Report from the Independent Review Committee to the Unitholder
For the year ended December 31, 2011
The following report describes the independent review committee (“IRC”) of SCITI Trust (the
“Trust”) and its related activities from January 1, 2011 to December 31, 2011.
The IRC consists of the following 3 members initially appointed by Scotia Managed Companies
Administration Inc. (the “Administrator”):
Members
J. Nicholas Ross
(Chair)
Length of Service
since inception
Stephens B. Lowden
since inception
John B. Newman
since inception
Other IRC Memberships
Certain funds administered by Scotia
Managed Companies Administration
Inc.
Certain funds administered by Scotia
Managed Companies Administration
Inc.
AGF Group of Funds
Certain funds administered by:
BMO Nesbitt Burns Inc.
Scotia Managed Companies
Administration Inc.
TD Securities Inc.
There have been no changes to the composition of the IRC during the year.
Independence
The members have concluded that they have no material relationship with the Trust that could
reasonably be perceived to interfere with any member’s judgment regarding a conflict of interest
matter.
Holdings of Securities
(a) Trust
As at December 31, 2011, the percentage of units of the Trust beneficially owned, directly or
indirectly, in aggregate, by all members of the IRC did not exceed 10 per cent. The shares of
SCITI Limited a private company and trustee of the Trust, are equally owned by Messrs.
Newman and Ross.
(b) Administrator
As at December 31, 2011, no member of the IRC beneficially owned, directly or indirectly, any
class or series of voting shares or equity securities of the Administrator.
(c) Service providers
As at December 31, 2011, the members of the IRC, in aggregate, beneficially owned, directly
or indirectly, less than 0.01 per cent of securities of any class of voting or equity securities of
The Bank of Nova Scotia, parent company of the Administrator.
Compensation
The Administrator set compensation at $2,000 per annum and $500 per IRC meeting attended,
including reimbursement of certain costs associated with attendance at the meetings, for services
rendered on behalf of SCITI Trust. The total compensation accruing to the members was $12,000
for the year. No amounts were paid to the IRC members by the Trust under indemnities in their
favour during the year.
The IRC has set the same compensation for the ensuing year. In concluding that this compensation
was appropriate, the IRC considered: the nature and complexity of the Trust’s operations; the time
commitment required and the level of information provided to the IRC members. The IRC
followed the Administrator’s recommendation in respect of the compensation levels noted above.
Activities
During the year, the IRC’s activities included approving its mandate, reviewing the policies and
procedures in respect of conflicts of interest of the Administrator and approving the standing
instruction for the Administrator.
The standing instruction covers areas that result in a conflict of interest with the Administrator
including:
i) banking services provided by The Bank of Nova Scotia;
ii) portfolio trading services including approach taken and fees charged by Scotia Capital Inc.;
iii) proxy voting in respect of any portfolio security where the Administrator is in conflict;
iv) the retention of Scotia Capital Inc. to provide investment banking and advisory services
including fees.
The IRC reviewed these functions during the period in co-ordination with the Administrator.
On January 19, 2011, the Administrator referred to the IRC certain conflict of interest matters
relating to a proposed offering of warrants to acquire Units of the Trust (“Warrants”) to the public
by way of a prospectus (the “Warrant Offering”). Specifically, the Administrator identified the
following conflict of interest matters with respect to the Warrant Offering: a) retention of Scotia
Capital Inc. as the registered dealer through which Warrants may be issued as well as dealer
manager to solicit the exercise of such Warrants; b) the aggregate fee payable to the Administrator
may increase as a result of the increase in the assets of the Trust and c) Scotia Capital may receive
commissions to the extent it is retained to act as broker in connection with the purchase of securities
that comprise the portfolio with the net proceeds of the Warrant Offering (collectively, the
“Conflicts of Interest Matters of the Warrant Offering”). Pursuant to NI 81-107, the IRC reviewed
the Conflict of Interest Matters of Warrant Offering upon the terms outlined by the Administrator
and after reasonable enquiry recommended that such Conflict of Interest Matters of the Warrant
Offering achieve a fair and reasonable result for the Trust and, where required, approved same. The
Warrant Offering was the subject matter of a prospectus dated February 14, 2011.
On November 17, 2011, the Administrator referred to the IRC certain conflict of interest matters
arising in connection with the consideration of the short form prospectus offering of units of the
Trust (the “Offering”). Specifically, the Administrator identified the following conflict of interest
matters with respect to the implementation of the Offering: a) the Administrator is a wholly-owned
subsidiary of Scotia Capital Inc.; b) Scotia Capital Inc. will receive a commission equal to 4.0% of
the offering price to the extent they offer and sell any of the units being sold pursuant to the
Offering; c) Scotia Capital Inc. may receive commissions to the extent they are retained to act as a
broker in connection with any trades relating to investing the proceeds raised through the Offering
in additional securities for the portfolio; d) the Administrator will receive its administration fee
equal to 0.25% per annum of the market value of the portfolio in respect of a larger portfolio
resulting from the investment of the Offering proceeds in additional portfolio securities; (e)
depending on the size of the Offering and the number of units tendered for the annual retraction in
December 2011, the loan facility of the Trust may be required to be increased which will result in
more interest payments and fees being paid to the Bank of Nova Scotia; and e)
certain officers
and directors of the Trustee and the Administrator are employees of Scotia Capital Inc.. Pursuant to
NI 81-107, the IRC reviewed the Conflict of Interest Matters arising in connection with the Offering
upon the terms outlined by the Administrator and after reasonable enquiry recommended that such
Conflict of Interest Matters achieve a fair and reasonable result for the Trust and, where required,
approved same. The Offering was the subject matter of a prospectus dated December 7, 2011.
On December 6, 2011, the Administrator referred to the IRC a certain conflict of interest matter
relating to the purchase of securities from another investment fund managed by the Administrator
(the “Inter-Fund Trades”). Pursuant to NI 81-107, the IRC reviewed the conflict of interest matter
arising in connection with the Inter-Fund Trades upon the terms outlined by the Administrator and
after reasonable enquiry recommended that such conflict of interest matter achieve a fair and
reasonable result for the Trust and approved the same.
This report is respectfully submitted to you on behalf of the Independent Review Committee of
SCITI Trust.
Toronto, Canada
March 15, 2012