Moneda Latam Corporate

Transcription

1 Moneda Latam Corporate Bond Fund Semi-Annual Report to Unitholders June 30, 2015

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

3 REPORT TO UNITHOLDERS The following presents the financial results of Moneda Latam Corporate Bond Fund (the Fund ) for the six months ended June 30, Fund Structure The Fund is a closed-end investment fund established as a trust to provide holders (the Unitholders ) of Class A Units and Class U Units (collectively, the Units and each, a Unit ) with investment exposure to a diversified portfolio of fixed income securities of companies located in, or with significant operations in Latin America, primarily denominated in U.S. dollars. The Fund s investment objectives are to: (i) preserve and enhance the net asset value (the Net Asset Value or NAV ) of the Fund; and (ii) provide Unitholders with quarterly tax-advantaged distributions consisting primarily of returns of capital, in each case through exposure by virtue of a Forward Agreement (defined below) to the total return performance of the Moneda Deuda Latinoamericana Fondo de Inversion (the Moneda Fund ), a US$1.1 billion (as at June 30, 2015) Chilean listed investment fund established in 2000 which is actively managed by Moneda S.A. Administradora de Fondos de Inversion ( Moneda or the Portfolio Manager ). The NAV for the Class A Units is calculated in Canadian dollars and for the Class U Units, in U.S. dollars. To pursue its investment objectives, the Fund entered into a forward purchase agreement (the Forward Agreement ) with The Bank of Nova Scotia (the Counterparty ) pursuant to which the Counterparty has agreed to pay the economic return provided by a notional portfolio (the Notional Portfolio ) of units of the Moneda Fund. Substantially all of the value of the Notional Portfolio attributable to the Class A Units is hedged back to the Canadian dollar. The Class U units are designed for investors wishing to make their investment in U.S. dollars. As a result of the forgoing, the Net Asset Value of the Units will vary depending on the performance of the Moneda Fund by virtue of the Forward Agreement and will also vary depending on the expenses allocated to, and distributions paid in respect of, the particular class of Units of the Fund. The Fund partially pre-settles the Forward Agreement in order to fund: (i) quarterly distributions on the Units; (ii) redemptions of Units from time to time; and (iii) operating expenses and other liabilities of the Fund. The Forward Agreement provides the Fund leveraged exposure to the Moneda Fund in an amount up to 15% of the total assets of the Fund with a maximum leverage to net assets of 18%. As at June 30, 2015 the Fund had leveraged exposure of $3.6 million or 8.6% (December 31, 2014 $4.0 million or 9.7%) to the net assets of the Fund. The Class A Units of the Fund are listed for trading on the Toronto Stock Exchange under the symbol MLD.UN. The Class U Units are not listed on a stock exchange but may be converted into Class A Units on a weekly basis for liquidity purposes. 1

4 Tax Changes Affecting Forward Agreement Structures In the budget announced March 21, 2013, the Federal government proposed and enacted legislation to eliminate the tax benefits associated with forward agreements used by some investment funds to achieve capital gains treatment on income that would otherwise be treated as ordinary income. The government refers to these as character conversion transactions. Distributions from investment funds which enter into a forward agreement will now generally be taxed as income at the time of distribution as opposed to returns of capital which are not generally taxable at time of receipt and capital gains. This measure applies to forward agreements entered into on or after March 21, The less favorable tax treatment also applies to forward agreements entered into before March 21st if the terms of the agreement are extended or modified. This measure does not immediately affect the Fund as it entered into its forward agreement before March 21, 2013 and as such, the distributions will continue to be characterized primarily as returns of capital and capital gains until the Forward Agreement matures on October 31, Report from Portfolio Manager The Latin American high yield corporate debt market, as measured by the CEMBI Broad Latin High Yield Index (the Index ), rose 2.6% on a total return basis over the first half of The Moneda Fund outperformed posting a total return of 4.6% for the six months ended June 30, The Fund followed this performance posting a total return of 4.1% and 4.0% for the Class A and U Units, respectively. This performance can be explained by: (i) on the positive side, a good allocation at the country level, with long positions in Argentina and Mexico posting most of the gains followed by Brazil; and (ii) good selection at the sector level with most sectors making positive contributions to performance. Brazilian industrial bonds were the exception, with some bond issues making negative contributions. As of the end of June 2015, the largest country allocations were Brazil, Argentina, Mexico and the Dominican Republic, with those four countries representing more than 75% of the portfolio. The largest overweights versus the Index were Argentina, Dominican Republic and Paraguay whereas Brazil and Colombia represented the largest underweights. Market Outlook As we ended June 2015, the US and Europe economies have continued to expand bringing asset prices to new highs. Global interest rates have been volatile with the yield on 10 year US treasuries closing at 2.35%, up 18 basis points year-to-date but ranging within levels of 1.65% and 2.5% during the first half of the year. The strong growth in the US has led the market to expect that the US Fed will start raising interest rates before year-end, which has brought additional volatility to debt markets. Emerging market debt funds continued to experience marginally positive inflows in the first half of 2015 although most of these flows went into hard currency assets. This is in sharp contrast to local currency bond funds which continued to see large outflows albeit at a slower pace than in As we have said before, it is important to mention that dedicated institutional investors have continued to allocate money into hard currency emerging market bond funds and we believe Latin America has participated in this trend. 2

5 Latin American currencies have shown poor performances during 2015 with all major currencies depreciating year-to-date. The Brazilian real and Colombian peso have been hit harder although for different reasons. The Brazilian economy is struggling, going through a tough fiscal adjustment, which adds to the problems faced by the government that is suffering from low rates of approval caused primarily by the car wash corruption scandal and increasing unemployment. Colombia on the other hand is suffering from the fall in oil prices and from an economy that is still adjusting to a large rise in corporate taxes. Chile and Peru are suffering from the fall in mineral prices which have slowed investments in the mining sector but also from political noise in the case of Chile and lack of public investment execution in the case of Peru. As the downturn consolidates itself in Brazil, Peru and Chile, we believe there is a good chance that these countries economic policies will start moving from the left to the center. Mexico is an interesting case. Although the country should benefit from pro market reforms and the economic expansion in the US, which is attracting investment, the currency has depreciated in line with other Latin American currencies. Another important country for the Moneda Fund is Argentina which is approaching an election period that should bring change to years of high government intervention in the economy, although the chances of changes being implemented at a slow pace have been increasing as a candidate close to the current government has been gaining momentum. Overall, the Moneda Fund continues to invest in companies with solid business models and with capital structures that we believe to be appropriate for the economic times that most countries in the region are experiencing. Financial Performance The net assets attributable to Unitholders were $10.25 per Class A Unit and US$10.17 per Class U Unit as at June 30, 2015 as compared to $10.21 per Class A Unit and US$10.14 per Class U Unit as at December 31, 2014 representing increases of 0.4% and 0.3%, respectively, based on the positive performance of the Moneda Fund offset by the Fund s operating expenses including Forward Agreement fees and distributions paid on the Units. Distributions The Fund does not have fixed distributions but intends to pay quarterly distributions through partial pre-settlements of the Forward Agreement based on, among other things, the current yield of the portfolio of the Moneda Fund less the expected expenses of the Fund for the period. The Fund declared and paid cash distributions of $0.375 per Class A Unit and US$0.375 per Class U Unit for the six month period ended June 30, 2015 (2014 $0.375 per Class A Unit and US$0.375 per Class U Unit). It is expected that the quarterly distributions received by Unitholders will be characterized as return of capital. Amounts distributed on the Units that represent returns of capital are generally non-taxable to the Unitholder but reduce the Unitholder s adjusted cost base of the Units for tax purposes. 3

6 This report, along with the accompanying financial statements of the Fund, is respectfully submitted to you on behalf of the Board of Directors of MLCB Ltd., as general partner of MLCB Limited Partnership, Trustee for Moneda Latam Corporate Bond Fund. Toronto, Canada August 5, MAY Brian D. McChesney President and Chief Executive Officer 4

7 INTERIM CONDENSED STATEMENTS OF FINANCIAL POSITION (unaudited) As at June 30 December Assets Current assets Forward Agreement, at fair value (note 4) $ 41,149,740 $ 43,701,017 Unrealized gain on foreign exchange contracts (note 6) 1,422, ,873 Cash 16, ,030 42,588,223 44,103,920 Liabilities Current liabilities Distributions payable 754, ,994 Unrealized loss on foreign exchange contracts (note 6) 471,299 2,541,848 Accrued liabilities (note 8) 174, ,132 1,400,143 3,409,974 Net assets attributable to Unitholders $ 41,188,080 $ 40,693,946 Net assets attributable to Unitholders per class Class A $ 36,375,800 $ 36,209,572 Class U (in equivalent CAD$) $ 4,812,280 $ 4,484,374 Class U USD $ 3,855,135 $ 3,866,027 Number of Units outstanding (note 7) Class A 3,549,536 3,547,111 Class U 379, ,165 Net assets attributable to Unitholders per Unit Class A $ $ Class U (in equivalent CAD$) $ $ Class U USD $ $ See accompanying notes to the interim condensed financial statements. On behalf of the Board of Directors of MLCB Ltd. 6MAY Brian D. McChesney President and Chief Executive Officer 20APR D. Anthony Ross Chairman of the Board 5

8 INTERIM CONDENSED STATEMENTS OF COMPREHENSIVE INCOME For the six months ended June 30 (unaudited) Income Forward Agreement Realized gain on partial pre-settlements of Forward Agreement $ 3,272,485 $ 1,617,384 Unrealized appreciation on Forward Agreement 1,717,306 1,457,197 Forward Agreement fees (note 8) (91,066) (106,468) Net gain on Forward Agreement 4,898,725 2,968,113 Foreign exchange contracts Realized loss on foreign exchange contracts (6,094,651) (2,761,730) Unrealized gain on foreign exchange contracts 3,352,828 2,784,993 Net gain (loss) on foreign exchange contracts (2,741,823) 23,263 Foreign exchange gain (loss) on cash (1,070) 11,020 Total income, net 2,155,832 3,002,396 Expenses Management fee (note 8) 78, ,964 Directors fees 23,803 22,935 Audit fees 10,295 11,108 Insurance premiums 8,426 11,951 Unitholders information costs 7,915 15,075 Filing fees 5,520 9,372 Listing fees 4,781 5,752 Legal fees 4,589 5,157 Transfer agent fees 3,883 4,314 Independent Review Committee fees 3,719 3,719 Other (recovery) , ,190 Increase in net assets attributable to Unitholders 2,004,052 2,804,206 Increase in net assets attributable to Unitholders per class Class A 1,471,602 2,538,283 Class U 532, ,923 $ 2,004,052 $ 2,804,206 Increase in net assets attributable to Unitholders per Unit Class A $ 0.41 $ 0.60 Class U $ 1.40 $ 0.68 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 Increase in net assets attributable to Unitholders $ 2,004,052 $ 2,804,206 Adjustments for: Foreign exchange (gain) loss on cash 1,070 (11,020) Realized gain on partial pre-settlements of Forward Agreement (3,272,485) (1,617,384) Proceeds on partial pre-settlements of Forward Agreement 7,541,068 4,696,238 Unrealized appreciation on Forward Agreement (1,717,306) (1,457,197) Unrealized gain on foreign exchange contracts (3,352,828) (2,784,993) Accrued liabilities 54,378 64,149 Net cash flow provided by operating activities 1,257,949 1,693,999 Financing activities Distributions paid to Unitholders (1,503,578) (1,739,739) Net cash flow used in financing activities (1,503,578) (1,739,739) Foreign exchange gain (loss) on cash (1,070) 11,020 Net decrease in cash (245,629) (45,740) Cash, beginning of period 263,030 36,621 Cash, end of period $ 16,331 $ 1,901 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 Class A $ 36,209,572 $ 43,659,082 Class U 4,484,374 4,355,476 40,693,946 48,014,558 Increase in net assets attributable to Unitholders Class A 1,471,602 2,538,283 Class U 532, ,923 2,004,052 2,804,206 Unit transactions: Conversion of Units Class A 25,248 57,158 Class U (25,248) (57,158) Financing unit transactions: Distributions to Unitholders (return of capital) Class A (1,330,622) (1,579,083) Class U (179,296) (160,935) (1,509,918) (1,740,018) Net assets attributable to Unitholders, end of period Class A 36,375,800 44,675,440 Class U 4,812,280 4,403,306 $ 41,188,080 $ 49,078,746 See accompanying notes to the interim condensed financial statements. 8

11 NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS June 30, 2015 (unaudited) 1. GENERAL INFORMATION Moneda Latam Corporate Bond Fund (the Fund ) 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 October 26, 2011 (the Declaration of Trust ). The address of the Fund s registered office is 40 King Street West, Toronto, Ontario M5W 2X6. Pursuant to this Declaration of Trust, MLCB Limited Partnership acts as the trustee (the Trustee ) and is responsible for managing the affairs of the Fund. Scotia Managed Companies Administration Inc. ( SMCAI or the Manager ), a wholly-owned subsidiary of Scotia Capital Inc. which in turn is a wholly-owned subsidiary of the Bank of Nova Scotia, manages the administration of the Fund. The Fund provides holders of units (the Unitholders ) of Class A Units and Class U Units (collectively, the Units and each, a Unit ) with investment exposure, on a tax-advantaged basis, to a diversified portfolio of high yield fixed income securities of companies located in, or with significant operations in, Latin America, primarily denominated in U.S. dollars. The Fund s investment objectives are to: (i) preserve and enhance the net asset value (the Net Asset Value or NAV ) of the Fund; and (ii) provide Unitholders with quarterly tax-advantaged distributions consisting primarily of returns of capital, in each case through exposure by virtue of the Forward Agreement (defined below) to the total return performance of the Moneda Deuda Latinoamericana Fondo de Inversion (the Moneda Fund ), a Chilean listed investment fund which is actively managed by Moneda S.A. Administradora de Fondos de Inversion ( Moneda or the Portfolio Manager ). To pursue its investment objectives, the Fund entered into a forward purchase agreement (the Forward Agreement ) with The Bank of Nova Scotia (the Counterparty ) pursuant to which the Counterparty has agreed to pay the economic return provided by a notional portfolio (the Notional Portfolio ) of units of the Moneda Fund. The Forward Agreement is scheduled to terminate on October 31, In order to provide this return, the Counterparty purchased U.S. denominated redeemable units of the Moneda Fund. Substantially all of the value of the Notional Portfolio attributable to the Class A Units is hedged back to the Canadian dollar. The Class U Units are designed for investors wishing to make their investment in U.S. dollars. The Forward Agreement allows the Fund to leverage its exposure to the Moneda Fund. As a result of the forgoing, the Net Asset Value per Unit of each class of Units will vary depending on the performance of the Moneda Fund by virtue of the Forward Agreement and will also vary depending on the expenses allocated to, and distributions paid in respect of, the particular class of Units of the Fund. These financial statements were authorized for issuance by the Board of Directors of MLCB Ltd. as general partner of the Trustee on August 5,

12 2. BASIS OF PRESENTATION Statement of compliance These interim condensed financial statements have been prepared in compliance with International Financial Reporting Standards, 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 International Financial Reporting Standards ( IFRS ), as issued by the IASB, have been omitted or condensed. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 standards 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 Fund is in the process of assessing the impact of IFRS 9 and has not yet determined when it will adopt the new standard. 4. FORWARD AGREEMENT Pursuant to the Forward Agreement, the Counterparty will deliver, on the scheduled settlement date of the Forward Agreement, a specified portfolio of securities of Canadian public issuers with an aggregate value equal to the redemption proceeds that would be received by Unitholders on the redemption of the relevant number of units of the Moneda Fund comprising the Notional Portfolio net of any amount owing by the Fund to the Counterparty including any leveraged exposure. The Fund partially pre-settles the Forward Agreement in order to fund: (i) quarterly distributions on the Units; (ii) redemptions of Units from time to time; and (iii) operating expenses and other liabilities of the Fund. Settlement of the Forward Agreement is unconditionally guaranteed by The Bank of Nova Scotia, a company with a current credit rating of AA (December 31, 2014 AA) as rated by the Dominion Bond Rating Service ( DBRS ). The Fund is fully exposed to the credit risk associated with the Counterparty. To secure obligations of the Counterparty under the Forward Agreement, the Counterparty pledges collateral in favour of the Fund with an aggregate value equal to the exposure under the Forward Agreement with the amount of collateral re-set on a weekly basis. As at June 30, 2015, collateral of $40.6 million (December 31, 2014 collateral of $43.5 million) consisting of liquid securities listed on the Toronto Stock Exchange ( TSX ) with no more than 10% of the value in any one issuer was held in trust for the Fund. 10

13 The Forward Agreement provides the Fund leveraged exposure to the Moneda Fund in an amount up to 15% of the total assets of the Fund with a maximum leverage to net assets of 18%. Accordingly, the Fund has exposure to an additional number of units of the Moneda Fund with a cost of $3,554,939 (the Funded Amount ) (December 31, 2014 $3,952,755 or 8.6% of the net assets of the Fund (December %). A pro-rata portion of the Funded Amount is reduced on any unwinds that result in the reduction of the number of notional units referred to under the Forward Agreement. Such reduction will be treated as a deduction from the unwind amount. The Fund pays an incremental fee on the Funded Amount under the Forward Agreement which is calculated based on the quarterly London Inter-Bank Offered Rate (LIBOR) plus 135 bps, currently 1.62%. For the six months ended June 30, 2015, total fees on the Funded Amount of $30,015 (2014 $34,872) were deducted from cash held under the Forward Agreement in favour of the Counterparty. The ratio of the Funded Amount to net assets as of June 30, 2015 was 8.6% (December 31, %). The Manager will instruct the Counterparty to sell Moneda units comprising the Notional Portfolio, if at any time the Funded Amount exceeds 18% of the net assets of the Fund in order to reduce such percentage to no more than 18%. The assets and liabilities as reported by the Moneda Fund as at June 30, 2015 and December 31, 2014 are listed below for informational purposes: Moneda Fund (in USD) June 30 December Assets Bonds $ 1,106,381,356 $ 1,051,715,173 Cash 142,732, ,526,997 Equity securities 29,959,013 27,826,481 Other assets 8,982,697 5,701,152 1,288,055,582 1,231,769,803 Liabilities Margin loan 61,891, ,033,559 Bonds short 154,716, ,997,630 Other liabilities 8,845,424 1,874, ,452, ,905,854 Net assets for valuation purposes $ 1,062,603,451 $ 937,863,949 Outstanding units 9,858,693 9,097,411 Net asset value Unit $ $

14 The total fair value of the Fund s investment determined with reference to the Notional Portfolio of units of the Moneda Fund is as follows: Number of units attributable to the Fund 331, ,444 Aggregate value of units of the Moneda Fund comprising the Notional Porfolio $ 35,694,305 $ 40,869,927 Cash held 107, ,740 Funded Amount including interest (2,855,699) (3,419,624) Fair value of Forward Agreement (USD) $ 32,946,149 $ 37,670,043 Fair value of Forward Agreement (CAD) $ 41,149,740 $ 43,701,017 Concentration As at June 30, 2015 and December 31, 2014, the Moneda Fund investment portfolio s concentration can be summarized as follows: June 30 December Bonds Argentina 19.3% 20.7% Brazil 28.4% 28.2% Chile 4.7% 4.3% Colombia 3.4% 3.1% Dominican Republic 8.0% 9.1% El Salvador 0.4% 0.1% Guatemala 3.9% 4.4% Mexico 18.6% 22.9% Panama 0.6% 0.9% Paraguay 5.5% 6.4% Peru 7.7% 9.5% Paraguay 1.8% 0.0% Venezuela 0.3% 1.1% United States 0.0% 0.0% Other 1.5% 1.4% Short sales (14.6)% (16.0)% Equities Brazil 0.7% 0.9% Colombia 2.2% 2.0% Liabilities less other assets 7.6% 1.0% Total (% of Net Assets) 100.0% 100.0% 12

15 5. OFFSETTING FINANCIAL ASSETS AND FINANCIAL LIABILITIES Financial assets subject to offsetting, enforceable master netting arrangements and similar agreements: Gross Gross amounts of amounts of recognized Amounts recognized financial Net amounts not set-off financial liabilities of financial financial assets offset assets instruments Net amount June 30, 2015 Forward Agreement $ 41,149,740 $ $ 41,149,740 $ 41,149,740 Foreign exchange contracts 1,422,152 1,422, , ,853 December 31, 2014 Forward Agreement $ 43,701,017 $ $ 43,701,017 $ $ 43,701,017 Foreign exchange contracts 139, , ,873 The Counterparty has pledged collateral in respect of its obligations under the Forward Agreement as indicated in note 4. Financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements: Gross Gross amounts of amounts of recognized Amounts recognized financial Net amounts not set-off financial assets of financial financial liabilities offset liabilities instruments Net amount June 30, 2015 Foreign exchange contracts $ 471,299 $ $ 471,299 $ 471,299 $ December 31, 2014 Foreign exchange contracts $ 2,541,848 $ $ 2,541,848 $ 139,873 $ 2,401, FOREIGN EXCHANGE CONTRACTS The foreign exchange contracts have been entered into with The Bank of Nova Scotia whose current credit rating is AA as rated by DBRS. 13

16 As at June 30, 2015 Canadian Dollars US Dollars Delivery Contract Price Unrealized (Sold) Purchased (Sold) Purchased Date (USD/CAD) Gain (Loss) $ 38,018,970 $ (29,700,000) July 16, $ 916,539 (36,596,340) 29,700,000 July 16, ,613 1,422,152 34,296,165 (27,800,000) October 15, $ (471,299) As at December 31, 2014 Canadian Dollars US Dollars Delivery Contract Price Unrealized (Sold) Purchased (Sold) Purchased Date (USD/CAD) Gain (Loss) $ 42,539,040 $ (38,700,000) January 12, $ (2,364,920) (45,081,630) 38,700,000 January 12, (176,928) (2,541,848) 37,116,960 (31,800,000) April 15, $ 139, NET ASSETS ATTRIBUTABLE TO UNITHOLDERS The number of Units issued and outstanding as at June 30, 2015 and December 31, 2014 is summarized as follows: June 30 December Class A Balance, beginning of period/year 3,547,111 4,207,043 Units, retracted for cash (667,565) Units, converted from U Units 2,425 7,633 Balance, end of period/year 3,549,536 3,547,111 Class U Balance, beginning of period/year 381, ,165 Units, retracted for cash (7,000) Units, converted to A Units (2,000) (7,000) Balance, end of period/year 379, ,165 The weighted average number of units outstanding for the six month period ended June 30, 2015 are Class A 3,547,875 (2014 4,209,135) and Class U 380,535 ( ,264). The market value of the Class A Units on June 30, 2015 was $9.80 per Unit (December 31, 2014 $10.06) 14

17 8. RELATED PARTY INFORMATION For its services to the Fund which include the provision of key management personnel, SMCAI is entitled to receive a management fee equal to 0.40% per annum of the Net Asset Value. The total management fee paid or payable to SMCAI for the period ended June 30, 2015 was $78,006 (2014 $107,964). The ongoing management fee is calculated and accrued weekly and is payable quarterly in arrears. Under the Forward Agreement, the Fund pays to the Counterparty an additional purchase amount, calculated weekly and payable monthly in arrears, of up to 0.40% per annum of the notional amount of the Forward Agreement including the cost of providing collateral. The total fees paid or payable to The Bank of Nova Scotia relating to the Forward Agreement for the six month period ended June 30, 2015 was $91,066 (2014 $106,468). Fees charged on the Funded Amount totaled $30,015 for the six month period ended June 30, 2015 (2014 $34,872). At June 30, 2015, the Fund had accrued liabilities of $79,503 (December 31, 2014 $44,670) payable to SMCAI and SCI, and had cash on deposit with The Bank of Nova Scotia, of $16,331 (December 31, 2014 $262,306). 9. CAPITAL MANAGEMENT The Fund s capital is represented by net assets attributable to Unitholders. The Manager with oversight from the Trustee, is responsible for providing all administrative services required by the Fund, including the receipt of cash from partial unwinds of the Forward Agreement to fund operating expenses and the payment of distributions to the Unitholders. The Fund makes cash distributions funded from proceeds received from partial unwinds of the Forward Agreement after deduction of operating expenses of the Fund subject to maintaining a minimum level of cash on hand. The Manager will instruct the Counterparty to sell Moneda units comprising the Notional Portfolio, if at any time the Funded Amount exceeds 18% of the net assets of the Fund and reduce such percentage to no more than 18%. 10. FAIR VALUE OF FINANCIAL INSTRUMENTS The following table outlines the fair value hierarchy of the financial instruments as at June 30, 2015, and December 31, Level 1 Level 2 Level 3 Total As at June 30, 2015 Forward Agreement $ $ 41,149,740 $ $ 41,149,740 Foreign exchange contracts receivable 1,422,152 1,422,152 Foreign exchange contract payable (471,299) (471,299) As at December 31, 2014 Forward Agreement 43,701,017 43,701,017 Foreign exchange contract receivable 139, ,873 Foreign exchange contracts payable (2,541,848) (2,541,848) 15

18 All fair value measurements above are recurring. The carrying amounts of cash and all current liabilities approximate their fair value due to their short-term nature. 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 Fund 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. Forward Agreement The fair value is based on the Notional Portfolio, the difference between the contract rate and current market rates. The inputs that are significant to the valuation are observable and therefore the Forward Agreement has been classified as Level 2. Foreign exchange contracts The fair value is based 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 the 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 FINANCIAL INSTRUMENT RISK MANAGEMENT In the normal course of business, the Fund is exposed to a variety of financial risks: market risk (including price risk, interest rate risk and currency risk), credit risk and liquidity risk. The Manager seeks to reduce these risks by employing an experienced Portfolio Manager, who invests within the limits as outlined in the Fund s investment objectives and strategies. The Fund s overall risk management program focuses on compliance and execution of the Fund s investment objectives and strategies. The Manager meets at least quarterly with the Portfolio Manager to review operations and statistics, including performance and levels of risk. The risks associated with an investment in the Fund s Units are best defined in conjunction with financial risks associated with an investment in the units of the Moneda Fund comprising the Notional Portfolio. 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. By virtue of the Forward Agreement, the value of a Unit is dependent on the net asset value of the Moneda Fund, which varies principally because of fluctuations in the value of high yield fixed income securities of companies held by it. The value of the fixed income securities can fluctuate on a daily basis as a result of factors outside of the Moneda Fund s control, including financial performance of the issuers of the fixed income 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, 16

19 political risks, issues relating to government regulation and taxation, composition of the portfolio and other financial market conditions. The Portfolio Manager seeks to reduce this risk by following the Moneda Fund s investment strategy including active management and diversification of the Portfolio by country, industry sector, maturity and credit rating. In addition, the Portfolio Manager may, from time to time, hold a portion of the portfolio, in other credit securities in the public and private market in the form of promissory notes, loans and other debt securities. If the prices for the fixed income securities held by the Moneda Fund had increased or decreased by 5% as at June 30, 2015, with all other variables held constant, the Fund s net assets would have increased or decreased, respectively, by approximately $1.9 million or 5.4% of Class A Net Assets and $0.2 million or 5.6% of Class U Net Assets of which $0.2 million or 0.6% of Class A Net Assets and $0.02 million or 0.6% of Class U Net Assets is the result of leverage to which Unitholders are exposed through the Funded Amount (December 31, 2014 $2.1 million or 5.9% of Class A Net Assets and $0.2 million or 5.5% of Class U Net Assets of which $0.2 million or 0.6% of Class A Net Assets and $0.02 million or 0.6% of Class U Net Assets). 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, which will affect the future cash flows and the fair values of interest bearing financial instruments. By virtue of the Forward Agreement, the Fund s indirect exposure to interest rate risk is concentrated in its investments in fixed income securities held by the Moneda Fund. Short-term investments, and other assets and liabilities are short-term in nature and/or non-interest bearing and not subject to significant amounts of risk due to fluctuations in the prevailing levels of market interest rates. The table below summarizes the Fund s indirect exposure to interest rate risk as at June 30, 2015 and December 31, 2014, by duration of the bonds held by the Moneda Fund. The table also illustrates the potential impact to the Fund s net assets had the prevailing interest rates changed by 1% assuming a parallel shift in the yield curve, with all other variables held constant. The Moneda Fund s sensitivity to interest rate 17

20 changes was estimated using the weighted average duration of its portfolio. In practice, the actual results may differ materially from this sensitivity analysis. Total Exposure June 30 December Term to maturity Bonds held by the Moneda Fund 1 : Less than 1 year $ 208,416,426 $ 171,570, years 625,174, ,646, years 112,368,533 56,268,491 > 10 years 5,706,114 2,232,131 Total $ 951,665,306 $ 900,717,543 Impact on Net Assets (000 s) $ 83,767 $ 70,021 Impact on Net Assets (%) 0.25% 0.20% 1 including short positions By virtue of the Forward Agreement, the Fund is exposed to changes in the value of the Funded Amount which pays fees at a floating rate. If interest rates had increased or decreased by 1% at June 30, 2015, with all other variables remaining constant, net assets would have increased or decreased by approximately $31,273 or 0.1% of Class A Net Assets and $3,424 or 0.1% of Class U Net Assets (December 31, 2014 $35,435 or 0.1% of Class A Net Assets and $3,528 or 0.1% of Class U Net Assets) as a result of fees charged on the Funded Amount throughout the period. Currency Risk Currency risk arises from financial instruments that are denominated in a currency other than the Canadian dollar, which is the Fund s functional and presentation currency. By virtue of the Forward Agreement, the Fund may be exposed indirectly to fixed income securities denominated in U.S. dollars and other foreign currencies held by the Moneda Fund and is therefore indirectly exposed to currency risk due to changes in the foreign currency rates of those fixed income securities denominated in other currencies (indicated in note 4) in relation to the Canadian dollar. The Manager enters into foreign exchange contracts for hedging purposes to reduce its foreign currency exposure. No U.S. dollar hedging is done on the portion of the Fund attributable to Class U Units as they are denominated in U.S. dollars. The table below indicates the foreign currencies to which the Moneda Fund had exposure as at June 30, 2015 and December 31, 2014 in Canadian dollar terms. The table also illustrates the potential impact to the Fund s net assets as at June 30, 2015 and December 31, 2014 if the Fund s functional currency, the Canadian dollar, had strengthened or weakened by 5% in relation to U.S. dollars, with all other variables held constant. 18

21 In practice, the actual results may differ materially from this sensitivity analysis. Substantially all of the currency exposure detailed below is attributed to the Class A Unitholders. Total exposure* Impact on Net Assets June 30 December 31 June 30 December United States Dollar $ 2,853,962 $ 2,978,595 $ 142,698 $ 148,930 As a % of Net Assets 7.85% 6.82% 0.39% 0.34% * includes both monetary and non-monetary instruments * Notional Portfolio exposure to U.S. dollar has been hedged with US$27.8 million (December 31, 2014 US$31.8 million) notional foreign exchange contract 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 another party. Through the Forward Agreement, the Fund s main credit risk concentration is in fixed income securities held by the Moneda Fund with exposure to the risk that an issuer of fixed income securities will be unable to pay amounts in full when due. The Portfolio Manager reviews credit positions as part of its investment management process. The table below summarizes the debt securities held by the Moneda Fund as at June 30, 2015 and December 31, 2014 by credit ratings: % of Total Net Assets % of Total Bonds of the Moneda Fund June 30 December 31 June 30 December 31 Credit Rating* BBB 11.6% 7.0% 12.1% 7.8% BB 25.6% 25.9% 26.7% 29.0% B 21.9% 26.1% 22.8% 29.3% CCC 1.7% 10.1% 1.7% 11.4% CC 8.3% 1.4% 8.7% 1.5% D 21.2% 16.9% 22.0% 18.9% No rating 9.7% 12.7% 10.1% 14.2% Total 100.0% 100.0% 104.1% 112.1% * based on lowest available rating from one of Standard & Poors, Moody s or Finch ratings The Fund is fully exposed to the credit risk associated with the Counterparty. To secure obligations of the Counterparty under the Forward Agreement, the Counterparty pledges collateral in favour of the Fund with an aggregate value equal to 100% of the mark-to-market value of the exposure under the Forward Agreement with the amount of collateral re-set on a weekly basis. As at June 30, 2015, collateral (posted on June 30, 19

22 2015) with a fair value of $40.6 million equal to 98.6% (December 31, 2014 collateral of $43.5 million equal to 99.4%) of the Notional Portfolio consisting of liquid TSX-listed securities with no more than 10% of the value in any one issuer was held in trust for the Fund. In the event of a default by the Counterparty, the Fund will have the ability to enforce its security interest and take possession of the collateral. The credit risk from the use of counterparties for foreign exchange contracts is minimized by using counterparties with a minimum credit rating of A by Standard and Poors or an equivalent rating from another recognized credit rating agency and limiting the term of the forward contracts to a maximum of 120 days. The Fund maintains all of its cash and cash equivalents in bankers acceptances or term deposits with financial institutions having a minimum debt rating of A. All transactions in fixed income securities undertaken by the Moneda Fund 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 Moneda Fund has received payment. Payment is made on purchases once the securities have been received by the Moneda Fund. Should either party not meet its obligation, the trade will fail. Liquidity Risk Liquidity risk is defined as the risk that the Fund may not be able to settle or meet its obligations. By virtue of the Forward Agreement, the Fund invests its assets in fixed income securities that are traded in an active market and can be readily disposed of. There can be no assurance that an adequate market for the fixed income securities will exist at all times, or that the prices at which the fixed income securities trade, accurately reflect their net asset values. The Fund generally maintains cash, cash equivalents and receivable from sale of investments to offset all of its liabilities with the exception of the Fund s obligation for net assets attributable to Unitholders. As at June 30, 2015, the maturity of the Fund s financial liabilities based on the remaining period between the financial statement date and the contractual maturity date was $0.9 million (December 31, 2014 $0.9 million) due in 1 to 6 months. 20

23 NOTES Moneda Latam Corporate Bond Fund

24 CORPORATE INFORMATION Principal Office Scotia Plaza, 26th Floor 40 King Street West Station A, P.O. Box 4085 Toronto, Ontario M5W 2X6 Telephone: (416) Facsimile: (416) Web site: Trustee MLCB Limited Partnership Toronto, Ontario Directors and Officers Douglas L. Derry FCPA, FCA* Director Terry A. Jackson* Director Brian D. McChesney Director, President and Chief Executive Officer Principal Office Moneda S.A. Administradora de Fondos de Inversion Isidora Goyenechea Street, No. 3621, 8 th Floor Santiago, Chile Registrar & Transfer Agent Computershare Investor Services Inc. 100 University Avenue Toronto, Ontario M5J 2Y1 Legal Counsel Stikeman Elliot LLP Toronto, Ontario Auditor PricewaterhouseCoopers LLP Toronto, Ontario Symbol Class A Units MLD.U Robert Hall Director and Secretary Stephen D. Pearce CPA, CA Director and Chief Financial Officer D. Anthony Ross* Director * Audit Committee Member Independent Review Committee Douglas L. Derry FCPA, FCA Terry A. Jackson D. Anthony Ross

25 MONEDA LATAM CORPORATE BOND FUND 40 KING STREET WEST, SCOTIA PLAZA, 26TH FLOOR TORONTO, ONTARIO M5W 2X6