20SEP Semi-Annual Report. to Unitholders

Transcription

1 Semi-Annual Report to Unitholders June 30, 2016

2 Notice: The unaudited interim condensed financial statements of the Trust have been prepared by and are the responsibility of the Trust s management. The Trust s independent auditor has not reviewed these financial statements.

3 REPORT TO UNITHOLDERS 20SEP The following presents the financial results of Canadian Resources Income Trust ( CaRIT or the Trust ) for the six months ended June 30, Trust Highlights June 30, Dec 31, June 30, Dec 31, June 30, Net assets attributable to Unitholders per Unit $ $ 8.21 $ $ $ Six-month distributions per Unit $ $ $ $ $ Market price per Unit $ 9.52 $ 7.72 $ $ $ Total assets (millions) $ 13.7 $ 11.3 $ 16.3 $ 19.8 $ 28.5 Trust Structure The Trust is a closed-end investment trust established to provide Unitholders with investment exposure to an initially equally weighted portfolio (the Portfolio ) comprised of the 20 highest yielding natural resource issuers (the Portfolio Securities ) included in the S&P/TSX 60 Index. The Trust does not have a fixed distribution but intends to pay equal monthly distributions based on, among other things, the forecasted dividends and other income to be received for a calendar quarter from the Portfolio Securities net of estimated expenses, excluding transaction costs, ( Net Investment Income ) and premiums received on writing covered calls on a portion of the Portfolio Securities. Monthly distributions are currently targeted to be $0.059 per Unit ($0.71 annually). Natural resource issuers will be those classified as operating in the energy, materials and utilities sectors under the Global Industry Classification System (GICS). Portfolio Securities will be removed from the Portfolio at any point in response to: (a) the removal of a Portfolio Security from the S&P/TSX 60 Index; (b) corporate actions such as mergers, acquisitions or other fundamental corporate action or change that in the opinion of SMCAI, requires an issuer to be removed from the Portfolio; (c) a Portfolio Security suspending or cutting its dividends/distributions by 25% and is no longer amongst the 20 highest yielding securities; or (d) Highstreet is no longer able to write call options on the equity securities of an issuer included in the Portfolio. In such cases, Portfolio Securities that are removed from the Portfolio will be replaced with the next highest yielding natural resource issuer in the S&P/TSX60 Index. The Portfolio is reconstituted annually to include the then top 20 highest yielding constituents of the S&P/TSX 60 Index using the closing prices on December 31 and will be rebalanced to an equal weight basis concurrently with the reconstitution process. The Trust s investment objectives are to provide holders of Units with: (i) stable monthly distributions; and (ii) the opportunity for capital appreciation. The distributions are funded from dividends generated by the Portfolio and supplemented by premiums received on writing covered call options on a portion of the Portfolio Securities. Highstreet Asset Management Inc. (the Portfolio Manager and Options Advisor or Highstreet ) provides portfolio management services required by the Trust, and acts as the options advisor to execute and maintain the option writing strategy of the Trust. Highstreet writes covered call options from time to time in respect of not more than 33% of the Portfolio in order to earn income from option premiums to supplement dividends and distributions generated by the Portfolio. Highstreet will generally only write covered calls to the extent needed for the Trust to pay the targeted distribution. The Trust will purchase Units under the mandatory 1

4 market purchase program to the extent premiums generated from writing covered call options are in excess of amounts needed to fund the distribution. The Units of the Trust are listed for trading on the Toronto Stock Exchange under the symbol RTU.UN. Report from Portfolio Manager and Options Advisor Overview Highstreet manages the option overlay strategy which involves selling covered call options on up to, but not more than, 33% of the Portfolio. The percentage of Portfolio Securities written on for each holding and the strike prices chosen are primarily a function of the Trust s income requirements. Highstreet may choose to close out option positions prior to their expiry, for options that are both out-of-the-money, and/or in-the-money, when prudent. Highstreet endeavors to avoid assignment, when possible, on any in-the-money positions. The overall investment objectives of the Trust are to provide targeted monthly cash distributions, to provide the opportunity for capital appreciation, and to provide lower overall volatility of portfolio returns than would otherwise be experienced from owning the equity securities on a stand-alone basis. Market Performance The first half of 2016 started on a negative note as Canadian and global market s experienced some of the steepest start of the year declines in more than a decade fueled by anxiety over global growth, persistant weak inflation in Japan and Europe, continuing concerns over the Chinese economy, and somewhat paradoxically uncertainty over the future path of interest rate increases out of the Federal Reserve, following the Federal Reserve s Federal Open Market Committee s decision to raise interest rates for the first time in 9 years, setting the United States on a divergent monetary policy course from other central banks. The US economy showed persistent signs of improvement, save for a weak jobs report closer to the end of the first half of This, in addition to uncertainty around the Brexit vote, caused the Federal Reserve s monetary policy stance to whipsaw between hawkish and dovish tones on raising interest rates. Meanwhile, the Japanese Central Bank and the European Central Bank stayed the course of negative interest rates, along with officials around the world who engaged in further easing in an attempt to spur tepid growth. Against all market expectations, the British people opted to leave the European Union on the Brexit vote on the 23rd of June, 2016, shocking the markets and sending them broadly lower. In this environment risk-off assets outperformed led by precious metal stocks, while volatility increased. Oil prices rebounded from their February lows, below $30/barrel, to highs of above $50/barrel, ending the quarter closer to its highs as the supply and demand dynamics of the oil market settled. Gold and other precious metals rallied steadily due to the combination of the prevalent risk-off sentiment and a relatively weaker US Dollar. Bond yields around the world reached record lows; the German 10-year yield became negative, and the US 10-year yield dipped below 1.40% as investors fled to the safe havens. The Japanese Yen displayed notable strength due to their status as a safe haven asset, while the rally in commodities helped the Canadian Dollar appreciate from lows of $0.69 USD to a high of $0.80 USD through the first half of the year. The first half of 2016 was positive for the material and resource sectors, as well as emerging market economies, and saw the TSX 60 among the top performing developed global equity markets during the period. The Basic Materials sector as defined by the Global Industry Classification System was the top performing industry sector during the first half of 2016, up 52.3%, with the Energy 19.3%, and Utilties 17.3% sectors also exhibiting strong performance. The Fund, buoyed by the strong performance of resource stocks, was up 27.2% for the first half solidly outperforming its benchmark the S&P TSX 60 Index, which was up 8.7%. 2

5 Portfolio Performance The Portfolio delivered a total return of 27.5% for the period comprised of: 21.4% of price change, 1.5% from dividends received and 4.5% from premiums earned. Performance for each of the individual Portfolio Securities held during the period was as follows: Securities Performance (1) (%) Energy ARC Resources Ltd Cameco Corp. (15.8) Canadian Natural Resources Ltd Canadian Oil Sands Ltd Cenovus Energy Inc. 2.7 Crescent Point Energy Corp Enbridge Inc Encana Corp Husky Energy Inc. (7.8) Imperial Oil Ltd. (3.1) Inter Pipeline Ltd Pembina Pipeline Corp PrairieSky Royalty Ltd. (4.7) Suncor Energy Inc. 2.1 TransCanada Corp Basic Materials Agnico Eagle Mines Ltd Agrium Inc. (3.6) First Quantum Minerals Ltd Franco-Nevada Corp Goldcorp Inc Potash Corp. of Saskatchewan Inc. (7.8) Silver Wheaton Corp Teck Resources Ltd Yamana Gold Inc Utilities Emera Inc. 8.2 Fortis Inc (1) Performance comprised of price change and dividends. 3

6 Options Activity For the period, call options were written on the Trust s Portfolio Securities raising $0.5 million in premiums or approximately 4.5% on the Portfolio. The average percentage written on the Portfolio was approximately 25.9% with an average strike percentage of 102.7%. Highstreet s proprietary option overlay model examines a number of factors, including short-term price change and momentum metrics, to determine a target level of call writing and level of strike for each holding in the underlying Portfolio. Targeted strike levels are preferably out-of-the-money to allow the opportunity to capture potential positive performance of the underlying stocks in addition to option premiums. Financial Performance The net assets attributable to Unitholders per Unit at June 30, 2016 were $10.05 as compared to $8.21 at December 31, 2015, representing an increase of 22.4% or $1.84 per Unit due primarily reflecting appreciation in the fair value of the Trust s Portfolio. As at June 30, 2016, the total fair value of the Portfolio was $13.5 million (December 31, 2015 $11.2 million), reflecting net unrealized appreciation of $0.06 million (December 31, 2015 net unrealized depreciation of $3.4 million). Pursuant to the mandatory market purchase program, the Trust may purchase any Units offered in the market at a price less than 98% of the latest net asset value per Unit. For the six month period ended June 30, 2016, 8,400 (2015 6,300) Units were purchased under this program at an average price of $8.71 (2015 $11.54) per Unit for a total purchase amount of $73,157 (2015 $72,684). For the six months ended June 30, 2016, $0.503 million (2015 $0.483 million) was available for distribution purposes, comprised of an estimated $0.030 million (2015 $0.208 million) of Net Investment Income, $0.546 million (2015 $0.349 million) of option premiums received, nil (2015 ($0.001) million) of return of capital less purchases under the mandatory market purchase program of $0.073 million (2015 $0.073 million). For the six months ended June 30, 2016, the Trust declared total distributions of $0.48 million or $0.354 per Unit (2015 $0.45 million or $0.292 per Unit). This report, along with the accompanying financial statements of the Trust, is respectfully submitted to you on behalf of the Board of Directors of CaRIT Ltd., as general partner of CaRIT Limited Partnership, Trustee of Canadian Resources Income Trust. Toronto, Canada August 19, MAY Brian D. McChesney President and Chief Executive Officer 4

7 INTERIM CONDENSED STATEMENTS OF FINANCIAL POSITION As at (Unaudited) June 30, December 31, Assets Current Assets Investments, at fair value $ 13,473,986 $ 11,169,921 Cash 217,721 90,062 Distributions and other income receivable 30,960 45,797 13,722,667 11,305,780 Liabilities Current liabilities Accrued liabilities (note 6) 85,619 81,477 Distribution payable to Unitholders 79,592 80, , ,565 Net assets attributable to Unitholders $ 13,557,456 $ 11,144,215 Number of Units outstanding (note 5) 1,349,010 1,357,410 Net assets attributable to Unitholders per Unit $ $ 8.21 See accompanying notes to the interim condensed financial statements. On behalf of the Board of Directors of CaRIT Ltd.: 6MAY Brian D. McChesney President and Chief Executive Officer 3MAR John B. Newman Chairman of the Board 5

8 INTERIM CONDENSED STATEMENTS OF COMPREHENSIVE INCOME For the six months ended June 30 (Unaudited) Income Dividends $ 194,865 $ 406,721 Interest for distribution purposes (net) (10,810) (50,500) Net realized (loss) gain on investments (note 7) (75,583) 2,261,093 Net realized (loss) gain on options (note 7) (380,291) 22,586 Net unrealized gain (loss) on investments and options 3,415,898 (3,964,749) Net gain (loss) on investments and options 3,144,079 (1,324,849) Securities lending 1,649 2,075 Total income (loss), net 3,145,728 (1,322,774) Expenses Administration fees (note 6) 52,992 51,834 Directors fees 33,081 38,007 Transaction costs (note 6) 25,314 34,082 Unitholders information costs 19,378 13,440 Audit fees 13,305 11,555 Insurance premiums 8,637 8,432 Transfer agent fees 6,594 4,540 Custodial fees 6,222 5,074 Listing fees 4,322 4,675 Independent Review Committee fees 3,729 5,219 Legal fees 3,058 4,512 Other 3,928 3, , ,790 Reorganization costs 219,235 Total expenses 180, ,025 Income less expenses, being increase (decrease) in net assets attributable to Unitholders $ 2,965,168 $ (1,726,799) Income less expenses, being increase (decrease) in net assets attributable to Unitholders per Unit $ 2.19 $ (1.11) See accompanying notes to the interim condensed financial statements. 6

9 INTERIM CONDENSED STATEMENTS OF CASH FLOWS For the six months ended June 30 (Unaudited) Operating activities Income less expenses, being increase (decrease) in net assets attributable to Unitholders $ 2,965,168 $ (1,726,799) Adjustments to determine net cash flow from operating activities: Net realized loss (gain) on investments 75,583 (2,261,093) Net realized loss (gain) on options 380,291 (22,586) Net unrealized (gain) loss on investments and options (3,415,898) 3,964,749 Purchase of investments and options (4,953,697) (17,737,959) Proceeds on sale of investments and options 5,609,656 19,620,524 Distributions received as return of capital (net) (667) Distributions and other income receivable 14,837 16,607 Reorganization costs payable 99,768 Accrued liabilities 4,142 (49,041) Net cash flow provided by operating activities 680,082 1,903,503 Financing activities Units purchased for cancellation (73,157) (72,684) Proceeds paid on Units retracted (1,266,019) Distributions paid to Unitholders (479,266) (440,082) Net cash flow used in financing activities (552,423) (1,778,785) Net increase in cash 127, ,718 Cash, beginning of period 90, ,933 Cash, end of period $ 217,721 $ 272,651 Supplemental cash flow information* Dividends received $ 208,520 $ 420,194 Interest received (net) $ (10,415) $ (47,599) * Classified as operating activities See accompanying notes to the interim condensed financial statements. 7

10 INTERIM CONDENSED STATEMENTS OF CHANGES IN NET ASSETS ATTRIBUTABLE TO UNITHOLDERS For the six months ended June 30 (Unaudited) Net assets attributable to Unitholders, beginning of period $ 11,144,215 $ 19,611,267 Increase (decrease) in net assets attributable to Unitholders 2,965,168 (1,726,799) Unit transactions (note 5) Units retracted (1,266,019) Units purchased for cancellation (73,157) (72,684) (73,157) (1,338,703) Distributions to Unitholders (478,770) (451,175) Net increase (decrease) in net assets attibutable to Unitholders 2,413,241 (3,516,677) Net assets attributable to Unitholders, end of period $ 13,557,456 $ 16,094,590 See accompanying notes to the interim condensed financial statements. 8

11 SCHEDULE OF INVESTMENTS As at June 30, 2016 (Unaudited) Number of Adjusted % of Portfolio Units/Shares Securities Cost Base Fair Value at Fair Value ENERGY 32,515 ARC Resources Ltd. $ 724,717 $ 718, ,424 Canadian Natural Resources Limited 634, , ,187 Cenovus Energy Inc. 730, , ,874 Crescent Point Energy Corp. 849, , ,246 Enbridge Inc. 739, , ,785 Encana Corporation 972, , ,700 Imperial Oil Limited 578, , ,945 Inter Pipeline Ltd. 758, , ,960 Pembina Pipeline Corporation 727, , ,778 Suncor Energy Inc. 599, , ,547 TransCanada Corporation 673, , ,989,061 7,413, UTILITIES AND INFRASTRUCTURE 12,900 Emera Inc. 591, , ,350 Fortis Inc. 588, , ,180,215 1,297, BASIC MATERIALS 12,200 Agnico Eagle Mines Limited 586, , ,041 Agrium Inc. 653, , ,583 Cameco Corporation 633, , ,244 Franco-Nevada Corporation 408, , ,560 Potash Corporation of Saskatchewan Inc. 916, , ,200 Silver Wheaton Corp. 567, , ,115 Teck Resources Limited B 575, , ,341,473 4,899, Total Common Shares $ 13,510,749 $ 13,610,

12 SCHEDULE OF INVESTMENTS (continued) As at June 30, 2016 (Unaudited) Maturity Number of Strike Premium % of Portfolio Options Date Contracts Price Received Fair Value at Fair Value Written Call Options (100 shares per contract) Agnico Eagle Mines Limited 15-Jul $ $ (8,989) $ (18,875) Agrium Inc. 15-Jul (1,295) (580) ARC Resources Ltd. 15-Jul (2,641) (5,383) Cameco Corporation 15-Jul (2,801) (2,102) Canadian Natural Resources Limited 15-Jul (3,756) (4,927) Crescent Point Energy Corp. 15-Jul (5,414) (3,350) Cenovus Energy Inc. 15-Jul (4,298) (978) Encana Corporation 15-Jul (10,924) (3,486) Emera Inc. 15-Jul (593) (2,911) Enbridge Inc. 15-Jul (1,024) (1,528) Franco-Nevada Corporation 15-Jul (6,928) (21,175) Fortis Inc. 15-Jul (804) (3,363) Imperial Oil Limited 15-Jul (1,870) (2,314) Inter Pipeline Ltd. 15-Jul (1,861) (1,301) Potash Corporation of Saskatchewan Inc. 15-Jul (2,678) (2,991) Pembina Pipeline Corporation 15-Jul (1,151) (1,348) Silver Wheaton Corp. 15-Jul (8,160) (28,416) Suncor Energy Inc. 15-Jul (2,022) (4,173) Teck Resources Limited B 15-Jul (12,730) (24,744) TransCanada Corporation 15-Jul (366) (2,336) Total Written Call Options $ (80,305) $ (136,281) (1.0) 10

13 SCHEDULE OF INVESTMENTS (continued) As at June 30, 2016 (Unaudited) Average Cost Base/ Premiun % of Portfolio Summary Received Fair Value at Fair Value Total Common Shares $ 13,510,749 $ 13,610, Total Options (80,305) (136,281) (1.0) Adjustment for transaction costs (13,221) Total Investments $ 13,417,223 $ 13,473, The Trust s portfolio concentration by industry as at June 30, 2016 and December 31, 2015 can be summarized as follows: June 30, December 31, Industry Basic Materials 36.0% 33.5% Energy 54.5% 60.2% Utilities and Infrastructure 9.5% 6.3% 100.0% 100.0% See accompanying notes to the interim condensed financial statements. 11

14 NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS June 30, 2016 (unaudited) 1. GENERAL INFORMATION 20SEP Canadian Resources Income Trust ( CaRIT or the Trust ) is a closed-end investment fund established as a trust under the laws of the Province of Ontario and is governed by a declaration of trust dated March 31, 2010 (the Declaration of Trust ). The address of the Trust s registered office is 40 King Street West, Toronto, Ontario M5W 2X6. Pursuant to this Declaration of Trust, CaRIT Limited Partnership acts as the trustee (the Trustee ) and is responsible for supervising the management of the affairs of the Trust. Scotia Managed Companies Administration Inc. ( SMCAI or the Manager ), a wholly-owned subsidiary of Scotia Capital Inc. ( SCI ) which in turn is a wholly-owned subsidiary of The Bank of Nova Scotia, manages the administration of the Trust. Following the approval of a reorganization (the Reorganization ) by holders (the Unitholders ) of Trust units (the Units ) and having met all required conditions, on March 17, 2015, the term of the Trust was extended for an additional five years to March 31, Pursuant to the Reorganization, the Trust invests in an initially equally weighted portfolio (the Portfolio ) comprising the 20 highest yielding natural resource issuers (the Portfolio Securities ) included in the S&P/TSX 60 Index. The Portfolio is reconstituted annually to include the then top 20 highest yielding constituents of the S&P/TSX 60 Index and is rebalanced to an equal weight basis concurrently with the reconstitution process. The Trust has also established a covered call writing strategy on no more than 33% of the Portfolio and implemented a mandatory market purchase program. Unitholders receive monthly distributions derived from the distributions received by the Trust from the Portfolio Securities as declared by the Trustee and, share in any capital appreciation or depreciation of the Portfolio. Highstreet Asset Management Inc. (the Portfolio Manager and Options Advisor or Highstreet ) provides portfolio management services required by the Trust, and acts as the options advisor to execute and maintain the option writing strategy of the Trust. Highstreet writes covered call options from time to time on not more than 33% of the Portfolio in order to earn income from option premiums to supplement dividends and distributions generated by the Portfolio. Highstreet will generally only write covered calls to the extent needed for the Trust to pay the targeted distribution. These financial statements were authorized for issuance by the Board of Directors of CaRIT Ltd., as general partner of the Trustee on August 19, BASIS OF PRESENTATION Statement of Compliance These interim condensed financial statements have been prepared in compliance with International Financial Reporting Standards ( IFRS ), including IAS 34, Interim Financial Reporting as issued by the International Accounting Standards Board ( IASB ). Accordingly, certain information and footnote disclosure included in the annual financial statements prepared in accordance with IFRS, as issued by the IASB, have been omitted or condensed. 12

15 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 20SEP These interim condensed financial statements have been prepared using the same accounting policies as the annual financial statements for the year ended December 31, The disclosure in these interim condensed financial statements does not include all requirements of IAS 1, Presentation of Financial Statements. Accordingly, the interim condensed financial statements should be read in conjunction with the audited financial statements for the year ended December 31, Accounting Standard Issued But 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 and applies to the classification and measurement of financial assets and liabilities as defined in IAS 39. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, however is available for early adoption. The Trust is in the process of assessing the impact of IFRS 9 and has not yet determined when it will adopt the new standard. 4. DISTRIBUTIONS TO THE UNITHOLDERS The Trust invests in the Portfolio, and receives regular cash distributions of income in the form of dividends, other income and capital gains. These amounts are included in the income of the Trust, along with premiums received on writing covered calls on a portion of the Portfolio Securities, and, net of expenses, are fully distributed to the Trust s Unitholders each year. The Trust also receives cash distributions from its Portfolio Securities that are characterized as return of capital ( ROC ) which are applied to reduce the adjusted cost base ( ACB ) of the Trust s investments. All cash distributions/dividends received by the Trust from its Portfolio Securities, along with option premiums, net of estimated expenses, as declared by the Trustee, are paid out as cash distributions to Unitholders. The Trust generally intends to declare and pay equal monthly distributions to the extent of forecasted distributions/dividends and option premiums to be received for a calendar quarter from the Trust s Portfolio Securities less estimated expenses for the period/year. The following is a summary of distributions received and paid as at June 30, 2016 and December 31, 2015: June 30, December 31, Undistributed, beginning of period/year $ (22,914) $ 34,444 Net investment income (1) 30, ,581 Option premium income 546, ,927 Distributions received as ROC (667) Available for distribution $ 553,938 $ 1,077,285 Distributions to Unitholders (478,770) (972,648) Purchases under the mandatory market purchase program (73,157) (127,551) Undistributed (Overdistributed), end of period/year $ 2,011 $ (22,914) (1) Includes dividends, interest, capital losses, distributions and securities lending less expenses, excluding transaction costs and reorganization costs. 13

16 5. NET ASSETS ATTRIBUTABLE TO UNITHOLDERS 20SEP The Trust may purchase any Units offered in the market at a price that is less than 98% of the latest net asset value per Unit. Pursuant to the mandatory market purchase program, the Trust will purchase up to a maximum amount in any rolling 10 day period of 10% of the number of Units outstanding at the beginning of such 10 day period, subject to the terms set out in the Declaration of Trust. Purchases under the mandatory market purchase program will only be made to the extent they may be funded by any excess yield remaining in the Portfolio after the payment (or accrual) of all regular distributions to Unitholders. For the six month period ended June 30, 2016, 8,400 (2015 6,300) Units were purchased under this program at an average price of $8.71 (2015 $11.54) per Unit for a total purchase amount of $73,157 (2015 $72,684). The number of Units issued and outstanding as at June 30, 2016 and December 31, 2015 is summarized below: June 30, December 31, Units outstanding, beginning of period/year 1,357,410 1,611,085 Units purchased under mandatory market purchase program (8,400) (12,250) Units retracted (241,425) Units outstanding, end of period/year 1,349,010 1,357,410 The weighted average number of Units outstanding for the six months ended June 30, 2016 was 1,353,125 (December 31, ,516,601). The market value of the Units was $9.52 per Unit as at June 30, 2016 (December 31, 2015 $7.72 per Unit). 6. RELATED PARTY INFORMATION For its services to the Trust, which includes the provision of key management personnel, SMCAI is entitled to receive an administration fee equal to 0.75% per annum of the net assets of the Trust. SMCAI pays Highstreet out of the administration fee. The total administrative fees paid to SMCAI for the six months ended June 30, 2016 were $52,992 (2015 $51,834). As of June 30, 2016, the Trust had no accrued liabilities payable to SMCAI (December 31, 2015 $16,842), and had cash on deposit with SCI and The Bank of Nova Scotia of $5,807 (December 31, 2015 $7,346). The Portfolio Manager and Options Advisor is responsible for managing the purchase and sale of Portfolio Securities as required to meet investment objectives and operating policies of the Trust. Such transactions may be carried out using the services of SCI or other brokerage houses on an agency basis for a fixed cost. During the period ended June 30, 2016, SCI received commissions of $6,200 (2015 $19,392). For the six months ended June 30, 2016, transaction costs of $168 (2015 $126) were paid to SCI under the mandatory market purchase program. 14

17 7. INVESTMENT TRANSACTIONS 20SEP Investment transactions for the six months ended June 30 were as follows: Proceeds from the sale of investments and options written $ 5,609,656 $ 19,620,524 Less cost of investments sold: Investments and options at cost, beginning of period 14,529,056 16,995,001 Investments purchased and options closed out during the period 4,953,697 17,737,959 Less: Return of capital on investments 667 Cost of investments and options, end of period (13,417,223) (17,396,782) Cost of investments sold and options written during the period 6,065,530 17,336,845 Net realized (loss) gain on sale of investments and options $ (455,874) $ 2,283,679 Allocated: Net realized (loss) gain on sale of investments $ (75,583) $ 2,261,093 Net realized (loss) gain on options (380,291) 22,586 $ (455,874) $ 2,283, CAPITAL MANAGEMENT The Trust s capital is represented by net assets attributable to Unitholders. The Manager, with oversight from the Trustee, is responsible for providing all administrative and investment services required by the Trust, including the receipt of income and the payment of distributions to Unitholders. The Trust makes cash distributions of the net income to the maximum extent possible subject to maintaining a minimum level of cash on hand. 9. FAIR VALUE OF FINANCIAL INSTRUMENTS The following table outlines the fair value hierarchy of the financial instruments as at June 30, 2016 and December 31, 2015 as follows: Level 1 Level 2 Level 3 Total As at June 30, 2016 Equities $ 13,610,267 $ $ $ 13,610,267 Options (136,281) (136,281) $ 13,610,267 $ (136,281) $ $ 13,473,986 As at December 31, 2015 Equities $ 11,169,921 $ $ $ 11,169,921 $ 11,169,921 $ $ $ 11,169,921 15

18 All fair value measurements are recurring. The carrying amounts of distributions and other income receivable, cash and all current liabilities (other than options written) approximate their fair value because of the short-term nature of these items. Instruments are classified as Level 1 when the related security or derivative is actively traded and a quoted price is available. Instruments are classified as Level 2 when the related security or derivative has inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly. If an instrument classified as Level 1 subsequently ceases to be actively traded, it is transferred out of Level 1. In such cases, instruments are reclassified into Level 2, unless the measurement of its fair value requires the use of significant unobservable inputs, in which case it is classified as Level 3. The Trust s policy is to recognize transfers into and out of fair value hierarchy levels as of the date of the event or change in circumstances giving rise to the transfer. There were no transfers between levels during the period/year presented. 10. FINANCIAL INSTRUMENT RISK MANAGEMENT In the normal course of business, the Trust is exposed to a variety of financial risks: market risk (including price risk, interest rate risk and currency risk), credit risk and liquidity risk. As it is the Trust s mandate to be fully invested on an equal weight basis in the 20 highest yielding natural resource issuers in the S&P/TSX 60 Index and pay distributions from net investment income to the maximum extent possible, the Trust s overall risk management program focuses on compliance and execution of the Trust s investment objectives. Price Risk Price risk is the risk that securities will fluctuate in value because of changes in market prices (other than those arising from interest rate risk or currency risk). All investments present a risk of loss of capital. The value of a Unit is dependent on the value of the Portfolio Securities. The value of the Portfolio Securities can fluctuate on a daily basis as a result of factors outside of the Trust s control, including financial performance of the issuers of the Portfolio Securities, operational risks relating to the specific business activities of the respective issuers, quality of assets owned by respective issuers, commodity prices, exchange rates, interest rates, environmental risks, political risks, issues relating to government regulation and taxation, composition of the Portfolio and other financial market conditions. The covered call writing program generates an additional stream of income to the Portfolio and reduces the overall level of portfolio volatility. As the Trust s mandate is to track the 20 highest yielding members of the S&P/TSX 60 Index and pay distributions to the maximum extent possible, it does not use any other strategies in managing any of these market price risks. If the prices on the Toronto Stock Exchange for the Portfolio Securities had increased 5% as at June 30, 2016 with all other variables remaining constant, net assets would have increased by approximately $0.49 million or $0.36 per Unit (December 31, 2015 $0.56 million or $0.41 per Unit). Similarly, if prices had decreased 5%, net assets would have decreased by approximately ($0.59) million or ($0.43) per Unit (December 31, 2015 ($0.56) million or ($0.41) per Unit). In practice, the actual results may differ materially from this sensitivity analysis. Interest Rate Risk Interest rate risk arises from changes in the prevailing levels of market interest rates resulting in fluctuations in the value of interest-bearing financial instruments. The majority of the Trust s assets are equities that do not pay a fixed rate of interest, however the Trust is indirectly exposed to risks associated with the effects of 16

19 fluctuations in the prevailing levels of market interest rates on the issuers contained in the Portfolio. Any excess cash is invested in short-term money market instruments, which are not subject to significant interest rate risk. Currency Risk The assets and liabilities are predominately held in the functional and presentation currency of the Trust which is the Canadian dollar. The Trust is not exposed to significant foreign currency risks except to the extent that the business activities of the underlying investments that comprise the Portfolio are subject to foreign currency fluctuations. Credit Risk Credit risk is the risk that the counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Trust. The Trust maintains all of its cash and cash equivalents at its custodian or in bankers acceptances or term deposits with financial institutions having a minimum debt rating of A. All transactions in listed securities are settled/paid for upon delivery using approved brokers. The risk of default is considered minimal, as delivery of securities sold is made only when the Trust has received payment. Payment is made on purchases once the securities have been received by the Trust. Should either party not meet its obligation, the trade will fail. Liquidity Risk The Trust is only exposed to annual cash redemptions and receives notification 30 days prior to payment. The Trust invests its assets in investments that are traded in an active market and can be readily disposed of. There can be no assurance that an adequate market for the Portfolio Securities will exist at all times, or that the prices at which the Portfolio Securities trade, accurately reflect their fair values. Low trading volumes of Portfolio Securities could make it difficult to liquidate holdings quickly. The Trust maintains cash and cash equivalents to offset all its liabilities with the exception of its obligation for net assets attributable to Unitholders. As at June 30, 2016, the maturity of the Trust s financial liabilities based on the remaining period between the financial statement date and the contractual maturity date was $0.16 million (December 31, 2015 $0.15 million) due in 1 to 6 months and $0.01 million (December 31, 2015 $0.01 million) due greater than 1 year. 17

20 NOTES 20SEP

21 NOTES 20SEP

22 CORPORATE INFORMATION Principal Office Portfolio Manager and Options Advisor Scotia Plaza, 26th Floor Highstreet Asset Management Inc. 40 King Street West 244 Pall Mall Street, Suite 350 Station A, Box 4085 London, Ontario Toronto, Ontario N6A 5P6 M5W 2X6 Telephone: (416) Facsimile: (416) Registrar and Transfer Agent Website: Computershare Investor Services Inc University Avenue Toronto, Ontario M5J 2Y1 Trustee CaRIT Limited Partnership Toronto, Ontario Directors and Officers John B. Newman * Director and Chairman of the Board Brian D. McChesney Director, President and Chief Executive Officer Stephens B. Lowden FCPA, FCA * Director and Chairman of the Audit Committee Stephen D. Pearce CPA, CA Director, Chief Financial Officer and Secretary Michael K. Warman CPA, CA Director Robert C. Williams Director J. Nicholas Ross CPA, CA * Director Robert Hall Director * Audit Committee Member Legal Counsel Stikeman Elliott LLP Toronto, Ontario Auditor PricewaterhouseCoopers LLP Toronto, Ontario Stock Exchange Listing The Toronto Stock Exchange Symbol RTU.UN Independent Review Committee J. Nicholas Ross CPA, CA (Chairman) John B. Newman Stephens B. Lowden CPA, FCA

23 CANADIAN RESOURCES INCOME TRUST 40 KING STREET WEST, SCOTIA PLAZA, 26TH FLOOR TORONTO, ONTARIO M5W 2X6