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The calculation of the monthly retraction price stated in the Annual Information Form:

Except as noted below, holders of Preferred Shares whose Shares are surrendered for retraction will be entitled to receive a price per Share (the “Preferred Share Retraction Price”) equal to the sum of (i) the sum of (A) the lesser of (x) $10.00 and (y) 98% of the net asset value per Unit determined as of the Retraction Date, less in either case the cost to the Company of the purchase of a Class A Share in the market for cancellation and less any other applicable costs, plus (B) an amount equal to any accrued and unpaid dividends on each Preferred Share to but excluding the applicable Retraction Date, plus (ii) all declared and unpaid dividends (“Dividends Owing”) on a Preferred Share to be retracted to but excluding the applicable Retraction Date.

… differs from that specified in the prospectus:

Holders retracting a Preferred Share will be entitled to receive an amount per Preferred Share equal to the lesser of (i) $10.00; and (ii) 96% of the Net Asset Value determined as of the Retraction Date less the cost to the Company of the purchase of a Class A Share in the market for cancellation.

Complicating matters – there’s always a complication! – was the 2012 Capital Reorganization, in which:

amend the Articles of the Company to decrease the discount to net asset value applicable to monthly redemptions of shares from 4% to 2% and provide for the amount of this reduced discount to be paid to Quadravest, and not retained by the Company;

I sent an inquiry to the company:

I am concerned regarding the phrase ” less in either case ” found in the AIF version. If, for instance, there was a situation in which NAVPU was $12 and the market price of a Class A Share was $1, it would appear that this $1 for the Class A share would be deducted from ” (x) $10.00 ” and thus [assuming that amount (ii) = 0] the Preferred Share Retraction Price would be $9.00, whereas under the prospectus language, the Preferred Share Retraction Price would be $10.00.

To but it another way, the AIF phrase “less in either case” appears to apply to both case (x) and case (y), which differs from the prospectus language, unamended by the reorganization, and which doesn’t make a lot of sense anyway.

Can you clarify the calculation of the Preferred Share Retraction Price?

The company responded very quickly and efficiently:

Payment for LFE.PR.B shares retracted would be the lessor of (a) $10 or (b) 98% of the net asset value per unit, less the cost to buy a LFE share in the market for cancellation.

In your example below, based on a net asset value per unit of $12, the calculation (b) above would be: (98% x $12) less $1 = $10.76. Please note there could also be a maximum of 1% charged should the fund have to unwind securities in the event of a large volume of retractions in a particular month.

Therefore the lessor of (a) and (b) would still be $10.

I don’t expect the monthly retraction option to be viable unless there is another market crash, but it’s always nice to have these things nailed down in advance.

This entry was posted on Monday, April 14th, 2014 at 5:20 pm and is filed under Issue Comments. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.