man glg emerging markets income fund - next edge capital · 2014. 10. 6. · usd put/cnh call...

Man GLG Emerging Markets Income Fund

Annual Report – 2013

Man GLG Emerging Markets Income Fund Table of Contents

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Management’s Responsibility for Financial Reporting ................................................................... 2

Independent Auditor’s Report ........................................................................................................ 3

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

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

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

Statement of Investments .............................................................................................................. 7

Notes to the Financial Statements ................................................................................................. 9

Fund Information .......................................................................................................................... 20

Man GLG Emerging Markets Income Fund Management’s Responsibility for Financial Reporting

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Man Investments Canada Corp. (the “Manager”) is responsible for the accompanying financial statements and all the information in this report. These financial statements have been approved by the Board of Directors of Man Investments Canada Corp., as Manager and Trustee. The financial statements have been prepared in accordance with accounting principles generally accepted in Canada and, where appropriate, reflect Management’s judgment and best estimates. Management has established systems of internal control that provide assurance that assets are safeguarded from loss or unauthorized use and produce reliable accounting records for the preparation of financial information. The systems of internal controls meet Management’s responsibilities for the integrity of the financial statements. The Manager recognizes its responsibility to conduct the Fund’s affairs in the best interest of its unitholders. Respectfully,

Toreigh Stuart Chief Executive Officer Man Investments Canada Corp. March 28, 2014

Man GLG Emerging Markets Income Fund Independent Auditors’ Report

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To the unitholders of Man GLG Emerging Markets Income Fund (the “Fund”): We have audited the accompanying financial statements of the Fund, which comprise the statement of investments as at December 31, 2013, the statements of net assets as at December 31, 2013 and 2012, and the statements of operations and changes in net assets for the years then ended, and a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian generally accepted accounting principles, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as at December 31, 2013 and 2012, and the results of its operations and the changes in its net assets for the years then ended, in accordance with Canadian generally accepted accounting principles. Toronto, Canada March 28, 2014

Man GLG Emerging Markets Income Fund Statements of Net Assets

The accompanying notes are an integral part of these financial statements

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As at December 31, 2013 2012 CAD CAD ASSETS Cash 652,276 386,521 Accounts receivable 87,872 - Investments, at fair value Common Share Portfolio 34,618,607 88,520,625 Forward Agreement (Note 4) (753,108) 11,641,078

33,865,499 100,161,703

Total Assets 34,605,647 100,548,224

LIABILITIES Fees and operating expenses 196,190 454,684 Redemptions payable 148,999 67,641 Distributions payable 193,894 560,248

Total Liabilities 539,083 1,082,573

NET ASSETS representing unitholders' equity 34,066,564 99,465,651

NET ASSETS PER CLASS: Class A 31,196,175 85,595,861 Class F 2,870,389 13,869,790

34,066,564 99,465,651

NUMBER OF UNITS OUTSTANDING: (Note 5) Class A 4,033,065 9,693,357 Class F 341,700 1,507,195

4,374,765 11,200,552

NET ASSETS PER UNIT: Class A 7.74 8.83 Class F 8.40 9.20 Approved by Man Investments Canada Corp.

Toreigh N. Stuart Chief Executive Officer

Man GLG Emerging Markets Income Fund Statements of Operations


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For the years ended December 31, 2013 2012 CAD CAD INVESTMENT INCOME Dividends - - Interest - 223

- 223

EXPENSES (Note 7) Management fees 253,903 549,535 General operating expenses 209,227 344,771 Independent Review Committee fees 14,369 10,689 Audit fees 41,183 49,370 Legal fees 23,021 136,557 Unitholders reporting costs 3,982 17,830 Custodial fees 15,000 15,000 Commodity tax (HST) 67,070 63,407

627,755 1,187,159 Less: Expenses absorbed by the Manager (5,683) -

622,072 1,187,159

NET INVESTMENT LOSS (622,072) (1,186,936) Transaction costs (445,954) (818,545) NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENTS

(6,984,342) 6,286,775

NET REALIZED GAIN (LOSS) ON SALE OF INVESTMENTS 3,277,694 (4,326,420)

NET GAIN (LOSS) ON INVESTMENTS (4,152,602) 1,141,810

NET DECREASE IN NET ASSETS FROM OPERATIONS (4,774,674) (45,126)

NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS PER CLASS:

Class A (4,168,295) (174,926) Class F (606,379) 129,800

(4,774,674) (45,126)

AVERAGE NUMBER OF UNITS OUTSTANDING: Class A 6,020,283 10,474,429 Class F 954,391 1,760,449 NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS PER UNIT:

Class A (0.69) (0.02) Class F (0.64) 0.07

Man GLG Emerging Markets Income Fund Statements of Changes in Net Assets


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For the years ended December 31, 2013 2012

CAD CAD

Class A Beginning of year 85,595,861 94,857,455 Net decrease in Net Assets from Operations (4,168,295) (174,926) Proceeds from issuance of units (Note 5) 4,166,901 9,270,908 Consideration paid for redemption of units (Note 5) (51,243,998) (12,070,030) Distributions to unitholders – from net investment income (3,154,294) (6,287,546)

End of year 31,196,175 85,595,861

Class F Beginning of year 13,869,790 18,998,220 Net increase (decrease) in Net Assets from Operations (606,379) 129,800 Proceeds from issuance of units (Note 5) 227,812 1,492 Consideration paid for redemption of units (Note 5) (10,165,368) (4,221,677) Distributions to unitholders – from net investment income (455,466) (1,038,045)

End of year 2,870,389 13,869,790

Man GLG Emerging Markets Income Fund Statement of Investments


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As at December 31, 2013 Cost Market Value % of Total

Investments

Common Share Portfolio 32,998,354 34,618,607 101.62 Value of Forward Agreement (753,108) (2.21)

Total value of investments (including the Forward Agreement)

33,865,499 99.41

Other Net Assets 201,065 0.59

Total Net Assets 34,066,564 100.00

As a result of the Forward Agreement described in Note 4, the total fair value of the Fund’s investments is referable to the GLG Emerging Markets Income Portfolio Ltd. Notes (the “GLG Notes ”) issued by GLG Emerging Markets Income Portfolio Ltd. (“GLG Ltd”). The balance sheet of GLG Notes as at December 31, 2013 is listed below:

USD % Cash at bank

1 27,703,124 86.92

Balances with brokers 4,578,935 14.37 Investments at fair value

2 (277,915) (0.87)

Other Net Liabilities (132,542) (0.42)

Net Assets for valuation purposes 31,871,602 100.00

Total number of GLG Notes outstanding 35,217,865 Net Asset Value per GLG Note (USD) 0.9050 Net Asset Value per GLG Note (CAD) 0.9616 Number of GLG Notes attributable to the Fund 35,217,865 Aggregate value of GLG Notes

3 (CAD) 33,865,499

1. Cash is comprised of cash in bank deposits and cash held with brokers in order to meet margin requirements. 2. The investments of the GLG Notes consist predominately of an actively managed, liquid and diversified portfolio of securities and

other instruments invested across various asset classes primarily within global emerging markets such as countries in Latin America, Central and Eastern Europe, the Middle East, Africa and Asia (the “Portfolio”) and have a substantially larger notional value than is reflected by the investment amount with the result that the Portfolio is exposed to a form of leverage. Based on the Investment Manager’s view, the assets of the Portfolio may be invested in both long and short positions, across all asset classes.

3. As a result of the Forward Agreement, the fair value of the Fund’s investments, which includes the Common Share Portfolio and the

Forward Agreement, is equal to the aggregate value of the GLG Notes.

Man GLG Emerging Markets Income Fund Statement of Investments (continued)


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The following shows GLG Portfolio allocation by asset class and the top 25 holdings as presented in the GLG Emerging Markets Income Portfolio Ltd. Management Report on Fund Performance posted on SEDAR. This summary of the GLG Portfolio may change due to ongoing portfolio transactions. For further details, see the GLG Emerging Markets Income Portfolio Ltd. financial statements for the year ended December 31, 2013 as posted on SEDAR.

Top 25 Holdings

Issuer % of Net Assets

Long Positions

Currency Contract CNH Exp :24 February 2014 5.40

USD Put/CNH Call K=6.34 20 February 2014 - JPM 2.31

USD Put/CNH Call K=6.2369 20 February 2014 - Nomura 1.70

Currency Contract US$ Exp :31 January 2014 0.61

Currency Contract CAD Exp :31 January 2014 0.57




USD Put/CNH Call K=6.114 20 February 2014 - HSBC 0.25

Payer Swaption on JPY 7Y 0.6% 24 April 2014 - DB 0.12

Payer Swaption on JPY 7Y 0.6% 22 April 2014 - DB 0.11

Payer Swaption on KRW 5Y K=3.19% 21 March 2014 - Nomura 0.09

EUR Put/CZK Call K=27.535 14 March 2014 - BAC 0.08

Short Positions

Currency Contract US$ Exp :24 February 2014 (6.69)

USD Put/CNH Call K=6.34 20 February 2014 - Nomura (3.38)

USD Put/CNH Call K=6.2369 20 February 2014 - HSBC (1.57)

EUR/USD Receive Euribor 3 Month -27.4BP vs LIBOR 3 Month 14 March 2016 (0.67)

Currency Contract AUD Exp :31 January 2014 (0.25)

Currency Contract TRY Exp :31 January 2014 (0.25)

Currency Contract PHP Exp :27 January 2014 (0.17)

HUF Pay 4.35% vs BUBOR 6 Month 0BP 12 November 2018 (0.13)

USD Put/CNH Call K=6.2369 20 February 2014 - Nomura (0.13)


Currency Contract MYR Exp :28 January 2014 (0.10)


Total Net Asset Value of the Underlying Fund: USD 31,871,602

Portfolio Allocation Asset Class % of Net

Assets

Options 0.93 Credit default swaps (0.08) Forward currency contracts (0.69) Interest rate swaps (1.04)

Man GLG Emerging Markets Income Fund Notes to the Financial Statements as at December 31, 2013 and 2012

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1. THE FUND Man GLG Emerging Markets Income Fund (the “Fund”), is a closed-ended investment trust established under the laws of the Province of Ontario pursuant to a trust agreement dated October 24, 2011. The Fund’s investment objective is to preserve capital while providing the opportunity for long-term capital appreciation for unitholders.

To pursue its investment objective, the Fund obtains exposure to an actively managed and diversified portfolio of securities and other instruments invested across various asset classes primarily within global emerging markets such as countries in Latin America, Central and Eastern Europe, the Middle East, Africa and Asia (the “Portfolio”). In managing the Portfolio, investment manager will pursue its strategy through both active trading and investment principally in interest rate securities and instruments, sovereign and corporate credit instruments and other fixed income securities, foreign exchange instruments and derivatives that provide exposure to these asset classes. 2. DISCLOSURE OF INVESTMENT PORTFOLIO OF THE UNDERLYING FUND GLG Emerging Markets Income Portfolio Ltd. (“GLG Ltd.”), the Underlying Fund, is an exempted company with limited liability incorporated in the Cayman Islands that will acquire the Portfolio. GLG Ltd. has established and will maintain the Portfolio. The Portfolio is actively managed by GLG Partners LP, a limited partnership registered under the Limited Partnership Act, 1907 of England and Wales and authorized and regulated in the United Kingdom by the Financial Services Authority (the “GLG Investment Manager”).

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These annual financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“GAAP”). In applying Canadian GAAP, management may make estimates and assumptions that affect the reported amounts of assets, liabilities, investment income and expenses reported during the year. Actual results could differ from those estimates. A summary of the significant accounting policies is listed below: (I) Valuation of Investments The Fund’s investments in the Common Share Portfolio have offsetting market risks against the Forward Agreement and accordingly, the value of any security in the Common Share Portfolio is valued on the same basis as specified in the Forward Agreement. The terms of the Forward Agreement stipulate that the investments in the Common Share Portfolio, for purposes of determining a value for cash settlement, be valued at the last trade price (close) on a designated exchange, which is typically the Toronto Stock Exchange (“TSX”). The fair value of any security positions which are not included in the Common Share Portfolio or do not have offsetting market risks is determined as follows: a) Securities listed upon a recognized public stock exchange are valued at their bid prices on the valuation date. Securities with no available bid price are valued at the last trade price.

Man GLG Emerging Markets Income Fund Notes to the Financial Statements as at December 31, 2013 and 2012 (continued)

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b) Securities not listed upon a recognized public stock exchange are valued using valuation techniques, as determined appropriate by the independent valuation agent, with the consent of the Manager. As at December 31, 2013 and 2012, all security positions were included in the Common Share Portfolio and valued in accordance with the Forward Agreement. The year-over-year change in the difference between fair value and the average cost is shown as the net change in unrealized appreciation (depreciation) of investments. Transaction costs, such as brokerage commissions, incurred in the purchase and sale of securities by the Fund are charged to net income in the year. The Forward Agreement is valued at an amount equal to the gain or loss that would be realized if the position was to be closed out on the valuation date and in accordance with its terms, in which case fair value shall be based on the fair value of the GLG Notes. On cash settlement, the fair value of the Forward Agreement would equal the difference between the fair value of the securities held in the Common Share Portfolio and the Counterparty’s investment in the GLG Notes. The Forward Agreement is classified as held for trading. (II) Investment Transactions and Income Recognition Investment transactions are accounted for as of the trade date. Income and expenses are recorded on an accrual basis. Dividends are recorded on the ex-dividend date. Interest income is recorded as it is earned. Realized gains and losses from security transactions are calculated using the average cost basis. (III) Valuation of Fund Units The net asset value of the Fund is calculated as of 4:00 p.m. (Toronto time) on each day on which the TSX is open for business (“Valuation Date”), and is obtained from an independent valuation agent (the “Valuation Agent”) retained by the Manager in accordance with the Manager’s authority under the Trust Agreement by taking the then fair value of the assets of the Fund less the aggregate amount of its liabilities (“Net Asset Value” or “NAV”).

The Net Asset Value per Unit of any class of units on a Valuation Date is obtained by dividing (i) the then fair market value of the assets of the Fund less the aggregate amount of its accrued liabilities, including any income, net realized capital gains or other amounts made payable to unitholders on or before such Valuation Date, in each case attributable to that class of units, by (ii) the total number of units of the class outstanding at the time the calculation is made on the Valuation Date. The estimated operating expenses are accrued to the date as of which the NAV of the Fund is being determined. The result is adjusted to a maximum of four decimal places.

For each Fund unit sold, the Fund received an amount equal to the NAV per Unit on the date of the transaction, which is included in unitholders’ equity. Units are redeemable at the option of the unitholders at their NAV per Unit on the redemption date. For each unit redeemed, the number of issued and outstanding units is reduced and the equity in the Fund is reduced by the related NAV on the date of redemption. The calculation of the value of net assets (“Net Assets”) for financial statement purposes in accordance with Canadian GAAP may differ from the NAV for transactional purposes. As at December 31, 2013 and 2012, there were no differences in the calculation and valuation method of the Net Assets and the NAV of the Fund.


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(IV) Foreign Currency Translation The market value of foreign investments and other assets and liabilities is translated into Canadian dollars at the exchange rates prevailing at the close of each business day. Purchases and sales of foreign securities and the related income are translated into Canadian dollars at rates of exchange prevailing on the respective dates of such transactions. As at December 31, 2013 and 2012, the Fund did not hold any foreign currency investments in its Common Share Portfolio. (V) Net Increase (Decrease) in Net Assets from Operations per Unit The net increase (decrease) in Net Assets from Operations per unit amounts are determined by dividing the net increase (decrease) in net assets from operations per class by the weighted average number of units outstanding per class during the year. (VI) Comparative Figures The comparative financial statements have been reclassified from statements previously presented to conform to the presentation of the current year financial statements. 4. FORWARD AGREEMENT The Fund entered into the Forward Agreement with the Counterparty, pursuant to which the Counterparty agreed to pay to the Fund upon a partial settlement the purchase price for the relevant portion of an investment in the applicable Common Share Portfolio, an amount equal to 100% of the redemption proceeds of a corresponding number of participating shares of the applicable Underlying Fund. The Fund pledged the applicable Common Share Portfolio to the Counterparty under the Forward Agreement. Pursuant to the Forward Agreement, the Counterparty holds 35,217,865 Underlying Fund Notes (2012: 97,282,151). The Forward Agreement has a scheduled termination date of November 18, 2014 with the option to extend by the Fund or the Counterparty. Legislation enacted in 2013 (“Character Conversion Measure”) affects the tax treatment of distributions paid to taxable unitholders of investment funds that utilize derivative forward agreements (“DFAs”) to obtain exposure to an underlying reference portfolio. This measure applies to agreements entered into on or after March 21, 2013, and to existing agreements that are extended on or after that date. The legislation also includes transitional rules for the Character Conversion Measure:

Provide that DFAs entered into before March 21, 2013 are excluded from the application of the character conversion measure (i.e., that they qualify for transitional relief) until the end of 2014;

Stipulate that transitional relief will not be available for purchases and sales that occur after March 21, 2018 under a derivative forward agreement; and

Specify that transitional relief be unavailable for DFAs if their size is increased beyond certain limits after March 20, 2013.

Based on its review to date, the Manager believes that the tax treatment of the Fund’s distributions will not be affected until expiration of the Fund’s Forward Agreement on December 21, 2015. The Manager will provide additional detail to unitholders as it becomes available. The value of the Forward Agreement as at December 31, 2013 of ($753,108) (2012: $11,641,078) has been determined as the difference between the value of the Common Share Portfolio as at December 31, 2013 of $34,618,607 (2012: $88,520,625) and the Counterparty’s investment in the Underlying Fund Notes as at December 31, 2013 of $33,865,499 (2012: $100,161,703).


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5. UNIT TRANSACTIONS

The Fund issued both Class A units and Class F units at an initial unit price of $10.00 and were issued through the book-entry only system administered by CDS.

The Class F units are designed for fee-based and/or institutional accounts and differ from the Class A units in the following ways: (i) Class F units are not listed on a stock exchange; (ii) the Agents’ fees payable on the issuance of Class F units were lower than those payable on the issuance of Class A units; and (iii) there are no Service Fees payable in respect of Class F units. Accordingly, the Net Asset Value per Unit of each class will not be the same as a result of the different fees allocable to each class of units. The Declaration of Trust provides that the Fund may not issue additional units (or securities convertible exchangeable or exercisable for units) following completion of the Offering except: (i) at a price that yields net proceeds to the Fund of not less than 100% of NAV per Class A unit or NAV per Class F unit, as applicable, calculated as of the close of business on the Business Day immediately prior to the pricing of such offering; (ii) by way of unit distributions; or (iii) with the approval of unitholders. Immediately after a pro rata distribution of units to all unitholders in satisfaction of any non-cash distribution, the number of outstanding units will automatically be consolidated such that each unitholder will hold, after the consolidation, the same number of units as the unitholder held before the non-cash distribution, except in the case of a non-resident unitholder to the extent tax was required to be withheld in respect of the distribution. Subject to the foregoing, the Fund may also allot and issue units or other securities at such time or times and in such manner as the Manager in its sole discretion shall determine. Conversion of Units A holder of Class F units may convert Class F units into Class A units in accordance with the Declaration of Trust and it is expected that liquidity for the Class F units will be primarily obtained by means of conversion into Class A units and the sale of those Class A units through the facilities of the TSX. Class F units may be converted in any month on the second last Business Day of such month (each a “Conversion Date”) by delivering a notice and surrendering such Class F units by 5:00 p.m. (Toronto time) at least 10 Business Days prior to the relevant Conversion Date. For each Class F unit so converted, a holder will receive that number of Class A units equal to the Net Asset Value per Class F unit as of the close of trading on the relevant Conversion Date divided by the Net Asset Value per Class A unit as of the close of trading on such Conversion Date. No fractions of Class A units will be issued upon conversion of Class F units. Any fractional amounts will be rounded down to the nearest whole number of Class A units. As of June 1, 2012, a holder of Class A units may convert Class A units into Class F units, in accordance with the Declaration of Trust, on a Conversion Date by delivering a notice and surrendering such Class A units by 5:00 p.m. (Toronto time) at least 10 Business Days prior to the relevant Conversion Date. For each Class A unit so converted, a holder will receive that number of Class F units equal to the Net Asset Value per Class A unit as of the close of trading on the relevant Conversion Date divided by the Net Asset Value per Class F unit as of the close of trading on such Conversion Date. No fractions of Class F units will be issued upon conversion of Class A units. Any fractional amounts will be rounded down to the nearest whole number of Class F units. Based in part on the current published administrative policies and assessing practices of the CRA, a conversion of Class F units into Class A units or Class A units into Class F units will not constitute a disposition of the Class F units or Class A units, as applicable, for the purposes of the Income Tax Act (Canada) (the “Tax Act”).


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Mandatory Market Purchases Pursuant to the Declaration of Trust, the Fund will undertake a mandatory market purchase program pursuant to which the Fund will offer to purchase any Class A units offered in the market at a price that is less than 98% of the latest NAV per Class A unit. The Fund will publish this price on its website at www.manglgemifund.com on each day on which the TSX is open for business. Pursuant to the mandatory market purchase program, the Fund will purchase up to a maximum amount in any rolling 10 day period of 10% of the number of Class A units outstanding at the beginning of such 10 day period, subject to the terms set out in the Declaration of Trust. The Declaration of Trust provides that the Fund will not be obligated to make such purchases if, among other things, (i) the Fund lacks the cash, debt capacity or other resources to make such purchases, (ii) in the opinion of the Trustee or the Manager, if any, the making of such purchases by the Fund would adversely affect the ongoing activities of the Fund or (iii) in order to fund the purchase, the Fund is not able to settle the Forward Agreement in an orderly manner consistent with the investment objectives, strategies and restrictions of the Fund or, alternatively, it is not in the best interests of the unitholders to do so. Annual Redemption Commencing in 2013, units may be redeemed by the holder on the second last Business Day in May (the “Annual Redemption Date”) in each year. Units properly surrendered for redemption at least 40 Business Days prior to an Annual Redemption Date will be redeemed on such Annual Redemption Date and the unitholder will receive payment on or before the Annual Redemption Payment Date, subject to the Fund’s right to suspend redemptions in certain circumstances.

Unitholders redeeming units on an Annual Redemption Date will be entitled to receive a redemption price per unit equal to the NAV per Unit on the Annual Redemption Date of such class, less any costs and expenses incurred by the Fund in connection with funding the redemption. Monthly Redemption Units may be redeemed at the option of unitholders on the second last Business Day of each month (the “Monthly Redemption Date”), subject to the Fund’s right to suspend redemptions in certain circumstances, and, in order to effect such a redemption, the units must be surrendered by no later than 5:00 p.m. (Toronto time) on the date which is the 10th Business Day of the month preceding the Monthly Redemption Date. Payment of the redemption price will be made on or before the 15

th Business Day of the

month following the Monthly Redemption Date, subject to the Manager’s right to suspend redemptions in certain circumstances.

Unitholders surrendering a Class A unit for redemption will receive the redemption price per Class A unit equal to the lesser of (i) 95% of the weighted average trading price of the Class A units on the principal exchange or market on which the Class A units are quoted for trading for the 10 Business Days immediately preceding the applicable Monthly Redemption Date and (ii) 100% of the Closing Market Price of a Class A unit on the applicable Monthly Redemption Date, less, in each case, any costs and expenses incurred by the Fund in order to fund such redemption, including costs, if any, related to the partial settlements of the Forward Agreement (the “Monthly Redemption Amount”).

Unitholders surrendering a Class F unit for redemption will receive an amount equal to the product of (i) the Monthly Redemption Amount, and (ii) a fraction, the numerator of which is the most recently calculated NAV per Class F unit and the denominator of which is the most recently calculated NAV per Class A unit.

Pursuant to the Declaration of Trust of the Fund, the Fund may allocate and designate as payable any capital gains realized by the Fund as a result of any partial settlement of the Forward Agreement to permit


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or facilitate the redemption of units to a holder whose units are being redeemed. Any such allocations will reduce the redeeming holder’s proceeds of disposition. The number of units issued, redeemed or cancelled during the years ended December 31, 2013 and 2012 for each respective Class is summarized as follows:

6. INCOME TAXES It is generally assumed that the Fund will qualify at all times as, a “mutual fund trust” within the meaning of the Tax Act and that the Fund will validly elect under the Tax Act to be a mutual fund trust from the date it

was established.

The Fund is subject to tax in each taxation year under Part I of the Tax Act on the amount of its income for the year, including net realized taxable capital gains, less the portion thereof that it claims in respect of amounts paid or payable to unitholders (whether in cash or in units) in the year. An amount will be considered to be payable to a unitholder in a taxation year if it is paid in the year by the Fund or the unitholder is entitled in that year to enforce payment of the amount. The Fund intends to make sufficient distributions in each year of its net income and net capital gains for tax purposes, thereby permitting the Fund to deduct sufficient amounts so that the Fund will generally not be liable in such year for non-refundable income tax under Part I of the Tax Act. The Fund is entitled for each taxation year throughout which it is a mutual fund trust for purposes of the Tax Act to reduce (receive a refund in respect of) its liability, if any, for tax on its net realized capital gains by an amount determined under the Tax Act based on the redemptions of units during the year (the “Capital Gains Refund”). The Capital Gains Refund in a particular taxation year may not completely offset the tax liability of the Fund for such taxation year which may arise upon the disposition of securities included in the Common Share Portfolio under the Forward Agreement in connection with the redemption of units. The Fund does not anticipate having income other than taxable capital gains on partial settlement of the Forward Agreement and therefore the Manager does not anticipate that the Fund will make any distributions on classes of units. If the Fund does have income for tax purposes which is in excess of any distributions paid or made payable to unitholders during the year and the net realized capital gains of the Fund, the tax on which would be recovered by the Fund in the year by reason of the capital gains refund provisions of the Tax Act, in order to ensure that the Fund will not generally be liable for income tax under Part I of the Tax Act.

For the years ended December 31, 2013 2012

Class A

Balance, Beginning 9,693,357 10,049,921

Units issued for cash 502,826 997,902

Units redeemed (6,163,118) (1,354,466)

Balance, Ending 4,033,065 9,693,357

Class F

Balance, Beginning 1,507,195 1,950,079

Units issued for cash 25,616 159

Units redeemed (1,191,111) (443,043)

Balance, Ending 341,700 1,507,195


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As at December 31, 2013, the Fund has non-capital losses of $5,651,656 (2012: $3,154,102) of which $211,424 (2012: 211,424) will expire in 2031 and $2,942,678 (2012: $2,942,678) will expire in 2032, and $2,497,553 will expire in 2033, and may be carried forward and used to reduce taxable income in future years. The Fund also has available capital losses of $2,321,841 (2012: $4,944,373) that may be carried forward indefinitely to offset future capital gains. The benefit, if any, of these losses has not been recognized in the financial statements.” 7. FEES AND OPERATING EXPENSES For its services to the Fund, an amount equal to 0.50% annually of the NAV per Class A unit, plus applicable taxes, is payable by the Fund to the Manager as a management fee (the “Management Fee”). The Management Fee is calculated daily and payable at the end of each calendar quarter. From the Management Fee it receives, the Manager pays a service fee (the “Service Fee”) to registered dealers whose clients hold Class A units. The Service Fee is equal to 0.50% annually of the NAV per Class A unit, plus applicable taxes, and is calculated daily and paid on a quarterly basis in arrears approximately 45 calendar days after quarter-end. No service fee is payable in respect of the Class F units. The Fund also pays to the Counterparty a fee under the Forward Agreement of up to 0.45% per annum of the NAV of the GLG Notes, plus a fee, which may vary up to 0.25% per annum of the value of the Common Share Portfolio, calculated daily and payable quarterly in arrears. This latter fee is intended to compensate the Counterparty for the costs of hedging its exposure under the Forward Agreement, if it chooses to do so, and will be approximately equal to the fees that would be charged to, and costs that would be incurred by, the Counterparty for borrowing securities matching the securities in the Common Share Portfolio or otherwise hedging its exposure under the Forward Agreement. The Fund will also pay a fee in respect of any leverage acquired under the Forward Agreement. It is anticipated that such fee will be consistent with interest typically charged to investment funds for leverage. The Fund also pays for all ordinary expenses, including applicable taxes incurred in connection with its operation and administration. These expenses will include, without limitation: mailing and printing expenses for periodic reports to unitholders and other unitholder communications, including marketing and advertising expenses; fees payable to the registrar and transfer agent; out-of-pocket expenses incurred by the Manager or its agents in connection with their ongoing obligations to the Fund; fees payable to the auditors and legal advisors of the Fund; regulatory filing, stock exchange and licensing fees.

The Manager may, on its own accord, pay for certain organizational and operating expenses of the Fund in

order to maintain the Fund’s operating expenses at a reasonable level. The Manager may cease to absorb

expenses at any time. The amounts absorbed by the Manager, if any, are shown in the Statement of

Operations.

Each Class of units is responsible for the expenses specifically related to that Class and a proportionate share of the expenses that are common to all Classes of units. Certain comparative figures have been reclassified to conform to the current period’s financial statement presentation.


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8. FINANCIAL INSTRUMENTS RISK The portfolio is comprised primarily of common shares of large and medium-sized Canadian companies in various industries. The table below presents financial instruments measured at fair value in the Statements of Net Assets in accordance with the fair value hierarchy. The hierarchy groups financial assets and liabilities into three levels based on the significance of inputs used in measuring the fair value of the financial assets and liabilities. The fair value hierarchy has the following levels:

Level 1 – inputs are unadjusted quoted prices of identical instruments in active markets.

Level 2 – inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 – one or more significant inputs used in a valuation technique are unobservable in determining fair values of the instruments.

As at December 31, 2013, the financial instruments measured at fair value in the Statements of Net Assets are grouped into the fair value hierarchy as follows: Level 1

CAD Level 2

CAD Level 3

CAD Total CAD

Equities - long 34,618,607 - - 34,618,607

Forward Agreement - (753,108) - (753,108)

As at December 31, 2012, the financial instruments measured at fair value in the Statements of Net Assets are grouped into the fair value hierarchy as follows: Level 1

CAD Level 2

CAD Level 3

CAD Total CAD

Equities - long 88,520,625 - - 88,520,625

Forward Agreement - 11,641,078 - 11,641,078

The Fund’s investment activities expose it to a variety of financial risks: (I) Liquidity Risk Liquidity risk for the Fund is the possibility that the Fund will not be able to partially or completely settle the Forward Agreement with the Counterparty in order to settle unit redemption requests from unitholders. The Fund is exposed to cash redemptions of redeemable units. While unitholders may redeem their units, under conditions where the Underlying Fund restricts or suspends redemptions to the Counterparty, resulting in the Counterparty being unable to partially settle the Forward Agreement with the Fund, then unitholder redemptions may be temporarily restricted or suspended. The Common Share Portfolio, while relatively liquid, is pledged as collateral under the terms of the Forward Agreement. Consequently, unless the Forward Agreement can be partially settled, the proportional collateral pledged under the Forward Agreement against the value of that partial settlement may not be able to be sold. Unitholders requesting redemptions may, therefore, potentially experience delays in receiving redemption payments. (II) Interest Rate Risk Interest rate risk is where the Fund might be exposed to changes in interest rates on cash deposits held in the Fund’s name that earn interest. As the majority of financial assets and liabilities of the Fund are non-interest bearing, the Fund therefore does not have significant exposure to interest rate risk.


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(III) Credit Risk Credit risk is the risk that the Counterparty will fail to discharge an obligation or commitment under the Forward Agreement that it has entered into with the Fund. By entering into the Forward Agreement, the Fund is exposed to the credit risk associated with the Counterparty. Depending on the value of the Common Share Portfolio and the GLG Notes at any given time, the Fund’s exposure to the credit risk of the Counterparty may be significant. This difference between the Common Share Portfolio and the Counterparty's investment in the GLG Notes (“Counterparty Credit Risk Exposure”) as at December 31, 2013 was ($753,108) (2012: $11,641,078) which is the difference between the Common Share Portfolio as at December 31, 2013 of $34,618,607 (2012: $88,520,625) and the value of the Counterparty's investment in the GLG Notes as at December 31, 2013 of $33,865,499 (2012: $100,161,703). In the event of a credit default event where the Counterparty failed to uphold its obligations under the Forward Agreement (“Credit Default Event”), the Net Assets would be derived from the value of the Common Share Portfolio. If the Counterparty Credit Risk Exposure is high, then unitholders could stand to lose a substantial amount of value in their units. Conversely, if the Counterparty Credit Risk Exposure is inverted where the Common Share Portfolio is worth more than the GLG Notes at any given time, then in a Credit Default Event, unitholders could stand to gain value in their units. It should be noted that unitholders have no recourse or rights against the assets of GLG Ltd. or the Counterparty in respect of the Forward Agreement or arising out of the Forward Agreement. Under a Credit Default Event where Net Assets are derived from the Common Share Portfolio, the Fund will become further exposed to both currency risk and price risk in the Common Share Portfolio where otherwise it would, under the terms of the Forward Agreement, have swapped these risks to the Counterparty. To mitigate the credit risk, the Manager chooses to engage only counterparties that are either Canadian Chartered banks or Canadian Schedule II banks. The Manager monitors the creditworthiness of the Counterparty. As at December 31, 2013 and 2012, the credit rating of CIBC World Markets by Standard & Poor’s (“S&P”) was A+. Should there be a material change in the credit status of any Forward Agreement Counterparty, then the Manager would review its options towards identifying and selecting a potential replacement counterparty. As at December 31, 2013, the value of the Forward Agreement was in a credit position, hence negating the counterparty risk. (IV) Currency Risk in the Common Share Portfolio Currency risk is the risk that financial instruments which are denominated or exchanged in a currency other than the Canadian dollar, which is the Fund’s reporting currency, will fluctuate due to changes in exchange rates. The Fund does not invest in any currency other than the Canadian Dollar. (V) Price Risk in the Common Share Portfolio Price risk is the risk that the value of the Common Share Portfolio will fluctuate as a result of changes in market prices of the stocks held in the Common Share Portfolio. All securities present a risk of loss of capital due to normal market fluctuations. Since under the terms and conditions of the Forward Agreement, the Net Assets of the Fund is not derived from the Common Share Portfolio but rather from the GLG Notes, the individual selection of stocks is only contained by the restriction that the Manager selects TSX non-dividend paying stocks that are widely held. These stocks are selected for their ability to be shorted by the Counterparty towards support of the Forward Agreement. Moreover a basket of between 10 – 14 stocks is held at any given time to mitigate concentration risk and facilitate a substitution in the Common Share Portfolio of one stock by another in the event of a dividend being issued by any one stock or another form of


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corporate event resulting in that stock being unavailable any further. Price risk in the Common Share Portfolio would only occur in the event of a Credit Default Event with the Counterparty as under the terms of the Forward Agreement, the Fund will forego any increase or decrease in the value of the Common Share Portfolio. If this should occur then as discussed under Credit Risk Exposure, the Fund may or may not have price risk exposure. (VI) Price Risk of the GLG Notes The GLG Notes are exposed to price risk arising from its investments in the Portfolio. Due to the nature of the trading strategies followed by these investments, no direct relationship between any market factors and the expected prices of the investments can be established. 9. FUTURE ACCOUNTING STANDARDS Investment companies that are publicly accountable enterprises or investment funds to which National Instrument 81-106 Investment Fund Continuous Disclosure is applicable, are required to adopt International Financial Reporting Standards (IFRS) for the first time for interim and annual financial statements relating to annual periods beginning on or after January 1, 2014. As a result, the Fund will adopt IFRS beginning January 1, 2014 and publish its first financial statements, prepared in accordance with IFRS, for the semi-annual period ending June 30, 2014. The 2014 semi-annual and annual financial statements will include 2013 comparative financial information and an opening Statement of Financial Position as at January 1, 2013, also prepared in accordance with IFRS. The Manager continues to execute its transition plan to complete the changeover to IFRS for the Fund in 2014 and comply with the required timetable for continuous disclosure. As at December 31, 2013, the impact to the financial statements based on the Manager’s assessment of the differences between current Canadian GAAP and IFRS are as follows:

IFRS 13 Fair Value Measurement permits the use of mid-market prices or other pricing conventions that are used by market participants as a practical expedient for fair value measurements within a bid-ask spread. There is no difference between the current accounting policies for the valuation of investments and the calculation of net asset value (NAV) used to price unitholder transactions (Transaction NAV). As a result, adoption of IFRS 13 will have no applicable impact to the Fund.

IFRS 10 Consolidated Financial Statements provides an exception to the consolidation requirements and requires an investment entity to account for its subsidiaries at fair value through profit or loss. The Manager has concluded that the Fund meets the definition of an investment entity as at January 1, 2013 and throughout the year ended December 31, 2013.

Units of the Fund are puttable instruments and are required to be presented as equity or liability depending on certain criteria. As at January 1, 2013 and throughout the year ended December 31, 2013, units of the Fund did not meet the criteria to be classified as equity. As a result, unitholders' equity will be presented as a liability in the Statements of Financial Position.

IFRS requires the presentation of a Statement of Cash Flows, including comparatives for 2013. The Fund has not previously presented this statement as permitted by current Canadian GAAP. In addition, other statements presented will be renamed as follows:

Canadian GAAP IFRS Statements of Net Assets Statements of Financial Position Statements of Operations Statements of Comprehensive Income Statements of Changes in Net Assets Statements of Changes in Financial Position Statement of Investments Schedule of Investments

Other reclassifications, presentation differences and additional disclosures will also be required in the financial statements to comply with the new requirements under IFRS.


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10. SUBSEQUENT EVENTS In March 2014 the senior leadership team of the Manager (“Management”) entered into a binding agreement with an affiliate of Man Group plc (“Man”) pursuant to which Management will acquire 100% of the issued and outstanding shares of the Manager (the “Transaction”), subject to receipt of all necessary regulatory approvals as well as the satisfaction of other customary closing conditions. The Transaction is expected to close on or about May 6, 2014. After the Transaction, the Manager will continue to be led by Management and Man affiliates will remain as the investment managers of the Underlying Fund.

Man GLG Emerging Markets Income Fund Fund Information

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MANAGER AND PRINCIPAL DISTRIBUTOR Man Investments Canada Corp. 70 York Street, Suite 1202 Toronto, ON M5J 1S9 Telephone: (416) 775-3600 Fax: (416) 775-3601 Toll Free: 1 877 860-1080 TRANSFER AGENT

Canadian Stock Transfer Company Inc.

P.O. Box 4202, Postal Station A

Toronto, ON M5W 0E4

VALUATION AGENT AND CUSTODIAN CIBC Mellon Trust Company 320 Bay St Toronto, ON, M5H 4A6

BROKER CIBC World Markets 161 Bay Street, 5th Floor Toronto, ON M5J 2S8

AUDITORS Ernst & Young LLP 222 Bay Street, P.O. Box 251 Toronto, ON M5K 1J7 LEGAL COUNSEL

Blake, Cassels & Graydon LLP 199 Bay Street Suite 4000, Commerce Court West Toronto ON M5L 1A9

Man Investments Canada Corp.

70 York Street, Suite 1202 Toronto, ON M5J 1S9

Tel: 416 775-3600 Fax: 416 775-3601

www.man.com

man glg emerging markets income fund - next edge capital · 2014. 10. 6. · usd put/cnh call...

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