Gold Participation and Income Fund

As of December 31, 2015, the Net Asset Value (“NAV”) per unit of GPF.UN was $3.80 vs. $4.06 on September 30, 2015. Unitholders received regular distributions of $0.06489 per unit during the quarter.

On December 31, 2015, the Units were trading at Net Asset Value of $3.80.

The price of gold bullion stayed volatile opening at US$1115.02 rallying to a high of US$1191.60 on October 15th before selling off through November making a low on December 3rd 2015 of US$1046.43 and trading in a narrow range below US$1100 for the rest of the quarter closing at US$1061.42.

The total return of the SPDR Gold Trust for the quarter was negative 5.05% in U.S. dollars while the total return in Canadian dollars was negative 2.00%. By comparison, the S&P/TSX Global Gold Index had a positive total return of 4.54%.

While the U.S. dollar continued to be strong against the commodity based currencies like the Canadian dollar, the Australian dollar and most of the emerging market currencies there was just marginal strength versus Euro and Japanese Yen but more perceived strength against the British Pound. The most anticipated rate hike in decades became a reality despite pockets of global weakness. In Canada, interest rates stayed steady despite continuing commodity weakness as the Bank of Canada waits to see what fiscal reforms the new liberal government puts in place before adding anymore monetary stimulus.

The Fund maintained a defensive cash position at year end of 15.79%.

As of December 8th 2015, the Manager announced a proposal to convert the fund into a mutual fund. The Fund also announced a change in investment mandate. A special meeting of unitholders was held on January 19, 2016, at which unitholders approved the proposal.

As of September 30, 2015, the Net Asset Value (“NAV”) per unit of GPF.UN was $4.06 vs. $4.47 on June 30, 2015. Unitholders received regular distributions of $0.06869 per unit during the quarter.

On September 30, 2015, the closing market price of the Unit was $3.90 which represents a 3.9% discount to its underlying NAV.

Price of gold bullion seemed fairly volatile but was restricted to a US$100 trading range during the quarter, opening at US$1,172.42 on July 1st and making a high for the quarter on the same day of US$1177.45 before selling off to reach a low on July 20th of US$1072.35 and then staying range bound to close at US$1115.07.

The total return of the SPDR Gold Trust for the quarter was negative 4.9% in U.S. dollars while the total return in Canadian dollars was 2.06%. By comparison, the S&P/TSX Global Gold Index had a total return of negative 17.42%.

While the U.S. dollar was very strong against commodity based currencies like the Canadian or Australian dollar and most emerging market currencies, it was more range bound against the major currencies like the Euro, Japanese Yen and the British Pound. The anticipated U.S. rate hike in the third quarter did not happen with the Federal Reserve citing overall global weakness. In Canada, interest rate hike also remained on hold with the general weakness in commodity prices which led to a sluggish economy.

The Fund maintained a defensive cash position at the end quarter of 11.8%.

The Fund ended the quarter with just 3.8% of the fund overwritten, while on average the Fund was written on 4.4% of the portfolio during the quarter.
The Fund ended the period with approximately 75% of the U.S. dollar exposure hedged back to the Canadian dollar.

As of June 30, 2015, the Net Asset Value (“NAV”) per unit of GPF.UN was $4.47 vs. $4.71 on March 31, 2015. Unitholders’ received regular distributions of $0.07654 per unit during the quarter.

On June 30, 2015, the closing market price of the Unit was $4.26 which represents a 4.7 percent discount to its underlying NAV.

Gold bullion drifted in a fairly narrow range and began the quarter trading at US$1,183.68 then rallying to a high of US$1,232.47 on May 18th. It made a low on June 5th of US$1,162.75 before closing the quarter at US$1,172.42.

The total return of the SPDR Gold Trust for the quarter was negative 1.14% in U.S. dollars while the total return in Canadian dollars was negative 2.66%. By comparison, the S&P/TSX Global Gold Index had a total return of negative 3.24%.

The U.S. dollar was range bound against the major currencies during this quarter as weaker than expected growth in the U.S. in the first quarter had markets second guessing a potential rate hike during the year.

The Fund had a defensive cash position at the end quarter of about 8.9%.

The Fund ended the quarter with just 1.5% of the fund overwritten, while on average the Fund was written on 11.2% of the portfolio during the quarter.
The Fund ended the period with approximately 80% of the U.S. dollar exposure hedged back to the Canadian dollar.

As of March 31, 2015, the Net Asset Value per unit of GPF.UN was $4.71 vs. $4.97 on December 31, 2014. Unitholders’ received regular distributions of $0.08694 per unit during the quarter.

On March 31, 2015 the closing market price of the Unit was $4.69 which represents a 2 cent discount to its underlying NAV.

Gold bullion began the quarter trading at US$1,184.86 rallying to a high of US$1,307.98 on January 22nd. It then traded sharply lower to make a low of US$1142.94 and closed the quarter generally flat at US$1,183.68.

The total return of the SPDR Gold Trust for the quarter was 0.07% in USD while the total return in Canadian dollars was 9.23%. The S&P/TSX Global Gold Index had a total return of 7.59% settling down after a spectacular return of 33.2% in the first month.

The U.S. dollar continued its strong trajectory versus all other currencies. In contrast Gold did well by staying relatively unchanged against the US dollar for the quarter.

The Fund had a defensive cash position at the end of the prior quarter and therefore was underweight gold equities during the surge in the Gold equities that occurred in January.

The Fund ended the quarter with no call or put option positions while on average the fund was written on 3.2% of the portfolio during the quarter.

The Fund ended the period with approximately 50% of the U.S. dollar exposure hedged back to the Canadian dollar.

The Net Asset Value (“NAV”) per unit at December 31, 2014 was $4.97 versus $5.42 on September 30, 2014. The Fund paid regular distributions totaling $0.08321 per unit during the quarter.

Gold bullion began the quarter trading at US$1,208.15 rallying marginally to a high of US$1,255.37 on October 21st. It then traded sharply lower to make a multi-year low of US$1131.24 and closed the quarter marginally higher at US$1,184.86.

The U.S. Federal Reserve concluded the bond purchasing program at the end of October. We saw the U.S. dollar continue to strengthen against other major currencies. Gold and other precious metal commodities were also weak as a function of U.S. dollar strength. The commodity that was most in the news was Crude Oil which lost almost half of its value partly due to a supply glut, partly due to lower aggregate demand and partly due to the strength in the U.S. dollar. Meanwhile around the globe, Japan re-elected Shinzo Abe giving him the mandate to continue his radical measures to fight anemic growth while the European Central Bank is on the cusp of beginning quantitative easing to fight the possibility of deflation.

The total return of the SPDR Gold Trust for the quarter was negative 2.26% while the S&P/TSX Global Gold Index had a total return of negative 12.21%. Gold equities underperformed gold bullion as the embedded leverage to a declining gold price led to steeper losses across most of the gold mining sector.

Given the weak performance in Gold equities, we raised some cash and selectively wrote options on some gold equities. However, given the oversold nature of some gold equities, the Fund ended the quarter with no call option positions and with 11.0% of the portfolio protected with puts and 11.5% of the portfolio in cash.

The December 31st trading price of $4.70 represents a discount of 5.4% below the $4.97 NAV.

The Net Asset Value (“NAV”) per unit at September 30, 2014 was $5.42 versus $6.24 on June 30, 2014. The Fund paid regular distributions totaling $0.09999 per unit during the quarter.

Gold bullion began the quarter trading at US$1,327.27 rallying marginally to a high of US$1,345.46 on July 10th. It then traded gradually lower for the rest of the quarter making a low on September 30th of $1204.04 and closed the quarter at $1208.16.

The total return of the SPDR Gold Trust for the quarter was negative 9.23% while the S&P/TSX Global Gold Index had a total return for the quarter of negative 15.05%.

The U.S. Federal Reserve continued to taper the bond purchasing program by US$10 billion a meeting. By the September 17th meeting, they had announced that starting October they would slow the bond purchasing program to approximately US$15 billion a month, down from the original US$85 billion a month. Despite the paring back of bond buying by the Federal Reserve, economists and market participants expect the Federal Funds rate to continue to be accommodative and unchanged till the middle of 2015. Meanwhile the European Central Bank, and the Bank of Japan are looking into radical measures to fight anemic growth and the possibility of deflation. The disparity in the economic outlooks between the US and Europe and Japan as well as the interest rate differentials and interest rate outlooks have resulted in a very strong US dollar especially in the month of September.

Gold equities underperformed gold bullion as the embedded leverage to a declining gold price led to steeper losses across most of the sector. Outperformance in Gold equities was characterized by single digit negative returns with most of the equities in the S&P/TSX Global Gold Index suffering double digit losses.

Given the weak performance in Gold equities, we did raise some cash and found opportunities to selectively write options on some gold equities. However given the oversold nature of some gold equities at the end of the quarter the Fund ended the quarter with no call option positions and with 11.5% of the portfolio protected with puts. The Fund ended the quarter with 9.5% of the portfolio in cash.

The September 30th trading price of $5.32 represents a discount of 1.8% below the $5.42 NAV.

The Net Asset Value (“NAV”) per unit at June 30, 2014 was $6.24 versus $6.07 on March 31, 2014. The Fund paid regular distributions totaling $0.09679 per unit during the quarter.

Gold bullion began the quarter trading at US$1,284.04 rallying marginally to a high of US$1,331.11 on April 14th. It then traded in a tight range for a little over a month before breaking to the downside to make a low on June 3rd of US$1,240.39 and then rallied again to the end of the quarter to close near the highs of the quarter at US$1,327.32.

The total return of the SPDR Gold Trust for the quarter was 3.59% while the S&P/TSX Global Gold Index outperformed with a total return for the quarter of 8.93%.

The U.S. Federal Reserve continued to taper the bond purchasing program by US$10 billion a meeting. By the June 18th meeting, they had announced that they would buy approximately US$35 billion a month, down from the original US$85 billion a month. Despite the paring back of bond buying by the Federal Reserve, economists and market participants expect the Federal Funds rate to continue to be accommodative and unchanged till the middle of 2015. The European Central Bank, meanwhile, reduced its benchmark rate to an unprecedented negative 0.10% to help stimulate lending and to fight the possibility of deflation. Geopolitical risks remain a concern in Ukraine and the Middle East and the possibility of an increase in tensions should keep gold comfortably bid.

Gold equities outperformed gold bullion for the second straight quarter as valuations were bid higher by merger and acquisition activity resulting in Agnico Eagle Mines and Yamana Gold outbidding Goldcorp for Osisko Mining Corp. Meanwhile Barrick Gold and Newmont Mining were in talks to merge before talks failed at the end of April. The acquisition activity by larger gold companies using depressed valuations is what we expect to see more of as it seems easier to buy production, than build out new production due to cost overruns and time consuming mining permits, to help achieve economies of scale. Some of the best performing equities in the Fund for this quarter were Goldcorp Inc., Royal Gold Inc., Franco-Nevada Corp and Eldorado Gold Corp. The allocation of SPDR Gold Trust was 30.86% at the end of the second quarter.

Given the strong performance in Gold equities, we have selectively reduced our covered call writing. The percentage of the portfolio subject to covered calls in the Fund was negligible during the quarter. The Fund ended the quarter with no call option positions and with 10.3% of the portfolio protected with puts. The Fund ended the quarter with 2.8% of the portfolio in cash.

The June 30th trading price of $5.95 represents a discount of 4.6% below the $6.24 NAV.

The Net Asset Value (“NAV”) per unit at March 31, 2014 was $6.07 versus $5.60 on December 31, 2013. The Fund paid regular distributions totaling $0.0995 per unit during the quarter.

Gold bullion began the quarter trading at US$1,205.75 making a low for the quarter of US$1,200.90 on the very first day of the year before moving higher steadily to reach a high of US$1,392.22 on March 17th and then correcting sharply to close the quarter at US$1,284.01.

The total return of the SPDR Gold Trust (GLD) for the quarter was 6.5% while the S&P/TSX Global Gold Index outperformed with a total return for the quarter of 16.0%.

The U.S. Federal Reserve continued to taper the bond purchasing program by US$10 billion a meeting. By the March 19th meeting, they had announced that they would buy approximately US$55 billion a month down from the original US$85 billion a month. The Federal Reserve is taking the right steps as they perceive improved labour conditions in the U.S. but these actions still continue to be very accommodative along with actions of other global central banks as short term rates are kept low to fight the possibility of deflation. These short term rates have enabled financial institutions, especially banks, to repair their balance sheets while keeping funding rates for sovereign nations and companies very low. Inflation remains benign despite low interest rates combined with bloated central bank balance sheets.

Gold equities outperformed gold bullion during the quarter even as Gold rallied from much oversold levels. Valuations in gold equities improved over the quarter as gold rallied from oversold levels and the unsolicited bid for Osisko Mining Corp. by Goldcorp Inc. gave gold equities a further boost. The acquisition activity by larger gold companies using depressed valuations is what we expect to see more of as it seems easier to buy production than build out new production due to cost overruns and time consuming mining permits etc. Some of the best performing equities in the Fund for this quarter were Osisko Mining Corp., Primero Mining Corp., Semafo Inc. and Royal Gold Inc. The allocation of SPDR Gold Trust was 33.9% at the end of the first quarter.

Given the strong performance in Gold equities, we have selectively reduced our covered call writing. The percentage of the portfolio subject to covered calls in the Fund was negligible during the quarter. On average, the Fund was written on 0.5% of the portfolio this quarter, compared to 14.1% and 5.8% in Q3 and Q4 of 2013. The Fund ended the quarter with no call or put option positions. The Fund on average had a cash percentage of 9.6% during the quarter and ended the quarter with 3.8% of the portfolio in cash.

The March 31st trading price of $6.30 represents a premium of 3.8% above the $6.07 NAV.

The Net Asset Value (“NAV”) per unit at December 31, 2013 was $5.60 versus $6.31 on September 30, 2013. The Fund paid regular distributions totaling $0.09978 per unit during the quarter.

Gold bullion began the quarter trading at US$1,328.95 making a high of US$1,361.93 on October 28th before descending lower for the next two month to make a low of US$1,182.52 on December 31st and then recovered slightly by the end of that day to close the year at US$1,205.65.

The total return of the SPDR Gold Trust (GLD) for the quarter was negative 9.41%. Similarly the S&P/TSX Global Gold Index saw negative return for the quarter of 10.77%.

In December, the Federal Reserve announced that it would start tapering the bond purchasing program modestly to $75 billion a month from $85 billion a month. This policy continues to be accommodative but it is a small step in the right direction of currency debasement. We continue to see profligate governments with debt limits being exceeded and raised and fiscal budgets in constant deficit. It is for these reasons that we believe gold remains a strong investment.

Gold equities continue to underperform gold bullion during the quarter but gold equities stayed flat during December even as gold bullion ploughed lower. Gold companies are being forced to reign in their cost structure given the lower gold price, which should give gold companies some leverage in being able to negotiate wage freezes and reasonable lease terms for mining equipment. We expect lower expenditures will result in better valuations albeit from depressed levels. Several exploration projects have been priced out or delayed given the lower gold price environment and the operating environment will remain challenging should gold continue to hover at these levels. Some acquisition activity by larger gold companies using the depressed valuations as an opportunity to add to production is a strong possibility. At the end of the quarter, the allocation of SPDR Gold Trust was around 45% during the quarter.

The percentage of the portfolio subject to covered calls in the Fund was much lower in this quarter when compared to the previous quarter. On average, the Fund was written on 5.8% of the portfolio this quarter, compared to 14.1% in Q3 of 2013. The Fund ended the quarter with no option positions as a lot of the gold stocks were either too oversold or seemed to forming a basing pattern and so there were very few selective opportunities to write individual names. As a precaution, the Fund purchased some protective puts on the SPDR Gold Trust and ended the quarter with 24.6% of the total portfolio protected. The Fund on average had a cash percentage of 12.4% during the quarter.

The December 31st trading price of $5.38 represents a discount of 3.9% below the $5.60 NAV.

Net Asset Value (NAV) per unit at September 30, 2013 was $6.31 versus $6.38 on June 30, 2013. The Fund paid a regular distribution totaling $0.10876 per unit during the quarter.

Gold bullion began the quarter trading at US$1,235.15 making a low for the quarter a few days later on July 5th at US$1,208.58 and then moving higher for the next couple of months to make a high of US$1433.83 for the quarter on August 28th before drifting slightly lower to end the quarter at US$ 1328.94.

The total return of the SPDR Gold Trust (GLD) for the quarter was 7.61%, as GLD saw an increase from very depressed level with the selloff in gold in the prior quarter. Similarly the S&P/TSX Global Gold Index rebounded from depressed levels with a total return of 3.67% over the same period continuing its underperformance versus gold bullion.
We have seen the Federal Reserve continue with the bond purchasing program and postpone any signs of tapering it and hence we continue to see currency debasement. We continue to see profligate governments with debt limits being exceeded and raised and fiscal budgets in constant deficit. It is for these reasons that we believe gold remains the true source of sound money.

Gold equities continue to underperform bullion and gold companies are being forced to reign in their cost structure given the lower gold price, which should give gold companies some leverage in being able to negotiate wage freezes and reasonable lease terms for mining equipment. We expect lower expenditures will result in better valuations albeit from depressed levels. Several exploration projects have been priced out or delayed given the lower gold price environment and the operating environment will remain challenging should gold continue to hover at these levels. At the end of the quarter, the allocation of SPDR Gold Trust was around 40% level during the quarter.

The percentage of the portfolio written in the Fund was up in this quarter. On average, the Fund was written on 14.1% of the portfolio this quarter, compared to just 8.3% in Q2 of 2013. The Fund ended the quarter written on just 7.4% of the invested portion of the portfolio. The fund unwound some protective puts purchased in the previous quarter and ended the quarter with no protection on the SPDR Gold Trust. The Fund on average had a cash percentage of 11.1% during the quarter.

The September 30th trading price of $6.17 represents a discount of 2.2% below the $6.31 NAV.

Net Asset Value (NAV) at June 30, 2013 was $6.38 versus $8.68 on March 31, 2013. The Fund paid a regular distribution totaling $0.12719 per unit during the quarter.

Gold bullion began the quarter trading at US$1,597.85 making a high for the quarter at US$1,603.88 on April 2nd before moving lower to break multi-year support band at US$1,520-$1,530 and continue a rapid sell-off to make a low on June 28th, the last trading day of the quarter, of US$1,180.50 before recovering to close the quarter at US$1,234.57.

The total return of the SPDR Gold Trust (GLD) for the quarter was negative 22.9%, as GLD saw a decline in market value from US$154.47 on March 28, 2013 to US$119.11 on June 28, 2013. The S&P/TSX Global Gold Index had a total return of negative 32.7% over the same period continuing its underperformance versus gold bullion.

The bearish case for gold outlined in the previous quarterly seems to have won out with several explanations being associated with the gold sell-off. We will outline a few below:

(i) Exchange traded funds (ETFs) have filled a need for investors to have exposure in gold bullion and perhaps helped fuel the 12-year bull run on the commodity. However, the end of the gold bull run in the last year despite unprecedented money supply expansion by developed central banks was exacerbated on the downside with investors unwinding of exposure to gold through gold ETFs as well as ongoing liquidation of gold ETFs by hedge funds.

(ii) Consumers in Asia, especially in India and China, have historically accounted for a large percentage of gold demand, but the recent slowdown in China coupled with the Indian rupee weakening over the last couple of years has muted demand.

(iii) Fears that the financial plight in Cyprus would force its central bank to sell its gold reserves, which might compel other central banks under similar duress to follow suit.

(iv) Finally, inflation expectations have come down and concerns about the Federal Reserve tapering the bond purchasing program were further drivers of gold price weakness.

In our fiat denominated currency world, gold remains the true source of sound money for reasons cited in prior commentaries - currency debasement, profligate governments, and limited mine supply despite higher gold prices over the past several years.

Gold equities continued to sell off dramatically underperforming bullion by a big margin. The decline in spot gold prices has delayed or shut down several exploration projects and the operating environment could be challenging should gold continue to hover at these levels. The recent sell-off in gold should give gold companies some leverage in negotiating wage freezes and lower cost of leased mining equipment. In addition, these companies will be cost conscious with reference to capital expenditures which could result in better valuations albeit from depressed levels. The allocation to SPDR Gold Trust stayed around the 50% level during the quarter.

The percentage of covered calls written on the portfolio was up in this quarter. On average, the Fund was written on 8.3% of the portfolio this quarter, compared to just 1.5% in Q1 of 2013. The Fund ended the quarter written on 27.5% of the invested portion of the portfolio which equated to 22.4% of the notional NAV of the Fund. The Fund also purchased protective puts and ended the quarter with 6.2% downside protection on the SPDR Gold Trust. The Fund on average had a cash percentage of 10.4% during the quarter.

The June 28th trading price of $6.01 represents a discount of 5.8% below the $6.38 NAV.

Net Asset Value (“NAV”) at March 31, 2013 was $8.68 versus $9.82 on December 31, 2012. The Fund paid a regular distribution totaling $0.15101 per unit during the quarter.

Gold bullion began the quarter trading at US$1,675.30 making a high for the quarter at US$1,696.28 on January 17th before drifting lower to close the quarter at US$1,598.75.

The total return of the SPDR Gold Trust (GLD) for the quarter was negative 4.7%, as GLD saw a decline in market value from US$162.02 on December 31, 2012 to US$154.47 on March 28, 2013. The S&P/TSX Global Gold Index had a total return of negative 15.5% over the same period continuing its underperformance versus gold bullion.

Monetary stimulus from global central banks continues with the Bank of Japan having joined the central bank quantitative easing party with a new governor in charge and its commitment to roughly double the balance sheet in two years. Besides the monetary spigots we expect, governments who are unable to effectively apply austerity to continue to inflate away their mounting debts.

The bearish case for gold is that developed economies are exhibiting very little inflationary pressure with inflation expectations moving even lower. However, Europe continues to be the sword of damocles for gold and other risk assets. In March, Europe was once again in the headlines with a contagion in the Cyprus banking system which led to banks being temporarily closed in that country and markets stalling due to the resulting uncertainty towards the end of the quarter. A disintegration of the Eurozone seems to be improbable at least in the near future; however, a failed bank or a run on weaker banks in the European periphery region cannot be ruled out. We remain modestly positive on gold as it remains the true source of sound money and for reasons cited in prior commentaries - currency debasement, profligate governments, and limited mine supply despite higher gold prices.

Gold equities continued to sell off underperforming bullion by a big margin. Gold companies are being pressured to reign in their cost structure and continue to be attractively valued when viewed historically while strong dividend yields should eventually boost equity valuations. The allocation of SPDR Gold Trust stayed around the 50% level during the quarter.

The percentage of the portfolio written in the Fund was down in this quarter. On average, the Fund was written on just 1.5% of the portfolio this quarter, compared to 9.9% in Q4 of 2012. The Fund ended the quarter with no covered calls or protective puts as the equities seem to be at very depressed levels. The Fund on average had a cash percentage of 6.4% during the quarter.

The March 28th trading price of $8.23 represents a discount of 5.2% below the $8.68 NAV.

Net Asset Value (“NAV”) at December 31, 2012 was $9.82 versus $11.15 on September 30, 2012. The Fund paid regular distributions totalling $0.17459 during the quarter.

Gold began the quarter trading at US$1,771.20 making a high for the year at US$1,796.05 on October 5th before drifting lower to the end of the quarter and closed the year at US$1,683.45.

The total return of the SPDR Gold Trust (SPDR) for the quarter was negative 5.8%, as SPDR saw a decline in market value from US$171.89 on September 28, 2012 to US$162.02 on December 31, 2012. The S&P/TSX Global Gold Index had a total return of negative 13.0% over the same period.

The monetary stimulus from global central banks continues with ’Operation Twist’ in the U.S. morphing into quantitative easing with a promise to continue to stay the course until the labor market improved, whereas in Japan, which has been mired in a deflationary spiral, the Bank of Japan seems to be bowing to political pressure and using quantitative easing to target a 2% inflation rate. It is a popular belief that too much monetary stimulus eventually leads to inflation; however, we saw a lot of the liquidity from quantitative easing turned into excess reserves which were then deposited back at the central bank. For this reason, inflation has largely stayed muted.

The bearish case for gold would be the deflationary pressure of a sovereign nation pulling out of the Eurozone. Also, during a financial crisis, investors often do not sell what they should but sell what they can, and gold, being a very liquid asset, could suffer amid a financial crisis. However, a disintegration of the Eurozone seems to be improbable at least in the near future. Therefore, we continue to remain bullish on gold as cited in prior commentaries - currency debasement, profligate governments, and limited mine supply despite higher gold prices.

Gold equities continue to be attractively valued when viewed historically and strong dividend yields should eventually boost equity valuations. The allocation of SPDR Gold Trust was slightly increased during the quarter and, by the end of the quarter, it stood at approximately 49% of the total portfolio.

In comparison with the previous quarter, the percentage of the portfolio written in the Fund was up marginally. On average, the Fund was written on 9.9% of the portfolio this quarter, compared to 8.4% in Q3. The Fund ended the quarter with 5.3% of the portfolio written. The Fund also bought some protective puts and ended the quarter with 7.5% of the portfolio hedged with purchased puts.

The December 31st trading price of $9.78 represented a small discount of $0.04 below the $9.82 NAV.

Net Asset Value (“NAV”) at September 30, 2012 was $11.15 versus $10.15 on June 30, 2012. The Fund paid regular distributions totalling $0.16537 during the quarter.

Gold began the quarter trading at $1,599.03 and traded in a narrow range till the middle of August before breaking out on the upside to close the quarter at $1,772.10. The global markets were anticipating some kind of monetary stimulus coming out of Europe, and in August the European Central Bank responded with outright monetary transactions. In September, markets also saw another round of quantitative easing by the U.S. Federal Reserve until the labour market improved in the U.S.

The total return of the SPDR Gold Trust for the quarter was 10.8%, increasing from $155.19 on June 29, 2012 to close at $171.89 on September 28, 2012. The S&P/TSX Global Gold Index had a total return of 15.2% over the same period. This was a quarter in which the Fund saw an outperformance of gold equities relative to gold bullion, reversing the previous trend of underperformance of gold equities to gold bullion in most recent quarters

The bullish case for gold remains valid as central banks have been net buyers of gold in the last few years. In addition, gold remains a solid hedge for investors and sovereign institutions against inflation and currency debasement, while mine supply is up only marginally despite higher gold prices. On the other hand, we remain concerned about a deep European recession or a sovereign breakaway from the European Union and a marked slowdown in Asia which could result in a downtrend in the price of gold. We also caution that during a financial crisis investors often do not sell what they should but sell what they can and gold, being an liquid asset, could suffer amid a financial crisis. Despite the outperformance this quarter of gold equities relative to gold bullion, gold equities continue to be attractively valued when viewed historically and strong dividend yields should further boost valuations. The allocation of SPDR Gold Trust was decreased marginally during the quarter and at the end of the quarter it stood at approximately 46% of the total portfolio.

The Fund had written across a smaller portion of the portfolio during the quarter. On average, the Fund was written on 8.4% of the portfolio this quarter, compared to 18.1% in the previous quarter. The Fund ended the quarter with no call positions or put positions.

The September 28th trading price of $11.19 represented a small premium of $0.04 above the $11.15 NAV.

Net Asset Value (“NAV”) at June 30, 2012 was $10.21 versus $11.28 on March 31, 2012. The Fund paid regular distributions totalling $0.17501 during the quarter.

Gold declined from a high of $1,683.57 on April 2nd to a low of $1,526.97 on May 16th and then traded in a narrow range till the end of the quarter to close at $1,597.40. Europe seems to be muddling through and the possibility of a sovereign breakaway from the European Union hangs like a deflationary blanket over Europe and the rest of the world.

The total return of the SPDR Gold Trust for the quarter was negative 4.3%, decreasing from 162.12 on March 30, 2012 to 155.19 on June 29, 2012. The S&P/TSX Global Gold Index had a total return of negative 9.2% over the same period. This is a continuation of a trend of underperformance of gold equities to gold bullion we have seen in recent quarters with the exception of the third quarter in 2011. Factoring in distributions the Fund had a total return of negative 8.0% during the second quarter.

The continued outperformance of gold bullion versus gold equities has resulted in a preference for gold exchange traded funds leaving gold equities attractively valued. This compelling valuation is reinforced by stronger cash flows due to elevated gold prices and attractive dividend yields above 2% in companies like Newmont Mining Corp., IAMGOLD Corp., Barrick Gold Corp., and Agnico-Eagle Mines Ltd. The allocation of SPDR Gold Trust was decreased marginally during the quarter and at the end of the quarter stood at 50% of the total portfolio.

The Fund had strategically written across some of the stocks in the portfolio during the quarter with a view towards generating income. On average, the Fund was written on 18.1% of the portfolio this quarter, compared to 12.3% in the previous quarter. The Fund also purchased puts and ended the quarter with 20.4% of the portfolio hedged with put options. The Fund ended the quarter with 22.2% of the portfolio written which went below the 25% limit.

The June 29th trading price of $9.71 represented a discount of 4.90% to NAV.

Net Asset Value (“NAV”) at March 31, 2012 was $11.28 versus $11.40 on December 31, 2011. The Fund paid regular distributions totaling $0.19353 during the quarter.

The gold price moved up sharply from $1,563.70 at year end to a high of $1,790.75 on Feb 29th before reacting negatively to a monetary policy report by Chairman Bernanke of the Federal Reserve in which he failed to signal more measures to stimulate the U.S. economy. Gold then declined through the end of the quarter to close at $1,668.35 on March 30, 2012. Concerns in Europe seemed to have temporarily abated with the Greece debt deal reached on March 8, 2012 and investors’ greater confidence in the U.S. economy poised for recovery.

The total return of the SPDR Gold Trust for the quarter was 6.7% increasing from $151.99 on December 30, 2011 to $162.12 on March 30, 2012. Conversely, the S&P/TSX Global Gold Index had a total return of negative 6.3% over the same period. This is a continuation of a trend of underperformance of gold equities to gold bullion that investors have seen in recent quarters, with the only exception of the third quarter in 2011. Factoring in distributions, the Fund had a total return of 0.6% during the first quarter.

With elevated gold prices, companies in this sector have continued to increase their dividends, with Kinross Gold Corp, Eldorado Gold Corp, Royal Gold Inc, AngloGold Ashanti Ltd and Gold Fields Ltd announcing dividend increases in this quarter. Gold equities remain undervalued on a historical and relative basis when compared to gold bullion. Major gold producers are likely to use their strong cash flows to enhance dividend growth to attract investor interest and pursue opportunities to enhance gold production through continued M&A activities given the relative undervaluation of gold equities. The allocation of SPDR Gold Trust was increased during the quarter and at the end of the quarter the percentage stood at 53% of the total portfolio. The Fund had strategically written across some of the stocks in the portfolio during the quarter with a view towards generating income. On average, the Fund was written on 12.3% of the portfolio this quarter, compared to 4.7% in the previous quarter. The Fund also purchased puts and on average 13.6% of the portfolio was hedged with put options. The Fund ended the quarter with no option positions.

The March 30th trading price of $11.24 represented a miniscule discount of 0.003% to NAV.

Net Asset Value (“NAV”) at December 31, 2011 was $11.40 versus $12.73 on September 30, 2011. The Fund paid regular distributions totalling $0.20583 during the quarter.

It was another roller coaster ride for the gold price over the past quarter, as gold rallied most of October into the first week of November, hitting an intraday high of $1,802.93 on November 8th before declining through the end of the quarter to close at $1,563.70 at year end. Turmoil in Europe continued to weigh on the commodity, as well as Comex and ETF selling in the quarter, particularly in December. Investors fled to the U.S. dollar, the world’s largest liquid asset, causing the U.S. dollar to strengthen over this period.

The total return of the SPDR Gold Trust for the quarter was negative 3.8%, declining from $158.06 on September 30, 2011 to $151.99 on December 30, 2011. The S&P/TSX Global Gold Index had a total return of negative 8.5% over the same period. This is a continuation of a trend of underperformance of gold equities to gold bullion we have seen in recent quarters with the exception of Q3. With fourth quarter earnings quickly approaching, the Fund believes gold equities are extremely undervalued relative to gold bullion and we expect strong cash flows, dividend growth in the gold producers, continued M&A activity, combined with cheap valuations, to attract investor interest. The weight in the SPDR Gold Trust at the end of the year stood at 46%.

The Fund had strategically written across some of the stocks in the portfolio during the quarter with a view towards generating income. On average, the Fund was written on 4.68% of the portfolio this quarter, compared to 11.8% in the previous quarter. The fund ended the quarter with 12.49% of the portfolio subject to covered calls.

The December 30th trading price of $11.15 represented a discount of -2.19% to NAV.

Net Asset Value at quarter end Sept 30, 2011 was $12.73 versus $12.55 on June 30, 2011.

Unitholders received regular distributions totaling $0.21695 during the quarter.

Gold rose sharply in July and August on debt concerns surrounding Eurozone countries and Standard & Poor's downgrade of the U.S. government AAA sovereign credit rating on August 5. Gold Bullion reached a new high of $1921.15 on September 6, the same day the Swiss National Bank announced their intentions to stop the Swiss Franc from rising against the Euro. Gold gave back most of its gains towards the end of September as fears of a global recession caused the U.S. dollar to rally and equity and commodity markets to sell off. Gold ended the quarter at $1623.97, up 8.24%.

The total return of the SPDR Gold Trust for the quarter was 8.26%, rising from $146.00 on June 30, 2011 to $158.06 on September 30, 2011. The S&P/TSX Global Gold Index returned 8.38%. This is a sharp divergence from recent quarters where gold equities have underperformed Gold Bullion. With third quarter earnings quickly approaching, the Fund believes gold equities are set to outperform gold bullion as cash flow generation, margin expansion, dividend growth, and M&A activity, combined with cheap valuations, attract investor interest. Accordingly, we have reduced our weight in the SPDR Gold Trust from 49% to 40% at the quarter end.

The Fund had strategically written across some of the stocks in the portfolio during the quarter with a view towards generating income. On average the Fund was written on 11.8% of the portfolio this quarter, compared to 6.1% in the previous quarter. The fund ended the quarter with 1.96% of the portfolio subject to covered calls. The best performing position in the portfolio during the quarter was overweight Northgate Minerals which received a friendly takeover bid from AuRico Gold on August 29th. Northgate increased 40.8% in the quarter.

The warrants issued on April 22, 2011 expired on September 15, 2011. 1.05 million units of the Gold Participation and Income Fund were issued for total gross proceeds of $13.6 million. The net proceeds of the warrants provided the Fund with additional capital that could be used to take advantage of attractive investment opportunities in the Gold sector. The completion of the warrant offering is also expected to increase the trading liquidity of the units and reduce the ongoing management expense ratio of the Fund.

The September 30th trading price of $12.09 represented a discount of -5.03% to NAV.

Net Asset Value at quarter end June 30, 2011 was $12.55 versus $13.15 on March 31, 2011.

Unitholders received regular distributions totaling $0.21618 during the quarter.

The SPDR Gold Trust was slightly higher for the quarter starting from 139.86 on March 31st and ending at 146.00 on June 30, 2011.

Gold rose sharply during April before trading sideways to lower in May and June. The total return of the SPDR Gold Trust for the quarter was 4.39%. In contrast the S&P/TSX Global Gold Index sold off sharply in April before a brief rally in May and continued with a further selloff in June. The index had a total return of negative 7.99% for the quarter. Gold reached a high of $1577.57 on May 2nd coincidently on the date that the US Navy SEALs assassinated Osama Bin Laden. The poor performance of Gold equities can be explained by investor’s preference for Gold exchange traded funds versus the political, geographical and operational risks associated with holding individual equities and this has led to compression in earnings multiples for the sector.

We remained fully invested and had strategically written across some of the stocks in the portfolio during the quarter with a view towards generating the income. April and June were fairly active months in our selective overwriting activity with May being relatively quiet. The weight of the SPDR Gold Trust in the Fund stayed relatively unchanged at approximately 49% at the end of the quarter. The Fund ended the quarter written on just a portion of Agnico-Eagle Mines Ltd.

The Fund issued warrants to each unitholder of record on April 22 2011. Each warrant will entitle its holder to acquire one unit upon payment of the subscription price of $13.02 prior to the expiry date of September 15, 2011. The offering was designed to provide the Fund with additional capital that can be used to take advantage of attractive investment opportunities, while also increasing the trading liquidity of the units and reducing the ongoing management expense ratio of the Fund.

The June 30th trading price of $11.95 for the units and $0.045 for the warrants together represent a discount of -4.42% to NAV.