W.A.M. COLLINS INCOME POOL

Transcription

1 Financial Statements of Period from commencement of operations on November 8, 2017 to December 31, 2017

2 KPMG LLP PO Box Dunsmuir Street Vancouver BC V7Y 1K3 Canada Telephone (604) Fax (604) INDEPENDENT AUDITORS' REPORT To the Unitholders of W.A.M. Collins Income Pool We have audited the accompanying financial statements of W.A.M. Collins Income Pool, which comprise the statement of financial position as at December 31, 2017, the statements of comprehensive income, changes in net assets attributable to holders of redeemable units and cash flows for the period from commencement of operations on November 8, 2017 to December 31, 2017, and notes, comprising a summary of significant accounting policies and other explanatory information. The Manager s Responsibility for the Financial Statements The Manager 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 the Manager determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Manager, 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. KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. KPMG Canada provides services to KPMG LLP.

3 W.A.M. Collins Income Pool Page 2 Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of W.A.M. Collins Income Pool as at December 31, 2017, and its financial performance and its cash flows for the period from commencement of operations on November 8, 2017 to December 31, 2017 in accordance with International Financial Reporting Standards. Chartered Professional Accountants Vancouver, Canada March 28, 2018

4 Statement of Financial Position December 31, 2017 Assets Notes Cash and cash equivalents $ 185,222 Interest and dividends receivable 9,162 Investments 3,116,093 3,310,477 Liabilities Management fees payable 4 3,703 Accounts payable and accrued liabilities 242,947 Options Written 1, ,071 Net assets attributable to holders of redeemable units $ 3,062,406 Net assets attributable to holders of redeemable units per series: Series A $ 120,901 Series F 2,941,505 $ 3,062,406 Number of redeemable units outstanding: 5 Series A 12,285 Series F 300,972 Net assets attributable to holders of redeemable units per unit per series: Series A $ 9.84 Series F 9.77 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) "Lynn Stibbard" Director 1

5 Statement of Comprehensive Income Notes Income: Dividend income $ 9,016 Interest income 4,488 Foreign exchange loss (224) Net realized gain on sale of investments 1,930 Net change in unrealized depreciation in value of investments (1,939) 13,271 Expenses: Operating costs 52,388 Audit fees 17,500 Management fees 4 3,703 Withholding tax 6 1,045 Custodian fees 884 Commissions and other portfolio transaction costs ,652 Decrease in net assets attributable to holders of redeemable units $ (62,381) Decrease in net assets attributable to redeemable units per series: Series A $ (1,729) Series F (60,652) Decrease in net assets attributable to holders of redeemable units $ (62,381) Decrease in net assets attributable to holders of redeemable units per unit per series: 7 Series A $ (0.24) Series F (0.23) The accompanying notes are an integral part of these financial statements. 2

6 Statement of Changes in Net Assets Attributable to Holders of Redeemable Units Series A Series F Net assets attributable to holders of redeemable units, beginning of period $ - $ - Decrease in net assets attributable to holders of redeemable units (1,729) (60,652) Redeemable unit transactions: Proceeds from redeemable units issued 122,630 3,038,850 Redemption of redeemable units - (36,693) Net assets attributable to holders of redeemable units, end of period $ 120,901 $ 2,941,505 The accompanying notes are an integral part of these financial statements. 3

7 Statement of Cash Flows Cash provided by (used in): Operating activities: Decrease in net assets attributable to holders of redeemable units $ (62,381) Adjustments for: Commissions and other portfolio transaction costs 132 Foreign exchange loss 224 Net change in unrealized depreciation in value of investments 1,939 Net realized gain on sale of investments (1,930) Dividend income (9,016) Interest income for distribution (4,488) Withholding tax expense 1,045 Increase in accounts payable and accrued liabilities 67,687 Increase in management fees payable 3,703 Increase in broker payable 175, ,175 Interest income received (2,415) Dividends received 6,757 Withholding tax paid (1,045) Proceeds from sale of investments 4,952 Purchase of investments (3,119,765) (2,939,341) Financing activities: Proceeds from issuances of redeemable units, net of subscriptions receivable 3,161,480 Redemption of redeemable units (36,693) 3,124,787 Increase in cash $185,446 Cash and cash equivalents, beginning of period - Effect of exchange rate fluctuations on cash (224) Cash and cash equivalents, end of year $ 185,222 The accompanying notes are an integral part of these financial statements. 4

8 Schedule of Investment Portfolio December 31, 2017 Number of Average Fair % of net shares/units Investments owned cost value asset value Canadian equities: 1,700 Allied Properties Real Estate Investment Trust $ 70,771 $ 71, Canadian National Railway Co. 74,059 75, ,800 Canadian Utilities Ltd. Preferred Shares 4% 128, , ,100 Enbridge Inc. Preferred Shares 5.50% 102, , ,600 Fortis Inc. Preferred Shares 4.75% 130, , ,200 Industrial Alliance Insurance & Financial Services Inc. 71,998 71, ,500 Intertape Polymer Group Inc. 76,193 75, ,050 Magna International Inc. 71,998 74, ,775 PIMCO Monthly Income Fund Canada 400, , Premium Brands Holdings Corp. 73,941 76, ,000 Pure Industrial Real Estate Trust 74,131 74, ,000 The Toronto-Dominion Bank 73,380 73, ,348,799 1,353, Canadian fixed income: 315,000 Canadian Natural Resources Ltd. 3.42% 01DEC26 311, , ,000 Fairfax Financial Holdings Ltd. 4.25% 06DEC27 199, , ,000 First Capital Realty Inc % 12JUL27 164, , ,000 Metro Inc. 3.39% 06DEC27 249, , ,000 TELUS Corp. 4.40% 01APR43 163, , ,089,039 1,084, Canadian investment funds: 14,538 Picton Mahoney Fortified Income Fund Class F 166, , , , U.S. equities: 4,000 Fidelity MSCI Industrials Index ETF 188, , ,280 PIMCO 0-5 Year High Yield Corporate Bond Index Exchange-Traded Fund 165, , ,100 Vanguard Global ex-u.s. Real Estate ETF 160, , , , Total investments owned 3,119,173 3,116, Number of Proceeds on Fair % of net shares/units Investments sold short short sale value asset value Canadian options: (700) Canadian National Railway Co. Call $105 19JAN18 $ (581) $ (371) (0.01) (1,000) Industrial Alliance Insurance & Financial Services Inc. Call $62 16MAR18 (1,100) (800) (0.03) (1,000) Magna International Inc. Call $78 16FEB18 (750) (250) (0.01) Total investments sold short (2,431) (1,421) (0.05) Commissions and other transaction costs (132) - - Net investments owned $ 3,116,610 $ 3,114, Other liabilities, net (52,266) (1.71) Net assets attributable to holders of redeemable units $ 3,062, The accompanying notes are an integral part of these financial statements. 5

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 financial statements have been prepared in compliance with International Financial Reporting Standards ( IFRS ) as published by the International Accounting Standards Board. The financial statements were authorized for issue by the Manager on March 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. 6

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: The Fund classifies its investments in debt and equity securities and derivatives as financial assets at FVTPL. This category has two sub-categories: financial assets or financial liabilities held-for-trading and those designated at FVTPL at inception. (i) Financial assets and financial liabilities held for trading: A financial asset or financial liability is classified as held-for-trading if it is acquired or incurred principally for the purpose of selling or repurchasing in the near term or if on initial recognition is part of a portfolio of identifiable financial investments that are managed together and for which there is evidence of a recent actual pattern of short-term profit taking. Derivatives are categorized as held-for-trading. Accordingly, the Fund s written options are classified as held-for-trading. 7

11 3. Significant accounting policies (continued): (b) Classification (continued): (ii) Financial assets and financial liabilities designated at FVTPL at inception: Financial assets and financial liabilities designated at FVTPL at inception are financial instruments that are not classified as held-for-trading but are managed, and their performance is evaluated on a fair value basis in accordance with the Fund s documented investment strategy. The Fund s investments have been designated at FVTPL. (iii) 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. (iv) Other assets and liabilities: Interest receivable, dividends receivable 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. 8

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. 9

13 3. Significant accounting policies (continued): (j) Decrease in net assets attributable to holders of redeemable units per unit: Decrease in net assets attributable to holders of redeemable units per unit is based on the decrease 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. (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 not yet adopted: A number of new standards, amendments to standards and interpretations are not yet effective for the year ended December 31, 2017, and have not been applied in preparing these financial statements. None of these will 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 will be 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 annual periods beginning on or after January 1, The Fund intends to adopt IFRS 9 in its financial statements for the annual period beginning on January 1, Based on the Manager s assessment, this standard is not expected to have 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 10

14 3. Significant accounting policies (continued): (l) New standards and interpretations not yet adopted (continued): 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. Based on the Manager s assessment, this standard is also not expected to have 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. 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 $3,703 were paid to the Manager, of which, $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% 5. 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 December 31, 2017, only Series A and F units have been issued. 11

15 5. Redeemable units of the Fund (continued): The redeemable unit activity during the period ended December 31, 2017, is as follows: Redeemable units, Redeemable Redemption of Redeemable beginning units redeemable unit, end of of period issued units period Series A - 12,285-12,285 Series F - 304,692 (3,720) 300,972 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. 6. 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%. 7. Decrease in net assets attributable to holders of redeemable units per unit: The decrease in net assets attributable to holders of redeemable units per unit for the period ended December 31, 2017 is calculated as follows: Decrease in net Decrease in net assets attributable Weighted average assets attributable to holders of of redeemable to holders of redeemable units outstanding redeemable units per series during the period units per unit December 31, 2017 Series A $ (1,729) 7,173 $ (0.24) Series F $ (60,652) 260,984 $ (0.23) 12

16 8. 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. 9. 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. (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. 13

17 9. Financial risk management (continued): (a) Credit risk (continued): At December 31, 2017, the Fund was invested in debt securities with the following credit quality, as determined by DBRS s credit rating: Rating: BBB (high) $ 836,280 BBB 248,176 $ 1,084,456 (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. (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 December 31, 2017 as follows: Term to maturity 2017 > 5 years $ 1,084,456 14

18 9. Financial risk management (continued): (c) Market risk (continued): (i) Interest rate risk (continued): 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 $105,454 as at December 31, 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. Currency to which the Fund had exposure as at December 31, 2017 is as follows: Currency Exposure United States dollar $ 519,201 Percentage of net assets attributable to holders of redeemable units 16.95% 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 December 31, 2017, 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 $25,960 or 0.85%. In practice, the actual trading results may differ from this sensitivity analysis and the difference could be material. 15

19 9. 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 December 31, 2017, 60.93% 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 $186,594, respectively. In practice, the actual results may differ from this sensitivity analysis and the difference could be significant. 10. 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. 16

20 10. Fair value of financial instruments (continued): (a) Fair value hierarchy (continued): 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. 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 December 31, 2017: 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 funds - $164, ,280 $ 1,867,357 $ 1,248,736 $ - $ 3,116,093 Liabilities: Options written $ 1,421 $ - $ - $ 1,421 17

21 10. Fair value of financial instruments (continued): (b) Fair value hierarchy financial instruments measured at fair value (continued): 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. 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 period ended 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. 11. 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. 18