Canadian High Income Equity Fund : Annual Report – 2020

TSX: CIQ.UN

Canadian High Income

Equity Fund

Annual Report 2020

Actively managed portfolio focused on higher-yielding Canadian securities.

VALUE

INTEGRITY PERFORMANCE

THE FOUNDATION FOR EXCELLENCE

MANAGEMENT REPORT OF FUND PERFORMANCE

March 17, 2021

This annual management report of fund performance for Canadian High Income Equity Fund (the "Fund") contains financial highlights but does not contain the audited annual financial statements of the Fund. The audited annual financial statements follow this report. You may obtain a copy of the audited annual or unaudited interim financial statements, at no cost, by calling 1‑866‑642‑6001 or by sending a request to Investor Relations, Brompton Funds, Bay Wellington Tower, Brookfield Place, 181 Bay Street, Suite 2930, Box 793, Toronto, Ontario, M5J 2T3, or by visiting our website atwww.bromptongroup.comor SEDAR at www.sedar.com. Unitholders may also contact Brompton Funds by using one of these methods to request a copy of the Fund's proxy voting policies and procedures, proxy voting disclosure record, Independent Review Committee's report, or quarterly portfolio disclosure.

THE FUND

Canadian High Income Equity Fund is a closed‑end investment trust managed by Brompton Funds Limited (the "Manager"). The investment manager of the Fund is Bloom Investment Counsel, Inc. (the "Investment Manager"). The units of the Fund trade on the Toronto Stock Exchange ("TSX") under the symbol CIQ.UN and are RRSP, DPSP, RRIF, RESP and TFSA eligible.

INVESTMENT OBJECTIVES AND STRATEGIES

Canadian High Income Equity Fund is designed to provide unitholders with a high monthly distribution and the opportunity for capital appreciation through investment in an actively managed portfolio of publicly listed or traded Canadian securities. The Fund invests in an actively managed portfolio of publicly listed or traded Canadian securities across a broad range of industries.

RECENT DEVELOPMENTS

Market Volatility and COVID-19

The outbreak of the respiratory disease designated as COVID-19 had caused increased volatility and disruptions in global financial markets during most of year 2020. With the development of effective vaccines, major stock market indices have substantially recovered their losses by the end of the 2020 after hitting their lowest point in March 2020, with some indices making new highs. Until the pandemic is under control and economic growth and unemployment recover, there may still be continued volatility in the securities markets which will impact the prices of the securities held in the portfolio of the Fund. The Fund's Net Asset Value reflecting the value of the Fund's portfolio based on the most recent valuation date can be found on the Fund's webpage atwww.bromptongroup.com.

RISKS

Risks associated with an investment in the units of the Fund are discussed in the Fund's 2020 annual information form, which is available on the Fund's website atwww.bromptongroup.comor on SEDAR at www.sedar.com. There were no changes to the Fund during the year ended December 31, 2020 that materially affected the risks associated with an investment in the units of the Fund as they were discussed.

RESULTS OF OPERATIONS

Distributions and Changes in Net Assets from Operations (see Financial Highlights)

Cash distributions amounted to $0.51 per unit in 2020, down from $0.60 per unit in 2019, reflecting a change in monthly distributions from $0.05 per unit to $0.04 per unit effective April 23, 2020. Since inception in February 2010, the Fund has paid total cash distributions of $7.79 per unit.

The Fund has a distribution reinvestment plan which allows participating unitholders to automatically reinvest monthly distributions, commission free, in additional units of the Fund. Pursuant to this plan, 3,061 units were acquired in the market at an average price of $6.60 per unit and 332 units were issued from treasury at an average price of $6.84 during 2020.

The Fund earned revenue of $0.28 per unit in 2020, compared to $0.35 per unit in 2019. The decrease of $0.07 per unit was contributed by changes in securities held in the Fund's portfolio, as well as a couple portfolio constituents reducing dividend rates in 2020. The Fund's expenses were $0.16 per unit compared to $0.20 per unit in 2019. The Fund benefited in the termination of the service fees, as it was the main factor that contributed to the decrease of expenses per unit.

Net Asset Value

The Net Asset Value per unit of the Fund at December 31, 2020 was $7.15, compared to December 31, 2019 at $7.89, a $0.74 per unit decrease as a result of portfolio losses and the distributions paid. Aggregate Net Asset Value of the Fund was $12.0 million at December 31, 2020, down from $15.0 million at December 31, 2019. The $3.0 million decrease in Net Asset Value reflected $0.6 million net losses from operations, $0.9 million in cash distributions paid, $1.1 million in redemptions, and unit repurchases of $0.4 million under the Fund's issuer bid program.

Investment Portfolio

The Fund's investments at December 31, 2020 included 27 publicly listed Canadian securities, unchanged from December 31, 2019. During 2020, five positions were added: Barrick Gold Corporation, Canadian Tire Corporation Limited, Goeasy Ltd., Morneau Shepell Inc. and Rogers Communications Inc.. Five positions were sold: Andlauer Healthcare Group Inc., Extendicare Inc., ShawCor Ltd., Stingray Group Inc. and Wajax Corporation. The Fund had a net realized and change in unrealized loss of $0.8 million in 2020, principally due to losses in the Materials, Financial, and Oil and gas sectors. The portfolio's investment weighting (excluding cash) and a detailed listing of the Fund's security holdings is provided in the financial statements.

Portfolio Sectors

Change in
% of Portfolio	Realized	Unrealized	Total
Net Gains (Losses) by Sector (millions)	as of 31-Dec-20	$	$	$
Communication services	2.3	-	-	-
Consumer staples and discretionary	21.0	(0.2)	0.1	(0.1)
Financial	21.7	-	(0.2)	(0.2)
Healthcare	-	(0.1)	-	(0.1)
Industrial	21.0	(0.2)	0.2	-
Materials	3.1	-	(0.3)	(0.3)
Oil and gas	2.4	(0.5)	0.3	(0.2)
Pipes, power, utilities and infrastructure	19.3	0.6	(0.4)	0.2
Real estate	5.0	0.3	(0.4)	(0.1)
Short-term investments	4.2	-	-	-
Total	100.0	(0.1)	(0.7)	(0.8)
Liquidity and Capital Resources

To provide liquidity for unitholders, units of the Fund are listed on the TSX under the symbol CIQ.UN. The Fund's normal course issuer bid program allows it to purchase up to approximately 10% of its units for cancellation if they trade below Net Asset Value per unit. As a result, purchases under the issuer bid program are accretive to the Net Asset Value per unit at the time of purchase. During 2020, 52,050 units were purchased under this program at an average price of $7.10 per unit. Investors may also redeem their units at Net Asset Value, less applicable costs, in accordance with the Fund's redemption provisions. During 2020, 169,000 units were redeemed at an average price of $6.45 per unit.

RELATED PARTY TRANSACTIONS

Related‑party transactions consist of services provided by the Manager pursuant to a management agreement. See the Management Fees section below.

MANAGEMENT FEES

Pursuant to a management agreement, the Manager provides management, investment management and administrative services to the Fund, for which it is paid a management fee equal to 1.25% per annum of the Net Asset Value of the Fund, plus applicable taxes. The Manager is responsible for paying the fees of the Investment Manager. The management fee is used by the Manager to cover certain costs to administer the Fund, the cost of the Investment Manager and for profit. Prior to January 1, 2020, the Fund also paid the Manager a service fee equal to 0.40% per annum of the Net Asset Value of the Fund. The service fee was in turn paid by the Manager to the investment dealers based on the proportionate number of units held by clients of each dealer at the end of each calendar quarter. During the year ended December 31, 2019, the Fund paid $0.1 million in service fees. Effective January 1, 2020, the Manager discontinued the payment of service fees. For 2020, management fees amounted to $0.2 million (year ended December 31, 2019 - $0.2 million).

FINANCIAL HIGHLIGHTS

The following tables show selected key financial information about the Fund and are intended to help readers understand the Fund's financial performance for the fiscal periods indicated. This information is derived from the Fund's audited annual financial statements which have been prepared in accordance with International Financial Reporting Standards. The information in the following tables is presented in accordance with National Instrument ("NI") 81‑106 and, as a result, does not act as a continuity of opening and closing Net Assets per unit. The increase (decrease) in Net Assets from operations is based on average units outstanding during the period, and all other numbers are based on actual units outstanding at the relevant point in time.

Net Assets per Unit1

• 1 Financial information was prepared in accordance with International Financial Reporting Standards.

• 2 Net Assets per unit and distributions per unit are based on the actual number of units outstanding at the relevant time.

• 3 The increase (decrease) in Net Assets from operations per unit is based on the weighted average number of units outstanding over the fiscal period.

2020	2019	2018	2017	2016
For the year ended December 31	$	$	$	$	$
Net Assets per unit, beginning of year2	7.89	7.14	9.63	10.04	8.37
Increase (decrease) from operations:3
Total revenue	0.28	0.35	0.37	0.39	0.40
Total expenses	(0.16)	(0.20)	(0.21)	(0.22)	(0.21)
Realized gains (losses)	(0.06)	(0.47)	(0.21)	0.35	1.12
Unrealized gains (losses)	(0.40)	1.68	(1.67)	(0.37)	1.00
Total increase (decrease) in Net Assets	(0.34)	1.36	(1.72)	0.15	2.31
from operations
Distributions to unitholders:2
From net investment income	0.07	0.10	0.10	0.12	0.12
Return of capital	0.44	0.50	0.50	0.48	0.54
Total distributions to unitholders	0.51	0.60	0.60	0.60	0.66
Net Assets per unit, end of year2	7.15	7.89	7.14	9.63	10.04
3