Middlefield Canadian Income PCC (the "Company")
(a protected cell company incorporated in Jersey with registration number 93546)
Including Middlefield Canadian Income – GBP PC (the “Fund”), a cell of the Company
Legal Entity Identifier: 2138007ENW3JEJXC8658

Announcement of Half-yearly Results 

The Company announces its half-yearly results for the period ended 30 June 2019, as approved by the Board of directors on 19 September 2019. The full half-yearly financial report will be made public and sent to all shareholders during September 2019.

For further information about this announcement contact:

Assistant Secretary
JTC Fund Solutions (Guernsey) Limited
Tel.: 01481 702400

Dean Orrico
President
Middlefield International Limited
Tel.: 01203 7094016

END OF ANNOUNCEMENT

E&OE – in transmission

MIDDLEFIELD CANADIAN INCOME PCC

including MIDDLEFIELD CANADIAN INCOME – GBP PC

a cell of the Company 

Half Yearly Report and Interim Condensed Financial Statements (Unaudited)

For the period 1 January 2019 to 30 June 2019

CORPORATE INFORMATION AND HIGHLIGHTS

ABOUT
MCI is a closed-ended investment company incorporated on 24 May 2006. The Fund was admitted to the FTSE UK All-Share Index effective 20 June 2011.

INVESTMENT OBJECTIVE
To provide shareholders with a high level of stable income through quarterly distributions and to outperform the Fund’s benchmark over the long-term. The Fund aims to deliver attractive risk-adjusted total returns through a combination of dividend income and capital appreciation and build on its long-term track record.

GEARING
The Fund has the power to borrow up to 25 percent of its total assets and is expected to employ gearing in the range of 0 to 20 percent in the normal course of events.

TARGET DIVIDEND
MCI currently targets a dividend of 5.1 pence per share per annum payable quarterly.

Date: As at 30 June 2019
¹Year-to-date

WHY MIDDLEFIELD CANADIAN INCOME PCC?

HISTORY
Founded in 1979, Middlefield Group is licensed by the FCA with an office in the U.K. Middlefield is a specialty investment manager focused on global equity income. The Canadian Income strategy has significantly outperformed its benchmark since the fund’s inception in July 2006.

ACTIVE MANAGEMENT
Active management allows the Manager to strategically and tactically shift the portfolio’s composition to achieve greater investment results compared to the overall market.

PROCESS
The Fund’s robust investment process utilises top down / bottom up analysis that combines unique thematic overviews with comprehensive company-level research for stock selection.

DIVERSIFICATION
MCI invests in North American equity income securities, with a particular focus in Canada, providing U.K. investors with diversification into sectors underrepresented in the U.K.

EXPERTISE
With $4 billion in assets under management, Middlefield Group has developed a specialized expertise in equity strategies emphasising both current income and total return over many years.

YIELD
The Fund offers an attractive dividend yield of 5.2%.

Table of Contents                                                                                                                                              

Responsibility Statement                                                                                                                                       4

Performance Record                                                                                                                                               5

Chairman’s Report                                                                                                                                                  6

Investment Manager’s Interim Report (Unaudited)                                                                                         8

Distribution of Investments                                                                                                                                 11

Interim Condensed Financial Statements of the Fund (Unaudited)

Condensed Statement of Financial Position of the Fund (Unaudited)                                                       12

Condensed Statement of Comprehensive Income/(Loss) of the Fund (Unaudited)                                13

Condensed Statement of Changes in Redeemable Participating Preference
Shareholders’ Equity of the Fund (Unaudited)                                                                                                14

Condensed Cash Flow Statement of the Fund (Unaudited)                                                                         15

Notes to the Interim Condensed Financial Statements of the Fund (Unaudited)                                     16

Interim Financial Statements of the Company (Unaudited)

Statement of Financial Position of the Company (Unaudited)                                                                    29                                        

Notes to the Interim Financial Statements of the Company (Unaudited)                                                 30

Definitions                                                                                                                                                              31

Management and Administration                                                                                                                   IBC

Responsibility Statement

We confirm that to the best of our knowledge:

• The interim report and financial statements have been prepared in accordance with International Accounting Standard 34 “Interim Financial Reporting” and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company.
• The Chairman’s Report and Investment Manager’s Interim Report include a fair review of the development, performance and position of the Company and a description of the risks and uncertainties as disclosed in note 16 to the interim financial statements, that it faces for the next six months as required by DTR 4.2.7.R of the disclosure Guidance and Transparency Rules.
• The Investment Manager’s Interim Report and note 11 to the interim financial statements include a fair review of related party transactions and changes therein, as required by DTR 4.2.8.R of the Disclosure Guidance and Transparency Rules.

By order of the Board

Nicholas Villiers                                                                                       Philip Bisson                                                                        
Director                                                                                                  Director

Date: 19 September 2019

Performance Record

Performance Since Inception

Fund Performance

Sources: Middlefield, Bloomberg. As at June 30, 2019

CHAIRMAN’S REPORT

“It is my pleasure to present the Half Yearly Report for the period ended 30 June 2019 and to be able to report to Shareholders a NAV total return of 21% and a Share Price total return of 17.8%, in line with the Funds Benchmark and the TSX of 20.8% of 21.4% respectively. Two dividends of 1.275p per redeemable participating preference share were paid during the period. Since inception in 2006, the Fund’s NAV has generated a cumulative return of 143.0%, outpacing the cumulative returns of the both the Benchmark and TSX of 110.5% and 100% respectively.

During the first half of 2019, the Fund increased its exposure to U.S. issuers from 18.1% to 26.4% of the portfolio. Economic growth in the U.S. is expected to outpace other developed nations, making U.S. equities particularly attractive, especially in areas underrepresented in the Canadian market. Notwithstanding, Canadian equities are positioned to benefit from a number of fundamental tailwinds including population growth, record-low unemployment, the resolution of the USMCA trade agreement (formerly known as NAFTA) and a stable interest rate environment.

In light of slowing global economic activity and the accommodative central bankers’ response through lower interest rates, the Fund tilted its asset allocation during the first half of 2019 toward a more defensive posture by increasing the weighting of more interest rate sensitive sectors including real estate, pipelines and utilities. The Fund’s largest sector weighting as at 30 June 2019 was real estate, accounting for 21.4% of the portfolio, a 10.5% overweight versus the Benchmark. The current supply of commercial real estate has lagged demand in major Canadian cities resulting in higher valuations and robust rent growth.

The Manager tactically manages net gearing of the Fund, which ranged from 7.2% to 16.7% over the course of the past six months. The Fund is permitted gearing up to 25% of NAV and its tactical use is intended to enhance appreciation potential and income generation in the context of the manager’s assessment of market risk. As at 30 June 2019, the Fund had net gearing of approximately 16.7%.

New Board Members

I would like to highlight the recent appointment of two new independent directors to the Board. Joanna Dentskevich and Michael Phair joined MCI as non-executive directors with effect from 13 June 2019. With extensive experience and expertise in the financial services sector, both are welcome additions. These appointments are consistent with the Board’s stated objectives of refreshing its composition and planning for future succession.

New Corporate Broker and Marketing Initiatives

During the first half of 2019, the Board decided to review measures to reduce the discount at which the Fund’s shares were trading to their Net Asset Value (14.3% as at 30 June 2019). Achievement of this goal is deemed critical to growing the Fund for the benefit of all shareholders. This review included receiving presentations from several corporate brokers as well as assessing strategies to expand the profile of the Fund within the increasingly important retail investor segment. A key goal of this exercise was ensuring that the overall costs to the Fund did not increase.

Coming out of this review, in mid-June, the Board announced the appointment of Investec Bank plc (“Investec”) as the Fund’s corporate broker. In April 2019, Canaccord Genuity Limited, the Fund’s previous corporate broker, announced that, for broader strategic reasons, it would no longer be pursuing its investment companies’ business in London. Save for a limited number of individuals who opted to retire, the entire Canaccord Genuity investment companies team moved to Investec in June 2019, and were joined by several new colleagues, including personnel who will assist in expanding retail distribution efforts for the team’s clients. Investec will continue to work closely with Middlefield Limited (“Middlefield”), the Fund’s investment manager, to further broaden the Fund’s investor base and corporate profile.

In addition, a strong consensus emerged during the review that for an additional fee, more intensive involvement by Middlefield could serve to reduce the discount to NAV and ultimately grow the Fund. As a result, the Board decided that a greater portion of the budget designated for investor relations and broking services should be allocated to an enhanced initiative led by Middlefield including greater media exposure, enhanced marketing materials and more investor meetings. Middlefield will be paid an annual fee for these services equal to 0.15% of the market capitalisation of the Fund up to a maximum amount of £200,000 per annum. The agreement is to be reviewed annually and is not expected to result in an increase in the Fund’s expenditures when compared to prior financial periods.

Outlook

The Fund’s objective is to deliver results to shareholders by investing in companies which pay stable and growing dividends over time, and based on the expectation of interest rates remaining lower for longer, we believe dividend-paying issuers remain very attractive investments.  The portfolio is uniquely positioned to provide investors with access to sectors and geographies that are typically under-represented in UK investment portfolios.

We thank you for your continued support.

Nicholas Villiers
Chairman
Date: 19 September 2019

INVESTMENT MANAGER’S INTERIM REPORT
Six months to 30 June 2019 (Unaudited)

On the invitation of the Directors of the Company, this investment manager’s interim report is provided by Middlefield Limited, which acts as the investment manager of the Fund.

This statement has been prepared to provide additional information to Shareholders to meet the relevant requirements of the FCA’s Disclosure Guidance and Transparency Rules. It should not be relied upon by any party for any purpose other than as stated above.

INVESTMENT OBJECTIVE

The Fund invests in a broadly diversified portfolio comprised primarily of Canadian and U.S. equity income securities with the objective of providing shareholders with high dividends as well as capital growth over the longer term. The Fund intends to pay dividends on a quarterly basis each year. The current distribution is set at 5.1 pence per annum, paid quarterly.

The Fund will seek to achieve its investment objective by primarily investing in the securities of companies and Real Estate Investment Trusts (“REITs”), domiciled in Canada and the United States and listed on Canadian and American stock exchanges, which the investment manager believes will provide an attractive level of distributions and growth over time.

PERFORMANCE SUMMARY

North American equity markets rallied in the first half of 2019 and pared losses from a turbulent Q4 2018. The S&P TSX Composite Index generated a total return of 16.2%, while the S&P 500 Index returned 18.5%, which was its best first-half return since 1997. Global indices participated in the strong performance as well, highlighted by the Euro Stoxx 50’s return of 19.2%, the FTSE 100’s return of 13.1%, and the German DAX’s return of 17.4%. All returns referenced herein are in local currencies.

The broad market strength was largely attributable to loosening monetary policy and oversold conditions at the beginning of the year. The U.S. Federal Reserve adopted a more dovish stance in early January, which benefitted equities, particularly interest sensitive stocks. In the first half of 2019, 10-year bond yields fell 68 bps in the U.S., 50 bps in Canada, 44 bps in the U.K. and 57 bps in Germany. Further easing by the Bank of Japan and European Central Bank is possible before the end of the year and the market is now pricing in multiple cuts to short-term rates in the U.S. over the next 6 to 12 months.

Although accommodative monetary policy is generally bullish for equities, we acknowledge that some of the underlying reasons for dovish central bank actions reflect risks in the market. Recent global economic data has been relatively soft, particularly in Europe and China where growth has disappointed. Uncertainty related to trade negotiations between the U.S. and China is having an impact on decisions relating to capital investment, supply chain management and inventory accumulation from large domestic and multinational corporations. While we are optimistic that the world’s two largest economies will ultimately reach some form of trade agreement, investor anxiety is likely to heat up based on political rhetoric and uncertainty around the timing of a deal.

In contrast to most central banks, the Bank of Canada is expected to keep interest rates steady through the remainder of the year. While central bankers have been known to change course relatively quickly based on market expectations, the BOC’s current positioning reflects the relative stability of the Canadian economy. Specifically, unemployment currently sits at a four-decade low and inflation is in-line with the BOC’s long-term target. The country is expecting immigration to exceed one million people over the next three years in addition to being one of the most sought after destinations globally for international students. Further, Canada is investing heavily in technology and attracting high-skilled labour. For example, Canada’s expedited work visa program helped facilitate over 40,000 highly skilled workers moving to Canada last year alone. The Canadian economy is gradually becoming more diversified and less dependent on natural resources, an attribute generally underappreciated by global investors.

INVESTMENT MANAGER’S INTERIM REPORT (continued)
Six months to 30 June 2019 (Unaudited)

PERFORMANCE SUMMARY (continued)

Recent changes in provincial leadership also benefited the investment climate in the first half of 2019. Namely, in Ontario and Alberta, two of the country’s largest provinces, Conservative governments are now in place and have already taken action to lower taxes and loosen regulation. Federally, the incumbent Liberal Party faces an election in October 2019 and the Conservatives are leading in early polls.

We expect real estate to be one of the largest beneficiaries of Canada’s immigration policy and nascent technology industry. Specifically, the multi-family and industrial sub-industries enjoy robust demand with lagging supply, leading to higher valuations. Toronto is the fastest growing city in North America in terms of numeric population, creating increasing demand for rental housing. The growing population will also create demand for consumer products, which have been flowing through warehouses and distribution centers due to the rapid adoption of e-commerce. We view this trend as a secular growth story with a long runway for further growth. Industrial real estate currently represents the Fund’s largest sub-sector weighting and returned 23% in CAD through the first half of the year. More specifically, Pure Multi-Family (+23.8%), Dream Industrial REIT (+27.8%) and Sienna Senior Living (+26.7%) were all large contributors to the Fund’s first half performance.

Pipelines is another core asset class for the Fund, accounting for 15.2% of the portfolio as at 30 June 2019. The Canadian pipelines sector returned 22.4% in the first half of the year, driven by significant contributions from Keyera Corp. (+34.3%) and TC Energy (+36.4%), both core holdings within the Fund. Unfortunately, Enbridge Inc. lagged the group (+14.7%) as a result of renewed opposition to its pipeline expansion projects through Minnesota and Michigan, reflecting the environmental challenges associated with building new pipelines and the associated premium ascribed to existing pipeline systems. In addition, with the record amount of infrastructure-focused private equity looking for assets, we believe valuations will be supported higher over the next 12 to 24 months. We should also note that while political headwinds remain, the Federal Government of Canada officially approved the Trans Mountain pipeline expansion on June 18th, 2019. This project will add much needed takeaway capacity for oil producers and was a welcome reversal from the federal government’s historical lack of support for major energy infrastructure projects. Furthermore, the new premier of Alberta, Jason Kenney, made pipeline approvals the foundation of his campaign and was elected with a decisive majority.

The utilities sector also outperformed in the first half of the year. Both Altagas Canada and TransAlta Corp. generated total returns of more than 50% during the period, materially outperforming the peer group’s already impressive return of 22.4%. TransAlta has expiring hydro power contracts which are expected to be renewed with enhanced economics in 2020. Altagas Canada was spun out by Altagas Ltd. in 2018 at an attractive valuation due to the parent company’s need to deleverage its balance sheet.  Since then, the market has come to appreciate the quality of Altagas Canada’s assets and cash flow stability, driving a significant re-rating in the stock.

Oil prices (WTI) started the year at US$45 per bbl and rallied by over 20% to US$59 per bbl at the end of June due to rising geopolitical risk between the U.S. and Iran. The price of natural gas, on the other hand, decreased by 16.3% over the same period as  natural gas infrastructure came online in the U.S. and Permian producers drilling for shale oil amidst higher crude prices produced growing volumes of associated gas. As a result, ARC Resources, which represents a high quality natural gas weighted producer in the Canadian energy sector, generated a total return of -18% in the six months ended June 30, 2019, representing the worst performing company in the Fund’s portfolio.

The Fund initiated several positions in U.S. securities throughout the first half of the year, which, on the whole, had a positive impact on the Fund’s performance in 2019.

• The Fund purchased shares of AT&T early in 2019 and benefitted from the stock’s 21% total return during the first half of the year. The company pays an attractive 6.2% dividend yield, underpinned by robust and stable free cash flows and is particularly attractive in the context of the current interest rate environment. Further, AT&T will roll out its own streaming service in 2020 to compete with Netflix and Disney and is actively looking to sell non-core assets to deliver on its promise to deleverage the balance sheet.

• Blackstone announced on April 18th it is converting to a corporation from a publicly traded partnership structure. The stock generated a total return of 53% in the first half of the year, mostly attributable to the conversion.  Blackstone has been a long-held position within the financials segment of the portfolio and represents a well-managed alternative asset manager with a global footprint. The conversion has been core to our investment thesis since corporations are eligible for index inclusion and more investable for institutions.

INVESTMENT MANAGER’S INTERIM REPORT (continued)
Six months to 30 June 2019 (Unaudited)

PERFORMANCE SUMMARY (continued)
DIVIDENDS

The Fund paid quarterly dividends of 1.275 pence per share in each of January and April 2019, equivalent to dividends of 5.1p per annum.

RELATED PARTY TRANSACTIONS

Related party transactions are disclosed in greater detail in Note 11 of the Notes to the Interim Condensed Financial Statements of the Fund (unaudited).

There have been no material changes in the related party transactions from those described in the 2018 Annual Financial Report.

MATERIAL EVENTS

The Board of MCI is not aware of any significant event or transaction which has occurred between 1 July 2019 and the date of publication of this statement which could have a material impact on the financial position of the Fund.

COMPANY AND FUND ANNUAL GENERAL MEETINGS

At each of the Company and Fund Annual General Meetings held on 13 June 2019, all resolutions, relating to both ordinary business and special business, were duly passed on a poll. 

PRINCIPAL RISKS AND UNCERTAINTIES

There are a number of potential risks and uncertainties, which could have a material impact on the Fund’s performance over the remaining six months of the year and could cause actual results to differ materially from expected and historical results.  Further information on the principal risks and uncertainties are included on pages 15 and 16 of the 2018 Annual Report and in Note 16 of the Notes to the Interim Condensed Financial Statements of the Fund (unaudited).

The Directors consider that the principal risks and uncertainties facing the Company, including the uncertainty relating to the impact of Brexit, remain substantially unchanged since the publication of the Company’s 2018 annual report and financial statements and are expected to remain relevant to the Company for the next six months of its financial year.

OUTLOOK

Looking ahead to the second half of 2019, we believe the outlook for North American equities is positive but are aware and closely monitoring the various risks in the market. Ongoing trade tensions will continue to weigh on investor enthusiasm for companies with global supply chains and global economic data is showing signs of a slowdown. Notwithstanding, central bank policies are expected to remain accommodative and GDP growth is positive in most regions. Canada is an attractive jurisdiction for investment and is emerging as a world-class incubator for innovation and technology. We expect the Fund’s strategic asset allocation towards defensive sectors such as real estate, utilities and pipelines to perform well in the current environment and are focused on companies with stable and growing cash flows and dividends.

Middlefield Limited
Date: 19 September 2019

Past performance is not a guide to future performance.
This half-yearly financial report is available at:  www.middlefield.co.uk.

Distribution of Investments

Geographical Distribution

Sector & Industry Distribution

CONDENSED STATEMENT OF FINANCIAL POSITION OF THE FUND (Unaudited)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

As at 30 June 2019

with unaudited comparatives as at 30 June 2018
and audited comparatives as at 31 December 2018

The interim financial statements and notes on pages 12 to 28 were approved by the Directors on 19 September 2019 and signed on behalf of the Board by:

Nicholas Villiers                                                                                                                      Philip Bisson         

Director                                                                                                                                 Director

The accompanying notes on pages 16 to 28 form an integral part of these interim financial statements.
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

CONDENSED STATEMENT OF COMPREHENSIVE INCOME/(LOSS) OF THE FUND (Unaudited)

For the period 1 January 2019 to 30 June 2019 with unaudited comparatives for the period 1 January 2018 to 30 June 2018
and audited comparatives for the year ended 31 December 2018

The Company including the Fund has no other items of income or expense for the current and prior periods and accordingly the net profit/(loss) for the current and prior periods represent total comprehensive income/(loss).

There are zero earnings attributable to the management shares. All activities derive from continuing operations.

The accompanying notes on pages 16 to 28 form an integral part of these unaudited interim condensed financial statements.

CONDENSED STATEMENT OF CHANGES IN REDEEMABLE PARTICIPATING PREFERENCE SHAREHOLDERS’ EQUITY OF THE FUND (Unaudited)

For the period 1 January 2019 to 30 June 2019 with unaudited comparatives for the period 1 January 2018 to 30 June 2018
and audited comparatives for the year ended 31 December 2018

     The accompanying notes on pages 16 to 28 form an integral part of these unaudited interim condensed financial statements.

CONDENSED CASH FLOW STATEMENT OF THE FUND (Unaudited)

For the period 1 January 2019 to 30 June 2019
with unaudited comparatives for the period 1 January 2018 to 30 June 2018
and audited comparatives for the year ended 31 December 2018

The accompanying notes on pages 16 to 28 form an integral part of these unaudited interim condensed financial statements.

NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS OF THE FUND (Unaudited)

For the period 1 January 2019 to 30 June 2019
with unaudited comparatives for the period 1 January 2018 to 30 June 2018
and audited comparatives for the year ended 31 December 2018
                                                                                                                                
1.             General Information

The Company is a closed-ended investment company incorporated in Jersey on 24 May 2006. The Company has one closed-ended cell: Middlefield Canadian Income - GBP PC, also referred to as the “Fund”. The Fund seeks to provide Shareholders with a high level of dividends as well as capital growth over the longer term. The Fund intends to pay dividends on a quarterly basis each year. The Fund seeks to achieve its investment objective by investing predominantly in the securities of companies and REITs domiciled in Canada and the United States that the Investment Manager believes will provide an attractive level of distributions, together with the prospect for capital growth. In 2015, shareholders also approved an amendment to the investment policy to increase the percentage of the value of portfolio assets which may be invested in securities listed in recognized stock exchange outside Canada to up to 40 per cent.

The address of the Company’s registered office is 28 Esplanade, St Helier, Jersey JE2 3QA, Channel Islands.

The Fund’s shares have been admitted to the Official List of the FCA and to trading on the London Stock Exchange’s Main Market for listed securities.

The functional and presentational currency of the Company and the Fund is Pound Sterling (“GBP”).

The Company and the Fund have no employees.

The half-yearly report and interim condensed financial statements have not been audited or reviewed by the auditor, Deloitte LLP, pursuant to the Auditing Practices Board guidance on ‘Review of Interim Financial Information’.

The information presented for the year ended 31 December 2018 does not constitute the statutory financial statements of the Company. Copies of the statutory financial statements for that year have been delivered to the Registrar of Companies in Jersey and to the UK Financial Conduct Authority’s National Storage Mechanism. Copies are also available from the Company’s website www.middlefield.co.uk. The Auditor’s report on those financial statements was unqualified.

2.             Accounting Policies

a.             Basis of preparation

The interim condensed financial information for the period ended 30 June 2019 has been prepared in accordance with IAS 34 ‘Interim Financial Reporting’ as adopted by the European Union. The interim condensed financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2018, which have been prepared in accordance with International Financial Reporting Standards (IFRS).

The interim condensed financial statements have been prepared on the historical cost basis, except for the revaluation of fair value through profit or loss investments, and in accordance with IFRS. The condensed statement of comprehensive income is presented in accordance with the Statement of Recommended Practice (SORP) ‘Financial Statements of Investment Trust Companies and Venture Capital Trusts’ issued in January 2009 by the Association of Investment Companies (“AIC”), to the extent that it does not conflict with IFRS.

The condensed statement of financial position, condensed statement of comprehensive income, condensed statement of changes in redeemable participating preference shareholders’ equity and condensed cash flow statement refer solely to the Fund. The non-cellular assets comprise two Management Shares. However, there has been no trading activity with regards to the non-cellular assets.

NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS OF THE FUND (Unaudited) (Continued)

For the period 1 January 2019 to 30 June 2019
with unaudited comparatives for the period 1 January 2018 to 30 June 2018
and audited comparatives for the year ended 31 December 2018

2.             Accounting Policies (continued)

b.             Going concern

In the opinion of the Directors, there is a reasonable expectation that the Company and the Fund have adequate resources to continue in operational existence for the foreseeable future. For this reason, the interim financial statements have been prepared on the going concern basis.

The Directors have arrived at this opinion by considering, inter alia, the following factors:

• the Fund has sufficient liquidity to meet all on-going expenses and repayment of external borrowings; and
• the portfolio of investments held by the Fund materially consists of listed investments which are readily realisable and therefore the Fund will have sufficient resources to meet its liquidity requirements.

c.             Standards and Interpretations

The accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2018, as described in those financial statements.

At the date of authorisation of these interim financial statements, there were no standards and interpretations in issue but not yet effective which are relevant to the Company and the Fund that have been applied to these interim financial statements.

d.             Business and geographical segments

The Directors are of the opinion that the Fund is engaged in a single segment of business investing predominantly in securities and REITs domiciled in Canada and the U.S. to which the Fund is solely exposed and therefore no segment reporting is provided.

3.             Securities (at fair value through profit or loss)

NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS OF THE FUND (Unaudited) (Continued)
For the period 1 January 2019 to 30 June 2019
with unaudited comparatives for the period 1 January 2018 to 30 June 2018
and audited comparatives for the year ended 31 December 2018

4.             Cash and cash equivalents

Cash and cash equivalents comprise cash held by the Fund and bank balances with an original maturity of three months or less. The carrying value of these assets approximates to their fair value.

5.             Other payables and accruals

6.             Stated capital account

The authorised share capital of the Fund is split into two Management Shares of no par value and an unlimited number of redeemable participating preference shares of no par value, the latter of which are attributable solely to the Fund.

NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS OF THE FUND (Unaudited) (Continued)
For the period 1 January 2019 to 30 June 2019
with unaudited comparatives for the period 1 January 2018 to 30 June 2018
and audited comparatives for the year ended 31 December 2018

6.           Stated capital account (continued)

The holders of redeemable participating preference shares are entitled to receive in proportion to their holdings, all of the revenue profits of the Fund (including accumulated revenue reserves).

Each redeemable participating preference shareholder is entitled to one vote for each share held, provided all amounts payable in respect of that share have been paid.

Management shares are non-redeemable, have no right in respect of the accrued entitlement, and have no right to participate in the assets of the Fund on a winding-up. In all other respects, the management shares have the same rights and restrictions as redeemable participating preference shares. Each management share entitles the holder to one vote for each share held.

Redeemable participating preference shares are redeemed at the absolute discretion of the Directors. Since redemption is at the discretion of the Directors, in accordance with the provisions of IAS 32, the redeemable participating preference shares are classified as equity. The Fund will not give effect to redemption requests in respect of more than 25 per cent. of the shares then in issue, or such lesser percentage as the Directors may decide.

At the period end, there were 18,195,000 (30 June 2018: 18,195,000, 31 December 2018: 18,195,000) treasury shares in issue. Treasury shares have no value and no voting rights.

7.             Net asset value per redeemable participating preference share

The net asset value per share of 113.43p (30 June 2018: 111.50p, 31 December 2018: 95.94p) is based on the net assets at the period end of £120,792,018 (30 June 2018: £118,738,520, 31 December 2018: £102,168,949) and on 106,487,250 redeemable participating preference shares, being the number of redeemable participating preference shares in issue (excluding shares held in treasury) at the period end (30 June 2018: 106,487,250 shares, 31 December 2018: 106,487,250 shares).

8.             Dividend and interest income

9.             Net movement in the fair value of securities
               

NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS OF THE FUND (Unaudited) (Continued)
For the period 1 January 2019 to 30 June 2019
with unaudited comparatives for the period 1 January 2018 to 30 June 2018

and audited comparatives for the year ended 31 December 2018

10.          Profit per redeemable participating preference share – basic and diluted

The revenue gain per share is based on £2,306,458 (30 June 2018: £2,821,096, 31 December 2018: £5,282,606) net revenue gain on ordinary activities and a weighted average of 106,487,250 (30 June 2018: 106,487,250, 31 December 2018: 106,487,250) shares in issue. The capital gain per share is based on £19,032,036 (30 June 2018: £3,598,681 net capital loss, 31 December 2018: £19,914,337 net capital loss) net capital gain for the period and a weighted average of 106,487,250 shares in issue (30 June 2018: 106,487,250, 31 December 2018: 106,487,250).

11.          Related party transactions

The Directors are regarded as related parties. 

Total Directors’ fees paid during the period amounted to £60,130 of which £1,085 was due at the period end (30 June 2018: £42,500 of which £21,250 was due at the period end, 31 December 2018: £101,500 of which £29,500 was due at the year end).

The Investment Manager is also regarded as a related party due to its holding of the two management shares in each of the Company and the Fund in issue. Total management fees paid during the period amounted to £400,861 (30 June 2018: £400,957, 31 December 2018: £825,615).

These fees for the above are all arms’ length transactions.

12.          Dividends

Dividends of 1.275 pence per share were paid on a quarterly basis during the period in the months of January and April totalling £2,715,425 (30 June 2018: £2,715,425). On 31 July 2019, a dividend of £1,357,712 was paid. In accordance with the requirements of IFRS, as this was approved on 4 July 2019, being after the Statement of Financial Position date, no accrual was reflected in the 2019 interim financial statements for this amount of £1,357,712 (5 July 2018: £1,357,712).

13.          Taxation

            The Company adopted UK tax residency on 11 October, 2011. Since that date, the Company has been managed in such a way as to be able to meet the conditions for approval as an investment trust under Section 1158 of the Corporation Tax Act 2010. As an investment trust, all capital gains are exempt from UK corporate tax. Accordingly, no UK tax has been provided for. On 7 December 2012, the Company received approval from HM Revenue & Customs to be treated as an investment trust in accordance with Section 1158 of the Corporation Tax Act 2010 and will seek to remain so approved.

14.          Loan payable

The Fund has a credit facility agreement with Royal Bank of Canada (“RBC”) whereby RBC provides a credit facility, with a maximum principal amount of the lesser of CAD 65,000,000 and 25 per cent. of the total asset value of the Fund.

As at 30 June 2019, the bankers’ acceptance drawn under the credit facility totalled CAD 45,000,000 (GBP equivalent of £26,886,356) (period ended 30 June 2018: CAD 55,000,000 (GBP equivalent of £31,497,412), year ended 31 December 2018: CAD 35,000,000 (GBP equivalent £20,025,095)).

As at 30 June 2019, pre-paid interest and stamping fees of £150,567 (period ended 30 June 2018: £92,995, year ended 31 December 2018: £80,143) were paid on the bankers’ acceptance and these costs are being amortised over 90 days. Interest paid on the bankers’ acceptance totalled £301,966 (period ended 30 June 2018: £253,524, year ended 31 December 2018: £534,814).

Interest is calculated at an annual percentage equal to, in the case of prime loans, the Prime Rate minus 0.35%. In the case of a bankers’ acceptance, a stamping fee of 0.60 per cent. per annum is payable.

NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS OF THE FUND (Unaudited) (Continued)

For the period 1 January 2018 to 30 June 2019
with unaudited comparatives for the period 1 January 2018 to 30 June 2018
and audited comparatives for the year ended 31 December 2018

15.          Security agreement
         
In conjunction with entering into the Credit Facility, the Fund has entered into a general security agreement with RBC, pursuant to which, the Fund has granted RBC interests in respect of collateral, being all present and future personal property, including the securities portfolio, as security for the Fund’s obligations under the Credit Facility.

16.          Financial instruments

Fair values
The carrying amounts of the investments, accrued income, other receivables, cash and cash equivalents and other payables approximate their fair values. In 2015, the percentage of the value of portfolio assets which may be invested in securities listed on a recognized stock exchange outside Canada was increased to up to 40 percent.

Management of Capital
The Investment Manager manages the capital of the Fund in accordance with the Fund’s investment objectives and policies.

The capital structure of the Fund consists of proceeds from the issue of preference shares, loans and reserve accounts.  The Investment Manager manages and adjusts its capital in response to general economic conditions, the risk characteristics of the underlying assets and working capital requirements. Generally speaking, the Fund will reduce leverage when investments are likely to decrease in value and will increase leverage when investment appreciation is anticipated.  In order to maintain or adjust its capital structure, the Fund may borrow or repay debt under its Credit Facility or undertake other activities deemed appropriate under the specific circumstances. The Fund and the Company do not have any externally imposed capital requirements. However, the Fund is subject to bank covenants in respect of leverage and complied with those covenants in the 6 months to 30 June 2019 and in 2018.

Investment and trading activities
It is intended that the Fund will continue throughout its life to be primarily invested in a Canadian and U.S. equities portfolio.

The Fund’s investing activities expose it to various types of risk that are associated with the financial instruments and markets in which it invests. The most important types of financial risk to which the Fund is exposed are market price risk, interest rate risk and currency risk.

Credit risk

Credit risk is the risk that an issuer or counterparty may be unable or unwilling to meet a commitment that it has entered into with the Fund.

The Fund’s principal assets are bank balances and cash, other receivables and investments as set out in the Statement of Financial Position which represents the Fund’s maximum exposure to credit risk in relation to the financial assets. The credit risk on bank balances is limited because the counterparties are banks with high credit ratings of AA- and A+ assigned by Standard and Poor’s rating agency. All transactions in listed securities are settled upon delivery using approved brokers.

The risk of default is considered minimal as delivery of securities sold is only made once the broker has received payment. Payment is made on a purchase once the securities have been received by the broker. The trade will fail if either party fails to meet its obligations. Where the Investment Manager makes an investment in debt or corporate securities, the credit rating of the issuer is taken into account to manage the Company’s exposure to risk of default. Investments in debt or corporate securities are across a variety of sectors and geographical markets, to avoid concentration of credit risk.

The Fund’s maximum exposure to credit risk is the carry value of the assets on the Statement of Financial Position.

Market price risk
Market price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting similar financial

NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS OF THE FUND (Unaudited) (Continued)

For the period 1 January 2019 to 30 June 2019
with unaudited comparatives for the period 1 January 2018 to 30 June 2018
and audited comparatives for the year ended 31 December 2018

16.          Financial instruments (continued)

Market price risk (continued)
instruments traded in the market. The Fund’s exposure to market price risk is comprised mainly of movements in the value of the Fund’s investments.

It is the business of the Investment Manager to manage the portfolio and borrowings to achieve the best returns.  The Directors manage the risk inherent in the portfolio by monitoring, on a formal basis, the Investment Manager’s compliance with the Company’s stated investment policy and reviewing investment performance.

Country risk
On 17 January 2012 the Financial Reporting Council (“FRC”) released “Responding to the increased country and currency risk in financial reports”. This update from the FRC included guidance on responding to the increased country and currency risk as a result of trade wars, the ongoing uncertainty to the outcome of Brexit, slowing global economic growth and manufacturing activity, and central bank policies.

The Fund invests primarily in Canadian and U.S. securities. The Investment Manager monitors the Company’s exposure to foreign currencies on a daily basis. The Board has reviewed the disclosures and believes that no additional disclosures are required because the Canadian and U.S. economies are stable.

Fair value measurements
IFRS 13 establishes a fair value hierarchy that prioritises the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under IFRS 13 are as follows:

• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities
• Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices)
• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs)

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgment, considering factors specific to the asset or liability.

The determination of what constitutes ‘observable’ requires significant judgment by the Fund. The Fund considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.  

The following table presents the Fund’s financial assets and liabilities by level within the valuation hierarchy as of 30 June 2019.

The following table presents the Fund’s financial assets and liabilities by level within the valuation hierarchy as of 31 December 2018.

NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS OF THE FUND (Unaudited) (Continued)

For the period 1 January 2019 to 30 June 2019
with unaudited comparatives for the period 1 January 2018 to 30 June 2018
and audited comparatives for the year ended 31 December 2018

16.          Financial instruments (continued)

Fair value measurements (continued)

The Fund holds securities that are traded in active markets. Such financial instruments are classified as Level 1 of the IFRS 13 fair value hierarchy. There were no transfers between Level 1 and 2 during the period.

Price sensitivity
At 30 June 2019, if the market prices of the securities had been 30% higher with all other variables held constant, the increase in net assets attributable to holders of redeemable participating preference shares would have been £43,518,427 (30 June 2018: £43,550,504, December 2018: £34,228,584), arising due to the increase in the fair value of financial assets at fair value through profit or loss by £43,518,427 (30 June 2018: £43,550,504, 31 December 2018: £34,228,584).

At 30 June 2019, if the market prices of the securities had been 30% lower with all other variables held constant, the decrease in net assets attributable to holders of redeemable participating preference shares would have been equal, but opposite, to the figures stated above.

Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

The Fund’s interest rate sensitive assets and liabilities mainly comprise cash and cash equivalents, debt securities and loan payable. The cash and cash equivalents are subject to floating rates and are considered to be part of the investment strategy of the Fund. No other hedging is undertaken in respect of this interest rate risk.

The following table details the Fund’s exposure to interest rate risk at 30 June 2019, 30 June 2018 and 31 December 2018:                               

* Interest on bank balances are based on prevailing bank base rates.

The above analysis excludes short term debtors and creditors as all material amounts are non interest-bearing.

Interest rate sensitivity analysis

At 30 June 2019, had interest rates been 50 basis points higher and all other variables were held constant, the Company’s net assets attributable to the redeemable participating preference shares would have decreased by       £210,931 (30 June 2018: £153,467, 31 December 2018: £77,545) due to the decrease in market value of listed debt securities, an increase in interest payable on the loan and to a lesser extent an increase in interest earnings on cash and cash equivalents.

NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS OF THE FUND (Unaudited) (Continued)

For the period 1 January 2019 to 30 June 2019
with unaudited comparatives for the period 1 January 2018 to 30 June 2018
and audited comparatives for the year ended 31 December 2018

16.          Financial instruments (continued)

Liquidity risk
Liquidity risk is the risk that the Fund cannot meet its liabilities as they fall due. The Fund’s primary source of liquidity consists of cash and cash equivalents, securities at fair value through profit or loss and the Credit Facility. The Fund’s investments are considered to be readily realisable, predominantly issued by Canadian and U.S. companies and REITs listed on Canadian Stock Exchanges and are actively traded.

As at 30 June 2019, the Fund’s ability to manage liquidity risk was as follows:

As at 30 June 2018, the Fund’s ability to manage liquidity risk was as follows:

NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS OF THE FUND (Unaudited) (Continued)

For the period 1 January 2019 to 30 June 2019
with unaudited comparatives for the period 1 January 2018 to 30 June 2018
and audited comparatives for the year ended 31 December 2018

16.          Financial instruments (continued)

Liquidity risk (continued)
As at 31 December 2018, the Fund’s ability to manage liquidity risk was as follows:

Currency risk
The Fund is denominated in GBP, whereas the Fund’s principal investments are denominated in CAD and USD. Consequently, the Fund is exposed to currency risk. The Fund’s policy is therefore to actively monitor exposure to currency risk. The Board reserves the right to employ currency hedging but, other than in exceptional circumstances, does not intend to hedge. The Board considers that exposure was significant at the period end.

The Fund’s net exposure to CAD currency at the period end was as follows:

NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS OF THE FUND (Unaudited) (Continued)

For the period 1 January 2019 to 30 June 2019
with unaudited comparatives for the period 1 January 2018 to 30 June 2018
and audited comparatives for the year ended 31 December 2018

16.          Financial instruments (continued)

Currency risk (continued)
The Fund’s net exposure to USD currency at the period end was as follows:

Sensitivity analysis
As at 30 June 2019, had GBP strengthened against the CAD by 5%, with all other variables held constant, the decrease in net assets attributable to shareholders would amount to approximately £4,097,162 (30 June 2018: £4,668,826, 31 December 2018: £3,965,017). Had GBP weakened against the CAD by 5%, this would amount to an increase in net assets attributable to shareholders of approximately £4,097,162 (30 June 2018: £4,668,826, 31 December 2018: £3,965,017).

As at 30 June 2019, had GBP strengthened against the USD by 5%, with all other variables held constant, the decrease in net assets attributable to shareholders would amount to approximately £1,949,914 (30 June 2018: £1,259,830, 31 December 2018: £1,137,312). Had GBP weakened against the USD by 5%, this would amount to an increase in net assets attributable to shareholders of approximately £1,949,914 (30 June 2018: £1,259,830, 31 December 2018: £1,137,312).

17.          Cash Flow statement reconciliation of financing activities

The following table discloses the effects of the amendments to IAS 7 Statement of Cash Flows that require additional disclosures about changes in an entity’s financing liabilities arising from both cash flow and noncash flow items.

NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS OF THE FUND (Unaudited) (Continued)

For the period 1 January 2019 to 30 June 2019
with unaudited comparatives for the period 1 January 2018 to 30 June 2018
and audited comparatives for the year ended 31 December 2018

18.          Schedule of Investments – Securities (at fair value through profit or loss)
As at 30 June 2019

NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS OF THE FUND (Unaudited) (Continued)

For the period 1 January 2019 to 30 June 2019
with unaudited comparatives for the period 1 January 2018 to 30 June 2018
and audited comparatives for the year ended 31 December 2018

18.          Schedule of Investments – Securities (at fair value through profit or loss) (continued)
As at 30 June 2019

STATEMENT OF FINANCIAL POSITION OF THE COMPANY (Unaudited)

As at 30 June 2019

with unaudited comparatives as at 30 June 2018
and audited comparatives as at 31 December 2018

The interim financial statements and notes on pages 30 to 31 were approved by the directors on 19 September 2019 and signed on behalf of the Board by:

Nicholas Villiers                                                                                                                   Philip Bisson       
Director                                                                                                                                  Director

NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS OF THE COMPANY (Unaudited)

For the period 1 January 2019 to 30 June 2019
with unaudited comparatives for the period 1 January 2018 to 30 June 2018

and audited comparatives for the year ended 31 December 2018

1.   Basis of accounting

      The separate interim financial statements of the Company have been prepared showing results of the Company only. They have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union in accordance with the accounting policies set out in note 1 to the interim financial statements of the Fund.

      A separate Statement of Comprehensive Income, Statement of Changes in Equity and Cash Flow Statement have not been prepared as there have been no results or cash flows for the Company for this period or the preceding period.

There are no standards and interpretations in issue but not effective that the Directors believe would or might have a material impact on the interim financial statements of the Company.

Judgments and estimates used by the Directors
The preparation of interim financial statements in compliance with IFRS requires the Directors to make judgments, estimates and assumptions that affect the application of policies and reported amount of assets and liabilities, income and expenses. The estimates and associated liabilities are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent. For the purposes of these interim financial statements, there were no specific areas in which judgment was exercised and no estimation was required by the directors.

2.   The Company’s stated capital

The authorised share capital of the Company is split into two management shares of no par value.

3.     Taxation

The Company adopted UK tax residency on 11 October, 2011. Since that date, the Company has been managed in such a way as to be able to meet the conditions for approval as an investment trust under Section 1158 of the Corporation Tax Act 2010. Accordingly, no UK tax has been provided for.  On 7 December 2012, the Company received approval from HM Revenue & Customs to be treated as an investment trust in accordance with Section 1158 of the Corporation Tax Act 2010 and will seek to remain so approved.

Definitions

Investment Objective: To provide Shareholders with a high level of dividends as well as capital growth over the longer term. The Fund intends to pay dividends on a quarterly basis each year.

Investment Policy: The Fund will seek to achieve its investment objective by investing predominantly in the securities of companies and REITs domiciled in Canada and listed on a Canadian Stock Exchange, and which the Investment Manager believes will provide an attractive level of distributions together with the prospect for capital growth. It is expected that the Fund’s portfolio will generally comprise between 40 and 70 investments. The Fund may also hold cash or cash equivalents. The Fund may utilise derivative instruments, including index-linked notes, contracts for differences, covered options and other equity-related derivative instruments, for the purposes of efficient portfolio management. The Fund will at all times invest and manage its assets in a manner which is consistent with the objective of spreading investment risk.

Management and Administration

Management and Administration (Continued)