Financial Statements For the Year Ended
INDEPENDENT AUDITORS' REPORT To the Unitholders of We have audited the accompanying financial statements of, which comprise the statements of net assets and investments as at and the statements of operations and changes in net assets for the year then endedand for the period from June 19, 2011 to December 31, 2011 and a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian generally accepted accounting principles, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of the Davis-Rea Equity Pooled Fund as at, and its financial performance and its changes in net assets for the year then endedand for the period from June 19, 2011 to December 31, 2011 in accordance with Canadian generally accepted accounting principles. Licensed Public Accountants Chartered Accountants March 18, 2013 Toronto, Ontario 1
Statement of Operations Years ended December 31, 2012and for the period from June 19, 2011 to December 31, 2011 2012 2011 Income Dividend income $ 411,958 $ 31,951 Interest income 68,888 218 480,846 32,169 Expenses (Note 8) Alternative minimum tax (Note 7) 578 - Audit fees 21,486 10,000 Custodian fees 11,501 696 Other administrative expenses 34,665 12,611 Trustee fees 2,709 1,455 70,939 24,762 Net investment income 409,907 7,407 Realized and unrealized gain (loss) on investments and foreign currency and transaction costs Net realized gain on sale of investments 845,822 57,260 Net realized gain (loss) on foreign exchange (106,187) (6,271) Transaction costs (102,993) (5,787) Change in unrealized appreciation of investments 1,121,619 112,432 Net gain on investments 1,758,261 157,634 Increase in net assets from operations $ 2,168,168 $ 165,041 Increase in net assets from operations per class Class O $ 1,774,167 $ 114,279 Class N $ 394,000 $ 50,762 Class A $ 1 $ - Increase in net assets from operations per unit Class O $ 1.24 $ 0.71 Class N $ 0.97 $ 0.55 Class A $ - $ - Weighted average number of units outstanding Class O 1,434,627 160,672 Class N 404,611 92,215 Class A 1 1 See accompanying notes 3
Statement of Changes in Net Assets For the Year Ended December 31, 2012 and for the period from June 19, 2011 to December 31, 2011 Class O Class N Class A Total 2012 2011 2012 2011 2012 2011 2012 2011 Increase in net assets from operations $ 1,774,167 $ 114,279 $ 394,000 $ 50,762 $ 1 $ - $ 2,168,168 $ 165,041 Capital unit transactions Issue of units 20,261,457 3,506,630 5,485,320 1,293,510-10 25,746,777 4,800,150 Redemption of units (1,643,235) (22,333) (1,056,300) (43,250) - - (2,699,535) (65,583) Distribution reinvested 807,979 32,647 203,126 10,577 - - 1,011,105 43,224 19,426,201 3,516,944 4,632,146 1,260,837-10 24,058,347 4,777,791 Distributions to unitholders From net realized gain on investments (522,189) (32,647) (133,296) (10,577) - - (655,485) - From net investment income (285,790) - (69,831) - - - (355,621) (43,224) (807,979) (32,647) (203,127) (10,577) - - (1,011,106) 4,899,608 Increase in net assets for the period 20,392,389 3,598,576 4,823,019 1,301,022 1 10 25,215,409 4,899,608 Net assets, beginning of period 3,598,576-1,301,022-10 - 4,899,608 - Net assets, end of period $ 23,990,965 $ 3,598,576 $ 6,124,041 $ 1,301,022 $ 11 $ 10 $ 30,115,017 $ 4,899,608 See accompanying notes 4
Statement of Investments As at December 31, 2012 CANADIAN EQUITIES - 64.50% Number of Average* Fair Shares/Par Value Cost Value Consumer Services- 3.77% Astral Media Inc., Class A, Non-voting 24,605 $ 969,070 $ 1,136,751 Energy - 41.96% Altagas Ltd. 36,900 1,091,370 1,236,150 CanElson Drilling Inc. 292,900 1,357,832 1,411,778 Cenovus Energy Inc. 25,000 823,507 832,250 Crescent Point Energy Corp. 69,530 2,723,368 2,607,375 Enbridge Inc. 25,750 1,027,213 1,107,250 Imperial Oil Ltd. 1,600 68,582 68,368 Keyera Corp. 31,800 1,353,967 1,559,790 Raging River Exploration Inc. 367,240 978,769 1,178,840 Tourmaline Oil Corporation 84,615 2,534,894 2,634,065 11,959,502 12,635,866 Financial Services- 13.78% Bank of Nova Scotia 17,360 915,374 996,811 Brookfield Asset Management Inc., Class 'A' 10,000 301,450 363,600 H&R Real Estate Investment Trust 8,800 193,564 212,080 Morguard North American Residential REIT 127,550 1,458,650 1,428,560 Toronto-Dominion Bank 13,730 1,083,028 1,148,514 3,952,066 4,149,565 Materials- 2.27% Western Energy Services Corp. 98,400 709,556 684,864 Telecommunication Services- 2.72% BCE Inc. 19,215 758,914 818,559 TOTAL CANADIAN EQUITIES 18,349,108 19,425,605 CANADIAN BONDS Provincials- 5.28% Province of Ontario, 1.65%, Sept. 29, 2019 1,600,000 1,559,923 1,590,918 TOTAL CANADIAN BONDS 1,559,923 1,590,918 FOREIGN EQUITIES - 2.21% Oracle Corp. 20,100 560,722 666,852 TOTAL FOREIGN EQUITIES 560,722 666,852 TOTAL COST AND FAIR VALUE OF INVESTMENTS - 72.00% 20,469,753 21,683,375 TRANSACTION COSTS INCLUDED IN AVERAGE COST (20,429) TOTAL INVESTMENTS - 72.00% $20,449,324 21,683,375 OTHER ASSETS, NET OF LIABILITIES - 28.00% 8,431,642 NET ASSETS - 100.00% $30,115,017 *Cost includes transaction costs See accompanying notes 5
1. ESTABLISHMENT OF TRUST The ( the Fund ) is an open-ended unincorporated investment unit trust established under the laws of the Province of Ontario by a declaration of trust dated May 31, 2011. CIBC Mellon Trust Company is the trustee ("the Trustee") and the custodian ("the Custodian") of the Fund. Davis-Rea Ltd. is the manager of the Fund (the "Manager"). Issuance of Class A, F, N and O units commenced on June 19, 2011. Class A units are intended for accredited investors investing at least $150,000 in units of a class of the Fund. Class F units are intended for investors who participate in a fee based program through their dealer. Class N units can only be purchased by another fund. Class O units are designed exclusively for institutional and individual investors that have been approved by the manager. 2. SIGNIFICANT ACCOUNTING POLICIES These financial statements, prepared in accordance with Canadian generally accepted accounting principles ("GAAP"), include estimates and assumptions by management that affect the reported amounts of assets, liabilities, income and expenses at the date of the financial statements. A key area of estimation is the fair value of investments. Actual results may differ from these estimates. The following is a summary of the significant accounting policies followed by the Fund: (a) Valuation of Investments For financial reporting purposes, investments are valued at their fair value in accordance with Canadian Institute of Chartered Accountants ("CICA") Handbook Section 3855 ("Section 3855"). Investments held long 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 bid prices. Investments held, such as bonds, with no active market or available bid prices are valued at their closing sale prices. (b) Investment Transactions and Income Recognition The accrual method of recording income and expenses is followed by the Fund, with investment transactions accounted for on the trade date basis and dividend income recorded on the exdividend date. Gains and losses on the sale of investments are determined using an average cost basis. Distributions from income trusts are recognized on the ex-distribution date and are recorded as income, capital gains or return of capital, based on the best information available. Those treated as return of capital reduce the average costs of the underlying investment. Interest income is presented using the effective interest method in the Statement of Operations. The effective interest method is the rate that exactly discounts estimated future cash payments or receipts through the expected life of a financial instrument. (c) Distribution of Income Each participant's share of income, net of the Fund's expenses and net capital gain is distributed annually. 6
2. SIGNIFICANT ACCOUNTING POLICIES (Cont'd) (d) Income Taxes The Fund qualifies as a unit trust under the Income Tax Act (Canada), and accordingly, is not subject to income tax on the portion of its income, including net realized capital gains, that is distributed to unitholders other than alternative minimum tax. A unit trust may be subject to alternative minimum tax in certain circumstances. (e) Foreign Currency Translation Certain of the Fund's transactions are effected in foreign currencies. Investments denominated in foreign currencies are translated into Canadian dollars at the rate of exchange prevailing at yearend. Investment income and any gain or loss on disposal of investments are translated into Canadian dollars at the rate of exchange on the transaction date. (f) Commissions and Other Transaction Costs Commissions and other 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, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. Commissions and transaction costs are shown in the Statement of Operations. (g) Increase (Decrease) in Net Assets from Operations per Unit Increase (decrease) in net assets from operations per unit in the Statement of Operations represents the net increase (decrease) in net assets from operations for the year attributable to each series divided by the weighted average units outstanding during the year for each series. (h) Other Assets and Liabilities Cash and accrued dividends receivable are designated as loans and receivables and are recorded at amortized cost. Similarly, accounts payable and accrued liabilities are designated as other financial liabilities and are recorded at amortized cost. These balances are short-term in nature, therefore, amortized cost approximates fair value for these assets and liabilities. 3. TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS The Fund will be required to adopt International Financial Reporting Standards ( IFRS ) for the basis of preparing financial statements for the fiscal year beginning January 1, 2014. At the transition date the prior fiscal year financial statements will require restatement to IFRS for comparative purposes. Major differences identified include the mandatory inclusion of a statement of cash flows, consolidation of investee, the measurement basis of fair value, the classification and presentation of security holders equity, as well as more extensive note disclosure requirements. The transitional considerations described above and below are based on Canadian GAAP and IFRS that are in effect as of the date of these audited financial statements and should therefore not be considered an exhaustive summary of the significant accounting changes when the Fund adopts IFRS. 7
3. TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (Cont'd) The Fund will be required to present a Statement of Cash Flows in accordance with the requirement of IAS 1 Presentation of Financial Statements and prepared in accordance with IAS 7 Statement of Cash Flows. IFRS 13 Fair Value Measurement sets out the measurement and disclosure principles applicable for fair value measurements. If an asset or liability measured at fair value has a quoted bid and ask price, fair value must be determined based on a price within the bid-ask spread, whichever is most representative of fair value. The standard permits an investment fund to choose a policy of using bid, ask, mid-market pricing or other pricing conventions that are used by market participants. Thus this standard may impact the Net Assets per unit for financial statement reporting purposes compared to Net Asset Value per unit for transactional purposes. The Manager is currently assessing the Fund s fair value measurement policy choices to determine the impact on the Fund s Net Assets. The criteria contained within IAS 32 Financial Instruments Presentation may require security holders equity to be classified as a liability within the Fund s Statement of Net Assets, unless certain conditions are met. In circumstances where the conditions are met to reflect security holders equity as equity, the Fund will also be required to separately disclose retained earnings, other reserves and security holders paid up capital. The Manager is currently assessing the Fund s security holder structure to confirm classification. 4. COMPARISON OF NET ASSETS PER UNIT AND NET ASSET VALUE PER UNIT In accordance with the decision made by the Canadian securities regulatory authorities, a reconciliation between the Net Assets and the Net Asset Value of an investment fund is required for each financial reporting period presented. For investments that are traded in an active market where quoted prices are readily and regularly available, Section 3855 requires bid prices (for investments held) and ask prices (for investments sold short) to be used in the valuation of investments at fair value, rather than the use of closing prices currently used for the purpose of determining Net Asset Value. For investments that are not traded in an active market, Section 3855 requires the use of specific valuation techniques, rather than the use of valuation techniques by the virtue of general practice in the investment funds industry. These changes account for the difference between Net Assets and Net Asset Value. The impact of the requirements of Section 3855 as at December 31, 2012 is as follows: Total Per Unit Net Asset Section 3855 Net Asset Section 3855 Value Adjustment Net Assets Value Adjustment Net Assets Class O $24,038,130 $(47,165) $23,990,965 $10.84 $(0.02) $10.82 Class N 6,136,068 (12,027) 6,124,041 $10.85 (0.02) $10.83 Class A 11-11 $11.00 - $11.00 Total $30,174,210 $(59,193) $30,115,017 8
4. COMPARISON OF NET ASSETS PER UNIT AND NET ASSET VALUE PER UNIT (Cont'd) The impact of the requirements of Section 3855 as at December 31, 2011 is as follows: Total Per Unit Net Asset Section 3855 Net Asset Section 3855 Value Adjustment Net Assets Value Adjustment Net Assets Class O $3,601,110 $(2,534) $3,598,576 $10.28 $(0.01) $10.27 Class N 1,301,938 (916) 1,301,022 $10.29 - $10.29 Class A 10-10 $10.00 - $10.00 Total $4,903,058 $(3,450) $4,899,608 5. UNITS OUTSTANDING The capital of the Fund is represented by Class O, F, N and A issued redeemable units with no par value. Unitholders are entitled to distributions, if any, and to payment of a proportionate share of the net assets based on the Fund s Net Asset Value per unit upon redemption. The Fund has no restrictions or specific capital requirements on the subscription and redemption of units. Capital movements are shown on the Statement of Changes in Net Assets. In accordance with its investment strategies and risk management policies, the Fund endeavours to invest its subscriptions received in appropriate investments while maintaining sufficient liquidity to meet redemptions. The following table summarizes the changes in the number of units for the period ended December 31, 2012: Class O Number of Units Class N Number of Units Class A Number of Units Balance beginning of period 350,292 126,471 1 Units issued 1,949,952 523,702 - Units redeemed (158,590) (103,707) - Reinvestments 75,395 18,912 - Balance, end of period 2,217,049 565,378 1 The following table summarizes the changes in the number of units for the period ended December 31, 2011: Class O Number of Units Class N Number of Units Class A Number of Units Balance beginning of period - - - Units issued 349,292 129,692 1 Units redeemed (2,176) (4,248) - Reinvestments 3,176 1,027 - Balance, end of period 350,292 126,471 1 9
6. DISTRIBUTIONS PER UNIT Distributions may be made by the Fund of all or any part of its net income and net realized gains or as a return of capital to unitholders of record as of the close of business on or before the last valuation date in the year or at such other dates as determined by the Fund Manager, according to each unitholders' proportionate share of the Fund less any tax required to be deducted. The Manager intends to automatically reinvest such distributions of the Fund in additional units of the same class of the Fund on behalf of each unitholder. The Fund had the following distributions: 2012 2011 From net realized capital gain $ 655,485 $ 43,224 From net investment income $ 355,621 $ - 7. INCOME TAXES The Fund qualifies as a quasi-mutual fund under the Income Tax Act (Canada) and thus is not subject to income tax on its net taxable capital gains and its net investment income for the year if it allocates net capital gains and net investment income to unitholders. It is the intention of the Fund Manager to allocate the taxable income and realized gains of the Fund annually to unitholders so as to eliminate any income taxes otherwise payable by the Fund. The Fund may be subject to alternative minimum tax in a year in which it has a net investment loss for tax purposes as well as a net realized capital gain. This alternative minimum tax can be carried forward indefinitely to be applied against future taxes otherwise payable. The alternative minimum tax available for carry forward is $578 (2011 - $nil). 8. MANAGEMENT FEES AND OTHER EXPENSES AND RELATED PARTY TRANSACTIONS In accordance with a management agreement, the Manager is responsible for providing investment management administrative services and facilities to the Fund, including general portfolio management, maintenance of accounting records and preparation of reports to unitholders. The Management fee for Class A and Class F, is computed at 1.50% and 2.00% respectively, per annum of the net asset value of the Fund plus applicable taxes, is accrued monthly and payable quarterly to the Manager. Class O unitholders pay management fees directly to the Manager and no management fees are charged to Class N unitholders as these units can only be purchased by another fund. These transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. Custodial fees are payable to the Custodian, and are computed at a per annum rate of 0.07% on the first $10 million, 0.06% on the next $40 million, and 0.05% on the remaining average net asset value of the Fund. In addition, transaction fees are payable to the Custodian. Senior employees of the Fund Manager and their family members held a total of 27,780 units of the Fund at December 31, 2012 (2011-26,339). This represents 1.00% (2011-5.52%) of the issued and outstanding units of the Fund at this date. 10
9. ECONOMIC DEPENDENCE As at December 31, 2012, 20.30% of total net assets are held by one unitholder. 10. SOFT DOLLAR COMMISSIONS The brokerage commissions paid on securities transactions may include "soft dollar" amounts, such as the value of research and other services provided by the broker. Although the Manager uses best efforts to determine the soft dollar portion of commissions paid on portfolio transactions of the Fund, the soft dollar portion, in some instances, is not ascertainable. The Fund paid soft dollar amounts during the year ended December 31, 2012 of $14,331 (2011 - $1,901). 11. FINANCIAL INSTRUMENTS AND RISK DISCLOSURE The Fund is exposed to a variety of financial risks: credit risk, liquidity risk, and market risk (including other price risk, interest rate risk and currency risk), in the normal course of business. The value of investments held within the Fund will fluctuate on a daily basis as a result of changes in, economic conditions, market, and company specific news. The level of risk depends on the Fund s investment objectives and the type of securities in which it invests. The Fund s overall risk management program seeks to minimize the potentially adverse effect of risk on the Fund s financial performance in a manner consistent with the Fund s investment objectives. The risk management practices include monitoring compliance to investment guidelines. The Manager manages the potential effects of these financial risks on the Fund s performance by employing and overseeing professional and experienced portfolio advisors that regularly monitor the Fund s positions and market events, and diversifying investment portfolios within the constraints of the investment guidelines. (a) Credit Risk Credit risk is the risk that a security issuer or counterparty to a financial instrument will fail to honour its financial obligation or commitment that it has entered into with a fund. The Fund minimizes credit risk by maintaining its primary bank account at a reputable financial institution. All transactions in listed securities are settled for 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 obligation. A fund's source of credit risk is its investments in debt instruments. The fair value of debt instruments includes consideration of the credit worthiness of the issuer, and accordingly represents the maximum credit risk exposure of the Fund. The Fund's maximum exposure to credit risk in any one investment relates to The Province of Ontario in the amount of $1,590,918 which represents 5.28% of the net assets of the Fund (2011 - No debt instruments held). 11
11. FINANCIAL INSTRUMENTS AND RISK DISCLOSURE (Cont'd) (a) Credit Risk (cont'd) As at, the Fund invested in debt instruments with the following credit ratings: Debt securities by credit rating* 2012 2011 % of Net Assets % of Net Assets AAA 0.00 0.00 AA 5.28 0.00 A 0.00 0.00 BBB 0.00 0.00 Below BBB 0.00 0.00 Unrated 0.00 0.00 Total 5.28 0.00 *Extracted the blended composite debt securities ratings from Bloomberg, which is a blend of a security s Moody s, S&P, Fitch, and DBRS ratings. The rating agencies are evenly weighted when calculating the composite. It is calculated by taking the average of the existing ratings, rounded down to the lower rating in case the composite is between two ratings. A composite is not to be generated if the debt security is rated by only one of the four rating agencies. (b) Liquidity Risk Liquidity risk is the risk that a fund may not be able to settle or meet its obligation on time or at a reasonable price. The Fund is exposed to monthly cash redemptions of redeemable units. The units of the Fund are issued and redeemed on demand at the then current net asset value per unit at 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. In addition, the Fund aims to retain sufficient cash and cash equivalent positions to maintain liquidity for the purpose of funding redemptions. The Fund's financial liabilities are all due within one year, and the Fund has sufficient cash on hand to settle these in due course. (c) 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 a fund invests in interest-bearing financial instruments. The Fund is exposed to the risk that the value of such financial instruments will fluctuate due to changes in the prevailing levels of market interest rates. There is minimal sensitivity to interest rate fluctuations on any cash, invested at short-term market interest rates. 12
11. FINANCIAL INSTRUMENTS AND RISK DISCLOSURE (Cont'd) (c) Interest Rate Risk The table below summarizes the Fund's exposure to interest rate risks by remaining term to maturity as at December 31, 2012: Cash Investments Total Less than 1 year $ - $ - 1-3 years - - 3-5 years - - > 5 years 1,590,918 1,590,918 Total $ 1,590,918 $ 1,590,918 There were no investments held at December 31, 2011 that were subject to significant interest rate risk. As at December 31, 2012, had the prevailing interest rates raised or lowered by 1%, with all other variables held constant, net assets would have decreased or increased, respectively, by approximately $101,516 (2011 - $Nil). In practice, the actual results may differ from this sensitivity analysis and the difference could be material. (d) Market Risk Other Price Risk Other price risk is the risk that the market value or future cash flows of financial instruments will fluctuate due to changes in market conditions (other than those arising from interest rate risk or currency risk). All investments represent a risk of loss of capital. The maximum risk resulting from financial instruments is determined by the market value of the financial instruments. Financial instruments held by the Fund are susceptible to other price risk arising from uncertainties about future prices of the instruments. As at December 31, 2012, a 5% increase or decrease in stock prices would have increased or decreased the Fund's Net Assets by $1,004,622 (2011 - $161,405). In practice, the actual results may differ from this sensitivity analysis and the difference could be material. Currency Risk Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. Currency risk arises from financial instruments (including cash and cash equivalents) that are denominated in a currency other than Canadian dollars, which represents the Fund's functional currency. 13
11. FINANCIAL INSTRUMENTS AND RISK DISCLOSURE (Cont'd) (d) Market Risk (cont'd) Currency Risk(cont'd) The table below indicates the currencies to which the Fund had significant exposure as at December 31, 2012: Cash Investments Total US Dollar $ 8,352,762 $ 2,264,634 $10,617,396 The table below indicates the currencies to which the Fund had significant exposure as at December 31, 2011: Cash Investments Total US Dollar $ 272,955 $ 259,730 $ 532,685 As at December 31, 2012, had the Canadian dollar strengthened or weakened by 5% in relation to all currencies, with all other variables held constant, net assets would have decreased or increased, respectively, by approximately $530,870 (2011 - $26,634). In practice, the actual trading results may differ from this sensitivity analysis and the difference could be material. 12. FAIR VALUE DISCLOSURE Financial instruments recorded at fair value on the Statement of Net Assets are classified using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels: Level 1 - valuation based on quoted prices (unadjusted) observed in active markets for identical assets or liabilities. Level 2 - valuation techniques based on inputs that are quoted prices of similar instruments in active markets, inputs other than quoted prices used in a valuation model that are observable for that instrument, and inputs that are derived principally from or corroborated by observable market data by correlation or other means. Level 3 - valuation techniques with significant unobservable market inputs. Changes in valuation methods may result in transfers into or out of an investment's assigned level. 14
12. FAIR VALUE DISCLOSURE (Cont'd) The following fair value hierarchy table presents information about the Fund's investments measured at fair value on a recurring basis at December 31, 2012: Level 1 Level 2 Level 3 Total Canadian equities $19,425,605 $ - $ - $19,425,605 Foreign equities 666,852 - - 666,852 Canadian Bonds - 1,590,918-1,590,918 $20,092,457 $ 1,590,918 $ - $21,683,375 The following fair value hierarchy table presents information about the Fund's investments measured at fair value on a recurring basis at December 31, 2011: Level 1 Level 2 Level 3 Total Canadian equities $ 2,860,063 $ - $ - $ 2,860,063 Foreign equities 259,729 - - 259,729 Preferred shares 108,301 - - 108,301 $ 3,228,093 $ - $ - $ - There have been no transfers into or out of level 1 or level 2 during the year. 13. STATEMENT OF PORTFOLIO TRANSACTIONS A statement of portfolio transactions (unaudited) for the year ended December 31, 2012 will be provided without charge by writing to: Davis-Rea Ltd. Investment Management 79 Wellington Street West Suite 3535, P.O. Box 239 Toronto, Ontario M5K 1J3 14. SUBSEQUENT EVENT On December 19, 2012, the Fund issued a preliminary simplified prospectus for Class A, F and O units. Subsequent to year end, the Fund completed and filed the final simplified prospectus and formally changed its name to the Davis-Rea Equity Fund. 15