27MAR Annual Report. to Unitholders

Transcription

1 Annual Report to Unitholders December 31, 2013

2 REPORT TO UNITHOLDERS The following presents the financial results of Anchor Managed Funds (the Funds ) for the year ended December 31, 2013 and the comparative numbers reflect results from their commencement of operations on August 30, 2012 to December 31, FUND STRUCTURE The Anchor Managed Funds (collectively, the Funds or individually, the Fund ) are a family of three mutual funds providing investors with professionally managed solutions designed to suit their investment profile. Anchor Managed Defensive Income Fund s objectives are to provide stable quarterly cash distributions, preserve capital and offer potential for consistent long-term capital appreciation. The Fund seeks to generate lower volatility returns by investing a maximum of 50% of the total portfolio in Canadian equities with the balance invested in preferred shares and debt securities. To obtain exposure to these types of securities, the Fund may invest in securities of other mutual funds. Anchor Managed Dividend Growth Fund s objectives are to provide stable quarterly cash distributions and potential for consistent, long-term capital appreciation. To obtain exposure to these types of securities, the Fund may invest in securities of other mutual funds. The Fund invests primarily in a portfolio of high dividend-yielding equities of large TSX listed Canadian companies and REITs and, for defensive reasons, may invest in Canadian preferred shares and debt securities. Anchor Managed High Income Fund s objectives are to provide stable quarterly cash distributions and potential for consistent, long-term capital appreciation. The Fund invests in a concentrated portfolio of high dividend-yielding equities of large TSX listed Canadian companies and REITs. For defensive reasons, the Fund may hold higher levels of cash or cash equivalents. To obtain exposure to these types of securities, the Fund may invest in securities of other mutual funds. Each Fund offers four classes of units. Each class is intended for different investors. The Class A units are available to all investors through dealers or brokers registered in their province or territory. The Class F units are generally available only to investors who have fee-based accounts with authorized brokers or dealers, including ScotiaMcLeod. The Verus Class A units and the Verus Class F units are only available to clients of Verus Wealth Management, a division of ScotiaMcLeod. The Verus Class A units are available to all Verus Wealth Management clients. The Verus Class F units are generally available only to Verus Wealth Management clients who have fee-based accounts. There are no differences between Class A units and Verus Class A units or between Class F units and Verus Class F units. ScotiaMcLeod (the Portfolio Manager ), a division of Scotia Capital Inc., actively manages each Fund s portfolio. The Portfolio Manager has been retained to provide investment advisory and portfolio management services to the Funds and is responsible for acquiring the securities comprising the portfolios and maintaining the portfolios in accordance with the investment objectives, strategy and restrictions of each of the Funds. 1

3 FINANCIAL PERFORMANCE The Funds Net Asset Values ( NAV ) increased during the year ended December 31, 2013 (as shown in the table below): % Change Anchor Managed Defensive Income Fund Class A $ $ % Verus Class A $ $ % Class F $ $ % Verus Class F $ $ % Anchor Managed Dividend Growth Fund Class A $ $ % Verus Class A $ $ % Class F $ $ % Verus Class F $ $ % Anchor Managed High Income Fund Class A $ $ % Verus Class A $ $ % Class F $ $ % Verus Class F $ $ % Report from Portfolio Manager 1. Anchor Defensive Income Fund The Fund was positioned at the end of 2012 with close to half its assets in equities and the balance in high quality preferred shares and bonds of which over 90% were investment grade. As Q drew to a close, we reduced the equity weighting to close to 40%. This stood the Fund in good stead as in the second quarter the TSX dropped about 700 points to around the 12,000 level by mid-year. At the end of Q2, we added back to the equity segment such that at mid-year, it represented about 46% of the Fund. In the second half of the year, we generally maintained the equity exposure close to its maximum of 50% but currently (in late January) are at about 44%. Generally, North American bond yields increased sharply in the latter part of Q2 and through most of Q3 although the rate rise in the short end of the bond market in which the Fund was concentrated was limited such that for the full year 2013, this segment of the portfolio showed a positive total return. The sharp rise in longer term bond yields, however, caused dividend paying stocks that were deemed to be interest sensitive to be hit harder than the overall market in late Q2 and most of Q3. However, other than in the case of REIT s, most of the sector recovered well over the balance of the year. The Fund s equity segment also benefited in 2013 from takeover offers for two of the Fund s holdings: Shoppers Drug Mart Corporation, which at the time of the offer from Loblaw Companies Limited was our largest equity holding and Brookfield Office Properties, which was the subject of an offer from Brookfield Property Partners. Our current outlook for North American equity markets in general but for the U.S. in particular is somewhat cautious as we are in the latter innings of a cyclical bull market that has lasted almost five years. The TSX, 2

4 however, tends to peak 6-12 months after the S&P 500. We stand prepared to be more defensive in this Fund as the year progresses. 2. Anchor Dividend Growth Fund The Fund was fully invested in The first six months saw Canada s TSX index significantly lag the S&P 500. Thus, even including dividends, the TSX total return was negative in the first six months of the year. However, the dividend paying sector recovered significantly in the second half of the year, resulting in a solid full year total return for the Fund. During the first half of 2013, we continued to increase the Fund s exposure to Canadian banks in the expectation that earnings growth would be better than feared by many investors as a result of Canadian personal and consumer loan growth slowing only gradually rather than dramatically. This increased weighting became justified by the strong move in the sector following Q3 banking results. Our cyclical exposure in the Fund was limited to modest positions in the early part of the year. However, in the second half of the year, we increased the cyclical weighting of the Fund. This was chiefly in the oil and gas sector where dividends were well covered and the stocks generally reasonably priced. In the latter part of the year, we built up our weighting in the energy infrastructure and general infrastructure area where we see exceptionally strong growth over the next five years. We expect the rise in bond yields to flatten out or reverse in the first half of 2014, which should benefit dividend paying stocks generally. Thus, as the balance of the year unfolds, companies balance sheet strength and the ability to maintain strong, predictable free cash flow growth and hence dividends will again be important. Our interviews with company executives are very much geared to concentrating on these criteria. 3. Anchor High Income Fund The Fund is a concentrated portfolio of dividend paying companies with good dividend growth prospects. As at December 31, 2013, the Fund had 15 positions and was fully invested. Performance of the Canadian market trailed that of the U.S. in the first half although in the back end of 2013, the TSX performed roughly in line with the S&P 500. In the Fund, the cyclical weightings at December and in the first quarter were modest. However, we started to reverse that in the latter part of Q2 as we increased our cyclical exposure principally in the energy sector. Over the balance of the year, this strategy was only partially successful as valuations of our holdings remained cheap in historical terms. Our exposure to Canadian banks was further increased in the first half of 2013, which worked out well particularly in late Q3 and the balance of the year. Our concentration in the pipeline, utility, REIT and telecommunications sectors hurt the Fund in the latter part of Q2 and most of Q3 in the face of rising long term interest rates but other than the REIT segment our holdings in these sectors recovered reasonably well. As the Fund stands in early 2014, we believe the Fund is well positioned in dividend paying stocks with good prospects for growing those dividends. In a cyclical bull market that could peak at some point within the coming year, income generating securities with reasonable valuations should again do relatively very well particularly if we are right in our belief that North American long term bond yields could be flat to down. 3

5 Distributions Scotia Managed Companies Administration Inc., as Trustee, generally intends to declare and pay equal quarterly distributions to the extent of forecasted distributions to be received for a calendar quarter from each Fund s investments, less estimated operating expenses for the period. Any differences from the forecast will be adjusted in the following quarter. Unitholders of record on the second last business day of each quarter are entitled to receive cash distributions, as declared by the Trustee, not later than the last business day of each calendar quarter. The following tables show the total distributions declared by each of the Funds for the years ended December 31, 2013 and Total Total Distribution Per Unit Distribution Per Unit Anchor Managed Defensive Income Fund Class A $ 40,015 $ $ 2,314 $ Verus Class A 3, Class F 21, , Verus Class F 1, $ 67,170 $ 6,838 Anchor Managed Dividend Growth Fund Class A $ 35,092 $ $ 3,733 $ Verus Class A 25, , Class F 112, , Verus Class F 82, , $ 256,127 $ 49,880 Anchor Managed High Income Fund Class A $ 132,847 $ $ 16,840 $ Verus Class A 2, Class F 12, , Verus Class F 13, , $ 160,843 $ 21,415 4

6 This report, along with the accompanying audited financial statements of the Funds, is respectfully submitted to you on behalf of the Board of Directors of Scotia Managed Companies Administration Inc., Trustee of Anchor Managed Funds. Toronto, Canada March 27, NOV Brian D. McChesney President and Chief Executive Officer 5

7 MANAGEMENT S RESPONSIBILITY FOR FINANCIAL REPORTING The accompanying financial statements of Anchor Managed Funds and all the information in this annual report are the responsibility of management and have been reviewed and approved by the Board of Directors of Scotia Managed Companies Administration Inc. (the Board ), trustee for Anchor Managed Funds. The financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles. Financial statements are not precise since they include certain amounts based on estimates and judgments. Management has determined such amounts on a reasonable basis in order to ensure that the financial statements are presented fairly, in all material respects. Management has ensured that the other financial information presented in this annual report is consistent with the financial statements. The Board has oversight responsibility for ensuring that management fulfills its responsibilities for financial reporting and is ultimately responsible for reviewing and approving the financial statements. PricewaterhouseCoopers LLP is the external auditor of the Funds. The auditor has audited the financial statements in accordance with Canadian generally accepted auditing standards to enable it to express its opinion on the financial statements. The auditor s report is included on the following page of this Annual Report. On behalf of Scotia Managed Companies Administration Inc., Trustee of the Funds 18NOV Brian D. McChesney President, Chief Executive Officer 18NOV Stephen D. Pearce Chief Financial Officer Toronto, Canada March 27,

8 INDEPENDENT AUDITOR S REPORT To the Unitholders and Trustee of Anchor Managed Defensive Income Fund, Anchor Managed Dividend Growth Fund and Anchor Managed High Income Fund (collectively, the Funds ) We have audited the accompanying financial statements of each of the Funds, which comprise the statements of net assets as at December 31, 2013 and 2012, the statement of investments as at December 31, 2013 and the statements of investment operations, cash flows, and changes in net assets for the year ended December 31, 2013 and the period from August 30, 2012 (commencement of operations) to December 31, 2012 and the related notes, which comprise a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements of each of the Funds in accordance with Canadian generally accepted accounting principles, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on the financial statements of each of the Funds based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audits 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 the auditor s 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, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained in each of our audits 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 each of the Funds as at December 31, 2013 and 2012 and the results of each of their operations, each of their cash flows and the changes in each of their net assets for the year ended December 31, 2013 and the period from August 30, 2012 to December 31, 2012, in accordance with Canadian generally accepted accounting principles. Toronto, Canada March 27, MAR Chartered Professional Accountants, Licensed Public Accountants 7

9 ANCHOR MANAGED DEFENSIVE INCOME FUND STATEMENTS OF NET ASSETS As at December Assets Investments, at fair value $ 6,801,285 $ 2,144,494 Cash 128,098 29,715 Distributions receivable 26,293 7,248 Subscriptions receivable 55,679 Receivable from manager (note 6) 22,950 6,955,676 2,260,086 Liabilities Accrued liabilities (note 6) 30,190 29,983 Due to broker 54,754 30,190 84,737 Net assets representing Unitholders equity $ 6,925,486 $ 2,175,349 Net Assets per Class: Class A $ 4,383,030 $ 734,481 Verus Class A 310, ,455 Class F 2,032,651 1,049,289 Verus Class F 198,931 85,124 $ 6,925,486 $ 2,175,349 Number of Units outstanding (note 4): Class A 418,228 74,279 Verus Class A 29,730 30,940 Class F 191, ,671 Verus Class F 18,769 8,567 Net Assets per Unit (note 2): Class A $ $ 9.89 Verus Class A $ $ 9.90 Class F $ $ 9.93 Verus Class F $ $ 9.94 See accompanying notes to financial statements. On behalf of the Board: 18NOV Brian D. McChesney President and Chief Executive Officer 18NOV Stephen D. Pearce Chief Financial Officer 8

10 ANCHOR MANAGED DEFENSIVE INCOME FUND STATEMENTS OF INVESTMENT OPERATIONS For the year ended December 31, 2013 and for the period from August 30, 2012 to December 31, 2012 (Note 1) Revenue Dividends $ 135,434 $ 12,594 Interest 55,882 4,783 Capital gains ,560 17,441 Expenses Management fees (note 6) 55,537 4,608 Service fees (note 6) 34,858 1,870 Unitholders information costs 27,894 5,055 Custodial fees 15,960 5,502 Audit fees 12,322 9,429 Legal fees 8,314 3,815 Independent Review Committee fees 4,982 1,350 Transfer agent fees 3,627 1,225 Listing fees 2,486 Insurance premiums Other ,575 33,064 Deduct: Expenses absorbed by SMCAI (note 6) (77,049) (22,950) 90,526 10,114 Net investment income for the year 101,034 7,327 Net realized gain (loss) on disposition of investments 139,753 (1,743) Trading commissions (note 2) (6,929) (1,703) Unrealized appreciation of investments 158,211 26,582 Total results of investment operations $ 392,069 $ 30,463 Net increase in Net Assets from investment operations per Class: Class A $ 217,576 $ 9,266 Verus Class A 20, Class F 145,812 20,005 Verus Class F 8, $ 392,069 $ 30,463 Weighted average number of Units outstanding: Class A 279,566 21,112 Verus Class A 30,231 29,137 Class F 167,498 66,816 Verus Class F 10,271 6,772 Net increase in Net Assets from investment operations per Unit*: Class A $ 0.78 $ 0.44 Verus Class A $ 0.68 $ 0.01 Class F $ 0.87 $ 0.30 Verus Class F $ 0.80 $ 0.15 * Based upon the weighted average number of Units outstanding during the year/period. See accompanying notes to financial statements. 9

11 ANCHOR MANAGED DEFENSIVE INCOME FUND STATEMENTS OF CASH FLOWS For the year ended December 31, 2013 and for the period from August 30, 2012 to December 31, 2012 (Note 1) Operating activities Total results of investment operations $ 392,069 $ 30,463 Add (deduct): Net realized (gain) loss on disposition of investments (139,753) 1,743 Unrealized appreciation of investments (158,211) (26,582) Changes in non-cash items Decrease (increase) in distributions receivable and receivable from manager 3,905 (30,198) Increase in accrued liabilities ,983 Net cash flow provided by operating activities 98,217 5,409 Investing activities Purchase of investments (7,223,430) (2,319,245) Proceeds on disposition of investments 2,798, ,564 Distributions received as return of capital 10, Net cash flow used in investing activities (4,413,581) (2,064,901) Financing activities Proceeds on issuance of Units 4,661,645 2,160,990 Decrease (increase) in subscriptions receivable 55,679 (55,679) Early redemption fees Proceeds paid on Units redeemed (288,617) (15,659) Net distributions paid to Unitholders (15,838) (523) Net cash flow provided by financing activities 4,413,747 2,089,207 Net increase in cash 98,383 29,715 Cash, beginning of year/period 29,715 Cash, end of year/period $ 128,098 $ 29,715 See accompanying notes to financial statements. 10

12 ANCHOR MANAGED DEFENSIVE INCOME FUND STATEMENT OF CHANGES IN NET ASSETS For the year ended December 31, 2013 Verus Verus Class A Class A Class F Class F Total Fund Net Assets, beginning of year $ 734,481 $ 306,455 $ 1,049,289 $ 85,124 $ 2,175,349 Net increase in Net Assets from investment operations 217,576 20, ,812 8, ,069 Capital Unit Transactions (note 4): Proceeds from issue of Units 3,556, , ,353 4,661,645 Reinvestment of distributions 29,451 3,180 18, ,332 Early redemption fees Consideration paid for redemption of Units (115,646) (15,494) (143,915) (13,562) (288,617) 3,470,988 (12,281) 859, ,005 4,425,238 Distributions to Unitholders (return of capital) (40,015) (3,771) (21,976) (1,408) (67,170) Net Assets, end of year $ 4,383,030 $ 310,874 $ 2,032,651 $ 198,931 $ 6,925,486 Capital Unit Transactions: Units outstanding, beginning of year 74,279 30, ,671 8,567 Units issued 352,570 98,083 12,022 Units issued on reinvestments 2, , Units redeemed (11,526) (1,526) (13,982) (1,836) Units outstanding, end of year 418,228 29, ,587 18,769 11

13 ANCHOR MANAGED DEFENSIVE INCOME FUND STATEMENT OF CHANGES IN NET ASSETS (continued) For the period from August 30, 2012 to December 31, 2012 (Note 1) Verus Verus Class A Class A Class F Class F Total Fund Net Assets, beginning of period $ $ $ $ $ Net increase in Net Assets from investment operations 9, , ,463 Capital Unit Transactions (note 4): Proceeds from issue of Units 725, ,206 1,031,537 90,900 2,160,990 Reinvestment of distributions 2, , ,315 Early redemption fees Consideration paid for redemption of Units (6,899) (2,160) (6,600) (15,659) 727, ,226 1,032,576 84,393 2,151,724 Distributions to Unitholders (return of capital) (2,314) (964) (3,292) (268) (6,838) Net Assets, end of period $ 734,481 $ 306,455 $ 1,049,289 $ 85,124 $ 2,175,349 Capital Unit Transactions: Units Outstanding, beginning of period Units issued 74,059 31, ,571 9,228 Units issued on reinvestments Units redeemed (697) (220) (667) Units Outstanding, end of the period 74,279 30, ,671 8,567 See accompanying notes to financial statements. 12

14 ANCHOR MANAGED DEFENSIVE INCOME FUND STATEMENT OF INVESTMENTS As at December 31, 2013 Number of Adjusted Fair % of Portfolio Units/Shares Securities Cost Base Value at Fair Value TELECOMMUNICATION SERVICES 3,101 BCE Inc. $ 138,592 $ 142, ,314 Rogers Communications Inc. 145, , ,347 TELUS Corporation 185, , , , ENERGY 4,277 Enbridge Inc. 191, , ,635 Pembina Pipeline Corporation 110, , ,422 TransCanada Corporation 159, , , , FINANCIALS 4,384 Bank of Montreal, 5.25%, Preferred, Series , , ,384 Bank of Montreal, 6.50%, Preferred, Series , , ,673 Bank of Nova Scotia* 161, , ,705 Bank of Nova Scotia, 5%, Preferred Shares Series 20* 118, , ,705 Bank of Nova Scotia, 5%, Preferred Shares Series 22* 119, , ,925 Canadian Imperial Bank of Commerce 155, , ,384 Canadian Imperial Bank of Commerce, 5.35%, Preferred, Series , , ,352 Canadian Imperial Bank of Commerce, 6.50%, Preferred, Series 35 62,088 59, ,352 Canadian Imperial Bank of Commerce, 6.50%, Preferred, Series 37 62,608 59, ,031 National Bank of Canada 159, , ,673 Royal Bank of Canada 165, , ,705 Royal Bank of Canada, 4.45%, Preferred, Series AA 120, , ,384 Royal Bank of Canada, 6.25%, Preferred, Series AN 114, , ,031 The Toronto-Dominion Bank 172, , ,063 Toronto-Dominion Bank, The, 4.85%, Preferred, Series O 104, , ,138 Toronto-Dominion Bank, The, 5.00%, Preferred, Series AA 54,746 54, ,063 Toronto-Dominion Bank, The, 5.60%, Preferred, Series AC 105, , ,031 Toronto-Dominion Bank, The, 6.25%, Preferred, Series AG 53,406 52, ,075,317 2,160, INDEX EQUIVALENTS 86,520 Ishares DEX Short Term Bond Index Fund 2,492,579 2,465, ,492,579 2,465, CONSUMER DISCRETIONARY 3,528 Thomson Reuters Corporation 113, , , , REAL ESTATE 8,770 Brookfield Property Partners L.P. 175, , ,561 H&R Real Estate Investment Trust 126, , , ,

15 ANCHOR MANAGED DEFENSIVE INCOME FUND STATEMENT OF INVESTMENTS (continued) As at December 31, 2013 Number of Adjusted Fair % of Portfolio Units/Shares Securities Cost Base Value at Fair Value UTILITIES 5,988 Brookfield Renewable Energy Partners L.P. 170, , ,918 Brookfield Infrastructure Partners L.P. 179, , ,767 Just Energy Group Inc. 190, , ,189 TransAlta Corporation 167, , , , Adjustment for trading commissions (4,844) Total Value of Investments $6,616,492 $6,801, * Related party to the Fund as ultimate parent of Scotia Managed Companies Administration Inc. See accompanying notes to financial statements. 14

16 ANCHOR MANAGED DEFENSIVE INCOME FUND Financial Statements Supplementary Schedules A. Schedule of Net Assets per Unit and NAV per Unit (Note 2) The Fund calculates Net Asset Value ( NAV ) for all purposes other than financial statements without giving effect to Section 3855 as referred to in Note 2. This may result in a difference between the net assets per unit and NAV per unit and the differences, if any, are presented in the table below: Per Unit as at December Class Net Assets NAV Net Assets NAV Class A $ $ $ 9.89 $ 9.91 Verus Class A $ $ $ 9.90 $ 9.92 Class F $ $ $ 9.93 $ 9.94 Verus Class F $ $ $ 9.94 $ 9.95 B. Schedule of Tax Treatment of Fund s Distributions (Note 3) and Additional Distributions (Note 5) Per Unit as at December Distributions characterized as: Dividend Income $ % $ Return of Capital % Distributions to Unitholders $ % $ % The following table shows the total additional distributions declared by the Fund for the year ended December 31, Total Distributions characterized as Additional Dividend Distributions Per Unit Income Capital Gains Class A $ 81,450 $ % 81.05% Verus Class A 5, % 81.05% Class F 37, % 81.05% Verus Class F 3, % 81.05% $ 128,693 15

17 C. Schedule of Tax Loss Carry Forwards (Note 5) As at December 31, 2013: Capital Losses $ 139 D. Financial Instruments by Level in the Fair Value Hierarchy (Note 7) The table below illustrates the classification of the Fund s financial instruments within the fair value hierarchy as at December 31 as follows: Level 1 Level 2 Level 3 Total Investments held for trading $ 6,801,285 $ 2,144,494 $ $ $ $ $ 6,801,285 $ 2,144,494 There were no transfers between levels during 2013 or in the period ended December 31, E. Schedule of Financial Risk Management (Note 8) Price Risk If the prices on the TSX for the Portfolio Securities had increased or decreased by 5% as at December 31, 2013, with all other variables remaining constant, net assets would have increased or decreased, respectively, by approximately $0.3 million (2012 $0.1 million). In practice, the actual results may differ materially from this sensitivity analysis. Interest Rate Risk Not applicable for the Fund. See accompanying notes to financial statements. 16

18 ANCHOR MANAGED DIVIDEND GROWTH FUND STATEMENTS OF NET ASSETS As at December Assets Investments, at fair value $ 14,731,570 $ 10,097,392 Cash 288, ,875 Distributions receivable 65,130 40,885 Receivable from manager (note 6) 59,671 Subscriptions receivable 54,935 15,085,440 10,436,758 Liabilities Accrued liabilities (note 6) 51, ,116 Redemption payable 3,000 1,000 Due to broker 53,203 54, ,319 Net assets representing Unitholders equity $ 15,031,356 $ 10,266,439 Net Assets per Class: Class A $ 2,122,427 $ 767,062 Verus Class A 1,368,366 1,235,050 Class F 6,600,041 4,360,676 Verus Class F 4,940,522 3,903,651 $ 15,031,356 $ 10,266,439 Number of Units outstanding (note 4): Class A 193,570 75,023 Verus Class A 125, ,843 Class F 594, ,029 Verus Class F 445, ,807 Net Assets per Unit (note 2): Class A $ $ Verus Class A $ $ Class F $ $ Verus Class F $ $ See accompanying notes to financial statements. On behalf of the Board: 18NOV Brian D. McChesney President and Chief Executive Officer 18NOV Stephen D. Pearce Chief Financial Officer 17

19 ANCHOR MANAGED DIVIDEND GROWTH FUND STATEMENTS OF INVESTMENT OPERATIONS For the year ended December 31, 2013 and for the period from August 30, 2012 to December 31, 2012 (Note 1) Revenue Dividends $ 477,773 $ 110,494 Interest 94,389 12,837 Capital gains 1, , ,781 Expenses Management fees (note 6) 147,363 30,023 Unitholders information costs 47,083 16,203 Service fees (note 6) 33,553 4,839 Audit fees 18,892 18,454 Independent Review Committee fees 13,863 9,261 Custodial fees 12,152 3,469 Transfer agent fees 10,574 8,400 Listing fees 2,486 Insurance premiums 1, Legal fees (recovery) (9,154) 26,163 Other 627 1, , ,244 Deduct: Expenses absorbed by SMCAI (note 6) (97,552) (59,671) 181,829 58,573 Net investment income for the year 391,561 65,208 Net realized gain (loss) on disposition of investments 88,646 (76,762) Trading commissions (note 2) (27,519) (9,876) Unrealized appreciation of investments 824, ,507 Total results of investment operations $ 1,277,414 $ 246,077 Net increase in Net Assets from investment operations per Class: Class A $ 146,095 $ 11,544 Verus Class A 116,455 29,148 Class F 576, ,425 Verus Class F 438, ,960 $ 1,277,414 $ 246,077 Weighted average number of Units outstanding: Class A 160,660 25,040 Verus Class A 127, ,542 Class F 539, ,665 Verus Class F 410, ,795 Net increase in Net Assets from investment operations per Unit*: Class A $ 0.91 $ 0.46 Verus Class A $ 0.91 $ 0.29 Class F $ 1.07 $ 0.31 Verus Class F $ 1.07 $ 0.32 * Based upon the weighted average number of Units outstanding during the year/period. See accompanying notes to financial statements. 18

20 ANCHOR MANAGED DIVIDEND GROWTH FUND STATEMENTS OF CASH FLOWS For the year ended December 31, 2013 and for the period from August 30, 2012 to December 31, 2012 (Note 1) Operating activities Total results of investment operations $ 1,277,414 $ 246,077 Add (deduct): Net realized (gain) loss on disposition of investments (88,646) 76,762 Unrealized appreciation of investments (824,726) (267,507) Changes in non-cash items Decrease (increase) in distributions receivable and receivable from manager 35,426 (100,556) Increase (decrease) in accrued liabilities (65,032) 116,116 Net cash flow provided by operating activities 334,436 70,892 Investing activities Purchase of investments (18,691,792) (11,807,190) Proceeds on disposition of investments 14,863,701 1,944,596 Distributions received as return of capital 54,082 9,150 Net cash flow used in investing activities (3,774,009) (9,853,444) Financing activities Proceeds on issuance of Units 4,978,681 10,105,457 Decrease (increase) in subscriptions receivable 54,935 (54,935) Early redemption fees 4, Increase in redemption payable 2,000 1,000 Proceeds paid on Units redeemed (1,434,151) (77,726) Net distributions paid to Unitholders (61,698) (7,751) Net cash flow provided by financing activities 3,544,438 9,966,427 Net increase in cash 104, ,875 Cash, beginning of year/period 183,875 Cash, end of year/period $ 288,740 $ 183,875 See accompanying notes to financial statements. 19

21 ANCHOR MANAGED DIVIDEND GROWTH FUND STATEMENT OF CHANGES IN NET ASSETS For the year ended December 31, 2013 Verus Verus Class A Class A Class F Class F Total Fund Net Assets, beginning of year $ 767,062 $ 1,235,050 $ 4,360,676 $ 3,903,651 $ 10,266,439 Net increase in Net Assets from investment operations 146, , , ,239 1,277,414 Capital Unit Transactions (note 4): Proceeds from issue of Units 1,469, ,479 2,340,657 1,036,880 4,978,681 Reinvestment of distributions 33,578 23, ,455 27, ,429 Early redemption fees ,509 1,333 4,671 Consideration paid for redemption of Units (259,407) (113,090) (677,129) (384,525) (1,434,151) 1,244,362 42,351 1,775, ,425 3,743,630 Distributions to Unitholders (35,092) (25,490) (112,752) (82,793) (256,127) Net Assets, end of year $ 2,122,427 $ 1,368,366 $ 6,600,041 $ 4,940,522 $ 15,031,356 Capital Unit Transactions: Units outstanding, beginning of year 75, , , ,807 Units issued 139,888 12, ,380 98,171 Units issued on reinvestments 3,221 2,276 10,384 2,669 Units redeemed (24,562) (10,673) (64,749) (36,394) Units outstanding, end of year 193, , , ,253 20

22 ANCHOR MANAGED DIVIDEND GROWTH FUND STATEMENT OF CHANGES IN NET ASSETS (continued) For the period from August 30, 2012, to December 31, 2012 (Note 1) Verus Verus Class A Class A Class F Class F Total Fund Net Assets, beginning of period $ $ $ $ $ Net increase in Net Assets from investment operations 11,544 29, , , ,077 Capital Unit Transactions (note 4): Proceeds from issue of Units 755,518 1,247,553 4,258,531 3,843,856 10,105,458 Reinvestment of distributions 3,733 5,891 20,870 11,635 42,129 Early redemption fees Consideration paid for redemption of Units (41,726) (36,000) (77,726) 759,251 1,211,915 4,279,401 3,819,676 10,070,243 Distributions characterized as: Dividend Income (184) (296) (1,043) (936) (2,459) Return of capital (3,549) (5,717) (20,107) (18,048) (47,421) Distributions to Unitholders (3,733) (6,013) (21,150) (18,984) (49,880) Net Assets, end of period $ 767,062 $ 1,235,050 $ 4,360,676 $ 3,903,652 $ 10,266,440 Capital Unit Transactions: Units Outstanding, beginning of period Units issued 74, , , ,259 Units issued on reinvestments ,028 1,131 Units redeemed (4,151) (3,583) Units Outstanding, end of the period 75, , , ,807 See accompanying notes to financial statements. 21

23 ANCHOR MANAGED DIVIDEND GROWTH FUND STATEMENT OF INVESTMENTS As at December 31, 2013 Number of Adjusted Fair % of Portfolio Units/Shares Securities Cost Base Value at Fair Value BASIC MATERIALS 11,011 Teck Resources Ltd. $ 271,927 $ 304, , , TELECOMMUNICATION SERVICES 12,719 BCE Inc. 557, , ,040 TELUS Corporation 684, , ,241,721 1,317, ENERGY 43,578 Bonavista Energy Corporation 568, , ,365 Baytex Energy Corp. 590, , ,971 Cenovus Energy Inc. 583, , ,236 Enbridge Inc. 791, , ,015 Pembina Pipeline Corporation 545, , ,660 TransCanada Corporation 314, , ,913 Vermilion Energy Inc. 521, , ,915,918 4,166, FINANCIALS 7,355 Bank of Montreal 440, , ,063 Bank of Nova Scotia* 483, , ,479 Canadian Imperial Bank of Commerce 508, , ,544 Royal Bank of Canada 557, , ,066 The Toronto-Dominion Bank 423, , ,413,320 2,832, CONSUMER DISCRETIONARY 15,588 Thomson Reuters Corporation 460, , , , REAL ESTATE 40,526 Brookfield Property Partners L.P. 825, , ,290 Boardwalk Real Estate Investment Trust 514, , ,727 H&R Real Estate Investment Trust 552, , ,892,050 1,860, UTILITIES 21,392 Brookfield Renewable Energy Partners L.P. 622, , ,690 Brookfield Infrastructure LP 644, , ,651 Fortis Inc. 597, , ,011 Just Energy Group Inc. 837, , ,057 TransAlta Corporation 753, , ,455,563 3,624, Adjustment for trading commissions (11,982) Total Value of Investments $13,639,337 $14,731, * Related party to the Fund as ultimate parent of Scotia Managed Companies Administration Inc. See accompanying notes to financial statements. 22

24 ANCHOR MANAGED DIVIDEND GROWTH FUND Financial Statements Supplementary Schedules A. Schedule of Net Assets per Unit and NAV per Unit (Note 2) The Fund calculates Net Asset Value ( NAV ) for all purposes other than financial statements without giving effect to Section 3855 as referred to in Note 2. This may result in a difference between the net assets per unit and NAV per unit and the differences, if any, are presented in the table below: Per Unit as at December Class Net Assets NAV Net Assets NAV Class A $ $ $ $ Verus Class A $ $ $ $ Class F $ $ $ $ Verus Class F $ $ $ $ B. Schedule of Tax Treatment of Fund s Distributions (Note 3) and Additional Distributions (Note 5) Per Unit as at December Distributions characterized as: Dividend Income $ % $ % Return of Capital % Distributions to Unitholders $ % $ % The following table shows the total additional distributions declared by the Fund for the year ended December 31, Distributions characterized Total as Additional Dividend Distributions Per Unit Income Class A $ 10,880 $ % Verus Class A 7, % Class F 33, % Verus Class F 25, % $ 77,037 23

25 C. Schedule of Tax Loss Carry Forwards (Note 5) As at December 31, 2013: Capital Losses $ 75,000 D. Financial Instruments by Level in the Fair Value Hierarchy (Note 7) The table below illustrates the classification of the Fund s financial instruments within the fair value hierarchy as at December 31 as follows: Level 1 Level 2 Level 3 Total Investments held for trading $14,731,570 $10,097,392 $ $ $ $ $14,731,570 $10,097,392 There were no transfers between levels during 2013 or in the period ended December 31, E. Schedule of Financial Risk Management (Note 8) Price Risk: If the prices on the TSX for the Portfolio Securities had increased or decreased by 5% as at December 31, 2013, with all other variables remaining constant, net assets would have increased or decreased, respectively, by approximately $0.7 million (2012 $0.5 million). In practice, the actual results may differ materially from this sensitivity analysis. Interest Rate Risk Not applicable for the Fund. See accompanying notes to financial statements. 24

26 ANCHOR MANAGED HIGH INCOME FUND STATEMENTS OF NET ASSETS As at December Assets Investments, at fair value $ 8,846,151 $ 4,250,409 Cash 202,239 39,354 Distributions receivable 40,195 18,516 Subscriptions receivable 27,225 Receivable from manager (note 6) 17,263 9,088,585 4,352,767 Liabilities Accrued liabilities (note 6) 46,358 35,791 Due to broker 26,851 46,358 62,642 Net assets representing Unitholders equity $ 9,042,227 $ 4,290,125 Net Assets per Class: Class A $ 7,569,727 $ 3,373,460 Verus Class A 107, ,180 Class F 639, ,394 Verus Class F 725, ,091 $ 9,042,227 $ 4,290,125 Number of Units outstanding (note 4): Class A 725, ,427 Verus Class A 10,379 10,364 Class F 60,532 28,891 Verus Class F 68,742 52,556 Net Assets per Unit (note 2): Class A $ $ 9.97 Verus Class A $ $ 9.96 Class F $ $ 9.98 Verus Class F $ $ 9.99 See accompanying notes to financial statements. On behalf of the Board: 18NOV Brian D. McChesney President and Chief Executive Officer 18NOV Stephen D. Pearce Chief Financial Officer 25

27 ANCHOR MANAGED HIGH INCOME FUND STATEMENTS OF INVESTMENT OPERATIONS For the year ended December 31, 2013 and for the period from August 30, 2012 to December 31, 2012 (Note 1) Revenue Dividends $ 248,837 $ 31,639 Interest 86,320 5,299 Capital gains ,224 37,093 Expenses Management fees (note 6) 86,362 7,965 Service fees (note 6) 70,928 5,854 Unitholders information costs 32,469 5,111 Audit fees 14,756 9,407 Custodial fees 8,338 2,260 Independent Review Committee fees 7,967 1,389 Legal fees 7,914 3,922 Transfer agent fees 6,345 1,259 Listing fees 2,486 Insurance premiums 1, Other ,402 37,373 Deduct: Expenses absorbed by SMCAI (note 6) (82,021) (17,263) 157,381 20,110 Net investment income for the year 177,843 16,983 Net realized loss on disposition of investments (208,744) (29,974) Trading commissions (note 2) (16,521) (4,075) Unrealized appreciation of investments 559,713 81,199 Total results of investment operations $ 512,291 $ 64,133 Net increase in Net Assets from investment operations per Class: Class A $ 421,426 $ 53,606 Verus Class A 6, Class F 34,888 3,889 Verus Class F 49,283 6,176 $ 512,291 $ 64,133 Weighted average number of Units outstanding: Class A 626, ,475 Verus Class A 10,604 9,306 Class F 59,222 11,273 Verus Class F 66,307 45,036 Net increase in Net Assets from investment operations per Unit*: Class A $ 0.67 $ 0.36 Verus Class A $ 0.63 $ 0.05 Class F $ 0.59 $ 0.34 Verus Class F $ 0.74 $ 0.14 * Based upon the weighted average number of Units outstanding during the year/period. See accompanying notes to financial statements. 26

28 ANCHOR MANAGED HIGH INCOME FUND STATEMENTS OF CASH FLOWS For the year ended December 31, 2013 and for the period from August 30, 2012 to December 31, 2012 (Note 1) Operating activities Total results of investment operations $ 512,291 $ 64,133 Add (deduct): Net realized loss on disposition of investments 208,744 29,974 Unrealized appreciation of investments (559,713) (81,199) Changes in non-cash items Increase in distributions receivable and receivable from manager (4,416) (35,779) Increase in accrued liabilities 10,567 35,791 Net cash flow provided by operating activities 167,473 12,920 Investing activities Purchase of investments (12,987,727) (4,782,582) Proceeds on disposition of investments 8,661, ,176 Distributions received as return of capital 55,007 5,073 Net cash flow used in investing activities (4,271,624) (4,172,333) Financing activities Proceeds on issuance of Units 4,732,504 4,241,259 Decrease (increase) in subscriptions receivable 27,225 (27,225) Early redemption fees Proceeds paid on Units redeemed (464,935) (13,400) Net distributions paid to Unitholders (28,554) (1,935) Net cash flow provided by financing activities 4,267,036 4,198,767 Net increase in cash 162,885 39,354 Cash, beginning of year/period 39,354 Cash, end of year/period $ 202,239 $ 39,354 See accompanying notes to financial statements. 27

29 ANCHOR MANAGED HIGH INCOME FUND STATEMENT OF CHANGES IN NET ASSETS For the year ended December 31, 2013 Class A Verus Class A Class F Verus Class F Total Fund Net Assets, beginning of year $ 3,373,460 $ 103,180 $ 288,394 $ 525,091 $ 4,290,125 Net increase in Net Assets from investment operations 421,426 6,694 34,888 49, ,291 Capital Unit Transactions (note 4): Proceeds from issue of Units 4,060,715 1, , ,750 4,732,504 Reinvestment of distributions 117,802 1,023 10,116 3, ,289 Early redemption fees Consideration paid for redemption of Units (270,973) (2,250) (132,966) (58,746) (464,935) 3,907, , ,562 4,400,654 Distributions to Unitholders (132,847) (2,061) (12,367) (13,568) (160,843) Net Assets, end of year $ 7,569,727 $ 107,936 $ 639,196 $ 725,368 $ 9,042,227 Capital Unit Transactions: Units outstanding, beginning of year 338,427 10,364 28,891 52,556 Units issued 402, ,160 21,577 Units issued on reinvestments 11, , Units redeemed (26,845) (223) (13,528) (5,731) Units outstanding, end of year 725,540 10,379 60,532 68,742 28

30 ANCHOR MANAGED HIGH INCOME FUND STATEMENT OF CHANGES IN NET ASSETS (continued) For the period from August 30, 2012 to December 31, (Note 1) Class A Verus Class A Class F Verus Class F Total Fund Net Assets, beginning of period $ $ $ $ $ Net increase in Net Assets from investment operations 53, ,889 6,176 64,133 Capital Unit Transactions (note 4): Proceeds from issue of Units 3,320, , , ,185 4,241,259 Reinvestment of distributions 16, ,681 19,480 Early redemption fees Consideration paid for redemption of Units (13,400) (13,400) 3,336, , , ,534 4,247,407 Distributions to Unitholders (return of capital) (16,840) (516) (1,440) (2,619) (21,415) Net Assets, end of period $ 3,373,460 $ 103,180 $ 288,394 $ 525,091 $ 4,290,125 Capital Unit Transactions: Units Outstanding, beginning of period Units issued 336,797 10,312 28,795 53,740 Units issued on reinvestments 1, Units redeemed (1,352) Units Outstanding, end of the period 338,427 10,364 28,891 52,556 See accompanying notes to financial statements. 29

31 ANCHOR MANAGED HIGH INCOME FUND STATEMENT OF INVESTMENTS As at December 31, 2013 Number of Adjusted Fair % of Portfolio Units/Shares Securities Cost Base Value at Fair Value TELECOMMUNICATION SERVICES 11,974 BCE Inc. $ 530,216 $ 550, ,119 TELUS Corporation 545, , ,075,602 1,140, ENERGY 32,127 Bonavista Energy Corporation 419, , ,608 Baytex Energy Corp. 630, , ,443 Enbridge Inc. 453, , ,536 Pembina Pipeline Corporation 509, , ,834 Vermilion Energy Inc. 413, , ,426,507 2,643, FINANCIALS 7,289 Bank of Montreal 451, , ,082 Canadian Imperial Bank of Commerce 405, , ,200 Toronto-Dominion Bank 519, , ,376,920 1,597, REAL ESTATE 33,814 Brookfield Property Partners L.P. 677, , ,979 H&R Real Estate Investment Trust 757, , ,434,632 1,420, UTILITIES 20,863 Brookfield Infrastructure L.P. 732, , ,848 Just Energy Group Inc. 558, , ,504 TransAlta Corporation 607, , ,898,877 2,043, Adjustment for trading commissions (7,299) Total Value of Investments $8,205,239 $8,846, See accompanying notes to financial statements. 30

32 ANCHOR MANAGED HIGH INCOME FUND Financial Statements Supplementary Schedules A. Schedule of Net Assets per Unit and NAV per Unit (Note 2) The Fund calculates Net Asset Value ( NAV ) for all purposes other than financial statements without giving effect to Section 3855 as referred to in Note 2. This may result in a difference between the net assets per unit and NAV per unit and the differences, if any, are presented in the table below: Per Unit as at December Class Net Assets NAV Net Assets NAV Class A $ $ $ 9.97 $ 9.98 Verus Class A $ $ $ 9.96 $ 9.97 Class F $ $ $ 9.98 $ Verus Class F $ $ $ 9.99 $ B. Schedule of Tax Treatment of Fund s Distributions (Note 3) Per Unit as at December Distributions characterized as: Dividend Income $ % $ Return of Capital % % Distributions to Unitholders $ % $ % C. Schedule of Tax Loss Carry Forwards (Note 5) As at December 31, 2013: Capital Losses $ 254,000 31

33 D. Financial Instruments by Level in the Fair Value Hierarchy (Note 7) The table below illustrates the classification of the Fund s financial instruments within the fair value hierarchy as at December 31 as follows: Level 1 Level 2 Level 3 Total Investments held for trading $ 8,846,151 $ 4,250,409 $ $ $ $ $ 8,846,151 $ 4,250,409 There were no transfers between levels during 2013 or in the period ended December 31, E. Schedule of Financial Risk Management (Note 8) Price Risk If the prices on the TSX for the Portfolio Securities had increased or decreased by 5% as at December 31, 2013, with all other variables remaining constant, net assets would have increased or decreased, respectively, by approximately $0.4 million (2012 $0.2 million). In practice, the actual results may differ materially from this sensitivity analysis. Interest Rate Risk Not applicable for the Fund. See accompanying notes to financial statements. 32

34 NOTES TO FINANCIAL STATEMENTS December 31, 2013 and THE FUNDS The Anchor Managed Funds (collectively, the Funds or individually, a Fund ) are a family of three open-ended mutual funds governed under the laws of Ontario: 1. Anchor Managed Defensive Income Fund 2. Anchor Managed Dividend Growth Fund 3. Anchor Managed High Income Fund Each of the Funds was established under the laws of Ontario and is governed by a Master Declaration of Trust dated August 17, Pursuant to this Declaration of Trust, Scotia Managed Companies Administration Inc. ( SMCAI or the Manager ), a wholly-owned subsidiary of Scotia Capital Inc. ( SCI ), is the trustee and Manager of the Funds and is responsible for the day-to-day administration and management of the Funds. SMCAI has retained ScotiaMcLeod (a division of SCI) as portfolio advisor. ScotiaMcLeod, provides investment advisory and portfolio management services to the Funds and is responsible for acquiring the securities comprising the portfolio (the Portfolios or Portfolio Securities ) and maintaining the Portfolios in accordance with the investment objectives, strategy and restrictions of each of the Funds. The Funds commenced operations on August 30, Anchor Managed Defensive Income Fund s objectives are to provide stable quarterly cash distributions, preserve capital and offer potential for consistent long-term capital appreciation. The Fund seeks to generate lower volatility returns by investing a maximum of 50% of the total portfolio in equities with the balance invested in preferred shares and debt securities. Anchor Managed Dividend Growth Fund s objectives are to provide stable quarterly cash distributions and potential for consistent, long-term capital appreciation. The Fund invests primarily in a portfolio of high dividend-yielding equities of large TSX listed Canadian companies and REITs and at certain times, may invest in Canadian preferred shares and debt securities. Anchor Managed High Income Fund s objectives are to provide stable quarterly cash distributions and potential for consistent, long-term capital appreciation. The Fund invests in a concentrated portfolio of high dividend-yielding equities of large TSX listed Canadian companies and REITs. Each of the Funds is authorized to issue an unlimited number of classes divided into an unlimited number of units, each of which represents an equal undivided interest in the property of that particular Fund. The Class A units are available to all investors through dealers or brokers registered in their province or territory. The Class F units are generally available only to investors who have fee-based accounts with authorized brokers or dealers, including ScotiaMcLeod. The Verus Class A units and the Verus Class F units are only available to clients of Verus Wealth Management, a division of ScotiaMcLeod. The Verus Class A units are available to all Verus Wealth 33