VPI INCOME POOL - Value Partners · 2015 2014 Cash flows from operating activities: Increase in net assets attributable to holders of redeemable units $ 7,658 $ 9,011 Adjustments

Interim Unaudited Financial Statements of

VPI INCOME POOL

Six-Month Periods ended June 30, 2015 and 2014

NOTICE OF NO AUDITOR REVIEW OF INTERIM FINANCIAL STATEMENTS Value Partners Investments Inc., the Manager of the Pools, appoints independent auditors to audit the Pool’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 Pool’s independent auditors have not performed a review of these Interim Financial Statements in accordance with standards established by the Canadian Institute of Chartered Accountants.

VPI INCOME POOL Statements of Financial Position (unaudited) (In thousands of dollars, except for unit amounts)

June 30, December 31, 2015 2014

Assets Financial assets at fair value through profit or loss $ 364,889 $ 270,538 Cash and cash equivalents 18,001 12,118 Accrued dividends receivable 400 143 Accrued interest receivable for distribution purposes 2,586 1,617 Subscriptions receivable 3,189 4,067

$ 389,065 $ 288,483

Liabilities Accounts payable and accrued liabilities $ 68 $ 73 Redemptions payable 936 286 Management fees payable (notes 4 and 5) 594 465 Distributions payable 924 3,737 Due to manager (note 5) 1 – Due to brokers 12,954 4,882

15,477 9,443

Net assets attributable to holders of redeemable units $ 373,588 $ 279,040

Net assets attributable to holders of redeemable

units per series: Series A $ 316,150 $ 241,949 Series B 26,689 23,199 Series F 30,749 13,892

Net assets attributable to holders of redeemable

units per unit: Series A $ 11.52 $ 11.35 Series B 10.70 10.55 Series F 11.32 11.15

Number of redeemable units outstanding

Series A 27,432 21,322 Series B 2,494 2,198 Series F 2,717 1,246

See accompanying notes to financial statements.

VPI INCOME POOL Statements of Comprehensive Income (In thousands of dollars, except for unit amounts) For the six month periods ended June 30 (unaudited)

2015 2014

Investment income:

Interest income for distribution purposes $ 5,725 $ 3,056 Dividend income 1,815 621 Foreign exchange gain on cash 6 13 Other changes in fair value on financial assets and financial

liabilities at fair value through profit or loss: Net realized gain (loss) on sale of investments 6,344 (322) Change in unrealized appreciation (depreciation)

in value of investments (2,780) 7,330

11,110 10,698 Expenses:

Administration 53 46 Audit fees 11 7 Independent review committee fees 5 3 Security holder reporting costs 80 46 Custodian fees 9 3 Filing fees 20 8 Legal fees 2 4 Management fees (notes 4 and 5) 3,055 1,501 Registered plan fees 6 3 Trustee fees 3 3 Withholding taxes 182 58 Transaction costs 26 5

3,452 1,687

Increase in net assets attributable to holders of redeemable units $ 7,658 $ 9,011

Increase in net assets attributable to holders of redeemable

units per series: Series A $ 6,624 $ 7,876 Series B 593 915 Series F 441 220

Increase in net assets attributable to holders of redeemable

units per unit: Series A $ 0.27 $ 0.63 Series B 0.25 0.58 Series F 0.22 0.64


VPI INCOME POOL Statements of Changes in Financial Position (unaudited) (In thousands of dollars and units) For the six month periods ended June 30 (unaudited)

Series A Series B Series F Total 2015 2014 2015 2014 2015 2014 2015 2014

Net assets attributable to

holders of redeemable units, beginning of period $ 241,949 $ 108,863 $ 23,199 $ 14,183 $ 13,892 $ 1,587 $ 279,040 $ 124,633

Increase in net assets attributable to holders of redeemable units 6,624 7,786 593 915 441 220 7,658 9,011 Redeemable unit transactions:

Proceeds from redeemable units issued 87,322 62,736 5,703 5,013 17,763 4,852 110,788 72,601 Reinvestment of distributions to holders of redeemable units 3,554 1,873 301 197 392 60 4,247 2,130 Redemption of redeemable units (19,957) (7,673) (2,805) (1,194) (1,318) (476) (24,080) (9,343)

70,919 56,936 3,199 4,016 16,837 4,436 90,955 65,388

Distributions to holders of redeemable units: Net investment income (3,342) (1,819) (302) (197) (421) (73) (4,065) (2,089) Net realized gain on investments – (1) – – – – – (1)

Total distributions paid to holders of redeemable units (3,342) (1,820) (302) (197) (421) (73) (4,065) (2,090) Net increase in net assets attributable to holders of redeemable units 74,201 62,992 3,490 4,734 16,857 4,583 94,548 72,309

Net assets attributable to holders of redeemable units, end of period $ 316,150 $ 171,855 $ 26,689 $ 18,917 $ 30,749 $ 6,170 $ 373,588 $ 196,942

Increase (decrease) in redeemable units outstanding:

Beginning of period 21,322 10,146 2,198 1,417 1,246 150 24,766 11,713 Issued 7,522 5,666 527 485 1,553 446 9,602 6,597 Issued on reinvestment of distributions 306 169 28 19 34 5 368 193 Redeemed (1,718) (693) (259) (116) (116) (43) (2,093) (852)

Redeemable units outstanding, end of period 27,432 15,288 2,494 1,805 2,717 558 32,643 17,651

Weighted average units outstanding,

during the period 24,450 12,514 2,364 1,576 2,012 344


VPI INCOME POOL Statements of Cash Flows (In thousands of dollars) For the six month periods ended June 30 (unaudited)

2015 2014

Cash flows from operating activities:

Increase in net assets attributable to holders of redeemable units $ 7,658 $ 9,011

Adjustments for: Foreign exchange gain on cash (6) (13) Net realized loss (gain) on sale of investments (6,344) 322 Transaction costs 26 5 Change in unrealized depreciation (appreciation) in value of investments 2,780 (7,330)

Purchase of investments (204,740) (100,638) Proceeds from sale of investments 113,927 38,024 Dividends receivable (257) – Interest receivable for distribution purposes (969) (349) Management fees payable 129 97 Other payables and accrued expenses 8,068 1,086

Net cash from operating activities (79,278) (59,785) Cash flows used in financing activities:

Distributions paid to holders of redeemable units, net of reinvested distributions (2,631) (5,160)

Proceeds from redeemable units issued 111,666 76,542 Redemption of redeemable units (23,430) (9,314)

Net cash used in financing activities 85,605 62,068 Foreign exchange gain on cash 6 13

Increase in cash and cash equivalents 5,883 2,296 Cash and cash equivalents, beginning of period 12,118 6,971

Cash and cash equivalents, end of period $ 18,001 $ 9,267

Supplementary information: Dividends received, net of withholding tax $ 1,376 $ 503 Interest received, net of withholding tax 4,756 2,707


VPI INCOME POOL Statement of Investment Portfolio (In thousands of dollars, except for unit amounts) June 30, 2015 (unaudited) Number of Coupon units, shares Maturity rate Average Fair % of or par value Description date % cost value net assets

Short-term investments: 1,352,000 Canadian Treasury Bills 22-Oct-15 0.592 $ 1,349 $ 1,349 0.36

Bonds:

Corporate bonds:

8,990,000 9340572 Canada Inc. 6-Jul-20 2.042 8,990 9,001 1,970,000 Bank of Nova Scotia 31-Aug-85 0.438 1,638 1,709 3,930,000 Black Press Group Ltd.^ 28-Dec-18 10.000 4,012 3,930 11,832,000 BlackBerry Ltd. 13-Nov-20 6.000 19,199 18,465 107,000 Bombardier Inc. 15-Mar-22 5.750 117 120 404,000 Bombardier Inc. 15-Mar-22 5.750 454 451 1,435,000 Bombardier Inc. 15-Oct-22 6.000 1,661 1,599 5,149,000 Bombardier Inc. 15-Jan-23 6.125 6,028 5,737 16,101,000 Bombardier Inc. 15-Mar-25 7.500 19,947 18,344 2,206,000 Caisse Francaise de Financement Local 30-May-17 4.625 2,373 2,328 610,000 Canadian Imperial Bank of Commerce^ 31-Aug-85 0.563 487 598 1,458,000 Canadian Imperial Bank of Commerce 11-Aug-16 1.196 1,458 1,460 253,446 Canadian Pacific Railway Co. 1-Oct-24 6.910 308 308 2,848,000 Cogeco Cable Inc. 14-Feb-22 4.925 3,107 3,183 2,010,000 Cogeco Cable Inc. 26-May-23 4.175 2,054 2,119 5,378,000 Commerzbank AG 15-Dec-16 1.878 5,299 5,297 4,319,000 Commerzbank AG 19-Sep-23 8.125 5,438 6,309 2,924,898 Compass Diversified Holdings 6-Jun-21 4.250 3,181 3,668 6,665,000 Depfa Bank PLC 15-Dec-15 0.686 9,269 9,137 2,465,000 Enbridge Inc. 13-Mar-17 1.448 2,463 2,457 533,000 Enbridge Inc. 2-Jun-17 0.734 655 658 3,726,000 GE Capital Canada Funding Co. 6-Feb-23 2.198 3,907 3,886 4,102,000 HBOS PLC 21-Jun-17 1.647 4,005 4,081 3,812,000 Heathrow Funding Ltd. 3-Jul-19 4.000 4,014 4,138 1,607,000 Hydro One Inc. 3-Dec-16 1.360 1,612 1,612 1,412,000 Hypothekenbank Frankfurt International SA 15-Dec-15 4.380 1,451 1,427 5,416,000 Lloyds Bank PLC 16-Dec-21 10.125 6,409 6,018 6,707,000 Metropolitan Life Global Funding I 10-Apr-19 2.300 7,329 8,430 5,583,000 Navient Corp 25-Mar-21 5.875 6,929 6,983 7,860,269 Postmedia Network Inc., 144A 16-Aug-17 8.250 8,013 8,101 930,000 Royal Bank of Canada 29-Jun-85 0.500 749 834 5,572,000 Royal Bank of Canada 11-Feb-20 1.536 5,572 5,593 17,718,000 Royal Bank of Canada 23-Mar-20 1.357 17,718 17,745 6,782,000 Royal Bank of Scotland Group 29-Apr-49 6.666 7,011 7,748 3,859,000 Royal Bank of Scotland Group 29-Nov-49 5.370 3,717 3,824 41,000 Royal Bank of Scotland Group 16-Mar-22 9.500 54 57 5,361,000 Royal Bank of Scotland Group 16-Mar-22 10.500 6,155 6,032 1,310,000 Royal Bank of Scotland Group 28-May-24 5.125 1,419 1,636 1,819,000 Shaw Communications Inc. 9-Nov-39 6.750 2,032 2,212 3,867,000 SLM Corp. 25-Jan-22 7.250 4,432 5,105 10,859,000 SLM Corp. 25-Jan-23 5.500 12,094 12,913 493,000 SNC-Lavalin Group Inc. 3-Jul-19 6.190 565 570 451,000 Stantec Inc. 10-May-18 4.757 482 481 697,108 Telesat Canada 28-Mar-19 3.500 784 869 387,000 Toronto-Dominion Bank 21-Apr-16 1.196 387 387 3,264,000 Toronto-Dominion Bank 18-Feb-20 1.526 3,265 3,276 3,401,000 TransCanada PipeLines Ltd. 15-May-67 6.350 4,081 4,044 4,015,000 Tuckamore Capital Management Inc. 23-Mar-16 8.000 3,454 3,302 4,171,000 Unicredit Spa^ 29-May-18 3.438 4,275 4,171 1,693,000 Videotron Ltd. 15-Jun-25 5.625 1,636 1,741 1,129,000 WTH Car Rental ULC 20-Aug-19 2.542 1,129 1,164 5,028,308 Xplornet Communications Inc.^ 25-Oct-20 13.000 5,028 5,028 3,339,000 TechMediaNetwork Inc.^ 22-May-22 3.000 4,109 4,169 909,308 Xplornet Communications Inc.^ 15-May-17 13.000 962 950 3,688,217 Xplornet Communications Inc.^ 15-May-17 13.000 3,888 3,688 14,643,583 Yellow Pages Digital & Media Solutions Ltd. 30-Nov-18 9.250 15,452 15,458

252,257 254,551 68.14

VPI INCOME POOL Statement of Investment Portfolio (continued) (In thousands of dollars, except for unit amounts) June 30, 2015 (unaudited) Number of Coupon units, shares Maturity rate Average Fair % of or par value Description date % cost value net assets

Mortgage-backed securities:

3,201,246 Concentra Financial Services 1-May-19 1.883 $ 3,047 $ 3,128 2,741,000 Conexus Credit Union 1-Jun-19 2.023 2,518 2,593 1,126,000 ICICI Bank Canada 1-Jun-16 1.376 410 410 324,000 IG Investment 1-Nov-18 2.050 279 284 1,428,000 IG Investment 1-Feb-20 1.086 1,388 1,384 10,831,000 Merrill Lynch Financial Assets Inc. 1-Aug-19 1.750 10,285 10,527 259,000 Merrill Lynch Financial Assets Inc. 1-Mar-20 1.016 253 253 788,000 Merrill Lynch Financial Assets Inc. 7-May-21 6.673 395 394

18,575 18,973 5.08 Equities: Banks: 49,700 Bank of Montreal 2,932 3,678 25,909 Tuckamore Capital Management Inc. 15 9

2,947 3,687 0.98 Consumer Durables and Apparel: 175,850 Dorel Industries Inc. – Class B 6,400 5,875 1.57

Diversified Financials: 843,000 Firm Capital Property Trust 4,427 4,595 106,200 JP Morgan Chase & Co. 6,431 8,985

10,858 13,580 3.64 Energy: 737,600 Cenovus Energy Inc. 15,193 14,730 738,800 Ensign Energy Services Inc. 7,302 9,043 136,100 Royal Dutch Shell PLC 9,760 9,687 174,525 Total SA 12,212 10,713

44,467 44,173 11.82 Food, Beverage & Tobacco:

171,100 Kellogg Co. 11,974 13,393 93,000 Philip Morris International Inc. 9,407 9,308

21,381 22,701 6.08 Summary: Short-term investments 1,349 1,349 0.36 Corporate bonds 252,257 254,551 68.14 Mortgage-backed securities 18,575 18,973 5.08 Equities 86,053 90,016 24.09

358,234 364,889 97.67 Cash: Domestic 17,896 17,896 Foreign 104 105

Total cash 18,000 18,001 4.82 Transaction costs (41) –

Total investments 376,193 382,890 102.49 Liabilities, net of other assets (9,302) (2.49)

Total net assets attributable to holder of redeemable units $ 373,588 100.00

^ Level 3 Securities


VPI INCOME POOL Notes to Financial Statements (In thousands of dollars, except for unit amounts) For the six-month periods ended June 30, 2015 and 2014 (unaudited)

1. Reporting entity:

(a) VPI Income Pool (the Pool) is an open-ended mutual fund trust, established on September

26, 2005 by declaration of trust under the laws of the Province of Ontario. The registered

office of the Pool is located at 400-305 Broadway, Winnipeg, Manitoba. The trustee of the

Pool is RBC Investor Services Trust and the Manager of the Pool is Value Partners

Investments Inc. (VPI or the Manager).

The Pool commenced operations on October 20, 2005 with one series of units: Series A.

On July 3, 2007, the Pool began offering Series B, Cardinal Series and Series F units.

Effective December 1, 2013, the Pool no longer offers Cardinal Series units.

The Pool’s objective is to place a strong emphasis on avoiding material or long-term capital

losses while investing in securities that provide a reasonable level of income and the

potential for long-term capital growth. The Pool invests primarily in fixed income and equity

securities that pay income.

(b) Redeemable units issued and outstanding are considered to be capital of the Pool. The

Pool’s authorized capital consists of an unlimited number of units and series without par

value. The number of outstanding units of each series is disclosed in the statements of

financial position.

Series A units are subject to a negotiated sales commission payable by the investor at the

time of purchase. Series B units are subject to a fixed sales commission payable by the

Manager at the time of purchase. The investor is subject to a redemption fee if units are

redeemed within three years of purchase. Series F units are only available to investors

that have a fee-based account with a dealer that has signed a Series F agreement with the

Manager.

Each series of units pays its proportionate share of common expenses of the Pool, in

addition to expenses that are unique to that series. Distributions of each series may vary

due to the differences in expenses between the series.

(c) Unitholders may redeem all or part of their units by delivering a written request to do so to

the Manager or Trustee or to an investment dealer, securities dealer or mutual fund dealer

for delivery to the Manager or Trustee. Units will be redeemed at the net asset value per

unit as determined on the next valuation date. Requests for redemption received after

4.00 p.m., Toronto time, on any day are deemed to be received on the first business day

following the date of the actual receipt.


2. Basis of preparation:

These financial statements have been prepared in compliance with International Financial

Reporting Standards (“IFRS”) International Accounting Standard (“IAS”) 34, Interim

Financial Reporting as published by the International Accounting Standards board (“IASB”)

and as required by Canadian securities legislation and the Canadian Accounting Standards

Board.

The financial statements were authorized for issue by the Manager on behalf of the board of

directors on August 27, 2015.

The Pool’s independent auditors have not performed a review of the Semi-Annual Financial

Statements in accordance with Section 2.12(2) of NI 81-106.

(a) Basis of measurement:

The financial statements have been prepared on an historical cost basis except for

investments at fair value through profit or loss, which are measured at fair value.

(b) Functional and presentation currency:

These financial statements are presented in Canadian dollars, which is the Pool’s functional

currency. All financial information presented in Canadian dollars has been rounded to the

nearest thousand.

(c) Use of estimates and judgments:

The preparation of the financial statements in conformity with IFRS requires management to

make judgments, estimates and assumptions that affect the application of accounting

policies and the reported amounts of assets, liabilities, income and expenses. Actual results

may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to

accounting estimates are recognized in the period in which the estimates are revised and in

any future periods affected.

The most significant judgments made by the Manager in preparing these financial

statements is in determining the fair value of financial instruments not traded in an active

market, if any, under IFRS 13 – Fair Value Measurement (IFRS 13).


3. Significant accounting policies:

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

these financial statements.

(a) Financial instruments:

(i) Recognition and measurement:

Financial instruments are required to be classified into one of the following categories:

fair value through profit or loss (FVTPL), available-for-sale, loans and receivables, held-

to-maturity, and other financial liabilities. Financial instruments classified as FVTPL may

either be held–for-trading or designated as FVTPL.

All financial instruments are measured at fair value on initial recognition. Measurement

in subsequent periods depends on the classification of the financial instrument.

Transaction costs are included in the initial carrying amount of financial instruments

except for financial instruments classified as FVTPL, in which case transaction costs

are expensed as incurred.

Financial instruments at FVTPL are recognized initially on the trade date, which is the

date on which the Pool becomes a party to the contractual provisions of the instrument.

Other financial assets and financial liabilities are recognized on the date on which they

are originated. The Pool derecognizes a financial liability when its contractual

obligations are discharged, cancelled or expire.

Financial assets and liabilities are offset and the net amount presented in the

statements of financial position only when the Pool has a legal right to offset the

amounts and intends either to settle on a net basis or to realize the asset and settle the

liability simultaneously.

The Pool has not classified any of its financial instruments as available-for-sale or held

to-maturity.


3. Significant accounting policies (continued):

(ii) FVTPL:

Financial instruments classified as FVTPL are subsequently measured at fair value at

each reporting period with changes in fair value recognized in the statements of

comprehensive income in the period in which they occur. The Pool’s derivative financial

assets and derivative financial liabilities are classified as held-for-trading. The Pool’s

investments in securities are designated as FVTPL.

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. The fair

value of financial assets and liabilities traded in active markets (such as publicly traded

derivatives and marketable securities) are based on quoted market prices at the close

of trading on the reporting date. The Pool uses the last traded market price for both

financial assets and financial liabilities where the last traded price falls within that 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. The Pool’s

policy is to recognize transfers into and out of the fair value hierarchy levels as of the

date of the event or change in circumstances giving rise to the transfer.

The fair value of financial assets and liabilities that are not traded in an active market,

including derivative instruments, is determined using valuation techniques. Valuation

techniques also include the use of comparable recent arm’s length transactions,

reference to other instruments that are substantially the same, discounted cash flow

analysis, and others commonly used by market participants and which make the

maximum use of observable inputs. Should the value of the financial asset or liability, in

the opinion of the Manager, be inaccurate, unreliable or not readily available, the fair

value is estimated on the basis of the most recently reported information of a similar

financial asset or liability.

The Pool’s accounting policies for measuring the fair value of investments are

consistent with those used for measuring its net asset value for transactions with

unitholders.



(iii) Loans and receivables:

Loans and receivables are financial assets with fixed or determinable payments that are

not quoted in an active market. Such assets are recognized initially at fair value plus

any directly attributable transaction costs. Subsequent measurement of loans and

receivables is at amortized cost using the effective interest method, less any

impairment losses. Interest income is recognized by applying the effective interest rate.

The Pool classifies cash and cash equivalents, accrued dividends receivable, accrued

interest receivable for distribution purposes, and subscriptions receivable as loans and

receivables.

The effective interest method is a method of calculating the amortized cost of a financial

asset or liability and of allocating interest income or expense over the relevant period.

The effective interest rate is the rate that discounts estimated future cash payments

through the expected life of the financial asset or liability, or where appropriate, a

shorter period.

At each reporting date, the Pool assesses whether there is objective evidence that a

financial asset at amortized cost is impaired. If such evidence exists, the Pool

recognizes an impairment loss as the difference between the amortized cost of the

financial asset and the present value of the estimated future cash flows, discounted

using the instrument’s original effective interest rate. Impairment losses on financial

assets at amortized cost are reversed in subsequent periods if the amount of the loss

decreases and the decrease can be related objectively to an event occurring after the

impairment was recognized.

Cash and cash equivalents are cash on deposit and short-term notes with maturities of

less than 90 days.

(iv) Other financial liabilities:

Other financial liabilities are initially measured at fair value, net of transaction costs, and

are subsequently measured at amortized cost using the effective interest method. The

Pool’s other financial liabilities are comprised of accounts payable and accrued

liabilities, redemptions payable, management fees payable, distributions payable, due to

manager and due to brokers.



(b) Redeemable units:

The Pool classifies financial instruments issued as financial liabilities or equity instruments

in accordance with the substance of the contractual terms of the instruments. The Pool has

multiple classes of redeemable units that do not have identical features and therefore, does

not qualify as equity under IAS 32, Financial Instruments (IAS 32). The redeemable units,

which are measured at the redemption amounts and are considered a residual amount of

the net assets attributable to holders of redeemable units, provide investors with the right to

require redemption, subject to available liquidity, for cash at a unit price based on the Pool’s

valuation policies at each redemption date.

(c) Foreign currency:

The Pool’s subscriptions and redemptions are denominated in Canadian dollars, which is

also its functional and presentation currency. Foreign denominated investments and other

foreign denominated assets and liabilities are translated into Canadian dollars using the

exchange rates prevailing on each valuation date. Purchases and sales of investments, as

well as income and expense transactions denominated in foreign currencies, are translated

using exchange rates prevailing on the date of the transaction. Foreign exchange gains and

losses relating to cash are presented as ‘Foreign currency gain (loss) on cash and other net

assets’ and those relating to other financial assets and liabilities are presented within ‘Net

realized gain’ and ‘Change in unrealized appreciation (depreciation)’ in the statements of

comprehensive income.

(d) Investment transactions and revenue recognition:

Interest income for distribution purposes from investments in bonds and short-term

investments represents the coupon interest received by the Pool accounted for on an

accrual basis. The Pool does not use the effective interest method to amortize premiums

paid or discounts received on the purchase of fixed-income securities. Dividend income is

recognized on the date that the right to receive payment is established, which for quoted

equity securities is usually the ex-dividend date. Portfolio transactions are recorded on the

trade date. Realized gains and losses arising from the sale of investments are determined

on the average cost basis of the respective investments.



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

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

statements of comprehensive income represents the net increase (decrease) in the net

assets from operations for each series for the period divided by the weighted average units

outstanding for each series for the period.

(f) Income taxes:

As at June 30, 2015, the Pool qualifies as a Mutual Fund Trust as defined in the Income

Tax Act (Canada). Pursuant to the terms of the Declaration of Trust establishing the Pool, it

is deemed to distribute annually to the unitholders all of the net taxable income, including

net realized gains on sale of investments, and such distributions are immediately reinvested

in units of the Pool.

In general, the Pool is subject to income tax, however no income tax is payable on net

income and/or net realized capital gains which are distributed to unitholders. In addition,

income taxes payable on net realized capital gains is refundable on a formula basis when

units of the Pool are redeemed.

Capital losses are available to be carried forward indefinitely and applied against future

capital gains. Non-capital losses that are realized in 2005 can be carried forward for ten

years. Any non-capital losses that are realized in the taxation year 2006 and after may now

be carried forward for 20 years and applied against future income and capital gains.

(g) New standards and interpretations not yet adopted:

IFRS 9, Financial Instruments (IFRS 9) will replace Internal Accounting Standard 39,

Financial Instruments – Recognition and Measurement (IAS 39). IFRS 9 uses a single

approach to determine whether a financial asset is measured at amortized cost or fair

value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an

entity manages its financial instruments in the context of its business model and the

contractual cash flow characteristics of the financial assets. The new standard also requires

a single impairment method to be used, replacing the multiple impairment methods in IAS

39. The standard also includes guidance on the classification and measurement of financial

liabilities. IFRS 9 is effective for fiscal years beginning on or after January 1, 2018. The Pool

continues to evaluate the impact of IFRS 9 on its financial statements, particularly with

regard to the recording of its investments.


4. Management fees and expenses:

The Manager of the Pool is entitled to a monthly management fee from the Pool based on a

percentage of the net asset value of the Pool as of the close of business on each business day

calculated at the following annual rates:

Series A 1.80% Series B 2.00% Series F 0.90%

In addition to the management fee, the Pool pays its own operating expenses. These expenses

include, but are not limited to audit, legal and filing fees, custodial, recordkeeping and trustee

fees, transfer agent fees, investor servicing costs, taxes, compensation and expenses of the

Independent Review Committee, and costs of unitholder reports, financial reporting,

prospectuses, regulatory filings, and other communications. Brokerage commissions and

transaction costs for buying and selling investments for the Pool’s portfolio are also paid by the

Pool, as well as the costs and expenses related to holding any meeting convened by

unitholders.

5. Related party transactions:

Related party balances of the Pool as at June 30, 2015 and December 31, 2014, are as follows:

June 30, December 31, 2015 2014 Management fees payable $ 594 $ 465 Due to manager 1 –

Related party transactions of the Pool for the periods ended June 30, 2015 and 2014 are as

follows:

2015 2014

Management fees $ 3,055 $ 1,501


5. Related party transactions (continued):

These transactions are in the normal course of operations and are measured at the exchange

amount which is the amount of consideration established and agreed to by the related parties.

As of June 30, 2015 and December 31, 2014, , the Manager held the following number of units

in the Pool:

June 30, December 31, 2015 2014 Series F 63,577 62,393

6. Brokerage commissions:

Commissions paid to brokers for portfolio transactions for the six-month periods ended June 30,

2015 and 2014 are disclosed in the statements of comprehensive income.

There were no soft dollar commissions paid during the six-month periods ended June 30, 2015

and 2014.

7. Income taxes:

As of December 31, 2014 and 2013, there were no capital or non-capital losses available for

carry forward.

8. Financial risk management:

The investment activities of the Pool expose the Pool to various types of financial risks. The

Manager seeks to minimize potential adverse effects of these risks on the Pool by contracting

professional, experienced portfolio managers, by monitoring the Pool and market events on a

daily basis, and by diversifying the investment portfolio within the parameters of the investment

objective and strategy. The most significant risks include market risk (other price risk, interest

rate risk and currency risk), credit risk and liquidity risk. These risks and related risk

management practices employed by the Pool are discussed below:


8. Financial risk management (continued):

(i) Other price risk:

Other price risk is the risk that the value of financial instruments will fluctuate as a result of

changes in market prices (other than those arising from interest rate risk or currency risk),

whether caused by factors specific to an individual investment, its issuer, or all factors

affecting all instruments traded in a market or market segment. The maximum risk resulting

from financial instruments held by the Pool is determined by the fair value of the financial

instruments. The portfolio manager moderates this risk through a careful selection of

securities within specified parameters established for the Pool.

For the Pool, the most significant exposure to other price risk arises from investments in

equity securities. The following table shows the exposure of the Pool to equity securities

and indicates the impact on net assets if the prices of the equity securities on the respective

stock exchanges increased or decreased by 5 percent, with all other variables held

constant.

Fair value % of net Impact on net Impact on net of equities assets assets ($) assets (%)

As at June 30, 2015 $ 90,016 24.09% $ 4,501 1.20% As at December 31, 2014 76,227 27.33% 3,811 1.37%

(ii) Interest rate risk:

Interest rate risk arises on interest-bearing financial instruments such as bonds. The Pool is

exposed to this risk to the extent that the value of interest-bearing financial instruments will

fluctuate due to changes in the prevailing levels of market interest rates.

The tables below summarize the Pool’s exposure to interest rate risk. They include the

Pool’s assets and trading liabilities at fair values, categorized by the earlier of contractual re-

pricing or maturity dates.

Greater Non-

Less than 1 - 3 3 - 5 than interest As at June 30, 2015 1 year years years 5 years bearing Total

Financial assets at FVTPL $ 18,001 $ 51,296 $ 79,342 $ 144,235 $ 90,016 $ 382,890



Greater Non-

Less than 1 - 3 3 - 5 than interest As at December 31, 2014 1 year years years 5 years bearing Total

Financial assets at FVTPL $ 11,114 $ 27,216 $ 70,929 $ 85,052 $ 76,227 $ 270,538

At June 30, 2015 and December 31, 2014, should interest rates have increased or

decreased by 25 basis points, excluding cash and treasury bills and assuming a parallel

shift in the yield curve, with all other variables held constant, net assets for each Pool would

have approximately increased or decreased as indicated in the following table. The Pool’s

sensitivity to interest rates was estimated using the weighted average duration of the bond

portfolio.

Impact on Impact on (In thousands of dollars) net assets ($) net assets (%)

As at June 30, 2015 $ 1,997 0.53% As at December 31, 2014 1,783 0.64%

(iii) Credit risk:

Credit risk is the risk that the counterparty to a financial instrument will fail to discharge an

obligation or commitment that it has entered into with the Pool. The Pool’s greatest

concentration of credit risk is in debt securities such as bonds. The fair value of debt

securities includes consideration of the credit worthiness of the debt issuer. The carrying

amount of investments represents the maximum credit risk exposure as at June 30, 2015

and December 31, 2014.

All transactions in listed securities are settled/paid for upon delivery using approved brokers.

The risk of default is considered minimal, as delivery of securities sold is only made once

the broker has received payment. Payment is made on a purchase once the securities have

been received by the broker.



Debt securities in the Pool by credit rating are as follows:

% of debt % of net As at June 30, 2015 securities assets

AAA 14.13% 5.42% AA 9.23% 6.78% A 3.34% 2.46% BBB 14.87% 9.83% BB 24.72% 18.19% B 15.32% 11.27% CCC 3.32% 2.45% N/R 15.07% 17.18%

100.00% 73.58%

% of debt % of net As at December 31, 2014 securities assets

AAA 16.70% 11.62% AA 16.40% 11.42% A 4.84% 3.37% BBB 17.06% 11.88% BB 24.74% 17.23% B 7.59% 5.28% CCC 2.52% 1.76% N/R 10.15% 7.07%

100.00% 69.63%

(iv) Liquidity risk:

The Pool is exposed to liquidity risk to the extent that it is subject to daily cash redemptions

of redeemable units. Therefore, the Pool invests the majority of their assets in investments

that are traded in an active market and can be readily disposed. In addition, the Pool retains

sufficient cash positions to maintain liquidity. All financial liabilities mature within 3 months

from the financial statement date.



(v) Currency risk:

The Pool uses the Canadian dollar as its functional and reporting currency. Currency risk is

the risk that financial instruments which are denominated or exchanged in a currency other

than the Canadian dollar, the Pool’s reporting currency, will fluctuate due to changes in

exchange rates.

At June 30, 2015 and December 31, 2014, the Pool was exposed to the U.S dollar and the

Euro. The following tables illustrate the potential impact to the Pool’s net assets, all other

variables held constant, as a result of a 5 percent change in these currencies relative to the

Canadian dollar.

Foreign Impact on Impact on As at June 30, 2015 currencies ($) net assets ($) net assets (%)

Financial assets at FVTPL $ 163,921 $ 8,196 2.19% Cash and cash equivalents 105 5 0.00% Other assets less liabilities 1,756 88 0.02%

$ 165,782 $ 8,289 2.21%

Foreign Impact on Impact on As at December 31, 2014 currencies ($) net assets ($) net assets (%)

Financial assets at FVTPL $ 94,563 $ 4,728 1.69% Cash and cash equivalents 95 5 0.00% Other assets less liabilities 627 31 0.01%

$ 95,285 $ 4,764 1.70%



(vi) Concentration risk:

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

category, whether it is geographical location, product type, industry sector or counterparty

type. The following is a summary of the Pool’s concentration risk:

Market segment June 30, December 31, Long 2015 2014 % %

Short-term investments 0.37 – Banks 1.01 4.34 Consumer durables and apparel 1.61 3.96 Corporate bonds 69.76 60.10 Diversified financials 3.72 2.85 Energy 12.11 8.93 Food, beverage and tobacco 6.22 4.79 Mortgage-backed securities 5.20 11.72 Retailing – 3.31

Total 100.00 100.00

9. Fair value disclosure:

(i) Valuation models:

The Pool’s assets and liabilities recorded at fair value have been categorized based upon a

fair value hierarchy. The fair value of a financial instrument 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. The Pool’s financial instruments are recorded

at fair value or at amounts that approximate fair value in the financial statements. The Pool

classifies fair value measurements within an hierarchy which gives the highest priority to

unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the

lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy

are:


9. Fair value disclosure (continued):

Level 1: Inputs that reflect unadjusted quoted prices in active markets for identical assets or

liabilities that the Manager has the ability to access at the measurement date.

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

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

Level 3: Inputs that are unobservable. There is little if any market activity. Inputs into the

determination of fair value require significant management judgment or estimation.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of

any input that is significant to the fair value measurement. Changes in valuation methods

may result in transfers into, or out of, a financial instrument’s assigned level.

(ii) Fair value hierarchy - financial instruments measured at fair value:

The following tables present information about the Pool’s assets which are recorded at fair

value on a recurring basis as of June 30, 2015 and December 31, 2014:

Financial assets at fair value as at June 30, 2015:

Level 1 Level 2 Level 3 Total

Equities - long $ 90,016 $ – $ – $ 90,016 Bonds – 232,017 22,534 254,551 Mortgage-back securities – 18,973 – 18,973 Short-term investments 1,349 – 1,349

$ 90,016 $ 252,339 $ 22,534 $ 364,889

Financial assets at fair value as at December 31, 2014:

Level 1 Level 2 Level 3 Total

Equities - long $ 71,873 $ 4,354 $ – $ 76,227 Bonds – 143,444 19,155 162,599 Mortgage-back securities – 31,712 – 31,712

$ 71,873 $179,510 $ 19,155 $ 270,538


9. Fair value disclosure (continued):

At June 30, 2015 and December 31, 2014, there were no transfers between levels. The

financial instruments not measured at FVTPL are short-term financial assets and financial

liabilities whose carrying amounts approximate fair value.

Reconciliation of Level 3:

For six month periods ended June 30, 2015:

Balance at Net Realized Unrealized Balance at December 31, transfers gain gain June 30, 2014 Purchases Sales In (out) (loss) (loss) 2015

Bonds $ 19,155 $ 3,344 $ – $ – $ – $ 35 $ 22,534

For the year ended December 31, 2014:

Balance at Net Realized Unrealized Balance at December 31, transfers gain gain December 31, 2013 Purchases Sales In (out) (loss) (loss) 2014

Bonds $ – $ 19,454 $ – $ – $ – $ (299) $ 19,155

Change in unrealized gain (loss) related to Level 3 investments held at June 30, 2015 was

$334.

10. Filing:

These interim financial statements are to be filed within 60 days of the interim date as per

Section 2.4 of NI 81-106.

Documents

VPI INCOME POOL - Value Partners · 2015 2014 Cash flows from operating activities: Increase in net assets attributable to holders of redeemable units $ 7,658 $ 9,011 Adjustments