CC&L High Yield Bond Fund

Transcription

1 Financial Statements (Unaudited) June 30, 2017 Notice to Reader: Connor, Clark & Lunn Funds Inc., the Manager of the Fund, appoints an independent auditor to audit the Fund's Annual Financial Statements. Under Canadian securities laws (National Instrument ), if an auditor has not reviewed the Semi-Annual Financial Statements, this must be disclosed in an accompanying notice. The Fund's independent auditor has not performed a review of these Semi-Annual Financial Statements in accordance with the standards established by the Chartered Professional Accountants of Canada.

2 Statements of Financial Position as at June 30, 2017 December 31, 2016 (Unaudited) (Audited) Assets Current assets Cash $ 371 $ 40,427 Short-term investments 449,732 4,194,483 Financial assets at fair value through profit or loss 94,254,551 96,539,563 Daily variation margin 101, ,375 Unrealized appreciation on currency forward contracts 512,758 72,649 Unrealized appreciation on futures contracts - 16,801 Subscriptions receivable 704,974 46,402 Due from broker - 3,050 Interest receivable 1,179,383 1,343,212 97,203, ,382,962 Liabilities Current liabilities Management fees payable - 4,807 Accrued expenses 19,555 27,780 Distributions payable 2, Unrealized depreciation on currency forward contracts 4, ,704 Unrealized loss on futures contracts 3,530 - Redemptions payable 369,386 57, , ,651 Net Assets attributable to holders of redeemable units $ 96,804,260 $ 101,608,311 Net Assets attributable to holders of redeemable units for each series Series A $ 6,686,387 $ 9,101,467 Series F $ 6,081,101 $ 6,807,522 Series I $ 84,036,772 $ 85,699,322 Redeemable units outstanding (note 7) Series A 753,536 1,019,303 Series F 680, ,614 Series I 8,722,204 8,925,778 Net Assets attributable to holders of redeemable units per unit Series A $ 8.87 $ 8.93 Series F $ 8.94 $ 8.95 Series I $ 9.63 $ 9.60 Approved by the Manager Director Director The accompanying notes are an integral part of these financial statements.

3 Statements of Comprehensive Income (Unaudited) For the six month periods ended June 30, 2017 and Income Other income $ 153 $ 200 Realized foreign exchange gain (loss) on currency (51,946) (145,807) Change in unrealized foreign exchange gain (loss) on currency (217) - Net gain (loss) on investments Dividends - 31,789 Interest for distribution purposes 2,396,530 2,981,085 Income from income trusts Net realized gain (loss) on investments 589,427 (362,290) Net realized gain (loss) on currency forward contracts (316,723) 5,165,809 Net realized gain (loss) on futures contracts (74,813) - Net change in unrealized appreciation (depreciation) on investments (1,204,676) (3,246,615) Net change in unrealized appreciation (depreciation) on currency forward contracts 1,119,587 (50,284) Net change in unrealized appreciation (depreciation) on futures contracts (20,331) - Total net gain (loss) on investments 2,489,001 4,519,600 Total income (loss), net 2,436,991 4,373,993 Expenses (note 9) Management fees 109, ,604 Audit fees 8,784 8,685 Custodial fees 40,256 21,433 Legal fees - 1,821 Filing fees 18,790 2,869 Fundserv fees Independent Review Committee fees 3,891 2,982 Interest expense 1, Securityholder reporting fees 10,957 9,270 Total operating expenses 193, ,426 Withholding taxes (14,087) (5,105) Increase (decrease) in Net Assets attributable to holders of redeemable units from operations $ 2,229,343 $ 4,211,462 Increase (decrease) in Net Assets attributable to holders of redeemable units for each series Series A $ 136,913 $ 377,122 Series F $ 127,101 $ 200,797 Series I $ 1,965,329 $ 3,633,543 Weighted average units 1 Series A 926,067 1,073,096 Series F 710, ,448 Series I 8,715,266 9,494,856 Increase (decrease) in Net Assets attributable to holders of redeemable units per unit 1 Series A $ 0.15 $ 0.35 Series F $ 0.18 $ 0.42 Series I $ 0.23 $ based on weighted average number of units outstanding during the period. The accompanying notes are an integral part of these financial statements.

4 Statements of Changes in Net Assets Attributable to Holders of Redeemable Units (Unaudited) For the six month periods ended June 30, 2017 and 2016 Series A Series F Series I Total Net Assets attributable to holders of redeemable units - Beginning of period $ 9,101,467 $ 6,807,522 $ 85,699,322 $ 101,608,311 Increase (decrease) in Net Assets attributable to holders of redeemable units from operations 136, ,101 1,965,329 2,229,343 Redeemable unit transactions Proceeds from redeemable units issued 210, ,783 21,544,907 22,677,463 Reinvestments of distributions to holders of redeemable units 137,475 84,751 1,668,912 1,891,138 Redemption of redeemable units (2,737,745) (1,734,299) (25,165,536) (29,637,580) Net increase (decrease) from redeemable unit transactions (2,389,497) (727,765) (1,951,717) (5,068,979) Distributions to holders of redeemable units From net investment income (162,496) (125,757) (1,676,162) (1,964,415) Total distributions to holders of redeemable units (162,496) (125,757) (1,676,162) (1,964,415) Increase (decrease) in Net Assets attributable to holders of redeemable units during the period (2,415,080) (726,421) (1,662,550) (4,804,051) Net Assets attributable to holders of redeemable units - End of period $ 6,686,387 $ 6,081,101 $ 84,036,772 $ 96,804,260 Series A Series F Series I Total Net Assets attributable to holders of redeemable units - Beginning of period $ 8,673,964 $ 3,527,600 $ 100,702,888 $ 112,904,452 Increase (decrease) in Net Assets attributable to holders of redeemable units from operations 377, ,797 3,633,543 4,211,462 Redeemable unit transactions Proceeds from redeemable units issued 2,850,543 1,586,849 3,531,334 7,968,726 Reinvestments of distributions to holders of redeemable units 153,803 50,148 1,725,298 1,929,249 Redemption of redeemable units (790,557) (233,225) (33,266,962) (34,290,744) Net increase (decrease) from redeemable unit transactions 2,213,789 1,403,772 (28,010,330) (24,392,769) Distributions to holders of redeemable units From net investment income (192,268) (84,811) (1,726,708) (2,003,787) Total distributions to holders of redeemable units (192,268) (84,811) (1,726,708) (2,003,787) Increase (decrease) in Net Assets attributable to holders of redeemable units during the period 2,398,643 1,519,758 (26,103,495) (22,185,094) Net Assets attributable to holders of redeemable units - End of period $ 11,072,607 $ 5,047,358 $ 74,599,393 $ 90,719,358 The accompanying notes are an integral part of these financial statements.

5 Statements of Cash Flows (Unaudited) For the six month periods ended June 30, 2017 and Cash flows from (used in) Operating activities Increase (decrease) in Net Assets attributable to holders of redeemable units from operations $ 2,229,343 $ 4,211,462 Adjustments to reconcile to operating cash flows: Change in unrealized foreign exchange (gain) loss on currency Net realized (gain) loss on investments (589,427) 362,290 Net change in unrealized (appreciation) depreciation on investments 1,204,676 3,246,615 Net change in unrealized (appreciation) depreciation on currency forward contracts (1,119,587) 50,284 Net change in unrealized (appreciation) depreciation on futures contracts 20,331 - Proceeds from investments sold 73,265,079 98,891,876 Purchase of investments (67,847,515) (80,926,111) (Increase) decrease in daily variation margin 24,813 - (Increase) decrease in dividends receivable - (4,470) (Increase) decrease in interest receivable 163, ,335 Increase (decrease) in management fees payable (4,807) (1,902) Increase (decrease) in accrued expenses (8,225) (4,062) Net cash flows from (used in) operating activities 7,338,727 26,409,317 Cash flows from (used in) Financing activities Proceeds from redeemable units issued 21,185,221 7,881,426 Distributions paid to holders of redeemable units, net of reinvestments (71,400) (74,247) Redemption of redeemable units (28,492,387) (34,305,839) Net cash flows from (used in) financing activities (7,378,566) (26,498,660) Increase (decrease) in cash (bank indebtedness) Change in unrealized foreign exchange gain (loss) on currency (217) - Net increase (decrease) in cash (39,839) (89,343) Cash (bank indebtedness), beginning of period 40, ,898 Cash, end of period $ 371 $ 47,555 Dividends received, net of withholding taxes* $ - $ 27,319 Interest received, net of withholding taxes* 2,546,272 3,559,315 Interest paid* 1, *included in operating activities The accompanying notes are an integral part of these financial statements.

6 Schedule of Investment Portfolio (Unaudited) As at June 30, 2017 Coupon Rate (%) Maturity Date Number of Shares or Par Value Average Cost $ Fair Value $ Percentage of Net Assets % Short-Term Investments Treasury Bills (December 31, 2016: 0.10%) Canadian Treasury Bill 0.522% 24-Aug-17 50,000 49,940 49, Bankers' Acceptances (December 31, 2016: 4.03%) Toronto-Dominion Bank 0.826% 21-Jul , , , Total Short-Term Investments 449, , Bonds Canada - Canadian Dollar (December 31, 2016: 39.22%) 407 International Inc % 14-Feb , , ,006 Air Canada 4.750% 06-Oct , , ,917 AutoCanada Inc % 25-May-21 1,080,000 1,080,501 1,099,125 Bank of Montreal 3.340% 08-Dec , , ,962 Bank of Montreal 3.320% 01-Jun , , ,249 Bell Canada Inc % 01-Oct-21 1,381,000 1,373,446 1,367,056 Bell Canada Inc % 11-Sep-23 1,899,000 2,144,053 2,116,555 Bell Canada Inc % 12-Aug , , ,088 Bell Canada Inc % 29-Sep , , ,112 Brookfield Residential Properties Inc % 15-May , , ,645 Cascades Inc % 15-Jul , , ,294 Choice Properties LP 3.600% 20-Sep-21 1,785,000 1,904,095 1,859,110 Choice Properties REIT 4.903% 05-Jul , , ,352 Choice Properties REIT 4.293% 08-Feb ,000 1,049,971 1,024,940 Crew Energy Inc % 14-Mar , , ,782 Enbridge Gas Distribution Inc % 22-Aug , , ,091 Enbridge Inc % 30-Jun , , ,656 Enbridge Inc % 27-Aug , , ,302 First Capital Realty Inc % 30-Apr-20 1,545,000 1,733,073 1,685,825 First Capital Realty Inc % 30-Aug , , ,236 Gibson Energy Inc % 15-Jul , , ,850 Gibson Energy Inc % 15-Jul , , ,550 H&R Real Estate Investment Trust 3.369% 30-Jan , , ,883 H&R REIT 2.923% 06-May , , ,312 Inter Pipeline Ltd % 30-May , , ,195 Inter Pipeline Ltd % 13-Sep-23 1,200,000 1,184,280 1,189,062 Inter Pipeline Ltd % 18-Apr , , ,194 Iron Mountain Canada Operations ULC 6.125% 15-Aug-21 1,260,000 1,322,500 1,309,350 Loblaw Cos. Ltd % 12-Sep-23 1,390,000 1,572,428 1,554,687 Loblaw Cos. Ltd % 17-Feb , , ,833 Mattamy Group Corp % 15-Nov , , ,004 North West Redwater Partnership / NWR Financing Co % 01-Jun , , ,180 North West Redwater Partnership / NWR Financing Co % 22-Jul , , ,385 Parkland Fuel Corp % 21-Nov , , ,625 Parkland Fuel Corp % 09-May , , ,480 Pembina Pipeline Corp % 03-Feb ,000 1,008,817 1,007,167 Pembina Pipeline Corp % 11-Aug , , ,872 Rogers Communications Inc % 13-Mar-24 1,706,000 1,849,522 1,837,908 Rogers Communications Inc % 25-Aug , , ,299 Royal Bank of Canada 3.310% 20-Jan , , ,044 Russel Metals Inc % 19-Apr , , ,650 Shaw Communications Inc % 07-Dec-20 1,090,000 1,224,789 1,204,665 Shaw Communications Inc % 19-Feb , , ,367 The accompanying notes are an integral part of these financial statements.

7 Schedule of Investment Portfolio (Unaudited) As at June 30, 2017 Coupon Rate (%) Maturity Date Number of Shares or Par Value Average Cost $ Fair Value $ Percentage of Net Assets % Shaw Communications Inc % 09-Nov , , ,202 Smart REIT 3.444% 28-Aug , , ,080 Sobeys Inc % 08-Aug , , ,641 Superior Plus LP 5.250% 27-Feb , , ,688 TELUS Corp % 26-Jan , , ,628 TELUS Corp % 17-Jan , , ,538 TELUS Corp % 29-Jan , , ,135 Videotron Ltd % 15-Jun-25 1,845,000 1,903,923 1,998,750 38,439,299 38,428, Canada - US Dollar (December 31, 2016: 4.81%) Bombardier Inc % 01-Dec , , ,081 Bombardier Inc % 15-Mar , , ,623 Cenovus Energy Inc % 15-Oct , , ,127 Cenovus Energy Inc % 15-Sep , , ,615 Emera Inc % 15-Jun , , ,805 Norbord Inc % 01-Dec-20 1,225,000 1,402,986 1,678,409 Teck Resources Ltd % 01-Feb-23 1,530,000 1,993,627 1,942,305 Videotron Ltd. / Videotron Ltee 5.125% 15-Apr , , ,662 5,288,811 5,539, Cayman Islands - US Dollar (December 31, 2016: 0.67%) Italy - US Dollar (December 31, 2016: Nil%) Telecom Italia SpA 5.303% 30-May ,000 1,184,352 1,216, Luxembourg - US Dollar (December 31, 2016: 0.16%) ArcelorMittal 7.500% 15-Oct , , , United Kingdom - British Pound (December 31, 2016: 0.28%) International Game Technology PLC % 15-Feb , , , United Kingdom - US Dollar (December 31, 2016: Nil%) Ensco PLC 8.000% 31-Jan , , ,273 Sensata Technologies UK Financing Co. PLC 6.250% 15-Feb , , , , , United States of America - US Dollar (December 31, 2016: 49.86%) AECOM 5.125% 15-Mar , , ,364 AES Corp % 15-Apr , , ,578 Alcoa Inc % 23-Feb , , ,729 Alcoa Inc % 01-Oct ,000 1,028,693 1,008,653 Ally Financial Inc % 30-Sep-24 1,565,000 2,167,174 2,149,172 Ally Financial Inc % 01-Nov , , ,065 AmeriGas Partners LP / AmeriGas Finance Corp % 20-May , , ,393 Antero Resources Corp % 01-Dec , , ,926 Ball Corp % 01-Jul , , ,026 Bank of America Corp % 31-Dec ,000 1,077,425 1,109,156 CCO Holdings LLC 5.750% 15-Feb , , ,179 CCO Holdings LLC 5.500% 01-May , , ,821 Centene Corp % 15-Jan , , ,416 CenturyLink Inc % 01-Apr ,000 1,018,720 1,033,360 CF Industries Inc % 15-Mar , , ,990 Citigroup Inc % 31-Dec-49 1,025,000 1,213,435 1,432,670 Citigroup Inc % 31-Dec , , ,545 Continental Resources Inc % 01-Jun , , ,909 DCP Midstream LLC 4.750% 30-Sep , , ,701 DCP Midstream Operating LP 3.875% 15-Mar , , ,584 The accompanying notes are an integral part of these financial statements.

8 Schedule of Investment Portfolio (Unaudited) As at June 30, 2017 Coupon Rate (%) Maturity Date Number of Shares or Par Value Average Cost $ Fair Value $ Percentage of Net Assets % Diamond 1 Finance Corp. / Diamond 2 Finance Corp % 15-Jun-21 1,200,000 1,681,784 1,636,364 Diamond 1 Finance Corp. / Diamond 2 Finance Corp % 15-Jun , , ,365 Diamond Offshore Drilling Inc % 01-May ,000 1,001, ,455 Diamond Offshore Drilling Inc % 01-Nov ,000 96,562 85,065 DISH DBS Corp % 01-Jul , , ,682 Embarq Corp % 01-Jun , , ,818 Energizer SpinCo Inc % 15-Jun ,000 1,320,439 1,327,963 Energy Transfer Equity LP 5.875% 15-Jan , , ,201 EnLink Midstream Partners LP 4.150% 01-Jun , , ,618 Freeport-McMoRan Inc % 01-Mar ,000 1,104,552 1,131,840 Freeport-McMoRan Inc % 15-Mar , , ,123 Fresenius Medical Care US Finance II Inc % 31-Jan , , ,922 GLP Capital LP / GLP Financing II Inc % 01-Nov , , ,370 Goodyear Tire & Rubber Co % 15-Nov-23 1,615,000 2,245,169 2,202,273 HCA Inc % 15-Feb-20 2,103,000 3,122,212 2,987,216 HCA Inc % 15-Apr-25 1,018,000 1,360,709 1,424,539 Hughes Satellite Systems Corp % 01-Aug , , ,201 Icahn Enterprises LP / Icahn Enterprises Finance Corp % 01-Feb , , ,222 JC Penney Co. Inc % 01-Jun-20 2,085,000 2,726,677 2,673,945 Lamar Media Corp % 01-Feb , , ,886 Lennar Corp % 15-Nov , , ,209 Level 3 Financing Inc % 15-Jan , , ,580 MGM Resorts International 6.000% 15-Mar , , ,922 Micron Technology Inc % 01-Feb , , ,273 Murphy Oil Corp % 15-Aug , , ,640 PulteGroup Inc % 01-Mar , , ,156 Range Resources Corp % 15-May , , ,312 Sally Holdings LLC / Sally Capital Inc % 01-Dec , , ,208 Sealed Air Corp % 15-Sep , , ,182 Sirius XM Radio Inc % 15-Jul , , ,179 Southwestern Energy Co % 23-Jan , , ,669 Sprint Communications Inc % 01-Mar , , ,204 Standard Industries Inc % 15-Oct , , ,123 Tenet Healthcare Corp % 01-Oct , , ,185 T-Mobile USA Inc % 15-Jan ,000 1,346,418 1,321,753 United Rentals North America Inc % 15-Jun-23 1,514,000 1,779,175 2,052,256 Western Digital Corp % 01-Apr , , ,532 Williams Cos. Inc % 15-Jan , , ,429 Wynn Las Vegas Capital Corp % 01-Mar , , ,564 ZF North America Capital Inc % 29-Apr , , ,875 47,335,654 47,770, Total Bonds 93,557,508 94,254, Total Investments 94,007,240 94,704, Total unrealized depreciation on futures contracts (Schedule 1) (3,530) - Total unrealized appreciation on forward contracts (Schedule 2) 512, Total unrealized depreciation on forward contracts (Schedule 2) (4,226) - Other Assets Less Liabilities 1,594, Net Assets Attributable to Holders of Redeemable Units 96,804, The accompanying notes are an integral part of these financial statements.

9 Futures Contracts (Schedule 1) (Unaudited) As at June 30, 2017 Number of Contracts Unrealized Appreciation/ (Depreciation) $ Description Maturity Date Fair Value MTL 10YR CANADIAN BOND FUT SEP Sep ,550 (3,530) 140,550 (3,530) Foreign Currency Forward Contracts (Schedule 2) (Unaudited) As at June 30, 2017 Description* Currency Code Amount Sold Currency Code Amount Bought Maturity Date Unrealized Appreciation/ (Depreciation) $ US Dollars Forward USD (21,507,000) CAD 28,408, Sep , ,758 US Dollars Forward USD (401,000) CAD 520, Sep-17 (13) US Dollars Forward CAD (104,290) USD 79, Sep-17 (1,823) US Dollars Forward CAD (1,030,912) USD 793, Sep-17 (2,390) (4,226) 508,532 *All counterparties have a rating of AA or better. The accompanying notes are an integral part of these financial statements.

10 1 General information The CC&L High Yield Bond Fund (the Fund ) is an open-ended mutual fund trust established under the laws of Ontario and is governed by the Declaration of Trust dated May 1, 2012 (the Declaration of Trust), as amended from time to time. The Fund commenced operations on May 1, The address of the Fund s registered office is King St. West, P.O. Box 240, Toronto, Ontario, Canada, M5X 1C8. The investment activities of the Fund are managed by Connor, Clark & Lunn Funds Inc. (the Manager ). The Trustee of the Fund is RBC Investor Services Trust. The investment objective of the Fund is to construct a diversified portfolio of primarily high-yield bonds or other income producing securities issued primarily by foreign issuers with an opportunity for capital appreciation over the longer term. The financial statements were authorized for issue by the Manager on August 28, Basis of presentation (a) Statement of compliance: These financial statements have been prepared in compliance with International Financial Reporting Standards ( IFRS ) including International Accounting Standards ( IAS ) 34: Interim Financial Reporting, as published by the International Accounting Standards Board ( IASB ). (b) Functional and presentational currency: The Fund s subscriptions, redemptions and certain operating activities are denominated in Canadian dollars, which is also its functional and presentation currency. 3 Significant accounting policies The accounting policies set out below have been applied consistently to all periods presented in these financial statements. (a) Financial instruments: The Fund s investments in debt and equity securities are designated at fair value through profit or loss ( FVTPL ) at inception. The Fund s derivatives and its securities sold short, where applicable, 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 the redemption amount. All other financial assets and liabilities are initially recognized at fair value and subsequently measured for 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 fair values of the Fund s financial assets and liabilities that are not carried at FVTPL approximate their carrying amounts due to their short-term nature. The Fund s accounting policies for measuring the fair value of its investments and derivatives are identical to those used in measuring its published Net Asset Value (NAV) for transactions with unitholders. The NAV per unit is determined by dividing the aggregate market value of the net assets of the Fund by the total number of units of the Fund outstanding before giving effect to redemptions or subscriptions to units on that day. As at June 30, 2017 and December 31, 2016, there were no differences between the Fund s NAV per unit and its net assets per unit calculated in accordance with IFRS.

11 The interest 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 on a straight line basis. Dividends are recognized as income on the ex-dividend date. Distributions from income trusts and pooled funds are recognized when the Fund has earned the right to receive payment of the distributions. The cost of investments is determined using the average cost method. Financial assets and liabilities are offset and the net amount reported in the Statements of Financial Position when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. In the normal course of business, the Fund may enter into various master netting agreements or similar agreements that do not meet the criteria for offsetting in the Statements of Financial Position but still allow for the related amounts to be set off in certain circumstances, such as bankruptcy or termination of the contracts. In all other situations, they are presented on a gross basis. (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 derivatives and marketable securities) is 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 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 as of the date of the event or change in circumstances giving rise to the transfer. The fair value of financial assets and liabilities that are not traded in an active market, including over-thecounter derivatives, is determined using valuation techniques. The Fund uses a variety of methods and makes assumptions that are based on market conditions existing at each reporting date. Valuation techniques include the use of comparable recent arm s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, option pricing models and other models commonly used by market participants and which make the maximum use of observable inputs. (c) Redeemable units of the Fund: Under International Accounting Standard ( IAS ) 32, Financial Instruments: Presentation, the Fund classified its redeemable units as liabilities. The Fund s redeemable units do not meet the criteria in IAS 32 for classification as equity as the Fund has more than one contractual obligation to its unitholders. The Fund s redeemable units are presented at the redemption amount. Investors have the right to require redemption, subject to available liquidity, for cash at a unit price based on the Fund s valuation policies at each redemption date. Unitholders are entitled to distributions when declared. In addition, holders of redeemable units have the right to receive distributions in cash such that the ongoing redemption feature is not the only contractual obligation related to units. (d) Increase (decrease) in net assets attributable to holders of redeemable units per series unit: The increase (decrease) in net assets attributable to holders of redeemable units per unit is calculated by dividing the increase (decrease) in net assets attributable to holders of redeemable units by the weighted average number of units outstanding during the period. (e) Cash: (f) Cash is comprised of deposits with financial institutions. Short-term investments: Short-term investments consist of debt investments with maturities of less than one year on acquisition.

12 (g) Foreign exchange: Foreign denominated investments and other foreign denominated assets and liabilities are translated into Canadian dollars using the exchange rates prevailing on each valuation date. Purchases and sales of investments, as well as income and expense transactions denominated in foreign currencies, are translated using exchange rates prevailing on the date of the transaction. Foreign currency gains and losses on foreign denominated assets and liabilities other than investments are presented separately in the Statements of Comprehensive Income. Foreign currency gains and losses on investments are included in the realized gain (loss) on investments and change in unrealized appreciation (depreciation) on investments. (h) Income and expense allocation: (i) (j) Realized gains/losses, changes in unrealized appreciation (depreciation) on investments, income and expenses that are common to the Fund as a whole are allocated daily to each series based on the proportionate share of the net asset value of the series. The proportionate share of each series is determined by adding the current day's net unitholder subscriptions of the series to the prior day's net asset value of the series. Any income or expense amounts that are unique to a particular series (for example, management fees) are accounted for separately in that particular series so as not to affect the net asset value of the other series. Income taxes: The Fund qualifies as a unit trust under the Income Tax Act (Canada). All of the Fund s net income for tax purposes and sufficient net capital gains realized in any period are required to be distributed to unitholders such that no income tax is payable by the Fund. As a result, the Fund does not record income taxes. Since the Fund does not record income taxes, the tax benefit of capital and non-capital losses has not been reflected in the Statements of Financial Position as a deferred income tax asset. Transaction costs: Transaction costs such as brokerage commissions incurred in the purchase and sale of securities are expensed as incurred and are recognized in the Statements of Comprehensive Income. (k) New standards and interpretations not yet adopted: The final version of IFRS 9, Financial Instruments, was issued by the 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 a Fund s 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 Fund s 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 9 and will adopt the new standard on January 1, Critical accounting estimates and judgments The preparation of financial statements in conformity with IFRS requires the Manager to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis.

13 (a) In determining whether the Fund exhibits instances of control or significant influence, IFRS 10 Consolidated Financial Statements provides an exception to any financial statement consolidation requirements for entities that meet the definition of an investment entity. Amongst other factors, the Fund meets the definition of investment entity as it obtains funds from one or more investors for the purpose of providing those investor(s) with professional investment management services and commit to its investor(s) that its business purpose is to invest funds solely for returns from capital appreciation, investment income or both. The Fund measures and evaluates the performance of substantially all of its investments on a fair value basis. (b) The Fund holds financial instruments that are not quoted in active markets, including derivatives. 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. Where no market data is available, the Fund may value positions using its own models, which are usually based on valuation methods and techniques generally recognized as standard within the industry. The models used to determine fair values are validated and periodically reviewed by experienced personnel of the Manager, independent of the party that created them. The models used for private equity securities are based mainly on earnings multiples adjusted for a lack of marketability as appropriate. Models use observable data, to the extent practicable. However, areas such as credit risk (both own and counterparty), volatilities and correlations require the Manager to make estimates. Changes in assumptions about these factors could affect the reported fair values of financial instruments. The Fund considers observable data to be market data that is readily available, regularly distributed and updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. Refer to Note 5 for further information about the fair value measurement of the Fund s financial instruments. (c) In classifying and measuring financial instruments held by the Fund, the Manager is required to make significant judgments about whether or not the business of the Fund is to invest on a total return basis for the purposes of applying the fair value option for financial assets under IAS 39, Financial Instruments Recognition and Measurement (IAS 39). The most significant judgments made include the determination that certain investments are held-for-trading and that the fair value option can be applied to those which are not. 5 Fair value of financial instruments (a) Fair value hierarchy: The fair value of a financial instrument is the amount 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 Fund classifies fair value measurements 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 three levels of the fair value hierarchy are: Level 1: Level 2: Level 3: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; Inputs other than quoted prices included within Level 1 that are observable either directly or indirectly; and Inputs that are unobservable. The fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments, the Fund determines fair values using other valuation techniques.

14 Fair value measurement of derivatives and securities not quoted in an active market For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgment depending on liquidity, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument. The Fund uses widely recognized valuation models for determining the fair value of financial instruments such as future, option, forward and swap contracts that use only observable market data and require little management judgment and estimation. Observable prices and model inputs are usually available in the market for listed debt and equity securities, and exchange-traded derivatives, such as futures and options, and OTC derivatives such as forward contracts and swaps. The availability of observable market prices and model inputs reduces the need for management judgment and estimation and reduces the uncertainty associated with the determination of fair values. If inputs of different levels are used to measure an asset s or liability s fair value, the classification within the hierarchy is based on the lowest level input that is significant to the fair value measurement. Classification and measurement of investments and application of the fair value option The tables below illustrate the classification of the Fund s financial instruments measured at fair value at the reporting date. The amounts are based on the values recognized in the Statements of Financial Position. As at June 30, 2017: Assets at Fair Value Level 1 Level 2 Level 3 Total Short-term investments $ - $ 449,732 $ - $ 449,732 Canadian bonds - 43,968,153-43,968,153 Foreign bonds - 50,286,398-50,286,398 Currency forward contracts - 512, ,758 $ - $ 95,217,041 $ - $ 95,217,041 Liabilities at Fair Value Level 1 Level 2 Level 3 Total Currency forward contracts $ - $ 4,226 $ - $ 4,226 Futures contracts 3, ,530 $ 3,530 $ 4,226 $ - $ 7,756 As at December 31, 2016: Assets at Fair Value Level 1 Level 2 Level 3 Total Short-term investments $ - $ 4,194,483 $ - $ 4,194,483 Canadian bonds - 44,749,782-44,749,782 Foreign bonds - 51,789,781-51,789,781 Currency forward contracts - 72,649-72,649 Futures contracts 16, ,801 $ 16,801 $ 100,806,695 $ - $ 100,823,496 Liabilities at Fair Value Level 1 Level 2 Level 3 Total Currency forward contracts $ - $ 683,704 $ - $ 683,704 $ - $ 683,704 $ - $ 683,704 There were no transfers of financial assets between Level 1, Level 2 and Level 3 for the period ended June 30, 2017 and year ended December 31, All fair value measurements above are recurring. Equity positions (including income trusts, exchange-traded funds and limited partnerships) are classified as Level 1 when the security is actively traded and a reliable price is observable. If equities do not trade frequently and observable prices are not available, fair value is determined using observable market data (e.g. transactions

15 for similar securities of the same issuer) and the fair value is classified as Level 2, unless the determination of fair value requires significant unobservable data, in which case the measurement is classified as Level 3. Bonds include primarily government and corporate bonds, which are valued using models with inputs including interest rate curves, credit spreads and volatilities. The inputs that are significant to valuation are generally observable and therefore the Fund s bonds have generally been classified as Level 2. Short-term investments are classified as Level 2, since they are stated at amortized cost, which approximates fair value. Derivative assets and liabilities consist of foreign currency forward contracts which are valued based primarily on the contract notional amount, the difference between the contract rate and the forward market rate for the same currency, interest rates and credit spreads. Contracts for which counterparty credit spreads are observable and reliable, or for which the credit-related inputs are determined not to be significant to fair value are classified as Level 2. The Fund s futures contracts are classified as Level 1, as a quoted price is used based on observable market information. (b) Financial instruments measured at amortized cost: The carrying values of balances due from broker, subscriptions receivable, interest receivable, bank indebtedness, distributions payable, management fees payable, redemptions payable, daily variation margin (liability) and accrued expenses approximate their fair value given their short-term nature. 6 Financial instruments by category The following table presents the net gains (losses) on financial instruments at FVTPL by category for the periods ended June 30: Category Net gains (losses) Financial Assets and Liabilities at FVTPL: Held-for-Trading $ 707,720 $ 5,115,525 Designated at inception 1,781,281 (595,925) Total $ 2,489,001 $ 4,519,600 7 Redeemable units of the Fund The Fund has authorized an unlimited number of series of redeemable units and may issue an unlimited number of redeemable units of each series. All issued redeemable units are fully paid and have been recorded in the official listing of unitholders maintained by the Fund's trustee RBC Investor Services Trust. The Fund redeemable units are sold, and are redeemable at the holder s option, in accordance with the provisions of the declaration of trust at the prevailing net asset value per unit. The Fund has no restrictions or specific capital requirements on the subscription and redemption of units. The relevant movements are shown on the Statements of Changes in Net Assets. In accordance with the objectives and risk management policies outlined in Note 11, the Fund endeavours to invest subscriptions received in

16 appropriate investments while maintaining sufficient liquidity to meet redemptions. Liquidity is supported by the disposal of marketable securities when necessary. The Fund's redeemable units are classified as financial liabilities on the Statements of Financial Position as the Fund has multiple series of units and holders of redeemable units have the right to receive distributions in cash such that the ongoing redemption feature is not the only contractual obligation related to the units. The Fund has three series of units available for issue, namely Series A, Series F and Series I. Series A units are available to all investors who purchase through dealers and who invest the minimum amount. Series F units are available to investors who participate in fee based programs through their dealer. Series I units are available to institutional and other comparable investors as the Manager may determine from time to time who invest $1 million or such lesser amount as the Manager may agree. For the period ended June 30, 2017 and year ended December 31, 2016, changes in outstanding redeemable units were as follows: Balance - Beginning Redeemable units Redeemable units Redeemable units Balance of period issued reinvested redeemed End of period Series A 1,019,303 23,483 15,337 (304,587) 753,536 Series F 760, ,031 9,409 (191,951) 680,103 Series I 8,925,778 2,232, ,172 (2,608,462) 8,722, Series A 980, ,718 43,776 (358,935) 1,019,303 Series F 401, ,758 21,524 (79,095) 760,614 Series I 10,764,191 1,788, ,927 (4,076,945) 8,925,778 8 Taxation of the Fund As at December 31, 2016 the Fund has unused capital losses of $11,625,599 ( $15,416,822). There were $Nil ( $Nil) unused non-capital losses available for tax purposes. The Fund currently 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 separately in the Statements of Comprehensive Income. 9 Related party transactions and other expenses Management fees Connor, Clark & Lunn Funds Inc. is the Manager of the Fund. The Manager is responsible for managing the investment portfolio, providing investment analysis and recommendations, making investment decisions, making brokerage arrangements relating to the purchase and sale of the investment portfolio and making arrangements with registered dealers for the purchase and sale of units of the Funds by investors. The Fund pays a management fee, which is accrued daily and paid monthly. The annual management fee rates, exclusive of taxes, are 1.85% for Series A and 0.85% for Series F. For Series I, fees are negotiable and charged outside the Portfolios, but may not exceed 1.85%.

17 Independent Review Committee fees In accordance with National Instrument , the Fund has in place an Independent Review Committee (IRC). The IRC acts for all of the applicable CC&L funds. The Fund pays a share of expenses of the IRC, as the IRC provides oversight for conflict of interest matters for the Fund. The cost of the IRC is shared amongst the funds for which the IRC provides governance. Other expenses Unless otherwise noted in these Notes, the Fund is responsible for the payment of all expenses relating to its operation. Operating expenses include accounting, legal, audit, transfer agent, custodian, administrative and trustee fees, and investor servicing costs (such as semi-annual and annual reports). 10 Brokerage commissions and soft dollars The Manager may select brokers who charge commission in soft dollars if they determine in good faith that the commission is reasonable in relation to the order execution and research services utilized. Soft dollars represent a means of paying for products or services provided by brokerage firms (e.g., research reports) in exchange for direction transactions (e.g., trade execution) to the brokerage. Fund managers may use soft dollars allocated by brokerages to pay for a portion of the total commissions owed to the brokerage. The Fund paid $Nil ( $Nil) in brokerage commissions and other transactions costs for portfolio transactions during the period. The soft dollars paid during the period were $Nil ( $Nil). 11 Financial risk management The Fund may be exposed to a variety of financial risks which are described below. The Fund s exposure to these risks is concentrated in its investment holdings including derivative instruments where applicable. In determining the risks that apply, and the extent to which they apply, reference should be made to the Schedule of Investment Portfolio and supporting schedules that group securities by asset class, market segment and geographic region (when securities are held in multiple currencies). The Manager aims to manage the potential effects of these financial risks on the Fund s performance by employing and overseeing professional and experienced portfolio managers that regularly monitor the Fund s holdings, market events and overall economic conditions. The portfolio managers use a variety of means to monitor the Fund including the measurement of specific financial and economic variables pertinent to the Fund. The Fund s risk management program is based on monitoring compliance against investment guidelines contained in the Statement of Investment Policy ( SIP ). The SIP is an internal document that outlines how the Fund is managed. The SIP states the investment objective of the Fund and the investment guidelines. The guidelines include permitted investments, acceptable levels of diversification and the permitted uses of derivatives. Securities are selected with the intent of maximizing returns within the risk parameters defined in the SIP. On a daily basis, these guidelines and other restrictions are monitored against the positions in the Fund using an electronic compliance system to confirm there are no violations and to ensure market movements do not leave the Fund s portfolio holdings outside specified ranges. Corrective action is taken when necessary and any guideline violations are reported to the Manager.

18 Currency risk Currency risk is the risk that the value of monetary assets and liabilities denominated in currencies other than the Canadian dollar (the functional and presentational currency of the Fund) will fluctuate due to changes in foreign exchange rates. The Schedule of Investment Portfolio and supporting schedules identify all investments and derivative instruments denominated in foreign currencies. Bonds and short-term investments issued in foreign countries are exposed to that country s currency unless otherwise noted. Bonds, short-term investments and derivatives denominated in foreign currencies are exposed to currency risk as prices are converted to the Fund s functional currency in determining fair value. Foreign equities are not exposed to currency risk since they are considered non-monetary investments. Changes in the market value of these securities due to fluctuations in exchange rates are considered a component of other price risk. The tables below summarize the Fund s exposure to foreign currencies as at June 30, 2017 and December 31, 2016 in Canadian dollars. Amounts shown are based on the fair value of monetary assets (including cash and cash equivalents) as well as the underlying principal amounts of forward foreign currency contracts, as applicable. Other financial assets such as interest and dividends receivable and amounts due to or from broker that are denominated in foreign currencies do not expose the Fund to significant currency risk. The tables also illustrate the potential impact on Net Assets attributable to holders of redeemable units as a result of 5% change in these currencies relative to the Canadian dollar, with all other factors remaining constant. In practice, actual results may differ from this sensitivity analysis and the difference could be material. As at June 30, 2017: Monetary Derivative Net % of Impact on Currency Assets ($) Contracts ($) Exposure ($) Net Assets Net Assets ($) US Dollar 55,826,026 (27,319,453) 28,506, ,425,329 Total 55,826,026 (27,319,453) 28,506, ,425,329 As at December 31, 2016: Monetary Derivative Net % of Impact on Currency Assets ($) Contracts ($) Exposure ($) Net Assets Net Assets ($) US Dollar 56,678,944 (27,050,320) 29,628, ,481,431 Total 56,678,944 (27,050,320) 29,628, ,481,431 Interest rate risk Interest rate risk is the risk that the fair value of the Fund s interest-bearing investments will fluctuate due to changes in prevailing interest rates. The longer the term to maturity, all else being equal, the more sensitive a security is to interest rate risk. The Fund s exposure to interest rate risk is concentrated in its investment in debt securities (such as bonds and short-term investments) and interest rate derivative instruments (if any). Other assets and liabilities are short-term in nature and non-interest bearing. As at June 30, 2017, the Fund had direct exposure to interest rate risk through its investment in fixed income and short-term debt. The tables below summarize the Fund s exposure to interest rate risk as at June 30, 2017 and December 31, Amounts shown are based on the carrying values of debt instruments and exclude cash and preferred shares.