discovery 2012 flow-throughmiddlefield.com/pdf/discovery12/report2012.pdf · initial public...

DISCOVERY 2012 FLOW-THROUGH

LIMITED PARTNERSHIP

Annual Report 2012

(L-R) Jeremy Brasseur, Managing Director, Corporate Development, Nancy Tham, Managing Director, Sales and Marketing, Andy Nasr, Executive Director and Portfolio Manager, Rob Lauzon, Managing Director, Western Canada, Discovery Funds, Dean Orrico, President and CIO, Richard Faiella, Managing Director, International, and Dennis da Silva, Managing Director, Senior Portfolio Manager, MRF Funds

Performance. One Step at a Time.

CALGARY: 812 Memorial Drive NW, Calgary, Alberta T2N 3C8 TORONTO: First Canadian Place, 58th Floor, P.O. Box 192, Toronto, Ontario M5X 1A6 Toll Free: 1.888.890.1868 www.middlefield.com [email protected]

MIDDLEFIELD

March 2012Initial Public Offering

$61,200,000MIDDLEFIELD INCOME PLUS II CORP.

anage b Mi le el r u

Price: $12 per equity share

BMO CAPITALMARKETS

NATIONAL BANKFINANCIAL INC.

SCOTIABANK INC. TD SECURITIES INC.

CANACCORDGENUITY CORP.

GMPSECURITIES L.P.

MACQUARIE PRIVATEWEALTH INC.

RAYMONDJAMES LTD.

MIDDLEFIELD CAPITAL CORPORATION

DUNDEE SECURITIES LTD. MACKIE RESEARCH CAPITAL CORPORATION

CIBC WORLD MARKETS INC. RBC CAPITAL MARKETS

$60,000,000MRF 2012 RESOURCE LIMITED PARTNERSHIP


Price: $25 per unit

ril 2012Initial Public Offering

MACQUARIE PRIVATE WEALTH INC. MANULIFE SECURITIES INCORPORATED

CANACCORD GENUITY CORP. GMP SECURITIES L.P.

DUNDEE SECURITIES LTD. MIDDLEFIELD CAPITALCORPORATION

RAYMOND JAMES LTD.


BMO CAPITALMARKETS


SCOTIABANK TD SECURITIES INC.

Since its inception in 1979, the Middlefield Group, with over $3 billion in assets

under management, has established a strong reputation as a creator and manager

of unique investment products designed to balance risk and return to meet the

demanding requirements of investment advisors and their clients. These financial

products include Mutual Funds, Private and Public Resource Funds, Venture Capital

Assets, TSX Publicly Traded Funds and Real Estate Investment Partnerships.

#1 NEUTRAL BALANCED MUTUAL FUND OVER 3-YEARSMiddlefield Income Plus Class

#1 NEUTRAL BALANCED MUTUAL FUND OVER 10-YEARSMiddlefield Income Plus Class

#1 NATURAL RESOURCE EQUITY FUND OVER 1-YEARGroppe Tactical Energy Class

e ber 2012Initial Public Offering

$50,000,000DISCOVERY 2012 FLOW-THROUGH LIMITED PARTNERSHIP


Price: $25 per unit

BMO CAPITAL MARKETS NATIONAL BANK FINANCIAL INC. TD SECURITIES INC.SCOTIABANK


MIDDLEFIELD CAPITALCORPORATION

RAYMONDJAMES LTD.

MANULIFE SECURITIES INCORPORATED

GMP SECURITIES L.P. MACQUARIE PRIVATE WEALTH INC.

DUNDEE SECURITIES LTD.

RBC CAPITAL MARKETS CIBC WORLD MARKETS INC.

$75,000,000MIDDLEFIELD CAN-GLOBAL REIT INCOME FUND


Price: $10 per unit

e ber 2012Initial Public Offering


GMPSECURITIES L.P.

MACQUARIE PRIVATEWEALTH INC.

RAYMONDJAMES LTD.

MIDDLEFIELD CAPITAL CORPORATION

DUNDEE SECURITIES LTD. MACKIE RESEARCH CAPITAL CORPORATION


BMO CAPITALMARKETS


SCOTIABANK TD SECURITIES INC.

Oct ber 2012Treasury Offering

$40,000,000MIDDLEFIELD CANADIAN INCOME PCCanage by Mi le el Internati nal i ite

TRADES ON THE LONDON STOCK EXCHANGEUNDER THE SYMBOL MCT

CANACCORD GENUITY LIMITED

MIDDLEFIELD Canadian Income PCC

August 2012Treasury Offering

$43,031,700PATHFINDER CONVERTIBLE DEBENTURE FUND

anage by Mi le el r u

Price: $12.33 per unit

BMO CAPITALMARKETS


SCOTIABANK INC. TD SECURITIES INC.

MACQUARIE PRIVATE WEALTH INC.

CANACCORD GENUITY CORP.GMP SECURITIES L.P. MIDDLEFIELD CAPITAL

CORPORATIONRAYMOND JAMES LTD.

DUNDEE SECURITIES LTD.


A NOTE ON FORWARD LOOKING STATEMENTSThis document may contain forward looking statements, including statements regarding: the Fund, its strategies, goals and objectives; prospects; future performance or condition; possible future actions to be taken by the Fund; and the performance of investments, securities, issuers or industries in which the Fund may from time to time invest. Forward looking statements include statements that are predictive in nature, that depend upon or refer to future results, events, circumstances, expectations and performance, or that include words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “estimates” or negative versions thereof and other similar wording. Forward looking statements are not historical facts, but reflect the Fund’s current beliefs as of the date of this document regarding future results, events, circumstances, expectations or performance and are inherently subject to, among other things, risks, uncertainties and assumptions about the Fund and economic factors. Forward looking statements are not guarantees of future performance, and actual results, events, circumstances, expectations or performance could differ materially from those expressed or implied in any forward looking statements contained in this document. Factors which could cause actual results, events, circumstances, expectations or performance to differ materially from those expressed or implied in forward looking statements include, but are not limited to: general economic, political, market and business factors and conditions; commodity price fluctuations; interest and foreign exchange rate fluctuations; global equity and capital markets; the financial condition of each issuer in which the Fund invests; the effects of competition in the industries or geographic areas in which the Fund may invest; statutory and regulatory developments; unexpected judicial or regulatory proceedings; and catastrophic events. Readers are cautioned that the foregoing list of factors is not exhaustive and to avoid placing undue reliance on forward looking statements due to the inherent uncertainty of such statements. The Fund does not undertake, and specifically disclaims, any obligation to update or revise any forward looking statements, whether as a result of new information, future developments, or otherwise.

Middlefield CORPORATE PROFILE

Since its inception in 1979, the Middlefield Group, with

over $3 billion in assets under management, has established

a strong reputation as a creator and manager of unique

investment products designed to balance risk and return

to meet the demanding requirements of investment advisors

and their clients. These financial products include mutual

funds, real estate and closed-end, publicly traded income

funds as well as private and public resource funds and

venture capital assets.

Many of Middlefield’s investment products are designed

and managed by our own professionals while some involve

strategic partnerships with other “best-in-class” firms that

bring unique value to our product offerings. Our investment

team comprises portfolio managers, analysts and traders.

Guardian Capital LP, one of the pioneers in developing

income products, acts as Co-Advisor on several of our

income funds while Groppe, Long & Littell, based in Houston

and one of the world’s leading forecasters of oil and natural

gas prices, acts as Special Advisor with respect to the

strategic outlook for the energy sector.

Looking ahead, Middlefield remains committed to the

goal of developing new and unique investment products

to assist investment advisors in providing added value for

their clients.

TABLE OF CONTENTS

Corporate Profile

3 2012 Review and Outlook

5 Annual Management Report of Fund Performance

10 Management’s Responsibility for Financial Reporting

10 Independent Auditor’s Report

12 Financial Statements

15 Notes to Financial Statements

20 Middlefield Funds Family

Corporate Information

MIDDLEFIELD 2012 ANNUAL REPORT 3

In 2012, both U.S. and European policy

makers struggled to implement reforms

aimed at minimizing the economic impact

of fiscal imbalances. Heading into 2013,

policy risk has diminished, emerging market

inflation has moderated and corporate

balance sheets remain strong. U.S. economic

growth is accelerating, led by an improved

labor market, a recovery in housing and a

decline in household leverage. In Europe,

the Central Bank has taken decisive steps

towards being a lender of last resort.

Although Europe will likely experience

recession in 2013, modest economic growth

is expected to resume by 2014 as stress in

peripheral countries eventually eases due to

lower funding requirements and improved

competitiveness. The slower growth currently

being experienced by emerging economies

has been affected by deliberate policy

decisions designed to curb inflation and

diminished demand from developed markets

as governments, financial institutions and

households deleverage. We continue to

believe that sustainable long-term global

growth will require both structural reforms

to facilitate deleveraging in developed

economies and socio-economic improvements

to increase domestic demand in emerging

markets. The foregoing challenges and

resultant volatility on commodity prices

and equity markets are causing resource

companies to increasingly rely on flow-

through equity issuance to fund their

exploration programs and create value for

shareholders.

We remain positive on the long-term outlook

for oil and natural gas and maintain the view

that North American natural gas and global

oil production have peaked. We believe that

long-term oil prices will be in the range of

US$80 to US$100 per barrel during the next

five years as new supply remains expensive

MIDDLEFIELD RESOURCE FUNDS CURRENTLY COMPRISE

FOUR FUNDS, MRF 2012, MRF 2013, DISCOVERY 2011 AND DISCOVERY 2012. THE OBJECTIVE

OF THE FUNDS IS TO GENERATE ATTRACTIVE TAX-ADVANTAGED RETURNS FROM A

DIVERSIFIED PORTFOLIO OF RESOURCE COMPANIES. TO GENERATE TAX BENEFITS, THE

FUNDS INVEST IN FLOW-THROUGH COMMON SHARES BUT ARE DIFFERENTIATED FROM

ONE ANOTHER PRIMARILY BY THE INVESTMENT STRATEGIES USED TO ACHIEVE THEIR

OBJECTIVES. BOTH MRF FUNDS AND DISCOVERY FUNDS ARE ACTIVELY MANAGED AND

HAVE DIVERSIFIED PORTFOLIOS. MRF FUNDS HAVE A BIAS TOWARDS ENERGY ISSUERS

AND DISCOVERY FUNDS ARE MORE FOCUSED ON MINING COMPANIES.

MIDDLEFIELD RESOURCE FUNDS

2012Review and Outlook

4 DISCOVERY 2012 FLOW-THROUGH LIMITED PARTNERSHIP

to develop. We expect the spread between

WTI and Brent oil prices to narrow by the

end of 2013, with WTI appreciating relative to

Brent. Several energy infrastructure projects

will eventually alleviate the bottleneck at the

Cushing terminus in Oklahoma, which has

currently widened heavy oil differentials and

reduced the profitability of many Canadian oil

producers. Increased access to U.S. refineries

should cause heavy oil differentials to narrow

and benefit the Canadian energy sector.

Natural gas inventories have increased

significantly over the last 24 months due

to increased shale production and warmer

than expected winters. As a result, natural

gas prices fell below $2 per million btu in the

first half of 2012. Looking forward, gas prices

will be supported by utilities switching from

coal to gas fired electrical power generation

and increased industrial demand. We remain

optimistic that medium-to-long term natural

gas prices will increase significantly as

producers have already begun to announce

production cuts and slow drilling activity,

evidenced by the number of U.S. natural

gas rigs in operation being at a 13 year low.

Fundamentals continue to suggest that shale

gas production will not offset declines in

conventional, Gulf of Mexico and associated

gas supply.

We believe that gold prices in the near term

could approach US$2,000 per ounce due to

rising production costs exceeding US$1,300

per ounce and demand from Central Banks

that want to diversify their foreign reserve

holdings. Growth in developing economies

and emerging economies should have a

positive impact on the demand for base metals

and other commodities. Supply constraints will

support higher commodity prices as a number

of sectors are facing significant challenges,

including the difficulty of finding new material

deposits, environmental opposition, and the

threat of nationalization or fiscal/royalty

changes in some of the most promising

regions for resource development.

On average, premiums for flow-through

shares have declined compared to last year,

which should benefit MRF 2013 which is in the

process of being invested. Our longstanding

experience as flow through investors causes

us to focus on larger companies run by

management teams with a proven ability to

add value. As a result of this approach, over

the long term, Middlefield’s flow through

partnerships have outperformed our major

competitors by generating the highest returns

with low volatility.

Dean Orrico Robert F. LauzonPresident and Managing Director and Chief Investment Officer Senior Portfolio Manager

2012 REVIEW AND OUTLOOK


ANNUAL MANAGEMENT REPORT OF FUND PERFORMANCEFOR THE PERIOD ENDED DECEMBER 31, 2012

This annual management report of fund performance contains financial highlights and should be read in conjunction with the complete audited annual financial statements of the investment fund that follow this report.

Unitholders may contact us by calling 1-888-890-1868, by writing to us at Middlefield Group at one of the addresses on the back cover or by visiting our website at www.middlefield.com to request a copy of the investment fund’s proxy voting policies and procedures or quarterly portfolio disclosure. The investment fund has obtained exemptive relief from the requirement to prepare and file a proxy voting disclosure record.

Management’s Discussion of Fund Performance

INVESTMENT OBJECTIVE AND STRATEGIESThe investment objective of Discovery 2012 Flow-Through Limited Partnership (the “Fund” or “Discovery 2012”) is to provide unitholders with capital appreciation and significant tax benefits to enhance after-tax returns. In order to achieve the Fund’s investment objective, all available proceeds are invested by the Fund in an actively managed, diversified portfolio of equity securities of Canadian exploration, development and production companies involved primarily in mining and supplemented by companies operating in the oil and gas sectors. The Fund initially invests in common shares or warrants issued on a flow-through basis by resource companies such that the resulting expenditures renounced to the Fund provide tax deductions to the Fund equal to 100% of the gross proceeds of the initial offering which closed September 13, 2012.

RISK Discovery 2012 is a speculative offering and is exposed to several risk factors that may affect its performance. The overall risk of the Fund is as described in its prospectus dated August 27, 2012. Since commencement of the Fund, the overall risk level of the Fund may have been impacted as follows:

Market RiskMarket risk describes the Fund’s exposure to volatility in the market value of its underlying securities. Equity markets and commodity prices continued to exhibit volatility in 2012 due to macroeconomic uncertainty and Canadian oil prices traded at an abnormally large discount to American benchmarks due to limited pipeline capacity. The instability in commodity prices and energy pricing differential led to increased market risk. The Fund seeks to mitigate risk through active management, portfolio diversification and through

consultation with Groppe, Long & Littell (“Groppe”), an oil and natural gas consulting firm based in Houston, who acts as a Special Advisor to Middlefield Capital Corporation, the advisor to the Fund (“MCC” or the “Advisor”). Groppe provides analysis of the global and political forces impacting the prices of oil and natural gas.

RESULTS OF OPERATIONS Investment Performance Discovery 2012 raised $50 million in the fall of 2012 that was invested in flow-through common shares or warrants of Canadian resource companies. As at December 31, 2012, the invested portfolio was primarily comprised of companies operating in the oil and gas sector, with the balance focused on issuers in the mining sector.

Discovery 2012 commenced operations on September 13, 2012 and as a result there are no comparative figures for the prior year. At December 31, 2012 the Fund’s net asset value was $18.85 per unit, representing a total after-tax return on money-at-risk of 16% for an Ontario investor taxed at the highest marginal tax rate.

Investment income for the partial 2012 period amounted to $40,155 and was entirely comprised of interest earned on cash balances. Expenses for the period totalled $0.3 million which contributed to the management expense ratio (“MER”) of 15.13%. The MER is high as a result of the inclusion of issuance costs as part of the expenses used to calculate the ratio in the year of the initial public offering. Excluding issuance costs and interest expenses, the MER is 2.69% for the period ended December 31, 2012. A net investment loss of $0.3 million was recorded. It is not the intention of the Fund to generate net investment income but instead, as described earlier, to generate capital appreciation and significant tax benefits over the life of the Fund.

On a per unit basis the net assets of the Fund decreased by 20% from $23.20 at inception to $18.67 on December 31, 2012. The decrease is attributable primarily to the premiums paid for flow-through shares. An unrealized loss on investments of $8.8 million or $4.38 per unit has been recorded as at December 31, 2012. The Fund’s performance was driven by energy related equities underperforming the broad markets in 2012. The S&P/TSX Composite Index rose by 7.17% in 2012, however, the S&P/TSX Materials Index, the S&P/TSX Oil & Gas Exploration & Production Index, and the S&P/TSX Global Gold Index declined by 5.67%, 11.21%, and 14.62%, respectively.



Credit FacilityThe Fund has a credit facility that enables the Fund to borrow up to an amount not exceeding 10% of the gross proceeds raised. As at December 31, 2012 the Fund had a loan payable of $3.6 million representing approximately 7.2% of gross proceeds raised and 9.6% of net assets. The minimum and maximum amounts borrowed during the period were $1.5 million and $3.6 million, respectively. The loan proceeds were used solely to finance expenses incurred by the Fund, in order to maximize the allocation of initial offering gross proceeds towards the purchase of flow-through shares. The credit facility provides the lender with a security interest over the assets of the Fund.

Trends In 2012, both U.S. and European policy makers struggled to implement reforms aimed at minimizing the economic impact of fiscal imbalances. While volatility is expected to persist in 2013, policy risk has diminished, emerging market inflation has moderated and corporate balance sheets remain strong. U.S. economic growth is accelerating, led by an improved labor market, a recovery in housing and a decline in household leverage. Although Europe will likely experience a recession in 2013, economic growth is expected to resume several quarters thereafter as stress in peripheral countries eventually eases due to lower funding requirements and improved competitiveness. We continue to believe that sustainable long-term global growth will require structural reforms to facilitate deleveraging in developed economies and socio-economic improvements that will increase domestic demand in emerging markets, which remain well supported by accommodative fiscal and monetary policies.

We remain positive on the long-term outlook for oil and natural gas and maintain the view that North American natural gas and global oil production have peaked. We believe that long-term oil prices will be in the range of US$80 to US$100 per barrel during the next five years as new supply remains expensive to develop. We expect the spread between WTI and Brent oil prices to begin narrowing by the end of 2013 as the completion of several infrastructure projects will eventually alleviate the bottleneck at the Cushing terminus in Oklahoma. Improved access to U.S. refineries should also cause heavy oil differentials to narrow and benefit the Canadian energy sector. Natural gas inventories have increased significantly over the last 24 months due to excess shale production and warmer than expected winters. Looking forward, gas prices will be supported

by utilities switching from coal to gas fired electrical power generation and increased industrial demand. We remain optimistic that medium-to-long term natural gas prices will increase over the next 18 to 24 months.

We believe that near to medium-term gold prices could approach US$2,000 per ounce due to rising production costs exceeding US$1,300 per ounce and demand from Central Banks that want to diversify their foreign reserve holdings. Growth in developing economies and emerging economies should have a positive impact on the demand for base metals and other commodities. Supply constraints will support higher commodity prices as a number of sectors are facing significant challenges, including (1) the difficulty of finding new material deposits, (2) civil unrest, (3) environmental opposition, and (4) the threat of nationalization or fiscal/royalty changes in some of the most promising regions for resource development.

RELATED PARTY TRANSACTIONS Pursuant to a management agreement, Middlefield Limited (the “Manager”) receives a management fee. For further details please see the “Management Fees” section of this report. MCC, a company under common control with the Manager, is the Advisor to the Fund and receives an advisory fee. In addition, MCC received an agency fee from the Fund in respect of the units it sold in 2012. For further details please see the notes to the financial statements.

MANAGEMENT FEESManagement fees and fees in respect of portfolio advisory services together are calculated at 2% per annum of the Net Asset Value of the Fund and are paid to the Manager and the Advisor. The Manager receives fees for the general administration of the Fund, including maintaining the accounting records, executing securities trades, monitoring compliance with regulatory requirements, and negotiating contractual agreements, among other things. The Advisor receives fees for providing investment management advice, including advice in respect of securities selection for the portfolio of securities, in accordance with the investment objectives and strategies of the Fund.

RECENT DEVELOPMENTS Future Accounting ChangesInternational Financial Reporting Standards (“IFRS”)Canadian publicly accountable enterprises, which include funds/limited partnerships, will be required to prepare financial statements in accordance with IFRS, as issued by the International Accounting Standards



Board (“IASB”). On December 12, 2011, the Canadian Accounting Standards Board (“AcSB”) amended the deadline for adoption of IFRS for investment companies to fiscal years beginning on or after January 1, 2014. Accordingly, the Fund will adopt IFRS for its fiscal year beginning January 1, 2014, and will issue its initial financial statements in accordance with IFRS, including comparative information, for the interim period ending June 30, 2014.

The Manager has developed an IFRS changeover plan, which addresses key elements of the conversion to IFRS and has identified the key differences between IFRS and Canadian generally accepted accounting principles (“GAAP”) that are expected to affect the Fund. Elements of the plan include evaluating the impacts of the changeover on all business activities, accounting policies, information technology and data systems, internal controls over financial reporting and disclosure controls and procedures.

Based on the Manager’s current evaluation of the differences between GAAP and IFRS, the adoption of IFRS is not expected to have a significant impact on the calculation of net asset value per unit. The Manager continues to monitor changes to IFRS proposed by the IASB and relevant amendments by the AcSB, and the current assessment and IFRS changeover plan may change if new standards are issued or interpretations of existing standards are revised.

FINANCIAL HIGHLIGHTSThe following tables show selected key financial information about the Fund and are intended to help you understand the Fund’s financial performance for the partial period since commencement of operations. “Net Assets” are calculated in accordance with the Canadian Institute of Chartered Accountants Handbook section 3855 “Financial Instruments – Recognition and Measurement” (“Section 3855”) and are used for financial reporting purposes. “Net Asset Value” is calculated in accordance with section 14.2 of National Instrument 81-106 “Investment Fund Continuous Disclosure” (“NI 81-106”) and is used for transactional pricing purposes. Section 3855 requires the use of valuation techniques for certain types of investments that may differ from those prescribed by NI 81-106. Ratios and supplemental data are derived from the Fund’s Net Asset Value.



THE FUND’S NET ASSETS PER UNIT (1)

2012(3)

Net Assets, Beginning of Period $ 23.20

INCREASE (DECREASE) FROM OPERATIONS:Total Revenue 0.02Total Expenses (0.17)Unrealized Losses for the Period (4.38)

DECREASE FROM OPERATIONS (2) (4.53)

Net Assets, End of Period $ 18.67

(1) This information is derived from the Fund’s audited annual financial statements. The Net Assets per unit presented in the financial statements differs from the Net Asset Value calculated for fund pricing purposes. An explanation of the difference can be found in the notes to the financial statements.

(2) Net Assets are based on the actual number of units outstanding at the relevant time. The increase (decrease) from operations is based on the weighted average number of units outstanding over the financial period.

(3) For the period September 13, 2012 (date of commencement of operations) to December 31, 2012.(4) There were no distributions paid by the Fund.

RATIOS AND SUPPLEMENTAL DATA 2012(5)

Total Assets (000s) (1) $ 41,500Total Net Asset Value (000s) (1) $ 37,710Number of Units Outstanding (1) 2,000,000Management Expense Ratio (“MER”) (2) 15.13%MER excluding interest expense and issuance costs (2) 2.95%Trading Expense Ratio (3) –Portfolio Turnover Rate (4) –Net Asset Value per Unit $ 18.85

(1) This information is provided as at December 31 of the year shown.(2) The MER is based on total expenses (excluding commissions and other portfolio transaction costs) for the stated period and is expressed

as an annualized percentage of average Net Asset Value during the period. The MER excluding interest expense and issuance costs has been presented separately as it expresses only the ongoing management and administrative expenses of the Fund as a percentage of average Net Asset Value. Issuance costs are one-time costs incurred at inception, and the inclusion of interest expense does not consider the additional earnings that have been generated from the investment of the leverage.

(3) The trading expense ratio represents total commissions and other portfolio transaction costs expressed as an annualized percentage of average Net Asset Value during the period.

(4) The Fund’s portfolio turnover rate indicates how actively the Fund’s portfolio investments are managed. A portfolio turnover rate of 100% is equivalent to the Fund buying and selling all of the securities in its portfolio once in the course of the year. The higher the Fund’s portfolio turnover rate in a year, the greater the trading costs payable by the Fund in the year, and the greater the chance of an investor receiving taxable capital gains in the year. There is not necessarily a relationship between a high turnover rate and the performance of a fund.

(5) For the period September 13, 2012 (date of commencement of operations) to December 31, 2012.

PAST PERFORMANCEThe Fund has not presented its historical performance because it commenced operations on September 13, 2012.



Summary of Investment PortfolioAS AT DECEMBER 31, 2012

TOP TWENTY-FIVE HOLDINGS*

DESCRIPTION % OF NET ASSET VALUE

1 Tourmaline Oil Corp. 21.3 2 Paramount Resources Ltd. 12.3 3 Cequence Energy Ltd. 10.2 4 Artek Exploration Ltd. 7.4 5 TriOil Resources Ltd. 6.6 6 North American Palladium Ltd. 6.4 7 Premier Gold Mines Limited 6.3 8 TORC Oil & Gas Ltd. 5.4 9 Delphi Energy Corp. 4.1

10 NuVista Energy Ltd. 4.0 11 DeeThree Exploration Ltd. 3.0 12 Fortune Minerals Limited 2.7 13 LGX Oil & Gas Inc. 2.3 14 Scollard Energy Inc. 2.3 15 Northern Gold Mining Inc. 2.2 16 Balmoral Resources Ltd. 1.9 17 Sanatana Resources Inc. 1.8 18 Manitok Energy Inc. 1.7 19 Donner Metals Ltd. 1.7 20 Border Petroleum Corp. 1.6 21 Kaminak Gold Corporation 1.3 22 Cap-Ex Ventures Ltd. 1.0 23 Denison Mines Corp. 1.0 24 Armistice Resources Corp. 0.9

“Top Twenty-Five Holdings” excludes any temporary cash investments.* The Fund has only 24 holdings

ASSET CLASS % OF NET ASSET VALUE

Energy 82.3 Gold 12.6 Precious Metals and Minerals 9.2Metals and Mining 4.3Uranium 1.0Cash and Short-Term Investments 0.7Other Assets (Liabilities) (10.1)

100.0

TOTAL NET ASSET VALUE $ 37,710,343

TOTAL ASSETS $ 41,499,932

The Summary of Investment Portfolio may change over time due to ongoing portfolio transactions. Please visit www.middlefield.com for the most recent quarter-end Summary of Investment Portfolio.


The financial statements of the Discovery 2012 Flow-Through Limited Partnership (the “Fund”) have been prepared by Middlefield Limited (the “Manager”), the manager of the Fund and approved by the Board of Directors. The Manager is responsible for the information and representations contained in these financial statements and other financial information contained in this annual report.

The Manager maintains appropriate procedures to ensure that relevant and reliable financial information is produced. The financial statements have been prepared in accordance with Canadian generally accepted accounting principles and include certain amounts that are based on estimates and judgements. The significant accounting policies applicable to the Fund are described in the notes to the financial statements.

The Board of Directors of the Manager is responsible for ensuring that management fulfills its responsibilities

for financial reporting and has reviewed and approved these financial statements.

Deloitte LLP is the external auditor of the Fund. They have audited the financial statements of the Fund in accordance with Canadian generally accepted auditing standards to enable them to express to unitholders their opinion on the financial statements.

Robert F. Lauzon Francisco Z. Ramirez President Senior Vice-President Middlefield Limited and Chief Financial Officer Middlefield Limited March 13, 2013

TO THE UNITHOLDERS OF DISCOVERY 2012 FLOW-THROUGH LIMITED PARTNERSHIP We have audited the accompanying financial statements of Discovery 2012 Flow-Through Limited Partnership, which comprise the statement of investment portfolio and net assets as at December 31, 2012, and the statements of operations, changes in net assets and cash flows for the period from September 13, 2012 to December 31, 2012, and a summary 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 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 RESPONSIBILITYOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 is sufficient and appropriate to provide a basis for our audit opinion.

OPINIONIn our opinion, the financial statements present fairly, in all material respects, the financial position of Discovery 2012 Flow-Through Limited Partnership as at December 31, 2012, and the results of its operations, changes in its net assets and its cash flows for the period from September 13, 2012 to December 31, 2012 in accordance with Canadian generally accepted accounting principles.

Chartered Professional Accountants, Chartered Accountants Licensed Public Accountants Toronto, Ontario

March 13, 2013

INDEPENDENT AUDITOR’S REPORT

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING



Financial Statements

FINANCIAL STATEMENTS


STATEMENT OF NET ASSETSAS AT DECEMBER 31, 2012

ASSETS:Investments at Fair Value $ 40,874,947Cash 253,249Interest and Other Receivables 2,428

41,130,624

LIABILITIES:Loan Payable (Note 6) 3,586,174Accounts Payable and Accrued Liabilities (Note 8) 203,415

3,789,589

Net Assets $ 37,341,035

Units Issued and Outstanding (Note 2e) 2,000,000

Net Assets per Unit (Note 7) $ 18.67 Approved by the Board of Directors of Middlefield Limited, as Manager:

Director: Robert F. Lauzon Director: Francisco Z. Ramirez

STATEMENT OF OPERATIONS Tax Shelter Identification Number (Note 10): TS079855FOR THE PERIOD SEPTEMBER 13, 2012 (DATE OF COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 2012

INVESTMENT INCOME:Interest $ 40,155

EXPENSES (Note 8):Management Fee 206,592Unitholder Reporting Costs 36,643Fund Administration 31,955Audit Fees 22,000Interest and Bank Charges 16,084Advisory Fee 10,873Filing Fees 6,000Legal 4,000Custodial Fees 880

335,027

Net Investment Loss (294,872)

NET LOSS ON INVESTMENTS:Net Unrealized Loss on Investments (8,769,093)

Net Decrease in Net Assets from Operations $ (9,063,965)

Net Decrease in Net Assets from Operations per Unit $ (4.53)

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



STATEMENT OF CHANGES IN NET ASSETSFOR THE PERIOD SEPTEMBER 13, 2012 (DATE OF COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 2012

Net Assets at Beginning of Period $ –

OPERATIONS:Net Decrease in Net Assets from Operations (9,063,965)

UNITHOLDER TRANSACTIONS:Proceeds from Issue of Units 50,000,000Payment of Agents’ Fees (2,875,000)Payment of Costs of Issue (720,000)

46,405,000

Net Increase in Net Assets 37,341,035

Net Assets at End of Period $ 37,341,035

Total Assets $ 41,130,624

STATEMENT OF CASH FLOWSFOR THE PERIOD SEPTEMBER 13, 2012 (DATE OF COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 2012

OPERATING ACTIVITIES:Net Decrease in Net Assets from Operations $ (9,063,965)Adjustments: Purchase of Investments (49,644,040) Net Unrealized Loss on Investments 8,769,093

(49,938,912)Net Change in Non-Cash Working Capital 126,290

(49,812,622)

FINANCING ACTIVITIES:Proceeds from Issue of Units 50,000,000Proceeds from Loans 3,586,174Payment of Agents’ Fees (2,875,000)Payment of Costs of Issue (645,303)

50,065,871

Net Increase in Cash 253,249Cash at Beginning of Period –

Cash at End of Period $ 253,249

SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION

Loan Interest Paid $ 29,911 The accompanying notes to financial statements are an integral part of these financial statements.



STATEMENT OF INVESTMENT PORTFOLIOAS AT DECEMBER 31, 2012

Description No. of Securities Average Cost Fair Value

Artek Exploration Ltd. 860,000 $ 2,967,000 $ 2,760,600 Border Petroleum Corp. 4,000,000 720,000 600,000 Cequence Energy Ltd. 2,673,800 5,000,006 3,796,796 DeeThree Exploration Ltd. 175,000 1,137,500 1,137,500 Delphi Energy Corp. 1,364,000 2,387,000 1,541,320 LGX Oil + Gas Inc. 1,300,000 1,352,000 884,000 Manitok Energy Inc. 220,000 506,000 649,000 NuVista Energy Ltd. 254,600 1,499,594 1,489,410 Paramount Resources Ltd. 145,000 4,495,000 4,629,850 Scollard Energy Inc. 576,000 1,000,800 864,000 TORC Oil & Gas Ltd. 870,000 3,100,000 2,009,700 Tourmaline Oil Corp. 257,600 9,505,440 8,019,088 TriOil Resources Ltd. 833,330 2,499,990 2,483,323

ENERGY: 75.0% 36,170,330 30,864,587

Armistice Resources Corp. 3,571,500 500,010 339,293 Balmoral Resources Ltd. 650,000 747,500 702,000 Kaminak Gold Corporation 300,000 750,000 468,000 Northern Gold Mining Inc. 2,500,000 1,000,000 812,500 Premier Gold Mines Limited 565,000 4,000,200 2,367,350

GOLD: 11.4% 6,997,710 4,689,143

Cap-Ex Ventures Ltd. 1,400,000 490,000 364,000 North American Palladium Ltd. 1,800,000 2,970,000 2,322,000 Sanatana Resources Inc. 2,300,000 758,977 598,000 Sanatana Resources Inc. – Warrants, $0.40, November 9, 2014 1,150,000 23 73,717

PRECIOUS METALS AND MINERALS: 8.2% 4,219,000 3,357,717

Donner Metals Ltd. 3,750,000 750,000 637,500 Fortune Minerals Limited 2,000,000 1,000,000 960,000

METALS AND MINING: 3.9% 1,750,000 1,597,500

Denison Mines Corp. 300,000 507,000 366,000

URANIUM: 0.9% 507,000 366,000

TOTAL INVESTMENTS: 99.4% 49,644,040 40,874,947 CASH: 0.6% 253,249 253,249

Total Investment Portfolio, including Cash $ 49,897,289 $ 41,128,196

The accompanying notes to financial statements are an integral part of this financial statement.

DECEMBER 31, 2012NOTES TO FINANCIAL STATEMENTS


1. DISCOVERY 2012 FLOW-THROUGH LIMITED PARTNERSHIP Discovery 2012 Flow-Through Limited Partnership (the “Fund”) was formed as a limited partnership pursuant to a certificate under the laws of the Province of Alberta dated March 27, 2012, as amended on August 1, 2012 and August 27, 2012 and commenced operations on September 13, 2012. The principal purpose of the Fund is to invest in an actively managed, diversified portfolio of equity securities of Canadian exploration, development and production companies involved primarily in mining and supplemented by companies operating in the oil and gas sector. Pursuant to a prospectus dated August 27, 2012 (the “Prospectus”), Limited Partners subscribed for 2,000,000 units of limited partnership interest. The general partner of the Fund is Middlefield Limited (the “General Partner”) and Middlefield Capital Corporation, a company under common control with the General Partner, is an advisor to the Fund (“MCC” or the “Advisor”).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESA. FUTURE ACCOUNTING CHANGESInternational Financial Reporting Standards (“IFRS”)Canadian publicly accountable enterprises, which include funds/limited partnerships, will be required to prepare financial statements in accordance with IFRS, as issued by the International Accounting Standards Board. On December 12, 2011, the Canadian Accounting Standards Board amended the deadline for adoption of IFRS for investment companies to fiscal years beginning on or after January 1, 2014. Accordingly, the Fund will adopt IFRS for its fiscal year beginning January 1, 2014, and will issue its initial financial statements in accordance with IFRS, including comparative information, for the interim period ending June 30, 2014.

B. CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTSThe Fund’s own credit risk and the credit risk of the counterparty is taken into account in determining the fair value of financial assets and financial liabilities, including derivative instruments. Management has reviewed its policies concerning valuation of assets and liabilities and determined that the fair values ascribed to the financial assets and financial liabilities in the Fund’s financial statements incorporate appropriate levels of credit risk.

C. INVESTMENTS AT FAIR VALUE Securities listed on a recognized public stock exchange are valued at their closing bid price on the valuation date. Securities with no available bid price are valued at their closing trade price. Securities not listed on a recognized public stock exchange are valued based on recent transactions between willing parties, if such information is available, or alternatively valued using valuation techniques which may include the use of the operating results of the investees, expected future cash flows discounted at appropriate discount rates and comparable peer group valuations adjusted for company specific circumstances.

D. INVESTMENT TRANSACTIONS AND INCOME RECOGNITIONInvestment transactions are accounted for as of the trade date and any realized gains or losses from such transactions are calculated on an average cost basis. The change in the difference between fair value and average cost of the investments is recorded as unrealized gain (loss) on investments. Income from investments is recognized on the ex-dividend or ex-distribution date. Interest income is recognized on an accrual basis. For income tax purposes, the adjusted cost base of flow-through shares is deemed to be $nil and, therefore, upon disposition of such shares, the amount of capital gain for tax purposes generally will equal the proceeds of disposition and will be allocated to the Limited Partners based upon their proportionate share of the Fund.

E. NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS PER UNITNet increase (decrease) in net assets from operations per unit in the Statement of Operations represents the increase (decrease) in net assets from operations divided by the 2,000,000 units outstanding during the period.

F. ALLOCATION OF NET INCOME AND LOSSThe net income of the Fund for each fiscal period is allocated 0.01% to the General Partner and the balance, along with 100% of the net loss of the Fund, among the Limited Partners in proportion to the number of units held by each of them at the end of each period. The Fund is not itself a taxable entity. Accordingly, no provision for income taxes is required.

NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)G. FOREIGN CURRENCY TRANSLATIONForeign currency amounts are translated into Canadian dollars as follows: fair value of investments and other assets and liabilities, at the closing rate of exchange on each business day; income and expenses and purchases, sales and settlements of investments, at the rate of exchange prevailing on the respective dates of such transactions.

H. FINANCIAL INSTRUMENTSThe carrying values of financial instruments, including cash, receivables, payables and accruals approximate the fair value due to their short maturities.

I. USE OF ESTIMATESThe preparation of financial statements in accordance with Canadian generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingencies at the date of the financial statements and the increase and decrease in net assets from operations during the reporting period. The most significant estimates and assumptions relate to the valuation of illiquid investments. Actual results could differ from those estimates.

3. FAIR VALUE DISCLOSUREThe table below summarizes the fair value of the Fund’s financial instruments as at December 31, 2012 using the following fair value hierarchy:

Level 1 Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that are accessible 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 that are unobservable and where there is little, if any, market activity. Inputs into the determination of fair value require significant management judgment or estimation.

Description Level 1 Level 2 Level 3 Total

Cash $ 253,249 $ – $ – $ 253,249Common Shares 39,937,230 – 864,000 40,801,230Warrants – 73,717 – 73,717

Total $ 40,190,479 $ 73,717 $ 864,000 $ 41,128,196

No transfers between levels have occurred during the period ended December 31, 2012.

During 2012, the reconciliation of investments measured at fair value using unobservable inputs (Level 3) is presented as follows:

2012 Common Shares

Balance at Beginning of Period $ –Purchases 1,000,800Unrealized Loss (136,800)

Balance at End of Period $ 864,000

Total Change in Unrealized Loss during the Period for Assets held at December 31, 2012 $ (136,800)

The use of reasonable possible alternative assumptions for valuing Level 3 financial instruments would not significantly affect the fair value of those instruments.



4. FINANCIAL RISK MANAGEMENTIn the normal course of business the Fund is exposed to a variety of financial risks: price risk, interest rate risk, liquidity risk and credit risk. The Fund’s primary risk management objective is to protect earnings and cash flow and, ultimately, unitholder value. Risk management strategies, as discussed below, are designed and implemented to ensure the Fund’s risks and related exposures are consistent with its objectives and risk tolerance.

Most of the Fund’s risks are derived from its investments. The value of the investments within the Fund portfolio can fluctuate on a daily basis as a result of changes in interest rates, economic conditions, commodity prices, the market and company news related to specific securities within the Fund. The investments are made in accordance with the Fund’s risk management policies. The policies establish investment objectives, strategies, criteria and restrictions. The objectives of these policies are to identify and mitigate investment risk through a disciplined investment process and the appropriate structuring of each transaction.

A. PRICE RISKPrice risk is the risk that changes in the prices of the Fund’s investments will affect the Fund’s income or the value of its financial instruments. The Fund’s price risk is driven primarily by volatility in commodity and equity prices. Rising commodity and equity prices may increase the price of an investment while declining commodity and equity prices may have the opposite effect. In particular, the Fund had a large investment in two securities which represents 33.88% of the Fund’s net assets as at December 31, 2012; Paramount Resources Ltd. Class A (12.40%) and Tourmaline Oil Corp. (21.48%). The Fund mitigates price risk by making investing decisions based upon various factors, including comprehensive fundamental analysis prepared by industry experts to forecast future commodity and equity price movements. The Fund’s market positions are monitored on a daily basis by the portfolio manager and regular financial reviews of available information related to the Fund’s investments are performed to ensure that any risks are within established levels of risk tolerance. The Fund is exposed to price risk through the following financial instrument:

2012

Investments at Fair Value $ 40,874,947

Based on the above exposure at December 31, 2012, a 10% increase or decrease in the prices of the Fund’s investments would result in a $4,087,495 increase or decrease in net assets of the Fund as at December 31, 2012, with all other factors held constant.

B. INTEREST RATE RISKInterest rate risk describes the Fund’s exposure to changes in the general level of interest rates. The Fund’s interest rate risk is attributable to interest-bearing financial assets such as cash and to financial liabilities such as loan payable. The Fund’s interest income and expense are positively correlated to interest rates in that rising interest rates increase both interest income and expense while the reverse is true in a declining interest rate environment. The Fund has not hedged its exposure to interest rate movements. The Fund seeks to mitigate this risk through active management, which involves monitoring debt levels and analysis of economic indicators to forecast Canadian and global interest rates. The Fund is exposed to interest rate risk through the following financial instruments:

2012

Cash $ 253,249Loan Payable (3,586,174)

Net Exposure $ (3,332,925)

Based on the above exposure at December 31, 2012, a 1% per annum increase or decrease in interest rates would result in a $33,329 decrease or increase in net assets of the Fund as at December 31, 2012, with all other factors held constant.

NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012


4. FINANCIAL RISK MANAGEMENT (CONTINUED)C. LIQUIDITY RISK Liquidity risk is defined as the risk that the Fund may not be able to settle or meet its obligations when due. The Fund’s obligations, excluding the loan payable, are due within one year. The Fund’s term credit facility of $5.0 million matures on January 30, 2015. 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 sold. The Fund retains sufficient cash to maintain liquidity and comply with liquidity requirements as outlined by securities legislation and its investment policies.

The Fund may invest in securities that are not traded on a public stock exchange that may be illiquid. As a result, the Fund may not be able to dispose of these investments in a timely manner. The Fund mitigates this risk through active management, which involves detailed analysis of such entities to ensure they are financially sound and would be attractive to potential investors if a sale is necessary. The Fund’s investment policies limit the amounts invested in illiquid securities and these limits are monitored. As at December 31, 2012 the Fund held illiquid securities fair valued at $937,717.

D. CREDIT RISK Credit risk represents the financial loss that the Fund would experience if a counterparty to a financial instrument failed to meet its obligations to the Fund. The carrying amounts of financial assets represent the maximum credit exposure. All transactions executed by the Fund 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 only once the broker has received the securities. The trade will fail if either party fails to meet its obligations. There is no significant credit risk related to the Fund’s receivables.

The Fund has established various internal controls to help mitigate credit risk, including prior approval of all investments by the Advisor whose mandate includes conducting financial and other assessments of these investments on a regular basis. The Fund has also implemented policies which ensure that investments can only be made with counterparties that have a minimum acceptable credit rating.

5. CAPITAL MANAGEMENT The Fund’s capital is its net assets, representing unitholders’ equity. The Fund’s objective when managing capital is to safeguard the Fund’s ability to continue as a going concern in order to provide returns for unitholders, maximize unitholder value and maintain financial strength.

The Fund manages and adjusts its capital in response to general economic conditions, the risk characteristics of the underlying assets and working capital requirements. Generally speaking, the Fund will reduce leverage when investments are likely to decrease in value. In order to maintain or adjust its capital structure the Fund may repay debt under its loan facility or undertake other activities deemed appropriate under the specific circumstances.

6. LOAN PAYABLEThe term credit facility in the amount of $5.0 million is secured by a general security agreement. The facility matures on January 30, 2015. As at December 31, 2012, loans outstanding included bankers’ acceptances with a face value of $3.6 million. The minimum and maximum loans outstanding during the period ended December 31, 2012 were $1.5 million and $3.6 million, respectively. The Fund is subject to bank covenants on the loan payable and is in compliance with those covenants.



7. NET ASSETS AND NET ASSET VALUENational Instrument 81-106 “Investment Fund Continuous Disclosure” requires that net asset value for transactional pricing purposes (“Net Asset Value”), be calculated based on the fair value of investments using the close or last trade price. The Canadian Institute of Chartered Accountants Handbook section 3855 “Financial Instruments – Recognition and Measurement” requires that net assets for financial reporting purposes (“Net Assets”), be calculated using the close or last bid price of an investment. Net Assets per unit and Net Asset Value per unit could be different due to the use of different valuation techniques. The Net Asset Value per unit as at December 31, 2012 was $18.85 compared to the Net Assets per unit of $18.67.

8. RELATED PARTY TRANSACTIONSThe General Partner and the Advisor are each entitled to receive fees. The management fee and advisory fee are, in aggregate, equal to 2% per annum of the Net Asset Value of the Fund, calculated and payable monthly in arrears. These fees are recorded as Management Fee and Advisory Fee in the Statement of Operations. At December 31, 2012, the management and advisory fees payable by the Fund were $63,458 and $3,340, respectively and are included in Accounts Payable and Accrued Liabilities. The General Partner also has a 0.01% beneficial interest in the Fund. The General Partner is reimbursed for reasonable costs related to maintaining the Fund and preparation and distribution of financial statements and other documents to the Limited Partners. The Advisor is entitled to a performance fee payable on the earlier of: (a) the business day prior to the date on which the assets of the Fund are exchanged on a tax-deferred basis for redeemable shares of one of the classes of Middlefield Mutual Funds Limited (the “Mutual Fund”), a mutual fund corporation; and (b) the business day immediately prior to the date of dissolution or termination (see Note 9) of the Fund (“Performance Fee Date”), equal to 20% of the amount that is equal to the product of: (i) the number of units outstanding on the Performance Fee Date; and (ii) the amount by which the Net Asset Value per unit on the Performance Fee Date and any distributions per unit paid during the period commencing on the date of the initial closing and ending on the Performance Fee Date exceeds $28.00. During 2012, agency fees paid to MCC amounted to $38,813.

9. TERMINATION OF FUNDThe Fund is currently expected to dissolve on or about January 30, 2015 at which time the net assets will be allocated 99.99% to the Limited Partners and 0.01% to the General Partner. It is the current intention of the General Partner to propose prior to the dissolution that the Fund enter into an agreement with the Mutual Fund, whereby assets of the Fund would be exchanged for shares of one of the classes of the Mutual Fund, on or about December 15, 2014. Upon dissolution, Limited Partners would then receive their pro rata share of the shares of one of the classes of the Mutual Fund. The completion of any such arrangement would be subject to the receipt of all necessary regulatory approvals.

10. TAX SHELTER IDENTIFICATION AND PARTNERSHIP ACCOUNT NUMBERSThe identification number issued for this tax shelter shall be included in any income tax return filed by the investor. Issuance of the identification number is for administration purposes only and does not in any way confirm the entitlement of an investor to claim any tax benefits associated with the tax shelter. The tax shelter number for the Fund is TS079855. The partnership account number for the Fund is 846433332RZ0001.

11. COMPARATIVE FINANCIAL STATEMENTSThe Fund commenced operations on September 13, 2012. Accordingly, there are no comparative financial statements for the period ended December 31, 2012.


Middlefield FUNDS FAMILYTSX-LISTED FUNDS TSX Stock Symbol

ACTIVEnergy Income Fund AEU.UN COMPASS Income Fund CMZ.UN ENERGY INDEXPLUS Dividend Fund IDE.UN Global Dividend Growers Income Fund (commenced March 2013) GDG.UN INDEXPLUS Income Fund IDX.UN MBN Corporation MBN Middlefield Canadian Income PCC LSE Symbol:MCT Middlefield Can-Global REIT Income Fund RCO.UN Middlefield Income Plus II Corp. MIP MINT Income Fund MID.UN Pathfinder Convertible Debenture Fund PCD.UN REIT INDEXPLUS Income Fund IDR.UN Uranium Focused Energy Fund UF.UN YIELDPLUS Income Fund YP.UN

MUTUAL FUNDS Fund CodeSeries A Shares FE/LL/DSC

ActiveIndex REIT Class MID 600/649/650 Groppe Tactical Energy Class MID 125/127/130 Middlefield Canadian Dividend Growth Class

(formerly Middlefield Canadian Growth Class) MID 148/449/450 Middlefield Global Agriculture Class MID 161/163/166 Middlefield Canadian High Yield Class

(formerly Middlefield Income and Growth Class) MID 300/349/350 Middlefield Income Plus Class MID 800/849/850 Middlefield Precious Metals Class MID 170/174/175 Middlefield Short-Term Income Class MID 400/424/425 Middlefield Uranium Focused Metals Class MID 210/219/220

Series F Shares

ActiveIndex REIT Class MID 601 Groppe Tactical Energy Class MID 126 Middlefield Canadian Dividend Growth Class

(formerly Middlefield Canadian Growth Class) MID 149 Middlefield Global Agriculture Class MID 162 Middlefield Canadian High Yield Class

(formerly Middlefield Income and Growth Class) MID 301 Middlefield Income Plus Class MID 801 Middlefield Precious Metals Class MID 171

RESOURCE FUNDS

MRF 2012 Resource Limited Partnership MRF 2013 Resource Limited Partnership (commenced February 2013)

Discovery 2011 Flow-Through Limited Partnership Discovery 2012 Flow-Through Limited Partnership


DirectorsMurray J. Brasseur Chairman Middlefield Group

Dennis da Silva Managing Director Resource Group Middlefield Capital Corporation

Richard L. Faiella, CFAManaging Director Corporate Development Middlefield International Limited

W. Garth Jestley, CFA Deputy Chairman Middlefield International Limited

Robert F. Lauzon, CFAManaging Director Western Canada Middlefield Capital Corporation

Dean Orrico President and Chief Executive Officer Middlefield Capital Corporation

Sylvia V. StinsonExecutive Vice-President and Chief Financial Officer Middlefield Group

Independent Review CommitteeGeorge S. Dembroski Former Vice-Chairman RBC Dominion Securities Limited

H. Roger GarlandFormer Vice-Chairman Four Seasons Hotels Inc.

Bernard I. Ghert (Chairman)Former Chairman Mount Sinai Hospital

Charles B. Young Former Deputy Chairman Canary Wharf

AdvisorsGroppe, Long & Littell Guardian Capital LP Middlefield Capital Corporation

OfficersHenry LeePresident Middlefield Realty Services Limited

Nick LombardiPresident MF Properties Limited

Jeremy T. BrasseurManaging Director Corporate Development Middlefield Capital Corporation

Nancy ThamManaging Director Sales and Marketing Middlefield Capital Corporation

Andy NasrExecutive Director, Corporate Development and Portfolio Management Middlefield Capital Corporation

Michael BuryDirector, Sales and Marketing Middlefield Capital Corporation

Douglas D. SedoreDirector Horizon on Bay Limited

Michael T. KimedaSenior Vice-President and Chief Financial Officer Middlefield Capital Corporation

J. Dennis DunlopSenior Vice-President Middlefield Group

Maria F. HerreraSenior Vice-President Middlefield Group

Dinah MasonSenior Vice-President Horizon on Bay Limited

Francis RamirezSenior Vice-President and Chief Compliance Officer Middlefield Capital Corporation

Polly TseSenior Vice-President and Chief Financial Officer MFL Management Limited

Nicole S. BrasseurVice-President Middlefield Group

Stephen ChamberlainVice-President Middlefield Realty Services Limited

Stacy J. CrestohlVice-President Middlefield Group

Shiranee GomezVice-President Middlefield Group

Vincenzo GrecoVice-President Middlefield Limited

Terry LandriaultVice-President Middlefield Group

Judy MarksVice-President Middlefield Group

Lilibeth MondejarVice-President Horizon on Bay Limited

Victor NgaiVice-President Middlefield Group

Catherine RebuldelaVice-President Middlefield Limited

Gabriel SolerVice-President Middlefield Group

Lidia AssaloneAssistant Vice-President Horizon on Bay Limited

Sylvia CasillanoAssistant Vice-President Middlefield Group

Tess DavidAssistant Vice-President Middlefield Group

Rose EspinozaAssistant Vice-President Middlefield Group

Elenita GarbinoVice-President Middlefield Group

Edmun TsangAssociate, Corporate Development Middlefield Capital Corporation

AuditorDeloitte LLP Chartered Accountants

Legal CounselBennett Jones Davies Ward Phillips & Vineberg LLP Fasken Martineau DuMoulin LLP McCarthy Tétrault

BankersBank of Montreal Canadian Imperial Bank of Commerce Royal Bank of Canada

CustodianRBC Investor Services Trust

AffiliatesMFL Management Limited MF Properties Limited Middlefield Group Limited Middlefield International Limited Middlefield Limited Middlefield Realty Services Limited Middlefield Capital Corporation Middlefield Ventures Limited

CORPORATE INFORMATION

www.middlefield.com | [email protected] | (888) 890-1868

TORONTO, CANADAMiddlefield Capital Corporation First Canadian Place 58th Floor, P.O. Box 192 Toronto, Ontario Canada M5X 1A6

Telephone (416) 362-0714 Fax (416) 362-7925

CALGARY, CANADAMiddlefield Limited 812 Memorial Drive NW Calgary, Alberta Canada T2N 3C8

Telephone (403) 269-2100 Fax (403) 269-2911

LONDON, ENGLANDMiddlefield International Limited 288 Bishopsgate London, England EC2M 4QP

Telephone (0207) 814-6644 Fax (0207) 814-6611

SAN FRANCISCO, USAMiddlefield Financial Services Inc. One Embarcadero Center, Suite 500 San Francisco, California USA 94111

Telephone (415) 835-1308 Fax (415) 835-1350

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