W.A.M. COLLINS INCOME POOL

Transcription

1 Financial Statements of W.A.M. COLLINS INCOME POOL Six-month period ended

2 MANAGEMENT RESPONSIBILITY FOR FINANCIAL REPORTING The accompanying unaudited interim financial statements have been prepared by Willoughby Asset Management Inc. in its capacity as the Manager of the Fund. The Fund s Manager is responsible for the information and representations contained in these financial statements. The Manager maintains appropriate processes to ensure that relevant and reliable financial information is produced. The unaudited interim financial statements have been prepared in accordance with International Financial Reporting Standards and include certain amounts that are based on estimates and judgements made by the Manager. The significant accounting policies which the Manager believes are appropriate for the Trust are described in Note 3 to the unaudited interim financial statements. On behalf of the Manager "Signed" August 28, 2018 Date NOTICE TO UNITHOLDERS The Auditors of the Fund have not reviewed these financial statements. Willoughby Asset Management Inc., the Manager of the Fund, appoints an independent auditor to audit the Fund s annual financial statements. Applicable securities laws require that if an auditor has not reviewed the Fund s interim financial statements, this must be disclosed in an accompanying notice.

3 W.A.M. Collins Income Pool Statement of Financial Position As at June 30, 2018 December 31, 2017* ASSETS Current assets Cash and cash equivalents $ 16,275 $ 185,222 Interest and dividends receivable 79,698 9,162 Investments 13,983,701 3,116,093 Prepaid expense 5,293 14,084,967 3,310,477 LIABILITIES Current liabilities Management fees payable (Note 5) 29,046 3,703 Accounts payable and accrued liabilities 57, ,947 Options written 23,346 1,421 Distributions payable 65,065 Redemptions payable 9, , ,071 Net Assets Attributable to Holders of Redeemable Units $ 13,900,979 $ 3,062,406 Net Assets Attributable to Holders of Redeemable Units per Series Series A $ 634,235 $ 120,901 Series F 13,266,744 2,941,505 $ 13,900,979 $ 3,062,406 Number of Redeemable Units Outstanding (Note 6) Series A 65,081 12,285 Series F 1,363, ,972 Net Assets Attributable to Holders of Redeemable Units per Unit per Series Series A $ 9.75 $ 9.84 Series F *For the period from the commencement of operations, November 8, 2017 to December 31, 2017 The accompanying notes are an integral part of these financial statements. Approved on behalf of the Board of Directors of Willoughby Asset Management Inc., in its capacity as Manager: "Signed" Director "Signed" Director 1

4 W.A.M. Collins Income Pool Statement of Comprehensive Income For the six-months ended Income Dividend income $ 79,025 Interest income 95,506 Foreign exchange loss (10,401) Net realized loss on sale of investments (140,110) Net change in unrealized appreciation in value of investments 194, * 218,516 Expenses Management fees (Note 5) 44,044 Operating costs 41,571 Commissions and other portfolio transaction costs 13,596 Audit fees 8,679 Legal fees 7,439 Withholding tax (Note 7) 2,931 Custodian fees 2, ,864 Increase in Net Assets Attributable to Holders of Redeemable Units $ 97,652 Increase in Net Assets Attributable to Holders of Redeemable Units per Series Series A $ 1,645 Series F 96,007 $ 97,652 Increase in Net Assets Attributable to Holders of Redeemable Units per Unit per Series (Note 8) Series A $ 0.04 Series F 0.11 * The Fund commenced operations on November 8, 2017, therefore, comparative information for the period ended June 30, 2017 is not available The accompanying notes are an integral part of these financial statements. 2

5 W.A.M. Collins Income Pool Statement of Changes in Net Assets Attributable to Holders of Redeemable Units For the six-month period ended Net assets attributable to holders of redeemable units, beginning of period Proceeds from redeemable units issued Redemption of redeemable units Distributions to unitholders of redeemable units Reinvestment of distributions to unitholders of redeemable units Increase in net assets from operations attributable to holders of redeemable units Net Assets attributable to holders of redeemable units, end of period June 30, 2018* Class A $ 120,901 $ 550,302 $ (38,290) $ (6,383) $ 6,060 $ 1,645 $ 634,235 Class F 2,941,505 10,977,267 (683,294) (133,372) 68,631 96,007 13,266,744 $ 3,062,406 $ 11,527,569 $ (721,584) $ (139,755) $ 74,691 $ 97,652 $ 13,900,979 * The Fund commenced operations on November 8, 2017, therefore, comparative information for the period ended June 30, 2017 is not available The accompanying notes are an integral part of these financial statements. 3

6 W.A.M. Collins Income Pool Statement of Cash Flows For the six-month period ended 2018* Cash provided by (used in): Operating Activities Increase in Net Assets Attributable to Holders of Redeemable Units $ 97,652 Adjustments for non-cash items Commissions and other portfolio transaction costs 13,596 Net change in unrealized appreciation in value of investments (194,496) Foreign exchange loss 10,401 Net realized loss on sale of investments 140,110 Change in non-cash balances Increase in prepaid expense (5,293) Increase in interest and dividends receivable (70,536) Decrease in accounts payable and accrued liabilities (185,943) Increase in management fees payable 25,343 Proceeds from sale of investments 4,837,033 Purchase of investments (15,641,927) Cash used in operating activities (10,974,060) Financing Activities Proceeds from redeemable units issued 11,527,570 Redemption of redeemable units (712,057) Distributions to unitholders of redeemable units (74,690) Reinvestment of distributions to unitholders of redeemable units 74,691 Cash provided by financing activities 10,815,514 Decrease in cash during the period (158,546) Foreign exchange loss on cash (10,401) Cash, beginning of period 185,222 Cash, end of period $ 16,275 Supplemental information** Interest received $ 46,136 Dividends received, net of withholding taxes 54,930 * The Fund commenced operations on November 8, 2017, therefore, comparative information for the period ended June 30, 2017 is not available **Included as a part of cash flows from operating activities The accompanying notes are an integral part of these financial statements. 4

7 W.A.M. Collins Income Pool Schedule of Investment Portfolio As at Number of shares/units Investments owned Average cost Fair value % of net asset value Canadian equities 6,700 Allied Properties Real Estate Investment Trust $ 277,703 $ 280, ,500 Atrium Mortgage Investment Corp. 243, , ,400 Canadian Natural Resources Ltd. 297, , ,900 Canadian Utilities Ltd. Preferred Shares 4% 197, , ,100 Enbridge Inc. Preferred Shares 5.50% 298, , ,800 First Asset Tech Giants Covered Call ETF 481, , ,800 First Capital Realty Inc. 220, , ,400 Fortis Inc. Preferred Shares 4.75% 281, , ,300 Granite Real Estate Investment Trust 216, , ,800 Inter Pipeline Ltd. 284, , ,700 ishares Core CanadianUniverse Bond Index ETF 823, , ,400 Magna International Inc. 234, , ,700 Premium Brands Holdings Corp. 173, , ,000 Purpose High Interest Savings ETF 500, , ,400 Sun Life Financial Inc. 286, , ,600 Suncor Energy Inc. 269, , ,700 The Toronto-Dominion Bank 273, , ,000 Transcontinental Inc. 272, , ,633,712 5,774, Canadian fixed income 111,000 Atrium Mortgage Investment Corp. 5.25% 30JUN20 110, , ,000 Atrium Mortgage Investment Corp. 5.50% 30SEP21 188, , ,000 Bell Canada Inc. 2.90% 12AUG26 563, , ,000 Canadian Natural Resources Ltd. 3.42% 01DEC26 496, , ,000 Constellation Software Inc. 8.10% 31MAR40 481, , ,000 Exchange Income Corp. 5.25% 31DEC22 447, , ,000 Fairfax Financial Holdings Ltd. 4.25% 06DEC27 505, , ,000 First Capital Realty Inc % 12JUL27 409, , ,000 Intact Financial Corp. 2.85% 07JUN27 482, , ,000 Metro Inc. 3.39% 06DEC27 492, , ,000 TELUS Corp. 4.40% 01APR43 502, , ,681,537 4,709, Canadian investment fund 62,173 Picton Mahoney Fortified Income Fund Class F 699, , The accompanying notes are an integral part of these financial statements. 5

8 W.A.M. Collins Income Pool Schedule of Investment Portfolio As at (Continued) Number of Average Fair shares/units Investments owned cost value % of net asset value U.S. equities 2,200 AbbVie Inc. $ 282,071 $ 267, ,000 Constellation Brands Inc. 289, , ,300 Extra Space Storage Inc. 275, , ,600 PacWest Bancorp 242, , ,200 Pfizer Inc. 286, , ,000 The Cheesecake Factory Inc. 67,040 72, ,000 The Interpublic Group of Cos Inc. 274, , ,500 Verizon Communications Inc. 227, , ,300 Watsco Inc. 302, , ,248,204 2,272, U.S. fixed income 431,000 Wells Fargo & Co. 3% 19FEB25 527, , Total investments owned 13,790,749 13,983, Number of shares/units Investments sold short Proceeds on short sale Fair value % of net asset value Canadian options (6,100) Allied Properties Real Estate Investment Trust Call $42 20JUL18 $ (4,194) $ (3,355) (0.02) (4,800) Canadian Natural Resources Ltd. Call $ JUL18 (1,380) (9,888) (0.07) (4,000) Suncor Energy Inc. Call $53 29JUN18 (1,190) (2,400) (0.02) (3,700) The Toronto-Dominion Bank Call $77 29JUN18 (990) (296) 0.00 (7,754) (15,939) (0.11) U.S. options (2,200) AbbVie Inc. Call $105 29JUN18 (2,118) (59) 0.00 (1,000) Constellation Brands Inc. Call $ JUN18 (1,551) (39) 0.00 (6,200) Pfizer Inc. Call $37 29JUN18 (1,708) (81) 0.00 (1,000) The Cheesecake Factory Inc. Call $55 20JUL18 (768) (2,497) (0.02) (9,000) The Interpublic Group of Cos Inc. Call $24 20JUL18 (2,850) (4,731) (0.03) (8,995) (7,407) (0.05) Total investments sold short (16,749) (23,346) (0.16) Commissions and other portfolio transaction costs (6,201) Net investments owned $ 13,767,799 13,960, Other liabilities, net (59,376) (0.46) Net Assets Attributable to Holders of Redeemable Units $ 13,900, The accompanying notes are an integral part of these financial statements. 6

9 1. Reporting entity: W.A.M. Collins Income Pool (the Fund ) is an open-ended investment trust which was created under the laws of the Province of British Columbia pursuant to a declaration of trust dated January 5, 2017 and amended and restated on September 6, 2017 (the Trust Agreement ). The Fund was initially named W.A.M. Collins Global Portfolio and was changed to W.A.M. Collins Income Pool per the amended and restated Trust Agreement on September 6, The Fund s place of business is West Hastings Street, Vancouver, BC V7E 0C3. Willoughby Asset Management Inc., a company incorporated under the laws of Canada, is the manager of the Fund (the Manager ) and Computershare Trust Company of Canada, a trust company existing under the laws of Canada, is the trustee of the Fund (the Trustee ). Harbourfront Wealth Management Inc. is the portfolio adviser ( Investment Advisor ) of the Fund. The Manager is responsible for approving and monitoring the Fund s various service providers, including the Investment Advisor, in accordance with the terms of the Trust Agreement. The Manager has engaged the Investment Advisor to manage the Fund s portfolio on a discretionary basis as well as the distribution of the redeemable units of the Fund. The investment objective of the Fund is to create an income pool to be used by investors seeking a regular stream of income and/or diversification of an investment portfolio. Any individual securities the Fund may hold will be exclusively listed on North American stock exchanges but global exposure may be attained through the use of third party fund managers and/or exchange traded funds ( ETFs ). The success of the Fund depends on the continued services of the Manager and will be influenced by a number of risk factors associated with investments in equities, options, and other instruments, including derivative hedge risk, market liquidity, portfolio turnover, foreign currency exposure, foreign market exposure, and interest rate fluctuations. 2. Basis of preparation: (a) Statement of compliance: These interim financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) applicable to the preparation of financial statements and International Accounting Standard 34, Interim Financial Reporting. The Fund reports under this basis of accounting as required by Canadian Securities Legislation and Canadian Accounting Standards Board. The financial statements were authorized for issue by the Manager on August 28, (b) Basis of measurement: These financial statements have been prepared on a historical cost basis, except for investments, investments sold short and derivatives, which are measured at fair value. (c) Functional and presentation currency: The Fund s financial statements are presented in Canadian dollars, which is the Fund s functional currency. 7

10 2. Basis of preparation (continued): (d) Use of estimates and judgment: The preparation of financial statements in accordance with IFRS requires management to use accounting estimates. It also requires management to exercise its judgment in the process of applying the Fund s accounting policies. Estimates are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results could differ from those estimates. 3. Significant accounting policies: The accounting policies set out below have been applied consistently for the full period presented in these financial statements. (a) Financial assets and financial liabilities: Recognition and initial measurement: Financial assets or liabilities designated at fair value through profit or loss ( FVTPL ) are initially recognized on the trade date, which is the date the Fund becomes a party to the contractual provisions of the instrument. Other financial assets and financial liabilities are recognized on the date on which they are originated. Financial assets and financial liabilities at FVTPL are initially measured at fair value, with transaction costs recognized in profit or loss. Financial assets and financial liabilities not at FVTPL are initially measured at fair value plus transaction costs that are directly attributable to their acquisition or issue. (b) Classification: Accounting policies applied from January 1, 2018: From January 1, 2018, the Fund classifies its investments in debt and equity securities and derivatives as financial assets at FVTPL. (i) Financial assets: The Fund classifies its investments at FVTPL based on the Fund s business model for managing those financial assets in accordance with the Fund s documented investment strategy. The portfolio of investments is managed and performance is evaluated on a fair value basis and the portfolio of investments is neither held to collect contractual cash flows nor held both to collect contractual cash flows and to sell financial assets. The Fund is primarily focused on fair value information and uses that information to assess the assets performance and to make decisions. 8

11 3. Significant accounting policies (continued): (b) Classification (continued): A financial asset is classified as subsequently measured at amortized cost only if both of the following criteria are met: a) the asset is held within a business model whose objective is to hold assets to collect contractual cash flows, and b) the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding (ii) Cash and cash equivalents: Cash comprise cash on deposit and are classified as loans and receivables. Cash equivalents comprise any highly liquid deposits redeemable on demand or with maturity under 90 days. (iii) Other assets and liabilities: Interest and dividends receivable, prepaid expense, and subscriptions receivable are designated as loans and receivables and recorded at amortized cost. Accounts payable and accrued liabilities, management fees payable and redemptions payable are designated as financial liabilities and recorded at amortized cost. (c) Offsetting financial instruments. Financial assets and financial liabilities are offset and the net amount reported in the statement 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. In the normal course of business, the Fund may enter into various master netting agreements or similar agreements that do not meet the criteria for offsetting in the statement of financial position but still allow for the related amounts to be offset in certain circumstances, such as bankruptcy or termination of the contracts. (d) Redeemable units: For each Fund unit sold, the Fund receives an amount equal to the net asset value per unit at the date of sale, which is included in net assets attributable to holders of redeemable units. Units are redeemable at the option of unitholders at their net asset value on the redemption date. For each unit redeemed, net assets attributable to holders of redeemable units are reduced by the net asset value of the unit at the date of redemption. The redeemable units, which are classified as financial liabilities, are measured at the current value of the Fund s net assets and are considered a residual amount of the net assets attributable to holders of redeemable units. (e) Cost of investments: The cost of investments represents the amount paid for each security and is determined on an average cost basis, excluding commissions and other portfolio transaction costs. 9

12 3. Significant accounting policies (continued): (f) Investment transactions and income: Investment transactions are accounted for on the trade date. 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. 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 statement of comprehensive income. (g) Commissions and other portfolio transaction costs: Commissions and other portfolio 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, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. Such costs are expensed and are included in commissions and other portfolio transaction costs in the statement of comprehensive income. (h) Translation of foreign currency: The functional and presentation currency of the Fund is the Canadian dollar. The fair value of foreign investments and other assets and liabilities denominated in foreign currencies are translated into Canadian dollars at the exchange rates prevailing on each valuation day. Purchases and sales of foreign securities denominated in foreign currencies and the related income are translated into Canadian dollars at rates of exchange prevailing on the respective dates of such transactions. (i) Net assets attributable to holders of redeemable units per unit: The net assets attributable to holders of redeemable units per unit is calculated by dividing the net assets attributable to holders of redeemable units of a particular series of redeemable units by the total number of redeemable units of that particular series outstanding at the end of the period. (j) Increase in net assets attributable to holders of redeemable units per unit: Increase in net assets attributable to holders of redeemable units per unit is based on the increase in net assets attributable to holders of redeemable units attributed to each series of redeemable units, divided by the weighted average number of redeemable units outstanding of that series during the period. 10

13 3. Significant accounting policies (continued): (k) Income taxes: The Fund qualifies as a unit trust under the Income Tax Act (Canada). All of the Fund s net income for tax purposes and net capital gains realized in any period are required to be distributed to unitholders such that no income tax is payable by the Fund. As a result, the Fund does not record income taxes. (l) New standards and interpretations: A number of new standards, amendments to standards and interpretations are effective for the period ended June 30, 2018, and have been applied in preparing these financial statements. None of these have a significant effect on the financial statements of the Fund, with the possible exception of the following. IFRS 9 Financial Instruments IFRS 9 deals with recognition, derecognition, classification and measurement of financial statements and its requirements represent a significant change from the existing requirements in IAS 39, Financial Instruments: Recognition and Measurement, in respect of financial assets. Under IFRS 9, all financial assets that are currently in the scope of IAS 39 have been classified either as amortized cost, fair value through profit or loss, or fair value through other comprehensive income. A financial asset would be measured at amortized cost if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows, and the asset s contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding. All other financial assets would be measured at fair value. The standard eliminates the existing IAS 39 categories of held-to-maturity, available-for-sale and loans and receivables. The standard is effective for periods beginning on or after January 1, The Fund has adopted IFRS 9 in its financial statements for the period beginning on January 1, Based on the Manager s assessment, this standard has not had a material impact on the classification of financial assets and financial liabilities of the Fund. This is because: financial instruments currently measured at FVTPL under IAS 39 that were designated into this category, because they are managed on a fair value basis in accordance with a documented investment strategy, will be mandatorily measured at FVTPL or designated at FVTPL under IFRS 9; and financial instruments currently measured at amortized cost are: interest receivable, dividends receivable, subscriptions receivable, accounts payable and accrued liabilities, management fees payable and redemptions payable. These financial instruments meet the relevant criteria under the new standard and will continue to be measured at amortized cost under IFRS 9. 11

14 3. Significant accounting policies (continued): (l) New standards and interpretations (continued): Based on the Manager s assessment, this standard has also not had a material impact from the changes to the impairment model because: the majority of the financial assets are measured at FVTPL and the impairment requirements do not apply to such instruments; and the financial assets at amortized cost are short-term (i.e. no longer than 12 months), of high credit quality and/or highly collateralized. Accordingly, the expected credit losses on such assets are expected to be small. The Fund does not apply hedge accounting; therefore, IFRS 9 hedge accounting-related changes do not have an impact on the financial statements of the Fund. 4. Changes in accounting policies: The Fund has applied IFRS 9 retrospectively from November 8, 2017, which has resulted in changes in accounting policies. The following accounting policies relating to classification of financial assets and financial liabilities have been changed to comply with IFRS 9 which replaces the provisions of IAS 39. Reclassifications of financial instruments on application of IFRS 9 On the date of initial application of IFRS 9, January 1, 2018, the financial instruments of the Fund were as follows, with any reclassifications from December 31, 2017 noted: Classification Category Measurement Category Carrying amount at Jan 1, 2018 Financial Instruments Assets Cash and cash equivalents Interest and dividends receivable Investments Liabilities Management fees payable Accounts payable and accrued liabilities Options Written Original (IAS 39) Amortized Amortized cost cost Loans and Amortized receivables cost FVTPL Designated at inception Financial liabilities Financial liabilities Held for trading New (IFRS9) Amortized cost Amortized cost Amortized cost Amortized cost 185, ,222-9,162 9,162 - FVTPL FVTPL FVTPL 3,116,093 3,116,093 - Financial liabilities Financial liabilities Original (IAS 39) Amortized cost Amortized cost New (IFRS9) Amortized cost Amortized cost Original (IAS 39) $ New (IFRS 9) $ Difference $ 3,703 3, , ,947 - FVTPL HFT FVTPL 1,421 1,421-12

15 5. Related party transactions: The Fund pays the Manager management fees based on a percentage of the Net Asset Value of the Fund quarterly, in arrears, but the fee is calculated and accrues daily as a percentage of the Net Asset Value of each applicable Series of Units that comprise the Fund on each Valuation Day, plus applicable taxes. The Manager can absorb expenses, at its sole option. During the period, fees of $44,044 were paid to the Manager, of which, $29,046 (December 31, $3,703) was included in management fees payable at period end. The management fees applicable to each series are as follows: Series A 1.88% Series F 0.88% 6. Redeemable units of the Fund: The Fund is authorized to issue an unlimited number of redeemable units, issuable in an unlimited number of series, each of which represents an equal, undivided, beneficial interest in the Net Asset Value of the Fund. Each unit of each series entitles the holder to vote, with one vote for each whole unit held and to participate equally with respect to any and all distributions made by the Fund. Redeemable units of a series may be consolidated, subdivided and/or redesignated by the Manager. As at June 30, 2018, only Series A and F units have been issued. The redeemable unit activity during the period ended June 30, 2018 is as follows: Redeemable Units, beginning of period Redeemable Units Issued Redemption of Redeemable Units Reinvestments of Units Redeemable Units, end of period June 30, 2018* Series A 12,285 56,083 (3,909) ,081 Series F 300,972 1,126,013 (70,210) 7,055 1,363,830 * The Fund commenced operations on November 8, 2017, therefore, comparative information for the period ended June 30, 2017 is not available Capital disclosure: The capital of the Fund is represented by issued and redeemable units. The units are entitled to distributions, if any, and to payment of a proportionate share based on the Fund s Net Asset Value per unit upon redemption. The Fund has no internally or externally imposed restrictions on its capital. The Fund endeavours to invest the subscriptions received in appropriate investments while maintaining sufficient liquidity to meet redemptions, such liquidity being augmented by short-term borrowings or disposal of investments, where necessary. 13

16 7. Withholding tax expense: Certain dividend and interest income received by the Fund is subject to withholding tax imposed in the country of origin. During the period, the average withholding tax rate was 15%. 8. Increase in net assets attributable to holders of redeemable units per unit: The increase in net assets attributable to holders of redeemable units per unit for the period ended June 30, 2018 is calculated as follows: Increase in Net Assets Attributable to Holders of Redeemable Units per Series Weighted Average of Redeemable Units Outstanding During the Period Increase in Net Assets Attributable to Holders of Redeemable Units per Unit June 30, 2018* Series A $ 1,645 44,143 $ 0.04 Series F 96, , * The Fund commenced operations on November 8, 2017, therefore, comparative information for the period ended June 30, 2017 is not available 9. Collateral arrangements: The Fund has a prime brokerage agreement with its broker to carry its accounts as a customer. The broker has custody of the Fund s securities and, from time to time, cash balances which may be due from the broker. Financial instruments and/or cash positions serve as collateral for any amounts due to broker or as collateral for any securities sold, not yet purchased or securities purchased on margin. The securities and/or cash positions also serve as collateral for potential defaults of the Fund. The Fund is subject to credit risk if the broker is unable to repay balances due or deliver securities in their custody. 10. Financial risk management: Management of financial instrument risks: In the normal course of business, the Fund is exposed to a variety of financial risks: credit risk, liquidity risk and market risk (including interest rate risk, currency risk and other price risk). The value of investments within the Fund s portfolio can fluctuate on a daily basis as a result of changes in interest rates, economic conditions, the market and company news related to specific securities within the Fund. The level of risk depends on the Fund s investment objective and the type of securities it invests in. 14

17 10. Financial risk management (continued): (a) 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. All transactions executed by the Fund 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 only made once the broker has received payment. The maximum credit exposure of the Fund is the carrying amount of the assets disclosed on the statement of financial position. 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. All counterparties are creditworthy. Where the Fund invests in debt instruments and derivatives, this represents the main exposure to credit risk. The fair value of debt instruments and derivatives includes consideration of the creditworthiness of the issuer and, accordingly, represents the maximum credit risk exposure of the Fund. At June 30, 2018, the Fund was invested in debt securities with the following credit quality, as determined by DBRS s credit rating: Rating: AA (low) $ 534,706 A 480,283 BBB (high) 2,478,793 BBB 489,618 Not rated 1,260,872 $ 5,244,273 (b) Liquidity risk: Liquidity risk is defined as the risk that the Fund may not be able to settle or meet its obligations on time or at a reasonable price. The Fund s exposure to liquidity risk is concentrated in the periodic cash redemptions of units. The Fund primarily invests in securities that are traded in active markets and can be readily disposed of. In addition, the Fund generally retains sufficient cash and cash equivalent positions to maintain liquidity. The maturity of the Fund s derivative liabilities are set out in the Schedule of Investment Portfolio and range from between one month and three months. The Fund's non-derivative financial liabilities are due within three months. 15

18 10. Financial risk management (continued): (c) Market risk: (i) Interest rate risk: Interest rate risk arises when the Fund invests in interest-bearing financial instruments. The Fund is exposed to the risk that the value of such financial instruments will fluctuate due to changes in the prevailing levels of market interest rates. The Manager manages interest rate risk through careful selection of securities and diversification of the Fund. There is minimal sensitivity to interest rate fluctuations on any cash and cash equivalents invested at short-term market interest rates. Investments in bonds are fixed-rate instruments with terms to maturity at June 30, 2018 are as follows: Term to maturity June 30, years $ 112, years 642,208 Greater than 5 years 4,489,399 Total $ 5,244,273 If the prevailing interest rates had increased or decreased by 1%, assuming a parallel shift in the yield curve and with all other factors remaining constant, net assets could have increased or decreased by approximately $411,367 as at June 30, 2018 (December 31, $105,454). In practice, the actual results may differ from the sensitivity analysis and the difference could be material. (ii) Currency risk: Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. Currency risk arises from financial instruments (including cash) that are denominated in a currency other than the Canadian dollar, which represents the functional currency of the Fund. Currency risk is managed by the Manager on a daily basis through a careful selection of securities and diversification within the Fund, in accordance with policies and investment mandates in place. The Fund may have up to 100% of its capital invested in foreign currency denominated securities The Manager monitors the Fund s overall market positions and positions are maintained within established ranges. 16

19 10. Financial risk management (continued): (c) Market risk (continued): (ii) Currency risk (continued): Currency to which the Fund had exposure as at June 30, 2018 and December 31, 2017 is as follows: Currency Monetary Exposure Non- Monetary Total Monetary Impact if CAD strengthened or weakened by 5% in relation to other currencies Non- Monetary Total June 30, 2018 U.S. Dollar $ 7,054 $ 2,799,526 $ 2,806,580 $ 353 $ 139,976 $ 140,329 % of Net Assets Attributable to Holders of Redeemable Units Impact if CAD strengthened or weakened by 5% in relation to other Exposure currencies Currency Monetary Non-Monetary Total Monetary Non-Monetary Total December 31, 2017 U.S. Dollar $ 5,298 $ 513,903 $ 519,201 $ 265 $ 25,695 $ 25,960 % of Net Assets Attributable to Holders of Redeemable Units The amounts in the above tables are based on the fair value of the Fund s financial instruments (including cash). Other financial assets (including interest and dividends receivable and receivable for investments sold) and financial liabilities (including payables for equities purchased) that are denominated in foreign currencies do not expose the Fund to significant currency risk. As at June 30, 2018, if the Canadian dollar had strengthened or weakened by 5% in relation to all currencies, with all other variables held constant, net assets attributable to holders of redeemable units would have increased or decreased, respectively, by approximately $140,329 or 1.01% (December 31, $25,960 or 0.85%). In practice, the actual trading results may differ from this sensitivity analysis and the difference could be material. 17

20 10. Financial risk management (continued): (c) Market risk (continued): (iii) Other price risk: Other price risk is the risk that the fair value or future cash flows of financial instruments will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk). All investments represent a risk of loss of capital. The Manager aims to moderate this risk through careful selection and diversification of securities and other financial instruments in accordance with the Fund s investment objective and strategy. The Fund s overall market positions are monitored on a regular basis by the Manager. Financial instruments held by the Fund are susceptible to market price risk arising from uncertainties about future prices of the instruments. As at June 30, 2018, 57.72% (December 31, %) of the Fund s net assets attributable to holders of redeemable units were invested in securities traded mainly on Canadian and/or U.S. stock exchanges. If security prices on the Canadian and/or U.S. stock exchanges had increased or decreased by 10% as at the period end, with all other factors remaining constant, net assets attributable to holders of redeemable units could possibly have increased or decreased by approximately $802,348 (December 31, $186,594), respectively. In practice, the actual results may differ from this sensitivity analysis and the difference could be significant. 11. Fair value of financial instruments: (a) Fair value hierarchy: 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 in the principal or, in its absence, the most advantageous market to which the Fund has access at that date. When available, the Fund measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. The Fund measures instruments quoted in an active market at last sale or close price, where the close price falls within the day's bid-ask spread. In circumstances where the close price is not within the day's bid-ask spread, the Manager determines the point within bid-ask spread that is most representative of fair value based on specific facts and circumstances. If there is no quoted price in an active market, then the Fund uses valuation techniques that maximize the use of relevant observable inputs and minimize the use of unobservable inputs. The Fund uses a variety of methods and makes assumptions that are based on market conditions existing at each statement of financial position date. Valuation techniques used include the use of comparable recent arm s-length transactions, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants. 18

21 11. Fair value of financial instruments (continued): (a) Fair value hierarchy (continued): Investments measured at fair value are classified into one of three fair value hierarchy levels, based on the lowest level input that is significant to the fair value measurement in its entirety. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The three fair value hierarchy levels are as follows: Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 - inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and Level 3 - inputs for the asset or liability that are not based on observable market data (unobservable inputs). (b) Fair value hierarchy financial instruments measured at fair value: The following tables summarize the levels within the fair value hierarchy in which the fair value measurements of the Fund s investments fall as of June 30, 2018 and December 31, 2017: June 30, 2018 Level 1 Level 2 Level 3 Total Assets Common stocks $ 8,046,827 $ $ $ 8,046,827 Fixed Income 5,244,272 5,244,272 Investment Fund 692, ,602 $ 8,739,429 $ 5,244,272 $ $ 13,983,701 Liabilities Options written $ 23,346 $ $ $ 23,346 $ 23,346 $ $ $ 23,346 December 31, 2017 Level 1 Level 2 Level 3 Total Assets Common stocks $ 1,867,357 $ $ $ 1,867,357 Fixed Income 1,084,456 1,084,456 Investment Fund 164, ,280 $ 2,031,637 $ 1,084,456 $ $ 3,116,093 Liabilities Options written $ 1,421 $ $ $ 1,421 $ 1,421 $ $ $ 1,421 Fixed income investments classified as Level 2 in the hierarchy are priced based on broker quotations, which are based primarily on matrix pricing or quotations of similar instruments. Investment funds are valued based on the respective underlying net assets value of the respective fund. 19

22 11. Fair value of financial instruments (continued): (b) Fair value hierarchy financial instruments measured at fair value (continued): The carrying amount of the Fund s net assets attributable to redeemable units also approximates fair value as they are measured at the redemption amount and are classified as Level 2 in the fair value hierarchy. There were no transfers of financial assets between Level 1, Level 2 and Level 3 for the periods ended June 30, 2018 and December 31, (c) Financial instruments not measured at fair value: The carrying value of cash, interest and dividends receivable, subscriptions receivable, redemptions payable, accounts payable and accrued liabilities and management fees payable approximates their fair value given their short-term nature. These financial instruments are classified as Level 2 in the fair value hierarchy because while prices are available, there is no active market for these instruments. 12. Income taxes: Non-capital losses are available to be carried forward for 20 years and applied against future taxable income. Capital losses may be carried forward indefinitely and applied against future capital gains. As at December 31, 2017, the Fund had no non-capital losses and no capital losses available for carrying forward. 20