Aston Hill VIP Income Fund. Annual Financial Statements

Transcription

1 Aston Hill VIP Income Fund Annual Financial Statements December 31, 2016

2 MANAGEMENT REPORT OF FUND PERFORMANCE This annual management report of fund performance for Aston Hill VIP Income Fund (the Fund ) contains financial highlights but does not contain the complete annual financial statements of the Fund. The annual financial statements and accompanying notes are attached to this report. You can obtain a copy of the annual financial statements at no cost by writing to LOGiQ Asset Management Ltd. (formerly, Aston Hill Asset Management Inc.) (the Manager ) to the following address: 77 King Street West, Suite 2110, PO Box 92, Toronto-Dominion Centre, Toronto, Ontario, M5K 1G8 or calling or visiting the Manager s website at or by visiting Securityholders may also contact us using one of these methods to request a copy of the Fund s proxy voting policies and procedures, proxy voting disclosure record, or quarterly portfolio disclosure. THE FUND Aston Hill VIP Income Fund is a closed-end investment trust that is managed by LOGiQ Asset Management Ltd. (the Manager ). The units of the Fund trade on the Toronto Stock Exchange ( TSX ) under the symbol VIP.UN. The Fund is RRSP, DPSP, RRIF, RESP and TFSA eligible. On May 1 st, 2016, Manitou Investment Management was appointed as investment manager (the Investment Manager ). On December 8, 2016, Aston Hill Asset Management Inc., as part of Aston Hill Financial Inc. ( Aston Hill ) and together with Front Street Capital 2004 ( Front Street ) and Tuscarora Capital Inc. ( TCI ), an entity under common control with Front Street, completed a previously announced transaction whereby Aston Hill would acquire all of the equity interests in the Front Street and TCI, and the companies would combine their respective operations. As part of the transaction, Aston Hill also changed its name to LOGiQ Asset Management Inc. and consequently Aston Hill Asset Management Inc. changed its name to LOGiQ Asset Management Ltd. INVESTMENT OBJECTIVES AND STRATEGIES The investment objectives of the Fund are to provide unitholders with the benefits of a high level monthly income, together with the opportunity for capital appreciation. The Fund seeks to achieve its investment objectives through active asset and sector allocation and by investing in income producing securities that the Manager believes represent the best weighting to achieve the investment objectives. The Fund has exposure to a diversified portfolio consisting of income producing securities including income trusts, dividend paying common shares, convertible debt, preferred shares, and investment grade fixed income investments. RISK Risks associated with an investment in the units of the Fund are discussed in the Fund s 2016 annual information form, which is available on the Manager s website at or on SEDAR at There were no changes to the year ended December 31, 2016 that materially affected the risks associated with an investment in the units of the Fund. RESULTS OF OPERATIONS Caution regarding forward-looking statements The analysis in the document includes forward-looking statements. The use of any of the words anticipate, may, will, expect, estimate, should, believe and similar expressions are intended to identify forward-looking statements. Such statements reflect the opinion of the Investment Manager regarding factors that might be reasonably expected to affect the performance and the distributions on units of the Fund and are based on information available at the time of writing. The Investment Manager believes that the expectations reflected in these forward-looking statements and in the analysis are reasonable but no assurance can be given that these expectations or the analysis will prove to be correct and accordingly, they should not be unduly relied on. These statements speak only as of the date of this report. Actual events and outcomes may differ materially from those described in these forward-looking statements or analysis. Investment Manager Commentary (February 2017) Manitou was appointed subadvisor to the VIP funds in May of In our first commentary, the Semi-Annual Report, we highlighted Manitou s core approach and how that was being applied to this income focused mandate. As a firm, we focus on total return and use concentrated, well researched, portfolios to achieve our return objectives. Our investee companies must meet stringent quality requirements where sustainability, and growth, of cash flow is paramount. Thus, the vast majority of names we investment in have significant and growing dividends and are well suited for an income mandate. We have managed the fund with a balance of cash, bonds and equities with sufficient cash to support the distribution, a limited number of bonds given the rate environment, and a diversified collection of equity positions in quality operators. Leaning 1

3 on our equity positions, we will work to grow the capital base while using a buffer of cash and bonds to maintain the distribution. The certainly of capital preservation is critical while we strive to grow the capital base. Our most significant move during the year was predicated on preserving capital. Given the ultra low rate environment, the income from quality bonds is generally not sufficient to meet inflation. In this environment, high yield equities, such as REITS (Real Estate Investment Trusts) and utilities, have become the bond substitute. Our concern, mid-year, was that the market would start pricing in higher rates as positive economic data was causing the U.S. Federal Reserve to signal a rate hike was likely coming before the end of the year. The prospect of higher yields on bonds implied high yield equity could be revalued downward and we sold out of several utility, pipeline and REIT positions such as Algonquin Power and Utilities Corp, Enbridge Inc and Slate Retail REIT. We replaced these positions with companies that we believe have solid prospects for capital appreciation as well as a decent yield including Great West Lifeco Inc., CME Group Inc., Enghouse Systems Limited and Constellation Software Inc. In hind sight, this was a reasonable move as both the Utilities sector and the newly formed Real Estate sector posted negative returns in the forth quarter of We also added Constellation Software bonds which have an attractive yield and the coupon is inflation adjusted. As we start 2017, we expect speculation on inflation and interest rate moves to continue to be a critical driver of market performance. We will continue to focus our research on finding individual companies that can grow their core business and generate enough cash flow to exceed their re-investment needs and pay the excess as a sustainable and growing dividend stream. We will stay sensitive to the environment in which these companies operate as well as review our allocation between cash, bonds and equities. We believe the business climate will be stable to improving, rate hikes will be gradual and equites will be the most suitable asset class to generate total returns. Thus, we will maintain the portfolio with a heavy tilt toward equity and will maintain a suitable cash buffer. Capital transactions During the year ended December 31, 2016, 4,553,704 units were redeemed for the value of $43,624,484 (2015 there were 5,385,092 units redeemed for the value of $52,478,260). Market repurchases Units of the Fund are listed on the TSX under the symbol VIP.UN. The Trust Agreement provides that the Fund may, in its sole discretion, from time to time, purchase (in the open market or by invitation for tenders) Units for cancellation subject to applicable law and stock exchange requirements, based on the Manager s assessment that such purchases are accretive to Unitholders, in all cases at a price per Unit not exceeding the most recently calculated Net Asset Value per Unit immediately prior to the date of any such purchase of Units. The Fund did not purchase any units for cancellation during the year ended December 31, 2016 and LEVERAGE The Fund had a 364-day revolving credit facility that provides for maximum borrowings of $65.0 million, with borrowings in Canadian currency at either the prime rate of interest or the bankers acceptance rate, plus a fixed percentage, or in US currency at either the US base rate or the LIBOR, plus a fixed percentage. The facility has been used to invest in additional portfolio investments and for working capital purposes. The loan facility is collateralized by the Fund s total Net Assets. The credit facility term was terminated on June 25, 2015, and the related interest expense was $nil (for the year ended December 31, $200,737). DISTRIBUTIONS The Fund pays monthly distributions at $0.035 per unit, representing an approximately 4.31% annual yield, based on the December 31, 2016 Net Assets per unit. The new rate is consistent with the yields available within the Fund's investable universe. For the year ended December 31, 2016, the Fund paid distributions of $0.42 per unit ($0.49 in 2015). Since inception in February 2002, the Fund has paid total cash distributions of $12.45 per unit. RECOMMENDATIONS OR REPORTS BY THE INDEPENDENT REVIEW COMMITTEE The Independent Review Committee of the Fund tabled no special reports and made no extraordinary material recommendations to management of the Fund during the year ended December 31,

4 RELATED PARTY TRANSACTIONS Management Fees and Service Fees Pursuant to a management agreement, the Manager provides management and administrative services to the Fund, for which it is paid a management fee equal to 0.85% per annum of the Net Asset Value of the Fund, plus applicable taxes. The Fund also pays to the Manager a service fee equal to 0.40% per annum of the Net Asset Value of the Fund. The service fee, plus applicable taxes, is in turn paid by the Manager to investment dealers in proportion to the number of units held by clients of each dealer at the end of each calendar quarter. The sub-advisor fees are also paid out of Management fees. For the year ended December 31, 2016, the management fees amounted to $1,764,910 (for the year ended December 31, $2,292,193); the service fees amounted to $813,435 (for the year ended December 31, $1,050,244). The Fund is responsible for all other operating expenses incurred in connection with its operation and administration, such as custodian, valuation, trustee, reporting, audit and legal fees. Administration Fees The Manager allocates back to the Fund a portion of the cost of individuals who have spent time working on the operation and oversight of the Fund. For the year ended December 31, 2016, administration fees amounted to $154,120 (for the year ended December 31, $142,949). Independent Review Committee Fee The members of the Independent Review Committee are John Crow (chair), Joseph Wright, Robert B. Falconer and Scott Browning. The Independent Review Committee acts as a review committee for a number of investment funds managed by the Manager. The IRC members each receive $15,000 per annum ($20,000 for the Chairman) plus $1,250 per meeting for acting in such capacity and are also reimbursed for expenses in connection with performing their duties. These fees and expense reimbursements are allocated across investment funds that are managed by the Manager in a manner that is fair and reasonable. For the year ended December 31, 2016, IRC fees amounted to $12,384 (for the year ended December 31, $2,314). 3

5 PAST PERFORMANCE The following bar charts and table show the Fund s annual performance by showing annual returns by fiscal year and annualized compound returns from inception assuming all the distributions made by the Fund during the years shown were reinvested. The performance information does not take into account sales, redemptions, distributions or other optional charges that would have reduced returns or performance. The bar charts show, in percentage terms, how much an investment made on the first day of the period would have grown or decreased by the last day of the period. Past performance is not necessarily indicative of future performance. Year-by-Year Returns 50.0% 40.0% 37.9% 30.0% 20.0% 10.0% 0.0% 15.9% 20.2% 0.6% 11.7% 17.5% 2.0% 0.5% 6.6% -10.0% -20.0% -30.0% -40.0% -50.0% -44.3% Fiscal Year Annual Compound Returns 1-Year 3-Year 5-Year 7-Year 10-Year Since Inception (1) Aston Hill VIP Income Fund 6.58% 2.98% 7.47% 8.17% 4.44% 8.48% S&P/TSX Composite Index 21.08% 7.05% 8.23% 6.89% 4.70% 7.68% (1) Period from February 19, 2002 (commencement of operations) to December 31,

6 FINANCIAL HIGHLIGHTS The following tables show selected key financial information about the Fund and are intended to aid in understanding the Fund s financial performance since inception. This information is derived from the Fund s audited annual financial statements: Net Assets per Unit Net Assets, beginning of period (1) Increase (decrease) from operations: Total revenues Total expenses (0.17) (0.17) (0.20) (0.17) (0.14) Realized gains (losses) for the period Unrealized gains (losses) for the period 0.02 (0.28) (0.48) Total increase (decrease) from operations (2) Distributions: From income (0.13) (0.29) (0.32) (0.31) (0.24) Return of capital (0.29) (0.20) (0.22) (0.23) (0.53) Total Distributions (1) (3) (0.42) (0.49) (0.54) (0.54) (0.77) Net Assets, end of period (4) (5) (1) Net assets and distributions are based on the actual number of units outstanding at the relevant time. (2) The increases (decrease) in Net Assets from operations per unit are based on the weighted average number of units outstanding over the fiscal period. (3) The percentages used to allocate distributions among income; dividends, capital gains and return on capital are based on the Fund s tax return. (4) This is not intended to be reconciliation between the opening and the closing Net Assets balances. (5) The Fund adopted International Financial Reporting Standards ( IFRS ) commencing January 1, Information for periods prior to January 1, 2013 continues to be reported under Canadian GAAP. Ratios and Supplemental Data Net Assets (000s) 164, , , , ,757 Number of units outstanding (in 000s) 16,863 21,417 26,802 29,720 34,045 Base management expense ratio (1) 1.40% 1.46% 1.56% 1.43% 1.42% Management expense ratio ("MER") (2) 1.55% 1.54% 2.05% 1.60% 1.53% Trading expense ratio (3) 0.14% 0.16% 0.15% 0.13% 0.12% Portfolio turnover rate (4) 98.02% 79.40% 82.10% 95.35% % Net Assets per unit (5) Closing market price (TSX) (1) A separate base management expense ratio is presented to exclude interest expenses and issuance cost. (2) MER is based on the requirements of NI and includes the total expenses (excluding commissions and other portfolio transaction cost) of the Fund for the stated period, including interest expense and issuance costs, if applicable, and is expressed as an annualized percentage of daily average net asset value during the period. (3) The trading expense ratio represents total commissions and other portfolio transaction costs expressed as an annualized percentage of daily average net asset value during the period. (4) The Fund s turnover rate indicates how actively the Fund s portfolio advisor manages its portfolio investments. A portfolio turnover rate of 100% is equivalent to the Fund s buying and selling all of the securities (including fixed income) in its portfolio once in the course of the year. There is not necessarily a relationship between turnover rate and the performance of the Fund. (5) The Fund adopted International Financial Reporting Standards ( IFRS ) commencing January 1, Information for periods prior to January 1, 2013 continues to be reported under Canadian GAAP. 5

7 SUMMARY OF INVESTMENT PORTFOLIO AS OF DECEMBER 31, 2016 The summary of investment portfolio may change due to ongoing portfolio transactions of the Fund. A quarterly update is available at and at Investment portfolio of Aston Hill VIP Income Fund % of Net assets Portfolio by Category Financials 37.0% Canadian Corporate Bonds 12.8% Cash 7.5% Telecommunication Services 7.5% Energy 7.2% Information Technology 6.3% Industrials 6.1% Consumer Staples 5.9% Consumer Discretionary 4.3% Exchange-traded Funds 2.9% Real Estate 2.7% Foreign Currency Forward Contracts 0.0% Net Other Assets (Liabilities) (0.2%) Total 100.0% Top 25 Holdings Coupon Rate Maturity Date Long Positions % Royal Bank of Canada 2.350% December 9, % Great-West Lifeco Inc. 7.5% Cash 7.5% Royal Bank of Canada 6.0% The Bank of Nova Scotia 5.8% Suncor Energy Inc. 4.8% Magna International Inc. 4.3% Canadian National Railway Co. 4.1% Telus Communication 3.9% CI Financial Corp. 3.9% Brookfield Asset Management Inc. 3.7% BCE Inc. 3.6% CME Group Inc. 3.0% Constellation Software Inc. 3.0% ishares DEX All Corporate Bond Index Fund 2.9% Walgreens Boots Alliance Inc. 2.7% Brookfield Property Partners LP 2.7% Chemtrade Logistics Income Fund 2.3% Chartwell Retirement Residences 2.1% Easy Legal Finance Inc % November 1, % Stericycle Inc., Preferred, 5.250% 2.0% Ethoca Solutions Inc., Class A 1.9% Alimentation Couche Tard Inc., Class B 1.9% Canadian Natural Resources Ltd. 1.5% Enghouse Systems Ltd. 1.4% Net Assets $164,405,270 6

8 Management s Responsibility for Financial Reporting The accompanying financial statements to Aston Hill VIP Income Fund (the Fund ) and all of the information therein have been prepared by LOGiQ Asset Management Ltd. in its capacity as Manager of the Fund and have been approved by the Board of Directors of the Manager. The Fund s Manager is responsible for all of the information and representations contained in these financial statements and other sections of the Annual Report. Management maintains appropriate process to ensure that relevant and reliable financial information is produced. The financial statements have been prepared in accordance with the International Financial Reporting Standards. The financial statements are not precise since they include certain amounts based on estimates and judgements. The Manager 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 financial statements have been audited by PricewaterhouseCoopers LLP on behalf of the Unitholders. They have audited the financial statements in accordance with Canadian Generally Accepted Auditing Standards to enable them to express to the Unitholders their opinion on the financial statements. Their report is set below Mary Anne Palangio Director and President LOGiQ Asset Management Ltd. Kal Zakarneh Director and Chief Financial Officer LOGiQ Asset Management Ltd. Toronto, Canada March 30,

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11 STATEMENTS OF FINANCIAL POSITION As at December 31, 2016 December 31, 2015 ASSETS Current assets Financial assets at fair value through profit or loss $ 152,490,775 $ 167,492,740 Cash 12,296,933 39,497,002 Interest receivable 100, ,483 Dividends receivable 506, ,553 Total assets 165,394, ,334,778 LIABILITIES Current liabilities Management fees payable 127, ,335 Other accounts payable and accrued expenses 246, ,874 Distributions payable to unitholders (note 9) 590, ,580 Unrealized depreciation on foreign currency forward contracts (note 19) 25,361 2,346,844 Total liabilities 989,245 3,618,633 Net Assets attributable to holders of redeemable units $ 164,405,270 $ 204,716,145 Redeemable units outstanding (note 5) 16,862,874 21,416,578 Net Assets attributable to holders of redeemable units per unit $ 9.75 $ 9.56 Approved on behalf of the Manager, LOGiQ Asset Management Ltd. Mary Anne Palangio Director & President Kal Zakarneh Director & Chief Financial Officer The accompanying notes are an integral part of these financial statements. 10

12 STATEMENTS OF COMPREHENSIVE INCOME For the years ended December INCOME Net Gains (Losses) on investments and derivatives at FVTPL (Note 3): Interest for distribution purposes $ 1,651,417 $ 7,639,353 Dividend income 4,417,699 3,609,567 Realized gain (loss) on sales of investments 8,290,867 15,301,174 Realized gain (loss) on foreign currency forward contracts 1,853,657 (14,569,452) Change in unrealized appreciation (depreciation) in the value of investments 25,127 (9,356,719) Change in unrealized appreciation (depreciation) in the value of foreign currency forward contracts 2,321, ,110 Total Net Gains (Losses) on investments and derivatives at FVTPL 18,560,250 2,977,033 Other income comprised of: Realized foreign exchange gain (loss) on currency (1,603,143) 1,021,145 Income from securities lending (note 12) 31,694 54,551 Change in unrealized foreign exchange appreciation (depreciation) on currency (2,016,857) 2,020,673 Total other income (3,588,306) 3,096,369 Total net income (loss) before expenses 14,971,944 6,073,402 EXPENSES Management fees (note 10) 1,764,910 2,292,193 Service fees (note 10) 813,435 1,050,244 Custodial fees 40,814 37,459 Administration fees (note 10) 154, ,949 Audit fees 53,339 46,208 Trustee fees 20,823 11,788 Legal fees 9,277 2,947 Interest expense & bank charges - 200,737 Unitholder reporting costs 54,090 55,878 Independent Review Committee fees (note 10) 12,384 2,314 Withholding taxes (note 17) 120,409 3,632 Transaction costs (note 11) 257, ,736 Total expenses 3,300,891 4,251,085 Increase (decrease) in Net Assets attributable to holders of redeemable units $ 11,671,053 $ 1,822,317 Weighted average number of units outstanding (note 5) 19,886,235 24,942,707 Increase (decrease) in Net Assets attributable to holders of redeemable units per unit (1) $ 0.59 $ 0.07 (1) Based on the weighted average number of units outstanding for the year. The accompanying notes are an integral part of these financial statements. 11

13 STATEMENTS OF CHANGES IN NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE UNITS For the years ended December Net Assets attributable to holders of redeemable units, beginning of year $ 204,716,145 $ 267,750,993 Increase (decrease) in Net Assets attributable to holders of redeemable units 11,671,053 1,822,317 Distribution to holders of redeemable units from: Net investment income (2,629,301) (7,264,975) Return on capital (5,728,143) (5,113,930) Total distributions to holders of redeemable units (8,357,444) (12,378,905) Redeemable unit transactions (note 5) Payments on redemption /cancellation of redeemable units (43,624,484) (52,478,260) Total redeemable unit transactions (43,624,484) (52,478,260) Net increase (decrease) in Net Assets attributable to holders of redeemable units (40,310,875) (63,034,848) Net Assets attributable to holders of redeemable units, end of year $ 164,405,270 $ 204,716,145 The accompanying notes are an integral part of these financial statements. 12

14 STATEMENTS OF CASH FLOWS For the years ended December Cash flows from operating activities: Increase (decrease) in Net Assets attributable to holders of redeemable units $ 11,671,053 $ 1,822,317 Adjustments to reconcile net cash used in operations: Change in unrealized foreign exchange (appreciation) depreciation on currency 2,016,857 (2,020,673) Realized (gain) loss on sales of investments (8,290,867) (15,301,174) Change in unrealized (appreciation) depreciation in the value of investments (25,127) 9,356,719 Change in unrealized (appreciation) depreciation in the value of foreign currency forward contracts (2,321,483) (353,110) Decrease (increase) in interest receivable 872,292 1,035,790 Decrease (increase) in dividends receivable (134,063) 326,505 (Decrease) increase in management fees payable (2,987) (118,180) (Decrease) increase in other accounts payable and accrued expenses (145,539) (148,679) Purchase of investments (164,297,757) (224,689,830) Proceeds from disposition of investments 187,615, ,165,121 Net cash flow provided by (used in) operating activities 26,958, ,074,806 Cash flows from financing activities: (Decrease) increase in loans payable - (29,943,341) Distributions paid to holders of redeemable units, net of reinvested distributions (8,516,823) (12,835,400) Proceeds from redeemable units issued - - Amounts paid on redemption of redeemable units (43,624,484) (52,478,260) Net cash flow provided by (used in) financing activities (52,141,307) (95,257,001) Change in unrealized foreign exchange appreciation (depreciation) on currency (2,016,857) 2,020,673 Net increase (decrease) in cash and cash equivalents (25,183,212) 18,817,805 Cash, beginning of year 39,497,002 18,658,524 Cash, end of year $ 12,296,933 $ 39,497,002 Supplemental information: Interest received, net of withholding taxes $ 2,523,709 $ 8,675,143 Dividend received, net of withholding taxes $ 4,163,235 $ 3,932,776 Interest paid $ - $ 145,977 The accompanying notes are an integral part of these financial statements. 13

15 SCHEDULE OF INVESTMENT PORTFOLIO As at December 31, 2016 Fixed income investments Coupon Rate (%) Maturity Date Cost Fair Value % of Net Assets Par Value ($) Canadian Corporate Bonds 5,300,000 Algonquin Power & Utilities Corp % Mar/31/2026 $ 1,764,900 $ 2,093, ,011 Constellation Software Inc % Mar/31/ , ,811 3,500,000 Easy Legal Finance Inc. (1) % Nov/01/2019 3,500,000 3,500,000 15,000,000 Royal Bank of Canada 2.350% Dec/09/ ,340,500 15,308,104 Total Canadian Corporate Bonds 20,795,322 21,093, % Total Fixed income investments 20,795,322 21,093, % Equities No. of Shares Exchange-traded Funds 225,000 ishares DEX All Corporate Bond Index Fund 4,871,426 4,783,500 Total Exchange-traded Funds 4,871,426 4,783, % Financials 83,000 Bank of Nova Scotia., Preferred, 5.500%, Series 34 2,075,000 2,240, ,719 Brookfield Asset Management Inc. 6,217,537 6,100, ,800 Chartwell Retirement Residences 3,004,352 3,527, ,700 Chemtrade Logistics Income Fund 3,889,634 3,801, ,240 CI Financial Corp. 6,266,815 6,358,329 32,170 CME Group Inc. 4,125,712 4,976, ,150 Great-West Lifeco Inc. 12,397,344 12,314, ,000 Royal Bank of Canada 8,037,229 9,813,960 83,000 Royal Bank of Canada., Preferred, 5.500%, Series BK 2,075,000 2,234, ,200 The Bank of Nova Scotia 8,013,689 9,584,232 Total Financials 56,102,312 60,952, % Energy 58,000 Canadian Natural Resources Ltd. 1,980,462 2,481, ,760 Inception Exploration Ltd. (1) 703, ,000 Suncor Energy Inc. 6,058,075 7,814,200 25,100 TransCanada Corp. 1,142,214 1,519,554 Total Energy 9,883,791 11,815, % Consumer Discretionary 119,850 Magna International Inc. 5,876,198 6,987,255 40,000 Skylink Aviation Inc., Class A (1) Total Consumer Discretionary 5,876,598 6,987, % (1) Level 3 financial assets (note 17). The accompanying notes are an integral part of these financial statements. 14

16 SCHEDULE OF INVESTMENT PORTFOLIO (Continued) As at December 31, 2016 Equities (Continued) No. of Shares Consumer Staples Coupon Rate (%) Maturity Date Cost Fair Value 51,200 Alimentation Couche Tard Inc., Class B $ 1,250,420 $ 3,117,056 29,472 Loblaw Cos., Ltd. 2,050,622 2,087,796 40,680 Walgreens Boots Alliance Inc. 4,151,421 4,514,908 % of Net Assets Total Consumer Staples 7,452,463 9,719, % Information Technology 8,000 Constellation Software Inc. 4,121,269 4,880,960 41,358 Enghouse Systems Ltd. 2,238,765 2,313,568 47,563 Ethoca Solutions Inc., Class A (1) 3,086,471 3,189, ,285 Imperus Technologies Corp., Warrants, Expiry Jan/28/ ,200 Stratus Technologies Inc., (R193) (1) - - 9,380 Stratus Technologies Inc., Preferred (1) - - Total Information Technology 9,446,505 10,383, % Real Estate 152,600 Brookfield Property Partners LP 3,169,785 4,475,758 Total Real Estate 3,169,785 4,475, % Telecommunication Services 101,545 BCE Inc. 5,836,027 5,892,656 1,633,300 Cenoplex Inc. (1) 2,049, ,780 Telus Communication 5,382,663 6,360,345 Total Telecommunication Services 13,267,978 12,253, % Industrials 2,754 Brookfield Business Partners LP 97,251 88,844 74,300 Canadian National Railway Co. 5,635,501 6,713,748 38,000 Stericycle Inc., Preferred, 5.250% 3,185,812 3,224,252 (1) Level 3 financial assets (note 17). Total Industrials 8,918,564 10,026, % Total Equities 118,989, ,397, % Embedded Broker Commission (68,099) Total Investments $ 139,716,645 $ 152,490, % Cash 12,296, % Net Other Assets (Liabilities) (357,077) -0.2% Total Foreign Currency Forward Contracts (Schedule A) (25,361) 0.0% Net Assets Attributable to Holders of Redeemable units $ 164,405, % The accompanying notes are an integral part of these financial statements. 15

17 SCHEDULE OF INVESTMENT PORTFOLIO (Continued) Schedule A Foreign Currency Forward Contracts As at December 31, 2016 Counterparty Forward Rate Unrealized Credit Bought Sold Delivery Date (USD/CAD) Gain/Loss Counterparty Rating CAD 9,232,200 USD (6,900,000) January 25, (17,927) CAD 4,148,420 USD (3,100,000) January 25, (7,434) $ (25,361) Canadian Imperial Bank Canada Bank of Nova Scotia AA AA The accompanying notes are an integral part of these financial statements. 16

18 NOTES TO THE FINANCIAL STATEMENTS (DECEMBER 31, 2016) 1. GENERAL INFORMATION Aston Hill VIP Income Fund (the Fund ) is a closed-end investment trust created under the laws of the Province of Ontario on October 25, 2001, pursuant to an amended and restated declaration of trust. Computershare Trust Company of Canada is the Trustee of the Fund. LOGiQ Asset Management Ltd. (the Manager ) is responsible for managing the affairs of the Fund. RBC Investor Services Trust is the custodian of the Fund s assets and prepares the weekly valuations of the Fund. The Fund is listed on the Toronto Stock Exchange and commenced operations on February 19, The units of the Fund trade on the Toronto Stock Exchange ( TSX ) under the symbol VIP.UN. The last traded price as of December 31, 2016 was $9.50. The address of the Fund s registered office is 77 King Street West, suite 2110, Toronto, Ontario, M5K 1G8. On May 1 st, 2016, Manitou Investment Management was appointed as investment manager (the Investment Manager ). As of December 7 th, 2016, the Manager of the Fund has changed from Aston Hill Asset Management Inc. to LOGiQ Asset Management Ltd. On December 8 th, 2016, Aston Hill Asset Management Inc., as part of Aston Hill Financial Inc. ( Aston Hill ) and together with Front Street Capital 2004 ( Front Street ) and Tuscarora Capital Inc. ( TCI ), an entity under common control with Front Street, completed a previously announced transaction whereby Aston Hill would acquire all of the equity interests in the Front Street and TCI, and the companies would combine their respective operations. As part of the transaction, Aston Hill also changed its name to LOGiQ Asset Management Inc. and consequently Aston Hill Asset Management Inc. changed its name to LOGiQ Asset Management Ltd. The investment objectives of the Fund are to provide unitholders with the benefits of a high level of monthly income, together with the opportunity for capital appreciation. The Fund seeks to achieve its investment objectives through active asset and sector allocation and by investing in income producing securities that the Manager believes represent the best weighting to achieve the investment objectives. The Fund has exposure to a diversified portfolio consisting of income producing securities including income trusts, dividend paying common shares, convertible debt, preferred shares, and investment grade fixed income investments. These financial statements were authorized for issue by the Manager on March 30, BASIS OF PREPARATION These financial statements have been prepared in compliance with International Financial Reporting Standards ( IFRS ) as published by the International Accounting Standards Board ( IASB ) applicable to the preparation of financial statements, under the historical cost convention basis, as modified by the revaluation of financial assets and financial liabilities (including derivative financial instruments) at fair value through profit and loss. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires the Manager to exercise its judgment in the process of applying the Funds accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note SIGNIFICANT ACCOUNTING POLICIES a) Financial Instruments The Fund s long position investments in equity securities and fixed income securities are designated at fair value through profit or loss ( FVTPL ) at inception. The Fund s derivatives are categorized as held-for-trading. As a result of such designation and categorization, the Fund s investments and derivatives are measured at FVTPL. The Fund s obligation for Net Assets attributable to holders of redeemable units is presented at approximately the redemption amount. All other financial assets and liabilities are measured at amortized cost. Under this method, financial assets and liabilities reflect the amounts required to be received or paid, discounted when appropriate, at the financial instrument s effective interest rate. The Fund s accounting policies for measuring the fair value of its investments and derivatives are identical to those used in measuring their published Net Asset Value. The fair values of the Fund s financial assets and liabilities that are not carried at FVTPL approximate its carrying amounts due to their short-term nature. b) 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 marketable securities) are based on quoted market prices at the close of trading on the reporting date. The Fund uses the last traded market price for both financial assets and financial liabilities where the last traded price falls within that day s bid-ask spread. In circumstances where the last traded price is not within the bid-ask spread, the Manager determines the point within the bid-ask spread that is most 17

19 representative of fair value based on the specific facts and circumstances. The Fund s policy is to recognize transfers into and out of the fair value hierarchy levels at the beginning of the period in which circumstances giving rise of the transfer occur. The fair value of financial assets and liabilities that are not traded in an active market including foreign currency forward contracts and the prepaid forward agreement are determined using valuation techniques. The Fund uses a variety of methods and makes assumptions that are based on market conditions existing at each measurement date. Valuation techniques include the use of comparable recent arm s length transactions, reference to other instruments that are substantially the same and others commonly used by market participants and which make the maximum use of observable inputs. Refer to note 16 for further information about the Fund s fair value measurements. c) Cash Cash consists of cash in hand, deposits held at call with banks. d) Short-term investments Short-term investments consist of debt investments with maturities of less than one year on acquisition. Short-term investments are valued at fair value, which is approximated at cost plus accrued interest. e) Investment Transactions and Income Recognition Regular purchases and sales are recognised on the trade date - the date on which the Fund commits to purchase or sell the investment. Any realized and unrealized gains or losses are recognized using the average cost of the investments, which excludes broker commissions. The interest income for distribution purposes shown on the Statements of Comprehensive Income represents the coupon interest received by the fund accounted for on an accrual basis. The Fund does not amortize premiums paid or discounts received on the purchase of fixed income securities except for zero coupon bonds which are amortized. Dividend income and dividend expenses are recognized on the ex-dividend date. f) Increase (Decrease) in Net Assets Attributable to Holders of Redeemable Units per Unit The increase (decrease) in Net Assets attributable to holders of redeemable units from operations per unit in the Statements of Comprehensive Income is calculated by dividing the increase (decrease) in Net Assets attributable to holders of redeemable units from operations by the weighted average number of redeemable units outstanding for each relevant series during the year. g) Unit Valuation The NAV per unit is determined by dividing the aggregate market value of net assets of the Fund by the total number of units of the Fund outstanding before giving effect to redemptions of units for that day. The Fund s NAV per unit did not differ from its Net Assets attributable to holders of redeemable units per unit as at December 31, 2016 and December 31, h) Income Taxes The Fund qualifies as a mutual fund trust under the Income Tax Act (Canada). Provided the Fund makes distributions in each year of its net income and net realized capital gains, the Fund will not generally be liable for income tax. It is the intention of the Fund to distribute all of its net income and net realized capital gains on an annual basis. Accordingly, no income tax provision has been recorded. The Fund may incur 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 Statements of Comprehensive Income. i) Transaction Costs Transaction costs, such as brokerage commissions, incurred in the purchase and sale of securities are expensed and are recognized in the Statements of Comprehensive Income. j) Foreign Currency Translation The majority of the Funds subscriptions and redemptions are denominated in Canadian dollars, which is also its functional and presentation currency. Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates that transactions occur. Foreign currency assets and liabilities denominated in a foreign currency are translated into the functional currency using the prevailing exchange rate at the measurement date. Foreign exchange gains and losses relating to cash and those relating to other financial assets and liabilities are presented as Realized foreign exchange gain (loss) on currency in the Statements of Comprehensive Income. The fair values of investments and other assets and liabilities that are denominated in foreign currencies are translated into Canadian dollars at the noon rate of exchange on each valuation date. Purchases and sales of investments and income derived from investments are translated at the prevailing rate of exchange on the date of such transactions. 18

20 k) Derivative Contracts The Fund may enter into foreign currency forward contracts, which are agreements between two parties to buy and sell currencies at a set price on a future date. The fair value of such contracts will fluctuate with changes in currency exchange rates. The contracts are marked-tomarket and the change in fair value is recorded as an unrealized gain or loss. When a contract is closed, the Fund records a realized gain or loss in the Statements of Comprehensive Income as realized gain (loss) on foreign currency forward contracts equal to the difference between the value of the contract on the date it was opened and the value on the date it was closed. l) Securities Borrowing The Fund may enter into security borrowing transactions. These transactions involve the temporary exchange of the securities borrowed and collateral with a commitment to deliver to the lender the same securities borrowed on a future date. Expenses from these transactions, in the form of fees, are paid by the Fund and expensed in the Statements of Comprehensive Income. m) Classification of Redeemable Units Issued by the Fund Under IFRS, IAS 32 requires that shares of an entity which include a contractual obligation for the issuer to repurchase or redeem them for cash or another financial asset be classified as a financial liability. The unitholders have the right to require cash distributions and therefore the Fund s units do not meet the criteria in IAS 32 for classification as equity. They have been classified as financial liabilities on the Statements of Financial Position. n) Accounting Standards Issued But Not Yet Adopted The final version of International Financial Reporting Standard (IFRS) 9, Financial Instruments, was issued by IASB in July 2014 and will replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 introduces a model for classification and measurement, a single, forward-looking expected loss impairment model and a substantially reformed approach to hedge accounting. The new single, principle based approach for determining the classification of financial assets is driven by cash flow characteristics and the business model in which an asset is held. The new model also results in a single impairment model being applied to all financial instruments, which will require more timely recognition of expected credit losses. It also includes changes in respect of own credit risk in measuring liabilities elected to be measured at fair value, so that gains caused by the deterioration of an entity s own credit risk on such liabilities are no longer recognized in profit or loss. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, however is available for early adoption. In addition, the own credit changes can be early applied in isolation without otherwise changing the accounting for financial instruments. The Fund is in the process of assessing the impact of IFRS CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS The preparation of financial statements requires management to use judgment in applying its accounting policies and to make estimates and assumptions about the future. The following discusses the most significant accounting judgments and estimates that the Fund have made in preparing the financial statements: Functional and Presentation Currency The Fund s investors are primarily Canadian residents, with capital activities of the redeemable shares denominated in Canadian dollars. The primary activity of the Fund is to invest in Canadian, US securities, global securities and derivatives and to offer Canadian investors a higher return compared to other products available in Canada. The performance of the Fund is measured and reported to the investors in Canadian dollars and the expenses are primarily in Canadian dollars. The Manager considers the Canadian dollar as the currency that most faithfully represents the economic effects of the underlying transactions, events and conditions. The financial statements are presented in Canadian dollars, which is the Fund s functional and presentation currency. Fair Value Measurement of Derivatives and Securities Not Quoted in an Active Market When the Fund holds financial instruments that are not quoted in active markets, fair values of such instruments are determined using valuation techniques and may be determined using reputable pricing sources (such as pricing agencies) or indicative prices from market makers. Broker quotes as obtained from the pricing sources may be indicative and not executable or binding. Classification and Measurement of Investments and Application of the Fair Value Option In classifying and measuring financial instruments held by the Fund, the Manager is required to make judgments about the classification of financial instruments and the applicability of the fair value option to its investments which are not held for trading. The fair value option has been applied to the Fund s investments in equity securities and fixed income securities as the investments are managed on a fair value basis in accordance with the Fund s investment strategy. 19

21 5. REDEEMABLE UNITS OF THE FUND Authorized The Fund is authorized to issue transferable, redeemable units of beneficial interest, each of which represents an equal, undivided interest in the Net Asset Value of the Fund. Each unit entitles the holder to one vote and to participate equally with respect to any and all distributions made by the Fund. Units may be redeemed at the option of unitholders by tendering units of the Fund by the last business day of July for redemption on the second last business day of August ( Redemption Valuation Date ). Redemption of tendered units will be settled based on the Net Asset Value per unit on the Redemption Valuation Date, less associated costs of the redemption, including brokerage costs. Units tendered for redemption will be redeemed effective the Redemption Valuation Date of each year and will be settled on or before the tenth business day in September. Units may also be redeemed at the option of unitholders at least 10 business days prior to the second last business day of each month except for the month of August. Unitholders whose units are redeemed will receive a redemption price per unit equal to the lesser of (i) 94% of the weighted average trading price of the units for the 10 trading days immediately preceding the Redemption Valuation Date and (ii) 100% of the closing market price of the units, less any costs associated with the redemption, including brokerage costs. The Fund received approval from the Toronto Stock Exchange for a normal course issuer bid for the period from November 10, 2015 to November 9, 2016, pursuant to this issuer bid, the Fund was permitted to purchase up to 2,141,657 units for cancellation. The Fund may only repurchase units when the Net Asset Value per unit exceeds its trading price. Issued December 31, 2016 December 31, 2015 Number of Units Number of Units Redeemable units, beginning of year 21,416,578 26,801,670 Repurchase of redeemable units - - Redemption of redeemable units (4,553,704) (5,385,092) Redeemable units, end of year 16,862,874 21,416,578 The weighted average number of units outstanding for the year ended December 31, 2016 was 19,886,235 (for the year ended December 31, ,942,707). 6. FUND ADMINISTRATION RBC Investor & Treasury Services is responsible for certain aspects of the Fund s day-to-day operations, including calculating net assets attributable to holders of redeemable units, net income and net realized capital gains of the Fund and maintaining the books and records of the Fund. 7. CUSTODIAN Pursuant to the Trust Agreement, RBC Investor & Treasury Services (the Custodian ) also acts as custodian of the assets of the Fund. In consideration for these services, the Fund pays a fee to the Custodian. The Custodian is rated AA- by Standard & Poor s ( S&P ) as of December 31, 2016 (AA- as of December 31, 2015). 8. CAPITAL MANAGEMENT The capital of the Fund is represented by the net assets attributable to holders of redeemable units. The Fund s objectives when managing capital is to safeguard the Fund s ability to continue as a going concern, to provide financial capacity and flexibility to meet its strategic objectives, and to provide an adequate return to unitholders commensurate with the level of risk while maximizing the distributions to unitholders. There are currently no externally imposed capital requirements for the Fund and the Manager believes that the current level of distributions, capital and capital structure is sufficient to sustain ongoing operations. The Manager actively monitors the cash position and financial performance of the Fund to ensure there are sufficient resources to meet distributions and redemptions. 9. DISTRIBUTIONS PAYABLE TO UNITHOLDERS Distributions, as declared by the Manager, are made on a monthly basis to unitholders of record on the last business day of each month. The distributions are payable by the tenth business day of the following month. For the year ended December 31, 2016, the Fund declared total distributions of $0.42 (for the year ended December 31, 2015 $0.49) per unit, which amounted to $8,357,444 (for the year ended December 31, 2015 $12,378,905). 20

22 10. RELATED PARTY TRANSACTIONS Management Fees and Service Fees Pursuant to a management agreement, the Manager provides management and administrative services to the Fund, for which it is paid a management fee equal to 0.85% per annum of the Net Asset Value of the Fund, plus applicable taxes. The Fund also pays to the Manager a service fee equal to 0.40% per annum of the Net Asset Value of the Fund. The service fee is in turn paid by the Manager to investment dealers in proportion to the number of units held by clients of each dealer at the end of each calendar quarter. The sub-advisor fees are also paid out of Management fees. For the year ended December 31, 2016, management fees amounted to $1,764,910 (for the year ended December 31, $2,292,193); service fees amounted to $813,435 (for the year ended December 31, $1,050,244). The Fund is responsible for all other operating expenses incurred in connection with its operation and administration, such as custodial, trustee, reporting, audit and legal fees. Administration Fees The Manager allocates back to the Fund a portion of the cost of individuals who have spent time working on the operation and oversight of the Fund. The expenses are directly attributable to the Fund as they relate to time spent on Fund accounting, valuation, taxation, compliance, investor relations, financial and unitholder reporting, cost management, oversight and any other operational matters. For the year ended December 31, 2016, administration fees amounted to $154,120 (for the year ended December 31, 2015 $142,949). Independent Review Committee ( IRC ) Fee The members of the Independent Review Committee are John Crow (chair), Joseph Wright, Robert B. Falconer and Scott Browning. The Independent Review Committee acts as a review committee for a number of investment funds managed by the Manager. The IRC members each receive $15,000 per annum ($20,000 for the Chairman) plus $1,250 per meeting for acting in such capacity and are also reimbursed for expenses in connection with performing their duties. These fees and expense reimbursements are allocated across investment funds that are managed by the Manager in a manner that is fair and reasonable. For the year ended December 31, 2016, IRC fees amounted to $12,384 (for the year ended December 31, 2015 $2,314). 11. INVESTMENT TRANSACTIONS AND SOFT DOLLAR SERVICES For the year ended December 31, 2016, the brokerage commissions paid to dealers were $257,290 (for the year ended December 31, 2015 $404,736). There was $88,828 (for the year ended December 31, $21,683) of soft dollar amount paid. 12. SECURITIES LENDING The Fund has entered into a securities lending program with its custodian, RBC Investor Services Trust. The aggregate market value of all securities loaned by the Fund cannot exceed 50% of the assets of the Fund. The Fund will receive collateral of at least 102% of the value of the securities on loan. Collateral will generally be comprised of cash and obligations of, or guaranteed by, the Government of Canada or a province thereof, or the United States Government or its agencies, or a permitted supranational agency as defined in NI The market values of the securities on loan and the related collateral at December 31, 2016 were $19.7 million (December 31, 2015 $29.7 million) and $20.1 million (December 31, 2015 $30.2 million), respectively. Income from securities lending reported in the Statements of Comprehensive Income is net of a securities lending charge which the Fund s custodian is entitled to receive. For the years ended December 31, 2016 and 2015, income from securities lending was as follows: Gross income from securities lending $48,760 $ 83,925 Securities lending charges (17,066) (29,374) Net income from securities lending 31,694 54,551 Withholding taxes on income from securities lending (8) (336) Net income from securities lending received by the Fund 31,686 $54,215 For the year ended December 31, 2016, security lending charges as a percentage of gross income from securities lending were 35% (for the year ended December 31, %). 21

23 Securities lending transactions are entered into by the Fund under Securities Lending Agreements ( SLA ) which provide the right, in the event of default (including bankruptcy or insolvency), for the nondefaulting party to liquidate the collateral and calculate a net exposure to the defaulting party. In the event that a borrower defaults, the Fund, as lender, would offset the fair value of the collateral received against the fair value of the securities loaned. The value of the collateral is typically greater than that of the fair value of the securities loaned, leaving the lender with a net amount payable to the defaulting party. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against such a right of offset in the event of the SLA counterparty s bankruptcy or insolvency. Under the relevant SLA, the borrower can resell or re-pledge the loaned securities, and the Fund can, upon an event of default, resell or repledge the collateral. 13. LOANS PAYABLE Pursuant to an agreement with a Canadian chartered bank, the Fund maintains a 364-day revolving credit facility. The revolving credit facility provided for maximum borrowings of $65.0 million, with borrowings in Canadian currency at either the prime rate of interest or the bankers acceptance rate, plus a fixed percentage, or in US currency at either the US base rate or the LIBOR rate, plus a fixed percentage. The credit facility term was terminated on June 25, During the year ended December 31, 2015, the Fund applied borrowings in the range from $nil to $30.0 million, the related interest expense for the year ended December 31, 2015 was $200,737. There were no borrowings outstanding under this facility as at December 31, 2016 and INCOME TAXES As at December 31, 2016, the Fund had accumulated capital losses of $89,903,447 (December 31, 2015 $94,782,207). The capital loss can be carried forward for an indefinite period. There were no accumulated non-capital losses for tax purposes as at December 31, 2016 and FINANCIAL RISK MANAGEMENT The Fund is exposed to a variety of financial instruments risks: credit risk, liquidity risk, portfolio concentration risk and market risk (including interest rate risk, currency risk and price risk). The level of risk to which each Fund is exposed depends on the investment objectives and the type of investments the Fund holds. The value of investments within a portfolio can fluctuate daily as a result of changes in prevailing interest rates, economic and market conditions and company-specific news related to investments held by the Fund. The Manager of the Fund may attempt to minimize the potential adverse effects of these risks on the Fund s performance by, but not limited to, regular monitoring of the Fund s positions and market events and diversification of the investments portfolio by asset type, country, sector, and term to maturity within the constraints of the stated objectives, and through the usage of derivatives to hedge certain risk exposures. The Manager of the Fund monitors the below risks on a regular basis. Concentration risk Concentration risk is the risk associated with exposure to any one or more particular country, asset class and industry type security. Manager reduces the portfolio concentration risk for the Funds due to diversification by asset class and security of the Fund. 22

24 The following comparative summary represents the securities by asset type held by the Fund as at December 31, 2016 and 2015: As at December 31, 2016 As at December 31, 2015 Investment Sector % of the Fund s % of the Fund s NAV NAV Fixed income investments Canadian Corporate Bonds 12.8% 5.7% Foreign Corporate Bonds 11.1% Equities Exchange-traded Funds 2.9% 1.1% Financials 37.0% 22.7% Energy 7.2% 6.3% Consumer Discretionary 4.3% 6.4% Consumer Staples 5.9% 7.1% Information Technology 6.3% 6.1% Real Estate 2.7% Materials 1.9% Telecommunication Services 7.5% 3.6% Utilities 3.8% Industrials 6.1% 6.0% Net other assets (liabilities) 7.3% 18.2% Total 100.0% 100.0% As at December 31, 2015, the Fund s foreign corporate bonds are primarily USD denominated issuers. Market risk a) Price risk Price risk is the risk that the fair value of financial instruments will fluctuate as a result of changes in market prices (other than those arising from interest rate risk or currency risk). The value of each investment is influenced by the outlook of the issuer and by general economic and political conditions, as well as industry and market trends. The Fund s equity instruments are susceptible to price risk arising from uncertainties about future prices of the instruments. All securities excluding short-term debt present a risk of loss of capital. Other assets and liabilities are monetary items that are short-term in nature and therefore are not subject to significant price risk. As at December 31, 2016, if equity prices had increased or decreased by 10%, with all other variables held constant, the net assets attributable to holders of redeemable units of the Fund would have increased or decreased by approximately $13.1 million or 8.0% of Net Assets attributable to holders of redeemable units (December 31, 2015 approximately $13.3 million or 6.5% of Net Assets attributable to holders of redeemable units). In practice, actual results may differ from this sensitivity analysis and the difference could be material. b) Interest rate risk Interest rate risk is the risk that the fair value of financial investments and interest-bearing credit facilities will fluctuate due to changes in prevailing levels of market interest rates. As a result, the value of the Fund that invests in debt securities and short-term notes or has interest bearing credit facilities will be affected by changes in applicable interest rates. If interest rates fall, the fair value of existing debt securities may increase due to the increase in yield. Alternatively, if interest rates rise, the yield of existing debt securities may decrease which could lead to a decrease in their fair value. The magnitude of the decline will generally be greater for long-term debt securities than for short-term debt securities. Other assets and liabilities are short-term in nature and non-interest bearing. Fluctuations in interest rates have a direct impact on the interest payments the Fund makes on its loans. As at December 31, 2016, the Fund had no balance outstanding from its credit facility (December 31, 2015 $nil). The tables below summarize the Fund s exposure to interest rate risk by remaining term to maturity as at December 31, 2016 and December 31, 2016: Less than 1 year 1-3 years 3-5 years > 5 years Total Debt instruments - Long $ $ 18,808,104 $ $ 2,285,046 $ 21,093,150 % of Net Assets attributable to holders of redeemable units 11.4% 1.4% 12.8% 23

25 December 31, 2015: Less than 1 year 1-3 years 3-5 years > 5 years Total Debt instruments - Long $ $ 12,417,870 $ 14,327,068 $ 7,636,734 $ 34,381,672 % of Net Assets attributable to holders of redeemable units 6.1% 7.0% 3.7% 16.8% As at December 31, 2016, had prevailing interest rates increased by 1%, assuming a parallel shift in the yield curve, with all other variables held constant, Net Assets attributable to holders of redeemable units of the Fund would have decreased by approximately $0.6 million or 0.4% (December 31, $1.1 million or 0.5%). Similarly, had prevailing interest rates decreased by 1%, assuming a parallel shift in the yield curve, with all other variables held constant, Net Assets attributable to holders of redeemable units of the Fund would have increased by $0.7 million or 0.4% (December 31, $1.1 million or 0.5%). The Fund s sensitivity to interest rate changes was estimated using the weighted average duration of the portfolio and the impact on annual interest expense for the loans payable. In practice, the actual trading results may differ, and the difference could be material. c) Currency Risk Currency risk arises from financial instruments that are denominated in a currency other than the Canadian dollar, which is the Fund s the functional currency of the Funds. As a result, the Funds may be exposed to the risk that the value of securities denominated in other currencies will fluctuate due to changes in exchange rates. The investment portfolio of the Fund includes US dollar denominated equity instruments and US dollar denominated cash. As at December 31, 2016, the Fund s exposure of US$18.2 million in investments and cash (December 31, 2015 US$75.5 million) was substantially hedged through its foreign currency forward contract of US$13.4 million notional (December 31, 2015 US$41.1 million). The following tables indicate the foreign currencies to which the Fund had significant exposure as at December 31, 2016 and 2015 in Canadian dollar ( CAD ) terms. The tables also illustrate the approximate potential impact on Net Assets attributable to holders of redeemable units if the CAD had weakened by 5% in relation to each of the other currencies, with all other variables held constant If the CAD were to strengthen relative to these currencies, the opposite would occur. In practice, actual results may differ from this sensitivity analysis and the difference could be material. December 31, 2016 Impact on Net Assets attributable Exposure to holders of redeemable units Currency (000s) Non-Monetary Instruments Monetary Instruments* Total Non-Monetary Instruments Monetary Instruments* Total USD dollar $ 15,905 $ (11,091) $ 4,814 $ 795 $ (555) $ 240 Total $ 15,905 $ (11,091) $ 4,814 $ 795 $ (555) $ 240 % of Net Assets attributable to holders of redeemable units 9.7% (6.8%) 2.9% 0.5% (0.4%) 0.1% December 31, 2015 Impact on Net Assets attributable Exposure to holders of redeemable units Currency (000s) Non-Monetary Instruments Monetary Instruments* Total Non-Monetary Instruments Monetary Instruments* Total USD dollar $ 35,611 $ 12,196 $ 47,807 $ 1,781 $ 610 $ 2,391 Total $ 35,611 $ 12,196 $ 47,807 $ 1,781 $ 610 $ 2,391 % of Net Assets attributable to holders of redeemable units 17.4% 6.0% 23.4% 0.9% 0.3% 1.2% *Under Monetary Instruments, the cash and foreign currency forward contracts are netted together. Credit Risk Credit risk is the risk that a security issuer or counterparty to a financial instrument will fail to meet its financial obligations. The fair value of a debt instrument includes consideration for the credit worthiness of the debt issuer. The credit risk exposure of the Funds other assets is represented by their carrying amount as disclosed in the Statements of Financial Position. The carrying amount of debt investments and unrealized gain (loss) on derivative instruments outstanding with counterparties represents the maximum exposure to credit risk. Credit ratings for debt securities, preferred securities and derivative instruments are obtained from Standard & Poor s, where available; otherwise, 24

26 ratings are obtained from Moody s Investors Service, Dominion Bond Rating Services or Canadian Bond Rating Services. Other assets will be settled in the short term. The Manager evaluates the credit quality of the securities prior to purchase and performs ongoing monitoring of the credit quality of the securities. As of the purchase date, the Fund will not invest more than 10% of its total assets in the securities of any one issuer in accordance with investment restrictions. All transactions in securities are settled or paid for upon delivery using approved brokers. The risk of default by a counter party is considered minimal, as delivery of securities sold is only made once the Fund has received payment. Payment is made on a purchase once the securities have been received by the Fund. The trade will fail if either party fails to meet its obligation. The Fund has entered into a securities lending program with its custodian; see note 12. Credit risk associated with these transactions is considered minimal as all counterparties have sufficient, approved credit and the value of cash or securities held as collateral must be at least 102% of the fair value of the securities loaned. The Fund is exposed to the credit risk of the Custodian, whose S&P credit rating as of December 31, 2016 was AA- (AA- as of December 31, 2015). The Fund was also exposed to credit risk of foreign currency forward contracts with Canadian chartered banks whose S&P credit ratings are AA. As at December 31, 2016 and 2015, the Fund had exposure to debt securities held with the following credit ratings. December 31, 2016 December 31, 2015 Rating (% of Net Assets) (% of Net Assets) AA 9.3% BB 5.6% B 3.9% CCC 4.7% Unrated 3.5% 2.6% Total 12.8% 16.8% Liquidity Risk Liquidity risk is the risk that the Fund will encounter difficulty in meeting obligations associated on time or at a reasonable price with financial liabilities. Unitholder redemption requests are the main liquidity risk for the Fund. The Fund invests a majority of its assets in investments that are traded in an active market and can be readily disposed of. There can be no assurance that an active trading market for the investments will exist at all times, or that the prices at which the securities trade accurately reflect their values. Thin trading in a security could make it difficult to liquidate holdings quickly. The Fund is exposed to liquidity risk through its monthly and annual redemptions. Liquidity risk is managed by holding a portfolio of actively traded bonds that can be sold to meet redemption requests. All of the Fund s financial liabilities, other than investments held short on demand, at December 31, 2016 and 2015 had maturities of less than one year. The tables below analyze the Fund s financial liabilities into relevant maturity groupings based on the remaining period to the contractual maturity date. The amounts in the tables are the contractual undiscounted amounts. As at December 31, 2016: Financial liabilities On demand Less than 3 months Total Unrealized depreciation on foreign currency forward contracts $ $ 25,361 $ 25,361 Management fees payable 127, ,348 Other accounts payable and accrued expenses 246, ,335 Distributions payable 590, ,201 Total $ $ 989,245 $ 989,245 25

27 As at December 31, 2015: Financial liabilities On demand Less than 3 months Total Unrealized depreciation on foreign currency forward contracts $ $ 2,346,844 $ 2,346,844 Management fees payable 130, ,335 Other accounts payable and accrued expenses 391, ,874 Distributions payable 749, ,580 Total $ $ 3,618,663 $ 3,618,663 Redeemable units are redeemable on demand at the holder s option. However, the Manager does not expect that the contractual maturity disclosed above will be representative of the actual cash outflows, as holders of these instruments typically retain them for a longer period. 16. FAIR VALUE MEASUREMENT The Fund's assets and liabilities recorded at fair value have been categorized within a hierarchy which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The Fund classifies its investments and derivative assets and liabilities into three categories based on the nature of the inputs used to determine their fair value. The categories and the nature of the inputs used in each category are as follows: Level l: Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities. Level 2: Inputs, other than quoted prices that are observable for the asset or liability, either directly or indirectly, including inputs in markets that are not considered to be active. Level 3: Inputs that are unobservable. There is little if any market activity. Inputs into the determination of fair value require significant management judgement or estimation. Equities, Preferred Share and Warrants: The Fund s long equity positions are classified as Level 1 as the security held is actively traded and a reliable quote is observable. Some equity positions are classified as Level 2 as they are less actively traded. Warrants that are actively traded on an exchange are classified as Level 1. Where the warrants are traded over the counter and the inputs into the fair value are based on reliable observable market date they are classified as Level 2. When a significant portion of the fair valuation is based on inputs which are not observable the warrants are classified as Level 3. Bonds and short-term investments: Bonds and Short-term investments are classified as Level 2 as they are valued using observable inputs, including interest rate curves, credit spreads and volatilities and are not actively traded. Foreign currency forward contracts: Foreign currency forward contracts for which inputs, including interest rates, forward market rates and credit spreads are observable and reliable or for which unobservable inputs are determined not to be significant to fair value, are classified as Level 2. A financial instrument s Level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The following table illustrates the classification of the Fund s assets and liabilities measured at fair value within the fair value hierarchy as at December 31, 2016 and 2015: Assets at fair value as at December 31, 2016 Level 1 Level 2 Level 3 Total Equities - Long $ 128,208,386 $ $ 3,189,239 $ 131,397,625 Fixed income investments 17,593,150 3,500,000 21,093,150 Total $ 128,208,386 $ 17,593,150 $ 6,689,239 $ 152,490,775 Liabilities at fair value as at December 31, 2016 Level 1 Level 2 Level 3 Total Unrealized depreciation on foreign currency $ $ 25,361 $ $ 25,361 forward contracts Total $ $ 25,361 $ $ 25,361 26

28 Assets at fair value as at December 31, 2015 Level 1 Level 2 Level 3 Total Equities - Long $ 127,459,132 $ $ 5,615,936 $ 133,075,068 Warrants 36,000 36,000 Fixed income investments 34,381,672 34,381,672 Total $ 127,495,132 $ 34,381,672 $ 5,615,936 $ 167,492,740 Liabilities at fair value as at December 31, 2015 Level 1 Level 2 Level 3 Total Unrealized depreciation on foreign currency $ $ 2,346,844 $ $ 2,346,844 forward contracts Total $ $ 2,346,844 $ $ 2,346,844 There were no transfers of financial assets between the Levels 1 and 2 during the years ended December 31, 2016 and The following table provides a reconciliation of fair value measurements using Level 3 inputs for the year ended December 31, 2016: Equities Fixed Income Investments Total Balance, beginning of year $ 5,615,936 $ $ 5,615,936 Purchases 3,500,000 3,500,000 Unrealized gain (loss) (2,426,697) (2,426,697) Balance, end of year $ 3,189,239 $ 3,500,000 $ 6,689,239 The following table provides a reconciliation of fair value measurements using Level 3 inputs for the year ended December 31, 2015: Equities Fixed Income Investments Total Balance, beginning of year $ 6,588,893 $ $ 6,588,893 Purchases Sales (2,022,848) (2,022,848) Realized gain (loss) (226,810) (226,810) Unrealized gain (loss) 1,276,701 1,276,701 Balance, end of year $ 5,615,936 $ $ 5,615,936 The fair value of the Level 3 investments is reviewed by management based on a number of applicable valuation techniques that depend on a number of factors including stage of business, the period since the last third-party financing, the ability to compare the businesses to similar publicly held companies, the reliability of future cash flow projections, and disclosed information related to transactions involving similar businesses. Due to the nature of this detailed approach to fair value determination and the number of different key assumptions, there is no alternative assumption applicable to the investments of the Fund; however, changes in key assumptions may cause material changes in the value of the investments held by the Fund. The Fund's Level 3 securities and debt instruments consist of private equity positions and corporate bond. These positions are typically valued at cost and are adjusted based on market conditions. The Fund s Manager coordinates regular reviews to the value of these private companies using valuation techniques relevant to each position and any available market data. The following shows the impact to the fair value of material assets and liabilities categorized in Level 3 held at December 31, 2016 and 2015, had the value of the security increased or decreased as a result in a reasonable shift in value of any unobservable inputs used to value these securities: December 31, 2016: Security Name Fair Value Valuation technique Unobservable inputs Reasonable Shift (+/-) Change in valuation Based on Ethoca Solutions Inc. $ 3,189,237 recent trade Trade Price N/A N/A N/A N/A Easy Legal Finance Inc. $ 3,500,000 Value at cost Discount Rate +0.25% -0.25% $83,730 $(83,730) December 31, 2015: Security Name Fair Value Ethoca Solutions Inc. $ 5,615,934 Valuation technique Recent equity financing Unobservable inputs Weighted average Reasonable Shift (+/-) Change in valuation 2015 projected revenue multiples 9.6 x +1.0 x -0.5 x $585,000 $(585,000) The Fund may hold other assets and liabilities categorized in Level 3, however they are immaterial to the Fund and any reasonable possible shift in their valuation would not have any significant impact to the Net Assets attributable to holders of redeemable unit of the Fund. 27

29 17. WITHHOLDING TAXES The Fund 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 line item in the Statements of Comprehensive Income. 18. FINANCIAL INSTRUMENTS BY CATEGORY The following table presents the net gains (losses) on financial instruments at FVTPL by category for the years ended December 31, 2016 and Net gains (losses) Net gains (losses) on financial instruments at FVTPL December 31, 2016 December 31, 2015 Financial Assets and Liabilities at FVTPL: Held for Trading $ 4,175,140 $ (14,216,342) Designated at inception 14,385,110 17,193,375 Total financial assets and liabilities at FVTPL $ 18,560,250 $ 2,977, OFFSETTING OF FINANCIAL INSTRUMENTS The Fund has entered into master netting arrangements in connection with its Foreign Currency Forward Contracts with CIBC and the Bank of Nova Scotia. The agreement meets the criteria for offsetting in the Statements of Financial Position and allow for the related amounts to be set off in certain circumstances, such as bankruptcy or termination of the contracts. For counterparties where master netting arrangements are not entered into (which includes the counterparties to the options contracts) the gross assets and liabilities have not been offset on the Statements of Financial Position. The following tables present the recognized financial instruments that are offset, or subject to enforceable master netting agreements or other similar agreements, as at December 31, 2016 and The Net column shows what the impact on the Fund s Statements of Financial Position would be if all set-off rights were exercised. As at December 31, 2016 Financial Assets Gross Amounts Financial Instruments eligible for offset Net amounts presented in the Statements of Financial Position Related amounts not set-off in the Statements of Financial Position Financial Instrument s Collateral Pledged Net Amount $ $ $ $ $ $ Net Amounts Financial Liabilities CIBC (17,927) (17,927) (17,927) Bank of Nova Scotia (7,434) (7,434) (7,434) Net Amounts $ (25,361) $ $ (25,361) $ $ $ (25,361) As at December 31, 2015 Financial Assets Gross Amounts Financial Instruments eligible for offset Net amounts presented in the Statements of Financial Position Related amounts not set-off in the Statements of Financial Position Financial Instruments Collateral Pledged Net Amount $ $ $ $ $ $ Net Amounts Financial Liabilities Bank of Nova Scotia (984,702) (984,702) (984,702) CIBC (989,052) (989,052) (989,052) Royal Bank of Canada (373,090) (373,090) (373,090) Net Amounts $ (2,346,844) $ $ (2,346,844) $ $ $ (2,346,844) 28

30 20. INVESTMENTS WITH STRUCTURED ENTITIES The Fund has determined that the underlying funds in which it invests in are unconsolidated structured entities. This represents a significant judgment by the Fund because decision-making about the underlying funds investing activities is not governed by voting rights held by the Fund and other investors. The table below describes the types of structured entities that the Fund does not consolidate but in which it holds an interest. Entity Nature and Purpose Interest Held by the Fund To manage assets on behalf of Third-party investors. Investment in units issued by the Underlying Fund. Investment funds These vehicles are financed through the issue of units to investors. The change in fair value of the underlying funds is included in the Statements of Comprehensive Income in Net Gains (Losses) on investments and derivatives at FVTPL The table below sets out the interest held by the Fund in unconsolidated structured entities. The maximum exposure to loss is the total fair value of the financial assets held. As at December 31, 2016 Underlying Fund ishares DEX All Corporate Bond Index Fund Country of Total Net Assets of Ownership Fair Value Included in Investments in Domicile Underlying Fund Interest Statements of Financial Position Canada $1,690,170, % $4,783,500 As at December 31, 2015 Underlying Fund ishares S&P/TSX Capped Energy Index ETF Country of Total Net Assets of Ownership Fair Value Included in Investments in Domicile Underlying Fund Interest Statements of Financial Position Canada $934,982, % $2,343,827 During the years ended December 31, 2016 and 2015, the Fund did not provide financial support to unconsolidated structured entities and has no intention of providing financial or other support. The Fund can redeem its units in the above underlying funds on a daily basis. 29

31 CORPORATE INFORMATION Independent Review Committee John Crow Chairman C. Scott Browning Robert Falconer Joseph H. Wright Directors and Senior Officers of the Manager Joe Canavan Director and Chief Executive Officer Mary Anne Palangio Director and President Kal Zakarneh Director and Chief Financial Officer Manager LOGIQ Asset Management Ltd. Investment Manager Manitou Investment Management Ltd. Transfer Agent and Trustee Computershare Trust Company of Canada Custodian RBC Investor Services Trust Auditor PricewaterhouseCoopers LLP Website Mailing Address 77 King Street West Suite2110, PO Box 92 Toronto -Dominion Centre Toronto, ON M5K 1G8 General Website: Inquiries: