MIDDLEFIELD CANADIAN INCOME PCC (the "Company"),

including MIDDLEFIELD CANADIAN INCOME - GBP PC

(the "Fund"), a cell of the Company

Half Yearly Report And Condensed Financial Statements (Unaudited)

For the period 1 January 2012 to 30 June 2012

Table of contents Pages

Management and administration   2

Responsibility statement   4

Interim management report (unaudited)   5

Condensed financial statements (unaudited)

Condensed balance sheet (unaudited)   8

Condensed statement of comprehensive income (unaudited)        9

Condensed statement of changes in redeemable participating preference
shareholders' equity (unaudited)   10

Condensed cash flow statement (unaudited)   11

Notes to the condensed financial statements (unaudited)   12

Management and Administration

Management and administration (continued)

Responsibility statement

We confirm that to the best of our knowledge:

• the interim report and financial statements have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company. 

• the Interim Management report includes a fair review of the development, performance and position of the Company and a description of the principal risks and uncertainties as disclosed in note 21 to the financial statements, that it faces for the next six months as required by DTR 4.2.7R of the Disclosure and Transparency Rules. 

• the Interim Management report includes a fair review of related party transactions and changes therein, as required by DTR 4.2.8R of the Disclosure and Transparency Rules. 

By order of the Board

N. Villiers                                                                                    R. Apsey
Director               Director

Date: 23 August 2012

INTERIM MANAGEMENT REPORT
Six months to 30 June 2012 (unaudited)

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

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

Middlefield Canadian Income PCC is a closed-ended investment company incorporated in Jersey on 24 May 2006.  The Company has initially established one closed-ended Cell known as Middlefield Canadian Income - GBP PC (referred to as the "Fund" which term includes, where the context permits, the Company acting in respect of Middlefield Canadian Income - GBP PC). Admission to the Official List of the UK Listing Authority and dealings in redeemable participating preference shares commenced on 6 July 2006.  The Fund was admitted to FTSE UK All-Share Index effective 20 June 2011.

Investment Objective

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

The Fund will seek to achieve its investment objective by investing predominantly in the securities of companies and REITs domiciled in Canada and listed on a Canadian Stock Exchange, which the investment manager believes will provide an attractive level of distributions, together with the prospect for capital growth.

Performance Summary

Weak economic growth weighed on global equity markets during the first six months of 2012 causing the S&P/TSX Composite Index to decline by 2.8% on a GBP currency adjusted basis. Commodity prices and resource related equities also declined, with the S&P/TSX Capped Diversified Metals and Mining Index and the S&P/TSX Capped Energy Index falling in sterling terms by 20.1% and 12.3%, respectively.  Within the same time frame, the Fund generated a total return of -3.9%, while the S&P/TSX Equity Income Index posted a return of -2.1% on a GBP adjusted basis.  Notwithstanding a substantial reduction in the Fund's allocation to the energy sector during the first quarter, which considerably mitigated the effects of the ensuing decline in the prices of energy-related securities, the Fund's relative overweighting in energy throughout much of the first half of 2012 significantly affected its performance during this period.

Nonetheless, we remain positive on the long-term outlook for oil and natural gas and maintain the view that North American natural gas and global oil production have peaked. We believe that long-term oil prices will be in the range of US$80 to US$100 per barrel during the next five to ten years as new supply remains expensive to develop. A much warmer than expected winter caused natural gas consumption to decline and working gas inventories to increase, which will likely depress natural gas prices until late 2012. Fundamentals suggest that shale gas production will not increase enough to offset declines in conventional, Gulf of Mexico and associated gas supply. We remain optimistic that medium-to-long term natural gas prices will increase significantly as producers have already begun to announce production cuts and slow drilling activity, which could cause excess storage in North America to be absorbed in the latter half of the year. Consumption is also expected to increase as industrial demand improves and utilities switch from coal to gas fired electrical power generation. Since our long-term commodity price expectations are unchanged, we believe that any material weakness within the energy sector represents a very compelling buying opportunity.

It is our expectation that gold prices will remain in the range of  US$1,600/oz based upon emerging market demand for physical gold and concerns that macroeconomic headwinds could hinder global economic expansion.  Growth in developing economies should continue during 2012, albeit at a more measured pace, which will have a positive impact on the demand for base metals and other commodities.  Supply constraints will support higher commodity prices as a number of sectors are facing significant challenges, including (1) the difficulty of finding new material deposits, (2) civil unrest, (3) environmental opposition, and (4) the threat of nationalization or fiscal/royalty changes in some of the most promising regions for resource development.

INTERIM MANAGEMENT REPORT (continued)
Six months to 30 June 2012 (unaudited)

Performance Summary (continued)

Supported by a widespread improvement in rents and occupancy, the Canadian real estate sector performed very well during the first half of the year, with the S&P/TSX Capped REIT Index having posted a total return of 10.1% on a GBP currency-adjusted basis. The Fund is expected to benefit from strong fundamentals in the Canadian real estate sector. We believe REITs will remain an attractive asset class due to their ability to offer investors a tax-efficient source of steady income and the potential for stable long-term total returns.  The relative strength of the Canadian economy and low unemployment should continue to support domestic and international demand for commercial real estate in Canada.  Furthermore, life insurance companies and pension funds are expected to continue to increase their allocations to real estate relative to volatile publicly listed equities and low-yielding fixed income alternatives.  We believe that continued access to low-cost capital and strong fundamentals will support cash flows and continue to drive dividend increases in 2012.

The Fund remains focused on investing in income-oriented issuers with strong management teams, good balance sheets and sustainable distributions that are well-positioned to benefit from the relative strength of the Canadian economy.  

The asset class weightings for the Fund as at 30 June 2012 were:

Asset Class                                      Portfolio Weighting

Dividends

The Fund paid quarterly dividends of 1.25 pence per share in each of January, April and July 2012.  

Related Party Transactions

Related party transactions are disclosed in note 18 to the condensed set of financial statements.

There have been no material changes in the related party transactions from those described in the 2011 Annual Report.

Material Events

Further to the announcements dated 17 January 2012, 2 February 2012 and 13 July 2012, the Company has issued for cash a total of 8,834,750 shares of the Fund by way of tap issues this year.  As a result, the Fund's share capital now consists of 89,152,250 redeemable participating preference shares and the Company's ability to issue shares by way of a tap issue has been fully utilised for the remainder of this year.

The Board of Middlefield Canadian Income PCC is not aware of any significant event or transaction which has occurred between 1 January 2012 and the date of publication of this statement which could have a material impact on the financial position of the Company or Fund.

INTERIM MANAGEMENT REPORT (continued)
Six months to 30 June 2012 (unaudited)
Principal Risks and Uncertainties

There are a number of potential risks and uncertainties, which could have a material impact on the Fund's performance over the remaining six months of the year and could cause actual results to differ materially from expected and historical results.  Further information on the principal risks and uncertainties of the Fund are included in the 2011 Annual Report and in note 21 to the condensed set of financial statements.

Outlook

Looking forward, we expect most major Central Banks to implement policy actions designed to stimulate global growth during the balance of the year. We believe that the slower growth recently experienced by emerging markets is cyclical in nature and is largely due to: 1) Central Banks in these emerging economies tightening monetary policy to quell inflation; and 2) a general slowdown in demand from developed markets, particularly Europe and the United States, as governments, financial institutions and households deleverage.

Although broad-based easing and policy stimulus is expected to increase demand in the short-term, sustainable global growth in the longer term will take time to achieve. Specifically, structural reforms will be needed to facilitate debt repayment in Europe, the United States and other developed economies and to finance socio-economic improvements that will spur domestic demand in emerging markets. The Federal Reserve recently extended its maturity extension program (Operation Twist) as the U.S. economy is still experiencing tepid employment growth, low inflation and mounting pressure to extend tax breaks and defer spending cuts that are scheduled to take place in 2013.  As a result, we expect the low interest rate environment in the U.S. and Canada to prevail for the foreseeable future. Notwithstanding the uncertainty relating to global economic growth, equity valuations remain attractive, corporate balance sheets are strong, profit margins are robust and the Canadian economy continues to perform relatively well.  With a well-capitalised banking system and an abundance of natural resources, we believe that Canada continues to represent one of the most favourable areas for investment globally.

Middlefield International Limited
Date: 23 August 2012

Past performance is not a guide to future performance.
This interim management report is available at:  www.middlefield.co.uk.

CONDENSED BALANCE SHEET (unaudited)

As at 30 June 2012

with unaudited comparatives as at 30 June 2011
and audited comparatives as at 31 December 2011

The financial statements on pages 8 to 25 were approved by the Directors on 23 August 2012 and signed on behalf of the Board by:

N. Villiers                                                                                                            R. Apsey       
Director   Director

The accompanying notes on pages 12 to 25 form an integral part of these financial statements.

CONDENSED STATEMENT OF COMPREHENSIVE INCOME (unaudited)

For the period 1 January 2012 to 30 June 2012 with unaudited comparatives for the period 1 January 2011 to 30 June 2011 and audited comparatives for the year ended 31 December 2011

The Fund has no other items of income or expense for the current and prior period and accordingly the net gain for the current and prior period represents total comprehensive income.
There are zero earnings attributable to the management shares. All activities derive from continuing operations.

The accompanying notes on pages 12 to 25 form an integral part of these financial statements.

CONDENSED STATEMENT OF CHANGES IN REDEEMABLE PARTICIPATING PREFERENCE SHAREHOLDERS' EQUITY (unaudited)

For the period 1 January 2012 to 30 June 2012 with unaudited comparatives for the period 1 January 2011 to 30 June 2011
and audited comparatives for the year ended 31 December 2011

     The accompanying notes on pages 12 to 25 form an integral part of these financial statements.

CONDENSED CASH FLOW STATEMENT (unaudited)

For the period 1 January 2012 to 30 June 2012
with unaudited comparatives for the period 1 January 2011 to 30 June 2011
and audited comparatives for the year ended 31 December 2011

The accompanying notes on pages 12 to 25 form an integral part of these financial statements.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (unaudited)

For the period 1 January 2012 to 30 June 2012
with unaudited comparatives for the period 1 January 2011 to 30 June 2011
and audited comparatives for the year ended 31 December 2011

1.   General Information

The Company is a closed-ended investment company incorporated in Jersey on 24 May 2006.  The Company has established one closed-ended Cell: Middlefield Canadian Income - GBP PC, also referred to as the 'Fund'.  The Fund seeks to provide Shareholders with a high level of dividends as well as capital growth over the longer term. The Fund intends to pay dividends on a quarterly basis each year. The Fund seeks to achieve its investment objective by investing predominantly in the securities of companies and REITs domiciled in Canada and listed on a Canadian Stock Exchange that the Investment Manager believes will provide an attractive level of distributions, together with the prospect for capital growth.

The address of the Company's registered office is Wests Centre, St. Helier, Jersey, JE4 8PQ, Channel Islands.

The Fund's shares are listed on the London Stock Exchange.

The Company has no employees.

The functional and presentation currency of the Fund is expressed in Sterling ("£").

The half-yearly report has not been audited or reviewed by the auditors Deloitte LLP pursuant to the Auditing Practices Board guidance on 'Review of Interim Financial Information'.

The information presented for the year ended 31 December 2011 does not constitute the statutory financial statements of the Company and the Fund. Copies of the statutory financial statements for that year have been delivered to the Registrar of Companies in Jersey. The auditors' report on those financial statements was unqualified.

2.   Accounting Policies

a.        Basis of preparation
The condensed financial information for the period ended 30 June 2012 has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the European Union. The condensed interim financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2011, which have been prepared in accordance with International Financial Reporting Standards (IFRS).

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

The Condensed balance sheet, Condensed statement of comprehensive income, Condensed statement of changes in                       redeemable participating preference shareholders' equity and Condensed cash flow statement refer solely to the Fund. The non-cellular assets comprise two Management Shares. However, there has been no trading activity with regards to the non-cellular assets. Please refer to notes 8 and 10 for further disclosure of the non-cellular assets.

b.   Going concern

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

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

• the Fund has sufficient liquidity to meet all on-going expenses and repayment of external borrowings; and 

• the portfolio of investments held by the Fund materially consists of listed investments which are readily realisable and therefore the Fund will have sufficient resources to meet its liquidity requirements. 

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (unaudited) (continued)

For the period 1 January 2012 to 30 June 2012
with unaudited comparatives for the period 1 January 2011 to 30 June 2011
and audited comparatives for the year ended 31 December 2011

2.   Accounting Policies (continued)

c.   Standards and Interpretations

Except as described below the accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2011, as described in those financial statements.

Standards and Interpretations in issue not yet adopted.

At the date of authorisation of these financial statements, the following Standard or Interpretation has been issued by the International Accounting Standards Board (IASB) but is not approved by the EU and therefore has not yet been adopted by the Fund:

• IFRS 9 (revised April 2009) Financial Instruments: Classification and Measurement effective for annual periods beginning on or after 1 January 2015. 

At the date of authorisation of these financial statements, the following Standard or Interpretation has been issued by the International Accounting Standards Board (IASB) and has been approved by the EU but has not yet been adopted by the Fund:

• IAS 32 (amended) "Offsetting Financial Assets and Financial Liabilities" effective date is 1 January 2014. 

The adoption of some of these Standards and Interpretations may require additional disclosure in future financial statements. None are expected to affect the financial position of the Fund.

d.   Business and geographical segments

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

3.   Derivative financial instruments

The Fund previously hedged its CAD to GBP exposure using a currency exchange swap. Payments under the swap agreement were recognised in the Condensed statement of comprehensive income at the time that payments under the hedged positions were incurred and matching swap receipts were received. The swap agreement was recognised in the financial statements at its fair value, being the present value of all future cash flows under the swap contract. Movements in fair value of the swap contract were recognised in the Condensed statement of comprehensive income.

The swap agreement was terminated on 5 October 2011.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (unaudited) (continued)

For the period 1 January 2012 to 30 June 2012
with unaudited comparatives for the period 1 January 2011 to 30 June 2011
and audited comparatives for the year ended 31 December 2011

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

5.   Cash and cash equivalents

Cash and cash equivalents comprise bank balances and cash held by the Fund. The carrying value of these assets approximates their fair value.

6.   Other payables and accruals

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (unaudited) (continued)

For the period 1 January 2012 to 30 June 2012
with unaudited comparatives for the period 1 January 2011 to 30 June 2011
and audited comparatives for the year ended 31 December 2011

7.   The Fund's Share capital and stated capital account

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

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

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

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

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

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (unaudited) (continued)

For the period 1 January 2012 to 30 June 2012
with unaudited comparatives for the period 1 January 2011 to 30 June 2011
and audited comparatives for the year ended 31 December 2011

8.            The Company's non-cellular Share capital and stated capital account

The authorised non-cellular share capital of the Company is split into two Management Shares of no par value.

9.        Net asset value per redeemable participating preference share

The net asset value per share of 97.49p (30 June 2011: 109.64p, 31 December 2011: 105.06p) is based on the net assets at the period end of £86,134,235 (30 June 2011: £88,057,602, 31 December 2011: £84,384,581) and on 88,347,500 redeemable participating preference shares, being the number of Redeemable Participating Preference shares in issue at the period end (30 June 2011: 80,317,500 shares, 31 December 2011: 80,317,500 shares).

10.   Net asset value per non-cellular management share

The net asset value per share of £1 (30 June 2011: £1, 31 December 2011: £1) is based on the net assets at the period end of £2 (30 June 2011: £2, 31 December 2011 : £2) and on 2 management shares, being the number of management shares in issue at the period end (30 June 2011: 2 shares, 31 December 2011: 2 shares).

11.   Dividend and interest income

12.   Net movement in the fair value of derivative financial instruments

The movement in the period on the swap comprised amounts received and accrued under the quarterly payments of the swap of £nil (Period ended 30 June 2011: £2,071,391, year ended 31 December 2011: £3,216,956) and an increase in swap value of £nil (Period ended 30 June 2011: £4,874,635, year ended 31 December 2011: decrease of £5,022,260). The swap contract was terminated on 5 October 2011.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (unaudited) (continued)

For the period 1 January 2012 to 30 June 2012
with unaudited comparatives for the period 1 January 2011 to 30 June 2011
and audited comparatives for the year ended 31 December 2011

13.   Net movement in the fair value of securities

14.   Other expenses

15.   Gain (loss) per redeemable participating preference share

The revenue gain per share is based on £1,630,442 net revenue gain on ordinary activities and a weighted average of 86,994,130 shares in issue. The capital loss per share is based on £5,962,430 net capital loss for the period and a weighted average of 86,994,130 shares in issue.

16.   Dividends

Dividends were paid on a quarterly basis during the period in the months of January and April totalling £2,117,686.

17.   Taxation

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

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (unaudited) (continued)

For the period 1 January 2012 to 30 June 2012
with unaudited comparatives for the period 1 January 2011 to 30 June 2011
and audited comparatives for the year ended 31 December 2011

18.   Related party transactions

Kleinwort Benson (Channel Islands) Corporate Services Limited (the "Secretary" and "Administrator"), and the Directors are regarded as related parties. The Administrator and Secretary is a wholly-owned subsidiary of Kleinwort Benson Channel Islands Holdings Limited, whose ultimate parent company is RHJ International, a company incorporated in Belgium.

Total directors' fees paid during the period amounted to £46,634 (Period ended 30 June 2011: £24,383, year ended 31 December 2011: £53,000) of which £21,191 were outstanding at the period end (Period ended 30 June 2011: £nil, year ended 31 December 2011: £nil). W. Garth Jestley has waived his entitlement to directors' fees.

The fees for the above are all arms length transactions. The balances due to the Administrator and Custodian at the period end are disclosed in Note 6 "Other payables and accruals".

19.   Loan payable

The Fund entered into a Credit Agreement with Royal Bank of Canada ("RBC") on 6 October 2011, whereby RBC provides a 364-day Revolving Term Credit Facility (the "Credit Facility"), with a maximum principal amount of the lesser of CAD50,000,000 and 25% of the Total Asset Value of the Fund.

The above loan facility is provided by RBC as detailed in the Revolving Term Credit Facility Agreement dated 6 October 2011. On 6 October 2011, upon termination of the swap, the Fund availed itself of the Credit Facility by way of a Bankers' acceptance and Prime loan.

The Bankers' acceptance drawn under the Credit Facility totals CAD15,000,000 (GBP equivalent of £9,334,978) (period ended 30 June 2011: CAD nil (GBP equivalent of £nil), year ended 31 December 2011: CAD9,968,915 (GBP equivalent £6,357,324).

Pre-paid interest and stamping fees of £46,186 (period ended 30 June 2011: £nil, year ended 31 December 2011: £19,229) were paid on the Bankers' acceptance and these costs are being amortised over 60 days. Interest paid on the Bankers' acceptance totalled £52,759 (period ended 30 June 2011: £nil, year ended 31 December 2011: £28,891).

Interest is calculated at an annual percentage equal to, in the case of Prime Loans, the Prime Rate minus 0.35%. In the case of a Bankers' acceptance, a stamping fee of 0.65% per annum is payable.

20.   Security agreement

In conjunction with entering into the Credit Facility, the Fund has entered into a General Security Agreement. Pursuant to the terms of the General Security Agreement the Fund has granted RBC interests in respect of collateral, being all present and after-acquired personal property including the securities portfolio, as security for the Fund's obligations under the Credit Facility.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (unaudited) (continued)

For the period 1 January 2012 to 30 June 2012
with unaudited comparatives for the period 1 January 2011 to 30 June 2011
and audited comparatives for the year ended 31 December 2011

21.                Financial instruments

Fair values
The carrying amounts of investments, other receivables, cash and cash equivalents and other payables approximate their fair values.

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

The capital structure of the Fund consists of proceeds from the issue of preference shares and reserve accounts. The Investment Manager reviews the capital structure on a monthly basis. The Fund does not have any externally imposed capital requirements.

Investment and trading activities
It is intended that the Fund will continue throughout its life to be invested in a Canadian Equities Portfolio.

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

Credit risk

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

The Fund's principal assets are bank balances and cash and investments as set out in the balance sheet which represents the Fund's maximum exposure to credit risk in relation to the financial assets.

The credit risk on bank balances is limited because the counterparties are banks with high credit ratings of A-1+ and A+ assigned by Standard and Poor's rating agency.

All transactions in listed securities are settled upon delivery using approved brokers. The risk of default is considered minimal as delivery of securities sold is only made once the broker has received payment. Payment is made on a purchase once the securities have been received by the broker. The trade will fail if either party fails to meet its obligations.

The Fund's maximum exposure to credit risk is the carry value of the assets on the balance sheet.

Market price risk
Market price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting similar financial instruments traded in the market. The Fund's exposure to market price risk is comprised mainly of movements in the value of the Fund's investments.

Country risk
On 17 January 2012 the Financial Reporting Council ("FRC") released "Responding to the increased country and currency risk in financial reports".

The FRC 17 January 2012 update for directors of listed companies includes guidance on responding to the increased country and currency risk as a result of funding pressures on certain European countries, the curtailment of capital spending programmes (austerity measures) and regime changes in the Middle East.

The Board has reviewed the disclosures and believes that no additional disclosures in light of this update are required since the Canadian economy is stable with a Moody's rating of Aaa.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (unaudited) (continued)

For the period 1 January 2012 to 30 June 2012
with unaudited comparatives for the period 1 January 2011 to 30 June 2011
and audited comparatives for the year ended 31 December 2011

21.                Financial instruments (continued)

Fair value measurements
The Fund adopted the amendment to IFRS 7, effective 1 January 2009. IFRS 7 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under IFRS 7 are as follows:

• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities 

• Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) 

• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs)  

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

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

The following table presents the Fund's financial assets and liabilities by level within the valuation hierarchy as of 30 June 2012.

The following table presents the Fund's financial assets and liabilities by level within the valuation hierarchy as of 31 December 2011.

The Fund holds securities that trade in active markets. Such financial instruments are classified as Level 1 of the IFRS 7 fair value hierarchy. There were no transfers between Level 1 and 2 during the period.

Price sensitivity
At 30 June 2012, if the market prices of the securities had been 30% higher with all other variables held constant, the increase in net assets attributable to holders of redeemable shares would have been £25,342,296 (30 June 2011: £26,066,351, December 2011: £25,034,934) higher, arising due to the increase in the fair value of financial assets at fair value through profit or loss by £25,342,296 (30 June 2011:  £26,066,351, 31 December 2011: £25,034,934).

At 30 June 2012, if the market prices of the securities had been 30% lower with all other variables held constant, the decrease in net assets attributable to holders of redeemable shares would have been equal, but opposite, to the figures stated above.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (unaudited) (continued)

For the period 1 January 2012 to 30 June 2012
with unaudited comparatives for the period 1 January 2011 to 30 June 2011
and audited comparatives for the year ended 31 December 2011

21.                Financial instruments (continued)

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

The Fund's interest rate sensitive assets and liabilities mainly comprise cash and cash equivalents and debt securities. The cash and cash equivalents, which are subject to floating rates, and the debt securities are considered to be part of the investment strategy of the Fund. No other hedging is undertaken in respect of this interest rate risk. As such, the Board does not believe the Fund suffers any material interest rate risk and has therefore not produced a sensitivity analysis.
The following table details the Fund's exposure to interest rate risk at 30 June 2012, 30 June 2011 and 31 December 2011:    

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

Liquidity risk
Liquidity risk is the risk that the Fund cannot meet its liabilities as they fall due. The Fund's primary source of liquidity consists of cash and cash equivalents, securities at fair value through profit or loss and the Credit Facility.

The Fund's investments are considered to be readily realisable, predominantly issued by Canadian companies and REIT's listed on a Canadian Stock Exchange and are actively traded.
As at 30 June 2012, the Fund's exposure to liquidity risk was as follows:

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (unaudited) (continued)

For the period 1 January 2012 to 30 June 2012
with unaudited comparatives for the period 1 January 2011 to 30 June 2011
and audited comparatives for the year ended 31 December 2011

21.                Financial instruments (continued)

Liquidity risk (continued)
As at 30 June 2011, the Fund's exposure to liquidity risk was as follows:

As at 31 December 2011, the Fund's exposure to liquidity risk was as follows:

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (unaudited) (continued)

For the period 1 January 2012 to 30 June 2012
with unaudited comparatives for the period 1 January 2011 to 30 June 2011
and audited comparatives for the year ended 31 December 2011

21.                Financial instruments (continued)

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

As at 30 June 2012, the Fund's net exposure to CAD currency was as follows:

As at 31 December 2011, the Fund's net exposure to CAD currency was as follows:

Currency sensitivity
At 30 June 2012, had GBP strengthened against the CAD by 5%, with all other variables held constant, the increase in net assets attributable to shareholders would amount to approximately £4,124,732 (31 December 2011: £4,026,776). Had GBP weakened against the CAD by 5%, this would amount to a decrease in net assets attributable to shareholders of approximately £4,558,915 (31 December 2011: £4,450,647).

Prior to the termination of the swap contract on 5 October 2011, there was no exposure to currency risk since there was no direct holding of CAD denominated assets. The swap arrangement in place provided currency-hedged economic exposure to the Canadian equity income sector.

22.                Post balance sheet event

On 19 July 2012 the Fund issued for cash 804,750 new redeemable participating preference shares of no par value. The issue price per share was 100.25 pence. The net proceeds will be used for general corporate purposes. Effective from 19 July 2012, the Fund's share capital consisted of 89,152,250 redeemable participating preference shares with voting rights and two management shares with voting rights.

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (unaudited) (continued)

For the period 1 January 2012 to 30 June 2012
with unaudited comparatives for the period 1 January 2011 to 30 June 2011
and audited comparatives for the year ended 31 December 2011

23.        Schedule of Investments - Securities (at fair value through profit or loss)

NOTES TO THE CONDENSED FINANCIAL STATEMENTS (unaudited) (continued)

For the period 1 January 2012 to 30 June 2012
with unaudited comparatives for the period 1 January 2011 to 30 June 2011
and audited comparatives for the year ended 31 December 2011

23.        Schedule of Investments - Securities (at fair value through profit or loss) (continued)