Investment Approach

Investment Objectives

The Company’s investment objectives with respect to the Preferred Shares are:

To pay to holders of Preferred Shares (‘‘Holders’’), on or about June 30, 2011 (‘‘Redemption Date’’), an amount per Preferred Share equal to the original subscription price of $25.00 per Preferred Share.
To provide Holders with quarterly fixed cumulative preferential distributions of $0.29375 per Preferred Share ($1.1750 per annum to yield 4.70% on the subscription price of $25.00 per Preferred Share).

Investment Highlights

Preliminary rating of P-1 (Low) by Standard & Poor’s (“S&P”), a division of The McGraw Hill Companies, Inc.
Attractive tax efficient dividend of 4.70%, payable quarterly for a pre-tax interest equivalent of 6.92%, or 280 basis points over the current 5-year Canada Bond.
Tax-efficient distributions consisting primarily of returns of capital through the use of a forward sale agreement. Preferred Share distributions will consist primarily of returns of capital, but may include capital gains dividends.
Unique Credit-Linked Note provides exposure to a diversified portfolio of investment grade rated companies and offers an enhanced return relative to comparably rated debt securities. The Credit-Linked Note is structured to pay quarterly in Canadian dollars and has a 5-year term.
Access to proven fixed income management of Connor, Clark & Lunn Investment Management Ltd.

Investment Strategy

The Company will invest the net proceeds of the offering of Preferred Shares in order to provide exposure to a credit-linked note (‘‘Credit-Linked Note’’) which has been assigned a preliminary rating of A- by S&P. The Credit-Linked Note will be issued by The Bank of Nova Scotia whose long-term debt is rated AA- by S&P. The return on the Credit-Linked Note will be linked to the number of defaults experienced over the term of the Credit-Linked Note among the companies in an equally-weighted portfolio already defined in the first paragraph (the ‘‘CLN Portfolio’’) of approximately 120 to 140 companies, all of which are currently rated investment grade by S&P.