21
GLG EM Income Fund Annual Report – 2013

GLG EM Income Fund · 2014. 10. 6. · USD Put/CNH Call K=6.34 20 February 2014 - JPM 0.37 USD Put/CNH Call K=6.114 20 February 2014 - JPM 0.29 USD Put/CNH Call K=6.114 20 February

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Page 1: GLG EM Income Fund · 2014. 10. 6. · USD Put/CNH Call K=6.34 20 February 2014 - JPM 0.37 USD Put/CNH Call K=6.114 20 February 2014 - JPM 0.29 USD Put/CNH Call K=6.114 20 February

GLG EM Income Fund

Annual Report – 2013

Page 2: GLG EM Income Fund · 2014. 10. 6. · USD Put/CNH Call K=6.34 20 February 2014 - JPM 0.37 USD Put/CNH Call K=6.114 20 February 2014 - JPM 0.29 USD Put/CNH Call K=6.114 20 February

GLG EM Income Fund Table of Contents

1

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 ............................................................................................................................ 19

Page 3: GLG EM Income Fund · 2014. 10. 6. · USD Put/CNH Call K=6.34 20 February 2014 - JPM 0.37 USD Put/CNH Call K=6.114 20 February 2014 - JPM 0.29 USD Put/CNH Call K=6.114 20 February

GLG EM Income Fund Management’s Responsibility for Financial Reporting

2

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

Page 4: GLG EM Income Fund · 2014. 10. 6. · USD Put/CNH Call K=6.34 20 February 2014 - JPM 0.37 USD Put/CNH Call K=6.114 20 February 2014 - JPM 0.29 USD Put/CNH Call K=6.114 20 February

GLG EM Income Fund Independent Auditor’s Report

3

To the unitholders of GLG EM 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 periods January 1, 2013 to December 31, 2013 and May 18, 2012 to December 31, 2012 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 audit. We conducted our audit 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 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 periods January 1, 2013 to December 31, 2013 and May 18, 2012 to December 31, 2012, in accordance with Canadian generally accepted accounting principles. Toronto, Canada March 28, 2014

Page 5: GLG EM Income Fund · 2014. 10. 6. · USD Put/CNH Call K=6.34 20 February 2014 - JPM 0.37 USD Put/CNH Call K=6.114 20 February 2014 - JPM 0.29 USD Put/CNH Call K=6.114 20 February

GLG EM Income Fund Statements of Net Assets

The accompanying notes are an integral part of these financial statements

4

As at Dec 31, 2013 Dec 31, 2012 CAD CAD ASSETS Cash 599,841 555,608 Accounts receivable - 1,124,761 Receivable from the forward agreement 374,612 - Investments, at fair value Common Share Portfolio 31,664,002 72,879,943 Forward Agreement (Note 4) (6,079,276) (6,455,421)

25,584,726 66,424,522

Total Assets 26,559,179 68,104,891

LIABILITIES Due to broker - 1,105,776 Fees and operating expenses 230,228 408,720 Redemptions payable 1,330,581 288,361 Distributions payable 110,077 231,213

Total Liabilities 1,670,886 2,034,060

NET ASSETS representing unitholders' equity 24,888,293 66,070,831

NET ASSETS PER CLASS: Class L 14,900,303 24,788,015 Class M 3,580,143 18,901,236 Class N 5,337,037 15,124,629 Class O 1,070,810 7,257,951

24,888,293 66,071,831

NUMBER OF UNITS OUTSTANDING: (Note 5) Class L 1,890,437 2,646,216 Class M 442,219 2,000,095 Class N 617,710 1,573,297 Class O 120,917 748,394

3,071,283 6,968,002

NET ASSETS PER UNIT: Class L 7.88 9.37 Class M 8.10 9.45 Class N 8.64 9.61 Class O 8.86 9.70 Approved by Man Investments Canada Corp.

Toreigh N. Stuart Chief Executive Officer

Page 6: GLG EM Income Fund · 2014. 10. 6. · USD Put/CNH Call K=6.34 20 February 2014 - JPM 0.37 USD Put/CNH Call K=6.114 20 February 2014 - JPM 0.29 USD Put/CNH Call K=6.114 20 February

GLG EM Income Fund Statements of Operations

The accompanying notes are an integral part of these financial statements

5

For the periods Jan 1, 2013 to Dec 31, 2013

May 18, 2012 to Dec 31, 2012

CAD CAD INVESTMENT INCOME Interest 1,274 9,696

1,274 9,696

EXPENSES (Note 7) Management fees 454,338 236,337 General operating expenses 194,557 96,958 Independent Review Committee fees 9,515 810 Audit fees 20,962 25,000 Legal fees 85,505 29,532 Unitholders reporting costs 15,737 4,010 Commodity tax (HST) 87,452 48,848

868,066 441,495

NET INVESTMENT LOSS (866,792) (431,799) Transaction costs (334,513) (190,721) NET CHANGE IN UNREALIZED DEPRECIATION OF INVESTMENTS

(807,037) (1,467,286)

NET REALIZED GAIN (LOSS) ON SALE OF INVESTMENTS

(2,087,054) 176,089

NET LOSS ON INVESTMENTS (3,228,604) (1,481,918)

NET DECREASE IN NET ASSETS FROM OPERATIONS (4,095,396) (1,913,717)

NET DECREASE IN NET ASSETS FROM OPERATIONS PER CLASS:

Class L (2,175,091) (816,205) Class M (737,278) (413,010) Class N (967,384) (499,993) Class O (215,643) (184,509)

(4,095,396) (1,913,717)

AVERAGE NUMBER OF UNITS OUTSTANDING: Class L 2,369,050 1,983,322 Class M 923,085 1,327,645 Class N 1,018,871 1,224,200 Class O 217,863 521,753 NET DECREASE IN NET ASSETS FROM OPERATIONS PER UNIT:

Class L (0.92) (0.41) Class M (0.80) (0.31) Class N (0.95) (0.41) Class O (0.99) (0.35)

Page 7: GLG EM Income Fund · 2014. 10. 6. · USD Put/CNH Call K=6.34 20 February 2014 - JPM 0.37 USD Put/CNH Call K=6.114 20 February 2014 - JPM 0.29 USD Put/CNH Call K=6.114 20 February

GLG EM Income Fund Statements of Changes in Net Assets

The accompanying notes are an integral part of these financial statements

6

For the periods Jan 1, 2013 to Dec 31, 2013

May 18, 2012 to Dec 31, 2012

CAD CAD

Class L

Beginning of period 24,788,015 -

Net decrease in Net Assets from Operations (2,175,091) (816,205)

Proceeds from issuance of units (Note 5) 313,338 26,022,710

Reinvestment of distributions (Note 5) 777,838 224,683

Consideration paid for redemption of units (Note 5) (7,481,773) (95,387)

Distributions to unitholder – from net investment income (1,322,024) (547,786)

End of period 14,900,303 24,788,015

Class M Beginning of period 18,901,236 - Net decrease in Net Assets from Operations (737,278) (413,010)

Proceeds from issuance of units (Note 5) 385,778 19,923,671

Reinvestment of distributions (Note 5) 324,150 125,796

Consideration paid for redemption of units (Note 5) (14,800,728) (369,238)

Distributions to unitholder – from net investment income (493,015) (365,983)

End of period 3,580,143 18,901,236

Class N

Beginning of period 15,124,629 -

Net decrease in Net Assets from Operations (967,384) (499,993)

Proceeds from issuance of units (Note 5) 186,274 15,658,012

Consideration paid for redemption of units (Note 5) (9,006,482) (33,390)

End of period 5,337,037 15,124,629

Class O

Beginning of period 7,257,951 -

Net decrease in Net Assets from Operations (215,643) (184,509)

Proceeds from issuance of units (Note 5) 50,000 7,824,890

Consideration paid for redemption of units (Note 5) (6,021,498) (382,430)

End of period 1,070,810 7,257,951

Page 8: GLG EM Income Fund · 2014. 10. 6. · USD Put/CNH Call K=6.34 20 February 2014 - JPM 0.37 USD Put/CNH Call K=6.114 20 February 2014 - JPM 0.29 USD Put/CNH Call K=6.114 20 February

GLG EM Income Fund Statement of Investments

The accompanying notes are an integral part of these financial statements

7

As at December 31, 2013

Cost Market Value % of Total

Investments

Common Share Portfolio 27,859,049 31,664,002 127.22 Value of Forward Agreement (Note 4) (6,079,276) (24.43)

Total value of investments (including the Forward Agreement) 25,584,726 102.80

Other net liabilities (696,433) (2.80)

Total Net Assets 24,888,293 100.0

As a result of the Forward Agreement described in Note 4, the total fair value of the Fund’s investments is referable to the Canadian dollar-denominated Class A Notes (the “GLG Notes”) issued by GLG Emerging Markets Income Portfolio II Ltd. (“GLG Ltd.”).

The balance sheet of GLG Ltd. as at December 31, 2013 is listed below:

CAD % Cash at bank

1 21,413,388 83.70

Balances with brokers 4,452,998 17.40 Investments at fair value

2 2,957,239 11.56

Other assets net of liabilities 61,803 0.24 Financial liabilities at fair value

2 (3,300,702) (12.90)

Net Assets for valuation purposes 25,584,726 100.00

Total number of GLG Notes outstanding 28,185,829 Net Asset Value per GLG Note (CAD) 0.9077 Number of GLG Notes attributable to the Fund 28,185,829 Aggregate value of GLG Notes

3 25,584,726

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

portfolio of securities and other instruments invested across various asset classes primarily within global currency markets and 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.

Page 9: GLG EM Income Fund · 2014. 10. 6. · USD Put/CNH Call K=6.34 20 February 2014 - JPM 0.37 USD Put/CNH Call K=6.114 20 February 2014 - JPM 0.29 USD Put/CNH Call K=6.114 20 February

GLG EM Income Fund Statement of Investments (continued)

The accompanying notes are an integral part of these financial statements

8

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

Top 25 Holdings

Issuer % of Net Assets

Long Positions

Currency Contract CNH Exp :24 February 2014 4.19 USD Put/CNH Call K=6.34 20 February 2014 - JPM 2.72 USD Put/CNH Call K=6.2369 20 February 2014 - Nomura 1.89 Currency Contract US$ Exp :31 January 2014 0.61 USD Put/CNH Call K=6.34 20 February 2014 - JPM 0.55 USD Put/CNH Call K=6.34 20 February 2014 - JPM 0.37 USD Put/CNH Call K=6.114 20 February 2014 - JPM 0.29 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 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 (5.30) USD Put/CNH Call K=6.34 20 February 2014 - Nomura (3.30) USD Put/CNH Call K=6.2369 20 February 2014 - HSBC (1.77) EUR/USD Receive EURIBOR 3 Month -27.4BP vs LIBOR 3 Month 14 March 2016 (0.67) USD Put/CNH Call K=6.34 20 February 2014 - JPM (0.34) Currency Contract AUD Exp :31 January 2014 (0.27) Currency Contract TRY Exp :31 January 2014 (0.25) HUF - Pay 4.33% vs BUBOR 6 Month 0BP 26 November 2018 (0.20) Currency Contract PHP Exp :27 January 2014 (0.17) HUF - Pay 4.54% vs BUBOR 6 Month 0BP 12 November 2018 (0.13) USD Put/CNH Call K=6.2369 20 February 2014 - Nomura (0.12) Currency Contract MYR Exp :28 January 2014 (0.11) HUF - Pay 4.54% vs BUBOR 6 Month 0BP 14 November 2018 (0.09)

Total Net Asset Value of the Underlying Fund: CAD 25,584,726

Portfolio Allocation Asset Class % of Net Assets

Options 0.96 Credit default swaps (0.08) Forward currency contracts (1.10) Interest rate swaps (1.12)

Page 10: GLG EM Income Fund · 2014. 10. 6. · USD Put/CNH Call K=6.34 20 February 2014 - JPM 0.37 USD Put/CNH Call K=6.114 20 February 2014 - JPM 0.29 USD Put/CNH Call K=6.114 20 February

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

9

1. THE FUND GLG EM Income Fund (the “Fund”) is a commodity pool structured as an open-end investment trust established under the laws of the Province of Ontario. Pursuant to the Declaration of Trust, Man Investments Canada Corp. (the “Manager” or “Trustee”) acts as the Manager and Trustee of the Fund and is responsible for the management and administration of the Fund. Investments were first accepted at an initial NAV per unit of CAD10.00 on May 28, 2012. The Fund’s investment objectives are: i) to provide holders of Class L units and Class M units monthly tax-advantaged distributions; and ii) to preserve capital while providing the opportunity for long-term capital appreciation for holders of units (the “unitholders”).

To pursue its investment objective, the Fund obtains exposure to an actively managed, liquid and diversified portfolio of securities and other instruments invested across various asset classes primarily within global currency markets and 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, the GLG Investment Manager pursues 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 (including futures and forward contracts) that provide exposure to these asset classes. The financial statements have been prepared from the periods January 1, 2013 to December 31, 2013 and May 18, 2012 to December 31, 2012. 2. DISCLOSURE OF INVESTMENT PORTFOLIO OF THE UNDERLYING FUND GLG Emerging Markets Income Portfolio II Ltd. (“GLG Ltd.”) is an exempted company incorporated on February 13, 2012 with limited liability in the Cayman Islands which acquired the Portfolio. GLG Ltd. has established and maintains 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”).

The return to the Fund will be based, through one or more forward agreements (each a “Forward Agreement”, and collectively, the “Forward Agreements”) entered into with one or more Canadian chartered banks and/or their affiliates (each a “Counterparty”), on the performance of the Portfolio. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation These financial statements are 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 period. Actual results could differ from these estimates. A summary of the significant accounting policies is listed below:

Page 11: GLG EM Income Fund · 2014. 10. 6. · USD Put/CNH Call K=6.34 20 February 2014 - JPM 0.37 USD Put/CNH Call K=6.114 20 February 2014 - JPM 0.29 USD Put/CNH Call K=6.114 20 February

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

10

(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. b) Securities not listed upon a recognized public stock exchange are valued using valuation techniques, as determined appropriate by the an independent valuation agent (the “Valuation Agent”) retained by the Manager in accordance with the Manager’s authority under the Trust Agreement, with the consent of the Manager. As at December 31, 2013 and 2012, all security positions were included in the Common Share Portfolio or as a receivable on the partial settlement of the forward, and valued in accordance with the Forward Agreement. The period-over-period 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 period. 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 determined as at the close of business on every Monday of each week, or, if not a Business Day, on the following Business Day and on any other day as the Manager determines (a “Valuation Date”), will be obtained by the Valuation Agent 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 NAV per unit of any class of units of the Fund for a Valuation Date will be obtained by dividing the then fair value of the assets of the Fund less the aggregate amount of its liabilities in each case attributable to that class of units, by the total number of units of the class outstanding at the time the calculation is made on the Valuation Date and adjusting the result to a maximum of four decimal places (“NAV per Unit”). The

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

11

NAV and the NAV per Unit, as at the relevant Valuation Date, is calculated by the Valuation Agent on or about the fourth Business Day following the relevant Valuation Date. For each Fund unit sold, the Fund receives 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 (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 decrease in Net Assets from Operations per unit amounts are determined by dividing the net decrease in Net Assets from Operations by the weighted average number of units outstanding per class during the period. 4. FORWARD AGREEMENT At the inception of the Fund, 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 GLG Notes. The Fund pledged the applicable Common Share Portfolio to the Counterparty under the Forward Agreement. Pursuant to the Forward Agreement, the Counterparty holds 28,185,829 GLG Notes (2012: 67,536,969). The Forward Agreement has a scheduled termination date of June 26, 2015 with the option to extend by the Fund or the Counterparty. On March 21, 2013, the Department of Finance proposed a measure (“Character Conversion Measure”) which is expected to affect 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. The proposed measure applies to agreements entered into on or after March 21, 2013 and to existing agreements which are extended on or after this date. On July 11, 2013 the Department of Finance announced proposed changes to the transitional rules for the Character Conversion Measure announced in March. Generally, the applicable proposed changes would:

Provide that DFAs entered into before March 21, 2013 be 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 not be available for purchases and sales that occur after March 21, 2018 under a derivative forward agreement

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

12

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 June 26, 2015. The Manager will provide additional detail to unitholders as it becomes available. The value of the Forward Agreement at December 31, 2013 of $(6,079,276) (2012: ($(6,455,421)) has been determined as the difference between the value of the Common Share Portfolio at December 31, 2013 of $31,664,002 (2012: $72,879,943) and the Counterparty’s investment in the GLG Notes at December 31, 2013 of $25,584,726 (2012: $66,424,522). 5. UNIT TRANSACTIONS

The Fund issued Class L, Class M, Class N and Class O units at an initial price of $10.00 per unit. The Class L units, Class M units, Class N units and Class O units are collectively referred to herein as the “units”. Units of each class may be purchased or redeemed on a weekly basis. Each unit of a Class represents an undivided ownership interest in the assets of that Class of units of the Fund, with all units of the same Class having equal rights and privileges. All of the Classes have the same investment objective, strategy and restrictions but differ with respect to one or more of their features including, but not limited to, management fees, expenses, redemption fees, commission or amount of distribution. The Class L units, Class M units, Class N units and Class O units differed with respect to the management fees payable to the Manager, the redemption fee payable in connection with the redemptions of units and the service fee, which is only payable in respect of Class L units and Class N units. Accordingly, the NAV per Unit of each class will not be the same as a result of the different fees allocable to each class of units. Units of each class may be redeemed on a weekly basis on each Valuation Date (a “Redemption Date”) for a redemption price equal to the NAV per Unit of that class of units as at the Valuation Date upon which the units are redeemed less any costs associated with the redemption (the “Redemption Price”). Units issued and outstanding represent the capital of the Fund. The Manager manages the capital of the Fund in accordance with the Fund’s investment objectives, including managing its liquidity in order to be able to meet redemptions. The Statement of Changes in Net Assets identifies changes in the Fund’s capital during the period. The number of units issued, redeemed or cancelled during the periods January 1, 2013 to December 31, 2013 and May 18, 2012 to December 31, 2012 for each respective Class is summarized as follows:

For the periods Jan 1, 2013 to Dec 31, 2013

May 18, 2012 to Dec 31, 2012

Class L

Balance, Beginning 2,646,216 -

Units issued for cash 34,026 2,632,842

Reinvestment of distributions 89,408 23,431

Units redeemed (879,213) (10,057)

Balance, Ending 1,890,437 2,646,216

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

13

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 Income Tax Act (Canada) (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 period, 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 period. An amount will be considered to be payable to a unitholder in a taxation year if it is paid in the period 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 period (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 will not have a fixed distribution amount, but the distributions are initially targeted to be 6% per annum on the initial offering price of $10.00 per Class L unit and per Class M unit. The Fund does not intend to pay regular distributions to holders of Class N units and Class O units. The return to unitholders and the Fund will be dependent upon the return on the Portfolio by virtue of the Forward Agreements with the Counterparties. The Fund intends to make monthly tax-advantaged distributions to holders of Class L units and Class M units of record on the last Business Day of each month (each, a “Distribution Record Date”) through partial settlements of the Forward Agreement. Distributions will be paid on a Business Day designated by the Manager that will be no later than the 15th Business Day of the following month (each, a “Distribution

For the periods Jan 1, 2013 to Dec 31, 2013

May 18, 2012 to Dec 31, 2012

Class M

Balance, Beginning 2,000,095 -

Units issued for cash 41,852 2,025,037

Reinvestment of distributions 36,435 13,037

Units redeemed (1,636,163) (37,979)

Balance, Ending 442,219 2,000,095

Class N

Balance, Beginning 1,573,297 -

Units issued for cash 19,652 1,576,739

Units redeemed (975,239) (3,442)

Balance, Ending 617,710 1,573,297

Class O

Balance, Beginning 748,394 -

Units issued for cash 5,224 787,703

Units redeemed (632,701) (39,309)

Balance, Ending 120,917 748,394

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

14

Payment Date”). The Fund will not have a fixed monthly distribution amount but will at least annually (commencing in December 2012) determine and announce an expected distribution amount for the following 12 months. For the year ended December 31, 2013, the monthly distributions to Class L units and Class M units were $0.047 based on a calculation of 6% per annum of the December 31, 2012 NAV of $9.37 and $9.45 respectively. Amounts distributed on the units that represent returns of capital are generally non-taxable to a unitholder but reduce the unitholder’s adjusted cost base of the units for tax purposes. If the Fund’s net income for tax purposes, including net realized capital gains, for any year exceeds the aggregate amount of the regular monthly distributions made in the year to unitholders, the Fund will also be required to pay one or more Special Distributions (either in cash or units) in such year to unitholders as is necessary to ensure that the Fund will not be liable for income tax on such amounts under the Tax Act (after taking into account all available deductions, credits and refunds). As at December 31, 2013, the Fund had non-capital losses of $1,224,524 (2012: $297,078) of which $297,078 (2012: $297,078) will expire in 2032, $927,446 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 $2,580,619 (2012: $14,632) 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, the Manager is entitled to receive from the Fund a management fee (“the Management Fee”) on Class L and Class N units. From the Management Fee it receives, the Manager pays a service or trailer fee (the “Service Fee”) plus applicable taxes to registered dealers based on the respective number of units held by their clients. Each Class of units is responsible for the Management Fee referable to that Class. The Management Fee rate is an annual percentage of the Class’ Net Assets. The Management Fee rate is equal to 1.50% in respect of Class L and Class N units. Class M and Class O units do not incur any Management Fee or Service Fee. The Management Fee and Service Fee are calculated and accrued weekly as at each Valuation Date and are payable quarterly in arrears on or about 45 days following the last day of each calendar quarter. The Fund is responsible for the payment of all fees and expenses relating to its operation. It is expected that the operating expenses of the Fund will include, without limitation, preparing, mailing and printing expenses for periodic reports to unitholders and other unitholder communications including marketing and advertising expenses; fees payable to the Valuation Agent and the independent pricing service for performing certain valuation services; fees payable to any custodian of the assets of the Fund; fees payable to the registrar and transfer agent for performing certain financial, record-keeping, reporting and general administrative services; fees payable to accountants, the auditors and legal advisers; Independent Review Committee (“IRC”) member fees and expenses in connection with the IRC; ongoing regulatory fees, licensing fees and other fees; external bookkeeping fees and the costs associated with FundSERV; any reasonable out-of-pocket expenses incurred by the Manager or their respective agents in connection with their ongoing obligations to the Fund; any additional fees payable to the Manager for performance of extraordinary services on behalf of the Fund (subject to unitholder approval, if required); any taxes payable by the Fund or to which the Fund is subject, interest expenses, expenses relating to portfolio transactions; any expenditures that may be incurred upon the termination of the Fund and fees payable to members of the IRC. The Fund pays to the Counterparty a fee under the Forward Agreement for each Class of up to 0.45% per annum of the Class’ Net Assets, plus a variable fee which is not expected to exceed 0.30% per annum of the Class’ Net Assets for the applicable costs of borrowing in respect of the common shares comprising the Common Share Portfolio.

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

15

The Manager may, at its own discretion, 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. 8. FINANCIAL INSTRUMENTS RISK The Common Share 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 Statement 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 Statement 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 31,664,002 - - 31,664,002

Forward Agreement - (6,079,276) - (6,079,276)

As at December 31, 2012, the financial instruments measured at fair value in the Statement 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 72,879,943 - - 72,879,943

Forward Agreement - (6,455,421) - (6,455,421)

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 GLG Ltd. 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.

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

16

(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. (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”) at December 31, 2013 was $(6,079,276) (2012: $(6,455,421)) which is the difference between the Common Share Portfolio at December 31, 2013 of $31,664,002 (2012: $72,879,943) and the value of the Counterparty's investment in the GLG Notes at December 31, 2013 of $25,584,726 (2012: $66,424,522). As at December 31, 2013 and 2012, the value of the Forward Agreement was in a credit position, hence negating the counterparty risk. 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 the Toronto Dominion Bank by Standard & Poor’s (“S&P”) was AA-. 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. (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

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

17

Agreement, the Net Assets of the Fund are 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 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 Underlying Fund GLG Ltd. is exposed to price risk arising from its investments. 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.

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

18

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.

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.

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GLG EM Income Fund Fund Information

19

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

REGISTRAR, TRANSFER AGENT AND VALUATION AGENT Citigroup Fund Services Canada Inc. 2920 Matheson Blvd. East Mississauga, ON L4W 5J4

CUSTODIAN Citibank Canada Citibank Place 123 Front Street West, Suite 1900 Toronto, ON M5J 2M3

BROKER TD Securities Inc. TD Centre P.O. Box 3 Toronto, ON M5K 1A2

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

LEGAL COUNSEL

McMillan LLP Brookfield Place 181 Bay Street, Suite 4400 Toronto, ON M5J 2T3

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Man Investments Canada Corp.

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

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

www.man.com