Flow-Through

Short Duration FLOW-THROUGH LIMITED PARTNERSHIPS

Investor Guide

“Flow-through shares allow Canadian investors to invest in the energy sector while receiving valuable tax deductions.”The energy sector accounts for ~25% of Canada’s stock market and is an important driver of Canada’s economic growth. Exposure to this growing sector is an essential component of a well-diversified investment portfolio. Adding energy investments to your portfolio offers many benefits including:

• The potential for significant capital appreciation• A hedge against inflation and rising gasoline prices• Indirect exposure to the high economic growth of emerging economies

Flow-through shares allow Canadian investors to invest in the energy sector while receiving valuable tax deductions.

1.877.431.1407 | www.norrep.com

A main driver of Canada’s economic success has been the intelligent use of our plentiful natural resources. The resource companies that explore for and develop the nation’s oil, natural gas, and minerals require equity financing (issuing shares) to fund their growth.

Flow-Through ShareS

whaT are Flow-Through ShareS & how do inveSTorS Take advanTage?

“Flow-through shares are a well-established means for Canadians to obtain valuable tax deductions while participating in the growth of resource companies through share price appreciation.”

Canadian resource companies incur tax-deductible expenses when investing in exploration and development activities. Section 66 of the Income Tax Act permits these companies to attract equity capital by issuing flow-through shares that allow the company to renounce (or “flow-through”) the incurred tax-deductible expenses to investors. A flow-through share is a common share issued by a resource company with the added benefit of the full amount of the investment being tax-deductible against all sources of income. Only the initial purchaser is entitled to the tax benefits; thereafter the shares are simply common shares and can be sold at any time in the market, subject to a hold period if applicable. Once a flow-through investment is sold the entire amount is taxable as a capital gain. Flow-through shares are a well-established means for Canadians to obtain valuable tax deductions while participating in the growth of resource companies through share price appreciation. The tax deductions received effectively act as downside protection on the investment. Most Canadians obtain the benefits of flow-through shares by purchasing units in a flow-through limited partnership (FTLP). Flow-through limited partnerships offer professional management and diversification benefits.

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Cee and Cde

whaT iS The diFFerenCe beTweenCee & Cde Flow-Through ShareS?

Canadian Exploration Expense (CEE) flow-through shares fund drilling for undiscovered oil & natural gas reservoirs, drilling and other expenses incurred on mineral deposits prior to commercial development, and certain other exploration-related expenses.

Canadian Development Expense (CDE) flow-through shares fund drilling into already discovered oil and natural gas reservoirs and certain other development-related expenses.

There are two types of tax-deductible expenses that Canadian resource companies can renounce and therefore two types of flow-through shares that they may issue:

Exploration (CEE) Development (CDE)

Risk of the activity your investment dollars are spent on:

Higher-risk Lower-risk Developing an already discovered resource is lower-risk than exploring for a new resource

Typical size of company that issues flow-through shares:

Micro to small, some mid

Small to mid Companies focused on development are typically established businesses with existing production

Typical stage of company:

Start-up/early stage/growth

Growth/expansion stage

Companies focused on development are typically further along in their life cycle

Relative risk of company that issues flow-though shares:

Higher-risk Lower-risk Companies that have critical mass and existing cash flow typically have less risk

Tax deductions: 100% of the investment(in year one)

100% of the investment(on a 30% declining balance basis)

Given the lower risk profile, CDE deductions are spread out over time, rather than all in the first year - this is the only disadvantage of CDE flow-through versus CEE flow-through

Premiums paid to acquire the flow-through shares:

~20% to ~25% ~10% In order to partially compensate for giving up some of its tax pools, a premium above the company’s current share price is typically paid to purchase flow-through shares. The lower premiums for CDE are a result of the difference in the timing of the tax deductions.

Most flow-through limited partnerships invest 100% in CEE flow-through shares due to the full amount of the investment being tax deductible in the first year.

Norrep believes that the advantages of CDE outweigh the difference in the timing of the deductions. Norrep FTLPs target a 70% CDE / 30% CEE mix which generates a ~50% deduction in year one with 100% of the amount of the investment deductible over time.

Flow-Through limiTed parTnerShipS

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how doeS a Flow-Through limiTed parTnerShip work?

Canadians can invest directly in flow-through shares or they can purchase units in a flow-through limited partnership (FTLP).

A flow-through limited partnership is an investment vehicle that provides investors with access to a professionally managed portfolio of flow-through shares. Most Canadians obtain the benefits of flow-through shares by purchasing units in a flow-through limited partnership.

Norrep FTLPs have a life span of approximately one year. In the year following the inception of the FTLP, units of the partnership are expected to be automatically exchanged for an equivalent value of shares in a Norrep mutual fund that may then be redeemed at any time. The exchange (or “rollover”) is a tax-deferred event meaning that the investment will continue to experience capital appreciation potential without it being a taxable event.

beneFiTS oF a FTlp

1 professional management 2 Superior access to flow-through deals

3 Diversification of flow-through investments

(1) Investment in FTLP(2) FTLP invests in flow-through shares of resource companies

(3) Resource companies renounce CEE or CDE to the FTLP

Investors/Limited Partners

Flow-Through Limited

Partnership

Resource Companies

(4) Tax-deductible CEE or CDE is transferred from the FTLP to

limited partners

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inveSTing in Flow-Through

who iS SuiTable For inveSTing in aFlow-Through limiTed parTnerShip?

Flow-Through investing is most suitable for investors in the highest tax bracket which maximizes the value of the tax deductions. Investors must be willing to accept the risk associated with investing in small to mid cap resource companies.

Flow-Through Tax STraTegieS

Please refer to the latest Norrep Short Duration Flow-Through Limited Partnership prospectus for more information on the tax implications and risks involved with a flow-through limited partnership. Investors should consult with their tax professional for more information on how flow-through investing can benefit their financial situation.

Flow-Through break-even CalCulaTion

The break-even proceeds show the value to which the investment could decrease and not result in a loss of the initial investment.

bC ab Sk mb on nb nS pei nl

Top marginal tax rate 45.8% 39.0% 44.0% 46.4% 49.5% 46.8% 50.0% 47.4% 42.3%

Investment $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000

Less: Tax savings -$4,580 -$3,900 -$4,400 -$4,640 -$4,953 -$4,680 -$5,000 -$4,740 -$4,230

Money at risk $5,420 $6,100 $5,600 $5,360 $5,050 $5,320 $5,000 $5,260 $5,770

Break-even proceeds $7,030 $7,578 $7,179 $6,979 $6,711 $6,945 $6,667 $6,894 $7,318

Note: Please refer to the most recent Norrep Short Duration Flow-Through Limited Partnership prospectus for details on the break-even calculation.

1 Reduce taxes on lump sum capital gains or income including sheltering business income

2 Build up tax pools to use in the future, for example in anticipation of a lump sum gain or to offset

3 A tax-advantaged way to invest in the Norrep Energy Class or other Norrep funds

future income

norrep’S inveSTmenT managemenT Team

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norrep’S inveSTmenT managemenT Team haS a unique approaCh To Flow-Through

Norrep’s FTLP Typical FTLP

CDE/CEE mix: 70% CDE / 30% CEE 100% CEE

Sector focus: Energy Both Mining and Energy

Life cycle: 1 Year 2 Years

Expected tax deductions: 100%(~50% in first year and rest over time)

100%(100% in first year)

Premiums paid to acquire flow-through shares:

~15% target(~10% for CDE and ~20% - 25% for CEE)

15% - 25%(Energy CEE is typically 20% - 25% though mining CEE can be less)

Typical size of portfolio companies:

Small to mid Micro to small, some mid

Relative investment risk: Lower(Larger companies, development expenditures, lower premiums)

Higher(Smaller companies, exploration expenditures, higher premiums)

Steve Smith, CAChief Financial Officer & Portfolio Manager

Steve Smith is the Calgary-based lead Portfolio Manager of Norrep Flow-Through Limited Partnerships and the Norrep Energy Class mutual fund.Steve joined Norrep in 2007 after 12 years in the investment industry as a research analyst with BMO Nesbitt Burns Inc., Macquarie Securities Inc., and FirstEnergy Capital Corp. He has a further 12 years experience in the oil & gas industry in both financial and executive roles.

Steve Ripplinger, CFAAssociate Portfolio Manager

Steve joined Norrep in 2008 after completing a Bachelor of Commerce with First Class Honours from Queen’s University.

Steve Ripplinger is a Calgary-based Associate Portfolio Manager of Norrep Flow-Through Limited Partnerships and the Norrep Energy Class mutual fund.

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norrep ShorT duraTion Flow-Through

why ChooSe norrep ShorT duraTionFlow-Through limiTed parTnerShipS?

1 lower inveSTmenT riSkNorrep’s flow-through structure is energy focused and prefers lower-risk development drilling (70% CDE target) to higher-risk exploration drilling (30% CEE target).Most flow-through limited partnerships invest only in CEE flow-through shares yet the oil & gas industry is changing with a growing appetite for CDE flow-through. In fact, 90% of all oil & gas wells drilled in Western Canada are now development wells as opposed to exploration wells (source: CAPP). This creates an opportunity for Norrep to target investments in larger and higher quality companies.

2 qualiTy inveSTmenT opporTuniTieSNorrep’s proven and repeatable investment methodology focuses on creating concentrated portfolios of high quality companies. A great amount of due diligence goes into Norrep’s investment selection ensuring that each company offers tangible production and strong development opportunities.

5 Tax-advanTaged rollover opTionSFor investors who like having options, Norrep’s flow-through offers a tax advantaged way to build positions in any fund within Norrep’s corporate class structure upon rollover.

3 a ShorT duraTion inveSTmenTLiquidity (rollover) in approximately one year.

4 lower premiumSNorrep targets 15% overall premiums (CDE ~10% and CEE ~20% - 25%). Lower premiums provide an investment return advantage for investors.

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rollover opTionS

In approximately one year, after the objectives of a Norrep Short Duration Flow-Through Limited Partnership are achieved, partnership units are expected to be exchanged for an equivalent value of shares in a public Norrep mutual fund that may then be redeemed at any time. The expected exchange (or “rollover”) is a tax-deferred event meaning that the investment will continue to experience capital appreciation potential without it being a taxable event.

Fund Asset classNorrep II ClassNorrep All Cap Quant ClassNorrep US Dividend Plus ClassNorrep Income Growth Class Norrep Global ClassNorrep Energy ClassNorrep Entrepreneurs ClassNorrep High Yield ClassNorrep Global Income Growth ClassNorrep Tactical Opportunities Class

Canadian Small/Mid Cap EquityCanadian EquityU.S. EquityCanadian Equity BalancedGlobal EquityEnergy Equity Canadian Small/Mid Cap EquityHigh Yield Fixed IncomeGlobal Equity BalancedTactical Balanced

At rollover, the intention is to have the units automatically invested in the Norrep Energy Class, an open-ended mutual fund that provides investors with exposure to a concentrated portfolio of high quality energy companies of all sizes with a focus on small and mid capitalization companies. If an investor does not wish to stay invested in the Norrep Energy Class, our tax-efficient corporate class structure allows fund switching without triggering a taxable event. To investors, this means a choice between any of Norrep’s mutual fund products listed on the right.

Investment in a Norrep Short Duration

Flow-Through Limited Partnership

50% projected tax deduction in investment year

Hold assets in the Norrep Energy Class for potential capital appreciation

Re-invest assets in a future Norrep FTLP to obtain new tax deductions

Donate the mutual fund shares received from rollover to a charity

to maximize tax deductions

Tax-deferred rollover options

50% projected tax deduction over future years

Switch assets to another Norrep fund class on a tax-deferred basis

to adjust portfolio exposure

whaT happenS aFTer one year wiThnorrep ShorT duraTion limiTed parTnerShipS?

For more detailed information on each fund, please visit www.norrep.com

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norrep’S unique Tax deduCTion STruCTure

whaT do The expeCTed Tax deduCTionSlook like wiTh norrep’S unique STruCTure?

Norrep Short Duration Flow-Through Limited Partnerships target a structure of 30% invested in exploration (CEE) flow-through shares and 70% in development (CDE) flow-through shares.

The table below breaks down the resulting deductions of a $10,000 investment in a 70% CDE / 30% CEE structure. The target mix offers a 51% tax deduction in year one with a 100% deduction over time.

Target Mix Year 1 Year 2 Year 3 Year 4 Year 5 and beyond Total

CEE 30%

CEE Tax Pools $3,000 - - - - $3,000

CEE Rate (%) 100% - - - - 100%

CEE Deduction $3,000 - - - - $3,000Remaining Tax Pools $0 - - - - -

CDE 70%

CDE Tax Pools $7,000 $4,900 $3,430 $2,401 $1,681 $7,000

CDE Rate (%) 30% 30% 30% 30% 30%/year 100%

CDE Deduction $2,100 $1,470 $1,029 $720 $1,681 $7,000Remaining Tax Pools $4,900 $3,430 $2,401 $1,681 $0 -

Total 100%

Total Tax Pools $10,000 $4,900 $3,430 $2,401 $1,681 $10,000

Total % of investment 51% 15% 10% 7% 17% 100%

Total Deduction $5,100 $1,470 $1,029 $720 $1,681 $10,000

Excludes expenses and other tax implications of a flow-through limited partnership.

Note: Once you have CEE or CDE tax pools, they are yours regardless of whether or not the investment continues to be held.

“The target mix offers a 51% tax deduction in year one with a 100% deduction over time.”

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year 1 inveSTmenT year

Flow-Through TaxaTion CyCle

• Investors purchase units in a Norrep Short Duration Flow-Through Limited Partnership (FTLP)• The FTLP invests in flow-through shares of Canadian energy companies• The energy companies use the funds to drill for oil or natural gas and incur eligible Canadian Exploration

Expense (“CEE”) or Canadian Development Expense (“CDE”) tax deductions• The energy companies renounce the incurred tax deductible expenses to the FTLP• The FTLP distributes all of the tax deductions to its investors which they can use against their taxable income• Investors receive a T5013 (Statement of Partnership Income) slip for the Year 1 taxation year from their

brokerage firm in March/April of the following year that assigns them their CEE and CDE tax pools• Flow-through investments have an Adjusted Cost Base of zero so the full amount of the proceeds are subject

to capital gains tax upon disposition• If capital gains are realized by the FTLP during the year, investors will have a taxable capital gain for the Year 1

taxation year (included in the T5013 slip)

year 2 rollover year

• The assets of the FTLP are transferred into a Norrep mutual fund and investors receive shares in the mutual fund – this is not a taxable event

• Investors may hold on to the mutual fund or switch into other Norrep corporate class mutual funds at no cost and continue to defer taxes

• Investors may redeem their mutual fund shares for cash – this is a taxable event and investors will be subject to capital gains taxes

• Investors receive a final T5013 (Statement of Partnership Income) slip from Norrep no later than 90 days after the rollover

• If capital gains are realized by the FTLP during the year, investors will have a taxable capital gain for the Year 2 taxation year (included in the T5013 slip)

• Investors may continue to use their unclaimed CEE and CDE tax pools regardless of whether or not the mutual fund continues to be held

• Investors may continue to use their unclaimed CEE and CDE tax pools regardless of whether or not the mutual fund continues to be held

• Investors may hold on to the mutual fund or switch into other Norrep mutual funds at no cost and continue to defer taxes

• Investors may redeem their mutual fund shares for cash – this is a taxable event and investors will be subject to capital gains taxes

SubSequenT yearS

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Flow-Through Tax Form

Claiming Flow-Through deduCTionS on your Tax Form iS Simple!

CEE and CDE can be deducted from your total income - there is a line for these deductions on your T1 General tax form

CEE and CDE deductions received are provided to you in a T5013 slip

Start with the unused balance from prior year

Add any new CEE or CDE received for the taxation yearThe sum of your total pools for the taxation yearUp to 100% of CEE pools can be claimed Up to 30% of CDE pools can be claimed

Amount claimed for taxation year

Ending balance (and beginning balance for next year) = unclaimed pools remaining

Norrep is a leader and innovator in flow-through limited partnerships and has raised over $513 million for

This report is provided for information purposes only and does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction. The information and any statistical data contained herein have been obtained from sources which we believe to be reliable, but we do not represent that they are accurate or complete, and should not be relied upon as such. All opinions expressed and data provided herein are subject to change without notice. The securities mentioned in this document may not be suitable for all types of investors. The contents of this document are not intended to provide financial, legal, accounting or tax advice and should not be relied upon in that regard. Norrep Mutual Funds are offered for sale by way of prospectus in all provinces of Canada except Quebec. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the Norrep Mutual Funds prospectus before investing. Mutual fund securities are not guaranteed, their values change frequently and past performance may not be repeated.

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403.531.2650 phone1.877.531.9355 client services1.877.431.1407 sales & generalinfo@norrep.com

ConTaCT uS

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flow-through investing since 1999.