2015 interim financial statements

MD Family of Funds
2015 INTERIM
FINANCIAL STATEMENTS
A Message Regarding Your Financial Statements
Dear MD Family of Funds Investor:
As part of our commitment to keeping you informed about your MD Fund investments, please find attached the
2015 interim financial statements.
The interim financial statements are produced on a fund-by-fund basis, and your report only includes information
on the funds you owned as of June 30, 2015.
If you have any questions regarding these documents, please contact your MD advisor or the MD TradeCentre at
1 800 267-2332. We thank you for your continued investment in the MD Family of Funds.
Interim Unaudited Financial Statements for the Six-Month Period Ended June 30, 2015
These Interim Unaudited Financial Statements do not contain the Interim Management Report of Fund Performance (“MRFP”)
of the investment fund. If you have not received a copy of the Interim MRFP with this report, you may obtain a copy of
the Interim MRFP at your request, and at no cost, by calling the toll-free number 1 800 267-2332, by writing to us at
MD Financial Management Inc., 1870 Alta Vista Drive, Ottawa ON K1G 6R7, by visiting our website at md.cma.ca or by visiting
the SEDAR website at sedar.com. Copies of the Annual Financial Statements or Annual MRFP may also be obtained, at no cost,
using any of the methods outlined above. Securityholders may also contact us using one of these methods to request a copy of
the investment fund’s proxy voting policies and procedures, proxy voting disclosure record or quarterly portfolio disclosure.
NOTICE OF NO AUDITOR REVIEW OF THE INTERIM FINANCIAL STATEMENTS
MD Financial Management Inc, the Manager of the Fund, appoints independent auditors to audit the Fund’s Annual Financial
Statements. Under Canadian securities laws (National Instrument 81-106), if an auditor has not reviewed the Interim Financial
Statements, this must be disclosed in an accompanying notice. The Fund’s independent auditors have not performed­a review
of these Interim Financial Statements in accordance with standards established by the Canadian Institute of
Chartered Accountants.
MD Financial Management provides financial products and services, the MD Family of Funds and investment counselling
­services through the MD Group of Companies. For a detailed list of these companies, visit md.cma.ca.
Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments.
The rate of return is used only to illustrate the effects of the compound growth rate and is not intended to reflect future
­values of the mutual fund or returns on investment in the mutual fund. Standard performance data assumes reinvestment
of distributions only and does not take into account sales, redemption, distribution or optional charges payable by any
­securityholder which would have reduced returns. Mutual funds are not g
­ uaranteed, their values change frequently and past
­performance may not be repeated. Please read the prospectus before investing. You may obtain a copy of the prospectus
before investing by calling your MD Advisor or the MD Trade Centre­at 1 800 267-2332.
MDPIM US Equity Pool
Schedule of Investment Portfolio as at June 30, 2015 (unaudited)
(in $000’s except for number of shares)
Number
of Shares
Average
Cost
($)
Fair
Value
($)
DOMESTIC EQUITIES
Materials (0.91%)
Potash Corporation of Saskatchewan Inc.
Total for Materials
Total for Domestic Equities (0.91%)
204,250
7,877
7,877
7,877
7,891
7,891
7,891
Consumer Discretionary (13.66%)
Amazon.com, Inc.
Bloomin' Brands, Inc.
Comcast Corporation Cl. A
D.R. Horton, Inc.
Deckers Outdoor Corporation
Dollar General Corp.
Eaton Corp. PLC
eBay Inc.
Fortune Brands Home & Security Inc.
Johnson Controls, Inc.
Lennar Corporation Cl. A
Lions Gate Entertainment Corp.
Nike Inc. Cl. B
Omnicom Group Inc.
Priceline.com Incorporated
PVH Corp.
Ross Stores Inc.
Royal Caribbean Cruises Ltd.
Sabre Corporation
Starbucks Corporation
Target Corporation
The Gap, Inc.
The Home Depot, Inc.
The TJX Companies Inc.
The Walt Disney Company
The Wendy's Company
WABCO Holdings Inc.
Walgreen Boots Alliance, Inc.
Whirlpool Corporation
Total for Consumer Discretionary
3,900
35,000
118,370
33,500
24,630
82,800
21,300
60,610
32,531
122,315
88,420
28,900
54,810
145,700
2,475
12,000
87,905
14,900
71,714
73,240
81,936
76,631
20,589
132,680
21,360
88,600
9,900
10,200
4,500
1,119
1,114
7,749
959
1,875
7,339
1,209
3,657
1,480
7,539
5,200
958
4,292
10,680
2,090
1,729
3,738
1,444
2,012
2,970
8,215
3,657
1,771
8,246
2,239
1,147
1,422
751
722
97,323
2,112
932
8,880
1,143
2,211
8,030
1,793
4,555
1,859
7,557
5,630
1,336
7,386
12,630
3,555
1,725
5,330
1,463
2,129
4,899
8,344
3,649
2,854
10,952
3,041
1,247
1,528
1,074
971
118,815
Consumer Staples (5.98%)
Colgate-Palmolive Company
DANONE SA ADR
Mondelez International Inc. Cl. A
Nestlé SA ADR
PepsiCo, Inc.
The Coca-Cola Company
The Procter & Gamble Company
Unilever PLC ADR
Wal-Mart Stores, Inc.
Total for Consumer Staples
85,490
352,470
38,993
52,850
91,460
77,450
64,380
69,070
92,252
5,304
5,378
1,457
3,797
8,127
3,179
5,608
3,084
8,340
44,274
6,976
5,694
2,001
4,757
10,649
3,790
6,284
3,701
8,163
52,015
FOREIGN EQUITIES
Number
of Shares
Energy (4.34%)
BP PLC ADR
Cameron International Corporation
ConocoPhillips
Devon Energy Corporation
EOG Resources, Inc.
Gulfport Energy Corporation
Occidental Petroleum Corporation
Phillips 66
Schlumberger Limited
Total for Energy
Financials (12.03%)
American Express Company
Ameriprise Financial, Inc.
Arthur J. Gallagher & Co.
Bank of America Corporation
Bank of New York Mellon Corporation
Berkshire Hathaway Inc. Cl. B
Comerica Inc.
Evercore Partners Inc. Cl. A
JPMorgan Chase & Co.
Loews Corporation
MasterCard, Inc.
Realogy Holdings Corporation
State Street Corporation
SVB Financial Group
T. Rowe Price Group Inc.
The Charles Schwab Corporation
The PNC Financial Services Group, Inc.
The Progressive Corporation
Wells Fargo & Company
Total for Financials
Health Care (13.68%)
Acadia Healthcare Company, Inc.
Alexion Pharmaceuticals Inc.
AmerisourceBergen Corporation
Becton, Dickinson and Company
Biogen Idec Inc.
Celgene Corporation
Cepheid, Inc.
Envision Healthcare Holdings, Inc.
Illumina, Inc.
Insulet Corporation
Jazz Pharmaceuticals PLC
Johnson & Johnson
Laboratory Corporation of America Holdings
Medtronic Public Limited Company
Merck & Co., Inc.
Pfizer Inc.
Sanofi ADR
Shire PLC ADR
Steris Corporation
Stryker Corporation
Average
Cost
($)
Fair
Value
($)
77,515
30,030
57,326
75,495
13,767
34,600
47,010
55,852
78,726
3,929
1,910
4,492
4,780
954
2,086
4,689
5,424
6,354
34,618
3,864
1,962
4,391
5,603
1,504
1,737
4,561
5,613
8,464
37,699
114,391
22,253
24,200
356,040
154,625
43,130
90,065
19,100
119,897
48,631
28,735
31,900
73,831
8,300
52,680
41,900
67,200
165,445
167,496
9,836
3,523
1,239
7,648
4,556
4,612
3,172
1,252
8,641
2,400
1,773
1,604
7,246
922
4,004
1,488
8,121
4,764
11,342
88,143
11,090
3,468
1,428
7,559
8,095
7,323
5,766
1,286
10,135
2,336
3,351
1,859
7,092
1,491
5,108
1,706
8,018
5,744
11,751
104,606
28,800
4,600
22,395
68,740
6,150
18,100
35,900
44,000
7,637
17,367
4,400
122,417
20,600
206,706
119,073
195,704
37,874
6,900
17,500
26,600
2,194
1,033
1,468
8,482
2,453
1,431
2,043
2,066
838
562
1,017
15,219
2,763
16,114
8,698
8,054
2,352
2,077
1,470
2,614
2,814
1,033
2,971
12,146
3,099
2,613
2,739
2,167
2,080
671
966
14,883
3,115
19,107
8,456
8,186
2,340
2,079
1,407
3,171
Percentages shown in brackets relate investments at fair value to net assets of the Fund.
The accompanying notes are an integral part of these financial statements.
MD Financial Management Inc. | MDPIM Interim Financial Statements 2015
MDPIM US Equity Pool
Schedule of Investment Portfolio as at June 30, 2015 (unaudited)
(in $000’s except for number of shares)
Number
of Shares
The Spectranetics Corporation
UnitedHealth Group Incorporated
Varian Medical Systems, Inc.
Zimmer Holdings, Inc.
Zoetis Inc.
Total for Health Care
Industrials (15.81%)
3M Co.
BE Aerospace, Inc.
Booz Allen Hamilton Holding Corp.
CoStar Group, Inc.
CSX Corporation
Delta Air Lines, Inc.
Eaton Corp. PLC
Ecolab Inc.
Emerson Electric Co.
Equifax Inc.
Expeditors International of Washington, Inc.
General Dynamics Corp.
General Electric Company
Honeywell International Inc.
Illinois Tool Works Inc.
L-3 Communications Holdings, Inc.
LKQ Corporation
Lockheed Martin Corporation
Manpower Inc.
Norfolk Southern Corporation
PACCAR Inc.
Quanta Services, Inc.
Raytheon Company
Roadrunner Transportation Systems, Inc.
Rockwell Automation Inc.
Southwest Airlines Co.
Spirit Airlines Inc.
Stanley Black & Decker Inc.
The Boeing Company
United Parcel Service, Inc. Cl. B
United Technologies Corporation
Total for Industrials
Information Technology (16.56%)
Accenture PLC Cl. A
Amphenol Corp. Cl. A
Apple Inc.
Applied Materials, Inc.
Avago Technologies Limited
Broadcom Corporation Cl. A
Cerner Corporation
Cognizant Technology Solutions Corp. Cl. A
Facebook Inc.
FireEye, Inc.
Google Inc. Cl. A
Guidewire Software, Inc.
Intel Corporation
Average
Cost
($)
Fair
Value
($)
35,000
84,880
51,010
7,374
43,900
1,486
8,790
4,291
807
2,672
100,994
1,005
12,917
5,366
1,005
2,641
118,977
68,020
9,587
41,500
4,000
48,400
27,600
56,295
42,070
88,420
30,064
79,610
41,410
77,368
111,441
45,832
9,200
85,900
8,100
8,900
36,547
73,630
27,670
47,305
66,800
10,049
46,716
28,622
92,326
5,416
58,830
85,430
8,725
727
1,493
994
2,015
1,166
4,982
4,198
5,434
1,995
3,524
6,219
2,626
13,353
5,294
1,480
2,677
2,043
723
4,158
4,469
1,006
5,927
2,079
958
2,253
1,739
11,720
821
5,896
9,415
120,109
13,093
657
1,307
1,004
1,971
1,414
4,740
5,934
6,114
3,641
4,579
7,319
2,564
14,175
5,248
1,301
3,241
1,878
992
3,983
5,861
995
5,646
2,150
1,563
1,928
2,217
12,121
937
7,112
11,822
137,507
13,468
3,511
9,007
2,208
1,192
779
3,660
4,277
3,285
1,645
5,649
1,030
5,533
19,667
5,967
15,214
1,736
1,293
899
5,976
6,799
8,001
1,867
5,322
1,096
5,446
162,905
82,518
97,238
72,400
7,800
14,000
69,370
89,210
74,781
30,600
7,900
16,600
143,536
Percentages shown in brackets relate investments at fair value to net assets of the Fund.
The accompanying notes are an integral part of these financial statements.
MD Financial Management Inc. | MDPIM Interim Financial Statements 2015
Number
of Shares
LinkedIn Corporation
Mellanox Technologies Ltd.
Microsoft Corporation
Oracle Corporation
Salesforce.com, Inc.
TE Connectivity Limited
Tencent Holdings Limited UNS ADR
The Ultimate Software Group, Inc.
VeriFone Systems, Inc.
Verint Systems Inc.
Waters Corporation
Western Digital Corporation
Total for Information Technology
Average
Cost
($)
Fair
Value
($)
4,460
34,200
436,774
316,344
22,390
69,690
41,200
12,260
34,800
26,000
33,390
16,770
967
1,776
19,806
14,191
1,208
3,854
595
2,202
1,553
1,767
3,404
2,009
108,576
1,150
2,073
24,056
15,903
1,945
5,590
1,030
2,513
1,474
1,970
5,347
1,641
143,975
Materials (1.93%)
CRH PLC Sponsored ADR
E.I. du Pont de Nemours and Company
Praxair, Inc.
Rio Tinto PLC ADR
Total for Materials
165,935
31,200
41,850
43,474
5,880
2,279
5,117
2,341
15,617
5,819
2,489
6,241
2,235
16,784
Telecommunication Services (1.92%)
AT&T Inc.
Liberty Global PLC Series A
T-Mobile US, Inc.
Verizon Communications Inc.
Total for Telecommunication Services
140,294
14,700
47,800
123,788
6,113
1,035
1,952
7,316
16,416
6,216
992
2,312
7,197
16,717
68,673
6,118
6,118
6,040
6,040
Exchange Traded Funds (6.75%)
SPDR S&P 500 ETF Trust
228,559
56,329
Total for Exchange Traded Funds
56,329
Total for Foreign Equities (93.35%)
688,517
Total Investments (94.26%)
$696,394
Cash and Other Net Assets (5.74%)
Total Net Assets Attributable to Holders of Redeemable Units (100.00%)
58,691
58,691
811,826
$819,717
49,890
$869,607
Utilities (0.69%)
Entergy Corporation
Total for Utilities
Schedule of Derivative Instruments
(in $000’s)
Futures Contracts
Unrealized
Counter
Credit
Notional Gain (Loss)
party
Rating*
Description
Amount
CAD $
Goldman SachsA
S+P 500 E-Mini Index Futures USD
Net unrealized gain (loss) futures contracts Total for Schedule of Derivative Instruments
* Source: Standard & Poor’s Credit Rating Agency
4,100 (75)
$(75)
$(75)
MDPIM US Equity Pool
Financial Statements
Statement of Financial Position
(­unaudited­)
Statement of Comprehensive Income
(­unaudited­)
(in $000’s except for units outstanding and per unit amounts)
(in $000’s except for per unit amounts)
June 30,
2015
Assets
Current assets
Investments
Cash
Dividends receivable
Unrealized gain on derivatives
Net margin due from broker on
future contracts
Receivable for investment
transactions
Receivable for securities lending
transactions
Subscriptions receivable
$
Liabilities
Current liabilities
Payable for investment transactions
Distributions payable
Redemptions payable
Unrealized loss on derivatives
Net assets attributable to holders
of redeemable units
Net assets attributable to holders
of redeemable units per Series
Series A
Series T
Private Trust Series
630,745
23,718
2,140
124
307
37
1,031
1,934
5
662
874,287
5
281
658,984
3,668
9
928
75
4,680
1,080
—
206
—
1,286
$
869,607 $
657,698
$
2,214 $
1,698
865,695 $
2,086
1,687
653,925
$
Number of redeemable units ­outstanding
(see ­Supplementary Schedules)
Series A
Series T
Private Trust Series
Net assets attributable to holders of
redeemable units per unit, per Series
Series A
Series T
Private Trust Series
819,717 $
50,654
1,911
—
December 31,
2014
191,364
108,857
64,621,786
$
$
195,775
114,830
53,101,702
11.57 $
15.60
13.40 $
10.65
14.70
12.31
June 30,
2015
Six months ended
Income
Net gain (loss) on investments
Dividends
Interest for distribution purposes
Net realized gain (loss) on sale of investments
Change in unrealized appreciation (depreciation)
of investments
Net gain (loss) on investments
$
Net gain (loss) on derivatives
Net realized gain (loss) on derivative instruments
Change in unrealized appreciation (depreciation)
of derivative instruments
Net gain (loss) on derivatives
Other income
Foreign exchange gain (loss) on cash
Securities lending (see Supplementary Schedules)
Other
Total other income
Total income (loss)
Expenses
Management fees (Note 4)
Regulatory filing fees
Audit fees
Custodial fees
Securityholder reporting costs
Administration fees
Independent Review Committee (IRC) fees
Interest expense
Withholding tax on foreign income
Operating expenses absorbed by the Fund Manager
(Note 4)
Transaction costs
Total expenses
June 30,
2014
7,342 $
4
80,806
22,930
11
374,021
(30,261)
57,891
(246,045)
150,917
623
(4,284)
(199)
424
(93)
(4,377)
2,738
19
79
2,836
61,151
(7,678)
58
73
(7,547)
138,993
15
63
14
26
8
62
3
—
2,297
14
125
7
49
34
636
5
8
2,488
(176)
263
2,575
(856)
683
3,193
Increase (decrease) in net assets attributable
to holders of redeemable units
$
58,576 $
135,800
Increase (decrease) in net assets attributable to
holders of redeemable units per Series
Series A
Series T
Private Trust Series
$
$
$
182 $
144 $
58,250 $
98
126
135,576
Increase (decrease) in net assets attributable to
holders of redeemable units per unit, per Series
Series A
Series T
Private Trust Series
$
$
$
0.94 $
1.32 $
0.98 $
0.43
0.61
0.54
The accompanying notes are an integral part of these financial statements.
MD Financial Management Inc. | MDPIM Interim Financial Statements 2015
MDPIM US Equity Pool
Financial Statements
Statement of Changes in Net Assets
­Attributable to H
­ olders­of Redeemable
Units (“Net assets”) (­unaudited­) Six months ended
(in $000’s)
Add (deduct) changes during the period:
Operations
Increase (decrease) in net assets attributable to
holders of redeemable units
Six months ended
SERIES A
Net assets – beginning of period
June 30, 2015
$
Add (deduct) changes during the period:
Operations
Increase (decrease) in net assets attributable to
holders of redeemable units
Redeemable unit transactions
Proceeds from issue of redeemable units
Cash paid for redemption of redeemable units
Units issued on reinvestment of distributions
Distributions
From net investment income
Net assets – end of period
SERIES T
Net assets – beginning of period
$
$
Add (deduct) changes during the period:
Operations
Increase (decrease) in net assets attributable to
holders of redeemable units
Redeemable unit transactions
Proceeds from issue of redeemable units
Cash paid for redemption of redeemable units
Distributions
From net investment income
Return of capital
Net assets – end of period
$
PRIVATE TRUST SERIES
Net assets – beginning of period
June 30, 2014
2,086 $
2,217
182
98
22
(76)
3
(51)
278
(606)
1
(327)
(3)
(1)
2,214 $
1,687 $
1,987
2,528
144
126
215
(295)
(80)
828
(1,152)
(324)
(13)
(40)
(53)
(21)
(67)
(88)
1,698 $
2,242
The accompanying notes are an integral part of these financial statements.
MD Financial Management Inc. | MDPIM Interim Financial Statements 2015
June 30, 2015
$
Redeemable unit transactions
Proceeds from issue of redeemable units
Cash paid for redemption of redeemable units
Units issued on reinvestment of distributions
Distributions
From net investment income
June 30, 2014
653,925 $ 2,528,718
58,250
135,576
229,119
(75,207)
5,235
159,147
490,318
(1,337,604)
21,134
(826,152)
(5,627)
(22,346)
Net assets – end of period
$
865,695 $ 1,815,796
TOTAL FUND
Net assets – beginning of period
$
657,698 $ 2,533,463
Add (deduct) changes during the period:
Operations
Increase (decrease) in net assets attributable to
holders of redeemable units
Redeemable unit transactions
Proceeds from issue of redeemable units
Cash paid for redemption of redeemable units
Units issued on reinvestment of distributions
Distributions
From net investment income
Return of capital
Net assets – end of period
$
58,576
135,800
229,356
(75,578)
5,238
159,016
491,424
(1,339,362)
21,135
(826,803)
(5,643)
(40)
(5,683)
(22,368)
(67)
(22,435)
869,607 $ 1,820,025
MDPIM US Equity Pool
Financial Statements
Statement of Cash Flows (unaudited)
(in $000’s)
Six months ended
June 30, 2015
June 30, 2014
Cash flows from (used in) operating activities
I ncrease (decrease) in net assets attributable
to ­holders­of redeemable units
$
Adjustments for:
Proceeds from sale of investments
Purchase of investments
Amortization Income
Unrealized foreign exchange (gain) loss on cash
Net realized (gain) loss on sale of investments
Change in unrealized (appreciation) depreciation
of investments
Change in unrealized (appreciation) depreciation
of derivative instruments
58,576 $
135,800
553,553
(688,485)
(4)
(809)
(80,806)
1,771,104
(951,517)
—
1,151
(374,021)
30,261
246,045
199
93
(41)
1,427
(127,556)
830,082
Proceeds from issue of redeemable units
Distributions to holders of redeemable units,
net of ­reinvested­distribution
Cash paid for redemption of redeemable units
228,975
491,712
(436)
(74,856)
(1,300)
(1,339,756)
Net cash from (used in) financing activities
153,683
(849,344)
809
(1,151)
Net increase (decrease) in cash during the period
26,936
(20,413)
Cash, beginning of period
23,718
94,232
50,654 $
73,819
Net change in non-cash working capital
Net cash from (used in) operating activities
Cash flows from (used in) financing activities
Unrealized foreign exchange gain (loss) on cash
Cash, end of period
Interest received
Dividends received, net of withholding taxes
$
4
5,274
11
21,901
The accompanying notes are an integral part of these financial statements.
MD Financial Management Inc. | MDPIM Interim Financial Statements 2015
MDPIM US Equity Pool
Financial Statements – Supplementary Schedules (unaudited)
Redeemable Unit Transactions
June 30, 2015 June 30, 2014
For the periods ended June 30
2015
2014
SERIES A
Outstanding, beginning of period
Issued
Redeemed
Outstanding, end of period
195,775
2,131
(6,542)
191,364
250,010
29,202
(64,478)
214,734
SERIES T
Outstanding, beginning of period
Issued
Redeemed
Outstanding, end of period
114,830
13,770
(19,743)
108,857
196,784
62,370
(87,629)
171,525
PRIVATE TRUST SERIES
Outstanding, beginning of period
Issued
Redeemed
Outstanding, end of period
53,101,702 244,576,720
17,190,359
47,554,615
(5,670,275) (123,309,317)
64,621,786 168,822,018
Gross amount generated from the securities
­lending transactions
Amounts paid to State Street Bank and Trust Co
Net securities lending income as reported in the
Statement of Comprehensive Income
$
$
25 $
(7) $
72
(14)
$
19 $
58
Fees
As at June 30
2015
Maximum annualized management fee
Series A
Series T
Private Trust Series
2014
1.25%
—
—
1.25%
—
—
Amounts Subject to Master Netting
­Arrangements
(in $000’s)
The Fund does not enter into any enforceable master netting arrangements.
Soft Dollar Commissions
The term “soft dollar” is used to describe a widely accepted business practice by
which the investment advisors receive various benefits from the broker through the
course of a normal business relationship. Such benefits may be in the form of
research or other materials that aid in the investment process, thus contributing to
the long-term realization of returns for the unitholders.
The soft dollar portion of the commissions paid to dealers for executing portfolio
transactions is not ascertainable for the first six months of 2015 and 2014.
(in $000’s)
Fair value of securities loaned
Fair value of collateral (non-cash)
$
$
December 31,
2014
58,385 $
60,710 $
As at June 30 (in $000’s)
2015
Net capital loss carried forward
Non-capital losses expiring:
2015
2016
in 2017 and thereafter
Total
Securities on Loan
June 30,
2015
Tax Loss Carry Forwards
—
—
State Street Bank and Trust Co is entitled to receive payments out of the gross
amount generated from the securities lending transactions of the Fund and bears all
operational costs directly related to securities lending as well as the cost of
borrower default indemnification. The table below sets out a reconciliation of the gross amount generated from the
securities lending transactions of the Funds to the revenue from securities lending
disclosed under securities lending income in the Fund’s statements of comprehensive income as at June 30, 2015 and June 30, 2014.
The accompanying notes are an integral part of these financial statements.
MD Financial Management Inc. | MDPIM Interim Financial Statements 2015
$
24,598
$
—
—
—
—
$
The Fund qualifies as a mutual fund trust under the provisions of the Income Tax Act
(Canada) and, accordingly, is subject to tax on its income for the year, including net
realized capital gains which is not paid or payable to its unitholders as at the end of
the year. It is the intention of management that all annual net investment income
and sufficient net realized taxable capital gains will be distributed to unitholders
annually by December 31, such that there are no Canadian income taxes payable by
the Fund. As a result, the Fund does not record income taxes.
Since the Fund does not record income taxes, no benefit has been recorded by the
Fund in its financial statements in respect of its unused losses as at June 30, 2015.
The Fund has accumulated net realized capital losses of $24,598 available for
utilization against net realized capital gains. Capital losses have no expiry.
Non-capital losses realized in 2005 can be carried forward for up to ten years.
Non-capital losses realized in 2006 and after can be carried forward for up to twenty
years.
MDPIM US Equity Pool
Financial Instruments Risks (unaudited)
(in $000’s)
Financial Instruments
MDPIM US Equity Pool (the “Fund”) invests in equity securities of U.S. companies as
well as futures contracts as shown in the Schedule of Investment Portfolio. The Fund
invests excess cash in high grade short-term notes with maturities of less than
1 year. These investments expose the Fund to risks associated with financial
instruments. The Fund’s exposure and sensitivity to these risks are presented
below. A description of the risks and how the Fund manages these risks is discussed
in Note 7 of the Notes to the Financial Statements.
Credit Risk
The Fund’s credit risk is concentrated in investments in short-term debt instruments. The Fund’s maximum exposure to credit risk from cash and short-term
investments is as shown on the Statement of Financial Position. The Fund’s
maximum exposure to credit risk from derivative instruments is the unrealized gain
as presented in the Schedule of Derivative Instruments.
As at June 30, 2015 and December 31, 2014, the Fund invested in preferred shares
and short-term debt instruments with the following credit ratings:
% of Net Assets % of Net Assets
­Attributable­ to
Attributable to
Holders of
Holders of
Redeemable Units Redeemable Units
June 30, 2015 December 31, 2014
Credit Rating
Debt Instruments
AA / R-1 (Mid)
A / R-1 (Low)
Total
—
—
—
—
—
—
All credit ratings are from external credit rating agencies such as Dominion Bond
Rating Service, Standard & Poor’s and Moody’s.
Currency Risk
Exposures to foreign currencies as at June 30, 2015 and December 31, 2014 are
presented in the table below.
Currency
As at June 30, 2015, if the Canadian Dollar had strengthened against all other
currencies by 10%, the Net Assets Attributable to Holders of Redeemable Units of
the Fund could have decreased by approximately $86,985, or 10.00% of Net Assets
Attributable to Holders of Redeemable Units (December 31, 2014 – $65,751 or
10.00%). Conversely, had the Canadian Dollar weakened against all other currencies
by 10%, the Net Assets Attributable to Holders of Redeemable Units of the Fund
could have increased by approximately $86,985, or 10.00% of Net Assets
Attributable to Holders of Redeemable Units (December 31, 2013 – $65,751 or
10.00%). These sensitivities are estimates. Actual results may vary and the
variance may be material.
Interest Rate Risk
The majority of the Fund’s financial assets are non-interest bearing. The maturity
dates of the interest bearing assets held by the Fund are less than 1 year. Therefore,
the Fund’s exposure to interest rate risk is not significant.
Liquidity Risk
The Fund’s financial liabilities are all due within one year. Redeemable units are
redeemable on demand at the holder’s option; however, the Fund does not expect
the contractual maturity will be representative of the actual cash outflows, as
holders of these instruments typically retain them for a longer period.
Other Price Risk
As at June 30, 2015, 94.3% (December 31, 2014 – 95.9%) of the Fund’s Net Assets
Attributable to Holders of Redeemable Units were invested in equity financial
instruments traded in active markets. If prices of securities traded on these markets
decrease by 10%, with all other factors remaining constant, Net Assets Attributable
to Holders of Redeemable Units could fall by approximately $81,972 (December 31,
2014 – $63,055). Conversely, if prices increase by 10%, Net Assets Attributable to
Holders of Redeemable Units could rise by approximately $81,972 (December 31,
2014 – $63,055). These sensitivities are estimates. Actual results may vary and the
variance may be significant.
Cash and
Other Net
Percentage
Assets
of Net Assets
Attributable
Attributable
to Holders of Investments
to Holders of
Redeemable
at
Derivative Net Currency Redeemable
Units
Fair Value
Exposure
Exposure
Units
June 30, 2015
U.S. Dollar
50,203
819,717
(75)
869,845
100.03%
December 31, 2014
U.S. Dollar
26,637
630,745
124
657,506
99.97%
The accompanying notes are an integral part of these financial statements.
MD Financial Management Inc. | MDPIM Interim Financial Statements 2015
MDPIM US Equity Pool
Financial Instruments Risks (unaudited)
(in $000’s)
Concentration Risk
Fair Value Hierarchy
Concentration risk arises as a result of the concentration of exposures within the
same category. The following table summarizes the Fund’s concentration risk as a
percentage of long-term investments:
The following is a summary of the Fund’s use of quoted market prices (Level 1),
internal models using observable market information as inputs (Level 2), and
internal models without observable market information (Level 3) in the valuation of
the Fund’s securities. The inputs or methodologies used for valuing securities are
not necessarily an indication of the risk associated with investing in those securities.
Market Segment
Domestic Equities
Materials
Foreign Equities
Consumer Discretionary
Consumer Staples
Energy
Exchange Traded Funds
Financials
Health Care
Industrials
Information Technology
Materials
Telecommunication Services
Utilities
Total
June 30, 2015
December 31, 2014
0.96%
1.37%
14.49%
6.35%
4.60%
7.16%
12.76%
14.51%
16.78%
17.56%
2.05%
2.04%
0.74%
100.00%
13.87%
7.58%
6.14%
5.92%
14.90%
13.41%
14.82%
19.01%
2.12%
0.11%
0.75%
100.00%
Quoted prices in
active markets
for identical
assets
(Level 1)
June 30, 2015
Domestic Equities
Foreign Equities
Unrealized loss on derivatives
Total
December 31, 2014
Domestic Equities
Foreign Equities
Unrealized gain on derivatives
Total
$
$
$
$
Significant
­other­
observable­
inputs
(Level 2)
Total*
7,891 $
811,826
(75)
819,642 $
— $
—
—
— $
7,891
811,826
(75)
819,642
8,664 $
622,081
124
630,869 $
— $
—
—
— $
8,664
622,081
124
630,869
*The Fund does not hold any Level 3 investments.
There have been no significant transfers between Level 1 and Level 2 for the periods
January 1, 2015 to June 30, 2015 and January 1, 2014 to December 31, 2014.
The accompanying notes are an integral part of these financial statements.
MD Financial Management Inc. | MDPIM Interim Financial Statements 2015
Notes to Financial Statements
For the periods ended June 30, 2015 and 2014
1. Name and formation of the Funds
ESTABLISHMENT OF THE FUNDS
The MD Family of Mutual Funds (individually a “Fund” and collectively the “Funds”) are unincorporated mutual fund trusts formed under the laws of the Province of Ontario
pursuant to the Declarations of Trust, and the creation dates areas follows:
Series A Units
Series I Units
MD Balanced Fund
September 9, 1992
MD Bond Fund
April 6, 1988
October 30, 2009
MD Short-Term Bond Fund
September 19, 1995
October 30, 2009
Series T Units
Private Trust Series
October 25, 2010
MD Dividend Income Fund
September 9, 1992
October 30, 2009
October 25, 2010
MD Equity Fund
March 1, 1966
October 30, 2009
October 25, 2010
MD Dividend Growth Fund
January 4, 2007
October 30, 2009
October 25, 2010
MD International Growth Fund
August 9, 2000
October 30, 2009
October 25, 2010
MD International Value Fund
January 5, 2004
October 30, 2009
October 25, 2010
MD Money Fund
July 12,1983
MD Select Fund
October 29, 1993
October 30, 2009
October 25, 2010
MD American Growth Fund
September 9, 1992
October 30, 2009
October 25, 2010
October 25, 2010
MD American Value Fund
August 9, 2000
October 30, 2009
MD Strategic Yield Fund
January 30, 2014
January 30, 2014
MD Strategic Opportunities Fund
January 30, 2014
January 30, 2014
MD Precision Conservative Portfolio
January 5, 2010
MD Precision Balanced Income Portfolio
May 10, 2012
MD Precision Moderate Balanced Portfolio
January 5, 2010
MD Precision Moderate Growth Portfolio
May 10, 2012
MD Precision Balanced Growth Portfolio
January 5, 2010
MD Precision Maximum Growth Portfolio
January 5, 2010
MDPIM Canadian Equity Pool
June 16, 1999
October 25, 2010
August 9, 2000
MDPIM US Equity Pool
August 6, 1999
October 25, 2010
August 9, 2000
MD Growth Investments Limited is a mutual fund corporation incorporated under the laws of Ontario pursuant to the Letters Patent and the Series creation dates are
as follows:
MD Growth Investments Limited
Series A
Series I
July 18, 1969
October 30, 2009
MD Financial Management Inc. (“the Manager”) is the Manager of the Funds. Prior to June 2, 2010, MD Private Trust was the Manager and Trustee for the MDPIM Canadian
Equity Pool and the MDPIM US Equity Pool.
The address of the Funds’ registered office is 1870 Alta Vista Drive, Ottawa, Ontario, Canada, K1G 6R7.
Throughout these Notes to the Financial Statements, the shares of MD Growth Investments Limited have been referred to as “units” to simplify the presentation.
These financial statements were authorized for issue by the Manager on August 7, 2015.
1
MD Family of Funds | Interim Financial Statements 2015
Notes to Financial Statements
For the periods ended June 30, 2015 and 2014
FINANCIAL INSTRUMENTS
The Funds recognize financial instruments at fair value upon initial recognition.
The Funds’ investments in debt, short-term investments, equity securities and
derivatives are classified as financial assets or financial liabilities at fair value
through profit or loss (FVTPL). This category has two sub-categories: financial
assets and financial liabilities held for trading and those designated at FVTPL at
inception. A financial asset or financial liability is classified as held for trading if it
is acquired or incurred principally for the purpose of selling or repurchasing in the
near term or if on initial recognition is part of a portfolio of identifiable financial
investments that are managed together and for which there is evidence of a recent
actual pattern of short-term profit taking. The Funds’ derivatives are also
categorized as held for trading. The Funds do not classify any derivatives as hedges
in a hedging relationship. Financial assets and financial liabilities designated at
FVTPL at inception are financial instruments that are not classified as held for
trading but are managed, and their performance is evaluated on a fair value basis
in accordance with the Funds’ investment strategy. All of the Funds’ investments
in debt, short-term investments and equity securities have been designated as
FVTPL at inception and are presented on the Statement of Financial Position as
­Investments. Cash is measured at fair value upon recognition and subsequently
at amortized cost.
SERIES OF UNITS
The MDPIM Canadian Equity Pool and MDPIM US Equity Pool Funds offer “Private
Trust Series” and “Series T” units which may be purchased by either MD Private
Investment Counsel (an operating division of MD Physician Services Inc.) or
MD Private Trust Company clients who have appointed MD Private Investment
Counsel to provide discretionary portfolio management services and advice to them
or MD Private Trust Company to provide trust services. “Series A” units are closed to
new subscribers. Investors holding “Series A” units of these Funds are allowed to
hold their units, as well as subscribe for additional “Series A” units of the Funds.
Each of the MD Funds other than MDPIM Canadian Equity Pool and MDPIM US Equity
Pool offer “Series A” units which are available to all MD Management Ltd. clients who
are qualified eligible investors.
“Series I” units were established to support the MD Precision Conservative Portfolio,
the MD Precision Moderate Balanced Portfolio, the MD Precision Balanced Growth
Portfolio, the MD Precision Maximum Growth Portfolio, the MD Precision Balanced
Income Portfolio and the MD Precision Moderate Growth Portfolio. These units are
only available to the six Funds listed above, and are not charged management fees.
“Series T” units were established in order to support a new tax-efficient investment
solution for clients. The series T units generate steady tax-efficient cash flow that
does not increase taxable income or impact certain benefits such as Old Age Security.
Regular way purchases and sales of financial assets are recognized at their trade
date. Transaction costs related to investments and derivatives are expensed as
incurred in the Statement of Comprehensive Income.
2. Basis of presentation and adoption
of IFRS
Subsequent to initial recognition, all financial assets and liabilities at FVTPL are
measured at fair value. Gains and losses arising from changes in the fair value are
presented in the Statement of Comprehensive Income within “Change in unrealized
appreciation (depreciation) of investments” for financial assets and liabilities
designated at FVTPL and within “Change in unrealized appreciation (depreciation)
of derivatives” for derivatives in the periods in which they arise.
These financial statements have been prepared in compliance with International
Financial Reporting Standards (IFRS) as published by the International Accounting
Standards Board (IASB).
The interest for distribution purposes shown on the Statement of Comprehensive
Income represents the coupon interest received by the Funds accounted for on an
accrual basis. Dividend income and distributions to unitholders are recorded on the
ex-dividend date. Distributions from underlying funds out of interest, foreign income
and related withholding taxes, Canadian dividends and net realized capital gains are
recognized when declared. Realized gains or losses from investment transactions
and the unrealized appreciation or depreciation of investments are computed on
an average cost basis, which exclude brokerage commissions and other trading
­expenses. Brokerage commissions and other trading expenses are charged to
income as incurred.
3. Significant accounting policies
CASH
Cash is comprised of cash on and demand deposits with financial institutions.
They are recorded at cost which represents fair value.
FUNCTIONAL AND PRESENTATION CURRENCY
The financial statements are presented in Canadian dollars, which is the Funds’
functional currency. Cash, investments and other assets and liabilities denominated
in foreign currencies are translated into Canadian Dollars at the rate of exchange
prevailing on each valuation date. Transactions during the year in currencies other
than Canadian Dollars are translated into Canadian Dollars at the rate of exchange
prevailing on the trade date of the transaction. The difference in the foreign
exchange rate between trade date and settlement date of a transaction is
recognized in income on the Statement of Comprehensive Income. Foreign
exchange gains and losses relating to cash are presented as “Gain (Loss) on
foreign exchange” and those relating to other financial assets and liabilities are
presented within net gains or losses on sale of investments or derivatives.
Other financial assets and liabilities, such as accrued interest and dividends
receivable, accounts receivable for investment transactions, subscriptions
receivable, amounts receivable for securities lending transactions, distributions
payable, accounts payable for investment transactions and redemptions payable are
recognized initially at fair value, net of transaction costs, and subsequently stated at
amortized cost using the effective interest rate method. Under this method,
financial assets and liabilities reflect the amount required to be received or paid,
discounted, when appropriate, at the contracts effective interest rate.
All financial information is presented in Canadian dollars and has been rounded to
the nearest thousand, unless otherwise stated.
The Funds’ accounting policies for measuring the fair value of their investments and
derivatives are identical to those used in measuring the net asset value (NAV) for
transactions with unitholders.
The Funds’ obligation for net assets attributable to holders of redeemable units is
presented at the redemption amount.
MD Family of Funds | Interim Financial Statements 2015
2
Notes to Financial Statements
For the periods ended June 30, 2015 and 2014
FUTURES CONTRACTS
Futures contracts are valued on each valuation day using the closing market price
posted on the related public exchange. All gains or losses arising from futures
contracts are recorded as part of “Change in unrealized appreciation (depreciation)
of derivatives” in the Statement of Comprehensive Income until the contracts are
closed out or expire, at which time the gains or losses are realized and reported as
“Net realized gain (loss) on derivative instruments” in the Statement of
­Comprehensive Income.
OFFSETTING FINANCIAL INSTRUMENTS
Financial assets and liabilities are offset and the net amount reported in the
statement of financial position where the Funds currently have a legally enforceable
right to set-off the recognized amounts and there is an intention to settle on a net
basis or realize the asset and settle the liability simultaneously. In the normal
course of business, the Funds may enter into various master netting agreements or
similar agreements that do not meet the criteria for offsetting in the statement of
financial position but still allow for the related amounts to be set off in certain
circumstances, such as bankruptcy or termination of the contracts.
CAPITAL RISK MANAGEMENT
Units issued and outstanding are considered to be the capital of the Funds.
The Funds do not have any specific capital requirements on the subscription and
redemption of units, other than certain minimum subscription. The Funds’ units are
offered for sale on any business day and may be redeemed or issued at the Net
Asset Value (NAV) per unit for the respective series on that business day. A business
day refers to any day the Toronto Stock Exchange is open for business. The NAV for
each series is computed daily by calculating the value of that series’ proportionate
share of net assets and liabilities of the Fund common to all series less liabilities
attributable to that series. Expenses directly attributable to a series are charged to
that series. Assets, common liabilities, revenues and other expenses are allocated
proportionately to each series based upon the relative NAVs of each series. The NAV
per unit is determined by dividing the NAV of each series of a Fund by the total
number of units of that series outstanding.
Transactions with counterparties are governed by separate master netting
agreements. Each agreement allows for net settlement of certain open contracts
where the Fund and respective counterparty both elect to settle on a net basis. In
the absence of such an election, contracts will be settled on a gross basis. However,
each party to the master netting agreement will have the option to settle all open
contacts on a net basis in the event of default of the other party.
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 at the measurement
date. Investments are categorized as FVTPL and are recorded at fair value. In the
case of securities traded in an active market, fair value is based on quoted market
prices at the close of trading on the reporting date as provided by independent
pricing services. The Funds use the last traded market price for both financial assets
and financial liabilities where the last traded price falls within the day’s bid-ask
spread. In circumstances where the last traded price is not within the bid-ask
spread, the Manager determines the point within the bid-ask spread that is most
representative of fair value based on the specific facts and circumstances. In the
case of investments not traded in an active market, or for those securities for which
the Manager feels the latest market prices are not reliable, fair value is estimated
based on valuation techniques established by the Manager. Valuation techniques
established by the Manager are based on observable market data except in
situations where there is no relevant or reliable market data. The value of securities
estimated using valuation techniques not based on observable market data, if any,
is disclosed in the Financial Instruments Risks section of the financial statements.
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 Statement of Comprehensive Income represents the increase or
decrease in net assets attributable to holders of redeemable units attributable to
each series of units for the period, divided by the weighted average units
­outstanding in that series during the period.
SECURITIES LENDING TRANSACTIONS
A Fund may lend portfolio securities to earn additional income through a securities
lending agreement with its custodian. The aggregate market value of all securities
loaned by the Fund cannot exceed 50% of the assets of the Fund. The Fund receives
collateral in the form of securities deemed acceptable under National Instrument
81-102, “Mutual Funds” (“NI81-102”) of at least 102% of the fair value of securities
on loan. Collateral held is typically government and corporate bonds.
FORWARD CURRENCY CONTRACTS
The Funds may enter into forward currency contracts for either hedging or
non-hedging purposes where such activity is consistent with their investment
objectives and as permitted by the Canadian securities regulatory authorities.
Investments in forward currency contracts are entered into with approved
counterparties and are recorded at fair value.
Income from securities lending is recorded as “Securities lending” on a monthly
basis when it is receivable. Securities lending details are listed in Securities on Loan
included in the supplementary schedules to the financial statements.
Changes in fair value of forward currency contracts are recorded in “Change in
unrealized appreciation (depreciation) of derivatives”. Upon closing of the contracts,
the accumulated gains or losses are reported in “Net realized gain (loss) on sale of
derivative instruments”. Unrealized gains or losses on forward currency contracts
are categorized as financial assets or liabilities held for trading.
REDEEMABLE UNITS
The Funds issue different series of redeemable units, which are redeemable at
the holder’s option and do not have identical rights. Such units are classified as
financial liabilities. Redeemable units can be put back to the Funds at any date for
cash equal to a proportionate share of the Funds’ net asset value attributable to the
series. The redeemable units are carried at the redemption amount that is payable
at the Statement of Financial Position date if the holder exercises the right to put
the unit back to the Funds.
The contractual amounts of open contracts are disclosed in the Schedule of
Investment Portfolio in the Schedule of Derivative Instruments.
3
MD Family of Funds | Interim Financial Statements 2015
Notes to Financial Statements
For the periods ended June 30, 2015 and 2014
INVOLVEMENT IN UNCONSOLIDATED STRUCTURED ENTITIES
A structured entity is an entity that has been designed so that voting or similar
rights are not the dominant factor in deciding who controls the entity, such as when
any voting rights relate to administrative tasks only and the relevant activities are
directed by means of contractual arrangements.
4. Expenses and other related party
­transactions
Certain Funds’ investment strategy entails trading in other funds on a regular basis.
The Funds considers all of its investments in other funds (“Investee Funds”) to be
investments in unconsolidated structured entities. The Funds invest in Investee
Funds whose objectives range from conserving principal to maximizing dividend
income to long-term capital growth and whose investment strategies do not
include leverage. The Investee Funds finance their operations by issuing redeemable units which are puttable at the holder’s option and entitles the holder to a
proportionate stake in the respective in the Investee Fund’s net assets. The Funds
hold redeemable units in each of their Investee Funds and the Funds have the right
to request redemption of their investment in Investee Funds daily. The Funds’
investments in Investee Funds are subject to the terms and conditions of the
respective Investee Fund’s offering documentation. The change in fair value of each
Investee Fund is included in the Statement of Comprehensive Income in “Change in
unrealized appreciation (depreciation) of investments and derivatives”.
The Manager provides the Funds with investment management and administrative
services, including providing key management personnel to the Funds. In return, the
Manager receives a management fee based on the NAV of the Funds calculated on a
daily basis and paid weekly.
The management and administration fees are unique to each Fund and are unique to
each series of units, and are disclosed on the Schedule of Fees.
No management or administration fee, or operating expenses are charged in respect
of Series I units. These units are only available to be held by other MD Funds.
No management fee or operating expenses are charged in respect of units of the
Private Trust Series of the MDPIM Canadian Equity Pool and MDPIM US Equity Pool.
Investors in these series of units have agreed to pay a managed account fee directly
to MD Private Investment Counsel. These managed account fees are charged
directly to each unitholder to a maximum rate of 1.56% per annum plus
­custodial fees.
The Manager bears all of the operating expenses of the Funds (other than certain
transaction costs, taxes and borrowing costs) in return for administration fees,
calculated as a fixed annual percentage of the Funds’ NAV.
The Funds’ maximum exposure to loss from their interest in Investee Funds is equal
to the fair value of their investments in Investee Funds. Fund specific exposure to
Investee Funds is disclosed in the “Financial Instrument Risk” section of the
financial statements. Once a Fund has disposed of its shares in an Investee Fund
the Fund ceases to be exposed to any risk from that investee fund.
INDEPENDENT REVIEW COMMITTEE
The Manager has established an Independent Review Committee (“IRC”) as
required under National Instrument 81-107, “Independent Review Committee for
Investment Funds” (“81-107”). The IRC reviews conflict of interest matters related
to the operations of the Funds. In addition, in some circumstances, in place of
obtaining unitholder approval, a Fund may be reorganized with or its assets
transferred to another mutual fund managed by the Manager or an affiliate. This
requires IRC approval, and that unitholders are sent a written notice at least 60 days
before the effective date. The approval of the IRC is also required for a change
of auditor.
Certain Funds invest in Exchange Traded Funds (“ETFs”) which are disclosed on
the schedule of investment portfolio and these Funds have determined that their
investments in such ETFs are deemed unconsolidated structured entities. These
ETFs replicate, to the extent possible, the performance of the applicable benchmark
indices, or seek to provide long-term capital growth or income, as applicable, by
investing primarily in and holding the constituent securities of the applicable
benchmark indices in substantially the same proportion as they are reflected in the
applicable benchmark indices or seek to track the investment results of applicable
benchmark indices. The ETFs finance their operations by issuing redeemable shares
which are puttable at the holder’s option and entitle the holder to a proportional
stake in the respective ETF’s net asset value. The Underlying ETFs are domiciled in
the U.S. and are listed on a recognized public stock exchange.
The IRC is composed of three persons who are independent of the Manager,
the Funds and entities related to the Manager.
SHORT-TERM TRADING/EARLY REDEMPTION FEE
Clients who redeem or switch units or shares of an MD Fund are charged an early
redemption fee equal to 2.00% of the amount redeemed or switched if the
redemption or switch occurs within sixty (60) days of the date that the units or
shares were purchased or switched. Redemption fees are recorded as income in
the period of early redemption.
Certain Funds invest in mortgage-related and other asset-backed securities
(“MBS”). These securities include mortgage pass-through securities, collateralized
mortgage obligations, commercial mortgage-backed securities, asset-backed
securities, collateralized debt obligations and other securities that directly or
indirectly represent a participation in, or are secured by and payable from, mortgage
loans on real property. The debt and equity securities issued by these securities may
include tranches with varying levels of subordination. These securities may provide
a monthly payment which consists of both interest and principal payments.
Mortgage-related securities are created from pools of residential or commercial
mortgage loans, including mortgage loans made by savings and loan institutions,
mortgage bankers, commercial banks and others. Asset-backed securities are
created from many types of assets, including auto loans, credit card receivables,
home equity loans, and student loans. The Funds’ maximum exposure to loss from
their interest in MBS is equal to the fair value of their investments in such securities
as disclosed on the schedule of investment portfolio.
The early redemption fee does not apply to redemptions or switches:
· of units of MD Money Fund;
· made in connection with any systematic and scheduled withdrawal program;
· where the amount of the redemption or switch is less than $10,000; or
· made as a result of the recommendation of your MD financial consultant related
to a financial plan.
A table has been included in the “Supplementary Schedules” section of the financial
statements which describes the types of structured entities that the Funds do not
consolidate but in which they hold an interest.
MD Family of Funds | Interim Financial Statements 2015
4
Notes to Financial Statements
For the periods ended June 30, 2015 and 2014
5. Redeemable units
7. Financial instrument risk
With the exception of MD Growth Investments Limited, the Funds’ capital is
represented by an unlimited number of authorized units without nominal or par
value. All series of units are redeemable on demand by unitholders at the redemption amount represented by respective NAV of that series. Each unit entitles the
unitholder to one vote at unitholder meetings and participates equally, with respect
to other units of the same series, in any dividends or distributions, liquidation or
other rights of that series.
The Funds use financial instruments in order to achieve their respective investment
objectives. The Funds’ investments are presented in the respective Schedule of
Investment Portfolio, which groups securities by asset type, geographic region
and/or market segment.
The use of financial instruments subjects the Funds to a variety of financial
instrument risks. The Funds’ risk management practices include setting investment
policies to limit exposures to financial instrument risks and employing experienced
and professional investment advisors to invest the Funds’ capital in securities within
the constraints of investment policies. The Manager regularly monitors the Fund
advisors’ performance and compliance with the investment policies.
The relevant movements in redeemable units for the period have been presented in
the Statement of Changes in Net Assets Attributable to Holders of Redeemable
Units. The Funds invest proceeds from subscriptions in financial instruments in
accordance with the policies and risk management practices of the Funds, while
maintaining sufficient liquidity to meet unitholder redemptions. The Funds’
investment policies are set out in the prospectus and the risk management and
liquidity management practices are disclosed in Note 7.
The significant financial instrument risks, to which the Funds are exposed, along
with the specific risk management practices related to those risks, are presented
below. Fund specific disclosures are presented in the “Financial Instruments Risks”
section of the financial statements.
MD Growth Investments Limited is an incorporated company as opposed to a
mutual fund trust and, as such, has issued share capital.
CREDIT RISK
Credit risk is the risk that a counterparty to a financial instrument will not honour
its obligation under the terms of the instrument, resulting in a loss. The Funds are
exposed to credit risk through domestic and foreign bonds, derivative contracts,
cash and short-term investments, amounts due from brokers, dividends and interest
receivable and other receivables. A Fund may engage in securities lending pursuant
to the terms of an agreement which includes restrictions as set out in the Canadian
Securities Legislation. Collateral held is in the form of highly rated fixed income
instruments. All securities under lending agreements are fully collateralized. In
­addition, the Funds’ custodian has indemnified the Funds from borrower default.
6. Critical accounting estimates
and ­judgments
The preparation of financial statements requires management to use judgment in
applying its accounting policies and to make estimates and assumptions about the
future. The following discusses the most significant accounting judgments and
estimates that the Funds have made in preparing the financial statements:
FAIR VALUE MEASUREMENT OF SECURITIES AND DERIVATIVES
NOT QUOTED IN AN ACTIVE MARKET
The Funds may, from time to time, hold financial instruments that are not quoted in
active markets. The fair value of such securities may be determined by the Funds
using reputable pricing sources or indicative prices from market makers. Broker
quotes obtained from pricing sources may be indicative but not executable or
binding. Where no market data is available, the Fund may value positions using
internal valuation models as determined appropriate by the Manager and based on
valuation methods and techniques generally recognized as standard within the
industry. Models use observable data to the extent practicable; however, the
Manager may be required to make certain assumptions and/or estimates regarding
risks, volatility and correlations as required. Changes in assumptions and estimates
could affect the reported fair values of financial instruments. The Funds consider
observable data to be market data that is readily available, regularly distributed or
updated, reliable and verifiable and provided by independent sources that are
actively involved in the relevant market.
Credit risks arising from short-term investments and fixed income securities,
including domestic and foreign bonds and preferred shares, are generally limited to
the fair value of the investments as shown in the Schedule of Investment Portfolio.
The Funds limit exposure to individual issuers/sectors and credit quality ratings. The
credit worthiness of issuers in which the Funds invest are reviewed regularly and the
portfolios are adjusted as required to match the minimum requirement as set forth
in each Fund’s prospectus. Each individual Fund’s exposure to credit risk, if any, is
presented in the Financial Instruments Risk section of the Financial Statements.
Credit risks arising from cash are limited to the carrying value as shown on the
Statement of Financial Position, except in the case of MD Money Fund, where the
credit risk is limited to the fair value of investments as shown on the Schedule of
Investment Portfolio. The Funds manage credit risk on cash and short-term
investments by investing in high grade short-term notes with credit ratings of R-1
(low) or higher as well as limiting exposure to any single issuer.
Derivative contracts are subject to netting arrangements whereby if one party to a
derivative contract defaults, all amounts with the counterparty are terminated and
settled on a net basis. As such, the maximum credit loss on derivative contracts is
the unrealized gain shown in the Schedule of Derivative Instruments, or nil if the
contract is in a loss position. Each Fund manages credit risk on derivatives by only
entering into agreements with counterparties that have an approved credit rating as
defined in NI81-102. The total unrealized gain (loss) of the derivative contract cannot
exceed 10% of each Fund’s NAV. Credit risk on amounts due from brokers is minimal
since transactions are settled through clearinghouses where securities are only
delivered for payment when cash is received.
CLASSIFICATION AND MEASUREMENT OF INVESTMENTS
AND ­APPLICATION OF THE FAIR VALUE OPTION
In classifying and measuring financial instruments held by the Funds, the Manager
is required to make significant judgments about whether or not the business of the
Funds 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 (IAS39). The most significant judgment made include the determination that certain investments are held-for-trading and that the fair value option can
be applied to those which are not.
5
MD Family of Funds | Interim Financial Statements 2015
Notes to Financial Statements
For the periods ended June 30, 2015 and 2014
The maximum loss due to other price risk is limited to the fair value of the equity
investments and the notional exposure on derivative contracts as presented on the
Schedule of Investment Portfolio. Each individual Fund’s exposure to other price
risk, if any, is presented in the “Financial Instruments Risks” section of the
financial statements.
Credit risk related to securities lending transactions is limited by the fact that the
value of cash or securities held as collateral by the Funds in connection with these
transactions is at least 102 percent of the fair value of the securities loaned. The
collateral and loaned securities are marked to market each business day. The aggregate dollar value of portfolio securities lent and collateral held is presented in the
Financial Statement – Supplementary Schedules.
Details of each Fund’s exposure to financial instruments risks including fair value
hierarchy classification are available in the “Financial Instruments Risks” section
of the financial statements of each Fund.
LIQUIDITY RISK
Liquidity risk is the risk that the Funds will encounter difficulty in meeting
obligations associated with financial liabilities that are settled by delivering cash or
another financial asset. All Funds’ financial liabilities come due within one year. In
addition, the Funds’ units are redeemable on demand. In accordance with NI81-102,
the Funds must provide payment for redeemed units within three business days of
receipt of a redemption order. To manage this liquidity requirement, the Funds invest
primarily in liquid securities that can readily be sold in active markets and each
Fund may borrow up to 5% of its NAV. During the period ended June 30, 2015, and
December 31, 2014 no Fund borrowed against its respective line of credit.
FINANCIAL RISKS FROM UNDERLYING MUTUAL FUNDS
Certain Funds may invest in other mutual funds. The Funds’ investments in mutual
funds are subject to the terms and conditions of the respective mutual fund’s
offering documentation and are susceptible to the risks related to the underlying
mutual funds’ financial instruments. The Funds’ maximum exposure to loss from
their interests in mutual funds is equal to the total fair value of their investment in
mutual funds. Once the Funds dispose of their shares in an underlying mutual fund,
the Funds cease to be exposed to any risk from that mutual fund. The exposure to
underlying mutual fund investments is disclosed in the “Financial Instruments
Risks” section of the financial statements of each Fund.
CURRENCY RISK
Currency risk is the risk that the values of financial assets and liabilities denominated in foreign currencies fluctuate due to changes in foreign exchange rates. To the
extent the Funds hold assets and liabilities denominated in foreign currencies, the
Funds are exposed to currency risk. The Funds may also use forward contracts at the
discretion of the Manager. Each individual Fund’s exposure to currency risk, if any, is
presented in the “Financial Instruments Risks” section of the financial statements.
8. Fair value measurement
The Funds classify fair value measurements within a hierarchy that prioritizes the
inputs to Funds’ valuation techniques used in measuring fair value. Under these
provisions, an entity is required to classify each financial instrument into one of
three fair value levels as follows:
INTEREST RATE RISK
Interest rate risk is the risk that the fair value (measured as the present value) of
cash flows associated with interest bearing financial instruments will fluctuate due
to changes in the prevailing market rates of interest. In general, as interest rates
rise, the fair value of interest bearing financial instruments will fall. Financial
instruments with a longer term to maturity will generally have a higher interest
rate risk.
Level 1 – for unadjusted quoted prices in active markets for identical assets or
liabilities;
Level 2 – for inputs, other than quoted prices included in Level 1, that are observable
for the asset or liability, either directly (i.e. as prices) or indirectly (i.e.
derived from prices); and,
Level 3 – for inputs that are based on unobservable market data.
The Funds’ interest bearing financial instruments that subject the Funds to interest
rate risk include domestic and foreign bonds, asset backed securities and
collateralized mortgage obligations. Short-term money market instruments are
also interest bearing and therefore subject to interest rate risk. However, due to the
short-term nature of the securities, the interest rate risk is generally not significant.
The classification of a financial instrument is based on the lowest level of input that
is significant to the determination of fair value.
All fair value measurements are recurring. The carrying values of cash, receivable
for investment transactions, dividends and interest receivable, subscriptions
receivable, payable for investment transactions, redemptions payable, distributions
payable and the Fund’s obligation for net assets attributable to holders of
redeemable units approximate their fair values due to their short-term nature.
Fair values of securities and derivatives 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 ceases to be actively traded, it is transferred out
of Level 1. In such cases, fair value is determined using observable market data
(eg. transactions for similar securities of the same issuer) and the 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. Changes in
valuation methods may result in transfers into or out of the assets’ or liabilities’
assigned levels. The level summary based on the hierarch inputs is disclosed in the
Financial Instrument Risks section of each Fund.
Interest rate risk management practices employed by the Funds include setting
target durations based on the appropriate benchmark indices and monitoring the
Funds’ durations relative to the benchmarks. If interest rates are anticipated to rise,
the Funds’ durations can be shortened to limit potential losses. Conversely, if
interest rates are anticipated to fall, the durations can be lengthened to increase
potential gains. Each individual Fund’s exposure to interest rate risk, if any, is
presented in the “Financial Instruments Risks” section of the financial statements.
OTHER PRICE RISK
Other Price risk is the risk that the fair value of financial instruments may decline
because of changes in market prices of the financial instruments, other than
declines due to interest rate risk and currency risk. Other price risk stems from
financial instruments’ sensitivity to changes in the overall market (market risk) as
well as factors specific to the individual financial instrument. Other price risk
attributable to individual investments is managed through diversification of the
portfolio and security selection and adjustments to fair value when there is
significant volatility in international markets after markets are closed. Other price
risk attributable to the general market is systematic and cannot be diversified away.
MD Family of Funds | Interim Financial Statements 2015
6
Notes to Financial Statements
For the periods ended June 30, 2015 and 2014
9. Future Accounting Changes
EQUITIES
The Funds’ equity positions are classified as Level 1 when the security is actively
traded and a reliable price is observable. The Funds subscribes to the services of a
third-party valuation service provider to provide fair value adjustments, when a
defined threshold is met, to the prices of foreign securities due to changes in the
value of securities in North American markets following the closure of the foreign
markets. The parameters used to apply the fair value adjustments are based on
observable market data. Where applicable, the foreign securities will be considered
Level 2 priced securities. The Funds do not hold any securities classified as Level 3.
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 single model for classification and measurement for financial
assets that reflects the business model in which they are managed and their cash
flow characteristics. It also includes a forward-looking expected credit loss model
that will result in more timely recognition of loan losses and is a single model
applicable to all financial instruments subject to impairment accounting. 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 on such liabilities are no longer recognized in the profit or loss. IFRS 9 is
effective for annual periods beginning on or after January 1, 2018, however is
available for early adoption. The Funds are in the process of assessing the impact of
IFRS 9 and have not yet determined when they will adopt the new standard.
BONDS AND SHORT-TERM INVESTMENTS
Bonds include primarily government and corporate bonds which are valued using
models with observable inputs including interest rate curves, credit spreads and
volatilities. The inputs that are significant to valuation are generally observable
and therefore the Funds’ bonds and short-term investments have been classified
as Level 2.
10. Comparative Information
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. The Funds’
derivative assets and liabilities have been classified as Level 2.
Certain comparative figures have been reclassified to conform with the current
year presentation.
FAIR VALUATION OF INVESTMENTS (INCLUDING UNLISTED
SECURITIES)
If the valuation methods described above are not appropriate, the Funds will
estimate the fair value of an investment using established fair valuation procedures,
such as consideration of public information, broker quotes, valuation models,
discounts from market prices of similar securities or discounts applied due
to restrictions on the disposition of securities, and external fair value
­service ­providers.
The extent of Funds’ use of quoted market prices (Level 1), internal models using
observable market information as inputs (Level 2), and internal models without
observable market information (Level 3) in the valuation of securities is summarized
in each Fund’s ”Financial Instruments Risks” section of the financial statements.
7
MD Family of Funds | Interim Financial Statements 2015