FRIEDBERG CURRENCY FUND INTERIM FINANCIAL STATEMENTS JUNE 30, 2012

Transcription

1 INTERIM FINANCIAL STATEMENTS JUNE 30, 2012

2 (a limited partnership organized under the Laws of Ontario) INTERIM STATEMENT OF NET ASSETS JUNE 30, 2012 June 30, December 31, ASSETS Cash balances at broker (note 5) $ 3,675,320 $ 4,285,277 Amounts receivable, including contracts awaiting settlement 8,171 - Unrealized gains on open forward contracts (note 5) 182, ,554 TOTAL ASSETS 3,866,144 4,442,831 LIABILITIES Unrealized losses on open futures and forward contracts (note 5) 466, ,924 TOTAL LIABILITIES 466, ,924 NET ASSETS $ 3,399,445 $ 4,093,907 NET ASSETS PER UNIT (note 4) $ $ See accompanying notes to interim financial statements

3 INTERIM STATEMENT OF CHANGES IN NET ASSETS FOR THE SIX MONTHS ENDED JUNE 30, 2012 (with comparative figures for the the six months ended June 30, 2011) Net assets, beginning of the period $ 4,093,907 $ 5,089,408 Net operating loss for the period - (53) Net loss on investments for the period (140,140) (1,419,228) Redemptions during the period (554,322) (99,344) Net assets, end of the period $ 3,399,445 $ 3,570,783 See accompanying notes to interim financial statements

4 INTERIM STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2012 (with comparative figures for the the six months ended June 30, 2011) INCOME Interest $ - $ 385 EXPENSES Management fees (note 5) NET OPERATING LOSS - (53) REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Realized gains (losses) on futures and forward contracts 34,399 (1,611,214) Foreign currency translation loss (22,792) (149,657) Transaction costs (note 5) (59,070) (115,683) Change in net unrealized gain/loss on futures and forward contracts (92,677) 457,326 NET LOSS ON INVESTMENTS (140,140) (1,419,228) NET DECREASE IN NET ASSETS FROM OPERATIONS AND INVESTMENTS FOR THE PERIOD $ (140,140) $ (1,419,281) NET DECREASE IN NET ASSETS FROM OPERATIONS AND INVESTMENTS PER UNIT FOR THE PERIOD (note 4) $ (0.51) $ (4.38) See accompanying notes to interim financial statements

5 INTERIM STATEMENT OF INVESTMENTS JUNE 30, 2012 (with comparative figures for December 31, 2011) The following forward contracts, stated in U.S. dollars, were open at June 30, 2012: Unrealized Unrealized Local Opening gains to losses to currency contract U.S. dollar Settlement June June Contract Position amount price amount date 30, , 2012 Canadian dollar Long 3,000,000 $ $ 2,942,850 August 16, 2012 $ - $ (63,126) Indian rupee Short 109,500,000 $ ,960,422 July 27, ,410 - New Zealand dollar Short 9,563,000 $ ,613,200 September 14, (252,378) Bulgarian lev Short 10,950,000 $ ,079,360 September 12, (142,808) European currency Long 5,564,790 $ ,045,692 September 12, ,960 - $ 26,641,524 Unrealized gains (losses) in United States dollars $ 179,370 $ (458,312) Unrealized gains (losses) in Canadian dollars $ 182,653 $ (466,699) The following futures and forward contracts, stated in U.S. dollars, were open at December 31, 2011: Unrealized Unrealized Local Opening gains to losses to Currency/ currency contract U.S. dollar Settlement December December contract Position amount price amount date 31, , 2011 Futures contracts: Brazilian real Short 73,000 $ 3,675,320 $ 3,861,700 March 2012 $ - $ (180,894) Currency forward contracts: Australian dollar Short 3,285, $ 3,353,394 January 17, (63,505) British pound Short 6,424, ,974,545 February 13, ,888 - Canadian dollar Long 3,000, ,941,300 February 17, (98,086) New Zealand dollar Short 4,599, ,569,054 February 13, ,759 - $ 19,838,293 Total unrealized gains (losses) on forward contracts in United States dollars 154,647 (161,591) Total unrealized gains (losses) on open futures and forward contracts in United States dollars $ 154,647 $ (342,485) Total unrealized gains (losses) on open futures and forward contracts in Canadian dollars $ 157,554 $ (348,924) See accompanying notes to interim financial statements

6 NOTES TO INTERIM FINANCIAL STATEMENTS JUNE 30, BASIS OF PRESENTATION These interim financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles ("GAAP"). These accounting principles are consistent with those outlined in Friedberg Currency Fund's (the "Fund") annual financial statements. These interim financial statements do not include all disclosures normally provided in annual financial statements and should be read in conjunction with the Fund's financial statements for the year ended December 31, In management's opinion, the unaudited financial information includes all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly such information. Interim results are not indicative of the results expected for the fiscal year. 2. RECONCILIATION OF NET ASSET VALUE In accordance with the relief granted by the Canadian Securities Administrators, a reconciliation between the currently calculated purchases and redemption price (the "Transactional NAV") and the net asset value calculated in accordance with CICA Handbook Section 3855, "Financial Instruments - Recognition and Measurement" ("Section 3855") (the "GAAP NAV") of the Fund has been made. There are no differences between Transactional NAV and GAAP NAV. 3. FINANCIAL INSTRUMENTS The Fund s assets and liabilities classified in accordance with Section 3855 are as follows: June 30, December 31, Held for trading, measured at fair value (i) Cash balances at broker $ 3,675,320 $ 4,285,277 Unrealized gains on open forward contracts $ 182,653 $ 157,554 Unrealized losses on open forward contracts $ 466,699 $ 348,924 Loans and receivables, measured at amortized cost (ii) Amounts receivable, including contracts awaiting settlement $ 8,171 $ - (i) (ii) Financial instruments classified as held for trading include cash balances at broker, unrealized gains and losses on open forward contracts. Financial instruments classified as loans and receivables include amounts receivable, including contracts awaiting settlement. All of the components of the Fund s net assets are considered to be financial instruments. The fair value of these financial instruments approximates their carrying values.

7 - 2 - Fair Value Hierarchy of Financial Instruments - The Fund has categorized its financial instruments that are carried at fair value, based on the priority of the inputs to the valuation techniques used to measure fair value, into a three level fair value hierarchy as follows: Level 1: Fair value is based on unadjusted quoted prices for identical assets or liabilities in an active market. The types of assets and liabilities classified as Level 1 include cash balances at broker. Level 2: Fair value is based on quoted prices for similar assets or liabilities in active markets, valuation that is based on significant observable inputs, or inputs that are derived principally from or corroborated with observable market data through correlation or other means. The types of assets and liabilities classified as Level 2 include future and forward contracts. Level 3: Fair value is based on valuation techniques that require one or more significant inputs that are not based on observable market inputs. These unobservable inputs reflect the Fund's assumptions about the assumptions market participants would use in pricing the asset or liability. Currently, the Fund has no assets or liabilities that would be included in level 3. The following table presents the Fund's financial instruments that are carried at fair value by CICA Handbook Section 3862, "Financial Instruments - Disclosure" level, as at June 30, 2012: Level 1 Level 2 Total Assets Cash balances at broker $ 3,675,320 $ - $ 3,675,320 Unrealized gains on open forward contracts - 182, ,653 $ 3,675,320 $ 182,653 $ 3,857,973 Liabilities Unrealized losses on open future and forward contracts $ - $ 466,699 $ 466,699 Risk Management Friedberg Mercantile Group Ltd. ("FMGL" or the "Portfolio Manager") manages risk by employing professional, experienced portfolio advisors, by daily monitoring of the Fund s positions and market events, and by diversifying the investment portfolio within the constraints of the investment objective. To assist in managing risk, the Manager also maintains a governance structure that oversees the Fund s investment activities and monitors compliance with the Fund s stated investment strategy and securities regulations. The Fund s investment activities expose it to various types of risk that are associated with the financial instruments and markets in which it invests. The statement of investments presents the securities held by the Fund as at June 30, 2012, and groups the securities by asset type, sector and/or market segment. Significant risks that are relevant to the Fund are discussed below. Total assets and liabilities presented in the tables below are not intended to match total assets and liabilities disclosed in the statement of net assets, due to differences in presentation of derivative instruments.

8 - 3 - a) Market price risk - Market 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, whether those changes are caused by factors specific to the individual financial instruments or its issuer, or factors affecting similar financial instruments traded in the market. Total contract value % of net assets Forward contracts (total contract value in US dollars) $ 26,641, % Price sensitivity As at June 30, 2012, had the prices of the investments held in the Fund increased or decreased by 5%, with all other variables held constant, net assets would have decreased or increased by approximately $761,033 and $671,147, respectively. In practice, the actual trading result may differ from this analysis and the difference may be material. (b) Currency risk - Currency risk is the risk that the value of a financial instrument will fluctuate as a result of changes in foreign currency exchange rates, which can be caused by market, political and/or other factors which may be subject to intervention by sovereign governments. The Fund holds assets denominated in currencies other than its measurement currency. The Fund is therefore exposed to currency risk, as the value of the securities denominated in other currencies fluctuates due to change in exchange rates. The table below summarizes the Fund s exposure to currency risk: Contracts Open awaiting forward % of Currency Cash settlement contracts (i) Total net assets Japanese yen $ - $ 8,171 $ - $ 8, % Indian rupee - - 1,996,297 1,996, % New Zealand dollar - - 7,752,521 7,752, % Bulgarian lev - - 7,208,912 7,208, % European currency - - 7,174,628 7,174, % US dollar 3,675, ,675, % Total $ 3,675,320 $ 8,171 $ 24,132,358 $ 27,815, % (i) These contracts are presented at their total contract value, whereas on the statement of net assets they are stated at their fair value. Currency sensitivity As at June 30, 2012, had the Canadian Dollar strengthened or weakened by 1% in relation to all currencies, with all other variables remaining constant, net increase or decrease in net assets from operations and investments for the period would have been approximately $278,158. This analysis only addresses the impact on the financial instrument with respect to currency movement and excludes any other economic or geo-political implications of such currency fluctuation. In practice, the actual trading result may differ from this analysis and the difference may be material.

9 - 4 - (c) Credit risk - The Fund is exposed to credit risk arising from its transactions with its counterparties, related to securities purchases, sales and positions held by the counterparties on the Fund s behalf. Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. Financial assets which potentially expose the Fund to credit risk consist principally of due from brokers and derivatives. Credit risk is managed by dealing only with counterparties the Fund believes to be creditworthy, setting transaction limits with specific counterparties and by daily monitoring of credit exposure. (d) Liquidity risk - The Fund is exposed to weekly 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. Certain derivative contracts may not trade in an organized market and may be illiquid. The Fund's investments are considered readily realizable and highly liquid, therefore the Fund's liquidity risk is considered minimal. 4. UNITHOLDERS' EQUITY The following details the changes in the number of units of limited partnership interest ("Units") outstanding for the six months ended June 30, 2012, the year ended December 31, 2011 and the six months ended June 30, 2011: 6 months 12 months 6 months ended ended ended June December June 30, , , 2011 Number of Units outstanding, beginning of the period 303, , ,394 Units redeemed during the period (44,735) (24,466) (7,593) Number of Units outstanding, end of the period 259, , ,801 Weighted average number of Units outstanding for the period 274, , ,186

10 RELATED PARTY INFORMATION These transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. (a) Transaction costs - FMGL, the controlling shareholder of the Fund's general partner, FMG Corporation, serves as the Fund's broker. During the period, the Fund incurred $59,070 ($115,683 for the six months ended June 30, 2011) in brokerage commissions with FMGL. Transaction costs are charged to net income and are calculated at FMGL's standard brokerage fees. (b) Management fees - As manager, Toronto Trust Management Ltd. ("TTML") is entitled to retain interest earned by the Fund to a maximum of six percent per annum of the net asset value of the Fund plus expenses incurred by TTML on the Fund's behalf. These fees are intended to serve as management fees and to reimburse TTML for such expenses. Expenses incurred by TTML on behalf of the Fund were $36,720 ($31,193 for the six months ended June 30, 2011). Management fees paid to TTML for the period were $nil ($438 for the six months ended June 30, 2011). (c) Cash balances and investments - The following amounts included in the respective line on the statement of net assets details the cash and investments which FMGL held on behalf of the Fund as of June 30, 2012 and December 31, 2011: June 30, December 31, Assets Cash held at broker $ 3,675,320 $ 4,285,277 Unrealized gains on open forward contracts 182, ,554 $ 3,857,973 $ 4,442,831 Liabilities Unrealized losses on open forward contracts $ 466,699 $ 348, CAPITAL MANAGEMENT Management considers the Fund s capital to consist of the issued Units and the net assets attributable to Unitholders. The Manager manages the capital of the Fund in accordance with the Fund s investment objectives, policies and restrictions, as outlined in the Fund s prospectus, while maintaining sufficient liquidity to meet Unitholder redemptions. The Fund does not have any externally imposed capital requirements.