RP Strategic Income Plus Fund

Transcription

1 Financial Statements June 30, 2018 (unaudited) The Fund's auditor has not performed a review of the interim financial statements that are included in this report

2 Table of Contents Title Page Statement of Financial Position 1 Statement of Comprehensive Income 2 Statement of Changes in Net Assets Attributable to Holders of Redeemable Units 3 Statement of Cash Flows 4 Schedule of Investment Portfolio

3 Statement of Financial Position and December 31, $ $ Assets Current assets Investments at fair value 1,200,923, ,027,908 Receivable for investments sold 67,096,399 31,326,778 Cash 48,726, ,549,752 Interest receivable 11,445,219 7,545,341 Derivative assets 7,586,242 3,245,721 Subscriptions receivable 779, ,763 Operating fees rebate receivable (Note 8) 323, ,722 Total assets 1,336,881,769 1,128,342,985 Liabilities Current liabilities Payable for investments purchased 106,258,201 47,789,667 Investments sold short at fair value 19,165,229 32,947,033 Derivative liabilities 3,735, ,169 Interest payable 933, ,583 Management fees payable (Note 8) 533, ,613 Redemptions payable 499, ,272 Operating fees payable (Note 8) 259, ,329 Total liabilities 131,385,185 82,131,666 Net assets attributable to holders of redeemable units 1,205,496,584 1,046,211,319 Net assets attributable to holders of redeemable units per class Class A 74,878,335 66,327,155 Class F 546,314, ,904,109 Class M 675,028 - Class O 569,355, ,980,055 Class A-USD 1,748,842 - Class F-USD 12,524,178-1,205,496,584 1,046,211,319 Net assets attributable to holders of redeemable units per unit Class A Class F Class M Class O Class A-USD USD Class F-USD USD Approved by the Trustee, RP Investment Advisors LP Chief Executive Officer RP Investment Advisors LP, By its general partner, RP Investment Advisors GP Inc. The accompanying notes are an integral part of these financial statements 1

4 Statement of Comprehensive Income For the period ended June $ $ Income Interest income for distribution purposes 33,022,193 22,005,972 Dividend income - 16,615 Changes in fair value of investments, derivatives and cash Net realized gains (losses) (44,994,414) 17,264,632 Net change in unrealized gains (losses) 14,899,442 (1,073,558) Total income 2,927,221 38,213,661 Expenses Interest on securities sold short and loan fees 9,284,651 7,370,478 Management fees (Note 8) 3,106,956 1,209,597 Operating fees (Note 8) 1,459,459 1,005,821 Tax expenses (Note 8) 157, ,596 Fund expenses (Note 8) 45,362 95,451 Total expenses 14,053,876 9,820,943 Operating fees rebate (Note 8) (323,615) - Net expenses 13,730,261 9,820,943 Increase (decrease) in net assets attributable to holders of redeemable units (10,803,040) 28,392,718 Increase (decrease) in net assets attributable to holders of redeemable units per class Class A (972,299) 838,841 Class F (6,325,420) 5,929,441 Class M (7,253) - Class O (3,725,567) 21,624,436 Class A-USD 30,048 - Class F-USD 197,451 - (10,803,040) 28,392,718 Increase (decrease) in net assets attributable to holders of redeemable units per unit Class A (0.13) 0.33 Class F (0.13) 0.34 Class M (0.10) - Class O (0.06) 0.39 Class A-USD Class F-USD The accompanying notes are an integral part of these financial statements 2

5 Statement of Changes in Net Assets Attributable to Holders of Redeemable Units For the period ended June Class A Class F Class M Class O Class A-USD Class F-USD Total $ $ $ $ $ $ $ Net assets attributable to holders of redeemable units at beginning of period 66,327, ,904, ,980, ,046,211,319 Increase (decrease) in net assets attributable to holders of redeemable units (972,299) (6,325,420) (7,253) (3,725,567) 30, ,451 (10,803,040) Distribution to holders of redeemable units from net investment income (1,045,575) (8,142,103) (10,743) (10,829,783) (14,330) (110,915) (20,153,449) Redeemable unit transactions Proceeds from redeemable units issued 23,300, ,379,707-37,374,703 1,821,405 13,351, ,228,050 Reinvestments of distribution to holders of redeemable units 876,944 5,785,639 10,609 10,829,783 1,186 96,374 17,600,535 Switch In (Out) (3,788,326) 2,601,770 1,186, Redemption of redeemable units (9,820,378) (65,889,153) (504,141) (1,273,539) (89,467) (1,010,153) (78,586,831) 10,569, ,877, ,024 46,930,947 1,733,124 12,437, ,241,754 Net increase (decrease) in net assets attributable to holders of redeemable units 8,551, ,410, ,028 32,375,597 1,748,842 12,524, ,285,265 Net assets attributable to holders of redeemable units at end of period 74,878, ,314, , ,355,652 1,748,842 12,524,178 1,205,496, Class A Class F Class M Class O Class A-USD Class F-USD Total $ $ $ $ $ $ $ Net assets attributable to holders of redeemable units at beginning of period 16,072, ,483, ,023, ,579,643 Increase (decrease) in net assets attributable to holders of redeemable units 838,841 5,929,441-21,624, ,392,718 Distribution to holders of redeemable units from net investment income (344,096) (2,546,401) - (10,851,319) - - (13,741,816) Redeemable unit transactions Proceeds from redeemable units issued 33,700, ,538,104-40,449, ,688,023 Reinvestments of distribution to holders of redeemable units 291,836 1,820,827-10,851, ,963,982 Switch In (Out) (2,363,972) 2,788,449 - (424,477) Redemption of redeemable units (1,805,982) (12,308,991) - (3,693,409) - - (17,808,382) 29,822, ,838,389-47,182, ,843,623 Net increase (decrease) in net assets attributable to holders of redeemable units 30,317, ,221,429-57,956, ,494,525 Net assets attributable to holders of redeemable units at end of period 46,389, ,704, ,979, ,074,168 The accompanying notes are an integral part of these financial statements 3

6 Statement of Cash Flows For the period ended June $ $ Cash flows from operating activities Increase (decrease) in net assets attributable to holders of redeemable units (10,803,040) 28,392,718 Adjustment for: Net realized (gains) losses on investments 9,176,960 (16,014,703) Net change in unrealized (gains) losses on investments (11,401,679) 16,524,967 Purchases of investments (9,764,381,605) (7,647,101,167) Purchases to cover short positions (1,753,371,150) (1,445,198,285) Proceeds from sale of investments 9,477,003,213 7,386,539,968 Proceeds from investments sold short 1,739,296,511 1,485,046,277 (Increase) decrease in derivative assets (4,340,521) (12,840,290) (Increase) decrease in interest receivable (3,899,878) (3,094,310) (Increase) decrease in receivable for investments sold (35,769,621) (263,695,208) (Increase) decrease in operating fees rebate receivable (40,893) - (Increase) decrease in prepaid fund expenses - (17,650) Increase (decrease) in payable for investments purchased 58,468, ,458,620 Increase (decrease) in interest payable 518,103 3,995,340 Increase (decrease) in derivative liabilities 3,606,455 (2,647,225) Increase (decrease) in other liabilities 96, ,310 Net cash provided by (used in) operating activities (295,842,529) (192,426,638) Cash flows used in financing activities Proceeds from redeemable units issued 250,813, ,844,734 Amounts paid on redemption of redeemable units (78,240,682) (17,590,550) Distribution paid to holders of redeemable units, net of reinvested distributions (2,552,914) (318,219) Net cash provided by (used in) used in financing activities 170,019, ,935,965 Increase (decrease) in cash during the period (125,822,780) 50,509,327 Cash - Beginning of period 174,549,752 62,208,390 Cash - End of period 48,726, ,717,717 Interest received 29,122,315 18,911,662 Interest paid 8,766,548 3,375,138 Dividend received - 16,615 The accompanying notes are an integral part of these financial statements 4

7 Schedule of Investment Portfolio Number of Shares/par value Security Description Local Currency Average Cost (Proceeds) ($) Fair Value ($) % Long-term Debt Securities 2,500,000 AIR CANADA 4.75% 10/06/2023 CAD 2,550,800 2,589, % 5,500,000 AIRCASTLE LTD 4.125% 05/01/2024 USD 6,917,849 6,941, % 3,200,000 AIRCASTLE LTD 5.125% 03/15/2021 USD 4,234,293 4,291, % 7,250,000 AIRCASTLE LTD 5.5% 02/15/2022 USD 9,790,991 9,810, % 7,500,000 ANHEUSER-BUSCH INBEV FIN 2.6% 05/15/2024 CAD 7,175,525 7,238, % 2,750,000 AT SECURITIES BV 5.25% 12/31/2049 USD 3,511,219 3,319, % 1,519,000 AT&T INC 2.85% 05/25/2024 CAD 1,469,392 1,464, % 15,000,000 AT&T INC 4.1% 02/15/2028 USD 19,076,492 18,877, % 3,000,000 ATHABASCA OIL CORP 9.875% 02/24/2022 USD 4,130,091 4,085, % 18,746,000 ATHENE HOLDING LTD 4.125% 01/12/2028 USD 22,712,979 22,707, % 25,750,000 BACARDI LTD 5.15% 05/15/2038 USD 32,183,321 32,328, % 1,000,000 BANCO BILBAO VIZCAYA ARG 7% 12/31/2049 EUR 1,621,776 1,573, % 3,000,000 BANCO SANTANDER SA 6.25% 12/31/2049 EUR 4,779,855 4,690, % 13,612,000 BANK OF NOVA SCOTIA 4.5% 12/16/2025 USD 17,466,669 17,848, % 2,500,000 BANKUNITED INC 4.875% 11/17/2025 USD 3,382,209 3,349, % 11,440,000 BECTON DICKINSON AND CO 3.7% 06/06/2027 USD 14,171,741 14,273, % 3,419,000 BGC PARTNERS INC 5.125% 05/27/2021 USD 4,520,486 4,636, % 985,000 BGC PARTNERS INC 5.375% 12/09/2019 USD 1,328,132 1,322, % 15,432,000 BP CAPITAL MARKETS PLC 3.47% 05/15/2025 CAD 15,435,508 15,550, % 15,978,000 BRIGHTHOUSE FINANCIAL IN 3.7% 06/22/2027 USD 18,914,660 18,722, % 13,404,000 BROOKFIELD INFRA FIN ULC 3.315% 02/22/2024 CAD 13,322,710 13,274, % 4,560,000 BROOKFIELD PPTY FIN ULC 4.346% 07/03/2023 CAD 4,560,000 4,560, % 99,587,000 CANADIAN GOVERNMENT 1.75% 03/01/2023 CAD 98,584,566 98,204, % 1,501,000 CANADIAN GOVERNMENT 2.5% 06/01/2024 CAD 1,534,622 1,532, % 14,518,000 CANADIAN GOVERNMENT 2.75% 12/01/2048 CAD 16,269,307 16,272, % 4,450,000 CANTOR FITZGERALD LP 7.875% 10/15/2019 USD 6,358,569 6,136, % 17,000,000 CENOVUS ENERGY INC 4.25% 04/15/2027 USD 21,175,518 21,525, % 7,000,000 CENOVUS ENERGY INC 5.25% 06/15/2037 USD 8,893,019 9,029, % 1,830,000 CHOICE PROPERTIES REIT 3.546% 01/10/2025 CAD 1,835,873 1,817, % 15,600,000 CHOICE PROPERTIES REIT 3.556% 09/09/2024 CAD 15,600,000 15,556, % 6,000,000 CIT GROUP INC 6.125% 03/09/2028 USD 7,999,809 8,150, % 25,000,000 CITIGROUP INC 4.075% 04/23/2029 USD 31,943,780 32,221, % 4,000,000 CNX RESOURCES CORP 5.875% 04/15/2022 USD 5,085,552 5,286, % 2,652,000 CNX RESOURCES CORP 8% 04/01/2023 USD 3,518,973 3,711, % 13,658,000 COOPERATIEVE RABOBANK UA 4.625% 12/01/2023 USD 17,995,262 18,085, % 5,060,000 CREDIT SUISSE GROUP AG 6.25% 12/31/2049 USD 6,667,528 6,520, % 26,185,000 CVS HEALTH CORP 4.3% 03/25/2028 USD 33,954,444 33,959, % 11,550,000 CVS HEALTH CORP 5.05% 03/25/2048 USD 15,430,807 15,447, % 34,032,000 DEUTSCHE BANK AG 4.296% 05/24/2028 USD 41,225,354 40,376, % 12,473,000 DEUTSCHE BANK NY 4.875% 12/01/2032 USD 14,935,716 14,039, % 9,000,000 E*TRADE FINANCIAL CORP 5.3% 12/31/2049 USD 11,283,779 11,559, % 20,348,000 ENBRIDGE INC 6.25% 03/01/2078 USD 25,320,853 25,416, % 7,051,000 ENBRIDGE INC 6.625% 04/12/2078 CAD 7,171,577 7,264, % 9,000,000 ENMAX CORP 3.836% 06/05/2028 CAD 9,030,680 9,131, % 895,000 EQUIFAX INC 6.9% 07/01/2028 USD 1,332,945 1,391, % 5,865,000 FAIRFAX FINL HLDGS LTD 4.25% 12/06/2027 CAD 5,871,833 5,789, % 12,500,000 FAIRFAX FINL HLDGS LTD 4.5% 03/22/2023 CAD 12,985,650 13,073, % 7,000,000 GOLDMAN SACHS GROUP INC 4.223% 05/01/2029 USD 8,927,221 9,048, % 25,000,000 GOLDMAN SACHS GROUP INC 4.411% 04/23/2039 USD 31,351,453 31,471, % 14,890,000 H&R REAL ESTATE INVESTME 3.416% 01/23/2023 CAD 14,885,373 14,838, % 15,250,000 HSBC HOLDINGS PLC 6.25% 12/31/2049 USD 19,809,618 19,690, % 15,578,000 HSBC HOLDINGS PLC 6.8% 06/01/2038 USD 25,306,281 24,767, % 840,000 HUNTINGTON BANCSHARES 5.7% 12/31/2049 USD 1,093,719 1,092, % 5,564,000 HUSKY ENERGY INC 3.6% 03/10/2027 CAD 5,457,119 5,510, % 3,887,000 INTER PIPELINE LTD 2.608% 09/13/2023 CAD 3,757,132 3,759, % 7,000,000 JPMORGAN CHASE & CO 3.897% 01/23/2049 USD 8,216,217 8,216, % 10,000,000 JPMORGAN CHASE & CO 4.005% 04/23/2029 USD 13,102,264 12,971, % 12,975,000 KINROSS GOLD CORP 5.95% 03/15/2024 USD 17,698,642 17,541, % 19,307,000 LLOYDS BANKING GROUP PLC 4.5% 11/04/2024 USD 24,791,129 25,122, % 5,000,000 MEG ENERGY CORP 6.5% 01/15/2025 USD 6,603,474 6,564, % 3,000,000 MICRON TECHNOLOGY INC 5.5% 02/01/2025 USD 4,046,193 4,105, % 4,350,000 MOLSON COORS INTL LP 2.84% 07/15/2023 CAD 4,351,315 4,221, % 7,228,000 MOLSON COORS INTL LP 3.44% 07/15/2026 CAD 7,276,497 6,956, % The accompanying notes are an integral part of these financial statements 5

8 Schedule of Investment Portfolio Number of Shares/par value Security Description Local Currency Average Cost (Proceeds) ($) Fair Value ($) % 6,000,000 NGPL PIPECO LLC 7.768% 12/15/2037 USD 9,174,153 9,371, % 16,027,000 NXP BV/NXP FUNDING LLC 3.875% 09/01/2022 USD 20,774,332 20,784, % 2,003,000 NXP BV/NXP FUNDING LLC 4.125% 06/15/2020 USD 2,702,731 2,662, % 10,750,000 NXP BV/NXP FUNDING LLC 4.625% 06/01/2023 USD 14,209,973 14,417, % 9,059,000 NXP BV/NXP FUNDING LLC 4.625% 06/15/2022 USD 12,284,065 12,107, % 3,575,000 PEMBINA PIPELINE CORP 3.54% 02/03/2025 CAD 3,531,875 3,583, % 3,550,000 PEMBINA PIPELINE CORP 4.74% 01/21/2047 CAD 3,560,721 3,605, % 10,705,000 PERRIGO FINANCE UNLIMITD 3.9% 12/15/2024 USD 14,023,226 13,709, % 15,140,000 PERRIGO FINANCE UNLIMITD 4.9% 12/15/2044 USD 19,116,719 18,805, % 1,875,000 PROGRESSIVE CORP 5.375% 12/31/2049 USD 2,460,191 2,452, % 13,115,000 ROYAL BK SCOTLND GRP PLC 3.875% 09/12/2023 USD 16,511,849 16,778, % 10,803,000 ROYAL BK SCOTLND GRP PLC 6.1% 06/10/2023 USD 15,049,925 14,975, % 7,297,000 ROYAL BK SCOTLND GRP PLC 7.5% 12/31/2049 USD 9,768,019 9,803, % 35,000,000 SANTANDER UK PLC 5% 11/07/2023 USD 48,938,443 46,858, % 20,759,000 SEAGATE HDD CAYMAN 4.875% 03/01/2024 USD 27,479,968 26,619, % 2,500,000 SOCIETE GENERALE 5.625% 11/24/2045 USD 3,412,770 3,444, % 2,500,000 SPRINT SPECTRUM / SPEC I 4.738% 03/20/2025 USD 3,267,079 3,267, % 10,305,000 SUNCOR ENERGY INC 3% 09/14/2026 CAD 9,846,529 10,083, % 10,055,000 SUNCOR ENERGY VENTURES 4.5% 04/01/2022 USD 13,160,165 13,433, % 11,750,000 SYNOVUS FINANCIAL CORP 5.75% 12/15/2025 USD 15,924,603 15,969, % 4,800,000 TC PIPELINES LP 3.9% 05/25/2027 USD 5,871,306 5,977, % 7,000,000 TERRAFORM POWER OPERATIN 6.625% 06/15/2025 USD 9,685,798 9,839, % 7,235,000 TOROMONT INDUSTRIES LTD 3.842% 10/27/2027 CAD 7,374,747 7,336, % 4,190,000 UBS GROUP FUNDING SWITZE 7.125% 12/31/2049 USD 5,621,193 5,666, % 1,308,000 US TREASURY N/B 2.75% 05/31/2023 USD 1,721,251 1,720, % 5,600,000 VOLKSWAGEN INTL FIN NV 3.375% 12/31/2049 EUR 8,639,163 8,475, % 4,800,000 VOLKSWAGEN INTL FIN NV 4.625% 12/31/2049 EUR 7,415,052 7,340, % 32,441,000 WARNER MEDIA LLC 3.6% 07/15/2025 USD 40,434,925 40,715, % 4,000,000 WYNDHAM DESTINATIONS INC 3.9% 03/01/2023 USD 4,854,476 4,933, % 5,505,000 WYNDHAM DESTINATIONS INC 4.15% 04/01/2024 USD 6,857,717 7,102, % 1,195,609,325 1,192,677, % Short-term Debt Securities 8,250,000 PROVINCE OF SASKTCHEWAN PN 07/11/2018 CAD 8,241,488 8,246, % 8,241,488 8,246, % Total long investment as at June 30, ,203,850,813 1,200,923, % Debt Securities (1,210,000) BUNDESREPUB. DEUTSCHLAND 0.5% 02/15/2028 EUR (1,888,197) (1,892,746) -0.16% (1,667,000) BUNDESREPUB. DEUTSCHLAND 1.5% 05/15/2024 EUR (2,816,615) (2,811,106) -0.23% (10,986,000) US TREASURY N/B 2.875% 05/15/2028 USD (14,480,763) (14,461,377) -1.20% (19,185,575) (19,165,229) -1.59% Total investments sold short as of June 30, 2018 (19,185,575) (19,165,229) -1.59% Total investment at June 30, ,181,758, % Cash 48,726, % Unrealized gain (loss) on foreign currency forward contracts 7,364, % Unrealized gain (loss) on futures contracts (1,021,367) -0.08% Credit default swap contracts (2,492,926) -0.21% Other assets less liabilities (28,839,631) -2.39% NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE UNITS 1,205,496, % The accompanying notes are an integral part of these financial statements 6

9 Schedule of Investment Portfolio Foreign Currency Forward Contracts Schedule Credit Settlement Contract Market Unrealized Counterparty Rating* Date Par Value Par Value Rate Rate Gain (Loss) ($) THE BANK OF NOVA SCOTIA A+ 07/03/2018 BUY CAD 1,603,747 SELL EUR 1,047, (3,358) THE BANK OF NOVA SCOTIA A+ 07/06/2018 BUY CAD 1,541,979 SELL EUR 1,018, (21,123) THE BANK OF NOVA SCOTIA A+ 07/06/2018 BUY CAD 1,615,093 SELL EUR 1,049, ,391 THE BANK OF NOVA SCOTIA A+ 07/06/2018 BUY CAD 16,107,000 SELL EUR 10,412, ,744 THE BANK OF NOVA SCOTIA A+ 07/10/2018 BUY CAD 417,487 SELL EUR 272, (260) THE BANK OF NOVA SCOTIA A+ 07/10/2018 BUY CAD 370,256 SELL EUR 241, BANK OF MONTREAL A+ 07/06/2018 BUY CAD 165,789,125 SELL USD 125,000, ,479,125 CANADIAN IMPERIA BANK OF COMMERCE THE BANK OF NOVA SCOTIA THE BANK OF NOVA SCOTIA THE BANK OF NOVA SCOTIA CANADIAN IMPERIA BANK OF COMMERCE BANK OF MONTREAL A+ 07/11/2018 BUY CAD 12,490,472 SELL USD 9,425, ,780 A+ 07/11/2018 BUY CAD 165,796,125 SELL USD 125,000, ,503,126 A+ 07/17/2018 BUY CAD 317,872,358 SELL USD 240,570, ,713,827 A+ 07/23/2018 BUY CAD 36,780,490 SELL USD 27,675, ,659 A+ 07/26/2018 BUY CAD 103,146,724 SELL USD 77,645, ,121,273 A+ 07/30/2018 BUY CAD 90,408,675 SELL USD 68,100, ,608 7,364,911 Futures Contracts Schedule Maturity Number of Notional Carrying Unrealized Description Date Contracts Cost ($) Value ($) Gain (Loss) ($) US 10YR ULTRA FUT SEP18 Sep-18 (1,243) (158,367,935) (159,317,672) (949,737) US 5YR NOTE (CBT) SEP18 Sep-18 (2,539) (379,346,500) (379,149,910) 196,590 US ULTRA BOND CBT SEP18 Sep-18 (145) (30,105,417) (30,373,637) (268,220) (1,021,367) Credit Default Swaps Contracts Counterparty GOLDMAN SACHS GROUP INC Buy/Sell Protection Termination Date Quarterly Rate Received (Paid) by the Fund (%) Local Currency Notional Amount Unrealized Gain (Loss) ($) Upfront Payment Made (Received) ($) Fair Value ($) Reference Obligation ROYAL BANK OF SCOTLAND GROUP PLC SELL 06/20/ EUR (49,123,968) (117,557) (2,375,370) (2,492,926) (117,557) (2,375,370) (2,492,926) * As rated by Standard & Poor's. The accompanying notes are an integral part of these financial statements 7

10 1 General information RP Strategic Income Plus Fund (the Fund ) is an open-ended mutual fund trust governed under the laws of Ontario. The Fund was formed on February 26, The address of the Fund s registered office is 39 Hazelton Avenue, Toronto, Ontario. The primary objective of the Fund is to produce stable risk-adjusted absolute returns. The Fund intends to achieve its investment objective by investing predominantly in investment-grade corporate debt and debt-like securities. This can include government securities and agency debt, and high quality asset backed securities, with a focus on capital preservation. The Fund s investment activities are managed by RP Investment Advisors LP (the Investment Manager ), which is located at 39 Hazelton Avenue, Toronto, Ontario, with the administration delegated to Apex Group (Bermuda) Limited (the Administrator ). The Investment Manager will earn management fees from the Fund. These financial statements were authorized for issue by the Trustee on August 27, Summary of significant accounting policies These financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ). Basis of presentation The financial statements have been prepared under the historical cost basis, except for the revaluation of financial assets and financial liabilities (including derivative financial instruments) at fair value through profit or loss. IAS 7 requires disclosures related to changes in liabilities arising from financing activities for annual periods beginning on or after January 1, Units issued by the Fund are classified as financial liabilities in accordance with IAS 32, as they do not meet the definition of puttable instruments to be classified as equity in accordance with IAS 32 for financial reporting purposes. A reconciliation between the opening and closing balances of the Units of the Fund is presented in the Statement of Changes in Net Assets Attributable to Holders of Redeemable Units for the period ended June 30, 2018, including changes from cash flows and non-cash changes. The principal accounting policies applied in the preparation of these financial statements are set out below. a) Foreign currency Functional and presentation currency Items included in the financial statements of the Fund are measured in the currency of the primary economic environment in which the Fund operates (the functional currency ). The financial statements of the Fund are presented in Canadian dollars, which is the Fund s functional and presentation currency. 8

11 Foreign currency translation Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the dates of such transactions. Foreign currency assets and liabilities are translated into the functional currency using the exchange rate prevailing at the Statement of Financial Position date. Foreign currency exchange gains and losses arising from translation are included in the Statement of Comprehensive Income. Foreign exchange gains (losses) on financial assets and financial liabilities at fair value through profit or loss are included in net realized and net change in unrealized gains (losses) on investments, derivatives, and cash in the Statement of Comprehensive Income. Foreign exchange gains (losses) on financial assets and liabilities other than those classified as fair value through profit or loss are included in the Statement of Comprehensive Income. b) IFRS 9 Financial Instruments ("IFRS 9 (2014)") The adoption of IFRS 9 (2014) has been applied retrospectively, with the Fund utilizing the provisions allowed in the standard to not restate prior period comparative information. IFRS 9 (2014) requires assets to be carried at amortized cost or fair value, with changes in fair value recognized in profit or loss or other comprehensive income, based on the entity s business model for managing financial assets and the contractual cash flow characteristics of the financial assets. Upon adoption of IFRS 9 (2014), the Fund s financial assets and liabilities previously classified as at fair value through profit or loss ( FVTPL ) and amortized cost under IAS 39 Financial Instruments: Recognition and Measurement, continued to be classified at FVTPL and amortized cost. c) Financial assets and financial liabilities at fair value Classification Investments include financial assets and liabilities such as debt, equity securities and derivatives. These assets and liabilities are managed and their performance is evaluated on a fair value basis. Further, the Fund has not taken the option to irrevocably designate any of its equity securities at fair value through other comprehensive income. Derivatives assets or liabilities and securities sold short are classified as held for trading, as they are principally held for the purpose of selling or repurchasing in the near future or on initial recognition are a part of a portfolio of identified financial instruments that the Fund manages together and has a recent actual pattern of short term profit-taking. Recognition, derecognition and measurement Regular purchase and sale of investments are recognized on the trade date, the date on which the Fund commits to purchase or sell the investment. Financial assets and financial liabilities are initially recognized at fair value. All financial assets and liabilities are recognized in the Statement of Financial Position when the Fund becomes a party to the contractual requirements of the instrument. Financial instruments are derecognized 9

12 when the right to receive cash flows from the investment has expired or the Fund has transferred substantially all risks and rewards of ownership. As such, investment purchase and sale transactions are recorded as of the trade date. The cost of investments is based on the weighted average cost of investments. Realized gains and losses on disposition, including foreign exchange gains and losses on such investments, are determined based on the average cost of investments. Subsequent to initial recognition, all financial assets and financial liabilities at fair value through profit or loss are measured at fair value. Gains and losses arising from changes in the fair value are presented in the Statement of Comprehensive Income in the period in which they arise. Fair value measurement Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of financial assets and liabilities traded in active markets (such as publicly traded derivatives and trading securities) are based on last available quoted market prices at 4:00 pm (Eastern Time) on the reporting date and the mid of the bidask for fixed income securities. In circumstances where the 4:00 pm price is not within the bid-ask spread, the administrator in consultation with Investment Manager will determine the point within the bid-ask spread that is most representative of fair value based on standard industry practice. An active market is a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. The fair value of financial assets and financial liabilities that are not traded in an active market is determined by using valuation techniques. The Fund uses a variety of methods and makes assumptions that are based on market conditions existing at each reporting date. Valuation techniques used include the use of comparable recent arm s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants, making the maximum use of market inputs and relying as little as possible on entity-specific inputs. d) Credit default swaps contracts Credit default swaps ( CDS ) contracts are agreements to mitigate credit risk exposure to certain issuing entities (the Referenced Entity ) held by the Fund or to increase credit risk exposure to the Referenced Entity by creating a notional investment position for the Fund. Where a notional investment position is created, the credit risk exposure of the Fund is comparable to the exposure that would have resulted if the Fund invested directly in the Referenced Entity. Under a credit default swap contract, the protection buyer, whose intention is to reduce its credit risk exposure to the Referenced Entity, pays a premium to the protection seller, who assumes the credit risk of a default of the bond of a Referenced Entity. This premium is paid at regular intervals over the term of the swap contract. In return for the premium paid, the protection buyer is entitled to receive from the protection seller full payment for a loss arising from a credit default event of the Referenced Entity. A credit default event may be triggered by bankruptcy, failure to pay or restructuring of the Referenced Entity. If a credit default event occurs, the swap may be settled by either the physical delivery of the bond for proceeds 10

13 equal to par value, or a cash payment equal to the loss amount. Credit default swaps contracts are valued based on independent third party valuations. Changes in the value of swap contracts are recorded as unrealized gains (losses) on investments. Premiums paid or received from swap contracts are included in realized gains (losses) on investments. When swap contracts expire or are closed out, gains (losses) are included in net realized gains (losses) on investments in Statement of Comprehensive Income. e) Foreign currency forward contracts Foreign currency forward contracts entered into by the Fund are financial agreements to buy or sell a specific amount of an underlying currency for an agreed price at a future date. The fair value of these contracts is the gains (losses) that would be recognized if the position was closed out or expired on the valuation date and is recorded as unrealized gains (losses). When the contracts are closed out or expired, the gains (losses) are realized and are reported as net realized gains (losses) in the Statement of Comprehensive Income. f) Futures Contracts Futures contracts entered into by the Fund are financial agreements to purchase or sell a financial instrument at a contracted price on a specified future date. Futures contracts are valued at the gains (losses) that would arise as a result of closing the position on the valuation date. Any gains (losses) at the close of business of each valuation date are recorded in the Statement of Comprehensive Income. g) Offsetting financial instruments Financial assets and liabilities are offset and the net amount is presented in the Statement of Financial Position when there is a legally enforceable right of 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. h) Cash Cash is comprised of deposits with financial institutions. i) Investment transactions and income The Fund s investment holdings include trades executed through 1:00 pm of the business day in the period. Purchases and sales of investments are recorded on a trade-date basis. Interest income (interest expense for investments sold short) is recorded on the accrual basis. Realized gains and losses are recorded on the average cost basis. Dividend income is recognized on the ex-dividend date in gross amount. Interest receivable is shown separately in the Statement of Financial Position based on the debt instruments stated rate of interest. The cost of investments is determined using the average cost method. Investment income and net realized and unrealized gains (losses) and dividend income are allocated on a prorata basis to each class of units based on the relative net assets of each class to the total net assets of the Fund. 11

14 j) Other financial assets and liabilities Other financial assets, including receivable for investments sold, interest receivable, subscription receivable and operating fees rebate receivable are measured at cost or amortized cost. Amortized cost approximates fair value for these assets due to their short-term nature. IFRS 9 (2014) replaced the incurred loss model in IAS 39 with the expected credit loss model ( ECL ), as the new impairment model for financial assets measured at amortized cost. At each reporting date, the Fund measures the loss allowance on these financial assets at an amount equal to the lifetime expected credit losses if the credit risk has increased significantly initial recognition. If, at the reporting date, the credit risk has not increased significantly since initial recognition, the Fund measures the loss allowance at an amount equal to the 12 month expected credit losses. Given the short-term nature of the receivables and the high credit quality, the Fund has determined that the expected credit loss allowances are not material. Similarly, other financial liabilities, including payable for investment purchased, interest payable, redemption payable, management fees payable and operating fees payable are measured at cost or amortized cost. Amortized cost approximates fair value for these liabilities due to their short-term nature. k) Cost of investments and investments sold short The cost of financial assets or financial liabilities at fair value represents the amount paid (or proceeds received) for each security and is determined on an average cost basis excluding commissions and other portfolio transaction costs. l) Redeemable units The Fund issues redeemable units, which are redeemable at the holder s option and do not have identical rights. Such units are classified as financial liabilities. Redeemable units can be put back to the Fund at any time for cash equal to the proportional unit of the Fund s net assets attributable to the unit class. The redeemable units are carried at the redemption amount that is payable at the Statement of Financial Position date if the holder exercises the right to put the unit back to the Fund. Redeemable units are issued and redeemed at the holder s option at prices based on the Fund s net assets per unit at the trade date. The Fund s net assets per unit is calculated by dividing the net assets attributable to the holders of each class of redeemable units with the total number of outstanding redeemable units for each respective class. m) Net assets attributable to holders of redeemable units per unit Net assets attributable to holders of redeemable units per unit is calculated at the close of business on every valuation date as the net assets attributable to each class of units divided by its outstanding units. A valuation date is every day the Toronto Stock Exchange is open. 12

15 3 Critical accounting judgments and key sources of estimation uncertainty The preparation of financial statements requires Investment Manager to use judgment in applying its accounting policies and to make estimates and assumptions about the future. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The following discusses the most significant judgments and estimates that the Fund has made in preparing the financial statements. Fair value measurement of derivatives and securities not quoted in an active market Investment Manager uses its judgment in selecting an appropriate valuation technique when the Fund holds financial instruments that are not quoted in active markets, including derivatives. Fair values of such instruments are determined using a variety of methods and the Investment Manager makes assumptions that are based on market conditions existing at each reporting date. Valuation techniques include using reputable independent pricing sources, broker quotes, counterparty valuations, comparable recent arm s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants, making the maximum use of market inputs and relying as little as possible on entity-specific inputs. Presentation of redeemable units IAS 32 requires that puttable instruments to be presented as a liability rather than the equity on the Fund s Statement of Financial Position, unless certain conditions are met. IAS 32 defines a puttable instrument as a financial instrument that gives the holder the right to put the instrument back to the issuer for cash or another financial asset. The Fund distributes any net income and capital gain in cash (at the request of the unitholder). In addition, each class of redeemable units do not have identical features and are not equally subordinate to each other. Therefore, the Fund s redeemable units do not meet the criteria for classification as equity and have been classified as financial liabilities on the Statement of Financial Position. 4 Financial risks The nature of the Fund s activities exposes it to a variety of financial risks: market risk (including interest rate risk, and currency risk), credit risk, and liquidity risk. The Fund is also exposed to operational risks, such as custody risk. Custody risk is the risk of loss of investments held in custody occasioned by the insolvency or negligence of the prime broker or custodian. Although an appropriate legal framework is in place that mitigates the risk of loss of value of the investments held by the counterparty or custodian, in the event of its failure, the ability of the Fund to transfer the investments might be impaired. 13

16 All security investments present a risk of loss of capital. The maximum loss of capital on debt securities is limited to the fair value of those positions. On debt securities sold short, the maximum loss of capital is limited to the price of a zero yield bond of equivalent duration, except for rare circumstances where certain bonds may trade at negative yields. The Investment Manager s overall risk management program aims to maximize the returns derived for the level of risk to which the Fund is exposed to and aims to minimize potential adverse effects of these risks on the Fund s performance by employing experienced market professionals, developing a formal risk management policy with guidelines and limits over the Fund s risk exposures, continuously monitoring the Fund s positions and market events, and diversifying the investment portfolio within the constraints of the investment objective. Market risk Market risk represents the potential loss that can be caused by a change in the fair value of the financial instrument. The Risk Committee maintains a risk management practice to monitor the market risk continuously, such as using various measures of portfolio volatility, stress testing for profit and loss and shocking interest rates and credit curves for the return. Interest rate risk Interest rate risk arises from the effects of fluctuations in the prevailing levels of market interest rates on the fair values of financial assets, financial liabilities and future cash flows. The Fund holds fixed interest investments that expose the Fund to fair value interest rate risk. The Fund also holds cash and short-term investments that expose the Fund to cash flow interest rate risk. The following tables represent the Fund s exposure based on maturity and its sensitivity assuming a 1 basis point movement in interest rates. Maturity June 30, 2018 December 31, 2017 Fair Value Sensitivity Fair Value Sensitivity $ $ $ $ Financial assets Less than 2 years 30,299,281 2, ,299,441 12,133 2 to 5 years 285,105, , ,864,731 56,210 5 to 10 years 603,262, , ,500, , to 30 years 225,282, ,732 89,770, ,232 Greater than 30 years 57,170,188 72,733 6,403,066 10,391 1,201,120, , ,838, ,363 Financial liabilities 2 to 5 years (2,492,926) (154,542) - (49,577) 5 to 10 years (20,114,966) (192,200) (24,880,762) (201,693) 10 to 30 years (268,220) (52,339) (52,705) (22,427) Greater than 30 years - - (8,066,271) (17,027) (22,876,112) (399,081) (32,999,738) (290,904) Net 1,178,244, , ,838, ,459 In accordance with the Fund s policy, the Investment Manager monitors the Fund s overall interest rate sensitivity continuously and the Risk Committee monitors it daily. 14

17 Currency risk Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign currency exchange rates. The Fund invests in financial assets and liabilities (including cash and investments) denominated in currencies other than the Canadian dollar, and gains and losses in investment transactions may be in currencies other than the Canadian dollar. The Funds may enter into foreign currency forward contracts for hedging purposes to reduce foreign currency exposure. The Investment Manager reviews the Fund s currency positions as part of the investment management process. Net foreign currency exposure as at June 30, 2018 and December 31, 2017 in Canadian dollar equivalents as follows: June 30, 2018 USD EUR Monetary assets Cash 3,709,748 6,289,242 Investments at fair value 906,358,706 22,115,268 Receivable for investments sold 51,770,581 - Derivative assets 196,590 - Total monetary assets 962,035,625 28,404,510 Monetary liabilities Investments sold short at fair value (14,461,377) (4,713,121) Payable for investments purchased (50,985,126) - Derivative liabilities (886,236,527) (24,048,975) USD class exposure (14,273,020) - Total monetary liabilities (965,956,050) (28,762,096) Net exposure (3,920,425) (357,586) 10% impact on net assets (392,043) (35,759) December 31, 2017 USD EUR Monetary assets Cash 2,384, Investments at fair value 587,519,410 - Receivable for investments sold 15,253,640 - Derivative assets 796,103 - Total monetary assets 605,953, Monetary liabilities Investments sold short at fair value (2,102,484) - Payable for investments purchased (14,060,395) - Derivative liabilities (588,080,188) - Total monetary liabilities (604,243,067) - Net exposure 1,710, % impact on net assets 171,

18 If foreign exchange rates had increased or decreased by 10% for each of USD and EUR compared to CAD, with all other variables held constant, net assets would have increased or decreased by $427,802 ( $171,091). This represents Investment Manager s best estimate of a reasonable possible shift in the foreign exchange rates, having regard to volatilities of those rates. Liquidity risk Liquidity risk is the risk that the Fund may not be able to settle or meet its obligations on time or at a reasonable price. The majority of the Fund s assets are investments traded in an active market and can be easily disposed of at market prices. There is no assurance that an adequate market for investments owned by the Fund will continue to exist due to fluctuations in trading volumes and market prices. The Fund is exposed to liquidity risk due to potential daily cash redemptions of redeemable units. In accordance with the Fund s policy, the Investment Manager monitors liquidity continuously. The Fund invests in financial instruments which are not publicly traded but traded over-the-counter. The Investment Manager only purchase over-the-counter securities with a reasonable number of market participants to facilitate disposal on a timely basis. The Fund also has the ability to borrow up to 5% of its net assets attributable to holders of redeemable units for the purposes of funding redemptions. Due to the continuous review and borrowing ability, the Investment Manager believes there is minimal liquidity risk. Credit risk Credit risk is the risk that a debtor will fail to discharge its obligations, causing a financial loss to bondholders or counterparties. The Fund s main credit risk concentration is in debt securities whose fair value includes consideration of the creditworthiness of the debt issuer. The Fund is also exposed to counterparty credit risk on cash and short-term investments, amounts due from brokers for investments. The Investment Manager actively manages credit risk. If securities purchased by the Fund have their investment grade lowered, the Fund will not be required to divest itself of such non-investment grade securities unless, as a result, non-investment grade securities more than 10% of the net assets of the Fund. The Fund invested in debt securities with the following credit ratings: Debt Securities by Rating Category June 30, 2018 Fair Value (Long) Fair Value (Short) Futures Notional Impact of CDS Notional Net Exposure Debt rating $ $ $ $ $ AAA 117,926,718 (20,383,186) (567,819,852) - (470,276,320) A 169,655, ,655,779 BBB 800,270,524 (2,492,926) - 49,123, ,901,566 BB 109,181, ,181,567 B 4,085, ,085,856 1,201,120,444 (22,876,112) (567,819,852) 49,123, ,548,448 16

19 December 31, 2017 Fair Value Fair Value Futures Impact of CDS (Long) (Short) Notional Notional Net Exposure Debt rating $ $ $ $ $ AAA 28,195,551 (32,999,738) (361,644,774) - (366,448,961) A 70,492, ,492,577 BBB 684,137, ,137,254 BB 129,012, ,012, ,838,111 (32,999,738) (361,644,774) - 517,193,599 All transactions are made through registered members of a recognized regulatory body and are settled on delivery using the Fund s broker Scotia Capital Inc., or its custodian, the Bank of Nova Scotia Toronto, Ontario. The risk of default is considered minimal, as delivery of securities sold is only made when the prime broker or the custody has received payment. The Fund is also exposed to credit risk from counterparties to foreign currency forward contracts, commodity futures, cash and short-term investments. The maximum exposure to credit risk before any credit enhancements are the carrying amount of financial assets as set out below: Credit Risk June 30, 2018 December 31, 2017 $ $ Investments at fair value 1,200,923, ,027,908 Receivable for investments sold 67,096,399 31,326,778 Cash 48,726, ,549,752 Interest receivable 11,445,219 7,545,341 Derivative assets 7,586,242 3,245,721 Subscriptions receivable 779, ,763 Operating fees rebate receivable 323, ,722 1,336,881,769 1,128,342,985 Offsetting and amounts subject to master netting agreements The following table presents the Fund s financial assets and liabilities subject to offsetting, enforceable master netting agreements and similar agreements. The table is presented by type of financial instruments. The Net column shows what the impact on the Fund s Statement of Financial Position would be if all set-off rights were exercised. Amounts offset Amounts not offset Gross assets/ liabilities Gross assets/ liabilities offset Net amounts presented Financial instruments Cash collateral Net $ $ $ $ $ $ June 30, 2018 Derivative assets 7,586,242 (175,586) 7,410, ,586-7,586,242 Derivative liabilities (3,735,624) 175,586 (3,560,038) (175,586) - (3,735,624) 17

20 Amounts offset Amounts not offset Gross assets/ liabilities Gross assets/ liabilities offset Net amounts presented Financial instruments Cash collateral Net $ $ $ $ $ $ December 31, 2017 Derivative assets 3,245,721-3,245, ,245,721 Derivative liabilities (129,169) - (129,169) - - (129,169) Capital management The capital of the Fund is represented by the net assets attributable to holders of redeemable units. The fund generally has no restrictions or specific capital requirements on the subscriptions and redemptions of units other than minimum subscription requirements; although, on rare occasions, redemption rights of unitholders may be temporarily suspended. In accordance with the objectives and the risk management policies outlined of the Fund, the Fund endeavors to invest the subscriptions received in appropriate investments while maintaining sufficient liquidity to meet redemptions. Such liquidity is managed by investing the majority of assets in investments that can be readily disposed and via the Fund s ability to borrow up to 5% of its net assets. 5 Fair value measurement Financial instruments are classified within a hierarchy that prioritizes the inputs to fair value measurement. The hierarchy gives the highest priority to unadjusted quoted prices and the lowest priority to unobservable inputs. If different levels of inputs are used to measure a financial instrument s fair value, the classification within the hierarchy is based on the lowest level input that is significant to the fair value measurement. The three levels of the fair value hierarchy are: Level 1 - unadjusted quoted prices in active markets for financial assets or liabilities; Level 2 - inputs other than quoted prices included within Level 1 that are observable for the financial asset or liability either directly or indirectly; and Level 3 - inputs for the financial asset or liability that are not based on observable market data. The following table analyzes within the fair value hierarchy, the Fund s financial assets and financial liabilities. June 30, 2018 Level 1 Level 2 Level 3 Total Financial assets $ $ $ $ Bonds - 1,200,923,854-1,200,923,854 Futures contracts 196, ,590 Foreign Currency Forward contracts - 7,389,652-7,389,652 Total 196,590 1,208,313,506-1,208,510,096 Financial liabilities Bonds - (19,165,229) - (19,165,229) Futures contracts (1,217,957) - - (1,217,957) Foreign Currency Forward contracts - (24,741) - (24,741) Credit Default Swaps - (2,492,926) - (2,492,926) Total (1,217,957) (21,682,896) - (22,900,853) 18

21 December 31, 2017 Level 1 Level 2 Level 3 Total Financial assets $ $ $ $ Bonds - 911,027, ,027,908 Preferred shares 810, ,203 Foreign Currency Forward contracts - 2,435,518-2,435,518 Total 810, ,463, ,273,629 Financial liabilities Bonds - (32,947,033) - (32,947,033) Futures contracts (52,705) - - (52,705) Foreign Currency Forward contracts - (76,464) - (76,464) Total (52,705) (33,023,497) - (33,076,202) Investments, whose values are based on quoted market prices in active markets, and are therefore classified within level 1, include active listed equities, exchange traded derivatives, Futures contracts and certain non-us sovereign obligations. The Fund does not adjust the quoted price for these financial instruments. Financial instruments 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 are classified within level 2. These include investment-grade corporate bonds and certain non-us sovereign obligations, and over-thecounter derivatives. As level 2 investments include positions that are not traded in active markets and/or are subject to transfer restrictions that are attached to the instruments, valuations may be adjusted to reflect nontransferability, which are generally based on available market information. Bonds include primarily government and corporate bonds, which are valued using models with inputs including interest rate curves, credit spreads and volatilities. The inputs that are significant to valuation are generally observable and therefore the Fund s bonds and short-term investments have been classified as Level 2. There were no items classified as level 3 throughout the period nor were there transfers between level 3 and levels 1 and 2 during the period ended June 30, 2018 and the year ended December 31, The following tables present the carrying amounts of the Fund s financial instruments by category as at: Financial assets/ liabilities at fair value through profit or loss Financial assets/ liabilities at amortized cost June 30, 2018 Total $ $ $ Assets as per Statement of Financial Position Investments at fair value 1,200,923,854-1,200,923,854 Receivable for investments sold - 67,096,399 67,096,399 Cash - 48,726,972 48,726,972 Interest receivable - 11,445,219 11,445,219 Derivative assets 7,586,242-7,586,242 Subscriptions receivable - 779, ,468 Operating fees rebate receivable - 323, ,615 Total 1,208,510, ,371,673 1,336,881,769 19