Mylo Fixed Income ETF Fund Financial Statements From the inception of operations on April 21, 2017 to December 31, 2017

Transcription

1 Financial Statements From the inception of operations on April 21, 2017 to

2 Financial Statements From the inception of operations on April 21, 2017 to Contents Independent Auditor's Report 2 Financial Statements Statement of Financial Position 4 Statement of Comprehensive Income 5 Statement of Changes in Net Assets Attributable to Holders of Redeemable Units 6 Statement of Cash Flows 7 Schedule of Investment Portfolio 8 Notes to Financial Statements 9

3 Tél./Tel: Téléc./Fax: BDO Canada s.r.l./s.e.n.c.r.l./llp 1000, rue De La Gauchetière O. Bureau 200 Montréal QC H3B 4W5 Canada Independent Auditor's Report To the Unitholders of Mylo Fixed Income ETF Fund We have audited the accompanying financial statements of Mylo Fixed Income ETF Fund which comprise the statement of financial position as at and the statements of comprehensive income, changes in net assets attributable to holders of redeemable units and cash flows from the inception of operations on April 21, 2017 to, and a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. BDO Canada s.r.l./s.e.n.c.r.l., une société canadienne à responsabilité limitée/société en nom collectif à responsibilité limitée, est membre de BDO International Limited, société de droit anglais, et fait partie du réseau international de sociétés membres indépendantes BDO. BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member fi rms. 2

4 Independent Auditor's Report Opinion In our opinion, these financial statements present fairly, in all material respects, the financial position of Mylo Fixed Income ETF Fund as at, and the results of its financial performance and its cash flows from the inception of operations on April 21, 2017 to in accordance with International Financial Reporting Standards. Montréal, Québec March 29, CPA auditor, CA, public accountancy permit No. A

5 Statement of Financial Position Assets Current Cash $ 20,252 Investment portfolio, at fair value 194,941 Interest receivable 628 Liabilities 215,821 Current Redemptions payable $ 3,625 Net assets attributable to holders of redeemable units $ 212,196 Number of redeemable units outstanding (Note 5) 42,870 Net assets attributable to holders of redeemable units per unit Class A $ 4.95 Approved and authorized for issue on behalf of the Fund by the Manager, Tactex Asset Management Inc., on March 29, 2018 and signed on its behalf by: Director Director The accompanying notes are an integral part of these financial statements. 4

6 Statement of Comprehensive Income From the inception of operations on April 21, 2017 to Interest income $ 1,267 Net change in unrealized depreciation of investments (689) Increase in net assets attributable to holders of redeemable units $ 578 Increase in net assets attributable to holders of redeemable units per unit Class A $ 0.01 The accompanying notes are an integral part of these financial statements. 5

7 Statement of Changes in Net Assets Attributable to Holders of Redeemable Units From the inception of operations on April 21, 2017 to Class A Net assets attributable to holders or redeemable units, beginning of period $ - Increase in net assets attributable to holders of redeemable units 578 Redeemable unit transactions Proceeds from issue of redeemable units 243,415 Redemption of redeemable units (31,797) Net unitholder transactions 211,618 Net increase in net assets and net assets attributable to holders of redeemable units, end of period $ 212,196 The accompanying notes are an integral part of these financial statements. 6

8 Statement of Cash Flows From the inception of operations on April 21, 2017 to Cash flows from operating activities Increase in net assets attributable to holders of redeemable units $ 578 Adjustments for: Net change in unrealized depreciation of investments 689 Purchase of investments (195,630) Increase in interest receivable (628) Cash flows from operating activities (194,991) Cash flows from financing activities Proceeds from issuance of redeemable units 243,415 Payments on redemption of redeemable units (28,172) Cash flows from financing activities 215,243 Increase in cash during the period and cash, end of period $ 20,252 The accompanying notes are an integral part of these financial statements. 7

9 Schedule of Investment Portfolio % of Net No. of Average Fair Asset Shares Cost Value Value CANADIAN EQUITY (91.87%) Vanguard CDN Aggregate Bond Index ETF 4,618 $ 117,083 $ 116, Vanguard Global Ex-US Aggregate Index ETF ,613 19, Vanguard US Aggregate Bond Hedged ETF 2,354 58,934 58, $ 195, , Total Investment Portfolio (91.87%) 194, Other Net Assets Attributable to Holders of Redeemable Units (8.13%) 17, Net Assets Attributable to Holders of Redeemable Units (100%) $ 212,

10 Notes to Financial Statements 1. General Information The Mylo Fixed Income ETF Fund is an open-ended investment trust created under the laws of the province of Québec pursuant to a Trust Agreement dated April 21, The Fund is not a reporting issuer under securities legislation and therefore is relying on Part 2.11 of National Instrument for exemption from the requirement to file financial statements with the applicable securities authorities. At, the Fund's Manager is Tactex Asset Management Inc., the Trustee is TSX Trust Company and the Custodian is Fidelity Clearing Canada. The registered address of the Fund's office is 642 De Courcelle Street, Suite 404, Montréal, Québec. The Fund invests in highly liquid Exchange Traded Funds ("EFTs"). 2. Basis of Presentation These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as published by the International Accounting Standards Board (IASB). 3. Significant Accounting Policies Functional and Presentation Currency The Fund's functional and presentation currency is the Canadian dollar. Basis of Measurement The financial statements have been prepared on the historical cost basis, except for certain financial instruments that have been measured at fair value. Financial Instruments In accordance with IAS 39 Financial Instruments: Recognition and Measurement, the Fund recognizes financial instruments at fair value upon initial recognition, plus transaction costs in the case of financial instruments measured at amortized cost. Regular way purchases and sales of financial assets are recognized at their trade date. A financial asset is classified at fair value through profit or loss ("FVTPL") if it is classified as held-for-trading or designated as such upon initial recognition. Financial assets held-for-trading are those acquired principally for the purpose of selling or repurchasing in the near future or on initial recognition they are part of a portfolio of identified financial instruments that the Fund manages together and has a recent actual pattern of shortterm profit-taking. Financial assets designated at FVTPL at inception are those that are managed and their performance evaluated on a fair value basis in accordance with the Fund's investment strategy. These instruments are accounted for at fair value with the change in the fair value recognized in the statement of comprehensive income during the year. Attributable transaction costs are recognized in the statement of comprehensive income when incurred. 9

11 Notes to Financial Statements 3. Significant Accounting Policies (Continued) The Fund's investment portfolio meets the definition of held-for-trading and is therefore classified as 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. Under this method, financial assets and liabilities reflect the amount required to be received or paid, discounted, when appropriate at the contract's effective interest rate. The Fund s accounting policies for measuring the fair value of its investments and derivatives are identical to those used in measuring its net asset value (NAV) for transactions with unitholders. The net excess (shortfall) of the market value of investments over the total average cost of the investments is included in operations as change in unrealized gain (loss) on investments. Other Financial Assets and Financial Liabilities Cash and dividends receivable are classified as loans and receivables. Similarly, redemptions payable are classified as other financial liabilities. They are initially measured at fair value and subsequently carried at amortized cost using the effective interest method. The carrying values of the loans and receivables and other financial liabilities approximate their fair values. All related transaction costs to acquire loans and receivables financial instruments are included in the underlying balance. Impairment of Financial Assets At each reporting date, the Fund assesses whether there is objective evidence that financial assets not carried at fair value through profit or loss 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. 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 at the measurement date. The fair value of financial assets and liabilities traded in active markets (such as publicly traded derivative 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 of both financial assets and financial liabilities where the last traded price falls within that days bid-ask spread. In circumstances where the last traded price is not within the bid-ask spread, the Manager determines the point 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 or change in circumstances giving rise to the transfer. 10

12 Notes to Financial Statements 3. Significant Accounting Policies (Continued) Securities Transactions and Income Recognition Investment transactions are recorded on a trade date basis. Interest income is accrued daily and dividend income is recognized on the ex-dividend date. Realized gains and losses from investment transactions are calculated on an average cost basis. Valuation of Redeemable Units The value of redeemable units is determined daily ("Valuation Day"). The value of redeemable units on a Valuation Day is obtained by dividing the net assets attributable to holders of a specific Class of redeemable units by the total number of units outstanding of the Class at the close of business on the Valuation Day. Net Assets Attributable to Holders of Redeemable Units per Unit per Series Net assets attributable to holders of redeemable units per unit per series represents the increase in net assets attributable to holders of redeemable units by series divided by the average units outstanding per series during the year. Income Taxes The Fund qualifies as a "unit trust" as defined under the Canadian Income Act (the "Act"). The Fund is subject to tax under Part I of the Act on the amount of its income for the year less the portion thereof that it claims in respect of amounts paid or payable to unitholders in the year. It is the Fund's policy to make sufficient distributions of its taxable income in each year so that the Fund will not be liable for income tax under Part I of the Act. Accordingly, no provision for income taxes has been made in these financial statements. New Standards and Interpretations not yet Adopted Information on new standards, amendments and interpretations that are expected to be relevant to the Fund's financial statements is provided below. Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Fund's financial statements. IFRS 9 - Financial Instruments IFRS 9 replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The effective date for IFRS 9 is January 1 st, The Fund's financial assets consist of cash, investment portfolio and dividends receivable. While the Fund is still completing its assessment, it is anticipated that the adoption of IFRS 9 will not significantly impact the classification or measurement of the Fund's financial assets. 11

13 Notes to Financial Statements 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 discusses the most significant accounting judgments and estimates that the Fund has made in preparing its financial statements. 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 Instrument - Recognition and Measurement. The most significant judgments made include the determination that the investment portfolio of the Fund is held-for-trading and the fair value option can therefore be applied to those that are not. 5. Redeemable Units The Fund is authorized to issue an unlimited number of redeemable units, issuable in one or more classes, each of which represents an equal, undivided, beneficial interest in the Net Assets attributable to holders of redeemable units per unit of the Fund. Each unit of each class entitles the holder to one vote and to participate equally with respect to any and all distributions made by the Fund. Redeemable Units of a class may be subdivided, consolidated or redesignated by the Trustee. Units of the Fund may be redeemed on each business day ("Redemption Date"). Redemptions are irrevocable except with the consent of the Manager or following a suspension. The redemption proceeds of the units being redeemed will be equal to the Net Asset Value per unit of the units being redeemed less any applicable fees and deductions relating to the trade execution. The following is a summary of the changes in the Fund s outstanding units for period ended : Beginning Issued Redeemed Ending Class A - 49,159 (6,289) 42,870 12

14 Notes to Financial Statements 6. Financial Instruments Fair Value The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable: Level 1: Level 2: Level 3: fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities; fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). Level 1 Level 2 Level 3 Total Investment portfolio $ 194,941 $ - $ - $ 194, Risk Management In the normal course of business, the Fund is exposed to a variety of financial risks: credit risk, liquidity risk and market risk (presented herein as other price risk). The level of risk to which the Fund is exposed depends on the investment objective and the type of investments the Fund holds. The value of investments within a portfolio can fluctuate daily as a result of changes in prevailing interest rates, economic and market conditions and company specific news related to investments held by the Fund. The Manager of the Fund may minimize potential adverse effects of these risks on the Fund s performance by, but not limited to, regular monitoring of the Fund s positions and market events, diversification of the investment portfolio by asset type, country, sector, term to maturity within the constraints of the stated objectives. Credit Risk Credit risk is the risk that the counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Fund. The Fund s credit risk is principally on cash held its bank and by its custodian. The Fund limits its exposure to credit losses by lodging the cash with approved custodians and by monitoring its investment positions regularly. The maximum credit risk exposure of the Fund is limited to the carrying amounts presented in the statement of financial position. 13

15 Notes to Financial Statements 7. Risk Management (Continued) All transactions in listed securities are settled upon delivery using approved brokers. The risk of default is considered 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 obligation. Liquidity Risk Liquidity risk is defined as the risk that the Fund may not be able to settle or meet its obligation on time or at a reasonable price. The Fund is exposed to weekly cash redemptions of redeemable Units. The Units of the Fund are issued and redeemed on the valuation date at the then current transactional NAV per unit at the option of the unitholder. The majority of the Fund's assets are held either in cash and cash equivalents or securities that are traded on North American stock exchanges. The Fund manages its liquidity risk by investing principally into assets that can be readily disposed, on an active market, as liquidity needs arise. The table below summarizes the Fund's financial liabilities based on their contractual maturities, based on undiscounted cash flows: Less than On Demand 3 Months Total Redemptions payable $ 3,625 $ - $ 3,625 Redeemable units 212, ,196 $ 215,821 $ - $ 215,821 Redeemable units are redeemable on demand daily 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. Market Risk The Fund's investments are exposed to market risk comprised of other price risk, as explained hereafter. The Fund does not hold foreign currency denominated investments nor maintain significant cash in foreign currencies. The Fund does not invest in significant amounts in interest-bearing instruments. Consequently, the Fund does not have any significant exposure to currency or interest risk. 14

16 Notes to Financial Statements 7. Risk Management (Continued) Other Price Risk Other price risk is the risk that the value of financial instruments will fluctuate as a result of changes in market prices (other than those arising from interest rate risk or currency risk) whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in a market. All investments present a risk of loss of capital. The Manager manages the Fund s market risk on a daily basis in accordance with the Fund s investment objective and policies. The maximum risk resulting from financial instruments is equivalent to their fair value. As at, had the prices on respective stock exchanges for these securities increased or decreased by 10%, with all other variables held constant, net assets would have increased or decreased, respectively, by approximately $19,494. In practice, the actual trading results may differ and the difference could be material. Concentration Risk The Fund is exposed to geographic concentration risk as its holdings are all in Canadian positions. 8. Capital Risk Management Units issued and outstanding are considered to be the capital 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 may require the Fund to redeem all or any part of such unitholder's Units at a redemption amount equal to the Series Net Asset Value of a unit, next determined after receipt by the Manager of a request for redemption in such form as the Manager shall reasonably determine from time to time. The units are redeemable for cash equal to a pro rata share of the Fund's net asset value. 15