Final GoodWood Capital Fund 06302014 IFRS draft v7 for Printer · GOODWOOD CAPITAL FUND Statement of financial position As at June 30, 2014, December 31, 2013 and January 1, 2013

GOODWOOD INC.

GOODWOOD CAPITAL

FUND

Semi Annual Report Six months ended June 30, 2014

Financial Statements of

GOODWOOD CAPITAL FUND June 30, 2014 (unaudited)

Manager’s comments on unaudited interim financial statements These interim financial statements of Goodwood Capital Fund for the six months ended June 30, 2014 have been prepared by the Manager. These interim financial statements have not been audited by KPMG LLP, the independent external auditors of the Fund.

GOODWOOD CAPITAL FUND Statement of financial position As at June 30, 2014, December 31, 2013 and January 1, 2013 (unaudited)

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June 30, December 31, January 1,Note 2014 2013 2013

AssetsCash 924,115 1,689,454 3,083,827 Financial assets at fair value through profit or loss (cost - $12,293,098; 14,113,087$ 14,464,015$ 14,290,092$ December 31, 2013 - $14,443,676; January 1, 2013 - $17,491,123) 4Receivable for investments sold 114,352 57,908 241,324 Accrued interest and dividend receivable 17,153 40,161 54,499 Notes receivable - - 143,864

Total assets 15,168,707 16,251,538 17,813,606

LiabilitiesAccounts payable and accrued liabilities 110,361 21,454 32,309 Redemptions payable 79,707 - 21,564 Payable for investments purchased 154,642 13,522 173,593

Total liabilities (excluding net assets attributable to holders of redeemable units) 344,710$ 34,976$ 227,466$

Net assets attributable to holders of redeemable units 7 14,823,997$ 16,216,562$ 17,586,140$

Net assets attributable to holders of redeemable units per unit 17.16$ 15.78$ 13.25$

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

Approved by Goodwood Inc.:

DirectorChief Investment Officer

DirectorPresident

GOODWOOD CAPITAL FUND Statement of comprehensive income For the six months period ended June 30, 2014 and 2013 (unaudited)

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Note 2014 2013

IncomeInterest for distribution purposes 74,729$ 118,917$ Dividend income 137,546 49,355 Net foreign currency gains (losses) 4,290 (53) Net realized gains (losses) on financial assets and liabilities

at fair value through profit or loss 4 (294,205) (592,576) Net change in unrealized appreciation (depreciation) on financial assets and liabilities

at fair value through profit or loss 4 1,799,653 1,242,831 Total income 1,722,013 818,474

ExpensesManagement fees 8 166,073 164,694 Legal fees and Professional fees 68,272 140,923 Commissions and other portfolio transaction costs 9 57,559 47,867 Audit fees 54,540 50,428 General and administrative 47,393 42,555 Independent Review Committee fees 8 5,951 7,461 Trustee's fees 5,604 5,650

Total expenses 405,392 459,578 Expenses waived by Manager 8 (2,713) -

Net expenses 402,679 459,578

Increase (decrease) in net assets attributable to holders of redeemable units 7 1,319,334$ 358,896$


GOODWOOD CAPITAL FUND Statement of changes in net assets attributable to holders of redeemable units For the six months period ended June 30, 2014 and 2013 (unaudited)

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June 30, 2014

Fund

Net assets attributable to

holders of redeemable units,

beginning of period

Increase (decrease) in net

assets attributable to holders of

redeemable units

Proceeds from redeemable units issued

Redemption of redeemable

units



end of period

Goodwood Capital Fund 16,216,562$ 1,319,334$ 80,054$ (2,791,953)$ 14,823,997$ Total 16,216,562$ 1,319,334$ 80,054$ (2,791,953)$ 14,823,997$

June 30, 2013

Fund



beginning of period

Increase (decrease) in net

assets attributable to holders of

redeemable units

Proceeds from redeemable units issued

Redemption of redeemable

units



end of period

Goodwood Capital Fund 17,586,140$ 358,896$ 220,477$ (3,139,806)$ 15,025,707$ Total 17,586,140$ 358,896$ 220,477$ (3,139,806)$ 15,025,707$


Unit Transactions

Unit Transactions

GOODWOOD CAPITAL FUND Statement of cash flows For the six months period ended June 30, 2014 and 2013 (unaudited)

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Note 2014 2013

Cash flow from operating activitiesIncrease (decrease) in net assets attributable to holders of redeemable units 1,319,334$ 358,896$ Adjustments for:

Net realized gains (losses) on financial assets and liabilitiesat fair value through profit or loss 4 294,205 592,576

Net change in unrealized appreciation (depreciation) on financial assets and liabilities at fair value through profit or loss 4 (1,799,653) (1,242,831)

(186,114) (291,359)

Purchases of investments (10,234,154) (6,703,776) Proceeds from sale of investments 12,090,531 8,365,994 Net (increase) decrease in due from broker (56,444) 201,986 Net (increase) decrease in accrued interest and dividend receivable 23,008 (25,684) Net (increase) decrease in notes receivable - 88,042 Net increase (decrease) in accounts payable and accrued liabilities 88,907 (8,677) Net increase (decrease) in redemptions payable 79,707 78,930 Net increase (decrease) in due to broker 141,120 (173,593)

Net cash provided by (used in) operating activities 1,946,561 1,531,863

Cash flows from financing activitiesProceeds from issuance of redeemable units 7 80,054 220,477 Payment on redemption of redeemable units 7 (2,791,954) (3,139,806)

Net cash provided by (used in) financing activities (2,711,900) (2,919,329)

Net increase (decrease) in cash (765,339) (1,387,466) Cash at beginning of the period 1,689,454 3,083,827

Cash at end of the period 924,115 1,696,361

Interest received 106,164 110,205 Dividends received, net of witholding taxes 151,515 50,851


GOODWOOD CAPITAL FUND Schedule of investments As at June 30, 2014 (unaudited)

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NUMBER OF AVERAGE CARRYING % OF NETSHARES DESCRIPTION COST VALUE ASSETS

Investments owned

Canadian bonds:452,700 Pinetree Capital Limited, 10.000%, convertible bond, May 31, 2016 362,458 386,695 2.61 525,300 Centric Health Corporation, 6.750%, convertible bond, October 31, 2017 399,209 320,433 2.16

761,667 707,128 4.77

Canadian publicly held securities:116,900 Great Canadian Gaming Corporation 942,615 1,995,483 13.46 125,200 ATS Automation Tooling Systems Inc. 982,273 1,954,372 13.19

84,700 Boralex Inc. 'A' 682,846 1,147,685 7.74 148,800 Sirius XM Canada Holdings Inc. 1,008,183 1,041,600 7.03 767,400 Guestlogix Inc. 912,467 966,924 6.52

2,004,300 WebTech Wireless Inc. 801,052 721,548 4.87 71,100 Transat A.T. Inc. 'B' 647,358 674,739 4.55

1,467,100 Alterra Power Corporation 440,581 513,485 3.46 217,400 Merus Labs International Inc. 369,580 510,890 3.45

28,600 KP Tissue Inc. 496,381 452,166 3.05 198,810 UrtheCast Corporation 321,385 268,394 1.81

15,400 Dominion Diamond Corporation 222,261 237,468 1.60 15,300 Element Financial Corp - Sub Receipt 195,075 205,173 1.38 20,900 Cipher Pharmaceuticals Inc. 148,257 184,129 1.24 55,432 The Westaim Corporation - 177,382 1.20

803,900 Dacha Strategic Metals Inc. 312,854 156,761 1.06 371,600 Centric Health Corporation 233,674 148,640 1.00

4,500 Amaya Gaming Group Inc., subscription receipts 90,000 90,000 0.61 2,600 Dundee Corporation 'A' 42,729 44,668 0.30

845,158 Ram Power Corporation 788,472 25,355 0.17 104,667 Solvista Gold Corporation, warrants, February 26, 2015 - 13 -

9,638,043 11,516,875 77.69

Canadian privately held securities:126,600 Medexus Inc. 126,600 90,392 0.61

37,783 AMP Solar Group Inc. - - - 126,600 90,392 0.61

Foreign publicly held securities:213,600 Cowen Group Inc. 'A' 852,589 961,064 6.48

44,000 Bank of America Corporation 721,128 721,050 4.86 1,573,717 1,682,114 11.34

Foreign privately held securities:166,600 Morgan Solar Inc., preferred shares 'A' 193,071 116,578 0.79

Total investments owned 12,293,098 14,113,087 95.20

Total investments 12,293,098 14,113,087 95.20

Other assets, net 710,910 4.80

Net assets 14,823,997 100.00

GOODWOOD CAPITAL FUND Notes to the financial statements Period ended June 30, 2014 (unaudited)

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1. GENERAL INFORMATION

Goodwood Capital Fund (the "Fund") is an open-end investment fund trust created under the laws of Ontario. The Fund was established on December 23, 1999 pursuant to a declaration of trust and is governed by a third amended and restated trust agreement dated June 11, 2014 as amended from time to time (the "Trust Agreement"). The Fund files with all Canadian provincial and territorial securities commissions a simplified prospectus and annual information form each year for the public offering of its Fund units. Currently, the Fund offers its units to the public under a simplified prospectus and annual information form dated May 2, 2014. The registered office of the Fund is 212 King Street West, Suite 201, Toronto, Ontario, M5H 1K5. Fund management and investment management services are provided by Goodwood Inc. (the "Manager"), a member of the Investment Industry Regulatory Organization of Canada. In this capacity, the Manager manages the day-to-day business and investment portfolio of the Fund. In addition, the Manager is the promoter of the Fund. Computershare Trust Company of Canada is trustee (the "Trustee") of the Fund, and National Bank Correspondent Network Inc. ("NBCN Inc.") is the custodian of the Fund. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these financial statements are set out below. Basis of presentation

These financial statements have been prepared in compliance with International Financial Reporting Standards (“IFRS”). These are the Fund’s first interim financial statements prepared in accordance with IFRS and IFRS 1, first-time adoption of International Financial Reporting Standards (“IFRS 1”) has been applied. Previously, the Fund prepared its financial statements in accordance with Canadian generally accepted accounting principles as defined in Part V of the CPA Canada Handbook (“Canadian GAAP”). The Fund has consistently applied the accounting policies used in the preparation of its opening IFRS statement of financial position at January 1, 2013 and through all periods presented. An explanation of how the transition to IFRS has affected the reported financial position, financial performance and cash flows of the Fund is provided in note 11. This note includes reconciliations of equity and comprehensive income for comparative periods and of equity at the date of transition, being January 1, 2013 from reporting under Canadian GAAP to those reported for those periods and at the date of transition. These financial statements have been prepared on a historical cost basis, except for financial assets and financial liabilities at fair value through profit or loss (“FVTPL”) which are presented at fair value. These semi-annual financial statements have been prepared in accordance with IAS 34 – Interim Financial Reporting. Approval of the financial statements The financial statements were approved by the Manager and authorized for issue on August 28, 2014. Functional currency and foreign currency translation The measurement and functional currency of the Fund is the Canadian Dollar (“CAD”) and the financial statements are presented in CAD. Investment transactions and income and expenses in foreign currencies have been translated to CAD at the rate of exchange prevailing at the time of the transaction. Foreign currency assets and liabilities have been translated into the functional currency using the rate of exchange prevailing at the statement of financial position date.


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Foreign exchange gains and losses relating to cash are presented in the statement of comprehensive income within net foreign currency gains (losses). Foreign exchange gains and losses relating to the financial assets and liabilities carried at FVTPL are presented in the statement of comprehensive income within net changes in fair value on financial assets at FVTPL. Financial assets and financial liabilities at fair value through profit or loss

Classification The Fund classifies its investments in debt and equity securities, and derivatives, as financial assets or financial liabilities at FVTPL. This category has two sub-categories: financial assets or financial liabilities held for trading; and those designated at FVTPL at inception.

(i) Financial assets and liabilities held for trading A financial asset or financial liability is classified as held for trading if it is acquired or incurred principally for the purpose of selling or repurchasing in the near term or if on initial recognition is part of a portfolio of identifiable financial investments that are managed together and for which there is evidence of a recent actual pattern of short-term profit taking. Derivatives are also categorized as held for trading. Investments in warrants have been categorized as held for trading.

(ii) Financial assets and liabilities designated at FVTPL at inception Financial assets and financial liabilities designated at FVTPL at inception are financial instruments that are not classified as held for trading but are managed, and their performance is evaluated on a fair value basis in accordance with the Fund’s documented investment strategy. Investments in equity and debt securities have been categorized as designated at FVTPL. The Manager evaluates the information about these financial assets and liabilities on a fair value basis together with other related financial information.

All other financial assets and liabilities are classified as loans and receivables and other financial liabilities. Recognition, derecognition and measurement Financial assets and financial liabilities at FVTPL are initially recognized on the trade date, which is the date on which the Fund becomes a party to the contractual provisions of the instrument. Other financial assets and financial liabilities are recognized on the date on which they are originated.

Financial assets and financial liabilities at FVTPL are initially recognized at fair value, with transaction costs recognized in the statement of comprehensive income. Financial assets or financial liabilities not at FVTPL are initially recognized at fair value plus transaction costs that are directly attributable to their acquisition or issue. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or the Fund has transferred substantially all risks and rewards of ownership.


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Subsequent to initial recognition, all financial assets and financial liabilities at FVTPL are measured at fair value. Net changes in unrealized gains and losses arising from changes in the fair value of the financial assets or financial liabilities at FVTPL category are presented in the statement of comprehensive income within net change in unrealized appreciation on financial assets at FVTPL in the period in which they arise. Dividend income from financial assets at FVTPL is recognized in the statement of comprehensive income within dividend income, gross of withholding taxes, when the Fund’s right to receive payments is established. Amounts not yet received are included in the statement of financial position in dividends receivable. Interest on debt securities at FVTPL is recognized in the statement of comprehensive income. Fair value measurement Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of financial assets and liabilities traded in active markets are based on quoted market prices at the close of trading on the reporting date. In circumstances where the closing price is outside of the closing bid-ask range, then the closest bid or ask to the last trade will be used. The fair value of financial assets and liabilities that are not traded in an active market is determined using valuation techniques. The Fund uses a variety of methods and makes assumptions that are based on market conditions existing at each reporting date. Valuation techniques used include the use of comparable recent arm’s length transactions, option pricing models and other valuation techniques commonly used by market participants making the maximum use of market inputs and relying as little as possible on entity-specific inputs. Refer to note 6 for further information about the Fund’s fair value measurement. Loans and receivables and other financial liabilities are measured at amortized cost. The fair value used for financial reporting is consistent with the fair value used for unitholder and related transactions. Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the statement of financial position where the Fund currently has a legally enforceable right to off-set the recognized amounts and there is an intention to settle on a net basis or realized the asset and settle the liability simultaneously. Income and expenses are presented on a net basis for gains and losses from financial instruments at FVTPL. Payable for investments purchased/receivable for investments sold Amounts receivable for investments sold and amounts payable for investments purchased that have been contracted are recorded on the Statement of Financial Position at the amount to be received or delivered. Redeemable units and net assets attributable to holders of redeemable units The Fund issues multiple classes of redeemable units, which are redeemable at the holder’s option and do not have identical attributes. For each Fund unit sold, the Fund receives an amount equal to the net asset value per unit at the date of sale, which amount is included in net assets attributable to holders of redeemable units. For each unit redeemed, net assets attributable to holders of redeemable units is reduced by the net asset value of the unit at the date of redemption. The redeemable shares are measured at the current value of the Fund’s net assets and are considered a residual amount of the net assets attributable to holders of redeemable units.


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The increase (decrease) in net assets attributable to holders of redeemable units per unit is calculated by dividing the increase (decrease) in net assets attributable to holders of redeemable units by the weighted average number of units outstanding during the period for each class/series respectively. Refer to note 7 for further detail. Commissions and other portfolio transaction costs Commissions and other portfolio transaction costs are costs incurred to acquire financial assets or liabilities at FVTPL. They include fees and commissions paid to agents, advisers, brokers and dealers. Transaction costs, when incurred, are immediately recognized in profit or loss as an expense. Refer to note 9 for further detail. Future accounting standards Financial instruments IFRS 9, Financial Instruments ("IFRS 9"), is part of the IASB wider project to release IAS 39, Financial Instruments - Recognition and Measurement. IFRS 9 retains, but simplifies the mixed measurements model and establishes two primary measurement categories for financial assets: amortized cost and fair value. The basis of classification depends on the entities' business model and the contractual cash flow characteristics of the financial assets. In July 2013, the International Accounting Standard Board ("IASB") tentatively decided to defer the effective date of IFRS 9 to an unspecified date. The Fund is in the process of evaluating the impact of the new standard.

3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Critical accounting estimates and assumptions The preparation of financial statements requires management to use judgement in applying its accounting policies and to make estimates and assumptions about the future. The following discusses the most significant accounting judgements and estimates that the Fund has made in preparing these financial statements. Actual results may differ from these estimates. Fair value of derivative financial instruments The Fund may, from time to time, hold financial instruments that are not quoted in active markets, such as over-the-counter derivatives. Fair values of such instruments are determined by using valuation techniques. Where valuation techniques (for example, models) are used to determine fair values, they are validated and periodically reviewed by experienced personnel of the Manager. Fair value of securities not quoted in an active market The fair value of such securities not quoted in an active market may be determined by the Fund using reputable pricing sources (such as pricing agencies) or indicative prices from bond/debt market makers. The Fund would exercise judgement and estimates on the quantity and quality of pricing sources used. Where no market data is available, the Fund may value positions using its own models, which are usually based on valuation methods and techniques generally recognized as standard within the industry. Models use observable data, to the extent practicable. However, areas such as credit risk (both own and counterparty), volatilities and correlations require management to make estimates. Changes in assumptions about these factors could affect the reported fair value of financial instruments.


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The determination of what constitutes ‘observable’ requires significant judgement by the Fund. The Fund considers observable data to be market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. Refer to note 6 for further information about the fair value measurement of the Fund’s financial instruments.

4. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

The Fund’s classification of financial assets and liabilities at FVTPL is described in note 2. The following table presents the net gains (losses) on financial assets and liabilities at FVTPL for the period ended June 30, 2014 and 2013:

5. DERIVATIVE FINANCIAL INSTRUMENTS

The Fund holds the following derivative instruments: Warrants A warrant is a contractual arrangement under which the issuer grants the holder the right, but not the obligation, either to buy at or by a set date or during a set period, a specific amount of securities or a financial instrument at a predetermined price directly from the issuer of the underlying securities. The Fund is exposed to credit risk on purchased warrants only to the extent of their carrying amount, which is their fair value. The following tables detail the Fund’s investments in warrants as at the reporting dates:

2014 Held for trading

Designated at fair value through

profit or loss Total

Net realized gains (losses) (30,200) (264,005) (294,205) Net change in unrealized gains (losses) 27,180 1,772,473 1,799,653

Total (3,020) 1,508,468 1,505,448

2013 Held for trading

Designated at fair value through

profit or loss Total

Net realized gains (losses) - (592,576) (592,576) Net change in unrealized gains (losses) 26,118 1,216,713 1,242,831

Total 26,118 624,137 650,255

June 30, 2014

Description Maturity date Notional amount

Fair value in financial assets

(liabilities)

Solvista Gold Corporation warrants February 26, 2015 62,800 13


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The notional amounts of certain types of financial instrument provide a basis for comparison with instruments recognized on the statement of financial position, but they do not necessarily indicate the amounts of future cash flows involved or the current fair value of the instruments and do not therefore indicate the Fund’s exposure to credit or market price risks. The derivative instruments become favourable (assets) or unfavourable (liabilities) as a result of fluctuations in market prices or foreign exchange rates relative to their terms. The aggregate contractual or notional amount of derivative financial instruments on hand, the extent to which instruments are favourable or unfavourable, and thus the aggregate fair values of derivative financial assets and liabilities can fluctuate significantly from time to time.

6. FINANCIAL RISK MANAGEMENT

Financial risk factors The Fund’s investment activities expose it to a variety of financial risks: credit risk, liquidity risk and market risk (including price risk, foreign exchange risk, and interest rate risk). The Fund is also exposed to operational risks such as custody risk. Custody risk is the risk of loss of securities held in custody brought about by the insolvency or negligence of the custodian. Although an appropriate legal framework is in place that reduces the risk of loss of value of the securities held by the custodian, in the event of its failure, the ability of the Fund to transfer securities might be temporarily impaired. The Manager seeks to minimize potential adverse effects of these risks on the Fund’s performance by daily monitoring of the Fund’s positions and market events and, by diversifying the investment portfolio within the constraints of the investment objective, and periodically may use derivatives to hedge certain risk exposures. To assist in managing risks, the Manager also uses internal guidelines that identify the target exposures for each type of risk, maintains a governance structure that oversees the Fund’s investment activities and monitors compliance with the Fund’s state investment strategy, internal guidelines, and securities regulations.

December 31, 2013



(liabilities)

Western Forest Products Inc. warrants July 31, 2014 405,280 84,856 Amp Solar Inc. warrants March 31, 2014 69 - Solvista Gold Corporation warrants February 26, 2015 62,800 23 Ram Power Corporation warrants May 19, 2014 434,880 3,020

January 1, 2013



(liabilities)

Ram Power Corporation warrants May 19, 2014 434,880 9,060


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The investment objective of the Fund is to achieve capital appreciation by investing primarily in equity securities of North American companies over a broad range of industry sectors which the Manager believes to have superior potential. To achieve its objectives, the Fund invests primarily in equity securities of North America companies - that is, issuers with a connection to Canada or the U.S., such as those that are domiciled in Canada or the U.S., the securities of which are listed on an exchange in Canada or the U.S., or derive a significant portion of their revenues or profits from, or hold a significant portion of their assets in, Canada or the U.S. The Fund may also purchase additional securities such as term deposits, commercial paper, bonds and debentures of corporate and government issuers should prevailing market conditions warrant a defensive position. The Fund may invest up to 15% of its net asset value at cost in junk bonds or other debt securities with equity-like total return. The Fund uses different methods to measure and manage the various types of risk to which it is exposed; these methods are explained below. (i) Credit risk Credit risk is the risk that the counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Fund. Credit risk is generally higher when a non-exchange traded financial instrument is involved because the counterparty for non-exchange traded financial instruments is not backed by an exchange clearinghouse. The types of securities the Fund is invested in are disclosed in the statement of investments. The amount of credit exposure to credit risk is represented by the carrying amount of the assets on the statement of financial position and the possible inability to replicate these contracts at market price. Substantially all financial instruments are cleared through and held in custody by one broker (NBCN Inc.). The Fund is subject to credit risk to the extent that NBCN Inc. may be unable to fulfill its obligations either to return the Fund's securities or repay amounts owed. The Fund does not anticipate any losses as a result of this concentration. (ii) Liquidity risk Liquidity risk is the risk that the Fund will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or other financial assets. The Fund is exposed to periodic cash redemptions of redeemable units. The Fund manages its liquidity risk by primarily investing in marketable securities and other financial instruments which are traded in active markets and can be readily disposed of under normal market conditions. In addition, Fund retains sufficient cash and highly liquid investment positions to maintain liquidity. The Fund may, from time to time, invest in unlisted securities, which are not traded in an organized market. Non-listed securities may generally be illiquid, therefore, the Fund may not be able to quickly liquidate its investments in these instruments at an amount close to its fair value in order to respond to meet its liquidity requirements or to respond to specific events, such as a deterioration in the creditworthiness of any particular issuer. However, the Fund requires appropriate notice of unit redemptions and under extraordinary circumstances has the ability to suspend redemptions if this is deemed to be in the best interest of all unitholders. The Fund did not withhold any redemption or implement any suspensions during 2014 or 2013. It is the Fund’s policy that the Manager monitors the Fund’s liquidity position on a daily basis. The Fund’s liabilities are generally expected to be due and paid within 90 days, with the exception of net assets attributable to holders of redeemable units. Redeemable units are redeemable on demand at the holder’s


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option, however does not represent significant liquidity risk as holders of these instruments typically retain them for the medium to long term. As such, the Fund is not exposed to significant liquidity risk. (iii) Market risk Market risk is the risk that the fair value of future cash flows of financial instruments will fluctuate due to changes in market variables such as interest rates, foreign exchange rates and market prices. The following include sensitivity analyses that show how the net assets attributable to holders of redeemable units would have been affected by a reasonably possible change in the relevant risk variable at each reporting date. In practice, the actual results may differ and the differences could be material. a) Price risk

Price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether caused by factors specific to an individual investment, its issuer or all factors affecting all instruments traded in the market. The Fund is primarily exposed to price risk through from its investments in equity securities and related derivatives. All investments represent a risk of loss of capital. The investment portfolio consists of securities of companies in various industries which are subject to normal market fluctuations and the risks inherent in investment in equity markets. The maximum risk resulting from financial instruments is determined by the fair value of the financial instruments. The Fund's price risk is managed by the Manager constructing a diversified portfolio of investments traded on various markets which are not correlated. The Fund's positions and overall market conditions are monitored on a daily basis. As at June 30, 2014, had the prices on the respective stock exchanges for these securities increased or decreased by 5%, with all other variables held constant, net assets attributable to holders of redeemable units would have increased or decreased by approximately $705,654 (December 31, 2013 - $723,201; January 1, 2013 - $714,505). The Fund is also exposed to price risk through the concentration of its investment portfolio, and manages this risk through daily monitoring of the portfolio to comply with the Fund’s investment strategies as outlined in the Fund’s Prospectus.

b) Foreign exchange risk The Fund holds both monetary and non-monetary assets denominated or traded in currencies other than the Canadian Dollar, the Fund’s functional currency. Foreign currency risk arises as the value of future transactions, assets and liabilities denominated in other currencies fluctuate due to changes in foreign exchange rates.


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The table below summarizes the foreign currencies to which the Fund had significant exposure at June 30, 2014, December 31, 2013 and January 1, 2013 in CAD terms. The table also illustrates the potential impact on the net assets attributable to holders of redeemable units if CAD had strengthened or weakened by 5% in relation to the listed currencies, with all other variables held constant.

The analysis above is based on the assumptions that the relevant foreign exchange rate increased/decreased by the 5%, with all other variables held constant. This represents management’s best estimate of a reasonably possible shift in the foreign exchange rates.

c) Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in prevailing market interest rates. The majority of the Fund's financial assets and liabilities are non-interest bearing or repriced daily and, as a result, the Fund's portfolio is not subject to a significant amount of risk due to fluctuations in the prevailing levels of market interest rates. However, the underlying investments may themselves invest in fixed interest-bearing securities, which could expose them to interest rate risk.

June 30, 2014

United States Dollar Exposure

Impact on net assets attributable to holders

of redeemable units

Monetary 469 5 Non-monetary 1,798,692 17,987 Total 1,799,161 17,992 % of net assets attributable to holders of redeemable units 12.1% 0.1%

December 31, 2013



of redeemable units

Monetary - - Non-monetary 1,101,221 11,012 Total 1,101,221 11,012 % of net assets attributable to holders of redeemable units 6.8% 0.1%

January 1, 2013



of redeemable units

Monetary - - Non-monetary 1,252,303 12,523 Total 1,252,303 12,523 % of net assets attributable to holders of redeemable units 7.1% 0.1%


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The table below summarizes the Fund’s exposure to interest rate risk as at June 30, 2014, December 31, 2013 and January 1, 2013, by remaining term to maturity. The table also illustrates the potential impact on the net assets attributable to holders of redeemable units if the prevailing levels of market interest rates changed by 1%, assuming a parallel shift in the yield curve with all other variables held constant.

Capital risk management The capital of the Fund is represented by the net assets attributable to holders of redeemable units. The units are entitled to distributions, if any, and to payment of a proportionate share based on the Fund's NAV per unit upon redemption. The relevant movements are shown on the statement of changes in net assets attributable to holders of redeemable units. There is no external regulatory requirement to maintain a minimum capital amount. Fair value measurement The fair value of financial assets and liabilities traded in active markets (such as publicly traded derivatives and trading securities) are based on quoted market prices at the close of trading on the period end date. An active market is a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. If a significant movement in fair value occurs subsequent to the close of trading up to midnight on the year end date, valuation techniques will be applied to determine the fair value. The fair value of financial assets and liabilities that are not traded in an active market is determined by using valuation techniques. The Fund uses a variety of methods and makes assumptions that are based on market conditions existing at each year end date. Valuation techniques used for non-standardized financial instruments such as options and warrants, include the use of comparable recent arm’s length transactions, option pricing models and other valuation techniques commonly used by market participants making the maximum use of market inputs and relying as little as possible on entity-specific inputs. The fair value hierarchy has the following levels:

• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;

• Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and

• Level 3 inputs are unobservable inputs for the asset or liability.

Term to maturityJune 30,

2014December 31,

2013January 1,

2013

Less than 1 year - - - 1-3 years 320,433 1,184,780 513,779 3-5 years 386,695 309,300 1,143,718 5+ years - - -

Total 707,128 1,494,080 1,657,497 Impact on net assets attributable to holders of redeemable units 17,224 15,166 26,500 Impact on net assets attributable to holders of redeemable units % 0.12% 0.09% 0.15%

Total exposure


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The determination of what constitutes “observable” requires significant judgment by the Fund. The Fund considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. If an asset or liability classified as Level 1 subsequently ceases to be actively traded, it is transferred into Level 2, unless the measurement of its fair value requires the use of significant unobservable inputs, in which case it is reclassified to Level 3. All transfers are recorded at fair value at the beginning of the period of the transfer. The following table analyses within the fair value hierarchy the Fund’s assets and liabilities measured at fair value as at June 30, 2014, December 31, 2013 and January 1, 2013:

There were no transfers between Levels 1, 2, and 3 in the periods presented.

As at June 30, 2014 Level 1 Level 2 Level 3 Total

Financial assets designated at FVTPL:Equity securities 13,082,398 - 206,970 13,289,368 Debt securities 707,128 - - 707,128 Preferred securities 116,578 - - 116,578

Financial assets held for trading:Warrants - 13 - 13

Total 13,906,104 13 206,970 14,113,087

As at December 31, 2013 Level 1 Level 2 Level 3 Total

Financial assets designated at FVTPL:Equity securities 12,300,389 - 206,650 12,507,039 Debt securities 1,139,080 - 355,000 1,494,080 Preferred securities 374,997 - - 374,997

Financial assets held for trading:Warrants 87,876 23 - 87,899

Total 13,902,342 23 561,650 14,464,015

As at January 1, 2013 Level 1 Level 2 Level 3 Total

Financial assets designated at FVTPL:Equity securities 11,677,481 - 240,261 11,917,742 Debt securities 1,082,417 145,080 430,000 1,657,497 Preferred securities 705,793 - - 705,793

Financial assets held for trading:Warrants 9,060 - - 9,060

Total 13,474,751 145,080 670,261 14,290,092


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The majority of the investments held by the Fund are listed investments for which liquid quoted market prices are readily available. Certain investments, however, require the use of management judgement to determine the fair value. These investments are classified within Level 3 as non-listed private investments and therefore have significant unobservable inputs or assumptions. As observable prices are not available for these securities, the Fund has used valuation techniques to derive the fair value for the period ending June 30, 2014. Valuation techniques and value of the Level 3 investments are determined in such a manner as the Manager may from time to time determine. Valuation techniques for private investments held by the Fund include; review of any arms-length transactions, purchase agreements or other relevant documentation, comparison with similar instruments for which observable market prices exist, use of in-house valuation models frequent discussions with management and/or board members of private companies, analysis of financial statements and determination of expected future cash flows on the Level 3 security being valued. Fair value estimates obtained may also be adjusted for any other factors, such as liquidity risk or general operational uncertainty to the extent that the Manager believes these factors could impact fair value. Level 3 valuations are reviewed frequently by the Fund’s Manager, specifically by the Manager’s Chief Investment Officer who has the overall responsibility for fair value measurement. The Manager considers the appropriateness of the valuation model inputs, as well as the valuation result using various valuation methods and techniques generally recognized as standard within the industry. The below table provides a summary of changes in the investments categorized as Level 3 for the period ended June 30, 2014 and December 31, 2013:

The value of the investments is sensitive to the information available, as at June 30, 2014, had the fair value for these securities increased or decreased by 5%, with all other variables held constant, net assets would have increased or decreased, respectively, by approximately $10,349 (December 31, 2013 – 28,083; January 1, 2013 - $33,513).

June 30, 2014Level 3

Balance, beginning of period 561,650$ Sales (355,000) Change in unrealized appreciation/depreciation 320

Total investments 206,970

December 31, 2013Level 3

Balance, beginning of period 670,261$ Sales (127,843) Change in unrealized appreciation/depreciation 19,232

Total investments 561,650


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7. UNITS

An unlimited number of the Fund's units may be issued, which are redeemable at the unitholders' option in accordance with the terms of the trust agreement. During the six months ended June 30, 2014 and year ended December 31, 2013, the number of units issued, redeemed and outstanding was as follows:

The increase (decrease) in net assets attributable to holders of redeemable units per unit for the six months ended June 30, 2014 and 2013 is calculated as follows:

8. RELATED PARTY TRANSACTIONS AND COMMITMENTS

Related party transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. Management fee The Manager of the Fund is responsible for the day-to-day business of the Fund, including managing the investment portfolio, providing investment analysis and making decisions relating to the investment of assets in the Fund. Under the terms of the Trust Agreement, and the management agreement dated January 27, 2006, the Manager is entitled to receive a management fee of 1.9% per annum on the Fund's aggregate net asset value, calculated and accrued on each valuation date of the Fund. The Manager pays brokers or dealers a trailing commission up to 1.0% per annum which is paid out of the management fee. The management fee for the six months ended June 30, 2014 was $166,073 (2013 - $164,694). Out of this amount, the trailer fee paid to brokers or dealers for the period ended June 30, 2014 was $73,144 (2013 - $106,059).

June 30, 2014Units, beginning

of periodIssuance of

unitsRedemption of

unitsUnits, end of

period

Goodwood Capital Fund 1,027,604 4,871 (168,736) 863,739

December 31, 2013Units, beginning

of periodIssuance of

unitsRedemption of

unitsUnits, end of

period

Goodwood Capital Fund 1,327,111 23,865 (323,372) 1,027,604

Series

Increase (decrease) per

series

Weighted average units

outstanding


unit


series

Weighted average units

outstanding


unit

Goodwood Capital Fund 1,319,334 940,529 1.40 358,896 1,201,780 0.30

2014 2013


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Performance incentive fees Prior to April 19, 2013, the Fund paid performance incentive fees to the Manager if the Fund's performance exceeds the performance of the blended benchmark index comprising 50% of the S&P/TSX Composite Total Return Index plus 50% of the S&P 500 Index (the "Designated Benchmark"). Performance incentive fees were calculated and accrued on each day on which Unit Value (determined by subtracting the Fund's total liabilities from its total assets, then dividing by the number of units outstanding) was determined and was payable by the Fund if the performance of the Fund exceeded the performance of the Designated Benchmark for the year being measured. Performance incentive fees were paid annually, on the last day on which Unit Value is determined in December of each year or upon redemption of units. If the performance of the Fund for the year being measured was less than the performance of the Designated Benchmark for such year (a "Return Deficiency"), then the net underperformance will be subtracted from the cumulative accrued incentive fee. No performance incentive fee will be payable until the performance of the Fund relative to the Designated Benchmark had exceeded the amount of the Return Deficiency. The performance incentive fee was 20% of the amount calculated (if positive) by taking the aggregate Unit Value at the end of a year, and

(i) Subtracting any existing Return Deficiency, and

(ii) Subtracting the aggregate unit value, which would have resulted from the Fund’s performance being identical to that of the Designated Benchmark.

On April 19, 2013, the Manager announced that in an ongoing effort to reduce costs for unitholders of the Fund, it would no longer charge the Fund a performance incentive fee, effective immediately. The Manager believes this change would provide unitholders of the Fund with greater certainty on the amount of fees payable by the Fund. The performance fee for the six months ended June 30, 2014 was $nil (2013 - $nil). Redemption As disclosed in the simplified prospectus of the Fund, a redemption fee is payable to the Manager if units are redeemed within 90 days of their purchase. Such redemption fees are at the discretion of the Manager and are equal to 2% of the redemption price of the units redeemed. The redemption fee for the period ended June 30, 2014 withheld from amounts paid on redemption of securities paid to the Manager amounted to $nil (2013 - $nil). Other Cash and investments at June 30, 2014 and 2013 are held at the Manager's carrying broker, NBCN Inc. Certain officers, directors and key personnel of the Manager are also officers or directors of companies that are held in the Fund's investment portfolio. These investments have been accounted for at fair value. The Manager maintains a list of these companies on their website at www.goodwoodfunds.com and has adopted appropriate policies and procedures to address conflicts of interest with respect to these relationships.


20

Furthermore, from time to time the Manager, certain officers, directors, and key personnel of the Manager or an affiliate of the Manager may provide services to and receive compensation from issuers in which the Fund is invested. It is the policy of the Manager to make appropriate adjustments to the fees charged by it to the Fund where the fees or other compensation is received directly from issuers in which the Fund is invested. Total fees rebate paid to the Fund during the period ended June 30, 2014 was $2,713 (2013 - $4,065). This is reflected in expenses waived by Manager in 2014 and in management fees in 2013 in the statement of comprehensive income. During 2013, the Manager implemented a rebalancing authorization plan between investment funds managed by the Manager. These transactions occurred at fair value for cash consideration. In accordance with National Instrument 81-107, Independent Review Committee for Investment Funds, the Manager has established an Independent Review Committee ("IRC") for the Fund. The mandate of the IRC is to consider and provide recommendations to the Manager on conflicts of interest to which the Manager may be subject when managing the Fund. The Manager charges compensation paid to the IRC members and the costs of the ongoing administration of the IRC to the Fund. These amounts are shown in the statements of investment operations. The IRC reports annually to unitholders of the Fund on its activities and the annual report is made available to unitholders on the Manager's website on or about March 31 in each year. Please refer to note 9 for further details on brokerage commissions with related parties.

9. BROKERAGE COMMISSIONS

During the period ended June 30, 2014, total brokerage commissions paid by the Fund were $57,559 (2013 - $47,867) and commissions on corporate finance transactions amounted to $77,642 (2013 - $33,883). During the period, total commissions paid by the Fund were $135,201 (2013 - $81,750). Out of this amount, commissions paid to the Manager were $37,603 (2013 - $30,757).

10. INCOME TAXES

The Fund, a mutual fund trust, is not subject to income taxes on its net taxable gains and its net income for the year if it distributes such gains and income to unitholders. The Fund's Trustee distributes the taxable income of the Fund to unitholders so as to eliminate any income taxes otherwise payable by the Fund. Such distributions are taxable in unitholders' hands. Capital losses have no expiry and can be used against net realized gains in future years. As at December 31, 2013, the Fund had $5,061,155 (January 1, 2013 - $3,879,988) accumulated net realized capital losses. Non-capital losses can be carried forward 20 years and can be used against net taxable income in future years. As at December 31, 2013, the Fund had $1,677,214 (January 1, 2013 - $1,426,217) of non-capital losses.

11. TRANSITION TO IFRS

As explained in note 2, these are the Fund’s first interim financial statements prepared in accordance with IFRS. The accounting policies set out in note 2 have been applied in preparing the financial statements for the six months ended June 30, 2014 and the comparative information presented in these financial statements, and in the preparation of an opening statement of financial position as at January 1, 2013.


21

In preparing its opening IFRS statement of financial position, the Fund has adjusted amounts reported previously in the financial statements prepared in accordance with previous Canadian GAAP. An explanation of how the transition from previous Canadian GAAP to IFRS has affected the Fund’s financial positions, financial performance and cash flows is set out in the following tables and notes that accompany the tables. Exemptions and exceptions from full retrospective application First-time adopters of IFRS must apply the provisions of IFRS 1. IFRS required adopters to retrospectively apply all IFRS standards as of the reporting date with certain options exemptions and certain mandatory exemptions. In preparing the opening IFRS statement of financial position, the only voluntary exemption adopted by the Fund upon transition was the ability to designate a financial asset or financial liability at FVTPL upon transition to IFRS. All financial assets designated at FVTPL upon transition were previously carried at fair value under Canadian GAAP as required by Accounting Guideline 18, Investment Companies. Statement of cash flows Under Canadian GAAP, the Fund was exempt from providing a statement of cash flows. IAS 1 requires that a complete set of financial statements include a statement of cash flows for the current and comparative periods, without exception. Reconciliation of equity and comprehensive income as previously reported under Canadian GAAP to IFRS

Classification of redeemable units of the Fund Under Canadian GAAP, the Fund accounted for its redeemable units as equity. Under IFRS, IAS 32 required that units or shares of an entity which include a contractual obligation for the issuer to repurchase or redeem them for cash or another financial asset be classified as financial liability. The Fund’s units do not meet the criteria in IAS 32 for classification as equity and therefore, have been reclassified as financial liabilities on transition to IFRS.

December 31, 2013 January 1, 2013EquityEquity as reported under Canadian GAAP 16,102,370 17,396,703 Revaluation of investments at fair value through profit and loss 114,192 189,437 Net assets attributable to holders of redeemable units 16,216,562 17,586,140

Six months ended June 30, 2013

Comprehensive incomeComprehensive income as reported under Canadian GAAP 346,066 Revaluation of investments at fair value through profit and loss 12,830 Increase (decrease) in net assets attributable to holders of redeemable units 358,896


22

Revaluation of investments at FVTPL Under Canadian GAAP, the Fund measured the fair value of its investments in accordance with Section 3855, Financial Instruments – Recognition and Measurement, which required the use of bid prices for long positions and ask prices for short positions, to the extent such prices are available. Under IFRS, the Fund measures the fair values of its investments using guidance in IFRS 13, Fair Value Measurement, which requires that if an asset or a liability has a bid price and an ask price, then its fair value is to be based on a price within the bid-ask spread that is most representative of fair value. It also allows the use of mid-market pricing or other pricing conventions that are used by market participants as a practical expedient for fair value measurements within a bid-ask spread. As such, the Manager concluded to use the closing price for measurement of financial assets and liabilities. As a result, upon adoption of IFRS an adjustment was recognized to increase the carrying amount of the Fund’s investments by $114,192 as at December 31, 2013 and increase the carrying amount of the Fund’s investments by $189,437 as at January 1, 2013. The impact of this adjustment was to increase the Fund’s increase (decrease) in net assets attributable to holders of redeemable units by $12,830 for the six months ended June 30, 2013. Classification of withholding taxes Under Canadian GAAP, the fund presented its dividend income net of withholding taxes. Under IFRS, IAS 1, Presentation of Financial Statements, does not allow for income and expenses to be offset unless certain criteria are met. Withholding taxes do not meet this criteria and therefore withholding taxes have been presented as an expense line item on the statement of comprehensive income.

GOODWOOD CAPITAL FUNDSchedule of Financial Highlights

As of June 30 2014, 2013, 2012, 2011, 2010, and 2009

2014 2013 2012 2011 2010 2009

Net Assets per unit, beginning of period 1 $15.67 $13.11 $11.91 $15.16 $14.77 $10.26

Increase (decrease) in from operations:Total revenue 0.23 0.32 0.20 0.11 0.19 0.29Total expenses (0.43) (0.55) (0.35) (0.46) (0.43) (0.35)investments 1.60 2.71 1.46 (2.92) 0.60 4.49Total increase (decrease) from operations 2 1.40 2.48 1.31 (3.27) 0.36 4.43

Distributions:From dividends 0.00 0.00 0.00 0.00 0.00 0.00From capital gains 0.00 0.00 0.00 0.00 0.00 0.00Total annual distributions 3 0.00 0.00 0.00 0.00 0.00 0.00

Net Assets per unit, end of period $17.16 $15.67 $13.11 $11.91 $15.16 $14.77

Ratios and supplemental data:

Net asset value, end of period (000s) 14,824$ 16,217$ 17,586$ 19,940$ 35,270$ 35,870$ Number of units outstanding, end of period 863,739 1,027,604 1,327,111 1,664,096 2,318,165 2,413,002 Management expense ratio 4 4.42% 3.96% 2.65% 3.33% 2.89% 3.01%Portfolio turnover rate 5 65.58% 95.02% 94.36% 197.72% 162.16% 301.67%Trading expense ratio 6 0.74% 0.68% 0.48% 0.84% 0.91% 1.30%Net assets value per unit (Transactional NAV) 17.16$ 15.78$ 13.25$ 11.98$ 15.21$ 14.87$

1

2

3

4

5

6

Distributions were reinvested in additional units of the Fund.

The Fund's portfolio turnover rate indicates how actively the Fund's portfolio adviser manages its portfolio investments. A portfolio turnover rate of 100% is equivalent to the Fund buying and selling all of the securities in its portfolio once in the course of the period. The higher a fund's portfolio turnover rate in a period, the greater the trading costs payable by the fund in the period, and the greater the chance of an investor receiving taxable capital gains in the period. There is not necessarily a relationship between a high turnover rate and the performance of a fund.

The trading expense ratio represents total commissions and other portfolio transaction costs expressed as an annualized percentage of average net assets during the period.

The information for June 2014 is derived from the Fund's financial statements prepared in accordance with IFRS. The information for prior years is derived from the Fund's annual audited financial statements prepared based on Canadian GAAP. An explanation of the effect of the Fund's transition to IFRS can be found in the notes to the financial statements.

Net asset value and distributions are based on the actual number of units outstanding at the relevant time. The increase/decrease from operations is based on the weighted average number of units outstanding over the financial period.

Management expense ratio ("MER") is based on total expenses (excluding commissions and other portfolio transaction costs) for the stated year and is expressed as an annualized percentage of average net assets during the period.

GOODWOOD INC.

212 King Street West, Suite 201 Toronto, Ontario, M5H 1K5

Main Line: (416) 203-2022 Fax: (416) 203-0734 Toll-free: 1-866-681-4393

Email: [email protected] Website: www.goodwoodfunds.com

Documents

Final GoodWood Capital Fund 06302014 IFRS draft v7 for Printer · GOODWOOD CAPITAL FUND Statement of financial position As at June 30, 2014, December 31, 2013 and January 1, 2013