensure that the Fund will not be liable for income tax on such amounts under Part I of the Tax Act (after taking into account all available deductions, credits and refunds). The amount of distributions may fluctuate from month to month and there can be no assurance that the Fund will make any distribution in any particular month or months or that the targeted distribution target will be met. 3

9 The Fund intends that the monthly distributions will be paid in cash. However, year-end special distributions may be paid in cash and/or Units from time to time. See Investment Objectives, Risk Factors and Distribution Policy. Redemption of Units: Termination: Use of Proceeds: Investment by PineBridge: Risk Factors: Commencing in 2016, Units may be surrendered annually for redemption during the period from May 1 until 5:00 p.m. (Toronto time) on the last Business Day in May (the Annual Redemption Notice Period ) subject to the Fund s right to suspend redemptions in certain circumstances. Units properly surrendered for redemption during the Annual Redemption Notice Period will be redeemed on the second last Business Day in June of each year (the Annual Redemption Date ) and the Unitholder will receive payment on or before the 15th day of the month following the Annual Redemption Date. Redeeming Unitholders will receive a redemption price per Unit equal to the net asset value per Unit ( NAV per Unit ) on the Annual Redemption Date, less any costs and expenses incurred by the Fund in order to fund such redemption, including brokerage costs, if any. Units can also be redeemed monthly. A Unitholder who redeems a Unit on an Annual Redemption Date occurring in 2023 or earlier, or on a Monthly Redemption Date, will be required to pay a Redemption Fee to the Manager. See Redemption of Units. The Fund does not have a fixed termination date and may be terminated by Extraordinary Resolution of the Unitholders. The Manager may, in its discretion, on 60 days notice to Unitholders, terminate the Fund without the approval of Unitholders if, in the opinion of the Manager, the NAV of the Fund is reduced as a result of redemptions or otherwise so that it is no longer economically feasible to continue the Fund and/or it would be in the best interests of the Unitholders to terminate the Fund. Upon termination, the net assets of the Fund will be distributed to Unitholders on a pro rata basis. No Redemption Fees will be payable by a Unitholder, nor will any fee be payable by the Fund, upon a termination of the Fund by the Manager as described above. See Termination of the Fund. The Fund will use the gross proceeds of the Offering (including any gross proceeds from the exercise of the Over-Allotment Option) to acquire the Portfolio. See Use of Proceeds. The Portfolio Manager, its affiliates and/or their directors and officers intend to acquire Units in an amount equal to 5% of the market capitalization of the Fund up to a maximum investment of $5 million. The securities that will be acquired by the Portfolio Manager, its affiliates and/or their directors and officers will have the same rights, including voting rights, as Units held by other unitholders. See Attributes of the Securities. An investment in the Fund involves risks. In addition to the considerations set out elsewhere in this prospectus, the following are certain risk factors and considerations related to the Fund which prospective investors should consider before purchasing Units: (i) (ii) (iii) (iv) (v) (vi) no assurance of achieving investment objectives; risks relating to fluctuations in the value of Portfolio Securities and performance of the Portfolio; risks relating to investing in preferred securities; Portfolio concentration risk; risks related to foreign currency exposure; changes to interest rates; 4

10 (vii) (viii) (ix) (x) (xi) (xii) (xiii) (xiv) (xv) (xvi) (xvii) (xviii) (xix) (xx) (xxi) (xxii) (xxiii) (xxiv) (xxv) (xxvi) duration risk; call risk; issuer credit risk; proposed and current financial regulator reforms; illiquid securities; income risk; inflation; equity risk; foreign market exposure; short selling; volatility in the trading price of Units; reliance on the Manager and Portfolio Manager; residency of Portfolio Manager; risks relating to investing in non-investment grade securities; lack of prior operating history of the Fund; risks relating to redemptions; risks relating to securities lending; risks relating to use of leverage; risks relating to market disruptions; risks relating to global financial developments; (xxvii) tax related risks; (xxviii) risks relating to U.S. tax rules; (xxix) (xxx) (xxxi) risks relating to ownership interest; loss of investment risk; changes in legislation and regulatory environment; (xxxii) risks relating to the status of the Fund; (xxxiii) potential conflicts of interest; and (xxxiv) risks relating to the nature of the Units. See Risk Factors. Income Tax Considerations: A Unitholder who is an individual resident in Canada will generally be required to include in computing income for a particular taxation year of the Unitholder the amount of the Fund s net income, including the taxable portion of the net realized capital gains of the Fund, paid or payable to the Unitholder in that particular year, whether paid in cash or 5

11 Units. To the extent that amounts payable to Unitholders are designated by the Fund as taxable capital gains, those amounts will be treated as taxable capital gains realized by such Unitholders. To the extent that amounts payable to Unitholders are designated by the Fund as taxable dividends from taxable Canadian corporations, those amounts will retain their character and be treated as such in the hands of Unitholders. To the extent so designated by the Fund, foreign source income earned by, and foreign tax paid by, the Fund will be treated as foreign source income of, and foreign tax paid by, Unitholders for purposes of determining whether Unitholders are entitled to claim a foreign tax credit for their share of such foreign tax paid by the Fund. To the extent that distributions to a Unitholder exceed the Unitholder s share of the Fund s net income and net realized capital gains for the taxation year of the Fund, the excess will not be included in the Unitholder s income but will reduce the adjusted cost base of the Unitholder s Units, and if a negative adjusted cost base results, the Unitholder will be considered to realize a capital gain equal to such negative amount. A Unitholder who disposes of Units held as capital property (on redemption or otherwise) will generally realize a capital gain (or capital loss) to the extent that the proceeds of disposition of the Units exceed (or are less than) the adjusted cost base of such Units and any reasonable costs of disposition. Each investor should satisfy himself or herself as to the federal, provincial and territorial tax consequences of an investment in the securities offered hereby by obtaining advice from his or her tax advisor. See Income Tax Considerations. Eligibility for Investment: Organization and Management of the Fund: In the opinion of Blake, Cassels & Graydon LLP, counsel to the Fund, and McCarthy Tétrault LLP, counsel to the Agents, provided that the Fund qualifies as a mutual fund trust within the meaning of the Tax Act or the Units are listed on a designated stock exchange (which includes the TSX), the Units, if issued on the date hereof, would be qualified investments for trusts governed by registered retirement savings plans, registered retirement income funds, deferred profit sharing plans, registered disability savings plans, registered education savings plans and tax-free savings accounts. Unitholders planning to hold their Units in a tax-free savings account, registered retirement savings plan or registered retirement income fund should consult their own tax advisor regarding whether the Units would be prohibited investments for purposes of the Tax Act for such registered plans. See Income Tax Considerations - Taxation of Registered Plans. Portfolio Manager PineBridge Investments LLC has been retained as the portfolio manager of the Fund and will be responsible for implementing the investment strategy of the Fund. See Organization and Management Details of the Fund - The Portfolio Manager. Trustee CIBC Mellon Trust Company, at its location in Toronto, Ontario, is the trustee of the Fund. See Organization and Management Details of the Fund - The Trustee. Manager BMO Nesbitt Burns Inc. will act as manager of the Fund and will perform or arrange for the performance of management and administration services for the Fund. The principal office of the Manager is located at 1 First Canadian Place, 100 King Street West, 3rd Floor Podium, P.O. Box 150, Toronto, Ontario, M5X 1H3. See Organization and Management Details of the Fund - The Manager. Promoter The Manager may be considered a promoter of the Fund within the meaning of the securities legislation of certain provinces or territories of Canada by reason of its initiative in organizing the Fund. See Organization and Management Details of the Fund - 6

12 Agents: Promoter. Custodian CIBC Mellon Trust Company, at its principal offices in Toronto, Ontario, will act as custodian (the Custodian ) of the assets of the Fund. See Organization and Management Details of the Fund - The Custodian. Valuation Agent BMO Asset Management Inc., at its principal office in Toronto, Ontario, has been retained as the valuation agent of the Fund (the Valuation Agent ) to provide fund accounting and valuation services to the Fund. Transfer Agent and Registrar CST Trust Company, at its principal offices in Toronto, Ontario, will be appointed the registrar, transfer agent and distribution agent for the Units pursuant to a registrar, transfer agency and distribution agency agreement to be entered into as of the date of Closing. See Organization and Management Details of the Fund - Transfer Agent and Registrar. Auditor The auditor of the Fund is PricewaterhouseCoopers LLP, Chartered Professional Accountants, Licensed Public Accountants, located in Toronto, Ontario. See Organization and Management Details of the Fund Auditor. BMO Nesbitt Burns Inc., CIBC World Markets Inc., Scotia Capital Inc., National Bank Financial Inc., TD Securities Inc., Canaccord Genuity Corp., GMP Securities L.P., Raymond James Ltd., Desjardins Securities Inc., Mackie Research Capital Corporation, Manulife Securities Incorporated, Burgeonvest Bick Securities Limited, Dundee Securities Limited, Industrial Alliance Securities Inc. and Laurentian Bank Securities Inc. (collectively, the Agents ) conditionally offer the Units on a best efforts basis, subject to prior sale, if, as and when issued by the Fund and accepted by the Agents in accordance with the conditions contained in the Agency Agreement (as defined below), and subject to the approval of certain legal matters on behalf of the Fund and the Manager by Blake, Cassels & Graydon LLP and on behalf of the Agents by McCarthy Tétrault LLP. The Fund has granted the Agents an option (the Over-Allotment Option ), exercisable until 30 days after the closing of the Offering, to purchase up to 15% of the aggregate number of Units issued at the closing of the Offering on the same terms set forth above. This prospectus qualifies the distribution of the Over-Allotment Option and the Units issuable on the exercise thereof. If the Over-Allotment Option is exercised in full, the total price to the public under the maximum Offering will be $115,000,000, the Agents fees will be $5,175,000 and the net proceeds to the Fund will be $115,000,00. A purchaser who acquires Units forming part of the Agents over-allocation position acquires such Units under this prospectus regardless of whether the Agents over-allocation position is ultimately filled through the exercise of the Over-Allotment Option or secondary market purchases. See Plan of Distribution. Agents Position Maximum Size Exercise Period Exercise Price Over-Allocation Position 600,000 Units Within 30 days following Closing SUMMARY OF FEES AND EXPENSES $25.00 per Unit The following tables contain a summary of the fees and expenses payable by the Fund and the Unitholders which will therefore reduce the value of the Unitholders investment in the Fund, as well as fees and expenses payable by the Manager. For further particulars, see Fees and Expenses. 7

13 Fees and Expenses Payable by the Fund Type of Fee Management Fees: Operating Expenses: Amount and Description The Fund will pay to the Manager an annual management fee (the Management Fee ) equal to 1.50% per annum, reduced to 1.0% per annum on July 1, 2024, of the NAV of the Fund, accrued and calculated daily and payable monthly in arrears, plus applicable taxes. The Manager may, in its discretion, reduce the Management Fee paid by the Fund from time to time. The Portfolio Manager will be remunerated by the Manager out of the Management Fee. The Fund will pay for all ordinary expenses incurred in connection with its operation and administration, estimated to be $200,000 per annum plus applicable taxes. The Fund will also be liable for the costs of all Portfolio transactions which it may incur from time to time and the cost of leverage and the Fund will be liable for any extraordinary expenses incurred from time to time. Fees and Expenses Payable Directly by Unitholders Ordinary expenses will include mailing and printing expenses; fees payable to the Custodian, Valuation Agent, Trustee, auditor, legal advisors and other parties engaged by the Fund to perform certain financial, record keeping, reporting and general administrative services; out-of-pocket expenses of the Manager; regulatory filing, stock exchange and licensing fees; and fees payable to members of the independent review committee. Type of Fee Redemption Fee Amount and Description A Unitholder who redeems a Unit on an Annual Redemption Date occurring in 2023 or earlier, or on a Monthly Redemption Date, will be required to pay to the Manager a redemption fee (the Redemption Fee ). If the redemption occurs on an Annual Redemption Date, the amount of the Redemption Fee will vary based on the Annual Redemption Date on which the Unit is redeemed as described below: If redeemed on the Annual Redemption Date occurring in: Redemption Fee per Unit: Fees and Expenses Payable Directly by the Manager 2016 $ $ $ $ $ $ $ $0.15 After 2023 Nil If the redemption occurs on a Monthly Redemption Date, the Redemption Fee will be equal to 5% of the Monthly Redemption Amount. The Redemption Fee will be deducted by the Fund from the amount payable to the redeeming Unitholder and remitted on behalf of the Unitholder to the Manager. However, no Redemption Fees will be payable by Unitholders, nor will any fee be payable by the Fund, upon a termination of the Fund by the Manager. See Fees and Expenses Payable by Unitholders and Termination of the Fund. 8

14 Type of Fee Fees payable to the Agents: Expenses of the Offering: Amount and Description $1.125 per Unit (4.5%). The Agents fees will be paid by the Manager. In addition to the Agents fees, the Manager will pay all of the expenses incurred on behalf of the Fund in connection with the Offering, which the Manager estimates will be approximately $650,000. 9

15 INFORMATION FROM THIRD-PARTY SOURCES Certain information contained in this prospectus is taken from third party sources. Additionally, certain of the information contained in this prospectus relating to publicly traded securities and the issuers of those securities is taken from and based solely upon information published by such issuers. None of the Manager, the Portfolio Manager, the Fund, nor any of the Agents has independently verified the accuracy or completeness of any such information. FORWARD LOOKING STATEMENTS Certain statements in this prospectus are forward looking statements, including those identified by the expressions anticipate, believe, plan, estimate, expect, intend and similar expressions to the extent they relate to the Fund, the Manager, the Portfolio Manager or the Agents. Forward-looking statements are not historical facts but reflect the current expectations of the Manager or the Portfolio Manager regarding future results or events. Such forward-looking statements reflect the Manager s or the Portfolio Manager s current beliefs and are based on information currently available to them. Forward looking statements involve significant risks and uncertainties. A number of factors could cause actual results or events to differ materially from current expectations. Some of these risks, uncertainties and other factors are described in this prospectus under the heading Risk Factors. Although the forward-looking statements contained in this prospectus are based upon assumptions that the Manager, the Portfolio Manager and the Agents believe to be reasonable, none of the Manager, the Portfolio Manager or the Agents can assure investors that actual results will be consistent with these forwardlooking statements. The forward-looking statements contained herein were prepared for the purpose of providing prospective investors with information about the Fund and may not be appropriate for other purposes. None of the Fund, the Manager, the Portfolio Manager or the Agents assume any obligation to update or revise them to reflect new events or circumstances, except as required by law. 10

16 GLOSSARY OF TERMS In this prospectus, the following terms shall have the meanings set forth below, unless otherwise indicated Act has the meaning ascribed thereto under Plan of Distribution. affiliate has the meaning ascribed thereto in the Business Corporations Act (Ontario). Agency Agreement means the agency agreement dated as of May 28, 2014 among the Fund, the Manager, the Portfolio Manager and the Agents. Agents means, collectively, BMO Nesbitt Burns Inc., CIBC World Markets Inc., Scotia Capital Inc., National Bank Financial Inc., TD Securities Inc., Canaccord Genuity Corp., GMP Securities L.P., Raymond James Ltd., Desjardins Securities Inc., Mackie Research Capital Corporation, Manulife Securities Incorporated, Burgeonvest Bick Securities Limited, Dundee Securities Limited, Industrial Alliance Securities Inc. and Laurentian Bank Securities Inc. allowable capital loss has the meaning ascribed thereto under Income Tax Considerations Taxation of the Fund. Annual Redemption Date means the second last Business Day of June for each year commencing in Annual Redemption Notice Period has the meaning ascribed thereto under Redemption of Units. BMOAM means BMO Asset Management Inc. BMONBI means BMO Nesbitt Burns Inc. Business Day means any day on which the TSX is open for business. Canada-U.S. IGA has the meaning ascribed thereto under Risk Factors U.S. Tax Rules. Capital Gains Refund has the meaning ascribed thereto under Income Tax Considerations Taxation of the Fund. Cash Equivalents means (i) cash on deposit with the Custodian or a broker; (ii) an evidence of indebtedness that has a remaining term to maturity of 365 days or less and that is issued, or fully and unconditionally guaranteed as to principal and interest, by (A) any of the Federal or Provincial Governments of Canada, (B) U.S. federal, state or local governments, (C) U.S. government agencies or (D) a Canadian financial institution (provided that in the case of (A), (B) or (C), such evidence of indebtedness has a rating of at least R-1 (mid) by DBRS Limited or the equivalent rating from another designated rating organization); or (iii) other cash cover as defined in NI CDS means CDS Clearing and Depository Services Inc. CDS Participant means a participant in CDS. Class S Unit means the unit of the Fund designated as a Class S Unit. Closing means the closing of the Offering on the Closing Date. Closing Date means the date of the Closing, which is expected to be on or about June 27, 2014 or such later date as the Fund and the Agents may agree, but in any event not later than 90 days after the issuance of a receipt for the final prospectus of the Fund. Closing Market Price means, in respect of a security on a particular date, the closing price of such security on the TSX on such date (or such other stock exchange on which such security is listed) or, if there was no trade on the relevant date, the average of the last bid and the last asking prices of the security on the TSX on such date (or such other stock exchange on which the security is listed. CRA means the Canada Revenue Agency. Custodian means CIBC Mellon Trust Company, the custodian of the assets of the Fund, and its successors or assigns. Custodian Agreement means the custodian agreement entered into on or prior to the Closing Date between the Fund and the Custodian as it may be amended from time to time. Declaration of Trust means the declaration of trust of the Fund dated May 28, 2014 establishing the Fund under the laws of the Province of Ontario. 11

17 DFA Rules has the meaning ascribed thereto under Risk Factors Tax Matters Affecting the Fund. Distribution Record Date means the last Business Day of each month. Extraordinary Resolution means a resolution passed by the affirmative vote of at least 66 2 / 3 % of the votes cast either in person or by proxy, at a meeting of Unitholders called for the purpose of considering such resolution or in writing pursuant to the Declaration of Trust. FATCA has the meaning ascribed thereto under Risk Factors U.S. Tax Rules. FFI has the meaning ascribed thereto under Risk Factors U.S. Tax Rules. Fund means PineBridge Investment Grade Preferred Securities Fund, a trust established under the laws of the Province of Ontario pursuant to the Declaration of Trust. Investment Grade in respect of a security means a security, and in respect of an issuer means an issuer, which, at the time of purchase, will have a rating of no less than: (i) BBB- by S&P; (ii) Baa3 by Moody s; (iii) the equivalent rating by another designated rating as defined in NI ; or (iv) if unrated, determined by the Portfolio Manager to be of comparable quality. IRC means the independent review committee of the Fund. IRS means Internal Revenue Service. Management Fee has the meaning ascribed thereto under Fees and Expenses Management Fee. Manager means BMO Nesbitt Burns Inc., in its capacity as the registered investment fund manager of the Fund. Market Price in respect of a security on a date means the weighted average trading price on the TSX (or such other stock exchange on which such security is listed), for the 10 trading days immediately preceding such date. Monthly Redemption Date means the second last Business Day of each month other than the month of the Annual Redemption Date (if available). Moody s means Moody s Investor Service, Inc. and its successors. Net Asset Value of the Fund or NAV of the Fund on a particular date will be equal to (i) the Total Assets, less (ii) the aggregate fair value of the liabilities of the Fund. Net Asset Value per Unit or NAV per Unit means, on any date, the number obtained by dividing the NAV of the Fund on such date attributable to the Units by the total number of Units outstanding on such date. NI means National Instrument Mutual Funds of the Canadian Securities Administrators, as it may be amended from time to time. NI means National Instrument Independent Review Committee for Investment Funds of the Canadian Securities Administrators, as it may be amended from time to time. Offering means the offering of a minimum of 800,000 Units and a maximum of 4,000,000 Units at a price of $25.00 per Unit, as contemplated in this prospectus. Ordinary Resolution has the meaning ascribed thereto under Unitholder Matters Matters Requiring Unitholder Approval. Over-Allotment Option has the meaning ascribed thereto under Plan of Distribution. Permitted Merger has the meaning ascribed thereto under Unitholder Matters Permitted Merger. plan trust has the meaning ascribed thereto under Income Tax Considerations Status of the Fund. Portfolio has the meaning ascribed thereto under Investment Objectives. Portfolio Manager means PineBridge Investments LLC, in its capacity as the portfolio manager of the Fund. Portfolio Management Agreement means the portfolio management agreement dated on or before the Closing Date between the Fund, the Manager and the Portfolio Manager, as it may be amended from time to time. 12

18 Portfolio Securities means the securities held in the Portfolio. Recirculation Agreement has the meaning ascribed thereto under Redemption of Units Resale of Units Tendered for Redemption. Redemption Fee has the meaning ascribed thereto under Fees and Expenses Fees and Expenses Payable by the Unitholders. Redemption Notice has the meaning ascribed thereto under Redemption of Units Exercise of Redemption Right. S&P means Standard & Poor s Rating Services and its successors. Securities Act means Securities Act (Ontario), R.S.O. 1990, c. S.5, as it may be amended from time to time. SIFT Rules means the provisions of the Tax Act providing for a tax on certain income earned by a SIFT partnership or distributed by a SIFT trust, as those terms are defined in the Tax Act. substituted property has the meaning ascribed thereto under Income Tax Considerations Taxation of the Fund. Tax Act means the Income Tax Act (Canada) and the regulations thereunder, as they may be amended from time to time. Tax Proposals has the meaning ascribed thereto under Income Tax Considerations. Termination Date has the meaning ascribed thereto under Termination of the Fund. Total Assets means the aggregate fair value of the assets of the Fund as determined in accordance with the terms of the Declaration of Trust. Trustee means CIBC Mellon Trust Company, in its capacity as trustee of the Fund. TSX means the Toronto Stock Exchange. Units means transferable units of the Fund which for greater certainty does not include the Class S Unit. Unitholder means, unless the context requires otherwise, a holder of a Unit. U.S. means the United States of America. US$ means U.S. dollars. U.S. Securities Act has the meaning ascribed thereto under Plan of Distribution. US Preferred Securities Income Fund means PineBridge US Preferred Securities Income Fund / Un-hedged. Valuation Agent means BMOAM, the valuation agent of the Fund, and its successors and assigns. Valuation Day means any day that the TSX is open for trading. Valuation Time has the meaning ascribed thereto under Calculation of Net Asset Value Calculation of Net Asset Value and NAV per Unit. $ means Canadian dollars, unless otherwise indicated. 13

19 OVERVIEW OF THE LEGAL STRUCTURE OF THE FUND PineBridge Investment Grade Preferred Securities Fund (the Fund ) is a closed-end investment fund established as a trust under the laws of the Province of Ontario pursuant to a declaration of trust (the Declaration of Trust ) dated May 28, PineBridge Investments LLC (the Portfolio Manager ) will act as portfolio manager for the Fund and will be responsible for implementing the investment strategies of the Fund. BMO Nesbitt Burns Inc. (the Manager or BMONBI ) is the investment fund manager and will be responsible for, or arranging for, the management and administration of the Fund. See Organization and Management Details of the Fund. The principal office of the Fund is located at 1 First Canadian Place, 100 King Street West, 3rd Floor Podium, P.O. Box 150, Toronto, Ontario M5X 1H3. Status of the Fund The Fund is not a mutual fund as defined under the securities legislation of the provinces and territories of Canada and, accordingly, the Fund is not subject to the various policies and regulations that apply to mutual funds under such legislation. As a result, some of the protections provided to investors in mutual funds under such laws will not be available to investors in the Units. INVESTMENT OBJECTIVES The investment objectives of the Fund are to: (i) provide holders of units (the Units ) of the Fund (the Unitholders ) with monthly cash distributions; (ii) preserve the net asset value per Unit; and (iii) reduce the risk of rising interest rates by managing Portfolio duration. The Fund has been created to invest in a global portfolio (the Portfolio ) of securities comprised primarily of Investment Grade preferred securities. INVESTMENT STRATEGIES The Portfolio will be actively managed by the Portfolio Manager. The Portfolio Manager will seek to exploit the broad opportunity set currently present in preferred securities around the globe. The Portfolio Manager believes that these securities are attractively priced in the current market and that an actively managed portfolio of these securities could provide a stable source of income. In an effort to reduce the adverse effects and limit the Portfolio s sensitivity to rising interest rates, under normal market conditions, the Fund will maintain a weighted average Portfolio duration of less than 4.5 years for the 12 month period subsequent to the Closing and thereafter will announce at least annually, the targeted weighted average Portfolio duration. The Fund will invest at least 80% of the Total Assets in preferred securities, 75% of the Total Assets in Investment Grade securities and 50% of the Total Assets in securities of U.S. domiciled companies. The Fund will initially invest primarily in preferred securities issued by companies in the financial services sector but will also invest in securities issued by companies in other sectors. Investment Grade in respect of a security means a security, and in respect of an issuer means an issuer, which, at the time of purchase, will have a rating of no less than: (i) BBB- by S&P; (ii) Baa3 by Moody s; (iii) the equivalent rating by another approved rating organization as defined in NI ; or (iv) if unrated, determined by the Portfolio Manager to be of comparable quality PineBridge s Investment Process The Preferred Securities Market In selecting preferred securities, PineBridge combines a top-down country and sector selection process with a bottom-up approach to security selection. PineBridge s fundamental bottom-up investment approach utilizes a unique integrated- 14

20 portfolio management process. The investable universe includes securities that are traded in two different markets, the overthe-counter (OTC) institutional market and the retail market. The OTC institutional market consists of securities that typically carry a par value of $1,000. This market also has a considerably lower average duration as many of the securities are fixed-to-float structures. This means that after five or ten years the payments revert to floating rate. From that point forward, they have minimal interest-rate risk. The retail market consists of securities traded on an exchange which typically carry a par value of $25. PineBridge believes that tactically allocating between these two markets, incorporating relative value and interest rate views, has the potential to lead to superior risk-adjusted returns. As mentioned above, at the core of the Portfolio Manager s activities is PineBridge s Integrated Portfolio Management philosophy ( I-PM ), whereby interactions between portfolio managers, analysts and traders are combined with a researchdriven credit process, which seeks to produce superior investment results. Below is a flowchart of the Portfolio Manager s preferred securities decision-making process: Idea Generation Investment ideas can be recommended by any team member. An idea can come from proprietary work, sell-side trader ideas or sell-side capital markets discussions. Once a recommendation has been made, portfolio managers, analysts and traders jointly evaluate the idea in order to determine how it fits within the overall goals of the Portfolio Manager s portfolio strategy. Research Process The presence that the Portfolio Manager has in the geographic markets in which it invests provides language, relationship and cultural advantages that it believes differentiates the Portfolio Manager from its peers. The Portfolio Manager s credit research process utilizes the Fundamentals, Valuation and Technicals ( FVT ) framework. Fundamentals: With nearly 60 years of operations, the Portfolio Manager believes that its experience through cycles provides a competitive advantage in evaluating sectors and credits. This is based on the Portfolio Manager s historical knowledge of industry and company trends, understanding the rating agencies and its ability to filter headline noise to determine relative importance. Analysts perform detailed fundamental analysis at both the sector and security level. The Portfolio Manager s fundamental top-down approach incorporates extensive industry reviews in each of the sectors with a focus on cash flows, balance sheet strength, financial policies and industry fundamental trends at the aggregate level. Based 15

21 on an extensive analysis, the Portfolio Manager applies a Sector Credit Trend (+1, 0, -1) which is the fundamental view measuring the credit momentum or expected direction of aggregate change in sector quality; Event Risk (1 = strongest; 5 = weakest) which measures the likelihood of adverse events within sector (e.g., debt-financed acquisitions, buybacks, dividend increases, etc.); and Equity Trend (+1, 0, -1) which measures the equity momentum or direction at the sector level. These measures are not a scoring model but rather a basis for discussion. Valuation: The Portfolio Manager views valuation and technicals from a top-down and bottom-up perspective as well. At the sector level and the security level the Portfolio Manager performs relative value analysis to ascertain if a specific security is being priced fairly by the market, whether the sector or bond spread offers relative value to its peer group as well as to its fundamental credit quality, the history of how a sector or name has traded relative to other sectors or peers and to the market, whether investors are being properly compensated for bonds with inferior trading liquidity and whether investors perception of the sector or name are worse than reality. These factors are used in establishing the Relative Value Ranking ( RVR ) of the companies. RVR is a tool which enables the Portfolio Manager to distinguish between credits in the Portfolio Manager s opportunity set. RVRs are assigned and maintained by the corresponding industry analyst after consulting with both the portfolio managers and traders. RVRs range from 1 to 5 and express a view on whether the current price is cheap or expensive in relation to a credit's own trading history as well as to its industry peers. RVR of 1 is reserved for obligors that are deemed by the Portfolio Manager to be very undervalued or cheap. RVR of 3 is considered fair value and RVR of 5 is regarded as extremely overvalued or expensive. RVR is used by the Portfolio Manager to identify the most attractive investments. Once relatively attractive issuers have been identified, the credit analyst may advise on specific issues that, in the credit analyst s view, are attractive. For example, an issuer s securities may be attractive at one point on the curve but not on another. RVRs are intended to be normally distributed within any given sector. Technicals: Finally, technical considerations, including trade structure, liquidity and new issue supply expectations, are all part of the overall analysis of value and are key inputs into developing the RVRs for the companies covered by the Portfolio Manager. The Portfolio Manager monitors issue-specific liquidity in primary and secondary deals by reviewing issuerspecific liquidity versus the reference credit universe. Active monitoring of the portfolio liquidity profile versus tradable universe along with PineBridge s nimble size allows for timely liquidation of positions. Through its analysis of the sectors and the companies, the Portfolio Manager determines supply expectations. The FVT process culminates in over/underweight recommendations which are assigned by the analysts to each sector and debated during the monthly sector meetings with portfolio managers and traders to obtain a meaningful consensus. These weights are then emphasized in portfolio construction. 16

22 Research analysts are an integral part of the I-PM philosophy and decision-making process. As such they are fully involved in portfolio positioning decisions as it relates to security selection. Risk Management PineBridge s approach to risk management involves Regional Risk and Capital Committees that report to the board of directors or the Global Risk Committee which is comprised of senior representatives from across major functional groups at the firm. This committee has responsibility for monitoring counterparties, privacy and data security, operational risks associated with the use of derivatives and pricing and disclosure methodologies. Duration The Portfolio Manager will initially seek to maintain, under normal market conditions, a weighted average Portfolio duration of less than 4.5 years for the 12 month period subsequent to the Closing and thereafter will announce at least annually, the targeted weighted average Portfolio duration. Duration is a measure of a bond s interest rate sensitivity. A bond s duration will almost always be shorter than its maturity with the exception of zero-coupon bonds where the duration equals the maturity. Typically a bond with a higher duration will have a higher sensitivity to changes in interest rates. For example, the price of a bond with a duration of five years is expected to change 5% for every 1% change in interest rates (yields). On the other hand, a bond with a duration of only three years is expected to change 3% for every 1% change in interest rates (yields). In order to maintain its target duration and reduce the interest rate risk when it believes it is warranted, the Portfolio Manager will pursue several investment strategy options including the following: (i) target fixed-to-floating rate or floating-rate preferred securities, which tend to be less sensitive to interest rates than fixed-rate securities; (ii) target other short duration assets; and (iii) obtain short exposure to U.S. Treasury Futures for hedging purposes. The Portfolio Manager may also employ other hedging instruments and techniques such as the use of options on treasury futures, forwards, interest rate swaps or options thereon. Portfolio Turnover As the Fund is actively managed, the Fund may engage in portfolio trading as the Portfolio Manager deems appropriate. Short-term trading is not expected to be a primary driver of investment performance but there are no limits on the amount of time a security must remain in the Portfolio and purchases/sales may be made as deemed appropriate. The PineBridge decision process regarding buy/sell discipline is outlined below. The Portfolio Manager s research analysts monitor their sectors and credits in order to determine whether action must be taken. If a particular company s financials or outlook fall below their expectations, the Portfolio Manager will promptly analyze the shortfall to determine the appropriate action (i.e., hold, reduce or buy). If the spread of a particular company narrows, the Portfolio Manager will analyze the original financial targets, assess if the securities of the company are fully valued and determine the appropriate action. This sell discipline applies to all credit portfolios. The most common reasons for securities sales are: (a) price target attained; (b) better opportunities in other securities; or (c) change in fundamentals or investment story. Performance During Periods of Rising Treasury Rates A major concern among fixed income investors in the market today is the prospect of rising treasury rates. However, historically preferred securities have performed relatively well when compared to treasuries during times of rising treasury rates. Intuitively this may not make sense, since the average duration of this asset class can be 5 or 6 years. However, generally interest rates increase during periods of economic expansion. These expansionary periods are accompanied by increases in capital projects and investments, which means more lending is required from banks and the potential for credit spread compression in their debt securities. This environment may contribute to the value of preferred securities in two ways: (i) as the circumstances of the issuers of the preferred securities improve, the value of these securities increases; and (ii) through compressing credit spreads where the returns on existing preferred securities exceed those on new issues. 17

23 Additionally an active manager can mitigate the negative impact rising treasury rates have on preferred security prices through security selection and investing beyond US securities. Within the US, generally the higher rated, lower coupon, fixed-rate structures would be expected to underperform issues with compelling credit spreads or a fixed-to-floating or floating-rate structure. Preferred securities issued in a non-us currency also offer the potential to mitigate US treasury rate risk and the market for these securities in Europe is expected to grow significantly in the coming years as new banking regulations take effect. At the same time this region faces weaker economic growth prospects and the potential for additional central bank intervention, both of which would likely lead to lower interest rates. Use of Derivatives Options, futures and swaps may be employed for hedging exposure to a market or to reduce exposure to interest rate risk. The Fund may sell futures on securities, currencies or interest rates to provide an efficient, liquid and effective method for the management of risks by reducing interest rate duration and/or protecting against future declines in value. The Fund may also buy futures on securities, currencies or interest rates to provide a cost effective and efficient mechanism for taking a position in securities. The Fund may enter into swap agreements (including total return swaps) and contracts for difference with respect to currencies, interest rates, securities and securities indices. No assurance can be given that the Portfolio will be hedged from any particular risk from time to time. All such uses of derivatives will be made in accordance with the provisions of NI Currency Hedging The Portfolio will be exposed to foreign currencies. From time to time, between 0% and 100% of the value of the Portfolio s foreign currency exposure may be hedged back to the Canadian dollar. Initially, the Portfolio Manager intends to hedge substantially all of the Portfolio s foreign currency exposure back to the Canadian dollar. The Portfolio Manager may use derivatives, such as futures and forward contracts, and currency swaps to hedge the Portfolio s foreign currency exposure. It is not intended that the distributions on the Portfolio Securities will be hedged. Leverage The Fund may utilize various forms of leverage, including through borrowings and margin facilities. It is anticipated that the leverage employed by the Fund will be achieved primarily by way of margin facilities. The maximum aggregate amount of leverage that the Fund will employ is 33.3% of Total Assets. Accordingly, at the time such leverage is incurred, the maximum amount of leverage that the Fund could employ is 1.50:1 (total long positions (including leveraged positions) divided by the net assets of the Fund). If at any time leverage exceeds the threshold, the Portfolio Manager will cause the leverage to be reduced to below such threshold as soon as reasonably practicable. Derivatives and shorting used solely for purposes of hedging (as defined in NI ) will not be included in the leverage threshold calculation. The amount of leverage, if any, utilized by the Fund will vary from time to time based on the Portfolio Manager s assessment of market conditions and cash flow requirements. Initially, the Fund is expected to employ leverage of approximately 32% of Total Assets. Lending of Portfolio Securities Subject to the conditions and limits set out in the requirements of NI , the Fund may utilize securities lending agreements. The use of securities lending and repurchase agreements shall be in line with the best interests of the Fund. In such a transaction the Fund may temporarily transfer its securities to a borrower, with agreement by the borrower to return equivalent securities to the Fund. In lending its securities, the Fund may receive income while retaining the securities potential for capital appreciation. The advantage of such loans is that the Fund continues to receive the interest and dividends on loaned securities while at the same time earning lending income on those securities. US Preferred Securities Income Fund In managing the Portfolio, the Portfolio Manager will employ substantially the same investment strategy as it employs in managing PineBridge US Preferred Securities Income Fund / Un-hedged (the US Preferred Securities Income Fund ). The US Preferred Securities Income Fund, which is offered exclusively to investors in Japan, is the only fund advised by the 18

24 Portfolio Manager that has investment objectives and strategies which are substantially similar to those of the Fund. The US Preferred Securities Income Fund was launched on September 9, PineBridge will employ substantially the same investment strategy with respect to the Portfolio as it employs in managing the US Preferred Securities Income Fund, but the two funds will differ in some respects, including, (i) the Fund will be able to utilize leverage, (ii) PineBridge will actively manage the Fund s portfolio duration, and (iii) the US Preferred Securities Income Fund is restricted to investments in investment grade securities only. The performance of the Fund may differ substantially from the performance of the US Preferred Securities Income Fund. There can be no assurance that the performance of the Fund will equal or exceed the performance of the US Preferred Securities Income Fund. While the Portfolio Manager will employ a substantially similar investment strategy with respect to the Portfolio as it employs in managing the US Preferred Securities Income Fund, the investments in the Portfolio and of the US Preferred Securities Income Fund will not be identical and may differ significantly from time to time. Past performance does not guarantee future results. Indicative Portfolio The following charts indicate the expected composition of the Portfolio, on an indicative basis if the Portfolio had existed on April 22, 2014 (the Indicative Portfolio ), in terms of exposure by credit rating, industry and region: 19

25 The top holdings of the Indicative Portfolio include securities of Assured Guaranty Ltd., Barclays plc, Credit Agricole Groupe, Liberty Mutual Holding Company Inc., Lloyds Banking Group plc, NextEra Energy, Inc., PartnerRe Ltd., Royal Bank of Scotland Group plc, Société Générale SA, UBS AG and Wells Fargo & Company. The information contained above is historical and is not intended to be, nor should it be construed to be, an indication as to the securities that will comprise the Portfolio. There can be no assurance that the portfolio composition referenced above will be met. The Portfolio may or may not include issuers considered in compiling the foregoing analysis and will include securities of issuers that were not included in compiling this analysis. The Portfolio Manager will actively manage the Portfolio to seek to meet the Fund s investment objectives and therefore the composition of the Portfolio will vary from time to time based on the Portfolio Manager s assessment of market conditions. Preferred Securities SECTORS IN WHICH THE FUND INVESTS Preferred securities are hybrid securities that have stock and bond-like qualities. Issuances of these securities are typically concentrated in the financial, telecom and utility sectors with financial institutions making up the majority share of the universe. The structures of these securities can vary, but all preferred securities are senior to common shares and junior to corporate bonds within an issuer s capital structure. In a bankruptcy or liquidation, preferred security investors would have a higher priority than common share investors but a lower priority than senior and often subordinated debt investors. Perpetual preferred securities have no maturity date. Convertible preferred securities can be converted into common shares under certain conditions. Trust preferred securities are issued by financial institutions. These securities, when issued, qualified as Tier I capital. However, due to new regulations (Dodd-Frank and Basel III rules), non-perpetual preferred securities can no longer qualify as Tier 1 Capital and must be phased out by 2015 and replaced with other forms of capital. The yield spread between a preferred security and a corporate bond represents the premium investors demand in exchange for the risk of purchasing subordinated debt. Current spread levels indicate that preferred securities are priced attractively versus longer-term historic norms. At the same time, the banking sector has experienced a dramatic improvement in capital, liquidity, asset quality and risk-appetite since the pre-crisis period. Banks appear to be have stronger credits, however, this view is not yet reflected in current valuations. The Portfolio Manager believes that these positive fundamental trends should provide support for tighter preferred spread levels and the potential for higher prices. 20

26 Source: BofA Merrill Lynch Global Research as of December 31, Valuation Relative to Other Fixed Income Asset Classes Preferred securities are generally issued by companies with highly rated senior debt. However, due to their subordinated capital structure position, preferred securities may be rated three to five credit rating levels lower than the senior debt of the same issuer. Because they are lower in the capital structure and carry a lower credit rating, preferred securities offer higher yields than investment grade corporate bonds. However, the Portfolio Manager believes that preferred securities are also currently attractively priced versus high yield corporate bonds that have historically experienced significantly higher default rates. The following two charts demonstrate the yields of preferred securities versus other fixed income asset classes compared to historical default rates: 21

27 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% COMPARATIVE YIELDS Source: BofA Merrill Lynch Global Research, Barclays as of March 31, Preferreds is represented by the BofA Merrill Lynch Fixed Rate Preferred Securities Index. Long Duration IG Corporates is represented by the Barclays US Long Corporate Index. Long Duration Treasuries is represented by the Barclays US Long Treasury Index. US High Yield is represented by the Barclays US Corporate High Yield Index. COMPARATIVE HISTORICAL AVERAGE ANNUAL DEFAULT RATES 5% 4% 3% 2% 1% 0% 5.15% Preferreds YTW 4.40% US High Yield Bonds 4.83% Long Duration IG Corporates YTW 1.66% Preferred Securities 3.42% Long Duration Treasuries YTM 0.09% Investment Grade Bonds 5.23% US High Yield YTW Source: Moody s Investors Service. US High Yield Bonds is represented by Annual Issuer-Weighted Corporate Default Rates for Speculative Grade Issuers ( ). Investment Grade Bonds is represented by Annual Issuer-Weighted Corporate Default Rates for Investment Grade Issuers ( ). Preferred Securities is represented by Annual Initial Impairment Events for Issuers of Non-Trust Preferred Stock as well as Trust Preferred Stock ( ). In addition to serving as an attractively priced substitute for high yield bonds, preferred securities could also serve as a good complement in the context of a fixed income portfolio due to their sector mix. The balance sheets of many of the largest banks are strong and accordingly, their senior unsecured bonds receive investment grade ratings. As a result, financial services make up a relatively small component of the high yield bond market. In contrast to this, the preferred securities market is largely concentrated in the financial services sector. Combining investments in these two asset classes could provide improved sector diversification benefits within a fixed income allocation. 22

28 The following chart shows the sector weights of high yield bonds versus preferred securities: BROAD SECTOR WEIGHTS 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 90% 10% 24% 76% Barclays US Corporate High Yield Index BofAML Fixed Rate Preferred Securities Index Financials Non-Financials Source: BofA Merrill Lynch Global Research, Barclays as of March 31, Preferreds is represented by the BofA Merrill Lynch Fixed Rate Preferred Securities Index. US High Yield is represented by the Barclays US Corporate High Yield Index. Diversification Benefits of Preferred Securities Preferred securities offer a diversification benefit to a typical portfolio consisting of common equities and other fixed income securities due to their low to modest correlation to most broad asset classes. The chart below demonstrates the 10-year correlations of a common preferred securities index with other major asset class indices: CORRELATION OF PREFERRED SECURITIES TO EQUITY AND BOND ASSET CLASSES Barclays US Corporate High Yield Barclays US Treasury Barclays US Agg Barclays Municipal S&P Yr Correlation Source: BofA Merrill Lynch Global Research, Barclays as of March 31, Preferreds is represented by the BofA Merrill Lynch Fixed Rate Preferred Securities Index. US High Yield is represented by the Barclays US Corporate High Yield Index. US Treasuries are represented by the Barclays US Treasury Index. US Agg Bond is represented by the Barclays US Aggregate Index. Municipals are represented by the Barclays Municipal Index. US Equities are represented by the S&P 500 Index. 23

29 INVESTMENT RESTRICTIONS The Fund is subject to certain investment restrictions. The investment activities of the Fund are to be conducted in accordance with, among other things, the following investment restrictions: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) (m) (n) (o) 100% of the Total Assets shall be invested in U.S. dollar, Euro or British Pound Sterling denominated securities (or Canadian Cash Equivalents); at least 80% of the Total Assets must be invested in preferred securities; at least 75% of the Total Assets shall be invested in securities rated Investment Grade; not more than 35% of the Total Assets shall be invested in contingent convertible securities; at least 50% of the Total Assets shall be invested in securities of U.S. domiciled companies; not more than 10% of the Total Assets may be invested in securities of any one issuer (other than in respect of Cash Equivalents); the Fund will not make borrowings if immediately following the borrowings, the aggregate borrowed amount would exceed 33.3% of Total Assets (derivatives and shorting used solely for purposes of hedging (as defined in NI ) will not be included in this leverage threshold calculation); no securities will be purchased if after such purchase the Fund would hold more than 10% of the outstanding voting securities of that issuer; the Fund will not engage in derivative transactions, other than derivative transactions for hedging purposes; the Fund will not have short exposure other than for hedging purposes; not more than 10% of the Total Assets may be invested in illiquid securities, which for these purposes means securities the resale of which is restricted by a representation, undertaking or agreement by the Fund or by law or that could not be disposed of within a period of 30 days at an amount which at least approximates the amount that the securities are valued for purposes of calculating NAV; the Fund will not engage in securities lending that does not constitute a securities lending arrangement for purposes of the Tax Act; the Fund will not purchase securities of an issuer if, as a result of such purchase, the Fund would be required to make a take-over bid that is a formal bid for purposes of the Securities Act (Ontario) or the equivalent provision of applicable securities laws of any other jurisdiction; the Fund will not purchase securities from, sell securities to, or otherwise contract for the acquisition or disposition of securities with the Manager or any of its affiliates, any officer, director or shareholder of the Manager, any person, trust, firm or corporation managed by the Manager or any of its affiliates or any firm or corporation in which any officer, director or shareholder of the Manager may have a material interest (which, for these purposes, includes beneficial ownership of more than 9.9% of the voting securities of such entity) unless, with respect to any purchase or sale of securities, either: (i) any such transaction is effected through normal market facilities, pursuant to a non-pre-arranged trade, and the purchase price approximates the prevailing Market Price; or (ii) is approved by the Manager s independent review committee; the Fund will not invest in or hold (i) securities of or an interest in any non-resident entity, an interest in or a right or option to acquire such property, or an interest in a partnership which holds any such property if the Fund (or the partnership) would be required to include any significant amounts in income pursuant to section 94.1 of the Tax Act, (ii) an interest in a trust (or a partnership which holds such an interest) which 24

30 would require the Fund (or the partnership) to include significant amounts in income in connection with such interest pursuant to the rules in section 94.2 of the Tax Act, or (iii) any interest in a non-resident trust (or a partnership which holds such an interest) other than an exempt foreign trust for the purposes of section 94 of the Tax Act; (p) (q) (r) (s) (t) the Fund will not invest in any security that would be a tax shelter investment within the meaning of section of the Tax Act; the Fund will not invest in any security of an issuer that would be a foreign affiliate of the Fund for purposes of the Tax Act; the Fund will not enter into any arrangement (including the acquisition of securities for the Portfolio) where the result is a dividend rental arrangement for the purposes of the Tax Act; the Fund will not make any investment or conduct any activity that would result in the Fund failing to qualify or ceasing to qualify as a mutual fund trust for purposes of the Tax Act or acquire any property that would be taxable Canadian property of the Fund as such term is defined in the Tax Act (if the definition were read without reference to paragraph (b) thereof) (or any amendment to such definition); and the Fund will not make or hold any investments that would result in the Fund itself being a SIFT trust for purposes of the SIFT Rules. If a percentage restriction on investment or use of assets or borrowing or financing arrangements set forth above as an investment restriction is adhered to at the time of the transaction, later changes to the market value of the investment or Net Asset Value of the Fund will not be considered a violation of the investment restrictions (except for the restrictions in paragraphs (g) and (t) above which must be complied with at all times and which may necessitate the selling of investments from time to time). If the amount of leverage exceeds 33.3% of Total Assets at any time, the Portfolio Manager will cause the leverage to be reduced to bring the aggregate amount of leverage below 33.3% of Total Assets as soon as reasonably practicable. If the Fund receives from an issuer subscription rights to purchase securities of that issuer, and if the Fund exercises those subscription rights at a time when the Fund s holdings of securities of that issuer would otherwise exceed the limits set forth above, the exercise of those rights will not constitute a violation of the investment restrictions if, prior to the receipt of securities of that issuer on exercise of these rights, the Fund has sold at least as many securities of the same class and value as would result in the restriction being complied with. Notwithstanding the foregoing, at the Portfolio Manager s discretion, the Portfolio may be invested entirely in cash or cash equivalents. Unitholder approval by way of Extraordinary Resolution is required to change the investment restrictions and investment objectives of the Fund. See Unitholders Matters Matters Requiring Unitholder Approval. Fees and Expenses Payable by the Fund Management Fee FEES AND EXPENSES The Fund will pay to the Manager an annual management fee (the Management Fee ) equal to 1.50% per annum, reduced to 1.0% per annum on July 1, 2024, of the NAV of the Fund, accrued and calculated daily and payable monthly in arrears, plus applicable taxes. The Manager may, in its discretion, reduce the Management Fee paid by the Fund from time to time. The Portfolio Manager will be remunerated by the Manager out of the Management Fee. Operating Expenses The Fund will pay for all ordinary expenses incurred in connection with its operation and administration. The Fund will also be liable for any extraordinary expenses which it may incur from time to time. It is expected that such ongoing expenses will include, without limitation, mailing and printing expenses for periodic reports to Unitholders and other Unitholder communications; fees payable to the registrar, transfer agent and distribution agent; fees payable to the Custodian, the 25

31 Valuation Agent and/or other parties engaged by the Fund for performing certain financial, record keeping, reporting and general administrative services; fees payable to the Trustee for acting as trustee of the Fund, any reasonable out-of-pocket expenses incurred by the Manager or its agents in connection with their ongoing obligations to the Fund; any additional fees payable to the Manager for performance of extraordinary services on behalf of the Fund; fees payable to the auditor and legal advisers; regulatory filing, stock exchange and licensing fees; any expenditures incurred upon the termination of the Fund; and fees payable to the members of the independent review committee. The aggregate annual amount of these fees and expenses is estimated to be $200,000 per annum, plus applicable taxes. The Fund will also be liable for the costs of all Portfolio transactions which it may incur from time to time and the cost of leverage and the Fund will be liable for any extraordinary expenses incurred from time to time. Such expenses will also include expenses of any action, suit or other proceedings in which or in relation to which the Manager or any other party is entitled to indemnity by the Fund. Fees and Expenses Payable by the Manager Offering Expenses The Manager will pay the Agents fees relating to the Offering and all of the expenses incurred on behalf of the Fund in connection with the Offering, which the Manager estimates will be approximately $650,000. Fees and Expenses Payable by Unitholders A Unitholder who redeems a Unit on an Annual Redemption Date occurring in 2023 or earlier, or on a Monthly Redemption Date, will be required to pay to the Manager a redemption fee (the Redemption Fee ). If the redemption occurs on an Annual Redemption Date, the amount of the Redemption Fee will vary based on the Annual Redemption Date on which the Unit is redeemed as described below: If redeemed on the Annual Redemption Date occurring in: Redemption Fee per Unit: 2016 $ $ $ $ $ $ $ $0.15 After 2023 Nil If the redemption occurs on a Monthly Redemption Date, the Redemption Fee will be equal to 5% of the Monthly Redemption Amount. The Redemption Fee will be deducted by the Fund from the amount payable to the redeeming Unitholder and remitted on behalf of the Unitholder to the Manager. However, no Redemption Fees will be payable by Unitholders, nor will any fee be payable by the Fund, upon a termination of the Fund by the Manager. RISK FACTORS In addition to the considerations set out elsewhere herein, the following are certain considerations relating to an investment in Units which prospective investors should consider before investing in Units. No Assurance of Achieving Investment Objectives There is no assurance that the Fund will be able to achieve its investment objectives. The funds available for distribution to Unitholders will vary according to, among other things, the levels of dividends, distributions or interest paid on the Portfolio Securities, applicable withholding taxes and the value of the Portfolio Securities. There is no assurance that the Portfolio will earn any return. No assurance can be given as to the amount of distributions currently and in future years. No assurance can be given that the NAV per Unit will be preserved or appreciate. 26

32 It is possible that, due to declines in dividends, distributions or interest paid on, and the market value of, the Portfolio Securities, the Fund will have insufficient assets to achieve in full its investment objectives. Risks Relating to Fluctuations in Value of Portfolio Securities and Performance of the Portfolio The NAV per Unit will vary as the value of the Portfolio Securities varies. The Fund, the Manager and the Portfolio Manager have no control over the factors that affect the value of the Portfolio Securities, including factors that affect the markets generally, such as general economic and political conditions and fluctuations in interest rates, and factors unique to each issuer included in the Portfolio and its business, such as changes in management, changes in strategic direction, achievement of strategic goals, mergers, acquisitions and divestitures, changes in distribution policies, operational risk relating to the specific business activities of the issuers, industry competition and other events that may affect the value of its securities. Some global economies are experiencing significantly diminished growth and some are suffering a recession. No assurance can be given that diminished availability of credit and significant devaluations will not adversely affect the markets into which the Fund will invest in the near to medium term. Risks of Investing in Preferred Securities The Fund will also be subject to the risks inherent in investment in preferred securities, including the risk that the financial condition of the issuers in which the Fund invests may become impaired or that the general condition of the stock markets may deteriorate. Preferred securities are susceptible to general stock market fluctuations and to volatile increases and decreases in value as market confidence in, and perceptions of, the issuers change. There are specific risks associated with investing in preferred securities, including: (a) Limited voting rights. Generally, preferred security holders (such as the Fund) have no voting rights with respect to the issuing company unless preferred dividends have been in arrears for a specified number of periods, at which time the preferred security holders may elect a number of directors to the issuer s board. Generally, once all the arrearages have been paid, the preferred security holders no longer have voting rights. In the case of certain preferred securities issued by trusts or special purpose entities, holders generally have no voting rights except if a declaration of default occurs and is continuing. In such an event, preferred security holders generally would have the right to appoint and authorize a trustee to enforce the trust or special purpose entity s rights as a creditor under the agreement with its operating company. (b) Special redemption rights. In certain circumstances, an issuer of preferred securities may redeem the securities prior to their stated maturity date. For instance, for certain types of preferred securities, a redemption may be triggered by a change in federal income tax or securities laws or regulatory or major corporate action. A redemption by the issuer may negatively impact the return of the security held by the Fund. (c) Payment deferral. Generally, preferred securities may be subject to provisions that allow an issuer, under certain conditions, to skip ( non-cumulative preferred securities) or defer ( cumulative preferred securities) distributions. Non-cumulative preferred securities can defer distributions indefinitely. Cumulative preferred securities typically contain provisions that allow an issuer, at its discretion, to defer distribution payments for up to 10 years. If the Fund owns a preferred security that is deferring its distribution, the Fund may be required to report income for tax purposes while it is not receiving any corresponding cash. (d) Subordination. Preferred securities are subordinated to bonds and other debt instruments in a company s capital structure and therefore are subject to greater credit risk than those debt instruments. (e) Liquidity. Preferred securities may be substantially less liquid than many other securities, such as U.S. government securities or common shares. (f) Regulatory risk. Issuers of preferred securities may be in industries that are heavily regulated and that may receive government funding. The value of preferred securities issued by these companies may be affected by changes in government policy, such as increased regulation, ownership restrictions, deregulation or reduced government funding. (g) New Types of Securities. From time to time, preferred securities, including hybrid securities, have been, and may in the future be, offered having features other than those described herein. The Fund reserves the right to invest in these securities if the Portfolio Manager believes that doing so would be consistent with the Fund s investment objectives. 27

33 Since the market for these instruments would be new, the Fund may have difficulty disposing of them at a suitable price and time. In addition to limited liquidity, these instruments may present other risks, such as high price volatility. (h) Conversion. Holders of preferred securities (such as the Fund) could become holders of common shares of issuers at a time when such issuer s financial condition is deteriorating or when it has become insolvent or bankrupt or resolved to be wound-up or has been ordered wound-up or liquidated. There can be no guarantee that the common shares issued in such circumstances will pay a dividend, appreciate, or that there will be a liquid market for such common shares. There can be no guarantee that in such circumstances payment of interest or other distributions on the preferred securities will resume. As a result, in such circumstances, were the Fund to become a holder of common shares, it could receive substantially less than as a holder of preferred securities that have not been exchanged for common shares, which in turn could affect the ability of the Fund to meet its investment objectives, including paying targeted monthly distributions. There can be no guarantee that any triggering events which require a holder of preferred securities (such as the Fund) to subscribe for common shares of such issuers will not change over time or will not vary from one security to another. Portfolio Concentration Risk The Fund will at all times invest in the Portfolio Securities selected in accordance with the Fund s investment strategy. The Portfolio may be concentrated in the financial services sector. A financial services company is one that is primarily involved in banking, mortgage finance, consumer finance, specialized finance, investment banking and brokerage, asset management and custody, corporate lending, insurance or financial investments. This makes the Fund more susceptible to adverse economic or regulatory occurrences affecting this sector. Concentration of investments in financial services companies include the following risks: (a) financial services companies may suffer a setback if regulators change the rules under which they operate; (b) unstable interest rates can have a disproportionate effect on the financial services sector; (c) financial services companies whose securities the Fund may purchase may themselves have concentrated portfolios, such as a high level of loans to real estate developers, which makes them vulnerable to economic conditions that affect that sector; (d) financial services companies have been affected by increased competition, which could adversely affect the profitability or viability of such companies; and (e) financial services companies have been significantly and negatively affected by the downturn in the subprime mortgage lending markets and the resulting impact on the world s economies. The Portfolio Securities may not be diversified by country or industry. The NAV of the Fund may be more volatile than the net asset value of a more broadly diversified portfolio and may fluctuate substantially over short periods of time. This may have a negative effect on the value of the Units and the Fund s capital appreciation objectives. Foreign Currency Exposure As the Portfolio will consist of securities denominated in foreign currencies, the NAV of the Fund, when measured in Canadian dollars, will, to the extent this has not been hedged against, be affected by changes in the value of the foreign currencies relative to the Canadian dollar. From time to time, between 0% and 100% of the value of the Portfolio s foreign currency exposure may be hedged back to the Canadian dollar. Initially, the Portfolio Manager intends to hedge substantially all of the Portfolio s foreign currency exposure back to the Canadian dollar. The use of hedges involves special risks, including the possible default by the other party to the transaction, illiquidity and, to the extent the Portfolio Manager s assessment of certain market movements is incorrect, the risk that the use of hedges could result in diminished returns or losses greater than if the hedging had not been used. Hedging arrangements may have the effect of limiting or reducing the total returns to the Fund if the Portfolio Manager s expectations concerning future events or market conditions prove to be incorrect. In addition, the costs associated with a hedging program may outweigh the benefits of the arrangements in such circumstances. 28

34 Changes to Interest Rates Interest rate risk is the risk that fixed rate securities such as fixed rate preferred securities will decline in value because of changes in market interest rates. When market interest rates rise, the market value of such securities generally will fall. Longer-term fixed rate securities are generally more sensitive to interest rate changes. The Fund s investment in such securities means that the NAV and market price of the Units will tend to decline if market interest rates rise. Currently, market interest rates are at or near record historical lows. Preferred securities with longer periods before maturity or longer durations may be more sensitive to interest rate changes. Duration Risk Duration measures the time-weighted expected cash flows of a security, which can determine the security s sensitivity to changes in the general level of interest rates (or yields). Securities with longer durations tend to be more sensitive to interest rate (or yield) changes than securities with shorter durations. Duration differs from maturity in that it considers potential changes to interest rates, and a security s coupon payments, yield, price and par value and call features, in addition to the amount of time until the security matures. Various techniques may be used to shorten or lengthen the duration of Portfolio Securities. The duration of a security will be expected to change over time with changes in market factors and time to maturity. The management of the duration of the Portfolio will not completely protect the Fund from increases in interest rates. Call Risk The Fund may invest in preferred securities and hybrid instruments, which are subject to call risk. Preferred securities and hybrid instruments may be redeemed at the option of the issuer, or called, before their stated maturity date. In general, an issuer will call its preferred securities and hybrid instruments if they can be refinanced by issuing new instruments which bear a lower interest rate. The Fund is subject to the possibility that during periods of falling interest rates, an issuer will call its high-yielding preferred securities or hybrid instruments. The Fund may then be forced to invest the unanticipated proceeds at lower interest rates, resulting in a decline in the Fund s income. Issuer Credit Risk Issuers of preferred securities in which the Fund may invest may default on their obligations to pay dividends, principal or interest when due. This non-payment could result in a reduction of income to the Fund, a reduction in the value of a preferred security or debt instrument experiencing non-payment and, potentially, a decrease in the NAV of the Fund. There can be no assurance that liquidation of collateral would satisfy the issuer s obligation in the event of non-payment of scheduled dividends, interest or principal when due or that such collateral could be readily liquidated. In the event of bankruptcy of an issuer, the Fund could experience delays or limitations with respect to its ability to realize the benefits of any collateral securing a preferred security or debt instrument. To the extent that the credit rating assigned to a security in the Portfolio is downgraded, the market price and liquidity of such security may be adversely affected. Preferred securities are subordinated borrowing to bonds and hybrid instruments in a company s capital structure in terms of priority to corporate income and assets upon liquidation, and therefore will be subject to greater credit risk than those hybrid instruments. Proposed and Current Financial Regulatory Reforms Recent and proposed regulatory reforms affecting the financial services industries, such as the Dodd-Frank Act and Basel III rules, may make certain traditional preferred and hybrid securities, including securities held in the Portfolio from time to time, less attractive for issuing banks. This may result in a significant reduction in the issuance and availability of these types of securities and potentially in many outstanding issues in the marketplace being redeemed or potentially less liquid. These changes may negatively impact the prices of some securities, particularly those trading above their par values, as such reforms may make near-term redemptions at par possible. However, other securities may be positively affected, particularly those trading at discounts to par value. Such securities may experience an increase in market value from issuers redemption activity. Although it is expected that over time new types of preferred securities in which the Fund may invest will be issued (resulting in higher Portfolio turnover), the continued availability of such investments cannot be determined. 29

35 Illiquid Securities There is no assurance that an adequate market will exist for the securities included in the Portfolio and it cannot be predicted whether the securities included in the Portfolio will trade at a discount to, a premium to, or at their respective par or net asset values. There can be no assurance that the Fund will be able to dispose of its investments in order to honour requests to redeem Units. Income Risk The Portfolio s income could decline due to falling market interest rates. This is because, in a falling interest rate environment, the Fund generally will have to invest the proceeds from the maturing portfolio securities in lower-yielding securities. A decline in income received by the Fund from its investments is likely to have a negative effect on dividend levels and the market price, NAV and/or overall return of the Units. Equity Risk Equities such as common shares give the holder part ownership in an issuer. The value of an equity security changes with the fortunes of the issuer that issued it. General market conditions and the health of the economy as a whole can also affect equity prices. Equity related securities that provide indirect exposure to the equity securities of an issuer can also be affected by equity risk. Present economic conditions may adversely affect global companies and the pricing of their securities. Further continued volatility or illiquidity could impair materially the profitability of these issuers. Foreign Market Exposure Investments made by the Fund will include securities of issuers established in jurisdictions outside Canada and the U.S. Although some of such issuers will be subject to uniform accounting, auditing and financial reporting standards comparable to those applicable to Canadian and U.S. issuers, some issuers may not be subject to such standards and, as a result, there may be less publicly available information about such issuers than a Canadian or U.S. issuer. Volume and liquidity in some foreign markets may be less than in Canada and the U.S. and, at times, volatility of price may be greater than in Canada or the U.S. As a result, the price of such securities may be affected by conditions in the market of the jurisdiction in which the issuer is located or its securities are traded. Other risks include the application of foreign tax law, changes in governmental administration or economic or monetary policy and the effect of local market conditions on the availability of public information. Investments in foreign markets carry potential exposure to the risk of political upheaval, acts of terrorism and war, all of which may have an adverse impact on the value of such securities. Short Selling The Fund is permitted to sell short securities for the purpose of hedging various risks including currency, duration and interest rate exposure. Short selling, or the sale of securities not owned by the Fund, necessarily involves certain additional risks. Such transactions expose the Fund to the risk of loss in an amount greater than the initial investment. Volatility in Trading Price of Units The Units may trade in the market at a discount to NAV per Unit, and there can be no assurance that the Units will trade at a price equal to (or greater than) the NAV per Unit. In addition, Units may trade at a discount to the Net Asset Value per Unit less the then current Redemption Fee having regard for the affect that this fee will have on the proceeds realized by a Unitholder in connection with a redemption of Units on an Annual Redemption Date. Reliance on the Manager and the Portfolio Manager Unitholders will be dependent on the ability of the Manager and the Portfolio Manager to effectively manage the Fund and the Portfolio in a manner consistent with the investment objectives, strategy and restrictions of the Fund. The employees of the Manager and Portfolio Manager who will be primarily responsible for the management of the Portfolio have experience in managing investment portfolios. There is no certainty that the employees of the Manager or Portfolio Manager who will be primarily responsible for the management of the Portfolio will continue to be employees of their respective firms throughout the term of the Fund. 30

36 Residency of Portfolio Manager The Portfolio Manager is resident outside Canada and all or substantial portion of its assets are situated outside Canada. As a result, anyone seeking to enforce legal rights against it may find it difficult to do so. Non-Investment Grade Securities The Fund may make investments in securities that are not investment grade. Securities in the lower rating categories are subject to greater risk of loss, as to timely repayment of principal and timely payment of dividends, interest or distributions than higher-rated securities. They are also generally considered to be subject to greater risk than securities with higher ratings in the case of deterioration of general economic conditions. The yields and prices of lower-rated securities may tend to fluctuate more than those for higher-rated securities. A Lack of Operating History for the Fund The Fund is a newly organized investment fund with no previous operating history. There is currently no public market for the Units and there can be no assurance that an active public market will develop or be sustained after completion of the Offering. Risks Relating to Redemptions The purpose of the annual redemption rights is to prevent Units from trading at a substantial discount and to provide investors with the right to eliminate entirely any trading discount once per year. While the redemption right provides investors an alternative option of annual liquidity, there can be no assurance that it will reduce trading discounts. There is a risk that the Fund may incur significant redemptions if Units trade at a significant discount to their Net Asset Value per Unit, thereby providing arbitrage traders an opportunity to profit from the difference between the applicable Net Asset Value per Unit and the discounted market price at which they purchased their Units. If a significant number of Units are redeemed, the trading liquidity of the Units could be significantly reduced. In addition, the expenses of the Fund would be spread among fewer Units resulting in a potentially lower distribution per Unit. The Manager has the ability to terminate the Fund if, in its opinion, it is no longer economically feasible to continue the Fund and/or it would be in the best interests of the Unitholders to do so. If the Fund were terminated as a result of redemptions, it may be terminated before the Manager would otherwise have chosen to do so and the return to Unitholders may be less than anticipated. The Manager may also suspend the redemption of Units in the circumstances described under Redemption of Units - Suspension of Redemptions. Securities Lending The Fund may engage in securities lending. Although it will receive collateral for the loans and such collateral will be marked-to-market, the Fund will be exposed to the risk of loss should the borrower default on its obligation to return the borrowed securities and the collateral be insufficient to reconstitute the portfolio of loaned securities. Use of Leverage One element of the Fund s investment strategy is the utilization of leverage. By adding leverage, the Fund has the potential to enhance returns but this also involves additional risks. There can be no assurance that the leveraging strategy employed for the Fund will enhance returns. The use of leverage may reduce returns (both distributions and capital) to holders of Units. If the securities in the Portfolio suffer a substantial decrease in value, the leverage component will magnify the decrease in the value of the Units. If a loan or margin facility is called by a lender, or if assets of the Fund have to be liquidated in order to comply with the terms of the borrowings, the Fund may have to liquidate its assets at a time when market conditions are not favourable, resulting in a loss. The expenses and fees incurred in respect of the leverage may exceed the incremental net capital gains and income generated by the incremental investment for the Portfolio. Market Disruptions War and occupation, terrorism and related geopolitical risks may in the future lead to increased short-term market volatility and may have adverse long-term effects on world economies and markets generally. Those events could also have an acute 31

37 effect on individual issuers or related groups of issuers. These risks could also adversely affect securities markets, inflation and other factors relating to the Portfolio Securities. Global Financial Developments Global financial markets have experienced a sharp increase in volatility in the last several years. This has been, in part, the result of the revaluation of assets on the balance sheets of international financial institutions and related securities. This has contributed to a reduction in liquidity among financial institutions and has reduced the availability of credit to those institutions and to the issuers who borrow from them. While central banks as well as global governments have worked to restore much needed liquidity to the global economies, no assurance can be given that the combined impact of the significant revaluations and constraints on the availability of credit will not continue to materially and adversely affect economies around the world. No assurance can be given that this stimulus will continue or that, if it continues, it will be successful or these economies will not be adversely affected by the inflationary pressures resulting from such stimulus or central banks efforts to slow inflation. Further, continued market concerns about the European sovereign debt crisis, developments in the Middle East and the Ukraine, matters related to the U.S. government debt limits and the inflationary effects of quantitative easing may adversely impact global equity markets. Some of these economies have experienced significantly diminished growth and some are experiencing or have experienced a recession. These market conditions and further volatility or illiquidity in capital markets may also adversely affect the prospects of the Fund and the value of the Portfolio Securities. Tax Matters Affecting the Fund The Fund will be subject to certain tax risks generally applicable to investment funds that hold Canadian and/or non- Canadian securities, including the following: As the Fund will be primarily invested in securities of foreign issuers, dividends, distributions and certain interest received by the Fund may be subject to foreign withholding tax and the Fund may be subject to other foreign taxes. See Income Tax Considerations-Taxation of the Fund for a discussion of certain considerations relevant to a Canadian resident Unitholder relating to foreign taxes withheld from dividends, distributions and certain interest paid to the Fund. If the Fund fails to or ceases to qualify as a mutual fund trust under the Tax Act, the income tax considerations described under the heading Income Tax Considerations would be materially and adversely different in certain respects. There can be no assurance that Canadian federal income tax laws and the administrative policies and assessing practices of the CRA respecting the treatment of mutual fund trusts will not be changed in a manner which adversely affects the Unitholders. In determining its income for tax purposes, the Fund will treat gains or losses on the disposition of Portfolio Securities as capital gains and losses. The Fund may use derivative instruments for hedging purposes. Subject to the discussion below regarding the DFA Rules, gains or losses realized on such derivatives will be treated and reported for purposes of the Tax Act on capital account provided there is sufficient linkage. Designations with respect to the Fund s income and capital gains will be made and reported to Unitholders on this basis. The CRA s practice is not to grant advance income tax rulings on the characterization of items as capital gains or income and no advance income tax ruling has been requested or obtained. If the foregoing dispositions or transactions of the Fund are not on capital account, the net income of the Fund for tax purposes and the taxable component of distributions to Unitholders could increase. The Tax Act contains recently enacted rules (the DFA Rules ) that target certain financial arrangements (referred to as derivative forward agreements ) that seek to reduce tax by converting, through the use of derivative contracts, the return on an investment that would otherwise have the character of ordinary income to a capital gain. The DFA Rules are broadly drafted, and could apply to other agreements or transactions (including certain forward currency contracts). If the DFA Rules were to apply to certain derivatives to be utilized by the Fund, gains realized in respect of such derivatives could be treated as ordinary income rather than capital gains. Counsel understand that, in response to inquiries from industry participants, the Department of Finance (Canada) is considering clarifications to the DFA Rules as regards their potential application to currency hedges. Pursuant to recently enacted rules in the Tax Act, if the Fund experiences a loss restriction event, the Fund (i) will be deemed to have a year-end for tax purposes (which would result in an unscheduled distribution of the Fund s net income and net realized capital gains, if any, at such time to Unitholders so that the Fund would not be liable for income tax on such amounts under Part I of the Tax Act), and (ii) will become subject to the loss restriction rules generally applicable to a corporation that experiences an acquisition of control, including a deemed realization of any unrealized capital losses and restrictions on its ability to carry forward losses. Generally, the Fund would be subject to a loss restriction event if a person 32

38 becomes a majority-interest beneficiary, or a group of persons becomes a majority-interest group of beneficiaries, of the Fund, as those terms are defined in the Tax Act. Generally, a person would be a majority-interest beneficiary of the Fund if it, together with persons and partnerships with whom it is affiliated, owns more than 50% of the Units. The Fund is formed to provide investors with exposure to portfolio investments and is subject to investment restrictions intended to ensure that it will not be a SIFT trust (as defined in the Tax Act). If the Fund were considered to be a SIFT trust within the meaning of the Tax Act, the income tax considerations described under the heading Income Tax Considerations would be materially and adversely different in certain respects U.S. Tax Rules On March 18, 2010, the Hiring Incentives to Restore Employment Act of 2010 was enacted into law and added a new withholding tax system, often referred to as the Foreign Account Tax Compliance Act ( FATCA ), to the U.S. Internal Revenue Code. FATCA requires a foreign financial institution ( FFI ), the broad definition of which would include an investment fund established outside of the United States, to undertake certain due diligence, reporting, withholding and certification obligations with respect to its direct and certain indirect investors. Failure to comply with FATCA could subject an FFI or its account holders to certain sanctions including a 30% U.S. withholding tax on certain payments to them, unless an exemption is met. On February 5, 2014, the Canadian government announced it had signed an intergovernmental agreement with the United States (the Canada-U.S. IGA ) under which Canada will import certain FATCA provisions into Canadian law and which modifies the U.S. tax reporting and withholding provisions as they apply to Canadian FFIs. The Canada-U.S. IGA must be ratified by Canada to come into force, but should become effective July 1, On March 28, 2014, legislation to ratify and implement the Canada-U.S. IGA was tabled in the House of Commons. Under the Canada-U.S. IGA, Canadian FFIs, including the Fund, must comply with certain due diligence and reporting obligations on U.S. Reportable Accounts from July 1, 2014 onwards. Annual information reporting obligations to the CRA start in Information provided to the CRA regarding US Reportable Accounts will be exchanged by the CRA with the U.S. Internal Revenue Service in accordance with the provisions of the Canada-U.S. tax treaty. A Canadian FFI that complies with the requisite due diligence and reporting requirements of the Canada-U.S. IGA will generally be relieved from certain obligations that would otherwise have been applicable under FATCA, including the obligation to withhold on payments to, or to close accounts of, individual account holders who do not provide requested information to permit the FFI to establish whether they are U.S. Reportable Accounts. The Fund expects to qualify for relief under the Canada-U.S. IGA so as to avoid the imposition of the 30% withholding tax. The Fund (or the Manager, if it elects to be the sponsoring entity of the Fund) will be required under the Canada-U.S. IGA to register with the U.S. Internal Revenue Service. As long as the Units continue to be registered in the name of CDS, the Fund should not have any U.S. Reportable Accounts. As a result, the Fund should not be required to provide information to the CRA under the Canada- U.S. IGA in respect of its Unitholders No Ownership Interest Risk An investment in Units does not constitute an investment by Unitholders in the assets included in the Portfolio. Unitholders will not own the assets held by the Fund. It is possible that the proceeds from the sale of Portfolio Securities will be used to satisfy other liabilities of the Fund, which liabilities could include obligations to third party creditors in the event the Fund has insufficient assets, excluding the proceeds from the sale of such Portfolio Securities, to pay its liabilities. Loss of Investment Risk An investment in the Fund is appropriate only for investors who have the capacity to absorb a loss. Changes in Legislation and Regulatory Risk There can be no assurance that certain laws applicable to the Fund, including income tax laws and the treatment of trusts under the Tax Act, will not be changed in a manner which adversely affects the Fund or Unitholders. If such laws change, such changes could have a negative effect upon the value of the Portfolio and upon the investment opportunities available to the Fund. 33

39 Status of the Fund As the Fund is not a mutual fund as defined under Canadian securities laws, the Fund is not subject to the Canadian policies and regulations that apply to open-end mutual funds. It is intended that the Fund will be a mutual fund trust for purposes of the Tax Act. If the Fund ceases or fails to qualify as a mutual fund trust for purposes of the Tax Act, certain tax considerations described in this prospectus would be materially and adversely different. Potential Conflicts of Interest The Manager and the Portfolio Manager, their directors and officers and their respective affiliates and associates may engage in the promotion, management or investment management of other accounts, funds or trusts which may invest primarily in the securities held by the Fund. Although officers, directors and professional staff of the Manager and the Portfolio Manager will devote as much time to the Fund as is deemed appropriate to perform their duties, the staff of the Manager and the Portfolio Manager may allocate their time and services among the Fund and the other funds managed by the Manager or the Portfolio Manager, as applicable. Risks Relating to the Nature of the Units The Units represent a fractional interest in the net assets of the Fund. Units are dissimilar to hybrid instruments in that there is no principal amount owing to Unitholders. Unitholders will not have the statutory rights normally associated with ownership of shares of a corporation including, for example, the right to bring oppression or derivative actions. DISTRIBUTION POLICY The Fund will not have a fixed distribution but in accordance with the Fund s investment objectives intends to pay monthly cash distributions based on, among other things, the actual and expected returns on the Portfolio. The Manager, in consultation with the Portfolio Manager, will annually determine in June of each year an indicative distribution amount for the year based upon the prevailing market conditions and an estimate of distributable cash flow from the Portfolio for such year. The Fund intends to make monthly distributions to Unitholders of record on the last Business Day of each month (each, a Distribution Record Date ). Distributions will be paid on a Business Day designated by the Manager that will be on or about the 15th day of the month following the Distribution Record Date. The monthly distributions are initially estimated to be $0.125 per Unit ($1.50 per annum per Unit) representing an annual yield of 6.0% on the $25.00 per Unit issue price. The initial cash distribution of $0.125 is anticipated to be payable on or about September 15, 2014 to Unitholders of record on August 29, 2014, based on an anticipated closing date of June 27, Assuming (i) gross proceeds of the Offering of $100 million, (ii) the fees and expenses are as described under Fees and Expenses, (iii) exchange rates remain constant, and (iii) initial leverage utilization of 32% of Total Assets, the Portfolio would be required to generate an average annual total return of approximately 5.77% in order to maintain a stable NAV of the Fund while funding distributions at the initial targeted level. As of May 27, 2014, the current cash yield on the Indicative Portfolio is 6.59%, the yield to call is 5.77%, and the yield to maturity is 4.37%. While the Portfolio Manager has determined that the Indicative Portfolio does not include any securities on which amounts paid would be subject to foreign withholding tax, no assurance can be provided that this will always be the case. It is anticipated that returns on the Portfolio over the life of the Fund will be derived primarily from dividends, interest and other distributions received on the Portfolio Securities and net realized capital gains from the sale of the Portfolio Securities. It is expected that a significant portion of distributions will be designated by the Fund as foreign source income; however, distributions may also include, among other things, amounts designated by the Fund as taxable capital gains and returns of capital. It is not expected that a significant portion of distributions, if any, will be designated by the Fund as taxable dividends from taxable Canadian corporations that would be subject to the gross-up and dividend tax credit rules in the Tax Act. The amount of monthly distributions may fluctuate and there can be no assurance that the Fund will make any distribution in any particular month or months. If the return on the Portfolio or the increase in the value of the Portfolio is less than the amount necessary to fund the monthly distributions and all expenses of the Fund and if the Manager chooses nevertheless to ensure that the monthly distributions are paid to Unitholders, this will result in a portion of the capital of the Fund being returned to Unitholders and, accordingly, the Net Asset Value per Unit and the adjusted cost base per Unit would be reduced. If the projected distributable cash flow over time is not sufficient to 34

40 fund the monthly distributions, the Manager, in consultation with the Portfolio Manager, would expect to reduce the targeted distribution amount. If in any taxation year, after the monthly distributions, there would remain in the Fund additional net income or net realized capital gains, the Fund will, after December 15 but on or before December 31 of the calendar year in which such taxation year ends, be required to pay or make payable such net income and net realized capital gains as one or more year-end special distributions to Unitholders as is necessary to ensure that the Fund will not be liable for income tax on such amounts under Part I of the Tax Act (after taking into account all available deductions, credits and refunds). Such special distributions may be paid in the form of Units and/or cash. Any special distributions payable in Units will increase the aggregate adjusted cost base of a Unitholder s Units. Immediately following payment of such a special distribution in Units, the number of Units outstanding will be automatically consolidated such that the number of Units outstanding after such distribution will be equal to the number of Units outstanding immediately prior to such distribution, except in the case of a non-resident Unitholder to the extent tax is required to be withheld in respect of the distribution. See Income Tax Considerations. The Fund intends that the monthly distributions will be paid in cash. However, year-end special distributions may be paid in cash and/or Units from time to time. PURCHASE OF UNITS Prospective purchasers may purchase Units through the Agents or any member of a sub-agency group that the Agents may form. The Fund proposes to offer the Units at a price of $25.00 per Unit. Prospective purchasers may acquire Units by cash payment only. Closing of the Offering will take place on or about June 27, 2014, or such later date as may be agreed upon by the Manager on behalf of the Fund and the Agents that is not later than 90 days after a final receipt for this prospectus has been issued. The offering price of the Units was determined by negotiation between the Agents and the Manager on behalf of the Fund. See Plan of Distribution. REDEMPTION OF UNITS Commencing in 2016, Units may be surrendered annually for redemption during the period from May 1 until 5:00 p.m. (Toronto time) on the last Business Day in May of each year (the Annual Redemption Notice Period ) subject to the Fund s right to suspend redemptions in certain circumstances. Units properly surrendered for redemption during the Annual Redemption Notice Period will be redeemed on the second last Business Day in June of each year (the Annual Redemption Date ) and the Unitholder will receive payment on or before the 15th day of the month following the Annual Redemption Date. Redeeming Unitholders will receive a redemption price per Unit equal to the applicable NAV per Unit on the Annual Redemption Date, less any costs and expenses incurred by the Fund in order to fund such redemption, including brokerage costs. A Unitholder who redeems a Unit on an Annual Redemption Date occurring in 2023 or earlier will be required to pay a Redemption Fee to the Manager. See Fees and Expenses Fees and Expenses Payable by Unitholders. In addition to the annual redemption right, Units may also be surrendered at any time for redemption on the second last Business Day of any month (other than the month of June (except in 2014 and 2015)) (a Monthly Redemption Date ), subject to certain conditions. In order to effect such a redemption, the Units must be surrendered by no later than 5:00 p.m. (Toronto time) on the date which is the last Business Day of the month preceding the month in which the Monthly Redemption Date falls, subject to the Fund s right to suspend redemptions in certain circumstances. Units properly surrendered for redemption within such period will be redeemed on the Monthly Redemption Date and the Unitholder surrendering such Units will receive payment on or before the 15th day of the month following the Monthly Redemption Date. Unitholders surrendering a Unit for redemption on a Monthly Redemption Date will receive a redemption price per Unit equal to the lesser of (i) 95% of the Market Price of a Unit, and (ii) 100% of the Closing Market Price of a Unit on the applicable Monthly Redemption Date less, in each case, any costs and expenses incurred by the Fund in order to fund such redemption, including brokerage costs (the Monthly Redemption Amount ). A Unitholder who redeems a Unit on a Monthly Redemption Date will also be required to pay a redemption fee to the Manager equal to 5% of the Monthly Redemption Amount. The Fund may, in its discretion, determine what portion, if any, of the amount paid to a redeeming Unitholder on a redemption of Units is an allocation and/or designation to the Unitholder of net realized capital gains and income, as applicable, of the Fund realized by the Fund to facilitate the redemption of Units. Any such allocation and/or designation will reduce the redemption price otherwise payable to the redeeming Unitholder. 35

41 Any unpaid distribution payable to Unitholders of record on or before the Monthly Redemption Date or the Annual Redemption Date, as applicable, in respect of Units tendered for redemption on such redemption date will also be paid on the same day as the redemption proceeds are paid. Exercise of Redemption Right An owner of Units who desires to exercise redemption privileges thereunder must do so by causing a participant (a CDS Participant ) in the depository, trading, clearing and settlement systems administered by CDS Clearing and Depository Securities Inc. ( CDS ) to deliver to CDS (at its office in the City of Toronto) on behalf of the owner a written notice (the Redemption Notice ) of the owner s intention to redeem Units. An owner who desires to redeem Units should ensure that the CDS Participant is provided with notice of his or her intention to exercise his or her redemption privilege sufficiently in advance of the relevant notice date so as to permit the CDS Participant to deliver notice to CDS and so as to permit CDS to deliver notice to the transfer agent and registrar of the Fund in advance of the required time. The form of Redemption Notice will be available from a CDS Participant or the transfer agent and registrar. Any expense associated with the preparation and delivery of Redemption Notices will be for the account of the owner exercising the redemption privilege. Except as provided under Suspension of Redemptions, by causing a CDS Participant to deliver to CDS a notice of the owner s intention to redeem Units, an owner shall be deemed to have irrevocably surrendered his or her Units for redemption and appointed such CDS Participant to act as his or her exclusive settlement agent with respect to the exercise of the redemption privilege and the receipt of payment in connection with the settlement of obligations arising from such exercise. Any Redemption Notice delivered by a CDS Participant regarding an owner s intent to redeem which CDS determines to be incomplete, not in proper form or not duly executed shall for all purposes be void and of no effect and the redemption privilege to which it relates shall be considered for all purposes not to have been exercised thereby. A failure by a CDS Participant to exercise redemption privileges or to give effect to the settlement thereof in accordance with the owner s instructions will not give rise to any obligations or liability on the part of the Fund to the CDS Participant or to the owner. Resale of Units Tendered for Redemption Following Closing, the Fund may enter into a recirculation agreement (the Recirculation Agreement ) with BMO Nesbitt Burns Inc. (the Recirculation Agent ) whereby the Recirculation Agent will agree to use commercially reasonable efforts to find purchasers for any Units tendered for redemption prior to the relevant Monthly Redemption Date or the Annual Redemption Date, as applicable. The Fund may, but is not obliged to, require the Recirculation Agent to seek such purchasers. In such event, the amount to be paid to the Unitholder on the Monthly Redemption Date or the Annual Redemption Date, as applicable, will be an amount equal to the proceeds of the sale of the Units, less any applicable commission payable to the Recirculation Agent. Such amount shall not be less than the amount that a Unitholder would have been otherwise entitled to receive. The Recirculation Agreement will provide that the Recirculation Agent will not recirculate Units unless the price achieved by the Recirculation Agent in selling Units tendered for redemption is equal to or in excess of the redemption price to be paid to the redeeming Unitholder net of applicable fees and expenses. A Unitholder is entitled to require the Fund to redeem any Unit surrendered for redemption and is not obligated to have his or her Units recirculated. Suspension of Redemptions The Manager may suspend the redemption of Units or payment of redemption proceeds: (i) during any period when normal trading is suspended on a stock exchange or other market on which securities owned by the Fund are listed and traded, if these securities represent more than 50% by value or underlying market exposure of the total assets of the Fund, without allowance for liabilities, and if these securities are not traded on any other exchange that represents a reasonably practical alternative for the Fund; or (ii) for a period not exceeding 30 days during which the Manager determines that conditions exist which render impractical the sale of assets of the Fund or which impair the ability to determine the value of the assets of the Fund. The suspension may apply to all requests for redemption received prior to the suspension but as to which payment has not been made, as well as to all requests received while the suspension is in effect. All Unitholders making such requests shall be advised by the Fund of the suspension and that the redemption will be effected at a price determined on the first Business Day following the termination of the suspension. In such circumstances, all such Unitholders shall have the right to withdraw their requests for redemption. The suspension shall terminate in any event on the first day on which the condition giving rise to the suspension has ceased to exist, provided that no other condition under which a suspension is authorized then exists. To the extent not inconsistent with official rules and regulations promulgated by any government body having jurisdiction over the Fund, any declaration of suspension made by the Fund shall be conclusive. 36

42 INCOME TAX CONSIDERATIONS In the opinion of Blake, Cassels & Graydon LLP, counsel to the Fund and the Manager, and McCarthy Tétrault LLP, counsel to the Agents, the following is, as of the date hereof, a summary of the principal Canadian federal income tax considerations generally relevant to investors who acquire Units pursuant to this prospectus. This summary is applicable to a Unitholder who is an individual (other than a trust) and who, for the purposes of the Tax Act, is resident or deemed to be resident in Canada, deals at arm s length and is not affiliated with the Fund and holds Units as capital property. Generally, Units will be considered to be capital property to a Unitholder provided the Unitholder does not hold the Units in the course of carrying on a business of trading or dealing in securities and has not acquired them in one or more transactions considered to be an adventure in the nature of trade. Certain Unitholders who might not otherwise be considered to hold their Units as capital property may, in certain circumstances, be entitled to have their Units, and all other Canadian securities owned or subsequently owned by such Unitholders, treated as capital property by making an irrevocable election in accordance with the Tax Act. This summary is based on the assumptions that (i) none of the issuers of the Portfolio Securities will be a foreign affiliate of the Fund or of any Unitholder; (ii) none of the Portfolio Securities will be a tax shelter investment within the meaning of section of the Tax Act; (iii) the Fund will not enter into any arrangement that would result in a dividend rental arrangement within the meaning of the Tax Act; (iv) the Fund will not acquire any investment that would cause the Fund to become a SIFT trust within the meaning of subsection 122.1(1) of the Tax Act; (v) none of the Portfolio Securities will be property that would be taxable Canadian property within the meaning of the Tax Act (without reference to paragraph (b) thereof); and (vi) none of the Portfolio Securities will be an interest in an offshore investment fund property that would require the Fund to include significant amounts in income in respect of such interest pursuant to section 94.1 of the Tax Act, or an interest in a trust (or a partnership which holds such an interest) that would require the Fund (or the partnership) to include significant amounts in income in connection with such interest pursuant to the rules in section 94.2 of the Tax Act, or an interest in a non-resident trust (or a partnership that holds such an interest) other than an exempt foreign trust as defined in section 94 of the Tax Act. This summary is also based on the advice of the Manager and of the Agents respecting certain factual matters. This summary is based on the facts set out in this prospectus, the current provisions of the Tax Act, counsel s understanding of the current administrative policies and assessing practices of the CRA published in writing by it prior to the date hereof and all specific proposals to amend the Tax Act publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (such proposals referred to hereafter as the Tax Proposals ). This summary does not otherwise take into account or anticipate any changes in law or in the CRA s administrative policy or assessing practice, whether by legislative, governmental or judicial action, nor does it take into account other federal or any provincial, territorial or foreign tax legislation or considerations. There can be no assurance that the Tax Proposals will be enacted in the form publicly announced or at all. This summary is not exhaustive of all possible Canadian federal income tax considerations applicable to an investment in Units and does not describe the income tax consequences relating to the deductibility of interest on money borrowed to acquire Units. Moreover, the income and other tax consequences of acquiring, holding or disposing of Units will vary depending on an investor s particular circumstances including the province or territory in which the investor resides or carries on business. Accordingly, this summary is of a general nature only and is not intended to be legal or tax advice to any investor. Investors should consult their own tax advisors for advice with respect to the income tax consequences of an investment in Units, based on their particular circumstances. Status of the Fund This summary is based on the assumptions that the Fund will qualify at all times as a mutual fund trust within the meaning of the Tax Act and that the Fund will validly elect under the Tax Act to be a mutual fund trust from the date it was established. To qualify as a mutual fund trust, (i) the Fund must be a Canadian resident unit trust for purposes of the Tax Act; (ii) the only undertaking of the Fund must be the investing of its funds in property (other than real property or interests in real property or an immovable or a real right in an immovable); and (iii) the Fund must comply with certain minimum requirements respecting the ownership and dispersal of Units. The Manager has advised counsel that it expects the Fund will qualify as a mutual fund trust no later than the Closing Date, that the Fund will elect to be deemed to be a mutual fund trust from the date it was established and that it is expected to qualify as a mutual fund trust at all relevant times. If the Fund were not to qualify as a mutual fund trust at all times, the income tax considerations as described below would in some respects be materially and adversely different. 37

43 Provided that the Fund qualifies as a mutual fund trust within the meaning of the Tax Act or the Units are listed on a designated stock exchange (which includes the TSX), 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, registered disability savings plans, registered education savings plans and tax-free savings accounts (each a plan trust ). See Income Tax Considerations Taxation of Registered Plans for the consequences of holding Units in plan trusts. Taxation of the Fund The Manager has advised counsel that the Fund will elect to have a taxation year that ends on December 15 of each calendar year. The Fund will be subject to tax in each taxation year under Part I of the Tax Act on the amount of its income for the year, including net realized taxable capital gains, less the portion thereof that it claims in respect of the amount paid or payable to Unitholders in the calendar year in which the taxation year ends. An amount will be considered to be payable to a Unitholder in a calendar year if it is paid in the year by the Fund or the Unitholder is entitled in that year to enforce payment of the amount. Counsel have been advised that it is intended that the Fund will deduct, in computing its income for each taxation year, an amount in respect of distributions to Unitholders sufficient to ensure that the Fund will generally not be liable for income tax under Part I of the Tax Act (after taking into account all other available deductions and all available credits and refunds). The Fund will be entitled for each taxation year throughout which it is a mutual fund trust to reduce (or receive a refund in respect of) its liability, if any, for tax on its net realized capital gains by an amount determined under the Tax Act based on the redemptions of Units during the year (the Capital Gains Refund ). The Capital Gains Refund in a particular taxation year may not completely offset the tax liability of the Fund, if any, for such taxation year which may arise upon the sale or other disposition of a security in the Portfolio in connection with the redemption of Units. The Fund will be required to include in its income for a taxation year all dividends received or considered to be received in the year on shares of corporations. With respect to indebtedness, the Fund will be required to include in its income for a taxation year all interest thereon that accrues (or is deemed to accrue) to it to the end of that year (or until the disposition of the indebtedness in the year) or that has become receivable or is received by the Fund before the end of that year, including on a conversion, redemption or repayment on maturity, except to the extent that such interest was included in computing the Fund s income for a preceding year and excluding any interest that accrued prior to the time of the acquisition of the indebtedness by the Fund. Upon the actual or deemed disposition of indebtedness, the Fund will be required to include in computing its income for the year of disposition all interest that accrued on such indebtedness from the last interest payment date to the date of disposition except to the extent such interest was included in computing the Fund s income for that or another taxation year and such interest will not be included in the proceeds of disposition for purposes of computing any capital gain or loss. In determining the income of the Fund, gains or losses realized upon dispositions of Portfolio Securities will constitute capital gains or capital losses of the Fund in the taxation year realized unless the Fund is considered to be trading or dealing in securities or otherwise carrying on a business of buying and selling securities or the Fund has acquired the securities in a transaction or transactions considered to be an adventure in the nature of trade. The Manager has advised counsel that the Fund will purchase Portfolio Securities with the objective of earning income thereon and participating in the long term capital appreciation of the Portfolio Securities, and will take the position that gains and losses realized on the disposition of Portfolio Securities are capital gains and capital losses. The Manager has also advised counsel that the Fund intends to make an election under subsection 39(4) of the Tax Act, if available, so that all Portfolio Securities that are Canadian securities (as defined in the Tax Act) will be deemed to be capital property to the Fund. Such an election will ensure that gains or losses realized by the Fund on the sale of such Canadian securities, including short sales of such Canadian securities, are taxed as capital gains or capital losses. Generally, the Fund will include gains and deduct losses on income account in connection with investments made through certain derivatives, as well as certain short sales of securities other than Canadian securities, except where such derivatives are used to hedge Portfolio Securities held on capital account provided there is sufficient linkage, subject to the DFA Rules discussed below, and will recognize such gains or losses for tax purposes at the time they are realized by the Fund. The Fund may be subject to the suspended loss rules contained in the Tax Act. A loss realized on a disposition of capital property is considered to be a suspended loss when the Fund acquires a property (a substituted property ) that is the same or identical to the property disposed of, within 30 days before and 30 days after the disposition and the Fund owns the substituted property 30 days after the original disposition. If a loss is suspended, the Fund cannot deduct the loss from the Fund s capital gains until the substituted property is sold and is not reacquired within 30 days before and after the sale. 38

44 The Portfolio will include securities that are not denominated in Canadian dollars. Proceeds of disposition of securities, dividends, interest, distributions and all other amounts will be determined for the purposes of the Tax Act in Canadian dollars using the appropriate exchange rates determined in accordance with the detailed rules in the Tax Act in that regard. The Fund may realize gains or losses by virtue of the fluctuation in the value of foreign currencies relative to Canadian dollars. Subject to the discussion in the following paragraph, where currency hedging transactions are sufficiently linked, gains and losses on such transactions will be treated as capital gains and capital losses. The DFA Rules treat what would otherwise be capital gains and capital losses realized on certain derivative contracts as being on income account. The DFA Rules are broadly worded and might be interpreted to apply to other agreements or transactions (including forward currency contracts). See Risk Factors-Tax Matters Affecting the Fund. The Fund will derive income or gains from investments in countries other than Canada and, as a result, may be liable to pay tax to such countries. To the extent that such foreign tax paid qualifies as an income or profits tax (for example, withholdings on foreign source dividends) and does not exceed 15% of such amount and has not been deducted in computing the Fund s income, the Fund may designate a portion of its foreign source income in respect of a Unitholder so that such income and a portion of the foreign tax paid by the Fund may be regarded as foreign source income of, and foreign tax paid by, the Unitholder for the purposes of the foreign tax credit provisions of the Tax Act. To the extent that such foreign tax paid by the Fund exceeds 15% of the amount included in the Fund s income from such investments, such excess may generally be deducted by the Fund in computing its income for the purposes of the Tax Act. In computing its income for tax purposes, the Fund may deduct reasonable administrative and other expenses incurred to earn income, including interest payable by it on money borrowed to purchase Portfolio Securities. Any losses of the Fund may not be allocated to Unitholders but may be carried forward and deducted in computing the taxable income of the Fund in accordance with the detailed rules of the Tax Act. Taxation of Unitholders A Unitholder will generally be required to include in computing income for a particular taxation year of the Unitholder the amount of the Fund s net income, including net realized taxable capital gains, paid or payable to the Unitholder (whether in cash or in Units) in that particular year including the taxable portion of any amounts paid on a redemption of Units treated as an allocation of net realized capital gains and income by the Fund. Amounts paid or payable by the Fund to a Unitholder after December 15 and before the end of the calendar year are deemed to have been paid or become payable to the Unitholder on December 15. The non-taxable portion of the Fund s net realized capital gains for a taxation year, the taxable portion of which was designated in respect of a Unitholder in the calendar year in which such taxation year ends, paid or payable to the Unitholder in that calendar year will not be included in the Unitholder s income for the year. Any other amount in excess of the Fund s net income for a taxation year paid or payable to the Unitholder in the calendar year in which such taxation year ends, such as a return of capital of the Fund, will generally not be included in the Unitholder s income. Such an amount, however, will generally reduce the adjusted cost base of the Unitholder s Units. To the extent that the adjusted cost base of a Unit would otherwise be less than zero, the negative amount will be deemed to be a capital gain realized by the Unitholder from the disposition of the Unit and the Unitholder s adjusted cost base of the Unit will then be zero. Provided that appropriate designations are made by the Fund, such portion of: (i) the net realized taxable capital gains of the Fund, (ii) the income of the Fund from foreign sources, and (iii) the taxable dividends received or deemed to be received by the Fund on shares of taxable Canadian corporations as is paid or payable to a Unitholder will effectively retain its character and be treated as such in the hands of the Unitholder for purposes of the Tax Act. A Unitholder will generally be entitled to foreign tax credits in respect of foreign taxes under and subject to detailed foreign tax credit rules under the Tax Act. Amounts designated as taxable dividends from taxable Canadian corporations will be subject to the gross-up and dividend tax credit rules, including the enhanced gross-up and tax credit applicable to designated eligible dividends. Under the Tax Act, the Fund is permitted to deduct in computing its income for a taxation year an amount that is less than the amount of its distributions for the calendar year in which such taxation year ends. This will enable the Fund to utilize, in a taxation year, losses from prior years. The amount distributed to a Unitholder but not deducted by the Fund will not be included in the Unitholder s income. However, the adjusted cost base of the Unitholder s Units will be reduced by such amount. To the extent that the adjusted cost base of a Unit would otherwise be less than zero, the negative amount will be deemed to be a capital gain realized by the Unitholder from the disposition of the Unit and the Unitholder s adjusted cost base of the Unit will then be zero. 39

45 On the disposition or deemed disposition of a Unit, including a redemption, the Unitholder will generally realize a capital gain (or capital loss) to the extent that the Unitholder s proceeds of disposition, excluding any portion of amounts paid on redemption treated as an allocation of capital gains and income by the Fund, exceed (or are less than) the aggregate of the adjusted cost base of the Unit and any reasonable costs of disposition (including any Redemption Fees paid by the Unitholder). For the purpose of determining the adjusted cost base of Units to a Unitholder, if additional Units are acquired, the cost of the newly acquired Units will be averaged with the adjusted cost base of all Units owned by the Unitholder as capital property immediately before that time. The cost of Units acquired as a distribution by the Fund to a Unitholder will generally be equal to the amount of the distribution. A consolidation of Units following a distribution paid in the form of additional Units will not be regarded as a disposition of Units and will not affect the aggregate adjusted cost base to a Unitholder of Units. One-half of any capital gain realized on the disposition of Units, or paid to the Unitholder out of the Fund s net realized capital gains and so designated by the Fund, will be included in the Unitholder s income and one-half of any capital loss realized by a Unitholder will be deducted from taxable capital gains subject to and in accordance with the provisions of the Tax Act. In general terms, net income of the Fund paid or payable to a Unitholder that is designated as taxable dividends from taxable Canadian corporations or as net realized taxable capital gains, and taxable capital gains realized by the Unitholder on the disposition of Units may increase the Unitholder s liability, if any, for alternative minimum tax. Tax Implications of the Fund s Distribution Policy When a Unitholder purchases Units, a portion of the price paid may reflect income or capital gains accrued or realized in the Fund but not yet paid or made payable before such purchase. If these amounts are paid or payable by the Fund to such Unitholder as distributions, they must be included in the Unitholder s income for tax purposes subject to the provisions of the Tax Act, even though such amounts may have been earned or accrued before the purchase and reflected in the purchase price. This may be the case if Units are purchased near year-end before a final year-end distribution, if any, is made by the Fund and, in particular, where a Unitholder acquires Units in a calendar year after December 15 of such year, such Unitholder may become taxable on income earned or capital gains realized in the taxation year ending on December 15 of such calendar year but that had not been made payable before the Units were purchased. Taxation of Registered Plans Amounts of income and capital gains included in a plan trust s income are generally not taxable under Part I of the Tax Act, provided that the Units are qualified investments for the plan trust. See Income Tax Considerations Status of the Fund. Unitholders should consult their own advisors regarding the tax implications of establishing, amending, terminating or withdrawing amounts from a plan trust. Notwithstanding that the Units will be qualified investments for plan trusts in the circumstances described under Income Tax Considerations Status of the Fund, if Units are a prohibited investment for a registered retirement savings plan, a registered retirement income fund or a tax-free savings account that acquires Units, the annuitant or holder thereof will be subject to a penalty tax as set out in the Tax Act. A prohibited investment includes a unit of a trust (i) that does not deal at arm s length with the annuitant or holder; or (ii) in which the annuitant or holder has a significant interest, which in general terms means the ownership of 10% or more of the value of the trust s outstanding units by the annuitant or holder, either alone or together with persons and partnerships with which the annuitant or holder does not deal at arm s length. Annuitants under registered retirement savings plans and registered retirement income funds and holders of tax-free savings accounts should consult with their own tax advisors in this regard. The Manager ORGANIZATION AND MANAGEMENT DETAILS OF THE FUND The Manager will perform or arrange for the performance of management services for the Fund, will be responsible for the administration of the Fund and will act as the investment fund manager of the Fund pursuant to a management agreement (the Management Agreement ) between the Fund and the Manager. The Manager will be entitled to receive fees as compensation for management services rendered to the Fund. The principal office of the Manager is located at 1 First Canadian Place, 100 King Street West, 3rd Floor Podium, P.O. Box 150, Toronto, Ontario, M5X 1H3. See Duties and Services to be Provided by the Manager and Details of the Management Agreement below and Fees and Expenses. 40

46 Directors and Certain Executive Officers of the Manager The name and municipality of residence of the directors and certain executive officers of the Manager and their principal occupations are as follows: Name and Municipality of Residence THOMAS V. MILROY Toronto, Ontario PETER HINMAN Toronto, Ontario ERIC C. TRIPP Toronto, Ontario L. JACQUES MÉNARD Montreal, Québec GILLES OUELLETTE Toronto, Ontario CONNIE STEFANKIEWICZ Toronto, Ontario CHARYL GALPIN Toronto, Ontario RICHARD MILLS Toronto, Ontario Position with the Manager and Principal Occupation Director and Chief Executive Officer of the Manager Director and Chief Financial Officer of the Manager and Chief Financial Officer, BMO Capital Markets Director and President of the Manager Director and Chairman of the Board of Directors of the Manager and President of BMO Financial Group, Quebec Director of the Manager and Chief Executive Officer, Private Client Group, BMO Financial Group Director of the Manager and Head, North American Channels Strategy and Solutions, BMO Financial Group Director of the Manager and Co-Head, Private Client Division of the Manager Director of the Manager and Co-Head, Private Client Division of the Manager Each of the foregoing individuals has held his or her current office or has held a senior position with the Manager or an affiliate of the Manager during the five years preceding the date hereof. Penelope Muradya is the corporate secretary of the Manager. Duties and Services to be Provided by the Manager and Details of the Management Agreement Pursuant to the Management Agreement, BMONBI is the manager of the Fund and, as such, is responsible for providing, or arranging for the provision of, managerial, administrative and compliance services to the Fund including engaging the Portfolio Manager and for providing or arranging for the required administrative services to the Fund including, without limitation: authorizing the payment of operating expenses incurred on behalf of the Fund; preparing financial statements and financial and accounting information as required by the Fund; ensuring that Unitholders are provided with financial statements (including interim and annual financial statements) and other reports as are required by applicable law from time to time; ensuring that the Fund complies with regulatory requirements and applicable stock exchange listing requirements; preparing the Fund s reports to Unitholders and the Canadian securities regulatory authorities; determining the amount of any distributions to be made by the Fund; negotiating contractual agreements with third party providers of services, including custodians, registrars, transfer agent, fund accountants, auditor and printers; and arranging for any payment required on or about the date of termination of the Fund. BMONBI will be required to exercise its powers and discharge its duties as manager of the Fund honestly, in good faith and in the best interests of the Fund and Unitholders of the Fund, and in connection therewith, to exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in similar circumstances. BMONBI may resign as manager of the Fund upon no less than 30 days or more than 60 days notice to the Unitholders. The Manager will be deemed to have resigned (i) if it ceases to be resident in Canada for purposes of the Tax Act; (ii) if the Manager has lost any registration, licence or other authorization or cannot rely on an exemption therefrom required by the Manager to perform its services under the Management Agreement; or (iii) if it ceases to carry out its functions of managing the Fund in Canada. If the Manager resigns it may appoint its successor but, unless its successor is an affiliate of the Manager, its successor must be approved by the Unitholders. If the Manager is in material default of its obligations under the Management Agreement and such default has not been cured within 30 days after notice of same has been given to the Manager, the Unitholders may remove the Manager and appoint a successor manager. 41

47 BMONBI will be entitled to fees for its services as Manager under the Management Agreement as described under Fees and Expenses and will be reimbursed for all reasonable costs and expenses incurred by BMONBI on behalf of the Fund. In addition, BMONBI and each of its directors, officers, employees and agents will be indemnified by the Fund for all liabilities, costs and expenses incurred in connection with any action, suit or proceeding that is proposed or commenced or other claim that is made against BMONBI or any of its officers, directors, employees or agents in the exercise of its duties as manager of the Fund, if they do not result from BMONBI s wilful misconduct, bad faith, negligence or breach of its obligations under the Management Agreement or its duties or standard of care described above. If the Manager is removed from its position as described above, the Fund will be required to pay to the Manager a fee equal to the aggregate amount of all Redemption Fees that would be payable to the Manager calculated as if all outstanding Units were redeemed on the Annual Redemption Date in the calendar year in which the Manager is removed. The administration and management services of BMONBI under the Management Agreement are not exclusive and nothing in the Management Agreement prevents BMONBI from providing similar administrative and management services to other investment funds and other clients (whether or not their investment objectives and policies are similar to those of the Fund) or from engaging in other activities. The Portfolio Manager PineBridge Investments LLC will act as the portfolio advisor to the Fund. PineBridge will be responsible for certain portfolio advisory and investment management services that are provided to the Fund in connection with the Portfolio pursuant to a portfolio management agreement. PineBridge is a U.S. registered investment advisor with approximately US$73.5 billion of assets under management as of December 31, As a global asset manager with broad capabilities and established track records across emerging and developed markets, PineBridge offers a broad range of investment strategies in a variety of asset classes, including global equities and fixed income, asset allocation, and alternative investments. PineBridge s integrated investment platform offers innovative, core and specialized alpha-oriented solutions. PineBridge believes its investment process and team structure have key elements which can benefit its clients and which set PineBridge apart from its peers. The following illustration depicts the PineBridge investment platform. PineBridge has a global presence with over 700 employees and approximately 220 investment professionals located in 24 cities across 22 countries and jurisdictions operating in regional centers in Asia, North America, Europe, South America and Africa, as of December 31, 2013 as shown in the diagram below. The PineBridge fixed income platform is comprised of 68 investment professionals located in New York, Houston, Los Angeles, London, Hong Kong and Tokyo. Collectively, this team manages US$29.4 billion in fixed income securities issued 42

48 by corporate and sovereign entities spanning most developed and emerging markets globally. This fixed income asset management activity includes a broad range of investment strategies targeting opportunities across diverse issuers and issuer capital structures. Key Personnel of the Portfolio Manager The core team managing the Portfolio are members of PineBridge US Investment Grade Credit Team based in the US which manages approximately US$6.9 billion of investment grade fixed income securities. The team has over 17 years of average experience in US credit strategies. The team includes seven sector analysts, a portfolio strategist/risk manager and a product specialist who support the lead and back-up portfolio managers investment decisions. A trader and assistant trader provide market monitoring and market intelligence. The PineBridge Investment Grade Preferred Securities investment team, specifically, consists of six investment professionals, with an average of 19 years industry experience. As of December 31, 2013, the team managed US$1.7 billion in preferred securities. The Portfolio Manager utilizes a cross-team and cross-border network of meetings and committees to tap into the investment expertise of the broader fixed income platform. Its approach is to combine asset class specialization with effective communication across geographies, asset classes and investment strategies. Apart from regular dialogue through daily and weekly information sharing meetings, members of the team participate on a number of committees that influence asset allocation and share current views on available sources of alpha (e.g., duration, currency, credit, etc.) across markets and over time. For this Fund, as for all of the firm s fixed income strategies, the portfolio managers, analysts and traders will all be vital in the decision-making process. A description of the experience and background of each of the individuals at the Portfolio Manager who will have primary responsibility for the management of the Portfolio is set out below: Vladimir Karlov - Managing Director, Head of Quantitative Portfolio Management, Fixed Income. Mr. Karlov joined the firm in 2000 and is responsible for managing preferred equity portfolios. He is also engaged in asset allocation decisions, asset-liability management, liability driven investments, execution of structured and derivatives transactions. Previously, Mr. Karlov was responsible for managing capital structure arbitrage and convertible portfolios. Prior to joining the firm, he was a Consultant in the Financial Risk Management Group at PricewaterhouseCoopers LLP in New York. At PwC, Mr. Karlov worked with banks, investment management companies, mortgage companies and government agencies on a wide variety of risk management projects. He received a BS and an MS (Honors) in Applied Mathematics and Cybernetics at Moscow State University in Russia, and a Doctor of Science in Operations Research from George Washington University. Amit Agrawal Managing Director, Senior Portfolio Manager. Mr. Agrawal joined the firm in He is currently a Senior Portfolio Manager in the Fixed Income group, responsible for managing government/credit bond funds, inflation funds, CDOs, and preferred equity portfolios. Prior to PineBridge, Mr. Agrawal worked with MetLife as a Portfolio Manager and Corporate Bond Strategist. His responsibilities included developing quantitative and relative value tools, portfolio strategy, credit derivatives, and risk management. Prior to that, he was an Economist at Moody's Investors Service. 43