Income & Equity Index Participation Fund
TSX : IEP.UN

Income & Equity Index Participation Fund

January 26, 2006 15:57 ET

Income & Equity Index Participation Fund Announces Special Meeting of Unitholders

CALGARY, ALBERTA--(CCNMatthews - Jan. 26, 2006) - Income & Equity Index Participation Fund (TSX:IEP.UN) (the "Fund") wishes to advise that a special meeting of the holders of trust units of the Fund will be held at Room C, Bankers Hall Auditorium, Lower Level A-P3 (below concourse), 315-8th Avenue SW, Calgary, Alberta on March 30, 2006 at 9:00 am (Calgary time) for the following purposes:

Replacement of Existing Equity Call Options. To consider and, if thought fit, pass a special resolution authorizing the administrator of the Fund to:

(a) sell the equity call options currently held by the Fund back to the issuing Canadian financial institutions or to any other financial institution;

(b) amend the declaration of trust of the Fund to permit the purchase by the Fund of new equity call options from one or more financial institutions;

(c) purchase from one or more financial institutions one or more new equity call options having substantially similar attributes as the existing equity call options held by the Fund, including being based on the S&P/TSX 60 Index, being capped at 30% appreciation and having a 5 year term; and

(d) amend the declaration of trust of the Fund to extend the termination date of the Fund from June 30, 2009 to September 30, 2011 to coincide with the renewed 5 year term of the new equity call options,

all as more particularly set out in the Management Information Circular to be sent to unitholders of record as of February 23, 2006.

Unitholders of record on February 23, 2006 will be entitled to vote on the foregoing proposed unitholder resolutions. A voting instruction form and the Management Information Circular will be mailed to each beneficial holder of trust units of the Fund. All unitholders are requested to complete and return the voting instruction form as soon as possible in accordance with the instructions provided.

Reasons for the Replacement of the Existing Equity Call Options

The existing equity call options held by the Fund were acquired in February 2004, had terms of 5 years and were capped at 130% of the original notional value, reflecting the first 30% appreciation in the S&P/TSX 60 Index. Since the acquisition of the Fund's existing equity call options, the S&P/TSX 60 Index has appreciated by approximately 35%. As a result of the appreciation in the S&P/TSX 60 Index, the administrator of the Fund is of the opinion that the existing equity call options have essentially reached their time value adjusted maximum potential value and to continue to hold the existing equity call options will only generate modest additional value for the Fund over the approximate 3 years remaining in the terms of those options. Accordingly, the administrator of the Fund is of the opinion that it would be in the best interests of the Fund and its unitholders to capture the current market value of the Fund's existing equity call options and to replace those options with new five year call options on the S&P/TSX 60 Index. In this way the current value of the Fund's existing equity call options can be realized upon and at the same time unitholders can continue to participate in the capital appreciation of the Canadian equity markets as represented by the S&P/TSX 60 Index.

Effect on Distributions

The Fund, since its inception, has provided high levels of cash distributions to its unitholders, a portion of which have been paid on a tax-deferred basis. Following the replacement of the Fund's existing equity call options, it is expected that the Fund will increase its distributions by paying out to its unitholders an aggregate amount equal to the difference between the realized market value of the Fund's existing equity call options and the cost to the Fund of acquiring the replacement equity call options (such amount the "Net Gain"). The Fund anticipates paying out the Net Gain to its unitholders over time. Based on quotations received from several financial institutions as at January 6, 2006 to both purchase the Fund's existing equity call options and to grant the replacement equity call options, distributing the Net Gain to unitholders over a 24 month period would require the Fund to increase its monthly distribution from $0.07 per trust unit per month to $0.103 per trust unit per month, a 47% increase.

There are a number of conditions precedent that require satisfaction prior to the Fund being able to replace the Fund's existing equity call options and the value of the Fund's existing equity call options may fluctuate and may be substantially less than their current value at the time the conditions precedent are satisfied. Accordingly there is no assurance that the Fund will be able to realize the Net Gain and increase distributions to unitholders in the manner anticipated. There is also no assurance that the conditions precedent to the replacement of the Fund's existing equity call options will be satisfied on a timely basis, if at all.

Contact Information

  • Income & Equity Index Participation Fund
    Joe MacDonald
    Executive Vice President, Sales and Marketing
    1-877-261-9674
    Website: www.citadelfunds.com