Marret High Yield Strategies Fund Q&A UPDATED June 4, 2014 Please note that this document has been updated with new information. 1. Why is the Fund terminating now? The Fund s scheduled termination date was May 30, 2014. The manager has chosen not to seek to extend this date in light of the federal government s change to the rules governing character conversion forward agreements that re-characterize interest income as capital gains. A key objective of the Fund was to provide tax-advantaged distributions through the use of a forward agreement, which provides exposure to an underlying trust holding a portfolio of primarily high-yield bonds. The new rules prevent the Fund from continuing the forward arrangement beyond the scheduled termination date. 2. What will investors receive? Unitholders of record on the on June 12, 2014 (the Record Date ) will receive $7.5403, which is their pro rata interest in the liquid portfolio of the Fund (the Liquid Portfolio ) as at May 30, 2014. The Liquid Portfolio accounted for 88.46% of the net asset value per unit of $8.5235 at May 30, 2014. As of May 30, 2014, $0.9832 of the Fund s net asset value per unit (representing 11.54% of aggregate net assets of the Fund) was attributable to the value of the Private Portfolio (described below). 3. Following the distribution, unitholders will maintain their investment in the Fund, which will contain the Private Portfolio, and will receive additional distributions at such times as net proceeds of sale are received for the Private Portfolio (net of any expenses associated with the disposal thereof). 4. When will investors receive the proceeds for their units? June 16, 2014, for their share of the Liquid Portfolio, equal to $7.5403 per unit, subject to any investors receiving later payment as a result of purchases made during the due bill period discussed below. In accordance with the applicable rules of the Toronto Stock Exchange ("TSX") the "due bill" trading procedures of the TSX will apply to the distribution. The units of the fund will trade on a due bill basis from two trading days prior to the Distribution Record Date (i.e., June 10, 2014) to the Payment Date, inclusively (the due bill period ). Any trades that are executed on the TSX during this period will be identified to ensure purchasers of the fund s units
receive the entitlement to the distribution. The units will commence trading on an ex-dividend basis on June 17, 2014, as of which date purchases of units will no longer have an attaching entitlement to the distribution. The due bill redemption date will be June 19, 2014. Additional distributions when sale proceeds are received on the Private Portfolio. While Marret is actively attempting to dispose of the Private Portfolio, the timing of any subsequent distribution is not certain. 5. Will there be any future monthly distributions or an ongoing monthly redemption right? There will not be. 6. What is the Private Portfolio? It consists of bonds of two issuers: Cline Mining Inc., a Canadian resource development company with assets in coal, gold, iron ore, oil and gas, and uranium. Cline s principal asset is the New Elk Coal Mine, based in Trinidad, Colorado, which is a fully permitted hi-vol B metallurgical coal project with a measured and indicated resource of almost 620 million tons of in-place coal. The Cline bonds are secured and represented $0.7983 of the fund s net asset value per unit as at May 30, 2014. Data & Audio-Visual Enterprises Holdings Inc. (Mobilicity), which owns and operates a mobile communications network, including very valuable wireless spectrum licenses that are necessary for wireless operators to meet the increasing demand for wireless data services. The fund holds secured bonds issued by Mobilicity accounting for $0.1849 of the fund s net asset value per unit as at May 30, 2014. Detailed information on the two companies and the status of the investment is set out below. 7. Why are these securities in the Fund? The Marret MHY Trust, through which the Fund obtained exposure to the high-yield portfolio including the Private Portfolio, was permitted to invest in illiquid securities. 8. Why is the percentage of the Private Portfolio so high? The percentage was very reasonable when the investments were initially made, approximately 6% of the Trust, but increased significantly primarily due to redemptions. This includes a large redemption, representing 48% of
the Fund, which took place in July 2013. At the time of such redemption we believed that we could liquidate the Private Portfolio before the Termination Date. The expected realization date for both Private Portfolio has been extended beyond what was originally anticipated. 9. What are the tax implications to the final payouts? Most investors will receive distributions as primarily return of capital. Investors that have held the Fund for several years will have received distributions as return of capital over the life of the Fund that would have reduced their ACB. Such investors may be in a capital gain position for any distributions in excess of their ACB. Investors are urged to seek tax advice for their own particular circumstances. 10. Will the units continue to trade on the TSX? The TSX has confirmed that the fund will continue to be listed after the Record Date. 11. Will the units be eligible for registered accounts? The Fund will cease to be treated as a mutual fund trust for the purposes of the Income Tax Act (Canada) at the end of the 2014 calendar year. However, because the trust units will continue to be listed on the TSX, they will continue to be qualified investments for registered retirement savings plans, registered retirement income funds, deferred profit sharing plans, registered education savings plans, registered disability savings plans and tax-free savings accounts ( Registered Plans ). Unitholders who hold their units in a Registered Plan may wish to consult their tax advisor. 12. Where will unitholders be able to obtain information on the Fund and the Private Portfolio? Please contact Marret Investor Services by phone at 416-214-5800 or by e-mail at investors@marret.com, or visit the Marret website at www.marret.com. 13. Who will be responsible for managing the Private Portfolio? The Marret investment team, led by Barry Allan. 14. Will there be any fees or expenses associated with the management of the Private Portfolio? No ongoing management or other fees will be charged by Marret for overseeing the liquidation of the Private Portfolio and the winding up of the Fund. Normal operating expenses of the Fund payable to third parties (for audit, custody, transfer agency services, etc.) will be payable by the Fund from the proceeds of the Private Portfolio. We estimate that these expenses at approximately 50 bps per annum based on the current value of the Private Portfolio and current fee arrangements. Marret
anticipates that the Fund will be able to lower these expenses during the wind-up period. 15. Will there be ongoing trailer or service fees? As no management or other fees will be paid from the Fund to the Manager, no on going trailer or service fees will be paid for the period after May 30, 2014.
Private Portfolio A summary of the Private Portfolio is set out below. Cline Mining Inc. ( Cline ) The portfolio of the Trust includes both convertible and non-convertible secured debt issued by Cline. Cline is a Canadian junior resource development company, with several mineral interests, including assets in the coal, gold, iron ore, oil and gas, and uranium space. Cline s principal asset is the New Elk Coal Mine (the Coal Mine ), based in Trinidad, Colorado, which is a fully permitted hi-vol B metallurgical coal project with a measured and indicated coal resource of almost 620 million tons of in-place coal. The Trust holds first lien security over all of the assets of Cline, including the Coal Mine, putting it in an advantageous position regarding the ultimate realization of its investment as compared to unsecured creditors and equity holders. Declining coal prices have made it more difficult and inadvisable for Cline to restart the Coal Mine in order to put the company in a position to generate positive cash flow. The Coal Mine has been put on a care and maintenance program to ensure that the environmental and structural integrity of the mine is preserved while awaiting recovery in prices. Cline recently announced a settlement agreement (the Settlement ) with the Province of British Columbia under which Cline agreed to abandon certain coal licences as well as certain coal applications in return for the payment of $9.8 million in cash. Cline has indicated that this additional funding will enable it to operate for at least 18 months. The pricing of the Cline bonds in the portfolio of the Trust is currently at a 30% discount to par, reflecting the first lien position and the valuation of the underlying coal asset. Cline is currently in default and is operating under forbearance agreements with its bondholders, including the Trust. The most likely scenario for the repayment of the bonds is the realization of the Trust s security. Marret is continuing to evaluate all of its options to maximize recovery on the Cline bonds, which includes working with Cline to find a strategic partner or to find a buyer for the entire company. Cline s additional funding from the Settlement enables Marret to be opportunistic in this process with a view to maximizing the potential return from the bonds. Data & Audio-Visual Enterprises Holdings Inc. ( Mobilicity ) The portfolio of the Trust includes both secured (first and second lien) and unsecured debt issued by Mobilicity. Mobilicity owns and operates a mobile communications network, including very valuable wireless spectrum licenses that are necessary for wireless operators to meet the increasing demand for wireless data services. Mobilicity has been operating under protection from creditors under the Companies Creditors Arrangement Act ( CCAA ) since late September 2013, with the completion of a transaction as its key initiative. A sales process has been supervised by the Court appointed Monitor (Ernst & Young Inc.). Over the past several months, Mobilicity, with
the help of its financial advisors and the Monitor, conducted an exhaustive process to explore all potential sales and other transactions for the company. On April 17, 2014, Mobilicity announced a proposed going concern transaction in which TELUS Corporation ( TELUS ) would acquire Mobilicity for $350 million (the Transaction ). On May 21, 2014, it was reported that TELUS was terminating the Transaction. The Court monitored sales process continues. The timeline for the completion of the Court process is uncertain. Marret has reduced the value of the bonds to reflect the uncertainty surrounding the potential sale or realization of the assets of Mobilicity.