Redwood Emerging Markets Dividend Fund

Transcription

1 Unaudited Interim Financial Statements June 30, 2016

2 Statements of Financial Position (Unaudited) As at June 30, 2016 and December 31, 2015 June 30, 2016 December 31, 2015 $ $ Assets Current Assets Investments Non-derivative financial assets 39,281,999 47,842,858 Cash 1,865,525 7,102,319 Receivable for investments sold 7,071,351 - Subscription receivable 202,255 - Interest and dividends receivable 31,306 25,945 Prepaid expenses 5,058 - Derivative Assets 1,802 2,243 48,459,296 54,973,365 Liabilities Current Liabilities Payable for investments purchased 1,832,760 3,540 Redemptions payable 5,409,804 5,984 Management fees payable 64,894 80,142 Accrued expenses 43,167 43,003 Distributions payable to shareholders 16,283-7,366, ,669 Net assets attributable to holders of redeemable units 41,092,388 54,840,696 Net assets attributable to holders of redeemable units by series Series A 3,971,428 5,197,934 Series F 37,120,960 49,642,762 41,092,388 54,840,696 Net assets attributable to holders of redeemable units per unit (Note 8) Series A Series F Approved by the Board of Directors of the Fund's Manager: "Peter Shippen" Director (signed) "Larry Guy" Director (signed) The accompanying notes are an integral part of the financial statements. 2

3 Statements of Comprehensive Income (Unaudited) for the periods ended June 30, 2016 and ,015 $ $ Income Net gains (losses) on investments and derivatives (Note 7) Dividends 968,989 1,005,133 Interest for distribution purposes 99 5,116 Net realized gain (loss) on sale of investments and derivatives (725,433) 257,894 Net change in unrealized appreciation (depreciation) of investments and derivatives (453,802) 2,417,007 (210,147) 3,685,150 Security lending income (Note 5) 8,300 7,300 Foreign exchange gain (loss) on cash 20,008 (69,038) Total income (net) (181,839) 3,623,412 Expenses (Note 9,10) Management fees 400, ,928 Valuation and administrative fees 97,192 48,970 Interest and borrowing costs 1,653 - Transaction costs 20,512 17,630 Audit fees 13,207 8,105 Custodial fees 17,868 49,589 Withholding taxes 107, ,126 Regulatory fees 21,685 3,538 Independent review committee fees 2, Total expenses 682, ,925 Expenses waived/absorbed by the Manager (2,387) (23,298) Net expenses 680, ,627 Increase (decrease) in net assets attributable to holders of redeemable units (861,976) 2,925,785 Increase (decrease) in net assets attributable to holders of redeemable units by series (Note 11) Series A (93,167) 402,749 Series F (768,809) 2,523,036 Increase (decrease) in net assets attributable to holders of redeemable units per unit (Note 11) Series A (0.20) 0.71 Series F (0.19) 0.64 The accompanying notes are an integral part of the financial statements. 3

4 Statements of Changes in Net Assets Attributable to Holders of Redeemable Units (Unaudited) for the periods ended June 30, 2016 and Total Fund $ $ Net assets attributable to holders of redeemable units at beginning of period 54,840,696 40,433,698 Increase (decrease) in net assets attributable to holders of redeemable units (861,976) 2,925,785 Distributions Paid or Payable to holders of redeemable units From net investment income (532,081) (544,666) Total distributions to holders of redeemable units (532,081) (544,666) Redeemable unit transactions Proceeds from redeemable units issued 5,668,305 17,241,382 Reinvestments of distributions to holders of redeemable units 392, ,797 Redemption of redeemable units (18,415,009) (4,420,253) Net increase (decrease) from redeemable unit transactions (12,354,251) 13,218,926 Net increase (decrease) in net assets attributable to holders of redeemable units (13,748,308) 15,600,045 Net assets attributable to holders of redeemable units at end of period 41,092,388 56,033, Series A $ $ Net assets attributable to holders of redeemable units at beginning of period 5,197,934 5,708,226 Increase (decrease) in net assets attributable to holders of redeemable units (93,167) 402,749 Distributions Paid or Payable to holders of redeemable units From net investment income (55,578) (68,119) Total distributions to holders of redeemable units (55,578) (68,119) Redeemable unit transactions Proceeds from redeemable units issued 99, ,862 Reinvestments of distributions to holders of redeemable units 45,024 56,579 Redemption of redeemable units (1,222,305) (315,476) Net increase (decrease) from redeemable unit transactions (1,077,761) 172,965 Net increase (decrease) in net assets attributable to holders of redeemable units (1,226,506) 507,595 Net assets attributable to holders of redeemable units at end of period 3,971,428 6,215, Series F $ $ Net assets attributable to holders of redeemable units at beginning of period 49,642,762 34,725,472 Increase (decrease) in net assets attributable to holders of redeemable units (768,809) 2,523,036 Distributions Paid or Payable to holders of redeemable units From net investment income (476,503) (476,547) Total distributions to holders of redeemable units (476,503) (476,547) Redeemable unit transactions Proceeds from redeemable units issued 5,568,785 16,809,520 Reinvestments of distributions to holders of redeemable units 347, ,218 Redemption of redeemable units (17,192,704) (4,104,777) Net increase (decrease) from redeemable unit transactions (11,276,490) 13,045,961 Net increase (decrease) in net assets attributable to holders of redeemable units (12,521,802) 15,092,450 Net assets attributable to holders of redeemable units at end of period 37,120,960 49,817,922 The accompanying notes are an integral part of the financial statements. 4

5 Statements of Cash Flows (Unaudited) for the periods ended June 30, 2016 and $ $ Cash flows from operating activities Increase (decrease) in net assets attributable to holders of redeemable units (861,976) 2,925,785 Adjustments for: Foreign exchange (gain) loss on cash (20,008) 69,038 Net realized (gain) loss on sale of investments and derivatives 725,433 (257,894) Net change in unrealized (appreciation) depreciation of investments and derivatives 453,802 (2,417,007) Accrued liabilities (15,084) 105,552 Proceeds from sale and maturity of investments 6,143,656 2,613,835 Net investments purchased (4,003,722) (15,830,353) Interest, dividends receivable and other assets (10,419) (94,722) Net cash from operating activities 2,411,682 (12,885,766) Cash flows used in financing activities Proceeds from redeemable units issued 5,466,050 17,241,382 Redemption of redeemable units (13,011,189) (4,420,253) Distributions paid to holders of redeemable units, net of reinvested distributions (123,345) (146,869) Net cash provided by (used in) financing activities (7,668,484) 12,674,260 Foreign exchange gain (loss) on cash 20,008 (69,038) Increase (decrease) in cash (5,256,802) (211,506) Cash at beginning of period 7,102,319 5,847,182 Cash at end of period 1,865,525 5,566,638 Cash activities included in operating activities: Interest received 99 5,223 Overdraft interest - (107) Dividends received, net of withholding taxes 856, ,711 Reconciliation of Cash For the purpose of the cash flow statement, cash comprises: Cash at bank and in hand 1,865,525 5,600,361 Bank overdraft - (33,723) 1,865,525 5,566,638 The accompanying notes are an integral part of the financial statements. 5

6 Schedule of Investment Portfolio as at Shares Fair Security or units Cost Value $ $ Equities (95.6%) Brazil (4.3%) Ambev SA 31, , ,266 Porto Seguro SA 144,632 1,965,408 1,542,650 Total Brazil Equities 2,188,483 1,785,916 Chile (5.6%) Administradora de Fondos de Pensiones Habitat SA 521, , ,790 Aguas Andinas SA, Class 'A' 499, , ,745 Compania Cervecerias Unidas SA 22, , ,283 Compania Cervecerias Unidas SA, ADR 11, , ,359 Inversiones Aguas Metropolitanas SA 172, , ,393 Total Chile Equities 2,428,031 2,295,570 China (0.7%) Hengan International Group Co. Ltd. 25, , ,361 Qinqin Foodstuffs Group (Cayman) Co. Ltd. 5,000 9,239 9,159 Total China Equities 298, ,520 Hong Kong (1.1%) China Mobile Ltd. 32, , ,410 Total Hong Kong Equities 471, ,410 Hungary (6.5%) MOL Hungarian Oil and Gas PLC 7, , ,217 OTP Bank Nyrt. 72,822 1,556,792 2,099,831 Total Hungary Equities 2,106,016 2,655,048 Indonesia (2.3%) PT Telekomunikasi Indonesia Persero TBK, Series 'B 2,403, , ,561 Total Indonesia Equities 532, ,561 Korea (21.9%) KT&G Corp. 7, ,873 1,106,166 NCsoft Corp. 2, , ,644 Nexen Tire Corp. 52, , ,105 Nong Shim Co. Ltd. 3,157 1,244,709 1,324,329 Samsung Electronics Co. Ltd ,161,040 1,392,140 Samsung Fire & Marine Insurance 5,944 1,795,034 1,756,747 SK Hynix Inc. 50,922 2,115,015 1,850,548 Total Korea Equities 8,153,183 8,973,679 Nigeria (0.2%) Access Bank PLC 3,688, ,518 97,076 Total Nigeria Equities 104,518 97,076 Philippines (8.4%) Aboitiz Power Corp. 1,055,620 1,058,194 1,334,893 Metropolitan Bank & Trust Co. 661,202 1,414,164 1,640,482 Philippine Long Distance Telephone Co. 8, , ,148 Total Philippines Equities 2,987,134 3,464,523 Poland (2.1%) Powszechny Zaklad Ubezpieczen SA 90,913 1,201, ,002 Total Poland Equities 1,201, ,002 The accompanying notes are an integral part of the financial statements. 6

7 Schedule of Investment Portfolio as at Shares Fair Security or units Cost Value $ $ Portugal (0.4%) Jeronimo Martins SGPS SA 7, , ,785 Total Portugal Equities 147, ,785 Russia (2.2%) LUKOIL PJSC, ADR 17, , ,635 Total Russia Equities 838, ,635 South Africa (5.9%) Nampak Ltd. 116, , ,643 Sanlam Ltd. 222,076 1,172,475 1,175,852 Shoprite Holdings Ltd. 71,782 1,066,803 1,047,278 Total South Africa Equities 2,601,425 2,418,773 Taiwan (9.9%) ememory Technology Inc. 56, , ,198 Formosa International Hotels Corp. 49, , ,274 Pou Chen Corp. 835,800 1,259,228 1,441,021 President Chain Store Corp. 85, , ,452 Taiwan Semiconductor Manufacturing Co. Ltd. 69, , ,105 Win Semiconductors Corp. 86, , ,909 Total Taiwan Equities 3,456,786 4,055,959 Thailand (0.0%) Samart Corp. PCL 29,600 31,196 18,392 Samart Corp. PCL, Warrants, February 19, ,140-1,802 Total Thailand Equities 31,196 20,194 Turkey (8.5%) Aksa Akrilik Kimya Sanayii AS 277, , ,378 Anadolu Hayat Emeklilik 405, , ,537 Turk Telekomunikasyon AS 581,483 1,786,093 1,580,060 Türkiye Sise ve Cam Fabrikalari AS (Sisecam) 30,707 41,217 48,961 Total Turkey Equities 3,365,155 3,505,936 United Arab Emirates (3.9%) First Gulf Bank PJSC 24,618 73, ,107 National Bank of Abu Dhabi 329, ,999 1,118,163 Union National Bank PJSC 251, , ,802 Total United Arab Emirates Equities 1,232,320 1,590,072 United Kingdom (0.9%) HSBC Holdings PLC 46, , ,534 Total United Kingdom Equities 379, ,534 United States (10.8%) ishares MSCI India ETF 79,202 3,198,192 2,856,915 ishares S&P India Nifty 50 Index Fund 43,233 1,399,490 1,580,693 Total United States Equities 4,597,682 4,437,608 Total Equities 37,121,333 39,283,801 Total Investment Portfolio and Derivatives (95.6%) 37,121,333 39,283,801 Cash (4.5%) 1,865,525 Other Assets less Other Liabilities (-0.1%) (56,938) Net Assets (100.0%) 41,092,388 The accompanying notes are an integral part of the financial statements. 7

8 1. Reporting entity The Redwood Emerging Markets Dividend Fund (the Fund ) is an open-ended mutual fund trust formed under the laws of the Province of Ontario by Declarations of Trust, executed by the Trustee of the Fund November 16, Redwood Asset Management Inc. (the Manager ) is the manager and the Trustee of the Fund. The Manager is incorporated under the laws of Ontario and is registered with the Ontario Securities Commission as an Investment Fund Manager and an Exempt Market Dealer. The custodian of the Fund is CIBC Mellon ( Custodian ). The Portfolio Advisor is Redwood Asset Management Inc. and the investment sub-advisor is Somerset Capital Management LLP. The address of the Fund s registered office is 120 Adelaide St W, Suite 2400, Toronto, Ontario M5H 1T1. The Fund commenced operations on November 5, The objective of the Fund is to generate capital appreciation by investing in a basket of emerging market equities, while mitigating downside risk. A secondary objective of the Fund is to generate a higher level of dividend income from those investments. The financial statements of the Fund comprises the statements of financial position as at June 30, 2016 and December 31, 2015 and the statements of comprehensive income, changes in net assets attributable to holders of redeemable units, and cash flows for the six-month period ended June 30, 2016 and The schedule of investment portfolio is as at June 30, These financial statements were authorized for issue by Redwood Asset Management Inc. (the Manager) on August 29, Basis of presentation and adoption of IFRS These financial statements have been prepared in compliance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board applicable to preparation of interim financial statements, including IAS 34 Interim Financial Reporting. 3. Significant accounting policies The accounting policies set out below have been applied consistently to all periods presented in these financial statements. Financial instruments The Fund recognizes financial instruments at fair value upon initial recognition. Investments have been designated at fair value through profit or loss (FVTPL) and the Fund s derivatives and securities sold short are held for trading and also carried at FVTPL. The Fund s obligation for net assets attributable to holders of redeemable units is presented at the redemption amount. All other financial assets and liabilities are measured at amortized cost. Classification of financial assets and liabilities The Fund s investments, other than derivatives, are classified as financial assets or liabilities at fair value through profit or loss. The Fund s financial assets and liabilities, other than derivatives, are designated at fair value through profit or loss designated at inception, as those financial assets and liabilities are managed together and their performance evaluated on a fair value basis in accordance with the Fund s documented investment strategies. Derivatives are classified as held for trading and measured at fair value through profit or loss. Unrealized gains (losses) arising on derivatives are shown on the Fund s Statements of Financial Position and such amounts are included in the Statements of Comprehensive Income in net change in unrealized appreciation (depreciation) of investments and derivatives, where applicable. Realized gains arising on derivatives during a period are included in the Statements of Comprehensive Income in net realized gain (loss) on sale of investments and derivatives, where applicable. 8

9 Offsetting Financial assets and liabilities are offset and the net amount presented in the statements of financial position when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. Fair value measurement Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The fair value of financial assets and liabilities traded in active markets (such as publicly traded derivatives and marketable securities) are based on quoted market prices at the close of trading on the reporting date. The Fund uses the last traded market price for both financial assets and financial liabilities where the last traded price falls within the bid-ask spread. In circumstances where the last traded price is not within the bid-ask spread, the Manager will review and apply a price within the bid-ask spread that is most representative of fair value based on the specific facts and circumstances. The Fund s policy is to recognize transfers into and out of the fair value hierarchy levels as of the date of the event of change in circumstances that gave rise to the transfer. Investments held that are not traded in an active market are valued based on the results of valuation techniques. The Fund uses a variety of methods and makes assumptions that are based on market conditions existing at each reporting date. Valuation techniques include the use of comparable recent arm s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, option pricing models and others commonly used by market participants and which make the maximum use of observable inputs. Investments in other funds are valued at the net asset value per unit reported by each fund. Impairment of financial assets At each reporting date the Fund assesses whether there is objective evidence that financial assets at amortized cost are impaired. If such evidence exists, the Fund recognizes an impairment loss as the difference between the amortized cost of the financial asset and the present value of the estimated future cash flows, discounted using the instrument s original effective interest rate. Impairment losses on financial assets at amortized cost are reversed in subsequent periods if the amount of the loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized. Investment income Regular way purchases and sales of financial assets are recognized at their trade date. The interest for distribution purposes shown on the statements of comprehensive income represents the coupon interest received by the Fund accounted for on an accrual basis. The Fund does not amortize premiums paid or discounts received on the purchase of fixed income securities except for zero coupon bonds which are amortized on a straight line basis. Dividend income is recognized on the ex-dividend date. Realized and unrealized gains and losses from investment transactions are calculated on a weighted average cost basis. Income, realized gains (losses) and unrealized gains (losses) are allocated among the series on a pro-rata basis. The Fund generally incurs withholding taxes imposed by certain countries on investment income and capital gains. Such income and gains are recorded on a gross basis and the related withholding taxes are shown as a separate expense in the statements of comprehensive income. Forward foreign exchange contracts Forward foreign exchange contracts, if purchased or sold, are valued at the current market value thereof on the valuation date. The value of these forward contracts is the gain or loss that would be realized if, on the valuation date, the positions were to be closed out using market conditions and recorded as an unrealized appreciation (depreciation) on forward contracts in the statements of financial position. When the forward contracts are closed 9

10 out or expire, realized gains or losses on forward contracts are recognized and are included in the statements of comprehensive income. The Canadian dollar value of forward foreign exchange contracts is determined using forward currency exchange rates supplied by an independent service provider. Futures contracts The fair value of a futures contract fluctuates daily. Changes in the initial settlement value of futures contracts are accounted for as net change in unrealized appreciation (depreciation) of investments and derivatives in the Statements of Comprehensive Income until the contracts are closed, at which time the gains (losses) are realized and reflected in the Statements of Comprehensive Income and recorded as net realized gain (loss) on sale of investments and derivatives. There is a risk that the counterparty will not meet the terms of its contract and so the appreciation (depreciation), as shown in the Statements of Financial Position, may not be realized and may not be paid to the Fund. Functional and presentation currency and foreign currency translation The functional and presentation currency of the Fund is Canadian dollars (CAD). Canadian dollars is the currency of the primary economic environment in which the Fund operates and is the primary currency in which it raises capital. The fair value of investments and other assets and liabilities denominated in a foreign currency are translated into Canadian dollars at the rate of exchange which is current on the valuation date. Transactions denominated in a foreign currency are translated into Canadian dollars at the rate of exchange prevailing at the date of the transactions. Realized and unrealized foreign currency gains or losses on investments are included in the Statements of Comprehensive Income in Net realized gain (loss) on sale of investments and derivatives and Net change in unrealized appreciation (depreciation) on investments and derivatives, respectively. Realized and unrealized foreign currency gains or losses on monetary assets and liabilities other than investments denominated in foreign currencies are included in the Statements of Comprehensive Income in Foreign exchange gain (loss) on cash. Cash Cash is comprised of demand deposits with financial institutions, bank overdraft, and short term debt instruments with original terms of maturity of less than 90 days, as applicable. The bank overdraft facilities may be drawn at any time and may be terminated by the bank without notice. Multi-series operations Each series of the Fund has rights to the assets of the Fund equal to that of other series. Income, non-series specific expenses, and non-series specific realized and unrealized capital gains and losses are allocated to each series of units based on the relative net asset values of each series of the Fund. A separate net asset value ( NAV ) is calculated for each series of units of the Fund by taking the series proportionate share of the Fund s common assets less that series proportionate share of the Fund s common liabilities and deducting from this amount all liabilities that relate solely to a specific series. The NAV per unit for each series is determined by dividing the NAV of each series by the number of units of that series outstanding on the valuation date. Investments in unconsolidated structured entities The Fund is considered to be investment entities as defined by IFRS 10 Consolidated Financial Statements and consequently is required to measure investments in subsidiaries, including controlled investments in Underlying Funds, if any, at fair value through profit and loss. Additional disclosures required under IFRS are disclosed in Note 13, which outlines the exposure of the Funds investments in those structured entities. 10

11 Changes in fair value of underlying funds are included in the Statements of Comprehensive Income in Net change in unrealized appreciation (depreciation) on investments and derivatives. Securities lending The Fund may enter in securities lending transactions with their Custodian. The credit risk related to securities lending transactions is limited by the fact that the value of cash of securities held as collateral by the Fund in connection with these transactions is at least 102 percent of the fair value of the securities loaned. The collateral is of high quality and only the following forms are acceptable; Federal, Provincial and Sovereign Debt that is issued by Canada, the United States of America, the government of a sovereign state of G7 countries or a permitted supranational agency of OECD countries, Bankers Acceptances or Bankers Bearer Deposits Notes, Irrevocable Letters of Credit, Corporate Debt or Corporate Commercial Paper, Convertible Securities and Cash. The collateral and loaned securities are marked to market on each business day. Income from securities lending is included in Securities lending in the Statements of Comprehensive Income. Transaction costs Transaction costs are expensed and are included in Transaction costs in the statements of comprehensive income. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of an investment, which include fees and commissions paid to agents, advisors, brokers and dealers. Standards issued but not yet effective The final version of IFRS 9, Financial instruments, was issued by the IASB in July 2014 and will replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 introduces a model for classification and measurement, a single, forward-looking expected loss impairment model and a substantially reformed approach to hedge accounting. The new single, principle based approach for determining the classification of financial assets is driven by cash flow characteristics and the business model in which an asset is held. The new model also results in a single impairment model being applied to all financial instruments, which will require more timely recognition of expected credit losses. It also includes changes in respect of own credit risk in measuring liabilities elected to be measured at fair value, so that gains caused by the deterioration of an entity s own credit risk on such liabilities are no longer recognised in profit or loss. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, however is available for early adoption. In addition, the own credit changes can be early applied in isolation without otherwise changing the accounting for financial instruments. The Fund is in the process of assessing the impact of IFRS 9 and has not yet determined when it will adopt the new standard. 4. Critical accounting estimates and judgments The preparation of financial statements requires management to use judgment in applying its accounting policies and to make estimates and assumptions about the future. The following are the most significant accounting judgments and estimates that the Fund has made in preparing the financial statements: Classification of Redeemable Units Issued by the Fund Under Canadian GAAP, the Funds accounted for their redeemable units as equity. Under IFRS, IAS 32 requires that units of an entity that include a contractual obligation for the issuer to repurchase or redeem them for cash or another financial asset be classified as a financial liability. The Fund s redeemable units do not have identical features and is structured as a multi-series trust. As such, the units do not meet the conditions to be classified as equity and, instead, Net Assets attributable to holders of redeemable units is presented as a liability on the Statements of Financial Position. 11

12 Fair value measurement of derivatives and securities not quoted in an active market The Fund holds financial instruments that are not quoted in active markets, including derivatives. Fair values of such instruments are determined using valuation techniques and may be determined using reputable pricing sources. Broker quotes as obtained from the pricing sources may be indicative and not executable. Where no market data is available, the Fund may value positions using its own models, which are usually based on valuation methods and techniques generally recognized as standard within the industry. The models used to determine fair values are validated and periodically reviewed by the Manager, independent of the party that created them. The models used for private equity securities are based mainly on earnings multiples adjusted for a lack of marketability as appropriate. Models use observable data, to the extent practicable. However, areas such as credit risk, volatilities and correlations require the Manager to make estimates. Any changes in assumptions about these factors could affect the reported fair values of financial instruments. The Fund considers observable data to be market data that is readily available, regularly distributed and updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. See Note 5 and 6 for more information on the fair value measurement of the Fund s financial instruments. Classification and measurement of investments and application of the fair value option In classifying and measuring financial instruments held by the Fund, the Manager is required to make significant judgments about whether or not the business of the Fund is to invest on a total return basis for the purpose of applying the fair value option for financial assets under IAS 39, Financial Instruments Recognition and Measurement (IAS 39). The most significant judgments made include the determination that certain investments are held-for-trading and that the fair value option can be applied to those which are not. Investments in associates, joint ventures and subsidiaries IFRS 10 requires investment entities (as defined therein) to account for investments in subsidiaries at FVTPL, rather than consolidating them. The Manager has determined that the Fund meets the definition of an investment entity, and as a result, measures subsidiaries at FVTPL. An investment entity is an entity that obtains funds from one or more investors for the purpose of providing them with investment management services, commits to its investors that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both, and measures and evaluates the performance of substantially all of its investments on a fair value basis. The most significant judgment that the Fund has made in determining that it meets this definition is that fair value is used as the primary measurement attribute to measure and evaluate the performance of substantially all of their investments. 5. Financial instruments risk Risk factors The Fund s activities expose it to various types of risks that are associated with its investment strategies, financial instruments and markets in which it invests. The most significant risks include credit risk, liquidity risk and market risk (including price risk, currency risk and interest rate risk). The level of risk depends on the Fund s investment objectives and the type of securities it invests in. The Fund s overall risk management program seeks to maximize the returns derived for the level of risk to which the Fund is exposed and seeks to minimize potential adverse effects on the Fund s financial performance. All investments result in a risk of loss of capital. These risks and related risk management practices employed by the Fund are discussed below: Credit risk The Fund is exposed to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due. All transactions in listed securities are settled upon delivery using approved brokers. The risk of default is considered 12

13 minimal, as delivery of securities sold is only made once the broker has received payment. Payment is made on a purchase once the securities have been received by the broker. The trade will fail if either party fails to meet its obligations. The Fund may also invest in derivative instruments such as forward contracts; therefore, it is subject to credit risk if the counterparty fails to meet its obligation. The Manager may choose to utilize multiple counterparties and those that have a high credit rating in order to minimize credit risk. The analysis below summarizes the credit quality of the Fund s derivative counterparty at June 30, 2016 and December 31, June 30, 2016 December 31, 2015 AAA 0.00% 0.00% AA 0.00% 0.00% A 0.00% 0.00% BBB 0.00% 0.00% Unrated 0.00% 0.00% Other 0.00% % Total 0.00% % As at June 30, 2016 and December 31, 2015, the fund did not invest in any derivative assets exposed to credit risk. The Fund limits its exposure to credit loss by dealing with counterparties of high credit quality. To maximize the credit quality of its investments, the Fund s Manager performs ongoing credit evaluations based upon factors surrounding the credit risk of counterparties, historical trends and other information. The Fund also engages in securities lending transactions with their Custodian. As at June 30, 2016, the aggregate dollar value of portfolio securities lent and collateral held under securities transactions were $4,537,013 and $4,906,127 respectively, (December 31, 2015: $2,389,244 and $$2,566,150). The following table presents reconciliation of the gross amount generated from the securities lending transactions of the Fund to the revenue from securities lending disclosed in the Statements of Comprehensive Income: June 30, 2016 June 30, 2015 % of Gross % of Gross securities securities $ lending revenue $ lending revenue Gross securities lending revenue 9, , Withholding taxes (470) (5) (990) (8) Agent fees - Bank of New York Mellon Corp. (The) (910) (9) (4,866) (37) Securities lending revenue 8, , Liquidity risk Liquidity risk is the possibility that investments of the Fund cannot be readily converted into cash when required. The Fund may be subject to liquidity constraints because of insufficient volume in the markets for the securities of the Fund or the securities may be subject to legal or contractual restrictions on their resale. In addition, the Fund is exposed to daily cash redemptions of redeemable units. The units of the Fund are redeemed on demand at the current net asset value per unit at the option of the unitholder. Liquidity risk is managed by investing the majority of the Fund s assets in investments that are traded in an active market and can be readily disposed. The Fund aims to retain sufficient cash and cash equivalent positions to maintain liquidity and fund anticipated redemptions; therefore, the liquidity risk for the Fund is considered minimal. All of the Fund s financial liabilities as at June 30, 2016 and December 31, 2015 are due within three months. Redeemable units are redeemable on demand at the holder s option. However, the Manager does not expect that the contractual maturity disclosed above will be representative of the actual cash outflows, as holders of these instruments typically retain them for a longer period. 13

14 Market risks The Fund s investments are subject to market risk, which is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. The following include sensitivity analyses that show how the net assets attributable to holders of redeemable units would have been affected by a reasonably possible change in the relevant risk variable at each reporting date. In practice the actual results may differ and the differences may be material. (i) Currency risk The Fund holds assets and liabilities that are denominated in currencies other than the Canadian dollar - the functional currency. It is therefore exposed to currency risk, as the value of the securities denominated in other currencies will fluctuate due to changes in exchange rates. As well, the Fund may enter into forward foreign exchange contracts primarily with the intention to offset or reduce exchange rate risks associated with the investments and also, periodically, to enhance returns to the portfolio. The Canadian dollar value of forward foreign exchange contracts is determined using forward currency exchange rates supplied by an independent service provider. Losses may arise due to a change in the value of the foreign currency or if the counterparty fails to perform under the contract. The tables below summarize the Fund s exposure to currency risks as at June 30, 2016 and December 31, Had the exchange rate between the Canadian dollar and the foreign currencies increased (decreased) by 10%, with all other variables held constant, net assets attributable to holders of redeemable units would have (decreased) increased by $3,953,044 in June 30, 2016 (December 31, $5,177,651). In practice, actual results may differ from this sensitivity analysis. June 30, 2016 Non-monetary Percentage of Monetary assets assets Derivatives Net exposure net assets $ $ $ $ % Brazil, Real 236,905 1,549,022-1,785, % Chiliean Peso 137,735 1,957,212-2,094, % Euro - 157, , % Hong Kong, Dollars 138, ,843-1,118, % Hungarian Forint 329,291 2,325,758-2,655, % Indonesian Rupiah 45, , , % Malaysian Ringgit % Nigeria Naira (482) 97,076-96, % Philippine, Peso 402,788 3,061,735-3,464, % Poland, Zloty 406, , , % South Africa, Rand 482,818 1,936,058-2,418, % South Korea, Won 1,734,337 7,239,341-8,973, % Taiwanese New Dollar 247,946 3,832,374-4,080, % Thai Baht 137,156 (116,963) - 20, % Turkish Lira 354,634 3,180,963-3,535, % U.A.E. dirham - 1,590,073-1,590, % United States, Dollars 773,580 4,927,553-5,701, % Total 5,426,459 34,103,979-39,530, % 14

15 December 31, 2015 Non-monetary Percentage of Monetary assets assets Derivatives Net exposure net assets $ $ $ $ % Brazil, Real 9 1,710,923-1,710, % Chiliean Peso - 2,002,659-2,002, % Euro - 397, , % Hong Kong, Dollars - 710, , % Hungarian Forint - 3,018,151-3,018, % Indonesian Rupiah - 610, , % Malaysian Ringgit % Philippine, Peso - 4,089,048-4,089, % Poland, Zloty - 1,898,924-1,898, % Portugal % South Africa, Rand - 3,441,780-3,441, % South Korea, Won - 11,138,420-11,138, % Sweden, Krona - 541, , % Taiwanese New Dollar 15,997 4,398,096-4,414, % Thai Baht - 157, , % Turkish Lira - 5,002,457-5,002, % U.A.E. dirham - 1,739,272-1,739, % United States, Dollars 3,915,389 6,987,691-10,903, % Total 3,931,411 47,845,101-51,776, % (ii) Interest rate risk Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or fair values of financial instruments. Interest rate risk arises when the Fund invests in interest-bearing financial assets or liabilities. The Fund is exposed to the risk that the value of such financial assets or liabilities will fluctuate due to changes in the prevailing levels of market interest rates. In addition, as interest rates fall and fixed-income security issuers prepay principal, the Fund may have to reinvest this money in securities with lower interest rates. The Fund s exposure to interest rate risk is concentrated in its investment in money market instruments and fixed income securities. Other assets and liabilities are short-term in nature and/or non-interest bearing. The Fund has limited exposure to interest rate risk as at June 30, 2016 and December 31, 2015 as it is not invested in interest-bearing financial assets or liabilities. (iii) Other price risk Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk). The Manager aims to moderate this risk through a careful selection and diversification of securities and other financial instruments within the limits of the Fund s investment objectives and strategy. The impact on net assets of the Fund due to a 10% change in the valuation of equity investments held by the Fund, as at June 30, 2016 and December 31, 2015, with all other variables held constant, is included in the following table. June 30, 2016 December 31, 2015 $ $ Impact on net assets 3,928,380 4,784,510 15

16 This analysis assumes that all other variables remained unchanged. The historical correlation may not be representative of the future correlation. Concentration risks Concentration risk arises as a result of the concentration of exposures within the same category, whether it is geographical location, product type, industry sector or counterparty type. The following is a summary of the Fund s concentration risk: Market Segment June 30, December 31, % % Energy 3.6% 0.0% Materials 0.5% 1.2% Industrials 0.0% 2.7% Consumer Discretionary 8.7% 10.0% Consumer Staples 13.9% 6.1% Financials 31.4% 31.0% Information Technology 13.2% 11.4% Telecommunications 8.5% 8.1% Utilities 5.0% 4.8% Mutual and Exchange Traded Funds 10.8% 11.9% 95.6% 87.2% 6. Fair value measurement The Fund classifies fair value measurements within a hierarchy which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are as follows: Level 1: Fair value based on unadjusted quoted prices in active markets f o r identical assets or liabilities that the Manager has the ability to access at the measurement date. Level 2: Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active. Level 3: Inputs based on at least one significant non-observable input that is not supported by market data. There is little if any market activity. Inputs into the determination of fair value require significant management judgment or estimation. If inputs of different levels are used to measure an asset s or liability s fair value, the classification within the hierarchy is based on the lowest level input that is significant to the fair value measurement. The following fair value hierarchy tables presents information about the Fund s assets and liabilities measured at fair value within the fair value hierarchy as at June 30, 2016 and December 31,

17 June 30, 2016 Financial Assets Level 1 Level 2 Level 3 Total $ $ $ $ Equities 39,281, ,281,999 Warrants - 1,802-1,802 Total Financial Assets 39,281,999 1,802-39,283,801 Financial Liabilities Total Financial Assets and Liabilities 39,281,999 1,802-39,283,801 December 31, 2015 Financial Assets Level 1 Level 2 Level 3 Total $ $ $ $ Equities 47,842, ,842,858 Warrants - 2,243-2,243 Total Financial Assets 47,842,858 2,243-47,845,101 Financial Liabilities Total Financial Assets and Liabilities 47,842,858 2,243-47,845,101 All fair value measurements are recurring. The carrying values of cash, subscription receivable, interest receivable, payable for interest securities purchased, accrued liabilities and the Fund s obligation for net assets attributed to holders of redeemable units approximates their fair value due to their short term nature. Fair values are classified as Level 1 when the related security or derivative is actively traded and a quoted price is available. If an instrument classified as Level 1 subsequently ceases to be actively traded, it is transferred out of Level 1. In such cases, instruments are reclassified into Level 2, unless the measurement of its fair value requires the use of significant unobservable inputs, in which case it is classified as Level 3. The Fund s policy is to recognize transfers into and out of the fair value hierarchy levels as of the date of the event or change in circumstances gives rise to the transfer. For the periods ended June 30, 2016 and December 31, 2015, no investments were transferred from Level 1 to Level 2 as a result of the securities no longer being traded in an active market and no investments were transferred from Level 2 to Level 1 as a result of the securities now being traded in an active market. i) Equities The Fund s equity positions are classified as Level 1 when the security is actively traded and a reliable price is observable. Certain of the Fund s equities do not trade frequently and therefore observable prices may not be available. In such cases, fair value is determined using observable market data (e.g. transactions for similar securities of the same issuer) and the fair value is classified as Level 2, unless the determination of fair value requires significant unobservable data, in which case the measurement is classified as Level 3. The Manager is responsible for performing the fair value measurements included in the financial statements of the Fund, including Level 3 measurements. The Manager obtains pricing from a third party pricing vendor, which is monitored and reviewed daily by the portfolio manager. Any adjustments to the prices or estimates provided by the third party pricing vendor are approved by the portfolio manager. ii) Bonds and short-term investments Bonds include primarily government and corporate bonds, which are valued using models with inputs including interest rate curves, credit spreads and volatilities. The inputs that are significant to valuation are generally observable and therefore the Fund s bonds and short-term investments have been classified as Level 2. 17

18 iii) Derivative assets and liabilities Derivative assets and liabilities consist of foreign currency forward contracts which are valued based primarily on the contract notional amount, the difference between the contract rate and the forward market rate for the same currency, interest rates and credit spreads. Contracts for which counterparty credit spreads are observable and reliable, or for which the credit-related inputs are determined not to be significant to fair value, are classified as Level 2. For the periods ended June 30, 2016 and December 31, 2015, no investments were transferred from Level 1 to Level 2 as a result of the securities no longer being traded in an active market and no investments were transferred from Level 2 to Level 1 as a result of the securities now being traded in an active market. 7. Financial instruments by category and offsetting The following table presents the net gains (losses) and net unrealized gains (losses) on financial instruments at FVTPL by category for the periods ended June 30, 2016 and December 31, 2015: Net realized gains (losses) June 30, 2016 December 31, 2015 Financial assets/liabilities at FVTPL Designated at inception $ (725,433) $ 1,335,295 HFT - (7,216) Total $ (725,433) $ 1,328,079 Net unrealized gains (losses) June 30, 2016 December 31, 2015 Financial assets/liabilities at FVTPL Designated at inception $ (453,361) $ (1,215,060) HFT (441) (3,580) Total $ (453,802) $ (1,218,640) There were no financial instruments that were offset, or subject to enforceable master netting agreements or other similar agreements but that are offset, as at June 30, 2016 and December 31, Redeemable units Units issued and outstanding are considered to be the capital of the Fund. The capital of the Fund is managed in accordance with the investment objective of the Fund. The Fund does not have any specific capital requirements on the subscription and redemption of units, other than certain minimum subscription requirements. Unitholders are entitled to require payment of the net asset value per unit of that Fund for all or any of the units of such unitholder by giving written notice to the Manager. The written notice must be received no later than 4:00 p.m., EST, on the valuation day upon which the units are to be redeemed. Additionally, the notice must be irrevocable and the signature thereon must be guaranteed by a Canadian chartered bank, a trust company or an investment dealer acceptable to the Manager. The units are redeemable for cash equal to a pro rata share of the Fund s net asset value (NAV). The Fund may issue an unlimited number of units of each series. Series A units are available to all investors. Series F units are available to investors who participate in fee-based programs through their dealers whose dealer has signed a Series F agreement with the Manager. During the periods ended June 30, 2016 and 2015, the number of units issued redeemed and outstanding was as follows: 18

19 Series A Series F Units outstanding - beginning 516, ,384 4,666,910 3,277,630 Redeemable units issued 8,219 60, ,536 2,103,481 Redeemable units redeemed (123,890) (116,874) (1,446,165) (780,973) Units issued on reinvestment of distributions 3,057 10,730 22,990 66,772 Units outstanding - end 403, ,325 3,559,271 4,666, Related Party Transactions Management and Performance Fees The Fund pays the Manager an annual management fee of up to 2.50% in the case of Series A units, up to 1.50% in the case of Series F units, subject to taxes as applicable, to cover management expenses, including key personnel and portfolio management services. The management fee is calculated and accrued daily and is paid on the last day of each month based on the average daily net asset value of the Fund. Included in current liabilities at June 30, 2016 is $64,894 (December 31, $80,142) of management fee payable to the Manager. The Fund will pay the Manager annually a performance fee, subject to taxes as applicable, equal to a percentage of the average net asset value of the applicable series of the Fund. Such percentage will be equal to 20% of the difference by which the return in the net asset value per unit of the applicable Series of the Fund from January 1 to December 31 exceeds the percentage return of the 50/50 blend of the MSCI World/MSCI Emerging Markets (both in Canadian dollars). If the performance of a Series of a Fund in any year, at December 31, is less than the performance of the applicable index described above (the Deficiency ), then no performance fee will be payable in any subsequent year until the performance of the applicable Series of the applicable Fund, on a cumulative basis calculated from the first of such subsequent year has exceeded the amount of the Deficiency. Included in current liabilities at June 30, 2016 is $nil (December 31, $nil) of performance fee payable to the Manager. Expenses The Fund is responsible for the payment of all direct expenses related to its operations, such as brokerage commissions and fees, taxes, audit and legal fees, safekeeping and custodial fees and other expenses. Each series of units of the Fund is responsible for the operating expenses that relate specifically to that series. The manager may pay expenses on behalf of the Fund and is later reimbursed by the Fund. The total remuneration paid to members on the Independent Review Committee during the period ended June 30, 2016 was $2,461 (June 30, $39). Certain administration and custodian fees have been absorbed by the Manager. These expenses are noted on the Statements of Comprehensive Income. Such absorption can be terminated by the manager at any time without notice. An officer of the Manager holds 2,224 (December 31, ,196) units of the Fund, which is $21,880 or 0.05% (December 31, $22,118 of 0.04%) of the Fund s net assets as of June 30, Brokerage commissions The Fund paid $20,577 (June 30, $17,630) in brokerage commissions and other transaction costs for portfolio transactions for period ended June 30,