ARTEMIS FLOATING & VARIABLE RATE PREFERRED FUND

Transcription

1 A copy of this preliminary prospectus has been filed with the securities regulatory authorities in each of the provinces and territories of Canada but has not yet become final for the purpose of the sale of securities. Information contained in this preliminary prospectus may not be complete and may have to be amended. The securities may not be sold until a receipt for the prospectus is obtained from the securities regulatory authorities. 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, and, subject to certain exemptions, will not be offered or sold within the United States or to U.S. persons. PRELIMINARY PROSPECTUS Initial Public Offering December 19, 2014 ARTEMIS FLOATING & VARIABLE RATE PREFERRED FUND Class A Units $25.00 per Class A Unit $ ( Class A Units) Maximum Class U Units US$25.00 per Class U Unit US$ ( Class U Units) Maximum Artemis Floating & Variable Rate Preferred Fund (the Fund ), a closed-end investment fund established as a trust under the laws of the Province of Ontario, proposes to issue class A units of the Fund ( Class A Units ) at a price of $25.00 per Class A Unit and class U units of the Fund ( Class U Units ) at a price of US$25.00 per Class U Unit. The Class A Units and Class U Units are together referred to as the Units. The offering of the Units is referred to herein as the Offering. The Class U Units are designed for investors wishing to make their investment in U.S. dollars and will not be listed on the stock exchange but will be convertible into Class A Units on a weekly basis. The Fund s investment objectives are to provide holders of Units ( Unitholders ) with: (i) (ii) the opportunity for long-term capital preservation and appreciation; and quarterly cash distributions. See Investment Objectives. In order to achieve its investment objectives, the Fund will seek to replicate, to the extent possible, the performance of the Wells Fargo Hybrid & Preferred Securities Floating & Variable Rate Index (the Index ), net of expenses. See Investment Strategies. The Index is a market capitalization-weighted index designed to track the performance of preferred stock, as well as certain types of hybrid securities that are considered functionally equivalent to preferred stock, that are publicly issued or listed in the U.S. by U.S. or foreign issuers and that pay a floating or variable rate dividend or coupon. As of December 9, 2014, the Index was comprised of 89 securities from 52 issuers with a weighted average credit rating of BB+ by Standard & Poor s, a division of The McGraw-Hill Companies, Inc. The Fund s portfolio holdings will be rebalanced monthly following the rebalancing of the Index. See Investment Strategies The Index. Artemis Investment Management Limited (the Manager or Artemis ) will be responsible for the management and administration of the Fund and will also implement the Fund s investment strategies. See Organization and Management Details of the Fund. Price: $25.00 per Class A Unit Minimum Purchase: 100 Class A Units Price: US$25.00 per Class U Unit Minimum Purchase: 100 Class U Units

2 Price to the Public (1) Agents Fee Net Proceeds to the Fund (2) Per Class A Unit... $25.00 $ $ Minimum Total Offering (3) (4)... $20,000, $1,050, $18,950, Maximum Total Offering (4)... $ $ $ Per Class U Unit... US$25.00 US$ US$ Maximum Total Offering (4)... $ $ $ Notes: (1) The terms of the Offering were established through negotiation between the Agents and the Manager on behalf of the Fund. (2) Before deducting the expenses of issue which are estimated to be $. Such expenses, together with the Agents fee, will be paid out of the proceeds of the Offering, provided however that the expenses of the Offering to be borne by the Fund shall not exceed 1.5% of the gross proceeds of the Offering. (3) There will be no closing unless a minimum of Class A Units are sold. If subscriptions for a minimum of Class A Units have not been received within 90 days after a final receipt for this prospectus is issued, the Offering may not continue without the consent of the securities regulatory authorities and those who have subscribed for Units on or before such date. (4) The maximum total offering assumes Class A Units are issued and sold hereunder. The Fund has granted to the Agents an Over- Allotment Option, exercisable for a period of 30 days from the closing date of the Offering, to purchase additional Class A Units in an amount up to 15% of the Class A Units issued on the closing date of the Offering on the same terms as set forth above solely to cover overallotments, if any. If the Over-Allotment Option is exercised in full under the maximum Offering, the price to the public, Agents fee and net proceeds to the Fund are estimated to be $, $ and $, respectively. This prospectus also qualifies the grant of the Over-Allotment Option and the distribution of the Class A Units issuable on the exercise of the Over-Allotment Option. A purchaser who acquires Class A Units forming part of the Agents over-allocation position acquires such Class A 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. There is no guarantee that an investment in the Fund will earn any positive return in the short or long-term, nor is there any guarantee that the net asset value per Unit will appreciate or be preserved. An investment in the Units is appropriate only for investors who have the capacity to absorb a loss of some or all of their investment. There is 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 Units and the extent of issuer regulation. See Risk Factors for a discussion of certain factors that should be considered by prospective investors in the Units. TD Securities Inc., RBC Dominion Securities Inc., Scotia Capital Inc., CIBC World Markets Inc., BMO Nesbitt Burns Inc., National Bank Financial Inc., Canaccord Genuity Corp., GMP Securities L.P., Raymond James Ltd., Desjardins Securities Inc., Industrial Alliance Securities Inc., Laurentian Bank Securities Inc., Manulife Securities Incorporated, Dundee Securities Ltd., Mackie Research Capital Corporation, Rothenberg Capital Management Inc. and Sherbrooke Street Capital (SSC) Inc., as agents (collectively, the Agents ), conditionally offer the Units for sale, subject to prior sale, on a best efforts basis, if, as and when issued by the Fund in accordance with the conditions contained in the Agency Agreement referred to under Plan of Distribution and subject to the approval of certain legal matters on behalf of the Fund by Osler, Hoskin & Harcourt LLP and on behalf of the Agents by Blake, Cassels & Graydon LLP. See Plan of Distribution. 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. The Agents may over-allot or effect transactions as described under Plan of Distribution. Closing of the Offering is expected to occur on or about, 2015 or such later date as the Fund and the Agents may agree, but in any event no later than 90 days after a final receipt for this prospectus has been issued. Registrations and transfers of Units will be effected only through 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 Description of the Units Book-Entry-Only and Book-Based Systems. (ii)

3 TABLE OF CONTENTS Page PROSPECTUS SUMMARY...1 SUMMARY OF FEES AND EXPENSES...8 FORWARD-LOOKING STATEMENTS...8 INFORMATION REGARDING PUBLIC INFORMATION...9 GLOSSARY OF TERMS OVERVIEW OF THE LEGAL STRUCTURE OF THE FUND INVESTMENT OBJECTIVES INVESTMENT STRATEGIES The Index Portfolio Exposure Constituent Index Securities Versus Fixed Rate Bonds When Interest Rates Rise Leverage Currency Hedging (Class A Units only) OVERVIEW OF THE SECTORS THAT THE FUND INVESTS IN INVESTMENT RESTRICTIONS FEES AND EXPENSES Fees and Expenses Payable or Borne by the Fund RISK FACTORS Risks Factors Relating to an Investment in the Fund Risk Factors Related to the Constituent Securities in the Index DISTRIBUTION POLICY Distributions REDEMPTION OF UNITS Annual Redemptions Monthly Redemptions Allocations of Capital Gains to Redeeming Unitholders Exercise of Redemption Right Resale of Units Tendered for Redemption Suspension of Redemptions INCOME TAX CONSIDERATIONS Status of the Fund Taxation of the Fund Taxation of Unitholders Taxation of Registered Plans Tax Implications of the Fund s Distribution Policy Eligibility for Investment ORGANIZATION AND MANAGEMENT DETAILS OF THE FUND The Manager of the Fund Officers and Directors of the Manager Duties and Services to be Provided by the Manager Details of the Management Agreement Conflicts of Interest Manager The Trustee Independent Review Committee Business Practice, Risk Management and Internal Conflict of Interest Policies Remuneration of Directors, Officers and Independent Review Committee Members Custodian Auditor Transfer Agent and Registrar Promoter CALCULATION OF NET ASSET VALUE DESCRIPTION OF THE UNITS The Units Conversion of Units Purchase for Cancellation Book Entry Only and Book-Based Systems Take-over Bids UNITHOLDER MATTERS Meetings of Unitholders Amendment of the Declaration of Trust Reporting to Unitholders TERMINATION OF THE FUND USE OF PROCEEDS PLAN OF DISTRIBUTION Non-Resident Unitholders International Information Reporting INTERESTS OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS MATERIAL CONTRACTS License Agreement LEGAL AND ADMINISTRATIVE PROCEEDINGS EXPERTS PURCHASERS STATUTORY RIGHTS OF WITHDRAWAL AND RESCISSION i-

4 TABLE OF CONTENTS (continued) INDEPENDENT AUDITORS REPORT... F-1 STATEMENT OF FINANCIAL POSITION... F-2 NOTES TO STATEMENT OF FINANCIAL POSITION... F-3 CERTIFICATE OF THE FUND, THE MANAGER AND THE PROMOTER... C-1 CERTIFICATE OF THE AGENTS... C-2 -ii-

5 PROSPECTUS SUMMARY The following is a summary of the principal features of the Offering and should be read together with the more detailed information and financial data and statements contained elsewhere in this prospectus. Certain capitalized terms used, but not defined, in this summary are defined in the Glossary of Terms. THE OFFERING Fund: Offering: Price: Minimum and Maximum Issue: Minimum Purchase: Investment Objectives: The Fund is a closed-end investment fund established as a trust under the laws of the Province of Ontario. See Overview of the Legal Structure of the Fund. The Fund is offering class A units (the Class A Units ) and class U units (the Class U Units ) of the Fund. The Class A Units and Class U Units are together referred to as the Units. The Class U Units are designed for investors wishing to make their investment in U.S. dollars. See Plan of Distribution. $25.00 per Class A Unit US$25.00 per Class U Unit A minimum of $20,000,000 (Class A Units) and a maximum of $ ( Class A Units). A maximum of US$ ( Class U Units) $2,500 (100 Class A Units) US$2,500 (100 Class U Units) The Fund s investment objectives are to provide holders of Units ( Unitholders ) with: (i) (ii) the opportunity for long-term capital preservation and appreciation; and quarterly cash distributions. See Investment Objectives. Investment Strategies: In order to achieve its investment objectives, the Fund will invest in the constituent securities of the Wells Fargo Hybrid & Preferred Securities Floating & Variable Rate Index (the Index ), to seek to replicate, to the extent possible, the performance of the Index, net of expenses. The Index is a market capitalization-weighted index designed to track the performance of preferred stock, as well as certain types of hybrid securities that are considered functionally equivalent to preferred stock, that are publicly issued by US-based or foreign issuers and that pay a floating or variable rate dividend or coupon. As of December 9, 2014, the Index was comprised of 89 securities from 52 issuers with a weighted average credit rating of BB+ by Standard & Poor s, a division of The McGraw-Hill Companies, Inc. The Fund s portfolio holdings will be rebalanced monthly following the rebalancing of the Index. The Index is comprised exclusively of eligible securities. Eligible Securities include, but are not limited to, certain convertible securities, depositary preferred securities and perpetual subordinated debt (collectively, with preferred stock, Hybrid and Preferred Securities ). In order to be eligible for inclusion in the Index, a constituent security 1

6 must have an aggregate par value of at least $100 million or at least ten million securities outstanding. At least 75% of the Hybrid and Preferred Securities classes included in the Index must have a minimum monthly trading volume of 250,000 securities or a minimum notional value traded per month of $25 million. The Index is rebalanced monthly by Wells Fargo as of the close of business on the last calendar day of the month on which the NYSE ARCA is open for trading (the Monthly Rebalance Date ). The Index is calculated by the NYSE ARCA using a market capitalization weighting methodology, based on a pool of Hybrid and Preferred Securities identified by Wells Fargo s Index Review Committee ( Index Review Committee ). See Investment Strategies. The Index: The following charts show the top ten constituent securities included in the Index (by Index weighting) and key characteristics of the Index as of December 9, Name Top Ten Constituent Securities Issue Credit Rating Security Common Name Issue Market Value (US$ millions) Current Cash Yield Ally Financial (GMAC B- ALLY 8 1/8 $2, % Capital Trust I) Wells Fargo & A+ WFC 0 03/29/49 $2, % Company Citigroup Inc. BB C 7 7/8 $2, % General AA+ GE 6 3/8 11/15/67 $1, % Electric Company Wells Fargo & BBB WFC 5.85 $1, % Company PNC Financial Services BBB- PNC 6 1/8 $1, % Group, Inc. Prudential Financial, BBB+ PRU 5 5/8 06/15/43 $1, % Inc Citigroup Inc. BB C 6 7/8 $1, % Goldman Sachs Group A- GS 0 12/29/49 $1, % US Bancorp BBB USB 6 1/2 $1, % Source: Wells Fargo Research, Standard & Poor s Rating Services, Factset Key Characteristics of the Index Number of Holdings 89 Number of Issuers 52 Weighted Average Coupon (%) 6.01 Weighted Average Yield (%) 5.89 Spread to 5 year US Treasury (bps) 429 Modified Duration (1) 3.10 Note: (1) Modified duration measures the percent change in a bond s price for a 1% change in its yield to maturity. Modified Duration is based on the assumption that rises in interest rates depress bond prices and drops in rates do the opposite. Source: Wells Fargo Research, MarketWatch and Bloomberg See Investment Strategies The Index. Leverage: The Fund may employ leverage in an amount not exceeding 30% of the total assets of the Fund. Accordingly, at the time such leverage is incurred, the maximum amount of 2

7 leverage to Net Asset Value of the Fund that may be employed is 1.43:1 (calculated as total long positions (including leveraged positions) divided by the Net Asset Value of the Fund). If at any time leverage exceeds the threshold, the Manager will cause the leverage to be reduced to below such threshold. The Fund may employ 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. Initially, the Fund is expected to employ leverage of approximately 22.9% of total assets of the Fund. See Investment Strategies Leverage, Risk Factors Use of Leverage and Investment Restrictions. Currency Hedging (Class A Units only): The Index is made up of constituent securities denominated in U.S. dollars. Substantially all of the Fund s U.S. dollar currency exposure in respect of the Class A Units will be hedged back to the Canadian dollar. See Investment Strategies Currency Hedging. Distribution Policy: Redemption Privileges: The Fund intends to make quarterly cash distributions to Unitholders of record on the last business day of each quarter (each March, June, September and December). Distributions will be paid no later than the 15th business day following the end of the quarter for which the distribution is payable. The Fund will not have a fixed distribution, but distributions are initially targeted to be 5.50% per annum on the subscription price of $25.00 per Unit ($ per Unit per quarter or $1.375 per annum). The first distribution will be payable to the Unitholders of record on June 30, Cash distributions will be payable in Canadian dollars to holders of Class A Units and in U.S. dollars to holders of Class U Units. The amount of quarterly distributions may fluctuate and there can be no assurance that the Fund will make any distribution in any particular quarter or quarters. Assuming gross proceeds of the Offering are $100 million and fees and expenses are as described herein, using leverage of 22.9% of the total assets of the Fund, the Fund s portfolio (the Portfolio ) would be required to generate an average annual total return of approximately 5.89%, to make the initial targeted distribution of $1.375 per annum on the offering price of $25.00 per Unit (representing an initial annual cash distribution of 5.50% on the offering price) while maintaining a stable Net Asset Value per Unit. The current weighted average cash yield on the 89 constituent securities included in the Index is approximately 5.89% per annum (or 5.51% net of estimated withholding taxes). No assurance can be given with respect to future levels of income payable on the constituent securities included in the Index from time to time. As of December 9, 2014 the yield-to-worst was 3.37% (yield to worst is the lowest potential yield that can be received without the issuer actually defaulting) and the yield-tomaturity was 4.50%. If in any taxation year, after regular quarterly distributions, there would otherwise remain additional net income or net realized capital gains, the Fund will also be required to pay or make payable one or more special distributions (in either cash, Units or both) of such portion of the remaining net income and net realized capital gains in such year to Unitholders as is necessary to ensure that the Fund will not be liable for income tax on such amounts under the Tax Act (after taking into account all available deductions, credits and refunds). See Income Tax Considerations. There can be no assurance given as to the amount of targeted distributions, if any, in the future. There is no assurance that the Fund will meet its investment objectives. See Distribution Policy and Risk Factors. Units may be redeemed at the option of Unitholders on the last business day in 3

8 Conversion of Class U Units September of each year, commencing in September 2016 (the Annual Redemption Date ). Units so redeemed will be redeemed at a redemption price equal to the Net Asset Value per Unit on the Annual Redemption Date, less any costs and expenses associated with funding the redemption. Units must be surrendered for redemption on or before the last business day prior to the 15 th day of September in each year, subject to the Fund s right to suspend redemptions in certain circumstances. Payment of the proceeds of redemption will be made on or before the 10 th business day following the Annual Redemption Date. Redemption proceeds will be payable in Canadian dollars to holders of Class A Units and in U.S. dollars to holders of Class U Units. See Redemption of Units and Risk Factors Risk Factors Related to an Investment in the Fund Suspension of Redemptions. A holder of Class U Units may convert such Class U Units into Class A Units on a weekly basis for liquidity purposes. It is expected that liquidity for the Class U Units will be obtained primarily by means of conversion into Class A Units and the sale of such Class A Units on the stock exchange. Class U Units may be converted in any week on the first business day of such week (the Conversion Date ) by delivering a notice to the Manager and surrendering such Class U Units by 3:00 p.m. (Toronto time) at least five business days prior to the applicable Conversion Date. For each Class U Unit so converted, a holder will receive that number of Class A Units equal to the Net Asset Value per Class U Unit as at the close of trading on the business day immediately preceding the Conversion Date divided by the Net Asset Value per Class A Unit as at such time. As the Units are denominated in different currencies, the Fund will utilize the applicable Reference Exchange Rate, or as nearly as practicable to, the Conversion Date. No fraction of a Class A Unit will be issued upon any conversion of Class U Units and any fractional amounts will be rounded down to the nearest whole number of Class A Units. See Description of the Units Conversion of Units. Termination of the Fund: Use of Proceeds: Risk Factors: The Fund will have a term of approximately 5 years and will terminate on or about March 31, 2020 (the Termination Date ), unless terminated or extended on an earlier or later date in accordance with the terms of the Declaration of Trust. On the Termination Date, the Units will be redeemed by the Fund for a cash amount equal to 100% of the Net Asset Value per Unit. Prior to the Termination Date, the Manager may present a proposal to extend the term of the Fund subject to approval of Unitholders at a meeting called for such purpose. The Fund may be terminated at any time with the prior approval of Unitholders obtained by a two-thirds majority vote at a meeting of Unitholders called for that purpose. The Manager may also, in its discretion, terminate the Fund on not less than 21 days prior notice to Unitholders without the approval of Unitholders if, in the opinion of the Manager, it is no longer economically feasible to continue the Fund or it would be in the best interests of Unitholders to terminate the Fund. See Termination of the Fund. The net proceeds of the Offering (including the proceeds from the exercise, if any, by the Agents of the Over-Allotment Option) will be used to invest in the constituent securities of the Index. See Use of Proceeds. An investment in Units is subject to certain risk factors, including: Risk Factors Related to an Investment in the Fund No Assurance in Achieving Investment Objectives or Making Distribution Income Risk Trading Price of Units Loss of Investment Use of Leverage 4

9 Taxation of the Fund Withholding Tax Global Financial Developments Reliance on the Manager Changes to the Index Changes in Legislation Conflicts of Interest - The Fund Status of Fund Valuation of the Fund Significant Redemptions Suspension of Redemptions Changes in Credit Rating Lack of Operating History Not a Trust Company Passive Management Foreign Currency Exposure Risk of Error in Replicating or Tracking the Index Index Investment Strategy Risk Termination of the Index Risk Factors Related to the Constituent Securities in the Index Credit Rating Related Risk Preferred Securities Risk Convertible Securities Risk Hybrid Securities Risk Call Risk Extension Risk Duration Risk Liquidity Risk Risk of Subordinated Debt Equity Risk See Risk Factors. Income Tax Considerations: Eligibility for Investment: A Unitholder will generally be required to include in computing income for a taxation year the amount of the Fund s net income for the taxation year paid or payable to the Unitholder in the taxation year (whether in cash or in Units). Provided that appropriate designations are made by the Fund, such portion of (i) the net realized taxable capital gains of the Fund and (ii) income of the Fund from foreign sources as is paid or payable to a Unitholder will effectively retain its character and be treated as such in the hands of the Unitholder. 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 to the Unitholder and any reasonable costs of disposition. Each investor should satisfy himself or herself as to the federal and provincial tax consequences of an investment in the securities offered hereby by obtaining advice from his or her tax advisor. See Income Tax Considerations. In the opinion of Osler, Hoskin & Harcourt LLP, counsel for the Fund, and Blake, Cassels & Graydon LLP, counsel to the Agents, (i) in respect of Units of each class, provided that the Fund qualifies as a mutual fund trust within the meaning of the Tax 5

10 Act or (ii) in respect of the Class A Units, provided the Class A Units are listed on a designated stock exchange (which currently includes the TSX), such Units, if issued on the date hereof, would be qualified investments under the Tax Act for trusts governed by Registered Plans. Notwithstanding the foregoing, if the Units are prohibited investments for the purposes of a tax-free savings account ( TFSA ), registered retirement savings plan ( RRSP ) or registered retirement income fund ( RRIF ), the holder of the TFSA or the annuitant of the RRSP or RRIF, as the case may be, will be subject to a penalty tax as set out in the Tax Act. A prohibited investment includes a unit of a trust which does not deal at arm s length for purposes of the Tax Act with the holder of the TFSA or annuitant of the RRSP or RRIF, as the case may be, or in which the holder or annuitant has a significant interest, which, in general terms, means the ownership of 10% or more of the fair market value of the Fund s outstanding Units by the holder or annuitant, either alone or together with persons and partnerships with which the holder or annuitant, as the case may be, does not deal at arm s length. Unitholders are advised to consult their own tax advisors in this regard. See Eligibility for Investment. Organization and Management of the Fund Management of the Fund Manager and Portfolio Manager Trustee Promoter Custodian Name and Municipality of Residence Artemis Investment Management Limited Toronto, Ontario Equity Financial Trust Company Toronto, Ontario Artemis Investment Management Limited Toronto, Ontario RBC Investor Services Trust Toronto, Ontario Services Provided to the Funds Artemis will act as manager and portfolio manager of the Fund. The address of the Manager is 1325 Lawrence Avenue East, Suite 200, Toronto, Ontario M3A 1C6. See Organization and Management Details of the Fund The Manager of the Fund. Equity Financial Trust Company will act as trustee of the Fund. The address of the Trustee is 200 University Avenue, Suite 300, Toronto, Ontario M5H 4H1. See Organization and Management Details of the Fund The Trustee. The Manager may be considered a promoter of the Fund within the meaning of the securities legislation of certain Provinces and Territories of Canada by reason of its initiative in organizing the Fund. The Promoter is located in Toronto, Ontario. See Organization and Management Details of the Fund Promoter. RBC Investor Services Trust will act as custodian of the assets of the Fund pursuant to a custodian agreement. The Custodian is located in Toronto, Ontario. See Organization and Management Details of the Fund - Custodian. 6

11 Auditor Registrar and Transfer Agent KPMG LLP, Chartered Professional Accountants, Licensed Public Accountants Toronto, Ontario Equity Financial Trust Company Toronto, Ontario KPMG LLP, Chartered Accountants, Licensed Public Accountants will act as auditor of the Fund at its office in Toronto, Ontario. See Organization and Management Details of the Fund Auditor. Equity Financial Trust Company, at its principal offices in Toronto, will be appointed the registrar and transfer agent for the Units pursuant to a registrar and transfer agency agreement to be entered into as of the Closing Date. The Registrar and Transfer Agent is located in Toronto, Ontario. See Organization and Management Details of the Fund Registrar and Transfer Agent. Agents: TD Securities Inc., RBC Dominion Securities Inc., Scotia Capital Inc., CIBC World Markets Inc., BMO Nesbitt Burns Inc., National Bank Financial Inc., Canaccord Genuity Corp., GMP Securities L.P., Raymond James Ltd., Desjardins Securities Inc., Industrial Alliance Securities Inc., Laurentian Bank Securities Inc., Manulife Securities Incorporated, Dundee Securities Ltd., Mackie Research Capital Corporation, Rothenberg Capital Management Inc. and Sherbrooke Street Capital (SSC) Inc. (collectively, the Agents ) conditionally offer the Units for sale 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 hereinafter defined) referred to under Plan of Distribution and subject to the approval of certain matters on behalf of the Fund by Osler, Hoskin & Harcourt LLP and on behalf of the Agents by Blake, Cassels & Graydon LLP. The Fund has granted to the Agents an Over-Allotment Option, exercisable for a period of 30 days from the Closing Date, to purchase additional Class A Units in an amount up to 15% of the Class A Units issued on the Closing Date on the same terms as set forth above solely to cover over-allotments, if any. If the Over-Allotment Option is exercised in full under the maximum Offering, the price to the public, Agents fee and net proceeds to the Fund are estimated to be $, $ and $, respectively. This prospectus also qualifies the grant of the Over-Allotment Option and the distribution of Class A Units issuable on the exercise of the Over-Allotment Option. A purchaser who acquires Class A Units forming part of the Agents over-allocation position acquires such Class A Units under this prospectus, regardless of whether the overallocation 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-Allotment Option Class A Units Within 30 days following the Closing Date $25.00 per Class A Unit 7

12 SUMMARY OF FEES AND EXPENSES The following table contains a summary of the fees and expenses payable or borne by the Fund and the Manager, which will therefore reduce the value of a Unitholder s investment in the Fund. All fees are subject to current and future taxes. For further particulars, see Fees and Expenses. Fees and Expenses Payable or Borne by the Fund Type of Fee Agents Fees: Expenses of the Offering: Fees Payable to the Manager: Ongoing Expenses of the Fund: Amount and Description $ per Class A Unit (5.25%) and US$ per Class U Unit (5.25%). The Agents fees will be paid by the Fund out of the proceeds of the Offering. The Agents fees payable by the Fund upon an exercise of the Over-Allotment Option will be $ per Class A Unit. See Plan of Distribution. The Fund will pay the expenses incurred in connection with the Offering (including the costs of creating the Fund, the costs of printing and preparing a prospectus, legal expenses of the Fund and the Agents and marketing expenses). The Offering expenses are estimated to be $. The expenses of the Offering to be borne by the Fund shall not exceed 1.5% of the gross proceeds of the Offering. See Fees and Expenses Fees and Expenses Payable or Borne by the Fund Expenses of the Offering. Pursuant to the terms of the Management Agreement, an annual management fee (the Management Fee ) equal to 0.65% of the Net Asset Value of the Fund will be paid to the Manager by the Fund, calculated daily and payable monthly in arrears, plus applicable taxes. See Fees and Expenses Fees and Expenses Payable or Borne by the Fund Fees Payable to the Manager. The Fund will be responsible for all expenses incurred in connection with the operation and administration of the Fund. This will include any licensing fees payable in respect of the use of the Index by the Fund, trustee fees, custody fees, accounting, audit and valuation fees, costs of reporting to Unitholders, registrar and transfer agent fees, costs and expenses of preparing financial and other reports, costs and expenses arising in connection with complying with all applicable laws, regulations and policies, portfolio execution costs, taxes, expenses of complying with certain governmental requirements and extraordinary expenses. Any arrangements for additional services provided to the Fund by the Manager, or any affiliate thereof, that have not been described in this prospectus will be on terms that are no less favourable to the Fund than those available from arm s length persons (within the meaning of the Tax Act) for comparable services and the Fund will pay all expenses associated with such additional services. To the extent required by applicable law, any such arrangements would be approved by the Independent Review Committee (defined herein) of the Fund. See Fees and Expenses Fees and Expenses Payable or Borne by the Fund Ongoing Expenses of the Fund. FORWARD-LOOKING STATEMENTS Certain statements in this prospectus are forward-looking statements, including those identified by the expressions anticipate, believe, plan, estimate, expect, intend, target, seek, will and similar expressions to the extent they relate to the Fund and the Manager. Forward-looking statements are not historical facts but reflect the current expectations of the Fund or the Manager regarding future results or events. Such forward-looking statements reflect the Fund s or the 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 including global economic conditions. Some of these risks, uncertainties and other factors are described in this prospectus under the heading Risk Factors. Although the 8

13 forward-looking statements contained in this prospectus are based upon assumptions that the Fund and the Manager believe to be reasonable, none of the Fund or the Manager can assure investors that actual results will be consistent with these forward-looking 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 or the Manager assumes any obligation to update or revise them to reflect new events or circumstances, except as required by law. INFORMATION REGARDING PUBLIC INFORMATION Certain information contained in this prospectus relating to the Index and its constituents is taken from and based solely upon publicly available information. Neither the Manager nor the Agents has independently verified the accuracy or completeness of any such information. 9

14 GLOSSARY OF TERMS In this prospectus, the following terms have the meanings set forth below, unless otherwise indicated Securities Act means the United States Securities Act of 1933, as it may be amended from time to time. Annual Redemption Date means the last business day in September of each year beginning in Agency Agreement means the agency agreement dated as of, 2015 among the Fund, the Manager and the Agents. Agents means, collectively, TD Securities Inc., RBC Dominion Securities Inc., Scotia Capital Inc., CIBC World Markets Inc., BMO Nesbitt Burns Inc., National Bank Financial Inc., Canaccord Genuity Corp., GMP Securities L.P., Raymond James Ltd., Desjardins Securities Inc., Industrial Alliance Securities Inc., Laurentian Bank Securities Inc., Manulife Securities Incorporated, Dundee Securities Ltd., Mackie Research Capital Corporation, Rothenberg Capital Management Inc. and Sherbrooke Street Capital (SSC) Inc. Book-Based System means the book-based system administered by CDS. Book-Entry Only System means the book-entry only system administered by CDS. business day means any day except Saturday, Sunday, a statutory holiday in Toronto, Ontario or any other day on which the TSX is not open for trading. CDS means CDS Clearing and Depository Services Inc. and includes any successor corporation or any other depository subsequently appointed by the Fund as the depository in respect of the Units. CDS Participant means a broker, dealer, bank or other financial institution or other person for whom, from time to time, CDS effects book entries for the Units deposited with CDS. CICA Handbook means the Canadian Institute of Chartered Accountants Handbook in effect from time to time. Class A Monthly Redemption Price the price at which Unitholders can redeem Class A Units on the Monthly Redemption Date. Class A Unit means the transferable, redeemable class A units of the Fund denominated in Canadian dollars. Class U Monthly Redemption Price the price at which Unitholders can redeem Class U Units on the Monthly Redemption Date. Class U Unit means the transferable, redeemable class U units of the Fund denominated in U.S. dollars. Closing means the issuance of Units pursuant to this prospectus on the Closing Date. Closing Date means the date of the Closing, which is expected to be on or about, 2015 or such later date as the Fund and the Agents may agree, but in any event not later than 90 days after a final receipt for this prospectus has been issued. Closing Market Price in respect of a security on a Monthly Redemption Date means (i) the closing price of such security on the TSX on such Monthly Redemption Date (or such other stock exchange on which such security is listed) if there was a trade on the Monthly Redemption Date and the market provides a closing price; (ii) the average of the highest and lowest prices of such security on the TSX on such Monthly Redemption Date (or such other stock exchange on which such security is listed) if there was trading on the Monthly Redemption Date and the market provides only the highest and lowest prices of the security traded on a particular day; or (iii) the average of the last bid and the last asking prices of the security on the TSX on such Monthly Redemption Date (or such other stock exchange on which the security is listed) if there was not trading on the applicable Monthly Redemption Date. 10

15 Conversion Date means the first business day of each week, on which Class U Units will be converted if previously surrendered. CRA means the Canada Revenue Agency. Custodian means RBC Investor Services Trust, in its capacity as custodian under the Custodian Agreement. Custodian Agreement means the custodian agreement to be entered into on or about 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 establishing the Fund dated as of, 2015, as it may be amended from time to time. Distribution Payment Date means a business day designated by the Manager that will be no later than the 15 th business day of the month following the relevant Distribution Record Date. Distribution Record Date means the last business day of each of, December, March, June and September. exchange means any exchange or trading system from which prices of securities are used from time to time in the computation of the total return version of the Index, subject to the provisions set out below under Investment Strategies Market Disruption Event and Extraordinary Event. Extraordinary Resolution means a resolution passed by the affirmative vote of at least two-thirds of the votes cast, either in person or by proxy, at a meeting of Unitholders called for the purpose of considering such resolution. Fund means the Artemis Floating & Variable Rate Preferred Fund, a closed-end investment fund established as a trust under the laws of the Province of Ontario. Independent Review Committee means the independent review committee of the Fund. Index means the total return version of the Wells Fargo Hybrid & Preferred Securities Floating & Variable Rate Index or a successor index. Index Review Committee means the Wells Fargo index review committee. LIBOR means the London Inter-Bank Offered Rate. License Agreement means the license agreement dated as of between the Manager and Wells Fargo, as it may be amended from time to time. Management Agreement means the management agreement dated as of between the Manager and the Fund, as it may be amended from time to time. Management Fee means the management fee payable to the Manager by the Fund and as more fully described under Fees and Expenses Fees and Expenses Payable or Borne by the Fund Fees Payable to the Manager. Manager means the manager and portfolio manager of the Fund, namely Artemis, and, if applicable, its successor. Market Price in respect of a security on a Monthly Redemption 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 Monthly Redemption Date. Meeting means a meeting of holders of Units called in accordance with the Declaration of Trust. 11

16 Monthly Redemption Date means the last business day of each month, other than September commencing in Net Asset Value of the Fund means the net asset value of the Fund as determined by subtracting the aggregate liabilities of the Fund from the aggregate value of the assets of the Fund on the date on which the calculation is being made, as more fully described under Valuation. Net Asset Value per Unit of a class, means the Net Asset Value of the Fund attributable to such class divided by the total number of Units of the class outstanding on the date on which the calculation is being made. NI means National Instrument Independent Review Committee for Investment Funds of the Canadian Securities Administrators, as amended from time to time. Offering means collectively, the offering of Class A Units at a price of $25.00 per Class A Unit and Class U Units at a price of US$25.00 per Class U Unit and the offering of additional Class A Units under the Over-Allotment Option at a price of $25.00 per Unit, all pursuant to this prospectus. Ordinary Resolution means a resolution passed by the affirmative vote of at least a majority of the votes cast, either in person or by proxy, at a meeting of Unitholders called for the purpose of considering such resolution. Over-Allotment Option means the option granted by the Fund to the Agents, exercisable for a period of 30 days from the Closing Date, to purchase additional Class A Units at $25.00 per Unit in an amount up to 15% of the Class A Units issued on Closing, solely to cover over-allotments, if any. Portfolio means the Fund s portfolio. Recirculation Agent means TD Securities Inc. Redemption Date means an Annual Redemption Date and/or Monthly Redemption Date. Redemption Payment Date means the 15 th business day of the month immediately following a Monthly Redemption Date or Annual Redemption Date. Reference Exchange Rate means the Bank of Canada noon rate as found on Registered Plan means a registered retirement savings plan, a registered retirement income fund, a deferred profit sharing plan, a registered education savings plan, a registered disability savings plan, and a tax-free savings account. Registrar and Transfer Agent means Equity Financial Trust Company or, if applicable, its successor or any other registrar and transfer agent that may be appointed by the Manager from time to time. relevant exchange means any exchange or trading system on which futures or options on the Index are listed from time to time. S&P means Standard & Poor s, a division of The McGraw-Hill Companies, Inc., or its successors. SIFT Rules means the provisions of the Tax Act, including those contained in sections 104, 122 and of the Tax Act, which apply to the taxation of a specified investment flow-through trust and its unitholders. SIFT Trust means a specified investment flow-through trust for the purposes of the Tax Act. Tax Act means the Income Tax Act (Canada), as now or hereafter amended, or successor statutes, and includes regulations promulgated thereunder. 12

17 Tax Proposals means all specific proposals to amend the Tax Act publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof. Termination Date means March 31, Trustee means the trustee of the Fund, namely Equity Financial Trust Company, and, if applicable, its successor. TSX means the Toronto Stock Exchange. Unitholders means the holders of Units. Units means Class A Units and/or Class U Units of the Fund. Wells Fargo means Wells Fargo Securities, LLC. Valuation Date means each business day. OVERVIEW OF THE LEGAL STRUCTURE OF THE FUND Artemis Floating & Variable Rate Preferred 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 dated as of, 2015 (the Declaration of Trust ). Artemis Investment Management Limited (the Manager or Artemis ) will act as manager and portfolio manager of the Fund and will provide all administrative services required by the Fund. Artemis has in excess of $1 billion in assets under management (as of March 31, 2014). Equity Financial Trust Company will act as trustee of the Fund. The principal office of the Fund is located at 1325 Lawrence Avenue East, Suite 200, Toronto, Ontario M3A 1C6. See Organization and Management Details of the Fund. The Fund is authorized to issue an unlimited number of Units. The Fund is not considered to be a mutual fund under the securities legislation of the Provinces and Territories of Canada. Consequently, the Fund is not subject to the various policies and regulations that apply to mutual funds under such legislation. INVESTMENT OBJECTIVES The Fund s investment objectives are to provide holders of Units ( Unitholders ) with: (i) (ii) the opportunity for long-term capital preservation and appreciation; and quarterly cash distributions. INVESTMENT STRATEGIES In order to achieve its investment objectives, the Fund will seek to replicate, to the extent possible, the performance of the Wells Fargo Hybrid & Preferred Securities Floating & Variable Rate Index (the Index ), net of expenses. The Index is a market capitalization-weighted index designed to track the performance of preferred stock, as well as certain types of hybrid securities that are considered functionally equivalent to preferred stock, that are publicly issued by US-based or foreign issuers and that pay a floating or variable rate dividend or coupon. As of December 9, 2014, the Index was comprised of 89 securities from 52 issuers with a weighted average credit rating of BB+ by S&P. The Fund s portfolio holdings will be rebalanced monthly following the rebalancing of the Index. See Investment Strategies Rebalancing of the Index. The Index is comprised exclusively of eligible securities. Eligible Securities include, but are not limited to, certain convertible securities, depositary preferred securities and perpetual subordinated debt (collectively, with preferred stock, Hybrid and Preferred Securities ). In order to be eligible for inclusion in the Index, a constituent security must have an aggregate par value of at least $100 million or at least ten million securities outstanding. At least 75% of the Hybrid and Preferred Securities classes included in the Index must have a minimum monthly trading volume 13

18 of 250,000 securities or a minimum notional value traded per month of $25 million. The Index is rebalanced monthly by Wells Fargo as of the close of business on the last calendar day of the month on which the NYSE ARCA is open for trading (the Monthly Rebalance Date ). The Index is calculated by the NYSE ARCA using a market capitalization weighting methodology, based on a pool of Hybrid and Preferred Securities identified by Wells Fargo s Index Review Committee ( Index Review Committee ). The Index The Fund will invest in the constituent securities of the Wells Fargo Hybrid & Preferred Securities Floating & Variable Rate Index (the Index ). The Index is calculated by NYSE ARCA, with whom Wells Fargo has contracted, using a market capitalization-weighted methodology based on a pool of preferred securities identified by Wells Fargo in accordance with the terms of its methodology. Securities eligible for inclusion in the Index may be issued by either US-based or foreign issuers and must: (a) maintain a minimum aggregate par value of US$100 million outstanding or a minimum of 10 million securities outstanding; (b) (c) have floating or variable dividends or coupons; be U.S.-dollar denominated; and (d) be U.S. registered under the United States Securities Act of 1933, as amended (the 1933 Securities Act ) (or otherwise exempt from registration under Section 3(a)(2) of the 1933 Securities Act). In addition, Hybrid and Preferred Securities classes that constitute 75% of the Index must have a minimum monthly trading volume of at least 250,000 trading units or a minimum notional volume traded per month of US$25 million. The Index excludes auction rate securities, securities subject to sinking fund provisions, shares in closed-end funds, municipal securities, tender option bonds or repackaged securities linked to a security, a basket of securities or an index. The Index also excludes securities issued by a special purpose vehicle, such as a collateralized mortgage obligation, a collateralized debt obligation or a collateralized loan obligation. No more than 45% of the total weight of the Index can be comprised of the sum of issuers whose individual weighting in the Index exceeds 4.5% each. If the 45% cap is breached, all the issuers are ranked in descending order of their weights and the first security to breach the 45% limit will have its weight reduced until either the rule is satisfied or the weight of that issuer relative to the Index reaches 4.5%. If that issuer has multiple component securities included in the Index, its securities will be reduced on a pro-rata basis determined by market capitalization. Further, such issuer s excess weight is proportionally redistributed to all issuers with weights below 4.5%. This process will be repeated until the 45% rule is satisfied. The 4.5% weight limit above applies to issuers, not constituent classes of securities. A constituent class of securities may represent more than 4.5% of the Index. Rebalancing of the Index The Index is rebalanced at the close of the last trading day each month on NYSE ARCA. Securities that become ineligible are not removed until a rebalancing date. Reviews of the Index composition are carried out by the Wells Fargo Index Review Committee on a rolling basis except in the case of material events or a calculation error. Rebalancing also can occur at other times, following specific material events, such as forced redemption, tenders, calls, conversions, green-shoes, overallotments, re-openings, rights offerings, stock splits or mergers, and suspension from trading on an exchange. Wells Fargo may, but is not required to, remove a constituent security from the Index upon the occurrence of other material events, including in the event that an issuer has become subject to, or it is reasonably likely to become subject to, a bankruptcy, conservatorship or similar event or proceeding (even if a class of securities continue to satisfy eligibility criteria) or an event has occurred that is reasonably likely to adversely impact the tax treatment to a U.S. taxpayer holder that is invested in an instrument linked to the Index or an event has occurred that materially adversely affects the ability of NYSE ARCA to value the security. If trading of a constituent Hybrid and Preferred Security is suspended, NYSE ARCA will calculate the Index value and Wells Fargo will calculate the amount of securities outstanding based on the last public trading price available until trading resumes or the Hybrid and Preferred Security becomes ineligible as per Wells Fargo s rules of Index inclusion. If 14

19 the NYSE ARCA is unable to open for trading for any reason, the Index will not be calculated for that day. If the NYSE ARCA determines in good faith that it is unable to open and calculate the Index for a period of greater than five (5) consecutive trading days, Wells Fargo may calculate the Index. The Fund will rebalance its portfolio holdings as soon as reasonably possible following the rebalancing of the Index. Index Constituents The Fund will invest in the constituent securities of the Index. The following chart shows the constituent securities included in the Index as at December 9, Issuer Security Common Name 15 Issue Credit Rating Issue Market Value (US$ millions) Index Weight Current Cash Yield Ally Financial (GMAC Capital Trust I) ALLY 8 1/8 B- $2, % 7.78% Wells Fargo & Company WFC 0 03/29/49 A+ $2, % 5.73% Citigroup Inc. C 7 7/8 BB $2, % 7.42% General Electric Company GE 6 3/8 11/15/67 AA+ $1, % 5.89% Wells Fargo & Company WFC 5.85 BBB $1, % 5.73% PNC Financial Services Group, Inc. PNC 6 1/8 BBB- $1, % 5.59% Prudential Financial, Inc PRU 5 5/8 BBB+ $1, % 5.42% 06/15/43 Citigroup Inc. C 6 7/8 BB $1, % 6.53% Goldman Sachs Group GS 0 12/29/49 A- $1, % 5.34% US Bancorp USB 6 1/2 BBB $1, % 5.50% US Bancorp USB 6 BBB $1, % 5.46% Chubb Corporation CB 6 3/8 03/29/67 A+ $1, % 5.85% Ally Financial ALLY 8 1/2 B- $1, % 8.04% Goldman Sachs Group GS 4 BB $1, % 5.05% Prudential Financial, Inc PRU 5 7/8 BBB+ $1, % 5.62% 09/15/42 Bank of America Corporation BAC 6.45 BB $1, % 6.31% UBS AG UBS A $1, % 6.00% 05/29/49 Citigroup Inc. C 7 1/8 BB $1, % 6.50% Morgan Stanley MS 6 3/8 BB $1, % 6.28% TransCanada Corp. TRPCN 6.35 A- $ % 6.42% 05/15/67 Bank of America Corporation BAC 6.45 BB $ % 6.30% Goldman Sachs Group GS 5 1/2 BB $ % 5.73% Morgan Stanley MS 7 1/8 BB $ % 6.46% Wells Fargo & Company WFC 6 5/8 BBB $ % 6.01% The Royal Bank of Scotland Group plc RBS 0 09/29/49 BBB+ $ % 2.15% Morgan Stanley MS 6 7/8 BB $ % 6.46% General Electric GE 6 3/8 11/15/67 AA+ $ % 5.90% Morgan Stanley MS 4 BB $ % 4.98% US Bancorp USB 3 1/2 BBB $ % 3.98% Allstate Corporation ALL 5 3/4 BBB $ % 5.42% 08/15/53 American Express Company AXP /01/66 BBB $ % 6.42% State Street Corporation STT 5.9 BBB $ % 5.65% Enterprise Products Partners L.P. EPD BBB $ % 6.41% 01/15/68 Bank of America Corporation BAC 7 3/8 BB $ % 7.09% Voya Financial, Inc. VOYA 5.65 BB $ % 5.65% 05/15/53 Prudential Financial, Inc PRU 8 7/8 BBB+ $ % 7.50%

20 06/15/38 Lincoln National Corporation LNC 7 05/17/66 BBB $ % 6.93% Hartford Financial Services Group HIG 7 7/8 BB+ $ % 6.46% JPMorgan Chase & Co. JPM 0 02/02/37 A- $ % 1.39% Goldman Sachs Group GS 6 3/8 BB $ % 6.24% State Street Corporation STT 0 06/15/37 A+ $ % 1.48% Enterprise Products Partners L.P. EPD 8 3/8 BBB $ % 7.74% 08/01/66 Hartford Financial Services Group HIG 8 1/8 BB+ $ % 7.13% 06/15/38 Goldman Sachs Group GS 3 3/4 BB $ % 4.86% MetLife, Inc. MET 4 BBB- $ % 4.27% Wisconsin Energy Corp. WEC 6 1/4 BBB $ % 6.01% 05/15/67 JPMorgan Chase & Co. JPM 0 05/15/47 A- $ % 1.55% Lincoln National Corporation LNC 6.05 BBB $ % 5.85% 04/20/67 Allstate Corporation ALL 5.1 BBB $ % 5.01% Regions Financial Corporation RF 6 3/8 BB $ % 6.34% CHS, Inc. CHSINC 6 3/4 NR $ % 6.62% Fifth Third Bancorp FITB 6 5/8 BB+ $ % 6.13% HSBC Holdings plc HSBC 3 1/2 BBB- $ % 3.92% Reinsurance Group of America Inc. RGA 6.2 BBB $ % 5.55% Stanley Black & Decker, Inc. SWK 5 3/4 BBB+ $ % 5.31% 12/15/53 CHS, Inc. CHSINC 7.1 NR $ % 6.70% Integrys Energy Group, Inc. TEG 6 BBB $ % 5.62% NuStar Logistics, L.P. NSUS 7 5/8 BB+ $ % 7.31% JPMorgan Chase & Co. BK 0 06/29/49 A- $ % 5.00% Genworth Financial GNW 6.15 BB+ $ % 9.32% 11/15/66 Bank of America Corporation BAC 0 09/29/49 A- $ % 5.28% First Niagara Financial Group Inc. FNFG 8 5/8 BB $ % 7.93% Goldman Sachs Group GS 0 09/29/49 A- $ % 5.39% NextEra Energy, Inc. NEE /01/66 A- $ % 6.24% HSBC Holdings plc HSBC 4 BBB- $ % 4.33% Bank of America Corporation BAC 4 BB $ % 4.95% Reinsurance Group of America Inc. RGA 6 3/4 BBB $ % 6.63% 12/15/65 Edison International EIX 5 3/4 BBB+ $ % 5.33% Aspen Insurance Holdings Ltd. AHL 5.95 BBB- $ % 5.79% StanCorp Financial Group Inc. SFG /01/67 BBB- $ % 6.56% Bank of America Corporation BAC 4 BB $ % 4.81% Principal Financial Group Inc. PFG BB+ $ % 6.43% Everest Re Group Ltd. RE /15/37 A- $ % 6.44% AEGON N.V. AEGON 4 BBB $ % 4.26% UBS AG UBS BBB $ % 1.16% Bank of America Corporation BAC 3 BB $ % 4.09% Banco Santander, S.A. SANTAN 4 BB- $ % 4.73% Zions Bancorporation ZION 6.3 BB $ % 6.11% Bank of America Corporation BAC 4 BB $ % 4.91% Goldman Sachs Group GS 4 BB $ % 5.03% SunTrust Banks, Inc. STI 4 BB+ $ % 4.53% HSBC Holdings plc HSBC 4 1/2 BBB- $ % 4.46% Synovus Financial Corporation SNV 7 7/8 B- $ % 7.11% 16

21 Aspen Insurance Holdings Ltd. AHL BBB- $ % 6.88% Assured Guaranty Ltd AGO /15/66 BBB- $ % 7.45% Legacy Reserves LP LGCY 8 NR $ % 11.55% F.N.B. Corporation FNB 7 1/4 BB- $ % 6.63% City National Corporation CYN 6 3/4 BB+ $ % 5.83% Resource Capital Corp. RSO 8 5/8 NR $ % 9.61% Source: Wells Fargo Research and Bloomberg Portfolio Exposure The following charts indicate the expected composition of the Fund s portfolio (the Portfolio ) if the Portfolio had existed on December 9, 2014: Portfolio Composition by Asset Class Preferreds, 62.92% Bonds, 37.08% Source: Wells Fargo Research Portfolio Composition by Current Fixed or Floating Status Preferreds - Currently Fixed, 42.70% Bonds - Currently Fixed, 26.97% Bonds - Currently Floating, 10.11% Source: Wells Fargo Research, Bloomberg Preferreds - Currently Floating, 20.22% 17

22 Geographical Issuer Exposure Canada, 1.14% Switzerland, 2.27% US, 93.18% Netherlands, 1.14% Spain, 1.14% UK, 1.14% Source: Wells Fargo Research Portfolio Exposure By Credit Rating [B-] 6.56% [NR] 2.07% [AA+] 4.44% [A+] 6.90% [BB-] 0.81% [A] 1.70% [A-] 8.65% [BB] 27.95% [BBB+] 7.32% [BBB] 21.02% [BB+] 5.29% [BBB-] 7.28% Source: Wells Fargo Securities Portfolio Exposure By Industry Insurance 22% Electric 4% Pipelines 5% Diversified Financial Services 12% Banks 54% Hand/Machine Tools 1% Misc. Manufacturing 1% Savings & Loans 1% Source: Wells Fargo Securities 18