capitalcapital...fund to roi canadian real estate fund on november 7, 2012.june 30, 2013 and...

27JUL201317062461

CapitalCapital

As at June 30, 2013

SEMI-ANNUAL REPORT 2013

roicapital.ca

™

ROI Canadian Real Estate Fund™

14MAR201318530937Table of Contents

Management’s Responsibility for Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Statement of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Statements of Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Statements of Changes in Net Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Statements of Cash Flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Notes to Financial Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Corporate & Shareholder Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

14MAR201318530937

11APR201222020953 11APR201222003587

Management’s Responsibility for Financial Reporting

August 26, 2013

The accompanying financial statements have been prepared and approved by Return On Innovation Advisors Ltd.,

the manager of the Fund. The Fund’s manager is responsible for the information and representations contained in these

financial statements.

Return On Innovation Advisors Ltd. maintains appropriate processes to ensure that relevant and reliable financial

information is produced. The financial statements have been prepared in accordance with accounting principles

generally accepted in Canada and include certain amounts that are based on estimates and judgments. The significant

accounting policies, which management believes are appropriate for the Fund, are described in note 3 to the financial

statements.

John Sterling David Dundas

Executive Chairman Chief Financial Officer

1

14MAR201318530937Statement of Investments

As at June 30, 2013 (Unaudited)

Par Value $ Average cost Fair valueDescription (or number of shares) $ $

Common Share Portfolio – 52.51%Energy – 24.92%Legacy Oil & Gas Inc., Class ‘A’ 1,094,694 7,932,737 5,407,788MEG Energy Corp. 271,000 9,635,410 7,783,120Nuvista Energy Ltd. 1,198,618 8,725,939 8,558,133Suncor Energy Inc. 289,567 9,159,004 8,973,681Paramount Resources Ltd., Class ‘A’ 228,000 7,521,720 8,107,680Tourmaline Oil Corp. 270,000 9,489,600 11,340,000

52,464,410 50,170,402Materials – 1.78%Osisko Mining Corp. 1,040,121 8,289,764 3,588,417

8,289,764 3,588,417Industrials – 3.00%Canadian National Railway Co. 59,222 5,994,451 6,043,605

5,994,451 6,043,605Health Care – 10.61%Catamaran Corp. 161,110 4,768,653 8,232,721Valeant Pharmaceuticals International Inc. 145,394 6,599,006 13,143,618

11,367,659 21,376,339Financials – 4.25%Royal Bank of Canada 139,573 8,439,979 8,551,638

8,439,979 8,551,638Technology – 7.95%CGI Group Inc., Class ‘A’ 521,260 8,889,184 16,018,320

8,889,184 16,018,320

Total Common Share Portfolio 95,445,447 105,748,721

Private Investment Portfolio – 22.28%Limited Partnerships – 4.56%219 Laurier Avenue West LP 2,569,070 2,298,267 3,414,6672810 Matheson Boulevard LP 1,709,128 1,539,850 2,232,589460 Two Nations Fredericton Inc., LP 533,510 484,662 595,37649 Ontario Street LP 1,336,365 1,136,378 2,950,953

5,459,157 9,193,585DebtMortgages – 17.72%2093755 Ontario Ltd., (Holiday Inn Markham), November 2016 1,962,309 1,962,309 1,976,1122113626 Ontario Inc. & 2295754 Ontario Inc., January 2017 3,509,696 3,509,696 3,525,596Castlepoint Studio Partners Limited, June 2014 1,500,000 1,500,000 1,500,000Courtney Park Holdings LP & Courtney Park Holdings, April 2016 1,440,232 1,440,232 1,439,263Downtown Edmonton Hotel Holdings, Inc., September 2013 1,856,731 1,856,731 1,856,731Frontenac Shopping Centre Inc., November 2014 692,851 692,851 706,939Gulf & Pacific Equities Corp., February 2017 1,980,844 1,980,844 1,992,004Hotel 550 Wellington LP (Thompson), August 2016 1,984,949 1,984,949 1,975,902Nordelec Developments LP, November 2016 2,906,635 2,906,635 2,940,970Oakville Holdings LP & Oakville Holdings Ltd., June 2016 1,423,290 1,423,290 1,418,461Plazacorp Property Holdings Inc. (Bedford Commons), August 2020 500,000 500,000 505,713Plazacorp Property Holdings Inc. (Granite Dr.), September 2020 4,000,000 4,000,000 4,068,199Plazacorp Property Holdings Inc. (Silverfox Plaza), November 2020 2,153,500 2,153,500 2,196,415Storage Capital (2) L.P. (Spruce Grove), November 2016 2,700,000 2,700,000 2,705,620SPN Group Inc., June 2015 482,267 482,267 482,267

2

14MAR201318530937Statement of Investments – cont’d

As at June 30, 2013 (Unaudited)


Depotium Self Stockage Inc. (340 St-Maurice), February 2015 156,894 156,894 157,143Depotium Self Stockage Inc. (15949 Sherbrooke East), February 2015 356,577 356,577 357,143Depotium Self Stockage Inc. (8469 – 8th Ave), February 2015 185,420 185,420 185,714Depotium Self Stockage Inc. (2871 deMeunier), February 2015 92,710 92,710 92,857Depotium Self Stockage Inc. (1819 Montcalm St.), February 2015 24,960 24,960 25,000Depotium Self Stockage Inc. (2150 Chicone Rd.), February 2015 181,854 181,854 182,143Depotium Self Stockage Inc. (165 Royal Street), February 2015 263,867 263,867 264,286Depotium Self Stockage Inc. (3350 Sir Wilfred Laurier Blvd.),

February 2015 517,036 517,036 517,857Depotium Self Stockage Inc. (150 Mon-Tor Blvd.), February 2015 149,762 149,762 150,000Depotium Self Stockage Inc. (260 Murray St.), February 2015 320,919 320,919 321,4291659139 Ontario Inc. (Maystar), March 2014 4,140,000 4,140,000 4,145,811

35,483,303 35,689,575

Total Private Investment Portfolio 40,942,460 44,883,160Short-Term Investments – 1.96%CIBC Mellon Trust Demand Deposit, Variable Rate 3,939,273 3,939,274 3,939,274

3,939,274 3,939,274Total Investments – 76.75% 140,327,181 154,571,155Unrealized Gain on Forward Contract – 23.68% [note 8] 47,696,628Liabilities, Net of Other Assets – (0.43)% (873,916)Net Assets 201,393,867

Investment Portfolio Concentration (%)

The Fund’s investment portfolio is concentrated in the following segments as at June 30, 2013 and December 31, 2012:

2013 2012

COMMON SHARE PORTFOLIOEnergy 24.92% 11.64%Financials 4.25% 11.40%Health Care 10.61% 7.48%Industrial 3.00% –Materials 1.78% 14.47%Technology 7.95% 5.02%

PRIVATE INVESTMENT PORTFOLIOLimited Partnership 4.56% 4.13%Mortgages 17.72% 17.12%SHORT TERM INVESTMENTS 1.96% 9.81%UNREALIZED GAIN ON FORWARD CONTRACT 23.68% 19.48%LIABILITIES, NET OF OTHER ASSETS (0.43)% (0.55)%

100.00% 100.00%

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

3

14MAR201318530937Statements of Net Assets

As at June 30with comparative figures as at December 31, 2012

2013Unaudited 2012

$ $

AssetsInvestments at fair value (cost $136,387,907; 2012 $143,118,238) 150,631,881 153,774,486Short-term investments (cost $3,939,274; 2012 $21,057,583) 3,939,274 21,057,583Interest and dividends receivable 255,320 267,718Receivable for investments sold 34,354 31,030Unrealized gain on forward contract [note 8] 47,696,628 42,035,733HST receivable 218,700 225,100

202,776,157 217,391,650

LiabilitiesDistributions payable 1,023,240 1,084,009Unearned venture capital income 5,743 6,596Accrued expenses 353,307 524,457

1,382,290 1,615,062

Unitholders’ equity [note 6]Unitholders’ capital 203,541,576 215,629,970Contributed surplus 1,999,023 1,427,493Deficit (4,146,732) (1,280,875)Net Assets representing unitholders’ equity 201,393,867 215,776,588

Net Assets [note 6]Class A 201,393,867 215,776,588

Net Assets per Unit [note 6 and 9]Class A 9.84 9.95


4

14MAR201318530937Statements of Operations

For the six-month periods ended June 30

2013Unaudited 2012

$ $

Investment IncomeInterest 2,842 9,356Dividends – 229,032Securities lending income [note 11] – 179,900Interest income from private investments 1,333,932 1,516,450

1,336,774 1,934,738

ExpensesAudit fees 39,197 55,739Custodian fees 40,016 32,676Forward fees [note 7] 389,698 –Independent review committee fees 813 868Interest expense – 46,379Legal fees 21,111 11,255Management fees [note 7] 1,101,816 1,175,821Operating services [note 7] – 325,827Performance fees [note 7] – 4,150,560Shareholder reporting costs 42,389 46,472Transfer agent fees 49,702 30,920Total Expenses 1,684,742 5,876,517Net Investment Loss (347,968) (3,941,779)

Realized and Unrealized Gain (Loss) on InvestmentsNet realized gain (loss) on sale of investments (5,628,408) (948,295)Change in unrealized appreciation in value of investments 3,587,726 417,345Change in unrealized appreciation in value of forward contract 5,660,895 21,542,329Net Realized and Unrealized Gain on Investments 3,620,213 21,011,329Increase in Net Assets from Operations 3,272,245 17,069,550

Increase in Net Assets from Operations [note 6]Class A 3,272,245 17,069,550

Increase in Net Assets from Operations per Unit [note 6]Class A 0.16 0.70


5

14MAR201318530937Statements of Changes in Net Assets

For the six-month period ended June 30, 2013 (Unaudited)

Class ($)

A1

Increase in Net Assets from Operations 3,272,245

Distributions to UnitholdersFrom net investment income –

From capital gains –

From return of capital (6,138,102)(6,138,102)

Capital Unit TransactionsSales of units –

Units issued on reinvestment of distributions 80,199

Units redeemed –

Units redeemed for mandatory market repurchase

program [note 6] (11,597,063)(11,516,864)

Decrease in Net Assets for the Period (14,382,721)

Net Assets – Beginning of Period 215,776,588Net Assets – End of Period 201,393,867

1 Series A, F, F-5, 5 and O were redesignated to Series R on November 10, 2012, and Series R was renamed to Class A.

For the six-month period ended June 30, 2012Series ($)

A F F-5 5 O R Total

Increase in Net Assets from Operations 7,896,823 1,534,621 165,327 1,759,219 1,275,427 4,438,133 17,069,550

Distributions to UnitholdersFrom net investment income – – – – – – –

From capital gains – – – – – – –

From return of capital – – (62,400) (740,840) – – (803,240)– – (62,400) (740,840) – – (803,240)

Capital Unit TransactionsSales of units 16,146,968 4,206,759 50,000 2,649,124 1,925,881 4,500,000 29,478,732

Units issued on reinvestment of distributions – – 5,591 131,770 – – 137,361

Units redeemed (4,382,215) (2,810,145) (103,790) (1,343,761) (1,299,861) – (9,939,772)11,764,753 1,396,614 (48,199) 1,437,133 626,020 4,500,000 19,676,321

Increase in Net Assets for the Period 19,661,576 2,931,235 54,728 2,455,512 1,901,447 8,938,133 35,942,631

Net Assets – Beginning of Period 106,752,375 19,213,610 2,288,115 25,151,688 16,104,193 39,981,152 209,491,133Net Assets – End of Period 126,413,951 22,144,845 2,342,843 27,607,200 18,005,640 48,919,285 245,433,764


6

14MAR201318530937Statements of Cash Flows

For the six-month periods ended June 30

2013Unaudited 2012

$ $

Cash provided by (used in)Operating activitiesIncrease in net assets from operations 3,272,245 17,069,550Non-cash items

Net realized and unrealized gain on investments and forward contract (3,620,213) (21,011,329)Net change in non-cash balances related to operations (156,529) 1,363,228

Proceeds from the sale of marketable securities 103,124,850 19,786,512Proceeds from the sale short-term investments 19,813,631 30,507,488Proceeds from the sale and principal payments of private investments 1,172,071 14,332,983Purchase of marketable securities (103,124,859) (37,627,622)Purchase of short-term investments (2,695,321) (31,368,041)Purchase of private investments (70,140) (14,635,551)

17,715,735 (21,582,782)

Financing activitiesProceeds from issuance of units – 32,495,933Amounts redeemed (11,597,063) (10,360,554)Distributions paid (6,118,672) (766,389)

(17,715,735) 21,368,990

Decrease in cash during the period – (213,792)Cash (bank overdraft) – beginning of period – 11,175Cash (bank overdraft) – end of period – (202,617)

Supplemental cash flow information:Interest paid – 39,646


7

14MAR201318530937Notes to Financial Statement

1. THE FUND $1,086,508 processed on March 8, 2012, were postponed. These

redemptions were subsequently paid on June 1, 2012.ROI Canadian Real Estate Fund (the ‘‘Fund’’) (formerly ROINotwithstanding the above, the Manager continued to operate theStrategic Private Placement Fund) is a closed-end investment fundFund as before. On August 24, 2012, the unitholders consideredestablished as a trust under the laws of the Province of Ontario.and approved resolutions authorizing the restructuring of the Fund.The units of the Fund trade on the Toronto Stock Exchange

(the ‘‘TSX’’) under the symbol RIR.UN. Financial Statements

The financial statements of the Fund include the statement ofRestructuring of the Fundinvestments as at June 30, 2013, the statements of net assets as atThe Fund changed its name from ROI Strategic Private PlacementJune 30, 2013 and December 30, 2012 and the statements ofFund to ROI Canadian Real Estate Fund on November 7, 2012.operations, cash flows and changes in net assets for the years endedOn November 10, 2012, with the approval of the unitholders,June 30, 2013 and June 30, 2012.Series A, F, 5, F-5, and O of the Fund were redesignated to

Series R of the Fund. Series R was renamed as Class A. On2. INVESTMENT OBJECTIVES AND STRATEGY OF

November 29, 2012 the Fund filed a non-offering prospectus withTHE FUND

the Ontario Securities Commission (‘‘OSC’’) in order to become aThe Fund’s investment objective is to provide unitholders of the

reporting issuer under the securities act (Ontario). As a result, theFund with attractive risk adjusted, monthly, tax advantaged cash

Fund is no longer exempt from filing its financial statements withdistributions, a high current yield, some long-term capital

the regulatory authorities under section 2.11 of Nationalappreciation and preservation of capital by investing primarily

Instrument 81-106. On December 7, 2012, the Fund listed itsdirectly or indirectly in, or by obtaining economic exposure

Class A units on the TSX. The costs associated with thethrough the forward agreement to, an actively managed diversified

restructuring have been borne by the Manager (as defined below).portfolio of commercial mortgages, loans secured by, or that provide

Reorganization of the Manager a participating interest in, real property or ownership interests inEffective September 1, 2012, Return On Innovation real property.Management Ltd., amalgamated with two affiliated entities, Return

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESOn Innovation Advisors Ltd., and Return On InnovationsThese financial statements are prepared in accordance withCapital Ltd., under the provisions of the Canada BusinessCanadian generally accepted accounting principles (‘‘GAAP’’). TheCorporations Act, the name of the amalgamated corporation beingsignificant accounting policies followed by the Fund are as follows:Return On Innovation Advisors Ltd., (the ‘‘Manager’’).

Valuation of Series and UnitsRegulatory field auditA net asset value (‘‘NAV’’) is calculated for units of the Fund daily.As a result of a field audit by the regulator, on February 15, 2012,The NAV is computed by calculating the value of series’the OSC placed ‘‘terms and conditions’’ on Return on Innovationproportionate share of the assets and liabilities of the Fund, less theManagement Ltd. and Return On Innovation Advisors Ltdliabilities of the Fund. Other expenses, investment income, realized(the ‘‘Management Entities’’). The terms and conditions includedand unrealized capital and foreign exchange gains and losses arethe requirement to report working capital on a monthly basis for aallocated proportionately to each series based upon the relative netminimum six-month period and the requirement to retain anassets of each series.independent consultant to prepare and assist in implementing a

plan to strengthen the compliance systems of the Management A valuation date is each day on which the TSX is open forEntities (the ‘‘Plan’’). The Management Entities appointed an business. The net asset value per unit (‘‘NAVPU’’) of each series forindependent consultant and submitted the Plan to the OSC prior to the purposes of redemption or reinvestments is computed bythe March 30, 2012 deadline. The Management Entities were dividing the NAV of the Fund attributable to the series by therequired to provide ongoing regular reports to the OSC on the total number of units of the series of the Fund outstanding at suchstatus of the implementation of the Plan. Subsequent to the time. Refer to the liquidity risk disclosure in note 4 for additionalamalgamation of the Management Entities, on October 2, 2012, details.the ‘‘terms and conditions’’ that were placed on the Management

Investment ValuationEntities by the OSC were removed.

Investments are deemed to be categorized as held for trading, andSubsequent to the reporting of terms and conditions, there was an accordingly are measured at fair value.abnormal inflow of redemption requests. As a result, on March 9,

Short-term investments represent overnight cash deposits and are2012, the Manager had temporarily halted redemptions of the Fund

measured at amortized cost, which approximates fair value due to(other than in respect of any redemptions set up pursuant to

their short-term nature.registered retirement income funds and pre-authorized withdrawal

plans established prior to the suspension.) The redemptions of

8


Marketable securities held in the Common Share Portfolio are Transaction costs, such as brokerage commissions, incurred in the

recorded at fair value, established as the closing bid price for the purchase and sale securities by the Fund are recognized in the

security on the recognized exchange on which they are principally statements of operations.

traded. Where securities are not traded on that date, a valuation Increase (Decrease) in Net Assets from Operations per Unitadjustment may be applied by the Manager acting in good faith. Increase (decrease) in net assets from operations per unit is based on

Investments in underlying funds are valued at the series’ NAVPU the increase (decrease) in net assets from operations attributable to

of the underlying fund. series divided by the weighted average number of such series units

outstanding during the year (see note 6).Investments that are not publicly traded or other assets for which

no public market exists are valued at estimated fair value. The fair Cash

values of investments are determined using an appropriate valuation Cash comprises cash on deposit.

methodology after considering: the history and nature of the Loans and Receivablesbusiness; operating results and financial conditions; independent Loans and receivables are initially recognized at fair value andvaluations of the business; contractual rights relating to the subsequently measured at amortized cost, which approximates fairinvestment; public market comparable transactions and recent value due to their short-term nature.multiples, where applicable; current market yields; macroeconomic

Unearned Venture Capital Incomeconditions; and, other pertinent considerations. The process of

Fees received by the Fund on the initiation of a private investmentvaluing private investments for which no published market or

are deferred and amortized over the term of the investment.market observable factors exist is subject to inherent uncertainties

Other Financial Liabilitiesand the resulting values may differ from values that would haveOther financial liabilities are initially recognized at fair value andbeen used had a ready market existed for those investments. Thesesubsequently measured at amortized cost, which approximates fairdifferences could be material to the fair value of the investments.value due to their short-term nature.

Securities and other assets for which market quotations are, in theIncome Taxesopinion of the Manager, inaccurate, unreliable, not reflective of allThe Fund is a mutual fund trust and a specified investmentavailable material information or not readily available are valued atflow-through trust (‘‘SIFT’’) pursuant to the Income Tax Acttheir fair value, as determined by the Manager. Fair value represents(Canada) and became subject to SIFT tax commencing in fiscalthe amount of consideration that would be agreed upon in an2012. The SIFT rules in the Act taxes certain income of a SIFTarm’s-length transaction between knowledgeable, willing partiesTrust that is distributed to its investors on the same basis as wouldwho are under no compulsion to act.have applied had the income been earned through a taxable

The valuation procedures relating to private company investmentscorporation and distributed by way of dividend to its shareholders

include preparation by management, on at least a quarterly basis, ofat a rate that is substantially equivalent to the general income tax

a comprehensive report that includes a recommendation for therate applicable to a Canadian corporation. Distributions paid by a

carrying value of the private investments.SIFT as returns of capital are not subject to the SIFT tax.

Forward ContractPerformance Fees

The forward contract is valued at an amount equal to the gain orThe Manager will be entitled to a performance fee from the Fund

loss that would be realized if the position was to be closed out aton a per unit outstanding basis equal to 20% of the amount by

the reporting date. On cash settlement, the fair value of thewhich the sum of (i) any increase in the direct assets NAVPU

forward contract shall equal the difference between the fair value of(as defined below) (without taking into account the performance

the Fund’s common share portfolio and the NAV of ROI Strategicfee), and (ii) the distributions paid on such unit during the

Capital Trust (the ‘‘Reference Fund’’) as specified in the forwardprevious 12 months, exceeds the 2 year Government of Canada

contract.bond yield and 4.50% (the Benchmark) (expressed as a dollar

Investment Transactions, Income Recognition and amount per unit) for the year, calculated and accrued daily andTransaction Costs payable annually in arrears. The Direct Assets NAV is the NAV ofInvestment transactions are accounted for on the trade date. the Fund excluding the value of the unrealized gain or loss on the

Interest income is recognized on an accrual basis. Dividend income forward contract (see note 8) and the value of the Common Share

is recognized on the ex-dividend date. Realized gains and losses Portfolio subject to the forward contract.

from the sales of investments and unrealized appreciation Accounting Estimates(depreciation) in the value of investments are calculated with The preparation of financial statements in accordance withreference to the average cost of the related investments, which Canadian GAAP requires management to make estimates andexcludes brokerage commissions and other trading expenses. assumptions that affect the reported amounts of assets and

9


liabilities at the date of the financial statements and the amounts of distributions payable, performance fee payable, redemptions

income and expense during the reporting period. Actual results payable, revolving loan facility, accrued expenses and unrealized

could differ from those estimates and those differences could be gain (loss) on the forward contract.

significant. The most significant estimates are made on the The investments in private companies consist of debt and equityvaluation of private investments, which are further discussed in instruments. These investments are typically illiquid. The Fundnote 4. seeks to reduce the risk typically associated with such investments

by diversifying the investment portfolio by investing in companies4. FINANCIAL INSTRUMENTSthat are in differing stages of development in a variety ofThe Fund’s financial instruments consist primarily of cash/bankhigh-growth-potential industries and by working with investeeoverdraft, short-term investments, marketable securities, privatecompanies through, among other things, providing business adviceinvestments, convertible bonds, investments in the underlyingand other services, aiding in the recruitment process and helping infunds, interest and dividends receivable, subscriptions receivable,the process of raising additional capital.receivable for investment sold, receivable for shares sold,

Financial Instruments

June 30, 2013 December 31, 2012

Assets $ Assets $Investments held for trading 202,267,783 Investments held for trading 216,867,802Receivables 289,674 Receivables 298,748

Liabilities LiabilitiesFinancial liabilities 1,376,547 Financial liabilities 1,608,466

Private investments, marketable securities and short-term The Fund is exposed to credit risk through a forward contract

investments are designated as held for trading and measured at (see note 8). The risks of forward contracts arises from the potential

fair value. inability of the counterparties to meet the terms of the contract.

The maximum credit risk exposure is the aggregate of the contractReceivables are designated as loans and receivables. Bank overdraft,with a positive value as disclosed in the statement of investments.distributions payable, performance fees payable, securities purchased

payable, revolving loan facility, accrued expenses and redemptions All transactions in listed securities are settled upon delivery using

payable are designated as other financial liabilities. The carrying approved brokers. The risk of default is considered minimal, as

value of these financial assets and liabilities approximates their fair delivery of securities sold is only made once the Fund has received

value due to their short-term nature. payment. Payment is made on a purchase once the securities have

been received by the Fund. Should either party not meet itsThe Fund’s activities expose it to a variety of financial risks: creditobligation, the trade will fail.risk, liquidity risk, market risk (including interest rate risk,

currency risk and other price risk) and valuation risk of private The credit risk related to interest and dividends receivable is

investments. The Manager and the Advisor seek to minimize subject to the creditworthiness of the underlying investees. As of

potential adverse effects of these risks on the Fund’s performance by June 30, 2013 and December 31, 2012, no allowance for doubtful

employing professional experience, daily monitoring of the Fund’s accounts has been provided for.

positions and market events, by diversifying the investment The Fund and ROI Strategic Capital Trust (see note 2) invest inportfolios within the constraints of the investment objectives and, debt obligations that are secured, unsecured or subordinated tofor private investments, by structuring investments to provide the senior creditors. The risks of debt obligations arise from theFund with the maximum protection in the event of problems with potential inability of the issuer to make payments on the debtthe issuer of the security. securities. The inability of the issuer to meet its obligations will

Credit Risk affect the fair value of the investment and the Fund may suffer

Credit risk is the risk that the counterparty to a financial a loss.

instrument will fail to discharge an obligation or commitment that If the Fund invests in underlying funds, the Fund is exposed toit has entered into with the Fund. The Fund’s investments in debt indirect credit risk in the event that the underlying fund invests ininstruments and derivatives represent the main concentration of debt securities and derivatives.credit risk. The fair value of debt instruments and derivatives

The Fund invests in debt instruments and has entered into aincludes consideration of the creditworthiness of the issuer.

forward contract (see note 8). As at June 30, 2013, the Fund held

17.72% (December 2012 – 17.12%) of its net assets in debt

10


securities through its private investment portfolio and 23.68% designed to attempt to reduce or eliminate a market value discount

(December 2012 – 19.48%) of its net assets in a forward contract. from the NAVPU. The Manager believes that the redemption

There is additional credit rate risk through the forward contract of rights, mandatory market repurchase program and the normalthe Reference Fund, the ROI Strategic Capital Trust Fund. As at course Issuer bids proposed to be implemented may help to reduceJune 30, 2013, the ROI Strategic Capital Trust Fund held 38.71% a market value discount from NAVPU.(December 2012 – 39.98%) of its net assets in debt securities As at June 30, 2013 the Fund held 22.28% (December 2012 –through in private investment portfolio. 21.24%) of net assets in private investments, which are consideredLiquidity Risk illiquid. It also had 54.46% (December 2012 – 59.78%) of netLiquidity risk is defined as the risk that a fund may not be able to assets in cash, short-term and marketable securities investmentssettle or meet its obligations on time or at a reasonable price. The that are traded in active markets and/or can be readily disposed of.Fund is exposed to monthly and annual redemptions of redeemable There is additional liquidity rate risk through the forward contractunits. of the Reference Fund, the ROI Strategic Capital Trust Fund. As at

June 30, 2013 the ROI Strategic Capital Trust Fund held 94.96%There is no assurance that the units will trade in the secondary(December 2012 – 95.48%) of net assets in private investmentsmarket at a price equal to the applicable NAVPU or that a liquidwhich are considered illiquid. It also had 4.61% (December 2012 –market will develop. The Fund anticipates that the market price of4.18%) of net assets in cash and short-term investments that arethe units will vary from the NAVPU. The market price of thetraded in active markets and can be readily disposed of. Theunits will be determined by factors including, but not limited to,following table summarizes the maturity profile, as at June 30,the relative supply and demand of units, the yield on the units,2013 and December 31, 2012, of financial instruments bytrading liquidity and the Fund’s investment performance. The unitscontractual maturity or expected cash flow dates.may trade at a premium or discount to the applicable NAVPU.

The redemptions terms attached to the units (see note 8) have been

June 30, 2013Within 1 to 3 to Over No specific1 year 3 years 5 years 5 years date Total

AssetsInterest and dividends receivable 255,320 – – – – 255,320Receivable for investments sold 34,354 – – – – 34,354Unrealized gain on forward contract 47,696,628 – – – – 47,696,628Private investments 6,002,542 6,382,041 16,534,665 6,770,327 9,193,585 44,883,160Short-term investments 3,939,274 – – – – 3,939,274Marketable securities 105,748,721 – – – – 105,748,721

$163,676,839 $6,382,041 $16,534,665 $6,770,327 $9,193,585 $202,557,457

LiabilitiesDistributions payable 1,023,240 – – – – 1,023,240Accrued expenses 353,307 – – – – 353,307

$1,376,547 $– $– $– $– $1,376,547

December 31, 2012Within 1 to 3 to Over No specific1 year 3 years 5 years 5 years date Total

AssetsInterest and dividends receivable 267,718 – – – – 267,718Receivable for investments sold 31,030 – – – – 31,030Private investments 3,397,601 8,624,711 18,130,315 6,781,484 8,902,931 45,837,042Short-term investments 21,057,583 – – – – 21,057,583Marketable securities 107,937,444 – – – – 107,937,444Unrealized gain on forward contract – 42,035,733 – – – 42,035,733

$132,691,376 $50,660,444 $18,130,315 $6,781,484 $8,902,931 $217,166,550

LiabilitiesDistributions payable 1,084,009 – – – – 1,084,009Accrued expenses 524,457 – – – – 524,457

$1,608,466 $– $– $– $– $1,608,466

11


Market Risk The Fund may enter into foreign exchange contracts for hedging

Market risk comprises three main components: interest rate risk, purposes to reduce foreign currency exposure, or to establish

foreign currency risk and other price risk. exposure to foreign currencies.

As at June 30, 2013, the Fund held 52.51% (December 2012 – The Fund invests primarily in Canadian securities. As at June 30,

50.01%) of net assets in equities. 2013 and December 31, 2012, the Fund did not have any

significant exposure to currency risk. The Reference Fund investsWhile the Fund has significant equity holdings in its commonprimarily in Canadian securities. As at June 30, 2013 andshare portfolio, the fair value fluctuations are driven by the forwardDecember 31, 2012, the Reference Fund did not have any exposurecontract (see note 8).to currency risk.

Interest Rate RiskOther Price RiskInterest rate risk arises from the possibility that changes in interestOther price risk is the risk that the value of financial instrumentsrates will affect the future cash flows or the fair values of interest-will fluctuate as a result of changes in market prices (other thanbearing investments. The Fund’s exposure to interest rate risk isthose arising from interest rate risk or currency risk), whetherconcentrated in its investments in debt securities. Short-termcaused by factors specific to an individual investment, its issuer, orinvestments, currencies, and other financial assets and liabilities areall factors affecting all instruments traded in a market or marketshort term in nature and/or non-interest bearing and are not subjectsegment. All equity securities present a risk of loss of capital. Theto significant amounts of risk due to fluctuations in the prevailingManager and the Advisor moderate this risk through carefullevels of market interest rates.selection of securities and other financial instruments within the

If the Fund invests in underlying funds, it is exposed to indirectparameters of the investment strategy. The maximum risk of loss

interest rate risk to the extent of the interest-bearing financialresulting from financial instruments is equivalent to their

instruments held by the underlying mutual funds.fair value.

As at June 30, 2013, had the prevailing interest rates raised orIf the Fund in underlying funds, it has the same risks as the

lowered by 1%, with all other variables held constant, net assetsunderlying mutual fund in which it invests. Equities are

would have decreased or increased, respectively, by approximatelysusceptible to market price risk arising from uncertainties about

$970,226 (December 2012 – $1,182,870 for all debt investments.future prices of those instruments.

Also, had the prevailing capitalization rates raised or lowered byAs at June 30, 2013, 52.51% (December 2012 – 50.01%) of the0.25% with all other variables held constant, net assets would haveFund’s net assets were traded on the Canadian stock exchange.increased or decreased, respectively, by approximately $623,092 andHowever, the Fund is not exposed to other price risk on its$669,302 (December 31, 2012 – $568,858 and $659,702) for thecommon share portfolio, given the nature of the forward contractequity investment held in the Fund. In practice, the actual result(note 8).may differ from the sensitivity analysis and the difference could

be material. As at June 30, 2013 and December 31, 2012, ROI Strategic

Capital Trust did not have any exposure to other price risk.The Fund held 1.96% (December 2012 – 9.81%) of its net assets

in short-term investments, which earn a variable rate of interest. Valuation Risk of Private Investments

There is additional interest rate risk through the forward contract The Fund invests a substantial portion of its net assets in private

of the Reference Fund, the ROI Strategic Capital Trust Fund. As at investments. Generally, these private instruments do not have

June 30, 2013, had the prevailing interest rates raised or lowered observable market prices. The process of valuing investments for

by 1%, with all other variables held constant, net assets would which no published market exists is based on inherent uncertainties

have decreased or increased, respectively, by approximately and will be influenced by the time required to assess the impact of

$1,160,774 (December 2012 – $1,327,477) for all debt investments any particular event on value from time to time. The resulting

held in the Fund. The private investment held in the Fund values may differ from values that would have been used had a

generate interest income with varying rates of interest from 6.00% ready market existed for the investments. This valuation process is

to 9.25%. subjective to a degree and, to the extent that these valuations are

inaccurate, investors in the Fund may gain a benefit or suffer a lossCurrency Riskwhen they purchase or redeem units.Currency risk is the risk that the value of a financial instrument

will fluctuate due to changes in foreign exchange rates. Currency The amount of changes in fair value, recognized in the statements

risk arises from financial instruments (including cash) that are of operations during the year that was estimated using a valuation

denominated in a currency other than Canadian dollars, which technique based on assumptions that are not supported by

represents the functional currency of the Fund. observable market prices or rates was an increase of $148,182

(December 31,2012 – increase of $20,920,650).

12


5. FAIR VALUE HIERARCHY Level 2 Inputs other than quoted prices that are observable for the

asset or liability either directly or indirectly; andThe Fund provides disclosures about inputs to fair value

measurement, including their classification within a hierarchy that Level 3 Inputs that are not based on observable market data.prioritizes the inputs to fair value measurement. The hierarchy If different levels of inputs are used to measure a financialgives the highest priority to unadjusted quoted prices in active instrument’s fair value, the classification within the hierarchy ismarkets for identical assets or liabilities (Level 1) and the lowest based on the lowest level input that is significant to the fair valuepriority to unobservable inputs (Level 3). The three levels of the measurement. The following tables illustrate the classification offair value hierarchy are: the Fund’s financial instruments within the fair value hierarchy asLevel 1 Unadjusted quoted prices in active markets for identical at June 30, 2013 and December 31, 2012:assets or liabilities;

Assets at fair value as at June 30, 2013Level 1 Level 2 Level 3 Total

Marketable securities 105,748,721 – – 105,748,721Short-term investments – 3,939,274 – 3,939,274Private investments – – 44,883,160 44,883,160Unrealized gain on forward contract – – 47,696,628 47,696,628

$105,748,721 $3,939,274 $92,579,788 $202,267,783

Assets at fair value as at December 31, 2012Level 1 Level 2 Level 3 Total

Marketable securities 107,937,444 – 107,937,444Private investments – 21,057,583 – 21,057,583Convertible bond – – 45,837,042 45,837,042Unrealized gain on forward contract – – 42,035,733 42,035,733

$107,937,444 $21,057,583 $87,872,775 $216,867,802

Fair values are classified as Level 1 when the related security or Convertible Bond

derivative is actively traded and a quoted price is available. If an The Funds’ convertible bond investments are classified as Level 2

instrument classified as Level 1 subsequently ceases to be actively when they are valued using observable inputs, including interest

traded, it is transferred out of Level 1. In such cases, instruments rates curves, credit spreads and volatilities.

are reclassified into Level 2, unless the measurement of its fair Private Investmentsvalue requires the use of significant unobservable inputs, in which The Fund’s private investments are classified as Level 3 as thecase it is reclassified as Level 3. There were no transfers between determination of fair value requires significant unobservable datalevels during the period ended June 30, 2013 and year ended and the application of valuation techniques. Private investmentsDecember 31, 2012. include investments that are not publicly traded or other assets for

Marketable Securities which no public market exists.

The Fund’s marketable securities include publicly traded equities Forward Contractand investments in listed funds. Public traded equities are classified The Fund’s forward contract is classified as Level 3 as theas Level 1 as the securities are actively traded and reliable quotes determination of fair value is based on the Reference Fund whichare available. Investments in listed funds are classified as Level 2 as invests only in private investments.they are thinly traded and are subject to monthly and/or annual

The following is a reconciliation of Level 3 fair value measurementsredemption terms.

for the years ended June 30, 2013 and December 31, 2012:Short-Term Investments

The Fund’s short-term investments are classified as Level 2 as they

represent overnight cash deposits and are considered to be

equivalent to cash.

13


Fair value measurements using level 3 inputs Fair value measurements using level 3 inputsPrivate investments Private investments

Balance at December 31, 2012 $45,837,042 Balance at December 31, 2011 $48,634,763Purchases 70,140 Purchases 14,957,862Sales and principal payments (1,172,071) Sales and principal payments (21,786,404)Realized loss (133) Realized gain 2,010,525Change in unrealized gain 148,182 Change in unrealized gain 2,020,296Balance at June 30, 2013 $44,883,160 Balance at December 31, 2012 $45,837,042

The change in unrealized gain for private investments still held at The change in unrealized gain for private investments still held atJune 30, 2013 is $185,065. December 31, 2012 is $2,747,980.

Unrealized Gain on Unrealized Gain onForward Contract Forward Contract

Balance at December 31, 2012 $42,035,733 Balance at December 31, 2011 $23,135,379Change in unrealized gain 5,660,895 Change in unrealized gain 18,900,354Balance at June 30, 2013 $47,696,628 Balance at December 31, 2012 $42,035,733

Key inputs in the valuation of Level 3 investments include market prospectus to become a reporting issuer under the Securities Act

rates of return of financing, capitalization rates for properties, equity (Ontario). On December 7, 2012, the Fund listed

rates of return and stabilized income produced by the underlying 24,892,170 existing Class A units (‘‘initial public float’’), at a value

investments. If the market value of the private investments had per unit of $9.9460 ($247,577,523) on the TSX under the symbol

increased or decreased by 10% as at year end, with all other factors RIL.UN. The initial public float included related party holdings.

remaining constant, the net assets of the Fund would have increased Redemptionsor decreased by approximately $4,488,316 (December 31, 2012 – Units may be redeemed on a monthly basis for a redemption price$4,583,704). per unit equal to the lesser of: (i) 95% of the Market Price

For additional disclosure regarding sensitivity analysis on private (as defined below) per unit as at the Monthly Redemption Date

investments, refer to note 4. (as defined below) and (ii) 100% of the Closing Market Price

(as defined below) per unit as at the Monthly Redemption Date, less6. UNITS OF THE FUND

in each case any costs associated with the redemption, includingPrior to November 10, 2012, the authorized capital of the Fund was brokerage costs and other such costs, if any, related to the partialrepresented by issued redeemable units with no par value. The pre-settlement of the forward contract (see note 8) to fund suchunitholders had the right to require the Fund to repurchase their redemption.units at the daily priced NAVPU. Distributions were reinvested in

The Market Price is the volume weighted average trading price ofadditional units at the current NAVPU, at the discretion of thethe units on the TSX for the 10 trading days immediatelyunitholders, without an acquisition charge.preceding the relevant Monthly Redemption Date. The Monthly

Restructuring of the Fund Redemption Date is the second to last business day of each month,On November 10, 2012, Series R Units had a unit split of a ratio other than the month during which the Annual Redemption Dateof 14.40. Following this capital change, series A, F, 6, F-6 and O (as defined below) occurs, commencing in January 2013. Theunits of the Fund were redesignated to series R units of the Fund. Closing Market Price is (i) the closing price of the units on the TSXThe units were redesignated to series R at the following ratios: on such Monthly Redemption Date if there was a trade on the

applicable Monthly Redemption Date and the market provides aSeries A F F-5 5 Oclosing price; (ii) the average of the highest and lowest prices of theRatio 13.23 13.59 11.39 11.00 13.86units on the TSX on such Monthly Redemption Date if there was

Series R was subsequently renamed as class A. trading on the applicable Monthly Redemption Date and the marketAs a result, the increase in net assets from operations per unit, in provides only the highest and lowest prices of the units traded on athe statement of operations, for the period ended June 30, 2012 has particular day; or (iii) the average of the last bid and the last askingbeen adjusted to reflect the restructuring of the fund. prices of the units on the TSX on such Monthly Redemption Date

if there was no trading on the applicable MonthlyIn 2012, the Fund reorganized itself as a closed-end investmentRedemption Date.fund established as a trust under the laws of the Province of

Ontario. On November 29, 2012, the Fund filed a non-offering

14


Units may also be redeemed on an annual basis for a redemption such Annual Redemption Date, being defined as the Annual

price per units that is equal to the NAVPU of such units as at the Redemption Limit. In the event that the number of units

Annual Redemption Date, less any costs associated with the surrendered for redemption exceeds the Annual Redemption Limit,

redemption, including brokerage costs and other such costs, if any, the Fund will redeem such units surrendered for redemption on a

related to the partial pre-settlement of the forward contract pro rata basis. Notwithstanding the foregoing limitations on

(see note 8) to fund such redemption. The Annual Redemption date redemption, the Manager may, in its sole discretion, waive the

is the last business day of November of each year beginning in limitation in respect of all units of the Fund surrendered in respect

November 2013.In order to effect a redemption, units must be of any Annual Redemption Date.

surrendered on or before 5:00 p.m. (Toronto time) on the date Mandatory market repurchase programwhich, in the case of a Monthly Redemption, is the last business Beginning on December 7, 2012, the Fund has undertaken aday of the month preceding the Monthly Redemption Date and, in mandatory market repurchase program (‘‘MMRP’’). As part of thethe case of an Annual Redemption, is the last business day of MMRP, the Fund had committed to repurchase for cancellationOctober immediately preceding the Annual Redemption Date. The during the 180 days after the date the Class A units were first listedunitholder will receive payment in respect of any units redeemed on on the TSX, 4,435,466 (fine) Class A units representing 22.47% ofthe Annual Redemption Payment Date (as defined below) or its initial public float, at a price that is less than 95% of the latestMonthly Redemption Payment Date (as defined below), as NAV per Class A unit. On January 13, 2013, the Fund announcedapplicable, subject to the Fund’s right to suspend redemptions in the completion of the MMRP at a cost of $41,937,856.certain circumstances. The Annual Redemption Payment Date is the

Normal course issuer bidbusiness day that precedes December 15 immediately following an

Also, on December 5, 2012, the Fund received approval from theAnnual Redemption Date. The Monthly Redemption Payment Date

TSX to make a normal course issuer bid (NCIB) for the outstandingthe 15th day of the month immediately following a Monthly

Class A units, for the period from December 7, 2012 toRedemption Date of the Fund or if such 15th day of the month is

December 6, 2013. The Fund is entitled to purchase up tonot a Business Day, the next day that is a Business Day.. The Fund

1,974,173 units, or 10% of its initial public float, for cancellation.will not accept for redemption on a given Annual Redemption Date,

The Fund is permitted to purchase, under the NCIB, up to 497,483units representing more than 15% of the average number of units of

of its Units in a given 30-day period.the Fund outstanding for the 180-day period immediately preceding

Changes in issued units per series are summarized as follows:

For the six-month period ended June 30, 2013Class A1

# of units

Balance – beginning of period 21,680,170Issued:

For cash –On reinvestment of distributions 8,089

Redemption of units –Repurchase of units under the mandatory market

repurchase program (1,223,466)20,464,793

1 Series A, F, F-5, 5 and O were redesignated to Series R on November 10, 2012 and Series R was renamed to Class A.

For the six-month period ended June 30, 2012Series A Series F Series F-5 Series 5 Series O Series R# of units # of units # of units # of units # of units # of units

Balance – beginning of period 874,625 154,658 20,996 236,637 127,654 313,506Issued:

For cash 130,044 33,322 453 24,582 14,970 34,296On reinvestment of distributions – – 50 1,215 – –

Redemption of units (35,244) (22,158) (937) (12,475) (10,119) –Balance – end of period 969,425 165,822 20,562 249,959 132,505 347,802

15


Change in unitholders’ equity for the period ended June 30, 2013

RetainedContributed earnings

Unitholders’ capital surplus (deficit) Total$ $ $ $

Opening balance – January 1, 2013 215,629,970 1,427,493 (1,280,875) 215,776,588Repurchase of units (12,168,593) 571,530 – (11,597,063)Reinvestment of distribution 80,199 – – 80,199Increase (decrease) in net assets from operations – 3,272,245 3,272,245Distribution – (6,138,102) (6,138,102)Ending balance – June 30, 2013 203,541,576 1,999,023 (4,146,732) 201,393,867

Change in unitholders’ equity for the period from December 7, 2012 to December 31, 2012

RetainedContributed earnings

Unitholders’ capital surplus (deficit) Total$ $ $ $

Opening balance – January 1, 2012 N/A1 N/A1 N/A1 N/A1

Issue of shares on December 7, 2012 247,576,522 – – 247,576,522Repurchase of units (31,946,552) 1,427,493 – (30,519,059)Increase (decrease) in net assets from operations – – (196,867) (196,867)Distribution – – (1,084,008) (1,084,008)Ending balance – December 31, 2012 215,629,970 1,427,493 (1,280,875) 215,776,588

1 Not applicable as unitholders’ equity began on December 7, 2012, the date of listing.

If the redemption price is lower than the beginning cost per unit, per annum of the average daily NAV of the Fund, (ii) 1.00% per

the difference is included in contributed surplus. If the redemption annum of the average daily direct assets (NAV excluding the value

price is greater than the beginning cost per unit, the difference is of the forward agreement that provides exposure for the Fund to

first charged to contributed surplus until the entire account balance the Reference Fund and (ii) the value of any Canadian securities

is eliminated, and the remaining amount is charged to retained portfolio of the Fund that has been sold forward by the Fund

earnings (deficit). Retained earnings (deficit) represent cumulative pursuant to any forward agreement that provides exposure for the

increase or decrease in nets assets from operations from Fund to the Reference Fund) NAV of the Fund and (iii) 0.50% per

December 7, 2012 net of distributions as per above. annum of the average daily NAV of the Fund, which reflects the

amount of the service fee payable by the Manager (as define below).7. FEES AND EXPENSES OF THE FUND

The Manager will be entitled to a performance fee from the FundManagement and Performance Fees on a per unit outstanding basis equal to 20% of the amount byThe Manager is responsible for the day-to-day management of the which the sum of (i) any increase in the direct assets NAVPUFund. In consideration, the Manager is entitled to receive a (as defined below) (without taking into account the performancemanagement fee based on the average NAV of the Fund, calculated fee), and (ii) the distributions paid on such unit during thedaily and payable monthly at the following annualized rates: previous 12 months, exceeds the Benchmark (expressed as a dollarSeries A and 5 – 1.40%; Series F and F-5 – 0.40%; and Series O amount per unit) for the year, calculated and accrued daily andand R – nil%. In addition, the Managerwas entitled to a payable annually in arrears.performance fee of up to the aggregate of 25% of the increase in

During the period ended June 30, 2013, the Fund incurredthe NAVPU of each series (excluding Series R) over the relevant$1,101,816 (June 30, 2012 – $1,175,821) in management fees andyear (after deducting all management fees and other expenses$nil (June 30, 2012 – $4,150,560) in performance fees. Certaincharged to the Fund and adding any distributions of income andperformance fees were unconditionally waived where the Managercapital during the relevant year), calculated daily and payablehas elected to receive less than its allowable maximum; thesemonthly.amounts cannot be collected in the future.

Effective November 10, 2012 the overall structure of theService Feesmanagement and performance fees changed. The Manager receives aThe Manager pays each registered dealer whose clients hold units amanagement fee from the Fund equal to the aggregate of (i) 0.35%service fee equal to 0.50% per annum of the average daily NAV of

16


the Fund for each unit held by the clients of such registered dealer Sales Charges

at the end of a given month, in each case accrued daily and Prior to the restructuring of the Fund, the sales charge incurred by

paid monthly. unitholders was dependent on the purchase option selected at the

time of purchase. Series A and 5 were purchased on one of threeOperating Expensesoptions: the Initial Sales Charge Option (‘‘ISC’’), Low Load SalesThe operating expenses of the Fund, which include, but are notCharge Option (‘‘LL’’) or Super Low Load Sales Charge Optionlimited to, legal, audit, custodial, transfer agency, independent(‘‘SLL’’). Under the ISC option, a negotiable fee of up to 5% of thereview committee and fund administration expenses and the cost ofpurchase price was payable by Series A and 5 investors to theirfinancial statements and other reports, are the direct responsibilitydealer. No redemption fee was payable when investors redeemof the Fund. The Manager pays certain of these expenses on behalfSeries A and 5 units purchased under the ISC option (subject to aof the Fund and is then reimbursed by the Fund.short-term trading fee, where applicable). Under the LL and SLL

The Manager may waive or absorb certain expenses of the Fund.options, no fee was payable by Series A and 5 investors to their

The decision to do so is reviewed annually and determined at thedealer. Investors were subject to a redemption fee if they redeemed

sole discretion of the Manager.Series A and 5 units purchased under the LL or SLL options,

The Manager may be paid work fees (‘‘Work Fees’’) by companies depending on how long they have held the units to be redeemed.in which the Fund invests. The Work Fees are paid for work done No sales charges were payable in respect of Series F, F-5, O and Rin connection with the financing of such companies. Such financing units of the Fund. These fees are no longer applicable since thework may include sourcing investment opportunities, structuring effective date of the Fund’s restructure.investments, due diligence and preparation of loan participation

8. FORWARD CONTRACT (the ‘‘Forward Contract’’)agreements or other investment documentation. BeginningThe Fund has entered into a forward purchase and sale contractMarch 14, 2012, the Manager elected to direct all Work Feeswith a Canadian chartered bank (the ‘‘Counterparty’’) that has areceived to the applicable fund or funds under management. Inmaturity date of March 25, 2019. The Fund has purchased andaddition, the Manager may be paid a monitoring fee orpledged to the Counterparty the common share portfolio listed oncommitment, renewal, extension, discharge, prepayment or otherthe statement of investments except for the ROI Canadian Realadministrative fee by companies in which the Fund invests.Estate Fund, Series ‘‘A’’ investment. Under the terms of the forwardBeginning March 14, 2012, the Manager elected to direct all ofcontract, the Counterparty has agreed to pay the Fund an amountsuch fees received to the applicable fund or funds underequal to the redemption proceeds of the number of units of themanagement. These fees are included in interest income in theROI Strategic Capital Trust Series A specified in the forwardstatements of operations in the year in which they are received.contract, in exchange for the Fund’s common share portfolio at fairPrior to the restructuring of the fund, the Manager was entitled tomarket value. As at June 30, 2013, the NAV of the ROI Strategicadd, in its sole discretion, an operating service charge of up toCapital Trust was $162,826,815 (Series A – $153,479,121 and0.35% of the weighted NAV of a series during the applicableSeries R – $9,347,694) (December 31, 2012 – $159,063,095:month. The operating service charge was calculated daily andSeries A – $149,975,176 and Series R – $9,087,919), consistingpayable monthly for providing certain administrative services to themainly of private placement investments with a fair value ofFund. During the period ended June 30, 2013, the Fund incurred$154,629,775 (December 31, 2012 – $151,874,531).$nil (June 30, 2012 – $325,827) of operating service fees. ThisThe common share portfolios subject to the forward contract arecharge is no longer applicable since the effective date of the Fund’sagreed to between the Fund and the Counterparty and are pledgedrestructure.to the Counterparty as security for the Fund’s obligations under theForward Feesforward contract. In order to permit the Fund to pay monthlyThe fees on the forward contract were paid by the Reference Fund.distributions, redemptions of units, operating expenses or otherEffective November 10, 2012, the Fund pays to the Counterpartyliabilities of the Fund, the terms of the forward contract provide(see note 8) an amount under the forward contract up to 0.55% perthat the forward contract may be settled in whole or in part at anyannum of the notional amount of such forward contract (beingtime prior to the settlement date by the Fund, either in cash or byeffectively equal to the NAV of the Reference Fund subject to thetendering to the Counterparty securities in the common shareforward contract) plus a hedging fee, which is approximately 0.35%portfolio at the Fund’s discretion.per annum of the notional amount of the forward contract. During

the period ended June 30, 2013, the Fund incurred in $389,698

(June 30, 2012 – $nil) of forward fees.

17


The Fund is exposed to the credit risk of the Counterparty. If the forward contract has a credit rating of AA (DBRS). The

Counterparty to the forward contract is unable to meet the terms of creditworthiness of the Counterparty was reviewed prior to entering

the forward contract, a loss may occur. The Counterparty to the into the forward contract and is monitored on a regular basis.

Private investments held in the ROI Strategic Capital Trust as at June 30, 2013 are as follows:


Private Investment PortfolioLimited Partnerships – 43.02%55 Northfolk Street South LP 144,639 118,626 130,12910 Lower Spadina LP 890,205 746,464 1,119,782181,191 & 195 The West Mall LP 5,477,698 4,824,630 9,230,8022010 Winston Park Drive LP 4,403,860 3,856,873 4,659,4542261 Keating Cross Road LP 3,854,819 3,504,807 4,714,571300, 302 & 304 The East Mall LP 2,636,320 2,363,557 3,064,869350-450 Lansdowne Street LP 3,977,640 3,608,183 4,164,053401 & 405 West Mall LP Junior 9,183,344 8,079,174 16,458,3886501-6523 Mississauga Road LP 1,525,463 1,336,793 1,764,1356531-6559 Mississauga Road LP 1,364,959 1,194,863 1,520,82580 Whitehall Drive LP 1,322,312 1,128,741 1,782,311Bayfield Mill Woods Limited Partnership 2,550,000 2,473,500 3,399,012London City Centre LP 5,214,864 4,703,234 6,981,456Sussex Centre LP 8,847,504 7,970,432 11,060,634

45,909,877 70,050,421

Mortgages – 51.94%2088013 Ont. Inc., (Empire Communities – Brampton), Equity1 2,254,485 2,143,900 2,563,6952256227 Ontario Inc. (St. Jacobs Country Inn), September 2015 4,846,607 4,846,607 4,822,5152276844 Ontario Limited (Villarboit – Brantford), Equity1 3,656,718 3,626,700 4,615,122318 Queen St. West Inc. & 360 Queen St. West Inc., November 2015 1,812,588 1,812,588 1,850,6914171624 Canada Inc., (Quality Hotel and Suites), August 2015 336,514 336,514 336,514Applewood II Hotel Holdings Inc. & Combo Construction Limited,

November 2015 4,916,667 4,916,667 4,926,593Castlepoint Studio Partners Limited, Equity1 2,800,856 2,800,856 2,800,856Empire (Estates of Wyndance) Ltd., November 2013 810,784 810,784 814,627Empire Communities (2183 Lakeshore Blvd.,) LP, Equity1 5,298,887 5,183,266 5,134,632Empire Communities (St. George) Ltd., and Empire Communities

(St. George) L.P., February 2015 1,108,315 1,108,315 1,108,508Empire Communities (Yorkville) Ltd,. and Empire Communities (Yorkville) L.P.,

January 2014 555,556 555,556 555,556Gerrard House Inc., September 2013 2,200,000 2,200,000 2,200,000Hilldale Gardens Developments, September 2015 5,054,881 5,054,881 4,237,780JB Sons Hospitality Corp., December 2015 4,583,818 4,583,818 4,590,898Manga Hotels (Halifax) Inc., June 2016 969,134 969,134 975,808Marquee Hotels Ltd., December 2014 2,275,049 2,275,049 2,319,128Marquee Hotels, Brampton Inc., September 2015 3,783,411 3,783,411 3,849,620McLeod Square Inc., March 2022 4,390,200 4,344,462 3,885,877Noorani Holdings Inc. & 1236233 Ontario Inc., (Newmarket), July 2016 968,958 968,958 979,262Newmarket Golden Space Inc. & Newmarket Gorham LP, November 2016 2,725,857 2,725,857 2,725,8572154197 Ontario Inc & Benjamin Hospitality Inc., October 2017 2,811,044 2,811,044 2,811,044Argus Hospitality Group, December 2017 4,783,937 4,783,937 4,783,9371650702 Ontario Inc., November 2013 6,317,500 6,317,500 6,318,294Richard Gianchetti, September 2014 2,500,000 2,500,000 2,503,110Sarup Enterprises Inc., July 2016 3,418,525 3,418,525 3,442,469Uxbridge Industrial Ltd., November 2013 1,130,245 1,130,245 1,135,837Villarmark Inc. (Villarboit – Markham), Equity1 6,579,255 6,507,600 6,447,009

18



Whitetail Properties Inc., April 2017 1,839,535 1,839,535 1,844,11584,355,709 84,579,354

Total Private Investments – 94.96% 130,265,586 154,629,775

Short-Term Investment – 4.61%CIBC Mellon Trust Demand Deposit,Variable Rate 7,501,953 7,501,951 7,501,951Total Portfolio – 99.57% 137,767,537 162,131,726Other Assets, Net of Liabilities – 0.43% 695,089Net Assets 162,826,815

1 These securities are equity investments.

9. RECONCILIATION OF PRICING NAV TO GAAP As at December 31, 2012, the Fund had non-capital and net

NET ASSETS capital losses available from the December 15, 2012 tax year ended

as follows.NAV is the value of the total assets of a Fund less the value of its

total liabilities determined, on each valuation day, in accordance2012 2011

with Part 14 of National Instrument 81-106 Investment FundNon-Capital Losses $ 2,919,859 $ NilContinuous Disclosure for the purpose of processing unitholderNet Capital Losses $ 4,596,954 $ 4,695,708

transactions. Net assets are determined in accordance with Canadian

Institute of Chartered Accountants (‘‘CICA’’) HandbookThe Fund was not liable for any SIFT tax for the year-ended

Section 3855, ‘‘Financial Instruments – Recognition andDecember 31, 2012 as the Fund did not incur any taxable income.

Measurement’’ (‘‘Section 3855’’). Section 3855 requires the use of

bid prices for long positions and ask prices for short positions in 11. SECURITIES LENDINGthe fair valuation of investments, rather than the use of closing The Fund lends portfolio securities from time to time in order toprices currently used for the purpose of determining NAV. For earn additional income. The Fund has entered into a securitiesinvestments that are not traded in an active market, Section 3855 lending program with a Canadian chartered bank. The aggregaterequires the use of specific valuation techniques, rather than the use market value of all securities loaned cannot exceed 100% of the netof valuation techniques by virtue of general practice in the assets of the Fund. The Fund receives collateral in the form of debtinvestment funds industry. This may result in a difference between obligations issued by the U.S. Treasury against the loaned securitiesthe net assets per share and NAV per share and the differences, if and maintain such collateral in an amount equal to or greater thanany, are presented in the table below: 105% of the market value of the loaned securities during the

period of the loan. Effective November 20, 2012, the ManagerPer Unit $ chose not to participate in its securities lending program. However,

2013 2012 this is subject to change at the discretion of the Manager.Net Asset Net AssetSeries Net Assets Net AssetsValue Value 12. REVOLVING LOAN FACILITY

A 9.84 9.84 9.95 9.95 The Fund had access to a revolving loan facility. The revolving loan

facility commitment, in the maximum amount of $40,000,000 was10. INCOME TAXES

shared across four Funds formerly known as (ROI High IncomeNon-capital losses are available to be carried forward for 20 years. Private Placement Fund, ROI Private Placement Fund, ROICapital losses for income tax purposes may be carried forward Strategic Private Placement Fund and ROI Institutional Privateindefinitely and applied against capital gains realized in future Placement Fund) managed by the Manager. Each Fund was subjectyears. The non-capital losses may be utilized to reduce future years’ to certain margin requirements with the total amount for all fundstaxable income and expire up to 2029 for the Fund. No benefit has available under the loan facility capped at $40,000,000. Interest onbeen recognized for these unused losses in these financial the loan was charged on the outstanding principal amount astatements. Canadian chartered bank at the rate per annum equal to the prime

rate plus 0.75%. There was a standby fee charged of 0.20% per

annum to the Funds, calculated and accrued daily for the unused

19


amount borrowed. The loan is secured by certain assets of the 14. PRIOR YEAR COMPARATIVES

Funds and matured on July 27, 2012. Certain comparative figures have been reclassified to conform to the

June 30, 2013 financial statements presentation. None of these13. FUTURE ACCOUNTING CHANGE – TRANSITION TO

reclassifications had an impact on the net assets or net assets perINTERNATIONAL FINANCIAL REPORTING

unit reported for the prior year.STANDARDS (‘‘IFRS’’)

The Canadian Institute of Chartered Accountants Accounting 15. LEGISLATIVE CHANGES AND SUBSEQUENT EVENT

Standards Board extended the deferral of the mandatory On March 21, 2013, the Federal Minister of Finance presented theInternational Financial Reporting Standards (‘‘IFRS’’) changeover majority government’s budget. The budget proposes to treat thedate for investment companies to fiscal years beginning on or after return from the derivative investment portion of characterJanuary 1, 2014. The Fund, which is an investment company, will conversion, such as those employed by the Fund (see note 8), asadopt IFRS commencing January 1, 2014. ordinary income rather than capital gains. The changes apply to

agreements entered into, or amended, after March 20, 2013.In order to prepare for the transition to IFRS, the Manager has

performed an assessment of the impact of significant accounting On July 11, 2013, the Department of Finance announced adifferences between IFRS and Canadian GAAP including the proposal to extend the transition relief period for characterimpact to business processes and systems. Currently, the Manager conversion transactions announced in the March 2013 federaldoes not expect any significant impact to net assets from the budget to December 31, 2014.changeover to IFRS with the main impact of IFRS on the Fund’

The Fund’s forward agreement matures March 25, 2014. At thefinancial statements being additional disclosures in the financial

maturity of this contract, the Fund intends to enter into one orstatements, the potential elimination of the difference between the

more forward agreements with a final settlement date no later thanNAPU and the NAVPU at the financial statement reporting dates

December 31, 2014.and a potential change in the presentation of shareholders’ equity.

Based on the Fund’s current legal structure and forward contract inFurther updates on implementation progress and any changes toplace, the Manager expects that subsequent to December 31, 2014reporting impacts from the adoption of IFRS will be providedthe Fund’s income will continue to qualify for treatment as capitalduring the implementation period leading up to January 1, 2014.gains upon distribution to unitholders. The Manager is continuingHowever, this present determination is subject to change resultingto assess the impact of the changes and possible alternatives forfrom the issuance of new standards or new interpretations ofthe Fund.existing standards.

20

14MAR201318530937Corporate & Shareholder Information

Sales Head Office Legal Counsel

Return On Innovation Advisors Ltd. Stikeman Elliott LLP

37 Front Street East 5300 Commerce Court West

4th Floor 199 Bay Street

Toronto ON Toronto ON

M5E 1B3 M5L 1B9

Auditor Client Services & Back Office

PricewaterhouseCoopers LLP Return On Innovation Advisors Ltd.

PwC Tower c/o Citigroup Funds Services Canada Inc.

18 York Street, Suite 2600 2920 Matheson Boulevard East

Toronto ON Mississauga ON

M5J 0B2 L4W 5J4

21

25SEP201217214347CapitalCapital™

ROI Capital37 Front Street East, 4th Floor, Toronto, Ontario M5E 1B3

Phone: 416 361-6162 Fax: 416 361-3013

roicapital.ca

� Users of the marks

capitalcapital...fund to roi canadian real estate fund on november 7, 2012.june 30, 2013 and...

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