UBS (CANADA) AMERICAN EQUITY FUND. Statements of Financial Position (unaudited) As at. June 30, 2014 December 31, 2013 January 1, 2013

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1 Statements of Financial Position (unaudited) As at June 30, 2014 December 31, 2013 January 1, 2013 Assets Current assets Cash $ 594,662 $ 1,724,479 $ 1,224,991 Receivable for unitholder subscriptions Accrued dividend receivable 25,231 67, ,646 Investments (non-derivative financial assets) 32,559,331 63,894,791 95,832,868 Total Assets 33,179,504 65,686,606 97,218,505 Liabilities Current liabilities Due to investment dealers 77, Accrued management fees 20,739 14,850 22,005 Accrued liabilities 70,318 62,304 30,171 Total Liabilities 168,299 77,154 52,176 Net Assets Attributable to Holders of Redeemable Units - Series B $ 33,011,205 $ 65,609,452 $ 97,166,329 Net Assets Attributable to Holders of Redeemable Units per Unit - Series B (Note 3j) $ $ $ See accompanying notes which are an integral part of these financial statements.

2 Statements of Comprehensive Income for the periods ended June 30 (unaudited) Income Net gains on investments Dividend income $ 419,170 $ 820,793 Other changes in fair value of investments and derivatives Net realized gain on sale of investments and derivatives 11,826,869 13,420,171 Net realized gain on foreign currency ,180 Net change in unrealized appreciation (depreciation) of investments and derivatives (6,528,629) 5,470,245 Net gains on investments (Note 14) 5,717,842 20,000,389 Securities lending income (Note 12) 8,004 7,568 5,725,846 20,007,957 Expenses (Note 8) Investment management fees (Notes 8 and 10) 52,463 77,740 Audit fees 19,681 9,834 Custody fees 3,068 3,074 Securityholder reporting costs 3,639 3,647 Independent Review Committee fees (Note 10) 1, Withholding taxes 46, ,945 Transaction costs (Note 11) 45, ,418 Other expenses 27,129 21, , ,758 Increase in net assets attributable to holders of redeemable units from operations - Series B $ 5,525,064 $ 19,666,199 Increase in net assets attributable to holders of redeemable units from operations per unit - Series B (Note 15) $ 2.19 $ 2.99 See accompanying notes which are an integral part of these financial statements.

3 Statements of Changes in Net Assets Attributable to Holders of Redeemable Units for the periods ended June 30 (unaudited) Increase in net assets attributable to holders of redeemable units from operations - Series B $ 5,525,064 $ 19,666,199 Distributions to holders of redeemable units From net investment income (133,989) (462,739) (133,989) (462,739) Redeemable unit transactions Proceeds from redeemable units issued 5,836,715 21,286,926 Amounts paid for redeemable units redeemed (43,951,545) (54,439,945) Reinvestment of distributions to holders of redeemable units 125, ,307 (37,989,322) (32,712,712) Net decrease in net assets attributable to holders of redeemable units for the period (32,598,247) (13,509,252) Net assets attributable to holders of redeemable units, beginning of period 65,609,452 97,166,329 Net assets attributable to holders of redeemable units, end of period - Series B $ 33,011,205 $ 83,657,077 See accompanying notes which are an integral part of these financial statements.

4 Statements of Cash Flows for the periods ended June 30 (unaudited) Cash flows from operating activities: Increase in net assets attributable to holders of redeemable units from operations - Series B $ 5,525,064 $ 19,666,199 Adjustments for: Net realized gain on sale of investments and derivatives (11,826,869) (13,420,171) Net change in unrealized appreciation (depreciation) of investments and derivatives 6,531,492 (5,472,806) Purchase of investments (12,562,493) (43,504,491) Proceeds from sale of investments 49,270,572 78,732,261 Dividends receivable 42,105 (3,619) Other liabilities 13,903 (21,293) Cash provided by operating activities 36,993,774 35,976,080 Cash flows from financing activities: Proceeds from redeemable units issued 5,827,954 21,264,494 Amounts paid for redeemable units redeemed (43,951,545) (54,439,945) Cash used in financing activities (38,123,591) (33,175,451) Net increase (decrease) in cash (1,129,817) 2,800,629 Cash, beginning of period 1,724,479 1,224,991 Cash, end of period - Series B $ 594,662 $ 4,025,620 Dividends received, net of withholding taxes $ 414,356 $ 708,230 See accompanying notes which are an integral part of these financial statements.

5 Schedule of Investment Portfolio as at June 30, 2014 (unaudited) Average Fair Number of Cost Value % of Shares/Units Description $ $ Total Common Stocks Energy 3,630 Baker Hughes Inc. 184, ,861 2,500 Chevron Corp. 325, ,638 6,200 EOG Resources Inc. 446, ,735 3,600 Exxon Mobil Corp. 329, ,061 4,300 Halliburton Co. 145, ,236 11,000 Noble Corp. PLC 386, ,211 4,600 PDC Energy Inc. 314, ,415 2,132,035 2,821, Materials 1,750 Air Products and Chemicals Inc. 214, ,749 2,500 Martin Marietta Materials Inc. 256, ,633 3,200 Monsanto Co. 377, ,174 2,900 Praxair Inc. 422, ,334 1,270,112 1,426, Industrials 4,800 Danaher Corp. 404, ,524 1,500 General Dynamics Corp. 101, ,215 13,850 Hertz Global Holdings Inc. 246, ,508 3,710 Illinois Tool Works Inc. 220, ,011 38,790 McDermott International Inc. 384, ,256 3,400 Norfolk Southern Corp. 248, ,124 5,500 Owens Corning Inc. 227, ,600 9,180 Waste Management Inc. 339, ,373 2,173,063 2,719, Consumer Discretionary 1,920 Amazon.com Inc. 505, ,204 7,200 Best Buy Co. Inc. 198, ,818 11,630 Comcast Corp., Class 'A' 381, ,971 25,500 Ford Motor Co. 425, ,261 10,500 General Motors Co. 391, ,982 21,530 J.C. Penney Co. Inc. 313, ,541 5,300 Lennar Corp., Class 'A' 236, ,989 5,520 Macy's Inc. 229, ,136 2,410 Ralph Lauren Corp. 407, ,493 7,920 Walt Disney Co. (The) 599, ,302 9,640 Yum! Brands Inc. 719, ,765 4,407,333 5,196, Consumer Staples 22,700 Mondelez International Inc., Class 'A' 721, ,369 9,300 PepsiCo Inc. 853, ,993 9,800 Philip Morris International Inc. 885, ,067 25,500 Rite Aid Corp. 199, ,747 5,400 Walgreen Co. 347, ,382 3,007,503 3,295, Health Care 14,600 Acorda Therapeutics Inc. 486, ,231 1,960 Allergan Inc. 149, ,280 3,450 Alnylam Pharmaceuticals Inc. 122, ,135 3,600 Baxter International Inc. 224, ,237 1,900 Bio-Rad Laboratories Inc., Class 'A' 212, ,267 11,440 Eli Lilly and Co. 617, ,561 4,300 Envision Healthcare Holdings Inc. 113, ,473 3,860 Gilead Sciences Inc. 131, ,883 7,200 Hospira Inc. 279, ,961 9,330 Impax Laboratories Inc. 208, ,036 3,400 Laboratory Corp. of America Holdings 371, ,843 58,800 Lexicon Pharmaceuticals Inc. 141, ,836 3,500 Mallinckrodt PLC 162, ,317 3,860 Teva Pharmaceutical Industries Ltd., ADR 161, ,524 5,330 UnitedHealth Group Inc. 312, ,115 3,694,611 5,033, Financials 3,470 Aon PLC 265, ,979 5,310 Capital One Financial Corp. 362, ,181 15,890 Citigroup Inc. 694, ,178 9,410 Digital Realty Trust Inc. 580, ,545 7,020 Invesco Ltd. 238, ,270 13,340 JPMorgan Chase & Co. 590, ,728 See accompanying notes which are an integral part of these financial statements.

6 Schedule of Investment Portfolio as at June 30, 2014 (unaudited) Average Fair Number of Cost Value % of Shares/Units Description $ $ Total 7,130 Lincoln National Corp. 206, ,662 9,480 MetLife Inc. 389, ,024 18,390 Morgan Stanley 385, ,284 2,980 Simon Property Group Inc. 490, ,797 12,280 U.S. Bancorp 383, ,627 7,900 Wells Fargo & Co. 245, ,276 4,832,296 6,404, Information Technology 13,125 Apple Inc. 704,200 1,299,172 19,290 Applied Materials Inc. 362, ,329 9,890 Broadcom Corp., Class 'A' 318, ,034 8,680 Check Point Software Technologies Ltd. 471, ,726 9,630 Freescale Semiconductor Holdings I Ltd. 156, ,049 19,070 Jabil Circuit Inc. 389, ,529 9,230 Mellanox Technologies Ltd. 355, ,720 10,860 Micron Technology Inc. 83, ,150 9,420 NetApp Inc. 338, ,431 6,000 NXP Semiconductors NV 204, ,950 11,900 ServiceSource International Inc. 177,532 73,517 19,540 Symantec Corp. 393, ,618 3,954,351 5,502, Telecommunications 58,200 NII Holdings Inc., Class 'B' 564,378 34, ,378 34, Total Common Stocks 26,035,682 32,434, Funds 600 SPDR S&P 500 ETF Trust 119, ,083 Total Funds 119, , Total Investments 26,155,326 32,559, Transaction costs included in average cost (24,477) Total Investments 26,130,849 32,559, See accompanying notes which are an integral part of these financial statements.

7 June 30, 2014 (unaudited) 1. General information UBS (Canada) American Equity Fund (the Fund ) is an open-end unincorporated investment trust established under the laws of Ontario and managed by UBS Global Asset Management (Canada) Inc. (the Manager ). The Fund is governed by an amended and restated trust agreement dated October 5, 2006, as amended (the Master Trust Agreement ) and by a supplemental trust agreement under that Master Trust Agreement dated as of November 30, 2011 between the Manager, CIBC Mellon Trust Company (the Trustee ) and the Canadian Imperial Bank of Commerce (the Custodian ), as amended and restated effective February 1, The Fund was previously governed by an amended and restated trust agreement dated April 8, 2002 and created by a supplemental trust agreement under that master trust agreement dated as of July 23, 1956, each between the Manager and The Royal Trust Company. The Fund commenced operations on July 23, The head office of the Fund is located at the offices of the Manager, Brookfield Place, P.O. Box 618, 161 Bay Street, Suite 4100, Toronto, Ontario M5J 2S1. On February 19, 2014 a final simplified prospectus was filed offering Series A, Series F and Series D mutual fund units, in addition, all existing Series A units were renamed Series B, a series available to institutional investors who have an agreement with the Manager. Series A Units are available to all investors. Series F Units are available to investors who hold an account with dealers who have entered into a dealer agreement with the Manager. Series D Units are available to investors who have an account with an eligible discount broker. The fundamental investment objective of the Fund is to maximize total return for unitholders, by investing in an actively managed portfolio consisting primarily of common or other capital stocks of U.S corporations, and securities with common stock-like investment characteristics. The objective of the Fund is to exceed the return of both the Russell 1000 Index and the S&P 500 Index over a full market cycle. The Manager seeks to achieve the Fund s objective by investing its assets in securities of companies that the Manager believes are undervalued, based on fundamental research, internally developed valuation systems and seasoned investment judgment. Active management of the Fund s portfolio is intended to produce a positive deviation between the Fund s performance and the returns from the benchmarks. Independent Review Committee The Independent Review Committee ( IRC ) for the Fund was established pursuant to National Instrument ( NI ). The IRC provides independent oversight regarding actual and perceived conflicts of interest involving the Fund and performs all other functions required of an IRC under NI Basis of presentation and adoption of IFRS These financial statements have been prepared in compliance with International Accounting Standard 34, Interim Financial Reporting ( IAS 34 ) as issued by the International Accounting Standards Board ( IASB ). The Fund adopted International Financial Reporting Standards ( IFRS ) on January 1, 2014 as required by Canadian securities legislation and the Canadian Accounting Standards Board. Previously, the Fund prepared its financial statements in accordance with Canadian generally accepted accounting principles ( Canadian GAAP ) as defined in Part V of the Chartered Professional Accountants Canada ( CPA Canada ) Handbook. The Fund has consistently applied the accounting policies used in the preparation of its opening IFRS Statement of Financial Position at January 1, 2013 and throughout all periods presented, as if these policies had always been in effect. As discussed in Note 17, the Fund adopted IFRS in accordance with IFRS 1, First-time Adoption of International Financial Reporting Standards (IFRS 1). Note 17 also discloses the impact of the transition to IFRS on the Fund s reported financial position, financial performance and cash flows, including the nature and effect of significant changes in accounting policies from those used in the Fund s financial statements for the year ended December 31, 2013 prepared under Canadian GAAP. The Schedule of Investment Portfolio of the Fund is as at June 30, The Statements of Financial Position of the Fund are as at June 30, 2014, December 31, 2013 and January 1, 2013, and the Statements of Comprehensive Income, Statements

8 of Changes in Net Assets Attributable to Holders of Redeemable Units and Statements of Cash Flows are for the six-month periods ended June 30, 2014 and These interim financial statements were approved for issuance by the Manager on August 29, Significant accounting policies The financial statements have been prepared on a going concern basis using the historical-cost convention. However, the Fund is an investment entity and primarily all financial assets and financial liabilities are measured at fair value in accordance with IFRS. Accordingly, the Fund s accounting policies for measuring the fair value of investments and derivatives are consistent with those used in measuring the Net Asset Value for transactions with unitholders. The accounting policies set out below have been applied consistently to all periods presented in these financial statements. a) Classification and recognition of financial instruments In accordance with IAS 39, Financial Instruments: Recognition and Measurement (IAS 39), financial assets and financial liabilities are classified at initial recognition into the following categories: Financial assets and liabilities at fair value through profit or loss The category of financial assets and liabilities at fair value through profit or loss is sub-divided into: Financial assets and liabilities held for trading: financial assets are classified as held for trading (HFT) if they are acquired for the purpose of selling and/or repurchasing in the near term. Derivatives held by the Fund, if any, are classified as HFT, and they do not meet the definition of effective hedging instruments as defined by IAS 39. These assets are acquired principally for the purpose of generating a profit from short-term fluctuations in price. Financial instruments designated as fair value through profit or loss upon initial recognition: All investments owned (excluding derivatives) are designated as fair value through profit or loss (FVTPL) upon initial recognition. The Fund included equities, exchange traded funds, and other interest-bearing investments, if any, in this category. These financial assets are designated upon initial recognition on the basis that they are part of a group of financial assets that are managed and have their performance evaluated on a fair value basis, in accordance with risk management and investment strategies of the Fund, as set out in the Fund s prospectus. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. The Fund includes in this category amounts relating to receivables in respect of amounts due from investment dealers, receivable for unitholder subscriptions, accrued dividend receivable, accrued interest receivable and other receivables. Other financial liabilities This category includes all financial liabilities, other than those classified as FVTPL. The Fund includes in this category amounts relating to payables in respect of amounts due to investment dealers, payable for unitholder redemptions, accrued management fees and other accrued liabilities. A financial asset or liability is recognized when the Fund becomes a party to the contractual provisions of the instruments, at the amount required to be received or paid, discounted, when appropriate, at the contract s stated interest rate. b) Valuation of financial instruments Financial assets and financial liabilities at FVTPL are recorded in the Statements of Financial Position at fair value upon initial recognition. All transaction costs such as brokerage commissions, incurred in the purchase and sale of securities for

9 such instruments are recognized directly in profit or loss. Loans and receivables and other financial liabilities (other than those classified as HFT) are measured initially at their fair value plus any directly attributable incremental costs of acquisition or issue. For financial assets and liabilities where the fair value at initial recognition does not equal the transaction price, the Fund recognizes the difference in the Statements of Comprehensive Income, unless specified otherwise. After initial measurement, the Fund measures financial instruments which are classified as FVTPL, at fair value. Subsequent changes in the fair value of those financial instruments (i.e. the excess/shortfall of the sum of the fair value of portfolio investments over/below the sum of the average cost of each portfolio investment) are recorded in net change in unrealized appreciation (depreciation) of investments. The applicable period net change in unrealized appreciation (depreciation) of investments is included on the Statements of Comprehensive Income. The average cost of portfolio investments represents the sum of the average cost of each portfolio investments. For the purposes of determining the average cost of each portfolio investment, the purchase price of portfolio investments acquired by the Fund is added to the average cost of the particular portfolio investment immediately prior to the purchase. The average cost of a portfolio investment is reduced by the number of shares or units sold multiplied by the average cost of the portfolio investment at the time of the sale. The average cost per share or unit of each portfolio investment sold is determined by dividing the average cost of the portfolio investment by the number of shares or units held immediately prior to the sale transaction. Transaction costs incurred in portfolio transactions are excluded from the average cost of investments and are recognized immediately in net income and are presented as a separate expense item in the financial statements. Net realized gain (loss) on sale of portfolio investments are also calculated based on the average costs, excluding transaction costs, of the related investment. Loans and receivables, other assets and liabilities (other than those classified as FVTPL) are measured at amortized cost. The Fund s obligation for net assets attributable to holders of redeemable units is presented at the redemption amount. The Fund measures its financial instruments, such as equities, exchange traded funds and other interest-bearing investments and derivatives, if any, at fair value at each reporting date. 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 measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability or, in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible to the Fund. The fair values of each specific type of investments and derivatives are determined in the following manner: Portfolio investments For financial reporting purposes, investments are valued at their fair value. Investments held that are traded in an active market through recognized public stock exchanges, over-the-counter markets, or through recognized investment dealers, are valued at their last traded market price where the last traded market price falls within the day s bid ask spread. In circumstances where the last traded price is not within that day s bid-ask spread, the Manager determines the point within the bid-ask spread that is most representative of fair value based on specific facts and circumstances. Investments held may include equities, exchange traded funds and other debt instruments. Certain investments that are not valued using the last traded price on the securities exchange can be valued based on other observable market data at the discretion of the Manager. If no trade volume is reported to have taken place, closing bid quotations for long positions from the primary exchange or market makers will be used. Investments held that are not traded in an active market are valued based on the results of valuation techniques using observable market inputs where possible, on such basis and in such manner established by the Manager. Investments in other pooled funds are valued at the net asset value per unit reported by each pooled fund. See Note 13(e) for more information about the Fund s fair value measurements.

10 Other financial assets and liabilities All other financial assets and liabilities of the Fund are measured at amortized cost. Cash, dividends and distributions receivable, receivable for investments sold, prepaid expenses, recoverable sales tax, payable for investments purchased, distributions payable, accrued liabilities and redemptions payable are stated at the carrying amount, and short-term debt instruments are stated at cost plus accrued interest, which in all cases is a reasonable approximation of amortized cost. c) Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount reported in the Statements of Financial Position if there is a currently enforceable legal 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. d) Investments in associates, joint ventures and subsidiaries An investment entity is an entity that: obtains funds from one or more investors for the purpose of providing them with investment management services, its business purpose is to invest funds solely for returns from capital appreciation, income, or both, and measures and evaluates the performance of substantially all of its investments on a fair value basis. Subsidiaries are all entities, including investment in other investment entities, over which the Fund has control. The Fund controls an entity when it is exposed to, or has rights to, variable returns from its involvement with entity and has ability to affect those returns through its power over the entity. The Fund has determined that it is an investment entity and as such, it accounts for its subsidiaries at fair value. e) Impairment of financial assets At each reporting date the Fund assesses whether there is objective evidence that financial assets at amortized cost is impaired. If such evidence exists, the Fund recognizes an impairment loss as the difference between the amortized cost of the financial asset and the present value of the estimated future cash flows, discounted using the instrument s original effective interest rate. Impairment losses on financial assets at amortized cost are reversed in subsequent periods if the amount of the loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized. The Fund s other financial assets and liabilities are short term in nature and not subject to impairment. No impairment loss was recorded for the periods ended June 30, 2014 and f) Investment transactions and income recognition Investment transactions are recorded on the trade date. Interest income for distribution purposes from investments in bonds and short-term investments, if any, shown on the Statements of Comprehensive Income represent the coupon interest received accounted 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. Dividend income and distribution from underlying funds are recognized on the ex-dividend or ex-distribution date when the Fund s right to receive the payment is established. Realized gains and losses from investment transactions are calculated on a weighted average cost basis. Income, realized gains (losses) and unrealized gains (losses) are allocated among the series on a pro-rata basis. The Fund generally incurs withholding taxes imposed by certain countries on investment income and capital gains. Such income and gains are recorded on a gross basis and the related withholding taxes are shown as a separate expense in the Statements of Comprehensive Income. g) Functional currency, presentation currency and foreign currency translations The functional currency of the Fund is the Canadian dollar, which is the currency of the primary economic environment in which it operates. Amounts received by the Fund on an offering of its units and amounts payable on redemption are received or paid in Canadian dollars, and the Fund s performance is evaluated and its liquidity is managed in Canadian dollars. Therefore, the Canadian dollar is considered as the currency that most faithfully represents the economic effects of the underlying transactions, events and conditions. The Fund s presentation currency is also the Canadian dollar.

11 Any currency other than Canadian dollar represents foreign currency to the Fund. Transactions in foreign currencies are translated into the Fund s reporting currency using the exchange rate prevailing on the trade date. The quoted fair value of investments and other assets and liabilities denominated in foreign currencies is translated at the period-end exchange rate. Realized gains and losses on foreign currency translation are included in the Statements of Comprehensive Income as net realized gain (loss) on foreign currency and unrealized gains (losses) on foreign currency translation are included in the Statements of Comprehensive Income as part of the net change in unrealized appreciation (depreciation) of investments and derivatives. h) Cash Cash is comprised of deposits with financial institutions. i) Increase (decrease) in net assets attributable to holders of redeemable units per unit Increase (decrease) in net assets attributable to holders of redeemable units from operations per unit in the Statements of Comprehensive Income represents the increase (decrease) in net assets from operations attributable to the series for the period divided by the weighted average number of units of the series outstanding during the period. See Note 15 for the calculation. j) Unitholder transactions and Net asset value attributable to holders of redeemable units per unit Amounts received on the issuance of units and amounts paid on the redemption of units are included in the Statements of Changes in Net Assets Attributable to Holders of Redeemable Units. A separate Net asset value ( NAV ) is calculated for each series of units of the Fund by taking the series proportionate share of the Fund s common assets less that series proportionate share of the Fund s common liabilities and deducting from this amount all liabilities that relate solely to a specific series. The NAV per unit for each series is determined by dividing the NAV of each series by the number of units of that series outstanding on the valuation date. k) Distributions Income earned by the Fund is distributed to holders of redeemable units at least once a year and these distributions are generally reinvested by holders of redeemable units of the Fund. Net realized capital gains (reduced by loss carryforwards, if any) are distributed in December of each year to holders of redeemable units. l) Transaction costs Transaction costs are expensed and are included in Transaction costs in the Statements of Comprehensive Income. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of an investment, which include fees and commissions paid to agents, advisors, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. m) Redeemable participating units Redeemable participating units are classified as financial liabilities and are redeemable at the unitholder s option at prices based on the Fund s NAV per unit at the time of redemption. The amounts are continuously measured at their redemption value. 4. Critical accounting estimates and judgments The preparation of financial statements requires management to use judgment in applying its accounting policies and to make estimates and assumptions about the future that affect the reported amounts of assets, liabilities, income and expenses during the reporting periods. Actual results may differ from such estimates. The following discusses the most significant accounting judgments and estimates that the Fund has made in preparing the financial statements: Fair value measurement of derivatives and securities not quoted in an active market The Fund may hold 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. Broker

12 quotes as obtained from the pricing sources may be indicative and not executable. 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 the Manager, independent of the party that created them. Models use observable data, to the extent practicable. However, areas such as credit risk, 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. See Note 13 for more information on the fair value measurement of the Fund s financial statements. Classification and measurement of investments and application of the fair value option In classifying and measuring financial instruments held by the Fund, the Manager is required to make significant judgments about whether or not the business of the Fund is to invest on a total return basis for the purpose 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 the fair value option can be applied to the Fund s investments. 5. Standards issued but not yet effective Standards issued but not yet effective up to the date of issuance of the Fund s financial statements are listed below. The Fund will adopt any applicable standards when they become effective. Financial Instruments - Classification and Measurement (IFRS 9) In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments, bringing together the classification and measurement, impairment and hedge accounting phases of the IASB s project to replace IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. IFRS 9 introduces a logical, single classification and measurement approach for financial assets that reflects the business model in which they are managed and their cash flow characteristics. Built upon this is a forward-looking expected credit loss model that will result in more timely recognition of loan losses and is a single model that is applicable to all financial instruments subject to impairment accounting. In addition, IFRS 9 also removes the volatility in profit or loss that was caused by changes in the credit risk of liabilities elected to be measured at fair value, such that gains caused by the deterioration of an entity s own credit risk on such liabilities are no longer recognised in profit or loss. IFRS 9 also includes an improved hedge accounting model to better link the economics of risk management with its accounting treatment. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early adoption permitted. In addition, the own credit changes can be early applied in isolation without otherwise changing the accounting for financial instruments. The Funds are in the process of assessing the impact of IFRS Income taxes The Fund qualifies as a unit trust under the Income Tax Act (Canada). No provision for income taxes has been recorded in the accompanying financial statements as all income and capital gains of the Fund for the year are distributed to the unitholders to the extent necessary to reduce taxes payable under Part I of the Income Tax Act (Canada) to nil. As a result, the Fund does not record income taxes. Taxes payable on capital gains retained in a fund that is a mutual fund trust are generally refundable on a formula basis to the extent the units of the Fund are redeemed during the year. 7. Redeemable units The capital of the Fund is represented by issued redeemable units with no par value. Unitholders are entitled to distributions, if any, and to payment of a proportionate share based on the Fund s NAV per unit upon redemption. The Fund is authorized to issue an unlimited number of transferable, redeemable units, each of which represents an equal, undivided interest in the NAV of the Fund. Capital movements are shown on the Statements of Changes in Net Assets Attributable to Holders of Redeemable Units. In accordance with its investment strategies and risk management policies, the Fund endeavors to invest

13 its subscriptions received in appropriate investments while maintaining sufficient liquidity to meet redemptions. Unit transactions of the Fund for the periods ended June 30, 2014 and 2013 were as follows: Series B Units outstanding - beginning of period 3,690,816 7,797,476 Redeemable units issued 314,615 1,445,094 Redeemable units redeemed (2,318,273) (3,819,001) Redeemable units issued on reinvestmens 6,613 31,567 Units outstanding - end of period 1,693,771 5,455, Expenses In accordance with the Trust Agreement, the Trustee charges the Fund for custody and administration fees. Other reasonable expenses incurred in the operations of the Fund such as audit, legal, regulatory (including private placement reporting fees) and other professional fees are charged as an expense in the Statements of Comprehensive Income of the Fund on a pro-rated basis between the series. Cash held by the Fund includes interest bearing deposits with the Trustee. To the extent that the Fund is in an overdraft position, funds are borrowed from the Trustee and interest is charged at the bank s prime rate plus 2%. The Manager may pay dealers out of its investment management fees, a quarterly service fee, known as a trailing commission, based on the total net asset value of the Series A Units and Series D Units held by clients of the dealer, for so long as such clients hold the investment. The trailing commission will equal to 1.00% per annum of the net asset value attributable to the Series A Units held by clients of the dealer, and 0.25% per annum of the net asset value attributable to the Series D Units held by clients of the dealer plus applicable taxes. It will be paid as soon as practicable after the end of each calendar quarter. No trailing commission will be paid on the Series F or Series B Units. Additionally, Series B unitholders pay a fee directly to the Manager that is negotiated with the Manager. There is also a 0.20% per annum surcharge fee payable to the Manager within the Fund attributable to Series B Units. Investment management fees are charged by the Manager as follows: Annual Management Fee (%) Series A 1.90 Series D 1.15 Series F 0.90 Series B Unitholders pay the Manager directly 9. Tax loss carryforwards Capital losses for income tax purposes may be carried forward indefinitely and applied against capital gains realized in future years. Non-capital loss carryforwards may be applied against future years taxable income. Non-capital losses that are realized in the taxation years 2004 and 2005 may be carried forward for 10 years. Any non-capital losses that are realized in the taxation year 2006 and after may be carried forward for 20 years. 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.

14 The non-capital losses and capital losses as at June 30, 2014 available for carryforward are as follows: Capital Losses Non-Capital Losses $ $ 56,691, Related party transactions (a) Commission expense The Fund paid commissions of $119 to UBS Securities LLC, a subsidiary investment company of UBS AG, in connection with investment portfolio transactions for the six-month period ended June 30, 2014 ( nil). (b) Management fees The Fund incurred $52,463 ( $77,740) in management fees for the six-month period ended June 30, As at June 30, 2014, (December 31, $14,850; January 1, $22,005) there was $20,739 management fees payable. (c) IRC fees The Fund is responsible for the fees and expenses of its IRC. The cost of the IRC is shared across the other funds managed by the Manager. The Fund incurred $1,902 (2013 $241) IRC fees for the six-month period ended June 30, As at June 30, 2014, December 31, 2013 and January 1, 2013 there were no IRC fees payable. Related party transactions are recorded at the exchange amount. 11. Brokerage commissions on securities transactions The Fund paid $45,981 ( $116,418) in brokerage commissions and other transaction costs for portfolio transactions for the six-month period ended June 30, The Manager has received research and system usage related services in return for commissions generated with specific dealers, otherwise known as soft dollars ( Soft Dollars ). For the periods ended June 30, 2014 and 2013 the Manager has determined that the following value of Soft Dollars for the investment management services are of direct benefit to the Fund: June 30, 2014 June 30, 2013 Soft dollars $ 28,744 $ 81,092 Percentage of total transaction costs (%) 63% 70% 12. Securities lending The Fund has entered into a securities lending program with the Trustee, CIBC Mellon Trust Company. The aggregate market value of all securities loaned by the Fund cannot exceed 50% of the assets of the Fund. The Fund receives collateral of at least 105% of the value of securities on loan. Collateral may comprise cash and obligations of or guaranteed by the Government of Canada or a province thereof, by the United States government or its agencies, or by other Organization for Economic Coordination & Development member countries governments. The aggregate market value of securities loaned and collateral held under securities lending transactions as at June 30, 2014, December 31, 2013 and January 1, 2013 were as follows:

15 As at June 30, 2014 As at December 31, 2013 As at January 1, 2013 Securities Loaned Collateral held Securities Loaned Collateral held Securities Loaned Collateral held $ 2,688,369 $ 2,843,242 $ 5,676,102 $ 5,974,797 $ 6,093,097 $ 6,434,239 The collateral type for periods ended June 30, 2014, December 31, 2013 and January 1, 2013 were as follows: Collateral held June 30, 2014 December 31, 2013 January 1, 2013 $ $ $ Federal Bonds 1,613,700 4,201,724 3,991,159 Provincial Bonds 1,229,542 1,773,073 2,272,573 Bank L/Cs, BDNs, BAs, CDs* ,274 Convertibles ,233 Total 2,843,242 5,974,797 6,434,239 *Bank Letter of Credit, Bearer Deposit Notes, Bankers Acceptance, Certificate of Deposit. The market value of the loaned securities is determined on the close of any valuation date and any additional required collateral is delivered to the Fund on the next business day. The securities on loan continue to be included on the Schedule of Investment Portfolio and are included in the total value on the Statements of Financial Position in Investments (nonderivative financial assets). 13. Financial instruments risk The Fund s activities expose it to various types of risks that are associated with its investment strategies, financial instruments and markets in which it invests. The most significant risks include credit risk, liquidity risk and market risk (including price risk, currency risk and interest rate risk). The level of risk depends on the Fund s investment objectives and the type of securities it invests in. These risks and related risk management practices employed by the Fund are discussed below: a) Credit risk The Fund is exposed to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due. All transactions in listed securities are settled upon delivery using approved brokers. The risk of default is considered minimal, as delivery of securities sold is only made once the broker has received payment. Payment is made on a purchase once the securities have been received by the broker. The trade will fail if either party fails to meet its obligations. The Fund may also invest in derivative instruments such as forward contracts; therefore, it is subject to credit risk if the counterparty fails to meet its obligation. The Manager may choose to utilize multiple counterparties and those that have a high credit rating in order to minimize credit risk. The Fund limits its exposure to credit loss by dealing with counterparties of high credit quality. To maximize the credit quality of its investments, the Fund s Manager performs ongoing credit evaluations based upon factors surrounding the credit risk of counterparties, historical trends and other information. As at June 30, 2014, December 31, 2013 and January 1, 2013 the Fund did not hold any interest bearing investments, as a result, is not subject to credit risk. b) Liquidity risk Liquidity risk is the possibility that investments of the Fund cannot be readily converted into cash when required. The Fund may be subject to liquidity constraints because of insufficient volume in the markets for the securities of the Fund or the securities may be subject to legal or contractual restrictions on their resale. In addition, the Fund is exposed to daily cash redemptions of redeemable units. The units of the Fund are redeemed on demand at the current net asset value per unit at

16 the option of the unitholder. Liquidity risk is managed by investing the majority of the Fund s assets in investments that are traded in an active market and can be readily disposed. The Fund aims to retain sufficient cash and cash equivalent positions to maintain liquidity; therefore, the liquidity risk for the Fund is considered minimal. The tables below analyze the Fund s financial liabilities as at June 30, 2014, December 31, 2013 and January 1, 2013 into relevant groupings based on contractual maturity dates. The amounts in the table are contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances, as the impact of discounting is not significant. June 30, 2014 on 1-3 > 3 No stated demand months months maturity Total $ $ $ $ $ Due to investment dealers - 77, ,242 Accrued management fees ,739 20,739 Accrued liabilities ,318 70,318 Total liabilities - 77,242-91, ,299 December 31, 2013 on 1-3 > 3 No stated demand months months maturity Total $ $ $ $ $ Accrued management fees ,850 14,850 Accrued liabilities ,304 62,304 Total liabilities ,154 77,154 January 1, 2013 on 1-3 > 3 No stated demand months months maturity Total $ $ $ $ $ Accrued management fees ,005 22,005 Accrued liabilities ,171 30,171 Total liabilities ,176 52,176 c) Market risks The Fund s investments are subject to market risk, which is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. The following include sensitivity analyses that show how the net assets attributable to holders of redeemable units would have been affected by a reasonably possible change in the relevant risk variable at each reporting date. In practice the actual results may differ and the differences may be material. i) Currency risk The Fund holds assets and liabilities that are denominated in currencies other than the Canadian dollar - the functional currency. It is therefore exposed to currency risk, as the value of the securities denominated in other currencies will fluctuate due to changes in exchange rates. As well, the Fund may enter into forward foreign exchange contracts primarily with the intention to offset or reduce exchange rate risks associated with the investments and also, periodically, to enhance returns to the portfolio. The Canadian dollar value of forward foreign exchange contracts is determined using forward currency exchange rates supplied by an independent service provider. Losses may arise due to a change in the value of the foreign currency or if the counterparty fails to perform under the contract. The tables below summarize the Fund s exposure to currency risks as at June 30, 2014, December 31, 2013 and January 1, Had the exchange rate between the Canadian dollar and the foreign currencies increased (decreased) by 10%, with all other variables held constant, net assets attributable to holders of redeemable units would have increased (decreased) by

17 $3,270,658 on June 30, 2014 (December 31, $6,481,479; January 1, $9,672,894). In practice, actual results may differ from this sensitivity analysis. June 30, 2014 Currency risk exposed holdings As a % of (including derivatives)* Net exposure net assets $ $ (%) United States, Dollars 32,706,580 32,706, Total 32,706,580 32,706, * Amounts reflect the carrying value of monetary and non-monetary items. December 31, 2013 Currency risk exposed holdings As a % of (including derivatives)* Net exposure net assets $ $ (%) United States, Dollars 64,814,786 64,814, Total 64,814,786 64,814, * Amounts reflect the carrying value of monetary and non-monetary items. January 1, 2013 Currency risk exposed holdings As a % of (including derivatives)* Net exposure net assets $ $ (%) United States, Dollars 96,728,943 96,728, Total 96,728,943 96,728, * Amounts reflect the carrying value of monetary and non-monetary items. ii) Interest rate risk Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or fair values of financial instruments. Interest rate risk arises when the Fund invests in interest-bearing financial assets or financial liabilities. The Fund is exposed to the risk that the value of such financial assets or financial liabilities will fluctuate due to changes in the prevailing levels of market interest rates. In addition, as interest rates fall and fixed-income security issuers prepay principal, the Fund may have to reinvest this money in securities with lower interest rates. The Fund s exposure to interest rate risk is concentrated in its investment in money market instruments and fixed income securities. Other assets and liabilities are short-term in nature and/or non-interest bearing. As at June 30, 2014, December 31, 2013 and January 1, 2013 the Fund held no interest bearing securities, as a result, is not subject to interest rate risk. iii) Other price risk Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk).the Manager aims to moderate this risk through a careful selection and diversification of securities and other financial instruments within the limits of the Fund s investment objectives and strategy. The impact on net assets attributable to holders of redeemable units of the Fund due to a 10% change in the benchmark, using a historical correlation between the return of the Fund as compared to the return of the Fund s benchmark, as at June 30, 2014, December 31, 2013 and January 1, 2013, with all other variables held constant, is included in the following table.

18 Regression analysis has been utilized to estimate the historical correlation. The analysis uses 72 monthly data points, unless the inception of the Fund is less than 6 years, in which case data since inception has been used. June 30, 2014 Benchmark Correlation Impact on net assets S&P 500 (C$) Index $3,594,759 December 31, 2013 Benchmark Correlation Impact on net assets S&P 500 (C$) Index $7,126,742 January 1, 2013 Benchmark Correlation Impact on net assets S&P 500 (C$) Index $10,590,789 This analysis assumes that all other variables remained unchanged. The historical correlation may not be representative of the future correlation and, accordingly, the impact on net assets attributable to holders of redeemable units could be different. d) Portfolio concentration risk Concentration risk indicates the relative sensitivity of the Fund s performance to developments affecting a particular industry or geographical location. Concentrations of risk arise when a number of financial instruments or contracts are entered into with the same counterparty, or where a number of counterparties are engaged in similar business activities, or activities in the same geographical region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. The portfolio management team manages the risk through diversification and a thorough understanding of each investment in the portfolio. The following is a summary of the Fund s concentration risk: June 30, 2014 December 31, 2013 January 1, 2013 % % % Common Stocks Energy Materials Industrials Consumer Discretionary Consumer Staples Health Care Financials Information Technology Telecommunications Utilities Funds Total