Caldwell Mutual Funds

Transcription

1 Caldwell Mutual Funds FINANCIAL STATEMENTS December 31, 2013 Caldwell Balanced Fund Caldwell Income Fund Caldwell High Income Equity Fund Collectively the Funds 150 King Street West, Suite 1702 P.O. Box 47 Toronto, ON M5H 1J

2 Independent Auditor s Report Deloitte LLP Brookfield Place 181 Bay Street Suite 1400 Toronto ON M5J 2V1 Canada Tel: Fax: Caldwell Balanced Fund Caldwell Income Fund Caldwell High Income Equity Fund (collectively, the Funds ) We have audited the accompanying financial statements of each of the Funds, which comprise the statement of investments as at December 31, 2013, the statement of net assets as at December 31, 2013 and 2012 and the statement of operations and the statements of changes in net assets for the years then ended, and a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with 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 these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Thsoe standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, 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 my management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained in 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 its operations and the changes in their net assets for the years then ended in accordance with Canadian generally accepted accounting principles. Charted Professional Accountants, Chartered Accountants Licensed Public Accountants March 20, 2014

3 TABLE OF CONTENTS PAGE CALDWELL BALANCED FUND 1-8 CALDWELL INCOME FUND 9-15 CALDWELL HIGH INCOME EQUITY FUND NOTES TO FINANCIAL STATEMENTS 23-30

4 CALDWELL BALANCED FUND Financial Statements December 31,

5 CALDWELL BALANCED FUND Statements of Net Assets As at December 31, 2013 (Audited) Assets Investments, at fair value $ 35,108,513 $ 29,078,115 Foreign currencies 30,238 Cash 4,629, ,021 Interest receivable 39,962 Dividends receivable 20,859 67,088 Subscription receivable 22,989 20,554 39,822,204 29,725,016 Liabilities Management fee payable 77,522 55,946 Redemption payable 20,463 43,633 Accounts payable and accrued liabilities 20,275 24, , ,256 Total net assets and unitholders equity $ 39,703,944 $ 29,600,760 Number of units (Note 7) 4,558,628 4,157,573 Net assets per unit $ 8.71 $ 7.12 Investments at cost $ 29,914,422 $ 28,368,932 Approved on behalf of Caldwell Investment Management Ltd., Manager and Trustee of the Fund Brendan T.N Caldwell, President See Accompanying Notes 2

6 CALDWELL BALANCED FUND Statements of Operations For the years ended December 31 Income Dividends $ 595,740 $ 499,403 Interest 208,803 95,908 Exchange loss on foreign currencies and other net assets (16,018) (8,345) 788, ,966 Less: Foreign withholding taxes (78,288) (2,325) 710, ,641 Expenses Management fee (Note 5) 757, ,675 Administrative fee 79, ,574 Securityholder reporting costs 40, ,680 Audit fee 22,649 17,001 Custodial fee 18,001 20,000 Legal fee 11,001 10,998 Independent review committee fee 4,000 4,000 Total Expenses 932, ,928 Deduct: Expenses absorbed by Manager (Note 5) (15,316) Net Expenses 932, ,612 Net investment loss (222,357) (309,971) Realized gain on investments* 2,622,712 2,943,835 Transaction costs (Note 6) (97,555) (157,944) Change in unrealized appreciation (depreciation) on investments and foreign currency 4,482,284 (1,511,161) Net realized and unrealized gain on investments and transaction costs 7,007,441 1,274,730 Increase in net assets from operations $ 6,785,084 $ 964,759 Increase in net assets from operations per unit $ 1.62 $ 0.24 * Schedule of realized gain on investments Cost of investments held at beginning of year $ 19,377,498 $ 16,634,992 Cost of investments purchased during the year 62,248,775 40,104,935 81,626,273 56,739,927 Investments at cost, end of year 29,914,422 19,377,498 Cost of investments sold during the year 51,711,851 37,362,429 Proceeds from sale of investments 54,334,563 40,306,264 Net realized gain on investments $ 2,622,712 $ 2,943,835 See Accompanying Notes 3

7 CALDWELL BALANCED FUND Statements of Changes in Net Assets For the years ended December 31 Net assets at beginning of year $ 29,600,760 $ 26,837,559 Increase in net assets from operations 6,785, ,759 Capital unit transactions Proceeds from units issued 8,247,682 6,540,021 Value of units redeemed (4,929,582) (4,741,579) Net capital unit transactions 3,318,100 1,798,442 Increase in net assets 10,103,184 2,763,201 Net assets at end of year $ 39,703,944 $ 29,600,760 See Accompanying Notes 4

8 CALDWELL BALANCED FUND Statement of Investments As at December 31, 2013 PAR VALUE ($)/ NO. OF SHARES AVERAGE COST FAIR VALUE $ $ CANADIAN STOCKS (26.9%) Bank of Nova Scotia 13, , ,791 Canelson Drilling Inc. 157, ,165 1,041,075 CCL Industries Inc. Class B 10, , ,517 Celestica Inc. 108, ,581 1,192,320 Excel Gold Mining Inc. 1,250, ,000 Home Capital Group Inc. 11, , ,807 Martinrea International Inc. 30, , ,700 Onex Corp. 15, , ,150 Parkland Fuel Corporation 45, , ,150 Quebecor Inc. 20, , ,200 Rogers Communications Inc. 8, , ,209 Suncor Energy Inc. 25, , ,576 Trilogy Energy Corp. 35,900 1,044, ,840 Westjet Airlines Ltd. 32, , ,744 CANADIAN FIXED INCOME (24.8%) 8,899,511 10,677,079 Canada Housing Trust 2.35% Sep 15/23 3,500,000 3,345,020 3,254,055 Province of Ontario 2.85% Jun 02/23 7,000,000 6,543,850 6,611,570 9,888,870 9,865,625 FOREIGN STOCKS (36.7%) Bulgarian Stock Exchange 5,000 8,218 12,514 Ann Inc. 32,000 1,048,977 1,244,327 Chevron Corp. 8, ,043 1,115,976 Cisco Systems Inc. 45, ,082 1,069,198 Citigroup Inc. 20, ,287 1,143,516 CSX Corp. 34, ,204 1,040,031 General Motors Co. 27, ,837 1,177,150 KKR & Co. LP Ltd. 51, ,500 1,326,011 Kohls Corp. 20, ,355 1,221,888 Oracle Corp. 21, , ,243 Qualcomm Inc. 11, , ,737 Tyson Foods Inc. 35, ,763 1,247,717 Verisign Inc. 18, ,655 1,144,476 Zimmer Holdings Inc. 11, ,783 1,093,025 11,126,041 14,565,809 TOTAL INVESTMENTS (88.4%) 29,914,422 35,108,513 OTHER ASSETS LESS LIABILITIES (11.6%) 4,595,431 NET ASSETS (100.0%) 39,703,944 See Accompanying Notes 5

9 CALDWELL BALANCED FUND Discussion of Financial Risk Management (Note 9) December 31, 2013 and December 31, 2012 FINANCIAL RISK MANAGEMENT The Fund s financial instruments consist of cash, foreign currencies, investments, accounts receivable and accounts payable. As a result, the Fund is exposed to various types of risks that are associated with its investment strategies, financial instruments and markets in which it invests. The most important risks include credit risk, liquidity risk, and market risk, consisting of interest rate risk, currency risk and other price risk. These risks and related risk management practices employed by the Fund are discussed below: Other price risk Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk). The investments of the Fund are subject to normal market fluctuations and the risks inherent in investment in financial markets. The maximum risk resulting from financial instruments held by the Fund is determined by the fair value of the financial instruments as disclosed in the Statement of Investments. The Manager moderates this risk through a careful selection of securities within specified limits and through diversification of the investment portfolio. The Manager monitors the Fund s overall market positions on a daily basis and positions are maintained within established ranges. If the following index had increased (decreased) by 5% at December 31, 2013 and 2012, with all other variables held constant, this would have approximately increased (decreased) net assets as described in the table below: Market sensitivity 5% 5% 5% 5% Index Increase Decrease Increase Decrease Blend 60% MSCI and 40% Barclays Cap 1,492,576 1,492, , ,420 A 36-month regression analysis has been utilized to estimate the historical correlation. Since historical correlation may not be representative of future correlation, actual results could differ from this sensitivity analysis and the difference could be material. Interest rate risk Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or fair values of financial instruments. Interest rate risk arises when the Fund invests in interest-bearing financial instruments. The Fund is exposed to the risk that the value of such financial instruments will fluctuate due to changes in the prevailing levels of market interest rates. The Fund s exposure to interest rate risk is concentrated in its investments in debt instruments. Other assets and liabilities are short-term in nature and/or non-interest bearing. The table below summarizes the Fund s exposure to interest rate risk, categorized by earlier of contractual re-pricing or maturity dates More than Total Years Years 5 Years ($) ($) ($) ($) Interest Rate exposure (December 31, 2013) - - 9,865,625 9,865,625 Interest Rate exposure (December 31, 2012) 8,991, ,991,020 At December 31, 2013, should interest rates have increased or decreased by 0.25%, with all other variables remaining constant, net assets would have decreased or increased respectively, by approximately $206,900 ( $2,500). Actual results may differ from this sensitivity analysis and the difference could be material. 6

10 CALDWELL BALANCED FUND Discussion of Financial Risk Management (Note 9) December 31, 2013 and December 31, 2012 Credit risk The Fund s main credit risk relates to short-term debt securities. The Fund limits its exposure to credit loss by placing its assets in cash and cash equivalents and fixed income securities with high credit quality counterparties. To maximize the credit quality of its investments, the Fund s Manager performs ongoing credit evaluations based upon factors surrounding the credit risk of counterparties, historical trends and other information. The Fund invests in financial assets, which have an investment grade as rated primarily by Dominion Bond Rating Services, Standard & Poor s and Moody s. Ratings for securities that subject the portfolio to credit risk at December 31, 2013 and 2012 are noted below: Portfolio by rating category As a % of Net As a % of Net Rating Assets Assets AA 16.65% % AAA 8.20% 30.38% Total 24.85% 30.38% All transactions in listed securities are settled upon delivery using approved brokers. The risk of default is considered minimal, as delivery of securities sold is only made once the broker has received payment. Payment is made on a purchase once the securities have been received by the broker. The trade will fail if either party fails to meet its obligation. The Fund s maximum credit risk exposure is represented by its investments in fixed income securities. Liquidity risk The Fund is exposed to daily cash redemptions of redeemable units; therefore, the Fund invests the majority of its assets in investments that are traded in the active market and can be readily disposed. In addition, the Fund retains sufficient cash to maintain liquidity. The Fund s investments are considered readily realizable and highly liquid; therefore the Fund s liquidity risk is not considered to be significant. Currency risk The Fund holds assets, including cash, equities and options that are denominated in currencies other than the Canadian dollar, the functional currency. It is therefore exposed to currency risk, as the value of the securities denominated in other currencies fluctuate due to changes in exchange rates. The table below summarizes the Fund s exposure to currency risks. At December 31 At December 31 Currency Percentage Currency Percentage Exposure ($) Net Assets (%) Exposure ($) Net Assets (%) United States Dollar 14,553, ,643, Euro 12, , Total 14,565, ,652, As at December 31, 2013, if the Canadian dollar appreciated or depreciated by 1% in relation to all currencies, with all other variables held constant, net assets would have decreased or increased, respectively, by approximately $145,658 ( $96,523). Actual results may differ from this sensitivity analysis and the difference could be material. 7

11 8

12 CALDWELL INCOME FUND Financial Statements December 31,

13 CALDWELL INCOME FUND Statements of Net Assets As at December 31 Assets Investments, at fair value $ 11,449,090 $ 13,247,641 Cash 55, ,676 Interest receivable 31,894 Dividends receivable 6,620 17,950 Subscription receivable 3,075 Due from Manager 2,927 14,451 11,546,281 14,213,793 Liabilities Management fee payable 8,606 10,152 Redemption payable 79,166 5,242 Accounts payable and accrued liabilities 38,227 28, ,999 43,999 Total net assets and unitholders equity $ 11,420,282 $ 14,169,794 Number of units (Note 7) 2,265,487 2,732,604 Net assets per unit $ 5.04 $ 5.19 Investments at cost $ 11,410,260 $ 13,121,633 Approved on behalf of Caldwell Investment Management Ltd., Manager and Trustee of the Fund Brendan T.N Caldwell, President See Accompanying Notes 10

14 CALDWELL INCOME FUND Statements of Operations For the years ended December 31 Income Interest $ 217,658 $ 130,476 Dividends 100, , , ,306 Expenses Management fee (Note 5) 179, ,610 Administrative fee 83,485 80,863 Audit fee 22,649 17,001 Securityholder reporting costs 15,801 46,052 Legal fee 11,000 10,998 Custodial fee 9,000 9,000 Independent review committee fee 4,000 4,000 Total Expenses 325, ,524 Deduct: Management fees waived by Manager (Note 5) (71,760) (82,244) Deduct: Expenses absorbed by Manager (Note 5) (42,327) (47,127) Net Expenses 211, ,153 Net investment income 106,947 44,153 Realized gain/loss on investments* (142,560) 76,044 Transaction costs (Note 6) (86,731) (70,408) Change in unrealized appreciation (depreciation) on investments and foreign currency (80,382) 609,146 Net realized and unrealized gain (loss) on investments and transaction costs (309,673) 614,782 Increase (decrease) in net assets from operations $ (202,726) $ 658,935 Increase (decrease) in net assets from operations per unit $ (0.08) $ 0.23 * Schedule of realized gain (loss) on investments Cost of investments held at beginning of year $ 2,129,912 $ 4,290,766 Cost of investments purchased during the year 51,749,720 21,448,130 53,879,632 25,738,896 Investments at cost, end of year 11,410,260 2,129,912 Cost of investments sold during the year 42,469,372 23,608,984 Proceeds from sale of investments 42,326,812 23,685,028 Net realized gain (loss) on investments $ (142,560) $ 76,044 See Accompanying Notes 11

15 CALDWELL INCOME FUND Statements of Changes in Net Assets For the years ended December 31 Net assets at beginning of year $ 14,169,794 $ 14,653,475 (Decrease) Increase in net assets from operations (202,726) 658,935 Capital unit transactions Proceeds from units issued 440,230 1,398,807 Value of units redeemed (2,986,644) (2,541,407) Units issued on reinvestment of distribution 119,712 9,033 Net capital unit transactions (2,426,702) (1,133,567) Distributions paid to unitholders From net investment income (120,084) From return of capital (9,049) Total distributions paid to unitholders (120,084) (9,049) Decrease in net assets (2,749,512) (483,681) Net assets at end of year $ 11,420,282 $ 14,169,794 See Accompanying Notes 12

16 CALDWELL INCOME FUND Statement of Investments As at December 31, 2013 PAR VALUE ($)/ NO. OF SHARES AVERAGE COST FAIR VALUE $ $ CANADIAN STOCKS (17.8%) AGF Management Ltd. 65, , ,550 Canadian Imperial Bank of Commerce 2, , ,400 RioCan Real Estate Investment Trust 40,000 1,020, ,600 2,028,679 2,033,550 CANADIAN FIXED INCOME (82.5%) Canada Housing Trust 2.35% Sep 15/23 2,000,000 1,894,181 1,859,460 Province of Ontario 2.85% Jun 02/23 8,000,000 7,487,400 7,556,080 9,381,581 9,415,540 TOTAL INVESTMENTS (100.3%) 11,410,260 11,449,090 OTHER LIABILITIES LESS ASSETS (-0.3%) (28,808) NET ASSETS (100.0%) 11,420,282 See Accompanying Notes 13

17 CALDWELL INCOME FUND Discussion of Financial Risk Management (Note 9) December 31, 2013 and December 31, 2012 FINANCIAL RISK MANAGEMENT The Fund s financial instruments consist of cash, investments, accounts receivable and accounts payable. As a result, the Fund is exposed to various types of risks that are associated with its investment strategies, financial instruments and markets in which it invests. The most important risks include credit risk, liquidity risk, and market risk, consisting of interest rate risk, currency risk and other price risk. These risks and related risk management practices employed by the Fund are discussed below: Other price risk Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk). The investments of the Fund are subject to normal market fluctuations and the risks inherent in investment in financial markets. The maximum risk resulting from financial instruments held by the Fund is determined by the fair value of the financial instruments as disclosed in the Statement of Investments. The Manager moderates this risk through a careful selection of securities within specified limits and through diversification of the investment portfolio. The Manager monitors the Fund s overall market positions on a daily basis and positions are maintained within established ranges. If the following index had increased (decreased) by 5% at December 31, 2013 and 2012, with all other variables held constant, this would have approximately increased (decreased) net assets as described in the table below: Market sensitivity 5% 5% 5% 5% Index Increase Decrease Increase Decrease Globe Cdn Fixed Inc Balanced Peer Index 595, , , ,924 A 36-month regression analysis has been utilized to estimate the historical correlation. Since historical correlation may not be representative of future correlation, actual results could differ from this sensitivity analysis and the difference could be material. Interest rate risk Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or fair values of financial instruments. Interest rate risk arises when the Fund invests in interest-bearing financial instruments. The Fund is exposed to the risk that the value of such financial instruments will fluctuate due to changes in the prevailing levels of market interest rates. The Fund s exposure to interest rate risk is concentrated in its investments in debt instruments. Other assets and liabilities are short-term in nature and/or non-interest bearing. The table below summarizes the Fund s exposure to interest rate risk, categorized by earlier of contractual re-pricing or maturity dates More than Total Years Years 5 Years ($) ($) ($) ($) Interest Rate exposure (December 31, 2013) - - 9,415,540 9,415,540 Interest Rate exposure (December 31, 2012) 10,991, ,991,220 At December 31, 2013, should interest rates have increased or decreased by 0.25% with all other variables remaining constant, net assets would have decreased or increased respectively by $196,339 ( $2,475). Actual results may differ from this sensitivity analysis and the difference could be material. 14

18 CALDWELL INCOME FUND Discussion of Financial Risk Management (Note 9) December 31, 2013 and December 31, 2012 Credit risk The Fund s main credit risk concentration relates to short-term debt securities. The Fund limits its exposure to credit loss by placing its assets in cash and cash equivalents and fixed income securities with high credit quality counterparties. To maximize the credit quality of its investments, the Fund s Manager performs ongoing credit evaluations based upon factors surrounding the credit risk of counterparties, historical trends and other information. The Fund invests in financial assets, which have an investment grade as rated primarily by Dominion Bond Rating Services, Standard & Poor s and Moody s. Ratings for securities that subject the portfolio to credit risk at December 31, 2013 and 2012 are noted below: Portfolio by rating category As a % of Net As a % of Net Rating Assets Assets AA 16.28% - AAA 66.17% 77.57% Total 82.45% 77.57% All transactions in listed securities are settled upon delivery using approved brokers. The risk of default is considered minimal, as delivery of securities sold is only made once the broker has received payment. Payment is made on a purchase once the securities have been received by the broker. The trade will fail if either party fails to meet its obligation. The Fund s maximum credit risk exposure is represented by its investments in fixed income. Liquidity risk The Fund is exposed to daily cash redemptions of redeemable units; therefore, the Fund invests the majority of its assets in investments that are traded in the active market and can be readily disposed. In addition, the Fund retains sufficient cash and cash equivalent positions to maintain liquidity. The Fund s investments are considered readily realizable and highly liquid; therefore the Fund s liquidity risk is not considered to be significant. Currency risk The Fund holds insignificant amounts of cash denominated in currencies other than the Canadian dollar, the functional currency. As such, the Fund did not have significant exposure to currency risk as at December 31, 2013 and

19 CALDWELL HIGH INCOME EQUITY FUND Financial Statements December 31,

20 CALDWELL HIGH INCOME EQUITY FUND Statements of Net Assets As at December 31 Assets Investments, at fair value $ 7,104,213 $ 10,061,375 Foreign currencies 1,492 Cash 17,903 97,321 Receivable for investments sold 14,611 Dividends receivable 49,212 76,444 Subscription receivable 9,329 8,403 Due from Manager 15,182 21,813 7,210,450 10,266,848 Liabilities Management fee payable 14,013 19,433 Redemption payable 12,656 23,507 Accounts payable and accrued liabilities 35,937 27,568 62,606 70,508 Total net assets and unitholders equity $ 7,147,844 $ 10,196,340 Number of units (Note 7) 631, ,433 Net assets per unit $ $ Investments at cost $ 6,736,475 $ 9,627,215 Approved on behalf of Caldwell Investment Management Ltd., Manager and Trustee of the Fund Brendan T.N Caldwell, President See Accompanying Notes 17

21 CALDWELL HIGH INCOME EQUITY FUND Statements of Operations For the years ended December 31 Income Dividends $ 404,510 $ 440,204 Interest 24,650 4,987 Exchange income on foreign currencies and other net assets , ,204 Less: Foreign withholding taxes (1,071) (1,183) 428, ,021 Expenses Management fee (Note 5) 194, ,523 Administrative fee 77,129 77,571 Audit fee 22,650 17,001 Securityholder reporting costs 17,352 24,784 Custodial fee 13,001 13,000 Legal fee 11,001 10,998 Independent review committee fee 4,000 4,000 Interest expense 544 Total Expenses 339, ,877 Deduct: Expenses absorbed by Manager (Note 5) (81,621) (55,092) Net Expenses 258, ,785 Net investment income 169, ,236 Realized gain on investments* 401,484 14,969 Transaction costs (Note 6) (20,572) (2,872) Change in unrealized depreciation on investments and foreign currency (77,236) (216,163) Net realized and unrealized gain (loss) on investments and transaction costs 303,676 (204,066) Increase (decrease) in net assets from operations $ 473,627 $ (36,830) Increase (decrease) in net assets from operations per unit $ 0.61 $ (0.05) * Schedule of realized gain on investments Cost of investments held at beginning of year $ 9,627,215 $ 6,953,066 Cost of investments purchased during the year 1,305,186 4,043,689 10,932,401 10,996,755 Investments at cost, end of year 6,736,475 9,627,215 Cost of investments sold during the year 4,195,926 1,369,540 Proceeds from sale of investments 4,597,410 1,384,509 Net realized gain on investments $ 401,484 $ 14,969 See Accompanying Notes 18

22 CALDWELL HIGH INCOME FUND Statements of Changes in Net Assets For the years ended December 31 Net assets at beginning of year $ 10,196,340 $ 7,699,794 Increase (decrease) in net assets from operations 473,627 (36,830) Capital unit transactions Proceeds from units issued 426,683 4,295,092 Value of units redeemed (3,948,309) (1,761,434) Units issued on reinvestment of distribution 423, ,774 Net capital unit transactions (3,098,188) 2,798,432 Distributions paid to unitholders From net investment income (103,551) (265,056) From capital gains (155,200) From return of capital (165,184) Total distributions paid to unitholders (423,935) (265,056) (Decrease) Increase in net assets (3,048,496) 2,496,546 Net assets at end of year $ 7,147,844 $ 10,196,340 See Accompanying Notes 19

23 CALDWELL HIGH INCOME EQUITY FUND Statement of Investments As at December 31, 2013 PAR VALUE ($)/ NO. OF SHARES AVERAGE COST FAIR VALUE $ $ CANADIAN STOCKS (99.4%) Altagas Ltd. 5, , ,779 Bank of Montreal 3, , ,721 Barrick Gold Corp. 7, , ,325 BCE Inc. 4, , ,624 Bell Aliant Inc. 12, , ,491 Bonavista Energy Corp. 11, , ,499 Canadian Oil Sands Ltd. 5, , ,847 Capital Power Corporation 6, , ,065 Crescent Point Energy Corp. 16, , ,022 Detour Gold Corp. 10, ,015 40,900 Enerplus Corp. 14, , ,820 Freehold Royalties Ltd. 15, , ,942 Goldcorp Inc. 9, , ,910 Inter Pipeline Ltd. 23, , ,204 Labrador Iron Ore Royalty Corp. 9, , ,788 Lightstream Resources Ltd. 13, ,177 81,903 Manulife Financial Corp. 7, , ,439 Noranda Income Fund 20,000 70, ,200 Osisko Mining Corp. 23, , ,100 Pembina Pipeline Corp. 18, , ,871 Pengrowth Energy Corp. 27, , ,557 Penn West Petroleum Ltd. 19, , ,284 Potash Corporation of Saskatchewan Inc. 32 1,088 1,120 Power Financial Corp. 5, , ,800 Riocan Real Estate Investment Trust 10, , ,523 Sun Life Financial Inc. 4, , ,641 Suncor Energy Inc. 7, , ,047 Teck Resources Ltd. 3, ,535 82,830 Telus Corp. 4,046 93, ,922 Veresen Inc. 12, , ,725 Westshore Terminals Investment Corp. 9, , ,314 6,736,475 7,104,213 TOTAL INVESTMENTS (99.4%) 6,736,475 7,104,213 OTHER ASSETS LESS LIABILITIES (0.6%) 43,631 NET ASSETS (100.0%) 7,147,844 See Accompanying Notes 20

24 CALDWELL HIGH INCOME FUND Discussion of Financial Risk Management (Note 9) December 31, 2013 and December 31, 2012 FINANCIAL RISK MANAGEMENT The Fund s financial instruments consist of cash and cash equivalents, investments, accounts receivable and accounts payable. As a result, the Fund is exposed to various types of risks that are associated with its investment strategies, financial instruments and markets in which it invests. The most important risks include credit risk, liquidity risk, and market risk, consisting of interest rate risk, currency risk and other price risk. These risks and related risk management practices employed by the Fund are discussed below: Other price risk Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk). The investments of the Fund are subject to normal market fluctuations and the risks inherent in investment in financial markets. The maximum risk resulting from financial instruments held by the Fund is determined by the fair value of the financial instruments as disclosed in the Statement of Investments. The Manager moderates this risk through a careful selection of securities within specified limits and through diversification of the investment portfolio. The Manager monitors the Fund s overall market positions on a daily basis and positions are maintained within established ranges. If the following index had increased (decreased) by 5% at December 31, 2013 and 2012, with all other variables held constant, this would have approximately increased (decreased) net assets as described in the table below: Market sensitivity 5% 5% 5% 5% Index Increase Decrease Increase Decrease S&P/TSX Composite 299, , , ,363 A regression analysis has been utilized to estimate the historical correlation. Since historical correlation may not be representative of future correlation, actual results could differ from this sensitivity analysis and the difference could be material. Interest rate risk Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or fair values of financial instruments. Interest rate risk arises when the Fund invests in interest-bearing financial instruments. The Fund is exposed to the risk that the value of such financial instruments will fluctuate due to changes in the prevailing levels of market interest rates. The Fund s exposure to interest rate risk is concentrated in its investments in debt instruments. Other assets and liabilities are short-term in nature and/or non-interest bearing. The majority of the Fund s financial assets and liabilities are non-interest bearing. As a result, the Fund is not subject to a significant amount of interest rate risk due to fluctuations in the prevailing level of market interest rates. 21

25 CALDWELL HIGH INCOME FUND Discussion of Financial Risk Management (Note 9) December 31, 2013 and December 31, 2012 Credit risk As at December 31, 2013 and 2012, the Fund did not have any investments in debt instruments and/or derivatives and, as a result, did not have any significant credit risk. Liquidity risk The Fund is exposed to daily cash redemptions of redeemable units; therefore, the Fund invests the majority of its assets in investments that are traded in the active market and can be readily disposed. In addition, the Fund retains sufficient cash and cash equivalent positions to maintain liquidity. The Fund s investments are considered readily realizable and highly liquid; therefore the Fund s liquidity risk is not considered to be significant. Currency risk The Fund holds assets and liabilities, including cash and equities that are denominated in currencies other than the Canadian dollar, the functional currency. It is therefore exposed to currency risk, as the value of the securities denominated in other currencies fluctuate due to changes in exchange rates. The table below summarizes the Fund s exposure to currency risks. At December 31 At December 31 Currency Percentage Currency Percentage Exposure ($) Net Assets (%) Exposure ($) Net Assets (%) United States Dollar , As at December 31, 2013, if the Canadian dollar appreciated or depreciated by 1% in relation to all currencies, with all other variables held constant, net assets would have decreased or increased, respectively, by approximately $Nil ( $3,350). Actual results may differ from this sensitivity analysis and the difference could be material. 22

26 CALDWELL MUTUAL FUNDS Notes to the Financial Statements December 31, 2013 and December 31, FORMATION OF FUNDS The Caldwell Mutual Funds (the Funds ) were established as follows: CALDWELL BALANCED FUND March 1, 1990 CALDWELL INCOME FUND April 15, 1997 CALDWELL MEISELS CANADA FUND April 15, 1997 CALDWELL GLOBAL FINANCIAL SERVICES FUND (formerly Caldwell Exchange Fund) April 15, 1997 CALDWELL HIGH INCOME EQUITY FUND April 16, 2009 All of the Funds are open-ended mutual fund trusts established under the laws of the Province of Ontario by a declaration of trust made by Caldwell Investment Management Ltd. (the Manager and the Trustee ). The Declaration of Trust was amended, restated & consolidated on November 1, 2007, and then again, amended and restated on April 16, 2009 when Caldwell High Income Equity Fund was launched. The Declaration of Trust was amended on June 11, 2010 and June 21, On June 25, 2012, the Declaration of Trust was further amended to provide for the unitholder approved change of management fees payable by Caldwell High Income Equity Fund and to change the fundamental investment objective of Caldwell Balanced Fund. The Funds are authorized to issue an unlimited number of units of the same class which rank equally in all respects to a pro rata interest in the net assets of the Funds. All units of the Funds are redeemable at the unitholders option. As of June 25, 2012, Caldwell Meisels Canada Fund and Caldwell Global Financial Services Fund were merged into Caldwell High Income Equity Fund and Caldwell Balanced Fund, respectively, except for 100 units held by the Manager in each of the discontinuing funds. In August 2012, Caldwell Meisels Canada Fund and Caldwell Global Financial Services Fund applied to voluntarily surrender their respective status as reporting issuers. On October 15, 2012 the applicable securities regulatory authorities granted the Exemptive Relief Sought and these two funds ceased to be reporting issuers. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These financial statements have been prepared in accordance with Canadian generally accepted accounting principles ( GAAP ). The following is a summary of significant accounting policies followed by the Funds in the preparation of the financial statements. Use of estimates The preparation of financial statements in accordance with GAAP requires the Manager to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of increase/decrease in net assets from operations during the reporting periods. The Manager uses estimates and assumptions in the valuation of certain investments. Actual results could differ from these estimates. Fair value hierarchy In accordance with the Chartered Professional Accountants of Canada ( CPA ) Handbook Section 3862, Financial Instruments Disclosures, the Funds financial instruments, measured at fair value, are disclosed based on a three-level fair value hierarchy that reflects the significance of the inputs used in making the measurements. The three levels of fair value hierarchy are as follows: Level 1 Level 2 Level 1 financial instruments are valued using quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 financial instruments are valued using inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly (i.e. as prices) or indirectly (i.e. derived from prices), including inputs in markets that are not considered to be active. Level 3 Level 3 financial instruments are valued using inputs that are not based on observable market data (unobservable inputs). Please refer to Note 3 for fair value disclosures. 23

27 CALDWELL MUTUAL FUNDS Notes to the Financial Statements December 31, 2013 and December 31, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Valuation of investments Investments are valued at fair value. The fair value of equities is determined by the bid price reported by the principal securities exchange on which the stock is listed or traded. Bonds are valued at the average bid quotations from recognized investment dealers. The valuation method used to calculate the daily net asset value to transact units of the Funds ( Transactional NAV or NAV ) is different than that used in determining financial statement net assets. Short-term investments are valued at their cost including applicable foreign exchange transactions; this value, together with accrued interest, approximates fair value using current bid prices. Investments, for which reliable quotations are not readily available, are valued using a valuation technique. A number of valuation methodologies are considered in arriving at fair value, including comparable company transactions, earnings multiples, the price of recent investments, net assets, discounted cash flows, industry valuation benchmarks and available market prices. During the initial period after investment, cost translated using the period end relevant foreign currency exchange rate may represent the most reasonable estimate of fair value. The process of valuing investments for which no published market exists is based on inherent uncertainties. The resulting values may differ from values that would have been used had a ready market existed for the investments and may differ from the prices at which the investment may be sold. Transaction costs Transaction costs are expensed and are included in Transaction costs in the Statements of Operations. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of an investment, which include fees and commission paid to agents, advisors, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. The cost of investments for each security is determined on an average-cost basis. Net Asset Value National Instrument Investment fund Continuous Disclosure ( NI ) requires all investment funds to calculate net asset value for purposes other than for financial statements in accordance with part 14.2 which differs in some respects from the requirements of GAAP. NI exempts investment funds from providing a reconciliation between GAAP Net Assets and Transactional NAV (as defined below), but requires investments funds to provide an explanation of the differences. GAAP includes the requirement that the fair value of financial instruments listed on a recognized public stock exchange be valued at their last bid price for securities held in a long position and at their last ask price for securities held in a short position, instead of their close price or the last sale price of the security for the day as required by NI This results in differences between net assets calculated based on GAAP ( GAAP NAV ) and the net asset value calculated based on NI ( Transactional NAV ). See Note 4. Investment transactions and income recognition Investment transactions are accounted for on the trade date basis. Dividend income is recorded on the ex-dividend date. Interest income is recorded on an accrual basis. Realized gains and losses from investment transactions and unrealized appreciation or depreciation of investments are calculated on an average-cost basis. Foreign exchange Investment portfolio securities and other assets and liabilities denominated in foreign currencies are translated into Canadian dollars at the exchange rates prevailing on each valuation day. Purchases and sales of investments, income and expenses are translated into Canadian dollars at the exchange rates prevailing on the respective dates of such transactions. Realized and unrealized foreign exchange gains (losses) on investments are included in Realized gain (loss) on investments and Change in unrealized appreciation (depreciation) on investments and foreign currency, respectively, in the Statements of Operations. 24

28 CALDWELL MUTUAL FUNDS Notes to the Financial Statements December 31, 2013 and December 31, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Valuation of Funds units The units of each of the Funds are issued and redeemed at their respective NAV per unit as determined on the Valuation Date less any applicable redemption fee. A Valuation Date is every day on which the Toronto Stock Exchange is open for business. The net asset value per unit on a Valuation Date is calculated by dividing the net asset value of the Funds (being the value of its assets less its liabilities) by the total number of units of the Funds that are outstanding, respectively. Distributions Caldwell Balanced Fund distributes its net investment income and realized gains to unitholders on an annual basis. Distributions to unitholders of Caldwell Income Fund are made on a quarterly basis. Distributions to unitholders of Caldwell High Income Equity Fund are made on a monthly basis. For all the Funds, such distributions will be automatically reinvested, unless a written notice to the contrary is received from the unitholder, by the Manager, prior to reinvestment. Increase (decrease) in net assets from operations per unit Increase (decrease) in net assets from operations per unit in the Statements of Operations represents the increase (decrease) in net assets from operations for the period divided by the average number of units outstanding during the period. Income taxes The Funds qualify as mutual fund trusts for income tax purposes and annually distribute all of their net taxable investment income and net realized taxable capital gains with the exception of Caldwell Income Fund and Caldwell High Income Equity Fund, each of which distribute quarterly and monthly, respectively. The amount of net realized taxable capital gains available for distribution is reduced by the amount of net capital gains to be retained in the Funds in order to enable the Funds to fully utilize any available tax credit attributable to redemptions during the year. Such income and net realized capital gains are taxable only in the hands of the unitholders. Accordingly, no provision for Canadian income taxes has been made in the financial statements of the Funds. Withholding taxes on foreign dividend income are deducted at source. 25

29 CALDWELL MUTUAL FUNDS Notes to the Financial Statements December 31, 2013 and December 31, FAIR VALUE DISCLOSURES The Funds total investment holdings as at December 31, 2013 and December 31, 2012 are classified into a three-level fair value hierarchy as follows: Financial Assets at fair value as at December 31, 2013 Level 1 Level 2 Level 3 Total Caldwell Balanced Fund Cash 4,629,881 4,629,881 Equities 25,242,888 25,242,888 Fixed Income 9,865,625 9,865,625 29,872,769 9,865,625 39,738,394 Financial Assets at fair value as at December 31, 2012 Level 1 Level 2 Level 3 Total Caldwell Balanced Fund Cash and foreign currencies 559, ,259 Short-term investments 8,991,435 8,991,435 Equities 20,086,680 20,086,680 20,645,939 8,991,435 29,637,374 Financial Assets at fair value as at December 31, 2013 Level 1 Level 2 Level 3 Total Caldwell Income Fund Cash 55,750 55,750 Equities 2,033,550 2,033,550 Fixed Income 9,415,540 9,415,540 2,089,300 9,415,540 11,504,840 Financial Assets at fair value as at December 31, 2012 Level 1 Level 2 Level 3 Total Caldwell Income Fund Cash 930, ,676 Short-term investments 10,991,721 10,991,721 Equities 2,255,920 2,255,920 3,186,596 10,991,721 14,178,317 26

30 CALDWELL MUTUAL FUNDS Notes to the Financial Statements December 31, 2013 and December 31, FAIR VALUE DISCLOSURES (CONTINUED) Financial Assets at fair value as at December 31, 2013 Level 1 Level 2 Level 3 Total Caldwell High Income Equity Fund Cash 17,903 17,903 Equities 7,104,213 7,104,213 7,122,116 7,122,116 Financial Assets at fair value as at December 31, 2012 Level 1 Level 2 Level 3 Total Caldwell High Income Equity Fund Cash and foreign currencies 98,813 98,813 Equities 10,061,375 10,061,375 10,160,188 10,160,188 During the year ended December 31, 2013 and December 31, 2012, there were no transfers of investments between Level 1 and Level 2. During the year ended December 31, 2012, Excel Gold Mining Inc. was transferred from Level 1 to Level 3 in Caldwell Balanced Fund. 4. RECONCILIATION OF NET ASSET VALUE As of December 31, 2013 and December 31, 2012, the net asset value ( NAV ) per unit for financial reporting and NAV at fair value for each of the Funds are: Transactional Section 3855 GAAP Transactional GAAP NAV Adjustment NAV NAV per unit NAV per unit As of December 31, 2013 Caldwell Balanced Fund $ 39,735,844 $ (31,900) $ 39,703,944 $ 8.72 $ 8.71 Caldwell Income Fund 11,421,522 (1,240) 11,420, Caldwell High Income Equity Fund 7,155,657 (7,813) 7,147, As of December 31, 2012 Caldwell Balanced Fund $ 29,636,569 $ (35,809) $ 29,600,760 $ 7.13 $ 7.12 Caldwell Income Fund 14,172,194 (2,400) 14,169, Caldwell High Income Equity Fund 10,217,894 (21,554) 10,196, MANAGEMENT FEES As compensation for managing the Funds, the Manager is entitled to receive an annual management fee equal to 2.00% of the average net asset value of the Caldwell Balanced Fund and the Caldwell High Income Equity Fund and 1.25% of the Caldwell Income Fund. Such fees are calculated daily and paid monthly. Since April 2001, the Manager has been waiving a portion of the fee and charging the Caldwell Income Fund an annual fee of 0.75%. In addition to management fees, the Funds are responsible for all other operating expenses including but not limited to custodian fees, securityholder reporting costs, audit and legal. The Manager at its discretion may waive and absorb a portion of the management fees and operating expenses otherwise payable by the Funds. These waivers may be terminated at any time by the Manager and at the Manager s discretion, may be continued indefinitely. 27

31 CALDWELL MUTUAL FUNDS Notes to the Financial Statements December 31, 2013 and December 31, COMMISSIONS AND RELATED PARTY TRANSACTIONS The Manager and Caldwell Securities Ltd., a broker, are both wholly-owned subsidiaries of Caldwell Financial Ltd. The following brokerage equity commissions were paid for the years ending December 31, 2013 and 2012, primarily to Caldwell Securities Ltd. Neither the Manager nor the Funds have received any soft dollar commissions from brokers to pay for third-party research services. 7. UNITHOLDERS EQUITY Caldwell Balanced Fund 97, ,944 Caldwell Income Fund 86,731 70,408 Caldwell High Income Equity Fund 20,572 2,872 During the years ending December 31, 2013 and 2012, the following units were issued and redeemed: Caldwell Balanced Fund Units, beginning of year 4,157,573 3,866,294 Units issued 1,026, ,028 Units reinvested - - Units redeemed (625,597) (684,749) Units, end of year 4,558,628 4,157,573 Caldwell Income Fund Units, beginning of year 2,732,604 2,955,574 Units issued 85, ,618 Units reinvested 23,732 1,795 Units redeemed (575,908) (501,383) Units, end of year 2,265,487 2,732,604 Caldwell High Income Fund Units, beginning of year 913, ,424 Units issued 38, ,738 Units reinvested 38,650 23,706 Units redeemed (359,016) (155,435) Units, end of year 631, ,433 28

32 CALDWELL MUTUAL FUNDS Notes to the Financial Statements December 31, 2013 and December 31, TAX STATUS The capital losses for income tax purposes may be carried forward indefinitely and applied against capital gains realized in future periods. The capital losses as at December 31, 2013 and 2012 are as follows: The non-capital losses as at December 31, 2013 and 2012 are as follows: 9. CAPITAL MANAGEMENT The Funds define their capital as their net assets, which is primarily composed of their investments. The Funds manage their investments in line with their investment objectives. There have been no significant changes in the Funds capital management policies in the current year. The Funds investment activities expose them to various types of risks associated with the financial instruments and markets in which they invest directly. The following is a summary of the main risks: Currency risk The Funds may invest in securities denominated in currencies other than their reporting currency. Consequently, the Funds are exposed to risks that the exchange rate of the reporting currency, Canadian dollars, relative to the other currencies may change in a manner which has an adverse effect on the reported value of that portion of the Funds assets. Liquidity risk The Funds maintain sufficient cash and marketable securities and manage liquidity risk through their ability to close out market positions. Interest rate risk $ $ Caldwell Balanced Fund 11,083,114 12,876,988 Caldwell Income Fund 242,707 58,552 Caldwell High Income Equity Fund 86,913 $ $ Caldwell Balanced Fund Caldwell Income Fund Caldwell High Income Equity Fund 16,672 The Funds may invest in fixed and floating rate securities. The income of the Funds may be affected by changes in interest rates relevant to particular securities or as a result of management being unable to secure similar returns on the expiry of contracts or sale of securities. The value of fixed interest securities may be affected by interest rate movements or the expectation of such movement in the future. 29