audited annual financial statements december 31, · pdf fileaudited annual financial...

Redwood Equity Growth Class

Audited Annual Financial Statements

December 31, 2014

PricewaterhouseCoopers LLP,PwC Tower, 18 York Street, Suite 2600, Toronto, Ontario, Canada M5 J 0B2T: +1 416 863 1133, F: +1 416 365 8215

“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.

March 31, 2015

Independent Auditor’s Report

To the Shareholders ofRedwood Equity Growth Class (the Fund)

We have audited the accompanying financial statements of the Fund, which comprise the statements offinancial position as at December 31, 2014, December 31, 2013 and January 1, 2013 and the statements ofcomprehensive income, changes in net assets attributable to holders of redeemable shares and cash flowsfor years ended December 31, 2014 and December 31, 2013, and the related notes, which comprise asummary of significant accounting policies and other explanatory information.

Management’s responsibility for the financial statementsManagement is responsible for the preparation and fair presentation of these financial statements inaccordance with International Financial Reporting Standards, and for such internal control asmanagement determines is necessary to enable the preparation of financial statements that are free frommaterial misstatement, whether due to fraud or error.

Auditor’s responsibilityOur responsibility is to express an opinion on these financial statements based on our audits. Weconducted our audits in accordance with Canadian generally accepted auditing standards. Those standardsrequire that we comply with ethical requirements and plan and perform the audit to obtain reasonableassurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures inthe financial statements. The procedures selected depend on the auditor’s judgment, including theassessment of the risks of material misstatement of the financial statements, whether due to fraud orerror. In making those risk assessments, the auditor considers internal control relevant to the entity’spreparation and fair presentation of the financial statements in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness ofthe entity’s internal control. An audit also includes evaluating the appropriateness of accounting policiesused and the reasonableness of accounting estimates made by management, as well as evaluating theoverall presentation of the financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide abasis for our audit opinion.

OpinionIn our opinion, the financial statements present fairly, in all material respects, the financial position of theFund as at December 31, 2014, December 31, 2013 and January 1, 2013 and its financial performance andits cash flows for the years ended December 31, 2014 and December 31, 2013 in accordance withInternational Financial Reporting Standards.

(Signed) PricewaterhouseCoopers LLP

Chartered Professional Accountants, Licensed Public Accountants

Toronto, Ontario


Statements of Financial Position

as at December 31, 2014, December 31, 2013 and January 1, 2013

Dec 31, 2014 Dec 31, 2013 Jan 1, 2013

$ $ $

Assets

Current Assets

Investments

Non-derivative financial assets 25,751,107 16,443,024 9,705,117

Cash 2,043,729 904,735 4,070,634

Receivable for investments sold 832,805 - 487,350

Subscriptions receivable - 8,145 -

Interest and dividends receivable 7,947 8,891 13,891

Other receivables 16,000 82,282 17,795

Derivative Assets 321,234 106,074 43,116

28,972,822 17,553,151 14,337,903

Liabilities

Current Liabilities

Payable for investments purchased 710,993 - 7,566

Redemptions payable 28,085 - -

Management fees payable 56,823 35,894 30,320

Performance fees payable 471,164 196,117 -

Accrued expenses 8,199 17,601 18,157

Distributions payable to unitholders - 191,834 441,671

1,275,264 441,446 497,714

Net assets attributable to holders of redeemable shares 27,697,558 17,111,705 13,840,189

Net assets attributable to holders of redeemable shares by series

Series A 20,076,115 12,236,798 10,160,319

Series F 7,621,443 4,874,907 3,679,870

27,697,558 17,111,705 13,840,189

Net assets attributable to holders of redeemable units per shares (Note 8)

Series A 16.73 14.02 10.44

Series F 17.63 14.63 10.82

Approved by the Board of Directors of Ark Mutual Funds Ltd., the issuer of the Fund:

"Peter Shippen" "Nick Tintor"

Director (signed) Director (signed)

The accompanying notes are an integral part of the financial statements.


Statements of Comprehensive Income

for the years ended December 31, 2014 and 2013 (Note 1)

Dec 31, 2014 Dec 31, 2013

$ $

Income

Net gains on investments (Note 7)

Dividends 144,869 179,034

Interest for distribution purposes 26,365 4,851

Net realized gain on sale of investments and derivatives 6,801,265 2,163,768

Net change in unrealized depreciation of investments and derivatives (1,128,245) 3,105,049

5,844,254 5,452,702

Security Lending Income 18,216 -

Foreign exchange loss on cash 2,847 (8,777)

Total income (net) 5,865,317 5,443,925

Expenses (Note 9)

Management fees 552,493 353,902

Valuation and administrative fees 95,995 117,977

Performance fees 471,164 196,117

Transaction costs 321,099 157,180

Audit fees 20,293 20,488

Custodial fees 28,249 22,630

Withholding taxes (96) 91

Regulatory fees 29,937 9,557

Legal fees 1,895 8,813

Independent review committee fees 1,522 1,454

Total expenses 1,522,551 888,209

Expenses waived/absorbed by the Manager (702) (85,806)

Net expenses 1,521,849 802,403

Increase in net assets attributable to holders of redeemable shares 4,343,468 4,641,522

Inccrease in net assets attributable to holders of redeemable shares by series

Series A 3,084,244 3,324,614

Series F 1,259,224 1,316,908

Increase in net assets attributable to holders of redeemable shares per share

Series A 2.86 3.69

Series F 3.13 3.88



Statement of changes in net assets attributable to holders of redeemable shares


Dec 31, 2014 Dec 31, 2013

$ $

Net assets attributable to holders of redeemable shares at beginning of year 17,111,705 13,840,189


Distributions Paid or Payable to holders of redeemable units

From net investment income (122,528) (183,964)

Return of capital (279,645) (7,865)

Total distributions to holders of redeemable shares (402,173) (191,829)

Redeemable share transcations

Proceeds from redeemable shares issued 9,668,098 1,136,353

Reinvestments of distributions to holders of redeemable shares 583,627 440,352

Redemption of redeemable shares (3,607,167) (2,754,882)

Net increase (decrease) from redeemable shares transactions 6,644,558 (1,178,177)

Net increase in net assets attributable to holders of redeemable shares 10,585,853 3,271,516

Net assets attributable to holders of redeemable shares at end of year 27,697,558 17,111,705

Series A Dec 31, 2014 Dec 31, 2013

$ $



Distributions Paid or Payable to holders of redeemable shares



Total distributions to holders of redeemable shares (288,824) (138,820)

Redeemable share transcations

Proceeds from redeemable shares issued 7,355,358 946,845

Reinvestments of distributions to holders of redeemable shares 419,841 325,272

Redemption of redeemable shares (2,731,302) (2,381,432)

Net increase (decrease) from redeemable shares transactions 5,043,897 (1,109,315)

Net increase in net assets attributable to holders of redeemable shares 7,839,317 2,076,479

Net assets attributable to holders of redeemable shares at end of year 20,076,115 12,236,798

Series F Dec 31, 2014 Dec 31, 2013

$ $



Distributions Paid or Payable to holders of redeemable shares




Statement of changes in net assets attributable to holders of redeemable shares (continued)


Dec 31, 2014 Dec 31, 2013

$ $


Total distributions to holders of redeemable units (113,349) (53,009)

Redeemable unit transcations

Proceeds from redeemable units issued 2,312,740 189,508

Reinvestments of distributions to holders of redeemable units 163,786 115,080

Redemption of redeemable units (875,865) (373,450)

Net increase (decrease) from redeemable unit transactions 1,600,661 (68,862)

Net increase in net assets attributable to holders of redeemable units 2,746,536 1,195,037

Net assets attributable to holders of redeemable units at end of year 7,621,443 4,874,907



Statements of Cash Flows


Dec 31, 2014 Dec 31, 2013

$ $

Cash flows from operating activities

Increase (decrease) in net assets attributable to holders of redeemable units 4,343,468 4,641,522

Adjustments for:

Foreign exchange (gain) loss on cash (2,847) 8,777

Net realized (gain) loss on sale of investments and derivatives (6,801,265) (2,163,768)

Net change in unrealized depreciation of investments and derivatives 1,128,245 (3,105,049)

Commissions and other portfolio transaction costs 321,099 157,180

Accrued liabilities 833,818 (56,268)

Proceeds from sale and maturity of investments 77,334,376 42,730,495

Net investments purchased (81,505,698) (44,419,723)

Interest, dividends receivable and other assets (757,434) 419,718

Net cash from operating activities (5,106,238) (1,787,116)

Cash flows used in financing activities

Proceeds from redeemable units issued 9,668,098 1,136,353

Redemption of redeemable units (3,607,167) (2,754,882)

Distributions paid to holders of redeemable units, net of reinvested distributions 181,454 248,523

Net cash used in financing activities 6,242,385 (1,370,006)

Foreign exchange (gain) loss on cash 2,847 (8,777)

Increase in cash 1,136,147 (3,157,122)

Cash at beginning of period 904,735 4,070,634

Cash at end of period 2,043,729 904,735

Cash activities included in operating activies:

Interest received* 26,107 4,261

Dividends received, net of withholding taxes* 146,167 184,533

*included in operating activities

The accompanying notes are an integral part of these financial statements.


Schedule of Investment Portfolio

as at December 31, 2014

Shares, Units

Warrants Fair

Security or Par Value Cost value

$ $

Fixed Income (0.9%)

Canadian Bonds (0.9%)

Loyalist Group Limited 7.50%, November 30, 2018 250,000 250,000 250,000

Canadian Equities (93.2%)

Energy (4.7%)

Bankers Petroleum Ltd. 100,000 328,000 326,000

Elkwater Resources Ltd. 1,788,400 364,845 241,434

Elkwater Resources Ltd. Warrants 250,000 - 16,325

Petrowest Corp. Class A 996,800 1,041,414 707,728

1,734,259 1,291,487

Materials (2.6%)

Dalradian Resources Inc. Warrants 24,150 - 2,287

Intertape Polymer Group Inc. 38,700 712,029 720,207

Western Lithium USA Corp. Warrants 36,650 - 7,935

712,029 730,429

Industrials (6.5%)

Air Canada 58,400 577,323 693,208

Badger Daylighting Ltd. 23,400 744,983 618,930

Dirtt Environmental Soluntions Ltd. 134,900 454,308 485,640

1,776,614 1,797,778

Consumer Discretionary (7.7%)

Alimentation Couche-Tard Inc. 15,200 575,006 740,088

Dollarama Inc. 13,300 665,911 790,020

Easyhome Ltd. 29,600 482,585 593,776

1,723,502 2,123,884

Health Care (23.4%)

Aphria Inc. 154,600 170,060 162,330

Aphria Inc. Warrants 154,600 - 156,656

CRH Medical Corp. 272,200 477,773 533,512

Cipher Pharmaceuticals Inc. 50,300 703,286 842,525

Concordia Healthcare Corp. 22,600 425,024 1,056,550

Knight Therapeutics Inc. 16,300 110,025 112,796

Mettrum Health Corp. 58,500 146,250 145,665

Mettrum Health Corp. Warrants 58,500 - 5,850

Nobilis Health Corp. 224,300 466,708 785,050

OrganiGram Holdings Inc. 482,300 377,105 303,849

OrganiGram Holdings Inc. Warrants 219,000 - 119,333

Patient Home Monitoring Corp. 1,717,150 686,572 1,493,921

ProMetic Life Sciences Inc. 287,400 454,927 548,934

Revive Therapeutics Ltd. 364,500 213,592 205,943

Tribute Pharmaceuticals Canada Inc. Warrants 180,450 - 12,848

4,231,323 6,485,761

Financials (18.6%)

Callidus Capital Corporation 29,400 515,382 514,500

Decisive Dividend Corporation 30,000 30,000 19,500

Intact Financial Corporation 8,700 654,711 729,495

SLYCE Inc. 1,320,700 890,457 1,175,423

Terra Firma Capital Corp. 1,359,000 858,610 937,710

The Intertain Group Ltd. 63,100 815,861 833,551

Vogogo Inc. 357,300 789,732 943,272

4,554,753 5,153,451


Redwood Equity Growth Class Fund

Schedule of investments portfolio (continued)

as at December 31, 2014

Shares, Units

Warrants Fair

Security or Par Value Cost value

$ $

Information Technology (17.9%)

Amaya Inc. 24,200 787,221 690,910

CGI Group Inc. Class A 9,711 404,239 430,100

Constellation Software Inc. 2,500 722,899 863,600

DH Corp. 19,600 712,656 718,732

GuestLogix Inc. 798,700 757,727 630,973

Sensio Technologies Inc. 1,759,400 317,111 334,286

Sprylogics International Corp. 1,509,900 676,376 656,806

ThermoCeramix Corp. 962,000 1,038,038 625,300

5,416,267 4,950,707

Telecommunication Services (6.1%)

Frankly Inc. 276,600 843,630 843,630

Sierra Wireless Inc. 15,248 623,003 841,690

1,466,633 1,685,320

Utilities (5.8%)

Northern Power Systems Corp. 179,700 723,306 610,980

Pine Cliff Energy Ltd. 590,800 1,099,731 992,544

1,823,037 1,603,524

Total Canadian equities 23,438,417 25,822,341

Total investments Portfolio (94.1%) 23,688,417 26,072,341

Cash (7.4%) 2,043,729

Other assets less other liabilities (-1.5%) (418,512)

Net assets (100.0%) 27,697,558



Notes to Financial Statements

December 31, 2014

1. Reporting entity

Redwood Equity Growth Class (the “Fund”) is part of Ark Mutual Funds Ltd. (the “Corporation”) which was

incorporated on November 1, 2007 under the Business Corporation Act (Ontario). The Corporation for legal

entity and tax purposes comprises Redwood Pension Class, Trapeze Value Class, Redwood Income Growth

Class, Redwood Unconstrained Bond Class, Redwood Global Equity Strategy Class, Redwood Global Macro

Class and Redwood Global Innovations Class and the Fund.

Each Corporate Class is a class of shares of the Corporation. These financial statements only present the financial

information of each of the Corporate Classes, as its own reporting entity. Since the Corporation as a whole is

liable for the expenses and obligation of all classes, there exists the possibility that if a Corporate Class cannot

satisfy its own obligations, such obligations may be satisfied using assets attributable to other Corporate Classes

within the Corporation. The Manager, however, believes that the risk of cross-class liability is remote and is

diligent to minimize such liability.

The custodian of the Fund is CIBC Mellon (“Custodian”). Redwood Asset Management Inc. (the “Manager”) is

the manager of the Fund. The Manager is incorporated under the laws of the province of Ontario and is registered

with the Ontario Securities Commission as an Investment Fund Manager, Portfolio Manager and an Exempt

Market Dealer. The address of the Fund’s registered office is 120 Adelaide St W, Suite 2400, Toronto, Ontario

M5H 1T1.

The objective of the Fund is to outperform the broad Canadian equity market as measured by the S&P/TSX

Composite Index, over a time period longer than 5 years, providing long-term capital appreciation and value by

investing primarily in equities of Canadian issuers.

These financial statements were authorized for issue by Redwood Asset Management Inc. (the Manager) on

March 31, 2015.

Units and shares, unitholders and shareholders are used interchangeably in the notes to financial

statements.

2. Basis of presentation and adoption of IFRS

These financial statements have been prepared in compliance with International Financial Reporting Standards

(IFRS) as issued by the International Accounting Standards Board. The Fund adopted this basis of accounting in

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

as defined in Part V of the CPA Canada Handbook ("Canadian GAAP").

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. Note 12 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.

3. Significant accounting policies

The accounting policies set out below have been applied consistently to all periods presented in these financial

statements.

Financial Instruments

The Fund recognizes financial instruments at fair value upon initial recognition, plus transaction costs in the case

of financial instruments measured at amortized cost. Investments have been designated at fair value through

profit or loss (FVTPL) and the fund’s derivatives and securities sold short are held for trading and also carried at



December 31, 2014

FVTPL. The Fund’s obligation for net assets attributable to holders of redeemable units is presented at the

redemption amount. All other financial assets and liabilities are measured at amortized cost.

Offsetting

Financial assets and liabilities are offset and the net amount presented in the statement of financial

position when there is a legally enforceable right to offset the recognized amounts and there is an

intention to settle on a net basis, or to realize the asset and settle the liability simultaneously.

Fair value measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly

transaction between market participants on the measurement date. The fair value of financial assets and liabilities

traded in active markets (such as publicly traded derivatives and marketable securities) are based on quoted

market prices at the close of trading on the reporting date. The Fund uses the last traded market price for both

financial assets and financial liabilities where the last traded price falls within the bid-ask spread. In

circumstances where the last traded price is not within the bid-ask spread, the Manager will review and apply a

price within the bid-ask spread that is most representative of fair value based on the specific facts and

circumstances. The Fund’s policy is to recognize transfers into and out of the fair value hierarchy levels as of the

date of the event of change in circumstances that gave rise to the transfer.

Investments held that are not traded in an active market are valued based on the results of valuation techniques.

The Fund uses a variety of methods and makes assumptions that are based on market conditions existing at each

reporting date. Valuation techniques include the use of comparable recent arm’s length transactions, reference to

other instruments that are substantially the same, discounted cash flow analysis, option pricing models and others

commonly used by market participants and which make the maximum use of observable inputs. Investments in

other funds are valued at the net asset value per unit reported by each fund.

Impairment of financial assets

At each reporting date the Fund assesses whether there is objective evidence that financial assets at amortized

cost are 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.

Investment income

Regular way purchases and sales of financial assets are recognized at their trade date. The interest for distribution

purposes shown on the statements of comprehensive income represents the coupon interest received by the Fund

accounted for on an accrual basis. The Fund does not amortize premiums paid or discounts received on the

purchase of fixed income securities except for zero coupon bonds which are amortized on a straight line basis.

Dividend income is recognized on the ex-dividend date. Realized and unrealized 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 statement of comprehensive income.



December 31, 2014

Forward foreign exchange contracts

Forward foreign exchange contracts, if purchased or sold, are valued at the current market value thereof on the

valuation date. The value of these forward contracts is the gain or loss that would be realized if, on the valuation

date, if the positions were to be closed out using market conditions and recorded as an unrealized appreciation

(depreciation) on forward contracts in the statements of financial position. When the forward contracts are

closed out or expire, realized gains or losses on forward contracts are recognized and are included in the

statements of comprehensive income. The Canadian dollar (CAD) value of forward foreign exchange contracts is

determined using forward currency exchange rates supplied by an independent service provider.

Option contracts

Options are valued at their close price as reported by the principal exchange or over the counter market on which

the contract is traded. Any difference resulting from revaluation at the reporting date is treated as net change in

unrealized appreciation (depreciation).

Premiums paid for purchased call and put options are included in options purchased in the Statements of

Financial Position. When a purchased option expires, the Fund will realize a loss in the amount of the cost of the

option. For the closing transaction of the purchased put options, the Fund will realize a gain or loss depending on

whether the proceeds are greater or less than the premium paid at the time of purchase. When a purchased call

option is exercised, the cost of security purchased is increased by the premium paid at the time of purchase.

Premiums received from writing options are included as a liability for written options in the Statements of

Financial Position. When a written option expires unexercised, premiums received from writing options are

recorded as income on the Statements of Comprehensive Income. When a written call option is exercised, the

Fund will record a realized loss if the cost of closing the transaction exceeds the premium received;

the Fund will record a realized gain if the premium received is greater than the amount paid for closing the

transaction. When a written put is exercised, the cost of the security purchased is reduced by the premiums

received at the time the option was written.

Futures contracts

The fair value of a futures contract fluctuates daily. Changes in the initial settlement value of futures contracts

are accounted for as changes in unrealized appreciation (depreciation) in the Statements of Comprehensive

Income until the contracts are closed, at which time the gains (losses) are realized and reflected in the Statements

of Comprehensive Income and recorded as realized gain (loss) on sale of investments. There is a risk that the

counterparty will not meet the terms of its contract and so the appreciation (depreciation), (as shown in the

Statement of Financial Position), may not be realized and may not be paid to the Fund.

Warrants

Unlisted warrants are valued using the Black Scholes option valuation model. The model factors in the time

value of money and the volatility.

Foreign currency Translation

The Fund’s subscriptions and redemptions are denominated in CAD, which is also its functional and presentation

currency. Foreign currency transactions are translated into the functional currency using the exchange rate

prevailing on the trade date. Foreign currency assets and liabilities denominated in a foreign currency are

translated into the functional currency using the exchange rate prevailing at the measurement date. Foreign

exchange gains and losses relating to cash are presented as “Foreign exchange gain (loss) on cash” and those

relating to other financial assets and liabilities are represented within “Net realized gain on sale of investments”

if realized and “Change in net unrealized appreciation (depreciation)” if unrealized in the Statement of

Comprehensive Income.



December 31, 2014

Cash

Cash is comprised of demand deposits with financial institutions.

Increase (decrease) in net assets attributable to holders of redeemable units per unit

Increase (decrease) in net assets attributable to holders of redeemable units per unit in the statements of

comprehensive income is calculated by dividing the increase (decrease) in net assets attributable to holders of

redeemable units of the series by the weighted average number of units of the series outstanding during the

period.

Net asset value attributable to holders of redeemable units per unit

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.

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.

Income taxes

The Fund is established as a class of shares of the Corporation. The Corporation will pay sufficient capital gains

dividends and ordinary dividends so that, generally, the tax paid by the Corporation with respect to realized

capital gains and dividends from taxable Canadian corporations will be refunded to the Corporation. The

Corporation will be liable to pay tax at corporate rates applicable to mutual fund corporations on income from

other sources such as interest, derivative income and foreign source income. The Corporation will aim to

eliminate this tax liability by using deductible expenses and tax credits. If the Corporation is not successful in

eliminating its tax liability, the Corporation will be subject to tax. Occasionally, more income is distributed than

earned by the Fund. This distribution is deemed a return of capital and is not taxable to the unitholder.

The Fund incurs withholding taxes imposed by certain countries on investment income and capital gains. Such

income and gains are recorded on a gross basis and the related withholding taxes are shown separately in the

Statements of Comprehensive Income.

Standards issued but not yet effective

The final version of IFRS 9, Financial instruments, was issued by the IASB in July 2014 and will replace IAS 39

Financial Instruments: Recognition and Measurement. IFRS 9 introduces a model for classification and

measurement, a single, forward-looking ‘expected loss’ impairment model and a substantially reformed approach

to hedge accounting. The new single, principle based approach for determining the classification of financial

assets is driven by cash flow characteristics and the business model in which an asset is held. The new model

also results in a single impairment model being applied to all financial instruments, which will require more

timely recognition of expected credit losses. It also includes changes in respect of own credit risk in measuring

liabilities elected to be measured at fair value, so that gains caused by the deterioration of an entity’s own credit

risk on such liabilities are no longer recognised in profit or loss. IFRS 9 is effective for annual periods beginning

on or after January 1, 2018, however is available for early adoption. In addition, the own credit changes can be

early applied in isolation without otherwise changing the accounting for financial instruments. The Fund is in the

process of assessing the impact of IFRS 9 and has not yet determined when it will adopt the new standard.



December 31, 2014

4. Critical accounting estimates and judgments

The preparation of financial requires management to use judgement in applying its accounting policies and to

make estimates and assumptions about the future. The following discussing the most significant accounting

judgements and estimates that the Fund has made in preparing the financial statements:

Classification of Redeemable Units Issued by the Fund

The Fund’s shares are classes in Ark Mutual Funds Ltd., a mutual fund corporation. The classes will not

participate pro rata in the residual net assets of the mutual fund corporation and they do not have identical

features. Consequently, the Fund’s outstanding redeemable shares are classified as financial liabilities in

accordance with the requirements of International Accounting Standard 32 Financial Instruments: Presentation.

Fair value measurement of derivatives and securities not quoted in an active market

The Fund holds financial instruments that are not quoted in active markets, including derivatives. Fair values of

such instruments are determined using valuation techniques and may be determined using reputable pricing

sources. Broker 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. The models used for private equity securities are based mainly on earnings multiples adjusted for a

lack of marketability as appropriate.

Models use observable data, to the extent practicable. However, areas such as credit risk, 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 Notes 6for more information on the

fair value measurement of the Fund’s financial instruments.

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 certain investments

are held-for-trading and that the fair value potion can be applied to those which are not.

Functional and presentation currency (CAD)

The Fund offers CAD series exclusively, with the subscriptions and redemptions of the redeemable shares

denominated in Canadian dollars. The primary activity of the Fund is to invest in Canadian Dollar securities. The

performance of the Funds is measured and reported to the investors in Canadian dollars. The Manager considers

the Canadian dollar the currency that most faithfully represents the economic effects of the underlying

transactions, events and conditions. The financial statements are presented in Canadian dollars, which is the

Funds’ functional and presentation currency.



December 31, 2014

Investments in associates, joint ventures and subsidiaries

IFRS 10 requires “investment entities” (as defined therein) to account for investments in subsidiaries at FVTPL,

rather than consolidating them. Redwood has determined that the Fund meets the definition of an “investment

entity,” and as a result, measures subsidiaries at FVTPL. An investment entity is an entity that obtains funds from

one or more investors for the purpose of providing them with investment management services, commits to its

investors that its business purpose is to invest funds solely for returns from capital appreciation, investment

income, or both, and measures and evaluates the performance of substantially all of its investments on a fair

value basis. The most significant judgment that the Fund has made in determining that it meets this definition is

that fair value is used as the primary measurement attribute to measure and evaluate the performance of

substantially all of their investments.

5. Financial instruments risk

Risk factors

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. The Fund’s overall risk management program seeks

to maximize the returns derived for the level of risk to which the Fund is exposed and seeks to minimize

potential adverse effects on the Fund’s financial performance. All investments result in a risk of capital. These

risks and related risk management practices employed by the Fund are discussed below:

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 also invests 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 analysis below

summarizes the credit quality of the Fund’s debt portfolio at December 31, 2014, December 31, 2013 and January 1,

2013.

Credit rating Percentage of total debt securities

December 31, 2014 December 31, 2013 January 1, 2013

AAA 0.0% 0.0% 0.0%

AA 0.0% 0.0% 0.0%

A 0.0% 0.0% 0.0%

BBB 0.0% 0.0% 0.0%

Other 100.0% 100.0% 100.0%

Total 100.0% 100.0% 100.0%

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.

The Fund also engages in securities lending transactions. The credit risk related to securities lending transactions is

limited by the fact that the value of cash of securities held as collateral by the Fund in connection with these

transactions is at least 102 percent of the fair value of the securities loaned. The collateral is of high quality and only

the following forms are acceptable; Federal, Provincial and Sovereign Debt that is issued by Canada, the United

States of America, the government of a sovereign state of G7 countries or a permitted supranational agency of



December 31, 2014

OECD countries, Bankers Acceptances or Bankers Bearer Deposits Notes, Irrevocable Letters of Credit, Corporate

Debt or Corporate Commercial Paper, Convertible Securities and Cash. The collateral and loaned securities are

marked to market on each business day. As at December 31, 2014, the aggregate dollar value of portfolio securities

lent and collateral held under securities transactions were $2,212,807 and $2,257,063 respectively, (December 31,

2013: nil; January 1, 2013: nil).

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 shares. The shares of the Fund are redeemed on

demand at the current net asset value per unit at the option of the shareholder. 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. In addition, the Fund maintains sufficient cash on hand to

fund anticipated redemptions and can borrow for funding redemptions.

All of the Fund’s financial liabilities as at December 31, 2014, December 31, 2013 and January 1, 2013 are due

within three months. Redeemable units are redeemable on demand at the holder’s option. However, the Manager

does not expect that the contractual maturity disclosed above will be representative of the actual cash outflows, as

holders of these instruments typically retain them for a longer period.

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.

(a) 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 December 31, 2014, December 31,

2013 and January 1, 2013. 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 (decreased) increased by $746 in December 31, 2014 (December 31, 2013 - $434

and January 1, 2013 - $42,032). In practice, actual results may differ from this sensitivity analysis.



December 31, 2014

December 31, 2014 Non-monetary Percentage of

Monetary assets assets Derivatives Net exposure net assets

$ $ $ $ %

United States, Dollars 7,462 - - 7,462 0.0

Total 7,462 - - 7,462 0.0 December 31, 2013 Non-monetary Percentage of


$ $ $ $ %

United States, Dollars 4,340 - - 4,340 0.03

Total 4,340 - 4,340 0.03 January 1, 2013 Non-monetary Percentage of


$ $ $ $ %

United States, Dollars - 420,316 - 420,316 3.05

Total - 420,316 - 420,316 3.05

(b) 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 liabilities. The Fund is exposed to the risk that the value of such financial assets or 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.

The tables below summarize the Fund’s exposure to interest rate risk as at December 31, 2014, December

31, 2013 and January 1, 2013. They include the Fund’s assets and trading liabilities at fair values,

categorized by the earlier of contractual re-pricing or maturity dates.

December 31, 2014 Less than 1 1- 3 3- 5 More than 5 Total

year years years years Exposure

$ $ $ $ $

Fixed Income - - 250,000 - 250,000

December 31, 2013 Less than 1 1- 3 3- 5 More than 5 Total


$ $ $ $ $

Fixed Income - - 250,000 - 250,000

January 1, 2013 Less than 1 1- 3 3- 5 More than 5 Total


$ $ $ $ $

Fixed Income - - 60,006 - 60,006

As at December 31, 2014, if the prevailing interest rate had been raised or lowered by 1%, assuming a parallel shift

in the yield curve, with all other factors remaining constant, net assets attributable to holders of redeemable units

could possibly have increased or decreased, respectively, by $2,500 (December 31, 2013 - $2,500; January 1, 2013

- $6,001). The Fund’s interest rate sensitivity was determined based on portfolio weighted duration. In practice,

actual results may differ from this sensitivity analysis.



December 31, 2014

(c) 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 of the Fund due to a 10% change in the valuation of equity investments held by

the Fund, as at December 31, 2014, December 31, 2013 and January 1, 2013, with all other variables held

constant, is included in the following table.


$ $ $

Impact on net assets 2,582,234 1,627,697 968,823

This analysis assumes that all other variables remained unchanged. The historical correlation may not be

representative of the future correlation.

Concentration risks

Concentration risk arises as a result of the concentration of exposures within the same category, whether

it is geographical location, product type, industry sector or counterparty type. The following is a

summary of the Fund’s concentration risk:

Market Segment

December 31, December 31, January 1,

2014 2013 2013

% % %

Energy 4.7% 20.5% 13.9%

Materials 2.6% 9.6% 14.0%

Industrials 6.5% 8.7% 2.7%

Consumer Discretionary 7.7% 23.6% 3.1%

Consumer Staples 0.0% 0.0% 0.0%

Health Care 23.5% 7.6% 1.8%

Financials 18.6% 7.3% 12.7%

Information Technology 17.9% 14.4% 10.8%

Telecommunications 6.1% 3.6% 2.5%

Utilities 5.8% 0.0% 5.1%

Mutual and Exchange Traded Funds 0.0% 0.0% 3.4%

Bonds 0.9% 1.4% 0.4%

94.3% 96.7% 70.4%

6. Fair value measurement

The Fund classifies fair value measurements within a hierarchy which gives the highest priority to unadjusted

quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable

inputs (Level 3). The three levels of the fair value hierarchy are as follows:

Level 1: Fair value based on unadjusted quoted prices in active markets

for identical assets or liabilities that the Manager has the ability to

access at the measurement date.

Level 2: Inputs other than quoted prices that are observable for the asset or liability either directly or

indirectly, including inputs in markets that are not considered to be active.

Level 3: Inputs based on at least one significant non-observable input that is not supported by market data.

There is little if any market activity. Inputs into the determination of fair value require significant

management judgment or estimation.



December 31, 2014

If inputs of different levels are used to measure an asset’s or liability’s fair value, the classification within the

hierarchy is based on the lowest level input that is significant to the fair value measurement. The following fair

value hierarchy tables present information about the Fund’s assets and liabilities measured at fair value within

the fair value hierarchy as at December 31, 2014, December 31, 2013 and January 1, 2013.

December 31, 2014 Level 1 Level 2 Level 3 Total

$ $ $ $

Financial Assets

Equities 24,657,477 - 843,630 25,501,107

Bonds - - 250,000 250,000

Warrants - 321,234 - 321,234 Futures - - -

Total Financial Assets 24,657,477 321,234 1,093,630 26,072,341

Financial Liabilities

Warrants - - - -

Total Financial Assets & Liabilities 24,657,477 321,234 1,093,630 26,072,341

As at December 31, 2013 Level 1 Level 2 Level 3 Total

$ $ $ $

Financial Assets

Equities 15,965,027 - - 15,965,027

Bonds - - 250,000 250,000

Warrants - 96,861 - 96,861

Total Financial Assets 15,965,027 96,861 250,000 16,311,888


Forward foreign exchange contracts - - - -

Total Financial Assets & Liabilities 15,965,027 96,861 250,000 16,311,888

As at January 1, 2013 Level 1 Level 2 Level 3 Total

$ $ $ $

Financial Assets

Equities 9,580,078 - - 9,580,078

Bonds - 60,006 - 60,006

Warrants - 41,581 - 41,581

Total Financial Assets 9,580,078 101,587 - 9,681,665


Forward foreign exchange contracts - - - -

Total Financial Assets & Liabilities 9,580,078 101,587 - 9,681,665

All fair value measurements are recurring. The carrying values of cash, subscription receivable, interest

receivable, payable for interest securities purchased, accrued liabilities and the Fund’s obligation for net assets

attributed to holders of redeemable units approximates their fair value due to their short term nature. Fair values

are classified as Level 1 when the related security or derivative is actively traded and a quoted price is available.

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 the fair value hierarchy levels as of the date of the event or change in circumstances

gives rise to the transfer.

i) Equities

The Fund’s equity positions are classified as Level 1 when the security is actively traded and a reliable price is

observable. Certain of the Fund’s equities do not trade frequently and therefore observable prices may not be

available. In such cases, fair value is determined using observable market data (e.g. transactions for similar

securities of the same issuer) and the fair value is classified as Level 2, unless the determination of fair value

requires significant unobservable data, in which case the measurement is classified as Level 3.



December 31, 2014

The Manager is responsible for performing the fair value measurements included in the financial statements of

the Fund, including Level 3 measurements. The Manager obtains pricing from a third party pricing vendor,

which is monitored and reviewed by the Director of Finance each day. At each financial reporting date, the Chief

Financial Officer (CFO) of the Manager reviews and approves all Level 3 fair value measurements.

The Fund’s investment of 250,000 bond units of Loyalist Group Limited represents 0.9% of the Fund. On

November 17, 2014 Loyalist Group Limited entered into a new $18.5 million credit facility and replacing

their current credit. The par value of the new credit facility is $1 per bond unit, which is consistent with the

previous credit facility. Management has determined to price the Loyalist Group Limited bonds at their par

value of $1.

The Fund’s investment in 276,600 shares of Frankly Inc. represents 3.1% of the Fund. These shares were

purchased on November 20, 2014 at $3.05 and at that time Frankly Inc. had announced their intentions of

going public at the start of 2015. Due to the fact that the shares were purchased close to year end and that

the Manager anticipated an IPO price of $3.05 at the beginning of 2015, this investment was valued at its

cost of $3.05.

ii) Bonds and short-term investments

Bonds include primarily government and corporate bonds, which are valued using models with inputs including

interest rate curves, credit spreads and volatilities. The inputs that are significant to valuation are generally

observable and therefore the Fund’s bonds and short-term investments have been classified as Level 2.

iii) Derivative assets and liabilities

Derivative assets and liabilities consist of foreign currency forward contracts which are valued based primarily

on the contract notional amount, the difference between the contract rate and the forward market rate for the

same currency, interest rates and credit spreads. Contracts for which counterparty credit spreads are observable

and reliable, or for which the credit-related inputs are determined not to be significant to fair value, are classified

as Level 2.

For the years ended December 31, 2014 and 2013, no investments were transferred from Level 1 to Level 2 as a

result of the securities no longer being traded in an active market and no investments were transferred from Level

2 to Level 1 as a result of the securities now being traded in an active market.

7. Financial instruments by category

The following table presents the net gains (losses) on financial instruments at FVTPL by category for the years

ended December 31, 2014 and 2013.

December 31, 2014 December 31, 2013

Financial assets at FVTPL

Designated at inception 5,870,182$ 5,515,660$

HFT (7,712)$ -$

5,862,470 5,515,660

Financial liabilities at FVTPL

HFT - (62,958)

Total 5,862,470$ 5,452,702$

Net gains (losses)

8. Redeemable units

Units issued and outstanding are considered to be the capital of the Fund. The capital is managed in accordance

with the investment objectives of the Fund. The Fund does not have any specific capital requirements on the

subscription and redemption of units, other than certain minimum subscription requirements. Unitholders are

entitled to require payment of the net asset value per unit of that Fund for all or any of the units of such

unitholder by giving written notice to the Manager. The written notice must be received no later than 4:00 p.m.,

EST, on the valuation day upon which the units are to be redeemed. Additionally, the notice must be irrevocable



December 31, 2014

and the signature thereon must be guaranteed by a Canadian chartered bank, a trust company or an investment

dealer acceptable to the Manager. The units are redeemable for cash equal to a pro rata share of the Fund’s net

asset value (NAV).

The Fund may issue an unlimited number of shares of each series.

Series A and A USD shares are available to all investors. Series F , F USD and PHP shares are available to

investors who participate in fee-based programs through their dealers whose dealer has signed a Series F

agreement with the Manager.

During the years ended December 31, 2014 and 2013, the number of units issued redeemed and outstanding was

as follows:

2014 2013 2014 2013

Units outstanding - beginning 872,847 973,196 333,233 340,143

Redeemable units issued 467,510 79,468 138,875 14,730

Redeemable units redeemed (169,124) (211,027) (50,358) (32,296)

Units issued on reinvestment of distributions 28,456 31,210 10,619 10,656

Units outstanding - end 1,199,689 872,847 432,369 333,233

Series A Series F

9. Related Party Transactions

Management and Performance fees and related party transactions

The Fund pays the Manager an annual management fee of up to 2.5% in the case of Series A shares and

up to 1.5% in the case of Series F shares, subject to taxes HST as applicable, to cover management

expenses, including key personnel. The management fee is calculated and accrued daily and is paid on

the last day of each month based on the average daily net asset value of the Fund.

Included in accrued expenses at December 31, 2014 is $56,823 (December 31, 2013 - $35,894 and January 1,

2013 – $30,320) of management fee payable to the Manager.

Redwood Equity Growth Class will pay the Manager annually an incentive fee, subject to taxes HST as

applicable, equal to a percentage of the average net asset value of the applicable series of the Fund. Such

percentage will be equal to 10% of the difference by which the return in the net asset value per share of

the applicable Series of the Fund from January 1 to December 31 exceeds the percentage return of the

S&P/TSX Composite Index.

At December 31, 2014 $471,164 (December 31, 2013 - $196,117) of performance fee is payable to the Manager.

These transactions are measured at the exchange amounts, and occur within the normal course of operations.

Expenses

The Fund is responsible for the payment of all direct expenses related to its operations, such as brokerage

commissions and fees, taxes, audit and legal fees, safekeeping and custodial fees and other expenses. Each series

of units of the Fund is responsible for the operating expenses that relate specifically to that series. The manager

may pay expenses on behalf of the Fund and is later reimburses by the Fund.

The total remuneration paid to members on the Independent Review Committee during the year ended December

31, 2014 was $1,522 (December 31, 2013 - $1,454).



December 31, 2014

Certain administration and custodian fees have been absorbed by the Manager. These expenses are noted on the

Statements of Comprehensive Income. Such absorption can be terminated by the manager at any time without

notice.

The Portfolio Manager holds 5,677 (December 31, 2013: 4,746; January 1, 2013: 1,560) shares of the Fund

which is $94,783 or 0.03% of the Fund’s net assets as of December 31, 2014.

10. Brokerage commissions

The Fund paid $321,099 (December 31, 2013 - $157,180) in brokerage commissions and other transaction costs

for portfolio transactions for the year ended December 31, 2014.

11. Increase (decrease) in net assets attributable to holders of redeemable units per unit

The increase (decrease) in net assets attributable to holders of redeemable units per unit for the year ended

December 31, 2014 and 2013 is calculated as follows:

Series A December 31, 2014 December 31, 2013

$ $

Increase in net assets attributable to holders of redeemable units 3,084,244 3,324,614

Weighted average units outstanding during the period 1,078,086 901,498

Increase in net assets attributable to holders of redeemable

units per unit 2.86 3.69

Series F December 31, 2014 December 31, 2013

$ $

Increase in net assets attributable to holders of redeemable units 1,259,224 1,316,908

Weighted average units outstanding during the period 402,796 339,138

Increase in net assets attributable to holders of redeemable

units per unit 3.13 3.88

12. Transition to IFRS

The effect of the Fund’s transition to IFRS is summarized in this note as follows:

Transition elections

The only voluntary exemption adopted by the Fund upon transition was the ability to designate a financial asset

or financial liability at fair value through profit and loss upon transition to IFRS. All financial assets designated

at FVTPL upon transition were previously carried at fair value under Canadian GAAP as required by Accounting

Guideline 18, Investment Companies.

Statement of cash flows

Under Canadian GAAP, the Fund was exempt from providing a statement of cash flows. IAS1 requires that a

complete set of financial statements include a statement of cash flows for the current and comparative periods,

without exception.

Reconciliation of equity and comprehensive income as previously reported under Canadian GAAP to IFRS



December 31, 2014

Equity December 31, 2013 January 1, 2013

$

Equity reported under Canadian GAAP 16,874,495 13,773,621

Revaluation of investments at FVTPL 237,210 66,568

Net assets attributable to holders of redeemable units 17,111,705 13,840,189

Year ended

Comprehensive Income December 31, 2013

$

Comprehensive income reported under Canadian GAAP 4,470,880

Revaluation of investments at FVTPL 170,642

Increase (decrease) in net assets attributable to holders of redeemable units 4,641,522

Classification of redeemable units issued by the Fund

Under Canadian GAAP, the Fund accounted for its redeemable units as equity. Under IFRS, IAS 32 requires

that units or shares of an entity which include a contractual obligation for the issuer to repurchase or redeem

them for cash or another financial asset be classified as financial liability. The Fund’s units do not meet the

criteria in IAS32 for classification as equity and therefore, have been reclassified as financial liabilities on

transition to IFRS

Revaluation of investments at FVTPL

Under Canadian GAAP, the Fund measured the fair values of its investments in accordance with Section 3855,

Financial Instruments - Recognition and Measurement, which required the use of bid prices for long positions

and ask prices for short positions, to the extent such prices are available. Under IFRS, the Fund measures the fair

values of its investments using the guidance in IFRS 13, Fair Value Measurement (IFRS 13), which requires that

if an asset or a liability has a bid price and an ask price, then its fair value is to be based on a price within the bid-

ask spread that is most representative of fair value. It also allows the use of mid-market pricing or other pricing

conventions that are used by market participants as a practical expedient for fair value measurements within a

bid-ask spread. As a result, upon adoption of IFRS an adjustment was recognized to increase the carrying

amount of the Fund’s investments by $66,568 at January 1, 2013 and $237,210 as at December 31, 2013. The

impact of this adjustment was to increase the Fund’s increase (decrease) in net assets attributable to holders of

redeemable units by $170,642 for the year ended December 31, 2013.

14. Income tax

The Corporation computes its net income (loss) and net capital gains (losses) for income tax purposes as

a single entity. Therefore, net losses of one Fund may be used to offset net gains of another Fund to

reduce the total net income or net gain of the Corporation as a whole. It is assumed that the Fund will

continuously qualify as a “mutual fund corporation” and as a “financial intermediary” as defined in the

Income Tax Act (Canada) and will not qualify as an “investment corporation” under the Act.

All income of the Corporation, including taxable capital gains net of allowable capital losses, will be

subject to tax at normal corporate rates. Taxes payable on net realized capital gains are refundable on a

formula basis when shares are redeemed or the Corporation elects to pay capital gains dividends.

Dividends received by the Corporation on taxable dividends from taxable Canadian corporations are

subject to a 33% tax which is refundable on payment of sufficient taxable dividends by the Corporation.

Taxes payable by the Corporation on income from other sources (such as interest, foreign income and

distributions of income from royalty trusts and exchange traded funds) are not refundable. Due to

deductible expenses and to tax refunds available to the Corporation upon the payment of capital gains

dividends and taxable dividends, the Corporation is not expected to have any material net income tax

liability in any year. As a result, the Fund does not record income taxes.



December 31, 2014

(a) Capital and Non-Capital Losses

As at December 31, 2014, the Corporation had $nil of unused capital losses and no unused non-capital losses for

income tax purposes. Since the Fund does not record income taxes, the tax benefit of capital and non-capital

losses, if any, has not been reflected in the financial statement.

(b) Effective Tax Rate

The Corporation’s marginal and effective corporate tax rates on net investment income for the tax year ended

December 31, 2014 and December 31, 2013 were 46.17% and nil% respectively.

15. Investments in unconsolidated structured entities:

The Fund invests in underlying funds which are considered structured entities, whose investment

objectives range from achieving short- to long-term income and capital growth potential. The Fund does

not have any financial liabilities recognized in respect of any of their interests in structured entities.

Underlying funds may use leverage in a manner consistent with their respective investment objectives

and as permitted by Canadian securities regulatory authorities. In all cases, the Fund’s maximum

exposure to loss from the structured entity is represented by the carrying value of their investment therein

and the Fund does not have any current intentions to provide financial support to any of the underlying

funds.

The fair value of the underlying funds included in the statements of financial position are as follows:

Underlying Fund

Net Asset

Value of

Underlying

Fund

Investment

Fair Value

Net Asset

Value of

Underlying

Fund

Investment

Fair Value

Net Asset Value

of Underlying

Fund

Investment

Fair Value

$ $ $ $ $ $

iPath S&P 500 VIX Short-Term Futures ETN - - - - 6,671,092,359 47,205

AdvisorShares Active Bear ETF - - - - 218,949,527 420,316

Chartwell Seniors Housing Real Estate Investment Trust - - - - - 307,621

Dundee Industrial Real Investment Trust - - - - - 6,690


Changes in fair value of underlying funds are included in the statements of comprehensive income in “Net

change in unrealized appreciation”.

16. Comparison of IFRS Net Assets per Share and Pricing NAV per Share

The table below provides a comparison of the IFRS net assets per unit and Pricing NAV per unit. The

primary reason for the difference between the IFRS net assets per unit and Pricing NAV per unit is

because of differences in valuation of certain securities for pricing NAV determined in accordance with

Part 14 of National Instrument (NI) 81-106.

Pricing IFRS net Pricing IFRS net Pricing IFRS net

NAV per unit assets per unit NAV per unit assets per unit NAV per unit assets per unit

($) ($) ($) ($) ($) ($)

Series A 16.54 16.73 14.02 14.02 10.44 10.44

Series F 17.42 17.63 14.63 14.63 10.82 10.82


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