Presented by: Yuri Kotik, Ph.D (Econ) Investment Advisor Phone CLOSE-END FUND STRATEGY PRESENTATION

Page closed-end funds Represent every asset class – enough to put together a portfolio Closed-end Funds vs. Mutual Funds vs. ETFs ProsCons Lower MERs Lower trailers Less overhead Lower liquidity

Page 3 Discounts and Annual Redemption 1.Description –Unique Canadian feature –Honoured even in worst markets (cancelation extremely rare) –Creates an exit at NAV Most funds trade at a discount 2.Reasons for Discounts –Because closed-end funds are held mostly by retail investor, inefficiencies in pricing discount are abundant and permanent. NAV is sometimes published once a week/month creating further opportunity to find discount

Page 4 Discounts and Annual Redemption Have been harvesting discounts for 9 years, developing several rules of thumb: I.The closer to redemption date, the more meaningful the discount II.Sweet spot is usually 3-4 months III.Looking for discount that’s higher than amount of months left to redemption Ex. At least 4% IV.Prefer yield (4%-10%) Monthly distribution, tax-efficient

Page 5 Buy anonymously with “iceberg” Do not overload With certain funds –Double the position right before redemption but after surrender deadline  Deepest discount to buy new while redeeming surrendered portion at NAV In prolonged period when do not see any closed-end funds, up to ¼ of portfolio allocated to Money Market –Extremely efficient during market corrections, crashes, etc. –During this period: Discounts get wider Yields get higher Fund’s asset allocation changes Technique

Page 6 Capacity Constraints Strategy has capacity constraints but they have not been reached yet –Replication is done by 1-2 managers in Toronto –Unlikely to be massively popular Whole book has to be structured around the strategy –Fee based –Clients know what they are doing With certain modifications, especially during crisis, US-based closed-end funds produce interesting opportunities: –Ex. Aberdeen Asia-Pacific Income (FAX)

Page 7 Performance Assume: NAV = no ∆, Yield 6%

Page 8 Performance Source:

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