20SEP Annual Report. to Unitholders

Transcription

1 Annual Report to Unitholders December 31, 2013

2 FINANCIAL HIGHLIGHTS For the years ended December 31 Per Unit* Units outstanding as at December 31 ( 000 s) 1,830 2,039 2,177 2,297 2,510 Net assets, beginning of year $ $ $ $ $ Changes in net assets from operations* Net investment income Net realized gain (loss) on investments (0.105) Trading commissions (0.001) (0.001) (0.019) (0.020) (0.002) Unrealized appreciation (depreciation) on investments (0.859) (1.139) (2.184) Unit issue/reorganization costs (0.179) (0.311) (0.087) Total results of investment operations (0.374) Adjustment (1) (0.438) (0.127) Cash distributions to Unitholders (0.616) (0.635) (0.662) (0.870) (0.725) Increase (decrease) in net assets (0.978) (1.078) Net assets, end of year $ $ $ $ $ SUMMARY OF DISTRIBUTIONS RECEIVED AND PAID Per Unit* Opening balance to be distributed beginning of year (2) $ $ $ $ $ Net investment income for the year ended December Return of capital for the year ended December 31 (2) (0.000) (0.000) (0.014) (0.062) Adjustment (1) (0.027) Net amounts available for distribution (3) Cash distributions to Unitholders (4) (0.616) (0.635) (0.662) (0.870) (0.725) Balance to be distributed (5) $ $ $ $ $ ANNUAL TAX INFORMATION Per Unit* Distributions characterized as: Dividend income $ $ $ $ $ Capital gains Other income Return of capital (6) Distributions to Unitholders $ $ $ $ $ * Based upon the weighted average number of Units outstanding during the year except for net assets and distributions to Unitholders. (1) Represents adjustment to reconcile the basis of calculation of per unit amounts between the weighted average and the end of year number of Units and in 2010 and 2011, also reflects the issue of Units on exercise of warrants. (2) Excludes distribution entitlements paid to retracting Unitholders with share of other net assets on retraction of $0.007 in 2013, $0.005 in 2012, $0.039 in 2011, $0.030 in 2010 and $0.009 in (3) Includes distributions received and receivable as at December 31. (4) Includes distributions payable as at December 31. The classification of the distributions between dividend income, capital gains, other income and return of capital is based on the final tax reporting information obtained from issuers and takes into account additional tax deferrals resulting primarily from the tax deduction of issue, reorganization and warrant costs. (5) Represents primarily the Trust s receivable balances as at December 31 to be distributed once received. (6) Return of capital distributions to Unitholders reduce the adjusted cost base of the Unitholders investment.

3 REPORT TO UNITHOLDERS 20SEP The following presents the financial results of Canadian Resources Income Trust ( CaRIT or the Trust ) for the years ended December 31, 2013 and Financial Performance The net assets per Unit at December 31, 2013 were $13.14 as compared to $12.10 at December 31, 2012, representing an increase of 8.6% or $1.04 per Unit due primarily to appreciation in the fair value of the Trust s Portfolio ( Portfolio ). As at December 31, 2013, the total fair value of the Portfolio was $23.9 million (2012 $24.5 million), reflecting unrealized appreciation of $4.6 million (2012 $2.7 million). As a result of the annual retraction at year end (2012 monthly retraction in September and annual retraction at year end), 208,833 ( ,716) Units were retracted for cash in the amount of $2.7 million (2012 $1.6 million). Distributions and other income earned by the Trust, net of expenses, for the year ended December 31, 2013 amounted to $1.21 million or $0.598 per Unit (2012 $1.38 million or $0.641 per Unit), comprised of $1.20 million or $0.592 per Unit (2012 $1.27 million or $0.589 per Unit) of net investment income and $0.01 million or $0.006 per Unit (2012 $0.11 million or $0.052 per Unit) of return of capital. It is the policy of the Trust to declare and pay monthly distributions to the extent of forecasted distributions/dividends to be received for a calendar quarter from the Portfolio, less the estimated operating expenses for the period. Unitholders on record as at the last day of each month are entitled to receive cash distributions, as declared by CaRIT Limited, as Trustee of the Trust, on or before the 15th of the following month. For the year ended December 31, 2013, the Trust declared total distributions of $1.2 million or $0.616 per Unit (2012 $1.4 million or $0.635 per Unit) of which 62.0% was dividend income and 38.0% was tax deferred return of capital ( % was dividend income and 29.7% was tax deferred return of capital). This report along with the accompanying audited financial statements of the Trust is respectfully submitted to you on behalf of the Board of Directors of CaRIT Limited, Trustee of Canadian Resources Income Trust. Toronto, Canada March 27, MAY Brian D. McChesney President and Chief Executive Officer 1

4 MANAGEMENT S RESPONSIBILITY FOR FINANCIAL REPORTING 20SEP The financial statements of Canadian Resources Income Trust and all the information in this annual report are the responsibility of management and have been reviewed and approved by the Board of Directors of CaRIT Limited (the Board ), Trustee of Canadian Resources Income Trust. The financial statements were prepared by management in accordance with Canadian generally accepted accounting principles. Financial statements are not precise since they include certain amounts based on estimates and judgements. Management has determined such amounts on a reasonable basis in order to ensure that the financial statements are presented fairly, in all material respects. Management has ensured that the other financial information presented in this annual report is consistent with the financial statements. The financial statements for the year ended December 31, 2013 have been audited by PricewaterhouseCoopers LLP, on behalf of the Unitholders. The financial statements for the prior year were audited by KPMG LLP. The Board has oversight responsibility for ensuring that management fulfills its responsibilities for financial reporting and is ultimately responsible for reviewing and approving the financial statements. The Board carries out these responsibilities through its Audit Committee (the Committee ). The Committee is appointed by the Board. The Committee meets periodically with management and the external auditors to discuss internal controls, the financial reporting process, various auditing and financial reporting issues, and to review the semi-annual and annual reports, the financial statements and the external Auditor s report. The Committee reports its findings semi-annually to the Board for consideration when approving the financial statements for issuance to the Unitholders. The Committee also considers, for review by the Board, the engagement or re-appointment of the external auditors. PricewaterhouseCoopers LLP has full and free access to the Committee. 6MAY Brian D. McChesney President and Chief Executive Officer 18NOV Stephen D. Pearce Chief Financial Officer and Secretary Toronto, Canada March 27,

5 INDEPENDENT AUDITOR S REPORT To the Unitholders and Trustee of Canadian Resources Income Trust (the Trust ) We have audited the accompanying financial statements of the Trust, which comprise the statements of net assets and investments as at December 31, 2013, and the statements of investment operations, cash flow and changes in net assets for the year then ended, and the related notes which comprise 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 Canadian generally accepted accounting principles, 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 our 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, we consider 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. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of the Trust as at December 31, 2013, and its results of operations, its cash flows and the changes in its net assets for the year then ended in accordance with Canadian generally accepted accounting principles. Other Matter The financial statements of the Trust as at December 31, 2012 and for the year then ended were audited by another auditor who expressed an unmodified opinion dated March 14, Toronto, Canada March 27, MAR Chartered Professional Accountants, Licensed Public Accountants 3

6 STATEMENTS OF NET ASSETS As at December Assets Investments, at fair value $ 23,924,212 $ 24,503,524 Cash and short-term investments 139, ,063 Distributions and other income receivable 114, ,517 Prepaid expense 16,496 24,194,517 24,878,104 Liabilities Distribution payable to Unitholders 89, ,174 Accrued liabilities (note 8) 62,611 97, , ,374 Net assets representing Unitholders equity $ 24,042,237 $ 24,666,730 Number of Units outstanding (note 5) 1,829,983 2,038,816 Net assets per Unit (note 3) $ $ See accompanying notes to financial statements. On behalf of the Board of Directors of CaRIT Limited, Trustee for Canadian Resources Income Trust, 6MAY Brian D. McChesney President and Chief Executive Officer 3MAR John B. Newman Chairman of the Board 4

7 STATEMENTS OF INVESTMENT OPERATIONS For the years ended December Revenue Dividends $ 1,460,054 $ 1,491,706 Interest and other income (adjustment) (5,061) 51,099 1,454,993 1,542,805 Expenses Administration fees (note 8) 72,148 82,902 Directors fees 54,758 55,810 Unitholders information cost 33,529 30,093 Audit fees 22,901 33,482 Insurance premiums 21,717 26,672 Legal fees 15,796 9,495 Transfer agent fees 11,673 12,015 Listing fees 9,826 10,629 Independent Review Committee fees 7,500 7,500 Custodial fees 1,446 2,136 Other (note 6) 5,495 1, , ,074 Net investment income for the year 1,198,204 1,270,731 Net realized loss on disposition of investments (387,153) (376,666) Net realized gain on disposition of investments to fund retraction (note 5) 553, ,172 Trading commissions (note 8) (2,971) (3,086) Unrealized appreciation (depreciation) of investments 1,939,046 (1,851,935) Total results of investment operations $ 3,301,017 $ (809,784) Total results of investment operations per Unit* $ $ (0.376) * Based upon the weighted average number of Units outstanding during the year. See accompanying notes to financial statements. 5

8 STATEMENTS OF CASH FLOW For the years ended December Operating activities Results of investment operations for the year $ 3,301,017 $ (809,784) Add (deduct): Net realized (gain) loss on disposition of investments (166,738) 225,494 Unrealized (appreciation) depreciation of investments (1,939,046) 1,851,935 Changes in non-cash operating items Decrease in distributions and other income receivable 17,948 19,304 Decrease in accrued liabilities (34,589) (7,886) Increase in prepaid expense (16,496) Net cash flow provided by operating activities 1,162,096 1,279,063 Investing activities Purchase of investments (53,558) (370,637) Proceeds on disposition of investments 2,725,914 2,001,290 Distributions received as return of capital 12, ,700 Net cash flow provided by investing activities 2,685,096 1,742,353 Financing activities Distributions paid to Unitholders (1,270,182) (1,354,609) Proceeds paid on Units retracted (2,679,833) (1,625,328) Warrant issuance costs adjustment 4,619 Net cash flow used in financing activities (3,950,015) (2,975,318) Net increase (decrease) in cash and short-term investments (102,823) 46,098 Cash and short-term investments, beginning of year 242, ,965 Cash and short-term investments, end of year $ 139,240 $ 242,063 See accompanying notes to financial statements. 6

9 STATEMENTS OF CHANGES IN NET ASSETS For the years ended December Total results of investment operations Net investment income for the year $ 1,198,204 $ 1,270,731 Net realized gain on investments distributed to fund retraction 553, ,172 Net realized loss on disposition of investments (387,153) (376,666) Trading commissions (note 8) (2,971) (3,086) Unrealized appreciation (depreciation) of investments 1,939,046 (1,851,935) 3,301,017 (809,784) Distributions to Unitholders (notes 4 and 7) (1,245,677) (1,366,482) Unit transactions (note 5) Units retracted (2,679,833) (1,625,328) Commissions on warrants exercised 504 Warrant issuance costs adjustment 4,619 (2,679,833) (1,620,205) Changes in net assets during the year (624,493) (3,796,471) Net assets, beginning of year 24,666,730 28,463,201 Net assets, end of year $ 24,042,237 $ 24,666,730 Distributions per Unit $ $ See accompanying notes to financial statements. 7

10 STATEMENT OF INVESTMENTS As at December 31, 2013 Common Adjusted % of Portfolio Shares/Units Company/Trust Cost Base Fair Value at Fair Value 32,184 AltaGas Ltd. $ 687,090 $ 1,312, ,812 ARC Resources Ltd. 535, , ,532 Atlantic Power Corporation 651, , ,175 Brookfield Renewable Energy Partners L.P. 432, , ,688 Bonterra Energy Corp. 436, , ,478 Bonavista Energy Corporation 659, , ,375 Baytex Energy Corp. 733, , ,666 Canadian Oil Sands Limited 2,578,190 2,968, ,241 Crescent Point Energy Corp. 627, , ,222 Enerplus Corporation 684, , ,252 Freehold Royalties Ltd. 648, , ,839 Inter Pipeline Ltd. 637,162 1,287, ,195 Just Energy Group Inc. 436, , ,291 Keyera Corp. 735,273 1,419, ,781 Lightstream Resources Ltd. 393, , ,658 Northland Power Inc. 578, , ,419 Peyto Exploration & Development Corp. 732,764 1,439, ,362 Pengrowth Energy Corporation 497, , ,648 Parkland Fuel Corporation 611, , ,911 Pembina Pipeline Corporation 1,228,708 2,689, ,876 Penn West Petroleum Ltd. 567, , ,244 Superior Plus Corp. 517, , ,389 TransAlta Corporation 579, , ,854 Vermilion Energy Inc. 699,601 1,050, ,758 Valener Inc. 616, , ,157 Veresen Inc. 632, , Wajax Corporation 27,450 23, ,423 Westshore Terminals Investment Corporation 559,293 1,260, ,811 Zargon Oil & Gas Ltd. 604, , ,330,924 23,924, Adjustment for trading commissions (14,893) Total Value of Investments $ 19,316,031 $ 23,924, See accompanying notes to financial statements. 8

11 NOTES TO FINANCIAL STATEMENTS December 31, 2013 and TRUST ACTIVITIES Canadian Resources Income Trust ( CaRIT or the Trust ) is an investment trust established under the laws of the Province of Ontario and is governed by an amended and restated Declaration of Trust. Pursuant to this Declaration of Trust, CaRIT Limited acts as the trustee (the Trustee ) and is responsible for managing the affairs of the Trust. Following the approval by holders (the Unitholders ) of Trust units (the Units ) and having met all required conditions, on March 3, 2010, the term of the Trust was extended for an additional five years to March 31, 2015 and the investment mandate was amended including a one-time adjustment to the portfolio and the adoption of certain portfolio adjustment rules. The Trust invests in a defined portfolio of equity securities of selected Canadian issuers focused on the natural resource industry. The investment mandate has been designed to provide Unitholders with a well diversified high yielding portfolio (the Portfolio Securities or Portfolio ). The Portfolio is re-balanced in response to corporate actions such as mergers and acquisitions or in the case of the suspension of distributions by one of the issuers. In such case, the Trust will rebalance the Portfolio in respect of the affected security having regard to the Trust s investment objective. Unitholders receive monthly distributions derived from the distributions received by the Trust from the Portfolio Securities as declared by the Trustee and, share in any capital appreciation or depreciation of the Portfolio. As a result of the annual retraction at year end (2012 monthly retraction in September and annual retraction at year end), 208,833 ( ,716) Units were retracted for cash in the amount of $2,679,833 (2012 $1,625,328). 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These financial statements have been prepared in accordance with Canadian generally accepted accounting principles ( GAAP ). The preparation of financial statements requires management to make estimates and assumptions on a fair and reasonable basis that may impact the reported amounts of assets and liabilities at the date of the financial statements and income and expenses during the reporting period. Actual results could differ from these estimates. The significant accounting policies followed in the preparation of these financial statements are summarized below: Investments in Income Trusts Distributions received from investments are allocated initially as dividends, interest, capital gains, or return of capital ( ROC ) based on estimates of the categorization of distributions received from the underlying issuers. These allocations may change once the final categorization of the distributions is received on an annual basis from the underlying issuers. 9

12 Valuation of Investments The Trust s investments are classified as held for trading and are presented at fair value. The fair value is computed using the closing bid price on the Toronto Stock Exchange ( TSX ). The difference between fair value and the average cost of investments is recorded as unrealized appreciation (depreciation) of investments. Investment transactions are recorded on a trade-date basis. Cash is presented at cost plus accrued interest which approximates the fair value thereof and includes short term investments with a term to maturity of 90 days or less. Other Assets and Liabilities Other assets and liabilities are recorded at cost, which approximates their fair value. Revenue Recognition Distribution/dividend income is recorded on an ex-dividend date basis. Interest income is recorded on an accrual basis. Realized gains and losses on the disposition of investments and unrealized appreciation or depreciation of investments are determined on an average cost basis. Trading Commissions Trading commissions incurred for securities bought and sold are included as an expense in the Statement of Investment Operations. Return of Capital Distributions received from Portfolio Securities that constitute a ROC are recorded on an ex-distribution date basis and reduce the adjusted cost base ( ACB ) of the underlying related securities in the Portfolio. Transition to International Financial Reporting Standards ( IFRS ) The Chartered Professional Accountants of Canada ( CPA Canada ) Accounting Standards Board extended the deferral of the mandatory IFRS changeover date for investment companies, as defined in the CPA Canada Handbook, to fiscal years beginning on or after January 1, The Trust, which is an investment trust, will adopt IFRS commencing January 1, In order to prepare for the transition to IFRS, Scotia Managed Companies Administration Inc. ( SMCAI ), the Trust s administrator (the Administrator ) performed an assessment of the impact of significant accounting differences between IFRS and Canadian GAAP including the impact to business processes and systems. Currently, the Administrator does not expect an impact to net assets from the changeover to IFRS other than the impact of IFRS on the Trust s financial statements being additional disclosures in the financial statements, a change in the presentation of Unitholders equity to a financial liability as well as the elimination of the difference between net assets per Unit and transactional NAV disclosed in Note 3. Finally, the Administrator affirms that the current business processes and information technology will not be impacted on the adoption of IFRS. 10

13 3. NET ASSETS PER UNIT 20SEP Under Section 3855 of the CPA Canada Handbook Accounting, the Trust is required to prepare its financial statements using closing bid prices on the principal exchange on which the Portfolio is listed. Pursuant to National Instrument Investment Fund Continuous Disclosure, the Trust continues to calculate and report the net asset value using closing sale prices (the Transaction NAV ) for purposes other than the financial statements and provides a reconciliation to net assets per Unit calculated in accordance with Section 3855 below. As at December 31: Transaction NAV $ $ Valuation adjustment to Portfolio Securities (0.014) (0.030) Net assets per Unit $ $ DISTRIBUTIONS TO UNITHOLDERS The Trust invests in a portfolio of income funds, corporations and other entities of selected Canadian issuers, focused on the natural resources industry, and receives regular cash distributions of income in the form of dividends, other income and capital gains. These amounts are included in the income of the Trust, and, net of expenses, are fully distributed to the Trust s Unitholders each year. The Trust also receives cash distributions from its Portfolio Securities that are characterized as ROC. Under Canadian GAAP, such distributions are applied to reduce the ACB of the Trust s investments. All cash distributions/dividends received by the Trust from its Portfolio Securities net of estimated expenses, including ROC distributions, are paid out as cash distributions to Unitholders. The Trustee generally intends to declare and pay equal monthly distributions to the extent of forecasted distributions/dividend to be received for a calendar quarter from the Trust s Portfolio Securities less estimated expenses for the period. Any differences from the forecast are adjusted in the following quarter. Unitholders on record as at the last day of each month are entitled to receive cash distributions, as declared by the Trustee, on or before the 15th of the following month. Note 7 describes the tax treatment of the Trust s distributions. 5. UNITHOLDERS EQUITY Pursuant to the Declaration of Trust, CaRIT is authorized to issue an unlimited number of transferable, retractable Trust Units, each of which represents an equal, undivided interest in any distributions made by the Trust and in the net assets of the Trust in the event of termination or windup. All Trust Units have equal rights and privileges. 11

14 Retraction of Trust Units Units may be surrendered at any time for retraction by delivery of a retraction notice to a CDS participant for delivery to CDS. Unitholders may surrender their Units for retraction by exercising a regular retraction (a Regular Retraction ) or a special annual retraction (a Special Annual Retraction ), all as described below. Units for which the Trustee receives a retraction notice will be retracted on the last day of the month (the Retraction Date ) and Unitholders will receive payment on the fifth business day (the Retraction Payment Date ) following such Retraction Date. A holder who surrenders Units under a Regular Retraction will receive on the Retraction Payment Date a retraction price per Unit equal to 95% of the Net Realized Proceeds per Unit less $0.25. The Net Realized Proceeds per Unit are equal to the aggregate net proceeds realized by the Trust upon the sale of the pro rata share of the Portfolio Securities represented by the Units surrendered for cash retraction plus/minus the pro rata share of the amount by which the value of the other assets of the Trust exceed/are less than the liabilities of the Trust as at the Retraction Date, divided by the number of Units surrendered for cash retraction. A holder who surrenders Units under a Special Annual Retraction occurring in the month of November in each year will receive on the Retraction Payment Date a retraction price per Unit equal to 100% of the Net Realized Proceeds per Unit. All Unitholders will receive the retraction price in cash. Unitholders will also receive their pro rata share of the distribution payable to Unitholders on the Retraction Date. It should be noted that retractions constitute a taxable disposition of the Trust s Units by the Unitholders at the time of the retraction. After giving effect to the retractions which occurred during the year, the issued and outstanding Units as at December 31 consist of: Units, beginning of year 2,038,816 2,176,532 Units retracted during the year (208,833) (137,716) Units, end of year 1,829,983 2,038, OTHER EXPENSES Other expenses include costs incurred for bank charges and miscellaneous expenses. 7. INCOME TAXES The Trust qualifies as a mutual fund trust under the Income Tax Act (Canada). A mutual fund trust is subject to tax on its net investment income, including any net realized capital gains, which is not paid to its Unitholders. The financial statements of the Trust do not include a provision for income taxes because under the terms of the Declaration of Trust, net investment income is distributed each year to Unitholders and is taxable in their hands. 12

15 All cash distributions received by the Trust in the form of ROC are applied to reduce the ACB of the Trust s investments, and are not taxable at the time of receipt. Accordingly, these distributions will increase any realized capital gains and reduce any realized losses on the disposition of the related investments of the Trust. Distributions to a Unitholder that are paid or payable within a particular year are to be included in the calculation of the Unitholder s taxable income for the particular year. Distributions may be comprised of dividends, other taxable income, capital gains and tax deferred ROC components. The dividend component will be eligible for the dividend tax credit and accordingly, will be subject to a lower effective tax rate than that applicable to the other taxable income component. Total distributions paid or payable to Unitholders in excess of the Trust s taxable income are characterized as tax deferred ROC distributions. These distributions are not taxable on receipt by Unitholders but reduce the ACB of the Unitholder s investment in CaRIT Units. The Declaration of Trust provides that the Trustee may designate payable to retracting Unitholders, as part of their retraction price, capital gains realized by the Trust in the taxation year of the Trust in which the retraction has occurred. For the year ended December 31, 2013, nil (2012 nil) was designated as capital gains out of the total proceeds of $2,679,833 (2012 $1,625,328) paid to retracting Unitholders. Total distributions to Unitholders for 2013 were $0.616 per Unit of which 62.0% was dividend income and 38.0% was tax deferred return of capital ( % was dividend income and 29.7% was tax deferred return of capital). The Trust has capital losses of $71,635 available to offset future capital gains for income tax purposes, for which no benefit has been recognized in these financial statements. 8. RELATED PARTY INFORMATION SMCAI is a wholly owned subsidiary of Scotia Capital Inc. ( SCI ). In consideration for the services provided by SMCAI, including portfolio and cash management, accounting and tax administration, the Trust pays SMCAI a quarterly fee, in advance, equal to 1 4 of 0.25% of the net assets of the Trust. The Administration Agreement has a term expiring on the redemption or retraction of all of the Units. The total administrative fees paid to SMCAI for the year ended December 31, 2013 were $72,148 (2012 $82,902). As the administrator, SMCAI is responsible for managing the purchase and sale of Portfolio Securities as required to meet investment objectives and operating policies of the Trust. Such transactions may be carried out using the services of SCI on an agency basis for a fixed cost per security traded or on an auction bid basis involving a number of brokerage houses. Trading commissions are not explicitly charged on these auction bids. All transactions involving SCI are reported to the Trustee. During the years ended December 31, 2013 and 2012, the purchase and sale of Portfolio Securities were executed on an agency basis with SCI receiving trading commissions of $2,971 (2012 $3,086). As of December 31, 2013, the Trust had nil accrued liabilities payable to SMCAI (2012 $20,543), and had cash and short-term investments on deposit with SCI and its parent Company, The Bank of Nova Scotia, of $1,842 (2012 $7,921). 13

16 In addition, all of the outstanding shares in the capital of the Trustee are owned by a director of the Trustee. All of the outstanding shares of the Trustee are lodged in escrow and will not be disposed of or dealt with in any manner until all of the Trust Units have been retracted or redeemed. 9. UNDISTRIBUTED AMOUNT For the year ended December 31, 2013, the Trust received distributions, net of operating expenses, from the Portfolio of $1,210,944 (2012 $1,382,431). In addition, the Trust had an undistributed amount of $125,637 (2012 $119,799) carried forward from December 31, The total available was $1,323,320 (2012 $1,492,119) excluding distribution entitlements in the amount of $13,261 (2012 $10,111) paid to retracting Unitholders, of which the Trust distributed $1,245,678 (2012 $1,366,482) to Unitholders during the year ended December 31, 2013, leaving an undistributed amount of $77,642 (2012 $125,637). The undistributed amount consists substantially of distributions and other income receivable as at the year end to be distributed once received. 10. CAPITAL MANAGEMENT The Trust s capital consists of the Unitholders equity. As administrator, SMCAI, with oversight from the Trustee, is responsible for managing the Trust s Portfolio in line with its mandate and the affairs of the Trust, including the receipt of revenues and the payment of distributions to Unitholders. The Trust makes cash distributions of the net income to the maximum extent possible subject to maintaining a minimum level of cash on hand. 11. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of distributions and other income receivable, cash and short-term investments and all liabilities approximate their fair value because of the short-term nature of these items. The following table outlines the fair value hierarchy of the remaining financial instruments as at December 31 as follows: Level 1 Level 2 Level 3 Total Investments held for trading $23,924,212 $24,503,524 $ $ $ $ $23,924,212 $24,503,524 Instruments 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. There were no transfers between levels during each of the years. 12. FINANCIAL INSTRUMENT RISK MANAGEMENT In the normal course of business, the Trust is exposed to a variety of financial risks: market risk (including price risk, interest rate risk and currency risk), credit risk and liquidity risk. As it is the Trust s mandate to be fully invested in a fixed portfolio and pay distributions from net investment income to the maximum extent possible, the Trust s overall risk management program focuses on compliance and execution of the Trust s investment objectives. 14

17 Price Risk The value of a Unit is dependent on the value of the Portfolio Securities. The value of the Portfolio Securities can fluctuate on a daily basis as a result of factors outside of the Trust s control, including financial performance of the issuers of the Portfolio Securities, operational risks relating to the specific business activities of the respective issuers, quality of assets owned by respective issuers, commodity prices, exchange rates, interest rates, environmental risks, political risks, issues relating to government regulation and taxation, composition of the Portfolio and other financial market conditions. As the Trust s mandate is to hold a fixed portfolio and pay distributions to the maximum extent possible, it does not use any strategies in managing any of these market price risks. If the prices on the TSX for the Portfolio Securities had increased or decreased by 5% as at December 31, 2013, with all other variables remaining constant, net assets would have increased or decreased, respectively, by approximately $1.2 million or $0.65 per Unit (2012 $1.2 million or $0.60 per Unit). In practice, the actual results may differ materially from this sensitivity analysis. Interest Rate Risk Interest rate risk arises from changes in the prevailing levels of market interest rates resulting in fluctuations in the value of interest-bearing financial instruments. The majority of the Trust s assets are equities that do not pay a fixed rate of interest, however the Trust is indirectly exposed to risks associated with the effects of fluctuations in the prevailing levels of market interest rates on the issuers contained in the Portfolio. Any excess cash is invested in short-term money market instruments, which are not subject to significant interest rate risk. Currency Risk The assets and liabilities are predominately held in the functional currency of the Trust which is the Canadian dollar. The Trust is not exposed to significant foreign currency risks except to the extent that the business activities of the underlying trusts that comprise the Portfolio are subject to foreign currency fluctuations. 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 Trust. The Trust maintains all of its cash and cash equivalents at its custodian or in bankers acceptances or term deposits with financial institutions having a minimum debt rating of A. All transactions in listed securities are settled/paid for upon delivery using approved brokers. The risk of default is considered minimal, as delivery of securities sold is made only when the Trust has received payment. Payment is made on purchases once the securities have been received by the Trust. Should either party not meet its obligation, the trade will fail. Liquidity Risk The Trust is only exposed to annual cash redemptions and receives notification 30 days prior to payment. The Trust invests its assets in investments that are traded in an active market and can be readily disposed of. There can be no assurance that an adequate market for the Portfolio Securities will exist at all times, or that the prices at which the Portfolio Securities trade, accurately reflect their market values. Low trading volumes of Portfolio Securities could make it difficult to liquidate holdings quickly. The Trust maintains cash and cash equivalents to offset all its liabilities. 15

18 NOTES 20SEP

19 CORPORATE INFORMATION Principal Office Registrar and Transfer Agent Scotia Plaza, 26th Floor Computershare Investor Services Inc. 40 King Street West 100 University Avenue Station A, Box 4085 Toronto, Ontario Toronto, Ontario M5J 2Y1 M5W 2X6 Telephone: (416) Facsimile: (416) Legal Counsel Website: Stikeman Elliott LLP Toronto, Ontario Trustee CaRIT Limited Toronto, Ontario Auditor PricewaterhouseCoopers LLP Toronto, Ontario Directors and Officers of CaRIT Limited John B. Newman * Director and Chairman of the Board Brian D. McChesney Director, President and Chief Executive Officer Stephens B. Lowden FCPA, FCA * Director and Chairman of the Audit Committee Stock Exchange Listing The Toronto Stock Exchange Symbol RTU.UN Stephen D. Pearce CPA, CA Director, Chief Financial Officer and Secretary Michael K. Warman CPA, CA Director Robert C. Williams Director J. Nicholas Ross CPA, CA * Director * Audit Committee Member Independent Review Committee J. Nicholas Ross CPA, CA (Chairman) John B. Newman Stephens B. Lowden CPA, FCA

20 CANADIAN RESOURCES INCOME TRUST 40 KING STREET WEST, SCOTIA PLAZA, 26TH FLOOR TORONTO, ONTARIO M5W 2X6