SCOTIABANK TRINIDAD & TOBAGO FIXED INCOME FUND INC. FINANCIAL STATEMENTS

Transcription

1 FINANCIAL STATEMENTS FOR THE PERIOD FROM OCTOBER 17, 2013 (COMMENCEMENT OF OPERATIONS) TO

2 INDEX TO FINANCIAL STATEMENTS CONTENTS Page 1) 1 2) STATEMENT OF FINANCIAL POSITION 2 3) STATEMENT OF COMPREHENSIVE INCOME (LOSS) 3 4) STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO HOLDERS 4 OF REDEEMABLE INVESTMENT SHARES 5) STATEMENT OF CASH FLOWS 5 6) NOTES TO FINANCIAL STATEMENTS 6-18

3 Independent auditor s report To the Board of Directors of Scotiabank Trinidad & Tobago Fixed Income Fund Inc. We have audited the accompanying financial statements of Scotiabank Trinidad & Tobago Fixed Income Fund Inc. which comprise the statement of financial position as at December 31, 2013 and the statements of comprehensive income (loss), changes in net assets attributable to holders of redeemable investment shares and cash flows for the period from October 17, 2013 (commencement of operations) to December 31, 2013, and notes, comprising 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 International Standards on Auditing. 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 assessment of the risks of material misstatement of the financial statements, whether due to fraud or 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 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 Scotiabank Trinidad & Tobago Fixed Income Fund Inc. as at December 31, 2013, and its financial performance and its cash flows for the period from October 17, 2013 (commencement of operations) to December 31, 2013 in accordance with International Financial Reporting Standards. March 4, PricewaterhouseCoopers, 5 th Floor Strathvale House, P.O. Box 258, Grand Cayman, KY1-1104, Cayman Islands T: +1 (345) , F: +1 (345) ,

4 STATEMENT OF FINANCIAL POSITION AT (Expressed in Trinidad and Tobago dollars) December 31, 2013 ASSETS Cash and cash equivalents 28,992,983 Financial assets at fair value through profit or loss (Cost: TT$34,564,078) (Notes 3, 8 and 9) 34,787,154 Subscriptions receivable 710,000 Management fees prepaid and rebate receivable (Note 4) 37,977 Total assets 64,528,114 LIABILITIES Professional fees 96,300 Accrued expenses 30,401 Liabilities (excluding net assets attributable to holders of redeemable investment shares) 126,701 Governance shares - Net assets attributable to holders of redeemable investment shares (Notes 7, 8 and 9) 64,401,413 Net asset value per redeemable investment shares (Note 7) Class AT (TT$35,007,976/3,521, shares) Class NT (TT$6,199/ shares) Class IT (TT$29,387,238/2,952, shares) Board of Directors by: Sarah Hobbs Director Marcel Schroder Date : Director March 4, 2014 The accompanying notes are an integral part of these financial statements

5 STATEMENT OF COMPREHENSIVE INCOME (LOSS) DECEMBER 31, 2013 (Expressed in Trinidad and Tobago dollars) For the period from October 17, 2013 to December 31, 2013 Income Interest income 138,436 Net realized loss on foreign currencies (132,465) Net change in unrealized depreciation on financial assets at fair value through profit or loss and foreign currencies (49,140) Total net loss (43,169) Expenses Management fees reimbursed (Note 4) (34,998) Professional fees 96,300 Other expenses 30,402 Total operating expenses 91,704 Operating loss (134,873) Decrease in net assets from operations attributable to holders of redeemable investment shares (134,873) The accompanying notes are an integral part of these financial statements

6 STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE INVESTMENT SHARES (Expressed in Trinidad and Tobago dollars) Decrease in Total net assets from net assets operations attributable to attributable to redeemable redeemable investment investment shareholders Share shareholders (at redemption Capital (Note 7) value) (Note 7) Balance as at October 17, (commencement of operations) Issue of redeemable investment shares 65,110,399-65,110,399 Redemption of redeemable investment shares (574,113) - (574,113) Decrease in net assets from operations attributable to holders of redeemable investment shares - (134,873) (134,873) Balance as at December 31, ,536,286 (134,873) 64,401,413 The accompanying notes are an integral part of these financial statements

7 STATEMENT OF CASH FLOWS (Expressed in Trinidad and Tobago dollars) Cash flows from operating activities Interest received 53,684 Interest purchased (187,464) Operating expenses paid (2,980) Purchase of financial assets at fair value through profit or loss (34,564,078) Realized loss on foreign currencies (132,465) Net cash used in operating activities (34,833,303) Cash flows from financing activities Proceeds from subscriptions of redeemable investment shares 64,400,399 Payments for redemption of redeemable investment shares (574,113) Net cash provided by financing activities 63,826,286 Net change in cash and cash equivalents 28,992,983 Cash and cash equivalents at beginning of period - Cash and cash equivalents at end of period 28,992,983 The accompanying notes are an integral part of these financial statements

8 NOTES TO FINANCIAL STATEMENTS 1. Incorporation and Principal Activities Scotiabank Trinidad & Tobago Fixed Income Fund Inc. (the on September 20, 2012 and is licensed in Saint Lucia by the Financial Sector Supervision Unit, Ministry of Finance of Saint Lucia, as a public international mutual fund. On January 22, 2013, the Fund also registered under The Mutual Funds Law (revised) of the Cayman Islands. The Fund received its first subscription of TT$6,254 in each share class from the Manager (defined below) on December 31, 2012 and the Fund remained dormant until October 17, 2013 when the Fund is deemed to have commenced operations. The Fund is a Trinidad and Tobago Dollar-denominated open-ended investment Fund. The registered office of the Fund is located at 20 Micoud Street, Castries, Saint Lucia. No application has been made for the Fund to be listed on any stock exchange. primarily in fixed income securities, issued or guaranteed by the Trinidadian or foreign governments, or issued by Trinidadian or foreign corporations. Scotia Asset Management (St. Lucia) Inc. Scotiabank and Trust (Cayman) Ltd. is the Sub- - Scotia Investments Trinidad & Tobago Limited is the Portfolio Manager (the On January 9, 2013, the Manager appointed State Street Cayman Trust Company, Ltd. as sub-administrator, (the - 2. Summary of Significant Accounting Policies The principal accounting policies applied in the preparation of these financial statements are set out below. Basis of preparation: The financial statements of the Fund have been prepared in accordance with International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board. The financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities (including derivative financial instruments) at fair value through profit or loss. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires the Board of Directors to exercise its judgment in the process of applying the Fund accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 9. All references to net assets throughout this document refer to net assets attributable to holders of Redeemable Investment Shares unless otherwise stated. Net assets per share information as disclosed in the Statement of Financial Position for each class of investment shares as disclosed in Note 7 has been determined as total assets less total liabilities (excluding net assets attributable to holders of Redeemable Investment Shares) divided by the number of outstanding shares of each class of Redeemable Investment Shares

9 2. Summary of Significant Accounting Policies (continued) New standards and amendments to published standards and interpretations: (a) Standards and amendments to existing standards effective October 17, 2013: The standard improves consistency and reduces complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRS. If an asset or a liability measured at fair value has a bid price and an ask price, the standard requires valuation to be based on a price within the bid-ask spread that is most representative of fair value and allows the use of midmarket pricing or other pricing conventions that are used by market participants as a practical expedient for fair value measurement within a bid-ask spread. This valuation input is consistent with the inputs prescribed offering document for the calculation of its per share trading value for subscriptions and redemptions. The F use of last traded prices is recognized as a standard pricing convention within the industry. Amendme effective for annual periods beginning on or after January 1, 2013, require disclosures to enable users of financial statements to evaluate the effect or the potential effects of netting arrangements, including rights of set-off recognized financial assets and recognized financial position. The Fund did not hold any assets or liabilities subject to offsetting, enforceable master netting arrangements at December 31, is effective for annual periods beginning on or after January 1, 2013 and builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company. The standard provides additional guidance to assist in the determination of control where this is difficult to assess. The standard is not expected to have any impact on the Fund is effective for annual periods beginning on or after January 1, 2013, and includes the disclosure requirements for all forms of interest in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. The standard did not have any impact on the Fund There are no other standards, interpretations or amendments to existing standards that are effective from October 17, 2013 that would be expected to have a material impact on the Fund

10 2. Summary of Significant Accounting Policies (continued) New standards and amendments to published standards and interpretations (continued) (b) New standards, amendments and interpretations issued but not effective from October 17, 2013, and not early adopted specifies how an entity should classify and measure financial assets and liabilities, including some hybrid contracts. The standard improves and simplifies the approach for classification and measurement of financial assets compared with the requirements of IAS 39. Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged. The standard applies a consistent approach to classifying financial assets and replaces the numerous categories of financial assets in IAS 39, each of which had its own classification criteria. The standard is not expected to have a significant impact on the Fund expected that the Fund will continue to classify its financial assets and financial liabilities (both long and short) as being at fair value through profit or loss. Amendments to IFRS 10 and IFRS 12 for investment entities, effective for periods beginning on or after January 1, 2014, will result in many investment Fund s and similar entities being exempt from consolidating display particular characteristics. Changes have also been made to IFRS 12 to introduce disclosures that an investment entity needs to make. The new standard is not expected to have any impact on the Fund consolidation conclusions. beginning on or after January 1, These amendments clarify the offsetting criteria in IAS 32 and address inconsistencies in their application. This includes clarifying t enforceable right of set-o o net settlement. The amendment is not expected to performance. There were no other standards, interpretations or amendments to existing standards that are not yet effective that would be expected to have a significant impact on the Fund. Valuation of financial assets at fair value through profit or loss: The Fund nvestments are considered trading securities and consequently categorized as financial assets at fair value through profit or loss. Financial assets at fair value through profit or loss are initially recognized at fair value, which is considered the cost basis of the financial assets. The Fund records security transactions on a trade date basis, recognizing the cost or sales proceeds of financial assets sold or purchased on an average cost basis. Financial assets are valued on the valuation date at fair value, using data provided by one or more reputable third party pricing vendors which are in turn based upon (1) last traded price on the exchange upon which such financial assets are traded, (2) valuation models using observable market inputs, or (3) prices quoted by the principal market makers for non-exchange traded financial assets. Management evaluates the reliability of the pricing data received at each report date. All related realized gains and losses are recognized in the Statement of Comprehensive Income (Loss) as income as they occur

11 2. Summary of Significant Accounting Policies (continued) Functional and presentation currency: Items included in the Fund financial statements are measured using the currency of the primary economic environment in which it operate This is the Trinidad and Tobago Dollars TT$ Fund ty of investing in TT$ denominated investment grade securities issued or guaranteed by the Trinidadian or foreign government, or issued by Trinidadian or foreign corporations. The Fund has adopted the TT$ as its presentation currency. Accounting for investments and investment income: Security transactions are accounted for on a trade date basis. Realized gains and losses on sales of financial assets are calculated on an average cost basis. Redeemable investment shares and governance shares: Redeemable investment shares Investment ed as financial liabilities. Any distribution on such Redeemable Investment Shares is recognized in the Statement of Comprehensive Income (Loss) as finance costs. The Redeemable Investment Shares can be put back to the Fund by the holder at any dealing day for cash equal to a proportionate share of the respective Fund Redeemable Investment Shares are carried at the redemption amount that would be payable at the dealing day if the shareholder exercised its right to put the share back to the Fund. Governance shares Governance are not redeemable, and do not participate in the net income or dividends of the Fund as per the Fund Interest income: Interest income on financial assets is accrued on a daily basis. Interest income on financial assets includes interest and discount earned (net of premium), which is the difference between the face value and the original cost, including original issue discount, amortized using the effective yield method over the term of the financial assets. Interest is recognized in the Statement of Comprehensive Income (Loss) using the effective yield method and includes discount accreted and premium amortized over the remaining period to maturity of individual assets. Expenses: Expenses directly attributable to the Fund are recorded on an accrual basis. Translation of foreign currency amounts: Assets and liabilities denominated in currencies other than the TT$ ( foreign currencies ) are translated at the rates prevailing on the date of valuation and exchange differences are reflected in the Statement of Comprehensive Income (Loss) in the period in which they arise. Transactions in foreign currencies are translated at prevailing exchange rates at the date of the transaction. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on financial assets from the fluctuations arising from changes in market prices of financial assets held. Such fluctuations are included with the net realized gain or loss on financial assets at fair value through profit or loss. Cash and cash equivalents: For the purposes of the Statement of Cash Flows, cash and cash equivalents comprise cash, fixed term deposits with original maturity of less than 90 days, and short term bonds. Capital risk management: The capital of the Fund is represented by the net assets attributable to holders of Redeemable Investment Shares. The amount of net asset attributable to holders of Redeemable Investment Shares can change significantly on a daily basis as the Fund is subject to daily subscriptions and redemptions at the discretion of shareholders. The objective when managing capital is to safeguard the ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain a strong capital base to support the development of the investment activities of the Fund. In order to maintain or adjust the capital structure, the policy is to perform the following: Monitor the level of daily subscriptions and redemptions relative to the liquid assets and adjusts the amount of distributions the Fund pays to redeemable shareholders

12 2. Summary of Significant Accounting Policies (continued) Capital risk management (continued) Redeem and issue new shares in accordance with the constitutional documents of the Fund, which include the ability to restrict redemptions and require certain minimum holdings and subscriptions. The Board of Directors and the Portfolio Manager (defined in Note 1) monitor capital on the basis of the value of net assets attributable to Redeemable Investment Shares. 3. Financial Assets at Fair Value through Profit or Loss At December 31, 2013 the financial assets comprised the following debt securities: Amortized Cost 2013 Fair Value Structured Notes TT$ 18,274,661 TT$ 18,279,104 Government and Agency Bonds and Notes 5,256,521 5,269,020 Corporate Bonds and Notes 11,032,896 10,967,718 Interest receivable - 271,312 TT$ 34,564,078 TT$ 34,787,154 The following summarizes the investment portfolio segregated by country of issuer: Financial Assets at fair value Fair Value 2013 % of total portfolio Cayman Islands TT$ 2,911, % Chile 1,244, % Dominican Republic 1,278, % Trinidad & Tobago 26,546, % United Arab Emirates 742, % United States 2,062, % Total financial assets at fair value through profit or loss TT$ 34,787, % As at December 31, 2013 the portfolio consists of 11 positions, primarily located in Trinidad and Tobago. The three largest concentrations are in Urban Development Corporation (29%), Government of Trinidad and Tobago (25%), and Guardian Holdings Limited (14%). The contractual interest rates on bonds and notes range from 1.95% to 9.75% and maturity dates of the securities range from 2014 to The current year yields on bonds and notes range from 0.51% to 3.53%

13 4. Management Agreement Under the terms of the investment and fund management agreement dated November 5, 2013, the Fund appointed the Administrator with the power and authority to appoint a Manager to manage the affairs and investments of the Fund subject to the overall supervision and control of the Board of Directors of the Fund. The Manager has responsibility for the general administration of the Fund, but has delegated the performance of most tasks to third parties. s disclosed in the table below. All such fees are accrued daily and paid quarterly in arrears. Out of these fees, the Manager is required to pay the fees of the Sub- Manager, Portfolio Manager, Custodian, Sub-Administrator and any other person to whom functions are delegated by the Manager on a monthly basis. The Manager may choose to absorb other expenses incurred, paid or accrued by the Fund in their ordinary and usual course of business. Such expenses may include, but are not limited to, administration costs (including but not limited to the cost of printing and distributing periodic reports and statements), interest on borrowed funds, auditing expenses, legal expenses, custodians, sub-custodians and escrow agents and the annual registration fee payable in the Cayman Islands. Except for investment management, the Manager has subcontracted third party service providers to perform these services. As at December 31, 2013 of the total management fees reimbursed from the Manager of TT$34,998, TT$220,057 was paid to other service providers and the net amounts reimbursed by the Manager in the period was TT$255,055. Included in other expenses are management fees of TT$25,432. Of the total management fees that are recoverable at December 31, 2013 of TT$37,977, TT$220,057 is owing to other service providers and TT$258,035 was recoverable from the Manager. The Manager is entitled to a management fee from the classes of Redeemable Investment Shares as listed below: Class Management fee per annum AT Up to 1.50% NT Up to 1.95% No management fees are charged on Class IT shares. Instead, Class IT investors negotiate a separate fee that is paid directly to the Manager. The management fee is subject to a management expense ratio cap. A cap of 2.0% is applied to the fees associated with class AT and 2.45% is applied to Class NT shares. Effective December 6, 2013, a cap of 0.5% is applied to the fees associated with Class IT shares. Under the sub-distributorship agreement (see Note 5 below), the Manager is entitled to receive a sales commission in respect of the issue of shares, but is responsible for any fees and commissions payable by the Fund to distributors of shares and for promotional costs. The Manager is also entitled to retain any redemption fees charged on the Redemption of Investment Shares. 5. Distributorship Agreement and Trailing Commissions Under the terms of the sub-distributorship agreement dated December 18, 2012, Scotiabank & Trust (Cayman) Ltd. (the is responsible for the distribution of Redeemable Investment Shares of the Fund in accordance with the terms of the prospectus. The Distributor may appoint sub-distributors. The sub-distributors are entitled to all initial subscription charges levied against subscribers. The subscription charge is levied solely at the discretion of the - 11-

14 5. Distributorship Agreement and Trailing Commissions (continued) Sub-Manager at up to 5% of the total amount paid by the subscriber for shares. During the period from October 17, 2013 (commencement of operations) to December 31, 2013, $NIL subscription charges were levied and paid to the Distributor. Trailing commissions are paid to the sub-distributors at a rate of 0.5% for Class AT shares and 1.0% for Class NT shares. During the period from October 17, 2013 (commencement of operations) to December 31, 2013, $16,534 of trailing commissions were paid by the Manager to the sub-distributors. 6. Other Related Party Transactions At December 31, 2013, the Sub-Manager held 100 Governance Shares. being borne by the Manager. All fees payable to the Sub-Manager are At December 31, 2013, a related party fund, Scotiabank Trinidad & Tobago Growth Fund Inc. held 351,839 units of class IT shares valued at TT$3,501,855. The Manager of the Fund is also the manager of Scotiabank Trinidad & Tobago Growth Fund Inc. Scotia Investments Trinidad & the period ended December 31, 2013, the Portfolio Manager fees which were paid by the Manager amounted to TT$12,240 which have been included in other expenses. All fees payable to the Portfolio Manager are being borne by the Manager. 7. Share Capital Authorized: 100 Governance Shares of no par value 300,000,000 Redeemable Investment Shares of no par value Issued: Total units issued or redeemed during the year and the corresponding share capital can be summarized as follows: Governance Shares Units TT$ Beginning of period - TT$ - Shares issued during the period Shares redeemed during the period - - End of period 100 TT$ - Redeemable Investment Shares Class AT Beginning of period - TT$ - Shares issued during the period 3,578,892 35,597,890 Shares redeemed during the period (57,750) (574,113) End of period 3,521,142 TT$ 35,023,

15 7. Share Capital (continued) Class NT Units TT$ Beginning of period - TT$ - Shares issued during the period 625 6,254 Shares redeemed during the period - - End of period 625 TT$ 6,254 Class IT Beginning of period - TT$ - Shares issued during the period 2,952,464 29,506,255 Shares redeemed during the period - - End of period 2,952,464 TT$ 29,506,255 The Governance Shares are held exclusively by the Sub-Manager, who has full voting rights. Shares that are redeemed within 90 days of purchase may be subject to a redemption fee up to 2% of the redemption amount. TT$Nil redemption fees were levied during the period from October 17, 2013 (commencement of operations) to December 31, Each of the classes of Redeemable Investment Shares are issued and redeemable daily at a price equal to the net asset value per share on the valuation day on which the notification is received, as long as it is received before the Fund close of business. The net asset value per share for any valuation date is determined by dividing the value of the assets of the respective share class less its liabilities at the close of business on such valuation day by the number of Redeemable Investment Shares outstanding in the share class on that date. The Redeemable Investment Shares confer no voting rights and no entitlement to receive notice of, or attend at, general meetings of the Fund. The Redeemable Investment Shares carry the right to participate in dividends and all other distributions of the Fund. The Fund Investment Shares. In accordance with the objectives outlined in Note 1 and the risk management policies in Note 8, the Fund endeavours to invest the subscriptions received from redeemable investment shareholders into appropriate investments while maintaining sufficient liquidity to meet redemptions, being augmented by disposal of fixed income securities where necessary. 8. Financial Risk Management The Fund markets in which it invests. various types of risk which are associated with the financial assets and Price risk: All financial assets present a risk of loss of capital. The Portfolio Manager moderates this risk through a careful selection of the financial assets. Maximum risk resulting from financial assets is determined by the fair value of the financial assets. The Fund the Portfolio Manager. As the Fund rities none of its holdings are susceptible to any significant market fluctuations other than those described in interest rate risk and credit risk below

16 8. Financial Risk Management (continued) Currency risk: When the Fund buys or holds an investment that is denominated in a currency other than Trinidad & Tobago dollars, changes in the exchange rate between that foreign currency and the Trinidad & Tobago dollar will affect the value of the Fund. Changes in exchange rates between currencies or the conversion from one currency to another may cause the value of the financial assets to diminish or increase. Currency exchange rates may fluctuate over short periods of time and are generally determined by supply and demand in the currency exchange markets and the relative merits of investments in different countries, actual or perceived changes in interest rates and other complex factors. Currency exchange rates can be affected unpredictably by intervention (or the failure to intervene) by government or central banks, or by currency controls or political developments. currency risk. Portfolio Manager monitors the financial assets and liabilities exposure to Interest rate risk: Funds that invest in fixed income securities, such as bonds, money market instruments and mortgages, are affected by changes in the general level of interest rates. In general, when interest rates rise, the value of these investments tends to fall. When rates fall, fixed income securities tend to increase in value. Fixed income securities with longer terms to maturity are generally more sensitive to changes in interest rates. The Fund -bearing financial assets expose it to risks associated with the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. The table below summarizes the Fund Fund financial assets and liabilities, categorized by the earlier of contractual re-pricing or maturity dates: At December 31, 2013 Non-interest Up to 1 year 1-5 years Over 5 years bearing Total Assets Cash and cash equivalents ,992,983 28,992,983 Financial assets at fair value through profit or loss 4,735,215 8,332,459 21,448, ,312 34,787,154 Other assets , ,977 Total Assets 4,735,215 8,332,459 21,448,168 30,012,272 64,528,114 Non-interest Up to 1 year 1-5 years Over 5 years bearing Total Liabilities Other liabilities , ,701 Redeemable investment shares ,401,413 64,401,413 Total Liabilities (including ,528,114 64,528,114 redeemable investment shares) Interest sensitivity gap 4,735,215 8,332,459 21,448,

17 8. Financial Risk Management (continued) Interest rate risk (continued): At December 31, 2013, should interest rates have lowered by 25 basis points with all other variables remaining constant and ignoring the effects of any management fees, the change in the decrease in net assets attributable to holders of Redeemable Investment Shares for the period would amount to approximately TT$306,601 higher arising substantially from the increase in market values of debt securities. If interest rates had risen by 25 basis points with all other variables remaining constant and ignoring the effects of any management fees, the change in the decrease in net assets attributable to holders of Redeemable Investment Shares would amount to approximately TT$301,197 lower arising substantially from the decrease in market values of debt securities. Credit risk: Financial assets which potentially expose the Fund to credit risk consist primarily of cash and cash equivalents and investments in debt securities. Investment in debt securities exposes the Fund to the risk that an Position. Transactions of financial assets undertaken by the Fund are cleared through and held in custody by a reputable Custodian. The Fund Custodian broker. The clearing and depository operations for the Fund e mainly concentrated with one Custodian, namely State Street Bank and Trust Company. The Custodian is a member of a major securities exchange and at December 31, 2013 had a credit rating from S&P of AA-. The Fund is subject to credit risk and possible losses should the Custodian be unable to fulfil its obligations to the Fund. At December 31, 2013, substantially all cash and cash equivalents balances and financial assets at fair value through profit or loss are either held with or placed in custody with the Custodian. The F a well-known rating agency. The ratings are as follows: S&P Rating 2013 A 15.27% A- 2.12% BBB 16.05% BBB- 4.02% BB 5.93% BB- 3.66% N/A (Not rated)* 52.95% Total % *Securities not rated have a total value of TT$18,279,104. Of this, TT$13,543,889 is backed and secured by the Government of Trinidad & Tobago. Concentration risk: This is the risk associated with funds that concentrate their investments in a particular issuer, issuers, sector, or in a single country or geographic region. This allows the Fund to focus on the potential of that particular sector, country or region, or of a relatively few number of securities. However, funds that concentrate their investments tend to have greater fluctuations in price than funds with broader diversification. Funds that invest in fewer securities, sectors, countries or regions have greater concentration risk

18 8. Financial Risk Management (continued) The Fund invests in financial assets and financial liabilities, the majority of which have an investment grade as rated by a well-known rating agency or are guaranteed by the government of Trinidad & Tobago whom has been rated A by S&P as at December 31, Liquidity risk: Liquidity risk is the risk that an enterprise will encounter difficulty in raising funds to meet commitments associated with financial instruments. Liquidity risk may result from an inability to sell a financial instrument quickly close to its fair value. All liabilities are due on demand or within one year. The Fund is exposed to daily cash redemptions of Redeemable Investment Shares. It therefore aims to invest predominantly in financial assets that can be readily disposed of. Under certain circumstances the Directors of the Fund have the ability to suspend the determination of the net assets attributable to holders of Redeemable Investment Shares if it is considered in the best interest of the shareholder group as a whole. During the suspension of the net assets attributable to holders of Redeemable Investment Shares, the subscription and redemption of shares would also be suspended. Fair values: At December 31, 2013, investments are carried at fair value and the carrying amounts of all other assets and liabilities on the Statement of Financial Position approximated their fair values. 9. Fair Value Disclosure IFRS 7 requires the Fund to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels: Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1). Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2). Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3). Transfers between levels of the fair value hierarchy are deemed to have occurred at the beginning of the reporting period. The level in the fair value hierarchy within which the fair value measurement is categorized in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgment, considering factors specific to the asset or liability

19 9. Fair Value Disclosure (continued) he Portfolio Manager. The Portfolio Manager considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. The following table analyses within the fair value hierarchy the Fund value: t fair At December 31, 2013 Total Level 1 Level 2 Level 3 Balance Financial assets at fair value through profit and loss Structured Notes TT$ - TT$ 18,279,104 TT$ - TT$ 18,279,104 Government and Agency Bonds and Notes - 5,269,020-5,269,020 Corporate Bonds and Notes - 10,967,718-10,967,718 Interest Receivable - 271, ,312 Total financial assets at fair value through profit and loss TT$ - TT$ 34,787,154 TT$ - TT$ 34,787,154 In relation to the above table, further details of the country classifications were disclosed in Note 3. whose values are based on quoted market prices in active markets, and therefore classified within Level 1, would include active listed equities and most exchange traded derivatives. The Fund does not adjust the quoted price for these investments. Investments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs would be classified within Level 2. These include commercial paper, U.S. treasury bills, most investment-grade corporate bonds, investments in other funds where redemption is not restricted, certain non-u.s. sovereign obligations, structured notes, thinly traded listed equities and some over-the-counter derivatives. As Level 2 investments include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or nontransferability, which are generally based on available market information. Investments classified within Level 3 have significant unobservable inputs, as they trade infrequently or not at all. Level 3 financial instruments would include private equity, certain restricted investments in other funds, and certain corporate debt securities. As observable prices are not available for these investments, if any such investments were held, the Fund would use valuation techniques to derive the fair value. The Fund does not hold any investments classified within Level 1 and Level 3 as of December 31, There were no transfers between Levels during the period ended December 31,

20 9. Fair Value Disclosure (continued) Assets and liabilities not carried at fair value but for which fair value is disclosed The following tables analyze within the fair value hierarchy the Fund at fair value as at December 31, 2013, but for which fair value is disclosed. As at December 31, 2013 Assets Level 1 Level 2 Level 3 Total balance Cash and cash equivalents TT$ - TT$ 28,992,983 TT$ - TT$ 28,992,983 Management fees prepaid and rebate receivable - 37,977-37,977 Subscriptions receivable - 710, ,000 Total TT$ - TT$ 29,740,960 TT$ - TT$ 29,740,960 Liabilities Other payables TT$ - TT$ 126,701 TT$ - TT$ 126,701 Net assets attributable to holders of redeemable shares - 64,401,413-64,401,413 Total TT$ - TT$ 64,528,114 TT$ - TT$ 64,528,114 The assets and liabilities included in the above tables are carried at amortized cost; their carrying values are a reasonable approximation of fair value. Cash and cash equivalents include cash on hand, deposits held with banks and other short-term investments. Other receivables and payables represent the contractual amount and obligations due to and from the Fund. The puttable value of redeemable shares is calculated based on the net difference between total assets and all other liabilities of the Fund in accordance with the Fund prospectus. These shares are not traded on an active market. A demand feature is attached to these shares, as they are redeemable at Fund at any dealing date for cash equal to a proportionate share of the redeemable investment shares (Note 2). The fair value is based on the amount payable on demand, discounted from the first date that the amount could be required to be paid. The impact of discounting in this instance is not material. As such, Level 2 is deemed to be the most appropriate categorization for net assets attributable to holders of redeemable shares. 10. Taxation The Fund is liable to income tax in Saint Lucia on their taxable income at the rate of 1%. In addition, the Fund may incur withholding tax on income and proceeds of some of its investments, which may not be recoverable. The Fund is not obliged to withhold tax on dividends to Shareholders, or from amounts paid to Shareholders on the redemption of Investment Shares. Subscriptions and redemptions of shares are not subject to any duty or tax in Saint Lucia. 11. Subsequent Events From January 1, 2014 to February 26, 2014 the Fund received subscriptions of TT$36,871,995 and redemptions of TT$2,515,