ANNUAL MANAGEMENT REPORT OF FUND PERFORMANCE

Transcription

1 ANNUAL MANAGEMENT REPORT OF FUND PERFORMANCE For the period ended December 31, 2015

2 ANNUAL MANAGEMENT REPORT OF FUND PERFORMANCE For the period ended December 31, 2015 Canadian Equity Funds Notes on forward-looking statements This report may contain forward-looking statements concerning the Fund, its future performance, its strategies or prospects or about future events or circumstances. Such forward-looking statements include, among others, statements with respect to our beliefs, plans, expectations, estimates and intentions. The use of the expressions "foresee", "intend", "anticipate", "estimate", "assume", "believe" and "expect" and other similar terms and expressions indicate forward-looking statements. By their very nature, forward-looking statements imply the use of assumptions and necessarily involve inherent risks and uncertainties. Consequently, there is a significant risk that the explicit or implicit forecasts contained in these forward-looking statements might not materialize or that they may not prove to be accurate in the future. A number of factors could cause future results, conditions or events to differ materially from the objectives, expectations, estimates or intentions expressed in such forward-looking statements. Such differences might be caused by several factors, including changes in Canadian and worldwide economic and financial conditions (in particular interest and exchange rates and the prices of other financial instruments), market trends, new regulatory provisions, competition, changes in technology and the potential impact of conflicts and other international events. The foregoing list of factors is not exhaustive. Before making any investment decision, investors and others relying on our forward-looking statements should carefully consider the foregoing factors and other factors. We caution readers not to rely unduly on these forward-looking statements. We assume no obligation to update forward-looking statements in the light of new information, future events or other circumstances unless applicable legislation so provides. This annual management report of fund performance contains financial highlights, but does not contain the complete annual financial statements of the investment fund. You can get a copy of the annual financial statements at your request, and at no cost, by calling , by writing to us at investments@nbc.ca, by visiting our website at by visiting SEDAR s website at or by contacting your advisor. You may also contact us using one of these methods to request a copy of the investment fund s proxy voting policies and procedures, proxy voting disclosure record, or quarterly portfolio disclosure.

3 Management Discussion of Fund Performance Investment Objective and Strategies The s investment objective is to achieve long-term capital growth. The Fund invests directly or indirectly in a portfolio comprised mainly of equity securities of large-capitalization Canadian issuers. The portfolio manager analyzes stocks through a valuation approach of growth at a reasonable price with a long-term investment horizon. Based on fundamental analysis, the portfolio manager identifies companies with above average growth prospects and below average risk. Securities held in the portfolio are common and/or preferred shares of large-capitalization companies that are industry leaders, have strong management, a good earnings track record and reasonable financial leverage. Risks The global investment risk of the Fund remains as described in the simplified prospectus or any amendments thereto and Fund Facts. Results of Operations For the twelve-month period ended December 31, 2015, the Jarislowsky Fraser Select Canadian Equity Fund s Advisor Series units returned -2.62% compared to -7.87% for the Fund s blended benchmark. The broad-based index, the S&P/TSX Capped Composite Index (CAD), returned -8.32%. Unlike the indices, the Fund s performance is calculated after fees and expenses. Please see the Past Performance section for the returns of the Fund s other series, which may vary mainly because of fees and expenses. Certain series of the Fund, as applicable, may make distributions at a rate determined by the portfolio manager. This rate may change from time to time. If the aggregate amount of distributions in such series exceeds the portion of net income and net realized capital gains allocated to such series, the excess will constitute a return of capital. The portfolio manager does not believe that the return of capital distributions made by such series of the Fund have a meaningful impact on the Fund s ability to implement its investment strategy or to fulfill its investment objective. When financial historians look back on the major developments that occurred during the year, their focus will in all likelihood be drawn to the first key rate increase in U.S. since before the global financial crisis. All other things being equal, this would imply that the U.S. economy was on a path of strong economic growth and that the rest of the world was on reasonably firm footing. Economic growth in the euro zone and Japan has also improved and muted inflation allows for very stimulative monetary and fiscal policy. The saving grace for Canadian investors was the strong U.S. dollar. This meant that when converted to Canadian dollars, foreign market returns for the year actually translated to positive numbers. However, the currency effect did little to boost returns for Canadians that were invested in domestic markets. Canadian equities, as gauged by the S&P/TSX Capped Composite Index, posted negative gains for the year. Two rate cuts by the Bank of Canada, waning commodity prices and a marked slowdown in economic growth that propelled Canada into a technical recession midway through the year were all factors that weighed on sentiment throughout the year. Under these circumstances, the Fund outperformed its benchmark. During the period, stock selection in the Industrials sector contributed to outperformance. An overweight position in securities such as Stantec and Open Text Corp also contributed positively. Stantec, a leading engineering consulting company, has performed well despite the poor performance of commodities. The company has no physical assets in the sector and has reduced its reliance on revenues from the Energy sector. The stronger U.S. dollar has benefited Stantec and the company now has a meaningful revenue stream in that currency. Meanwhile, software company Open Text continues to perform well, benefitting from the return of their CEO to full-time employment after a leave of absence for health reasons. There is a bright outlook for continued strong organic growth in the business as well as an increased likelihood of accretive acquisitions in the space. Lastly, not holding a position in Valeant Pharmaceuticals also provided a net positive effect when compared to the benchmark. The Fund s absence from the Health Care sector was a contributor from a sector allocation standpoint. Recent Developments Regarding the Fund s transactions, the portfolio manager exited positions in Bonavista Energy, Power Financial Corp, BG Group, EOG Resources, Royal Dutch Shell, Colgate-Palmolive Company, Telenor ASA, Automatic Data Processing, L Air Liquide, FANUC, JPMorgan Chase, Standard Chartered, West Fraser Timber Co., George Weston Limited, Johnson & Johnson, Lafarge SA and Canadian Utilities Ltd. In contrast, the portfolio manager initiated positions in Alimentation Couche-Tard, Gildan Activewear, Noble Energy, CGI Group, AXA SA, Davita Healthcare, IMS Health Holdings, Capital One Financial, General Electric Company, Verisk Analytics Inc., and LafargeHolcim Limited. Within the equity exposure, the Fund is overweight in Industrials, Information Technology, Energy, Consumer Discretionary and Consumer Staples. Looking ahead, the portfolio manager believes the Fund is wellpositioned to outperform in the coming years. Canadian equities should become relatively attractive over time and an overweight position could be beneficial if there is a potential rebound in the commodity cycle. While some commodity stocks look relatively inexpensive at current levels, the portfolio manager would still like to see some stability in prices and the Canadian dollar before adding to cyclical exposure. The U.S. continues to offer stable, if not spectacular growth. The portfolio manager is satisfied in maintaining a healthy overweight position until such time as Canadian stocks look ready to turn and the U.S. dollar loses momentum. Related Party Transactions National Bank of Canada ( the Bank ) and its affiliated companies roles and responsibilities related to the Fund are as follows: Trustee, Custodian and Registrar Natcan Trust Company ( NTC ), a direct or indirect wholly-owned subsidiary of the Bank, is the Fund s trustee. In this capacity, it is the legal owner of the Fund s investments. NTC also acts as registrar and custodian for the Fund and is remunerated by the Fund manager for these services. Fund Manager The Fund is managed by National Bank Investments Inc. ( NBII ), which is a wholly-owned subsidiary of the Bank. Therefore, NBII provides or ensures the provision of all general management and administrative services required by the Fund s current operations, including investment consulting, the arrangement of brokerage contracts for the purchase and sale of the investment portfolio, bookkeeping and other administrative services required by the Fund. The Fund reimbursed NBII for operating expenses, at cost, incurred in administering the Fund, including trustee, recordkeeping, custodial, legal, audit, investor servicing, and securityholder reporting fees.

4 As described under the heading Management Fees, the Fund pays annual management fees to NBII as consideration for its services. Distribution and Dealer Compensation Fund securities are offered by National Bank Direct Brokerage Inc., CABN Investments Inc. National Bank Financial Inc. and other affiliated entities. Each month, brokers receive a commission representing a percentage of the average daily value of the securities held by their clients. Brokerage Fees The Fund may pay broker s commissions at market rates to a corporation affiliated with NBII. The brokerage fees paid by the Fund for the period are as follows: Period ended December 31, 2015 Total brokerage fees $12, Brokerage fees paid to National Bank Financial Holdings $ As at December 31, 2015, National Bank Investments Inc. held Fund securities for a value of $1,970.32, which represented close to % of the net asset value of the Fund at that date. Transactions between National Bank Investments Inc. and the Fund were carried out in the normal course of business and at the Fund s net asset value as at the transaction date. Registered Plan Trust Services NTC receives a fixed amount per registered account for services provided as trustee for registered plans. Administrative and Operating Services The provision of certain services was delegated by the Fund manager, NBII, to National Bank Trust Inc. ("NBT"), a wholly-owned indirect subsidiary of the Bank. These include accounting, reporting and portfolio valuation services. The fees incurred for these services are paid to NBT by the Fund manager. Management Fees The Fund pays annual management fees to the Fund manager for its management services. The fees are calculated based on a percentage of the Fund s daily net asset value before applicable taxes and are paid on a monthly basis. A portion of the management fees paid by the Fund covers maximum annual trailer fees and sales commissions paid to brokers. The remainder of the management fees primarily covers investment management and general administration services. The breakdown of major services provided in consideration of the management fees, expressed as an approximate percentage of the management fees is as follows: Past Performance Information on the Fund s past performance is presented in the graphs below. The graphs assume that Fund distributions during the periods presented were reinvested in full in additional Fund securities and do not take into account sales, redemption charges, distributions, or optional charges that would have reduced returns. Past performance of a Fund or series of a Fund does not necessarily indicate how it will perform in the future. Annual Returns The bar chart indicates the Fund s performance for each series during the years shown, and illustrates how the Fund s performance has changed from year to year. It shows, in percentage terms, how much an investment made on January 1, or made commencing from the start of the series, would have grown or decreased by December 31 of that year, or by June 30, as applicable. 30% 20% 10% 0% -10% 30% 20% 10% 0% -10% 30% 20% 10% 0% -10% 3% Advisor Series Series E Series F Series F Series Management Fees Distribution Others 2% 1% 0.76 Advisor Series and Series T5* 0% Front-end load 1.75% 57.14% 42.86% Low load - 1 to 3 years 1.75% 28.57% 71.43% Low load - 4 years and more 1.75% 57.14% 42.86% Series E 0.75% % Series F and Series F5 0.75% % -1% -2% ( ) Includes all costs related to management, investment advisory services, general administration and profit. (*) Excluding sales commissions paid on the Advisor Series and Series T5 with the low sales charge option, which are not included in the management fees.

5 4% Series T5 2 2% 0% % -4% Returns for the period of October 7, 2010 (commencement of operations) to December 31, Returns for the period of September 30, 2014 (commencement of operations) to December 31, Annual Compounded Performance The following table shows the annual compound returns for each series of the Fund and for each of the periods ended on December 31, 2015, compared with the following benchmarks: The blended benchmark (the Benchmark ) is composed of: S&P/TSX Capped Composite Index (CAD) (95%) FTSE TMX Canada 91 Day T-Bill Index (CAD) (5%) The broad-based index is the S&P/TSX Capped Composite Index (CAD). 1 year 3 years 5 years 10 years Since inception Advisor Series 1 (2.62)% 9.72% 6.15% 6.68% Benchmark (7.87)% 4.45% 2.26% 3.89% Broad-based index (8.32)% 4.62% 2.30% 4.02% Series E 1 (1.54)% 10.98% 7.37% 7.89% Benchmark (7.87)% 4.45% 2.26% 3.89% Broad-based index (8.32)% 4.62% 2.30% 4.02% Series F 1 (1.54)% 10.98% 7.37% 7.89% Benchmark (7.87)% 4.45% 2.26% 3.89% Broad-based index (8.32)% 4.62% 2.30% 4.02% Series F5 2 (1.50)% (0.60)% Benchmark (7.87)% (9.14)% Broad-based index (8.32)% (9.66)% Series T5 2 (2.66)% (1.78)% Benchmark (7.87)% (9.14)% Broad-based index (8.32)% (9.66)% 1 Commencement of operations: October 7, Commencement of operations: September 30, 2014 A discussion of the Fund's relative performance in comparison to the index (or indices) can be found in the Results of Operations Section of this report. Index Descriptions The S&P/TSX Capped Composite Index is a subset of the S&P/TSX and reflects share price fluctuations of a group of companies listed on the Toronto Stock Exchange (TSX) and weighted by market capitalization. The FTSE TMX Canada 91 Day T-Bill Index tracks the daily return on 91- day Canadian Treasury bills.

6 Financial Highlights The following tables show selected key financial information about the Fund and are intended to help you understand the Fund s financial performance for the accounting periods shown. Advisor Series The Fund's Net Assets per Unit Accounting Period Ended December 31 December 31 December 31 December 31 December 31 $ $ $ $ $ Net Assets, Beginning of Accounting Period Shown Increase (Decrease) from Operations Total revenue Total expenses (0.29) (0.29) (0.25) (0.20) (0.23) Realized gains (losses) (0.11) Unrealized gains (losses) (1.07) (0.78) Total Increase (Decrease) from Operations (0.39) (0.83) Distributions From investment income (excluding dividends) From dividends From capital gains 0.08 Return of capital Total Annual Distributions Net Assets, End of Accounting Period Shown This information is derived from the Fund's Annual Audited Financial Statements. The net assets per unit presented in the financial statements might differ from the net asset value calculated for fund pricing purposes. The differences are explained in the notes to the financial statements. Net assets and distributions are based on the actual number of units outstanding at the relevant time. The increase or decrease from operations is based on the average number of units outstanding over the accounting period. Distributions were paid in cash or reinvested in additional units of the Fund, or both. The net assets value at the end of the 2012 accounting period may differ from the value at the beginning of the 2013 accounting period. Since January 1, 2013, the net assets are calculated in accordance with IFRS. Previously, it was the accounting principles as set out in Part V of the CPA Canada Handbook - Accounting ( Canadian GAAP ). Ratios and Supplemental Data Accounting Period Ended December 31 December 31 December 31 December 31 December 31 Total net asset value (000's of $) 33,231 35,425 27,347 22,019 21,357 Number of units outstanding 2,465,886 2,523,107 2,147,741 2,108,046 2,198,246 Management expense ratio (%) Management expense ratio before waivers or absorptions (%) Trading expense ratio (%) Portfolio turnover rate (%) Net asset value per unit ($) This information is provided as at the last day of the accounting period shown. Management expense ratio is based on total expenses including sales taxes for the accounting period indicated (excluding commission and other portfolio transaction costs) and is expressed as an annualized percentage of daily average net value during the accounting period. The trading expense ratio represents total commissions and other portfolio transaction costs expressed as an annualized percentage of daily average net asset value during the accounting period. The Fund's portfolio turnover rate indicates how actively the Fund portfolio's manager manages its portfolio investments. A portfolio turnover rate of 100% is equivalent to the Fund buying and selling all of the securities in its portfolio once in the course of the accounting period. The higher a Fund's portfolio turnover rate in an accounting period, the greater the trading costs payable by the Fund in the accounting period, and the greater the chance of an investor receiving taxable capital gains in the accounting period. There is not necessarily a relationship between a high turnover rate and the performance of a Fund.

7 Financial Highlights Series F/E The Fund's Net Assets per Unit Accounting Period Ended December 31 December 31 December 31 December 31 December 31 $ $ $ $ $ Net Assets, Beginning of Accounting Period Shown Increase (Decrease) from Operations Total revenue Total expenses (0.14) (0.13) (0.12) (0.10) (0.12) Realized gains (losses) (0.11) Unrealized gains (losses) (1.09) (0.82) Total Increase (Decrease) from Operations (0.23) (0.76) Distributions From investment income (excluding dividends) From dividends From capital gains Return of capital Total Annual Distributions Net Assets, End of Accounting Period Shown This information is derived from the Fund's Annual Audited Financial Statements. The net assets per unit presented in the financial statements might differ from the net asset value calculated for fund pricing purposes. The differences are explained in the notes to the financial statements. Net assets and distributions are based on the actual number of units outstanding at the relevant time. The increase or decrease from operations is based on the average number of units outstanding over the accounting period. Distributions were paid in cash or reinvested in additional units of the Fund, or both. The net assets value at the end of the 2012 accounting period may differ from the value at the beginning of the 2013 accounting period. Since January 1, 2013, the net assets are calculated in accordance with IFRS. Previously, it was the accounting principles as set out in Part V of the CPA Canada Handbook - Accounting ( Canadian GAAP ). Ratios and Supplemental Data Accounting Period Ended December 31 December 31 December 31 December 31 December 31 Total net asset value (000's of $) 32,658 29,037 20,389 12,653 11,516 Number of units outstanding 2,380,039 2,034,770 1,580,670 1,201,817 1,176,382 Management expense ratio (%) Management expense ratio before waivers or absorptions (%) Trading expense ratio (%) Portfolio turnover rate (%) Net asset value per unit ($) This information is provided as at the last day of the accounting period shown. Management expense ratio is based on total expenses including sales taxes for the accounting period indicated (excluding commission and other portfolio transaction costs) and is expressed as an annualized percentage of daily average net value during the accounting period. The trading expense ratio represents total commissions and other portfolio transaction costs expressed as an annualized percentage of daily average net asset value during the accounting period. The Fund's portfolio turnover rate indicates how actively the Fund portfolio's manager manages its portfolio investments. A portfolio turnover rate of 100% is equivalent to the Fund buying and selling all of the securities in its portfolio once in the course of the accounting period. The higher a Fund's portfolio turnover rate in an accounting period, the greater the trading costs payable by the Fund in the accounting period, and the greater the chance of an investor receiving taxable capital gains in the accounting period. There is not necessarily a relationship between a high turnover rate and the performance of a Fund.

8 Financial Highlights Series F5 The Fund's Net Assets per Unit Accounting Period Ended December 31 December 31 (92 days) $ $ Net Assets, Beginning of Accounting Period Shown Increase (Decrease) from Operations Total revenue Total expenses (0.08) (0.02) Realized gains (losses) Unrealized gains (losses) (0.73) (0.04) Total Increase (Decrease) from Operations (0.13) 0.08 Distributions From investment income (excluding dividends) From dividends From capital gains 0.05 Return of capital Total Annual Distributions Net Assets, End of Accounting Period Shown This information is derived from the Fund's Annual Audited Financial Statements. The net assets per unit presented in the financial statements might differ from the net asset value calculated for fund pricing purposes. The differences are explained in the notes to the financial statements. Net assets and distributions are based on the actual number of units outstanding at the relevant time. The increase or decrease from operations is based on the average number of units outstanding over the accounting period. Distributions were paid in cash or reinvested in additional units of the Fund, or both. The net assets are calculated in accordance with IFRS. Ratios and Supplemental Data Accounting Period Ended December 31 December 31 (92 days) Total net asset value (000's of $) 1 1 Number of units outstanding Management expense ratio (%) Management expense ratio before waivers or absorptions (%) Trading expense ratio (%) Portfolio turnover rate (%) Net asset value per unit ($) This information is provided as at the last day of the accounting period shown. Management expense ratio is based on total expenses including sales taxes for the accounting period indicated (excluding commission and other portfolio transaction costs) and is expressed as an annualized percentage of daily average net value during the accounting period. The trading expense ratio represents total commissions and other portfolio transaction costs expressed as an annualized percentage of daily average net asset value during the accounting period. The Fund's portfolio turnover rate indicates how actively the Fund portfolio's manager manages its portfolio investments. A portfolio turnover rate of 100% is equivalent to the Fund buying and selling all of the securities in its portfolio once in the course of the accounting period. The higher a Fund's portfolio turnover rate in an accounting period, the greater the trading costs payable by the Fund in the accounting period, and the greater the chance of an investor receiving taxable capital gains in the accounting period. There is not necessarily a relationship between a high turnover rate and the performance of a Fund.

9 Financial Highlights Series T5 The Fund's Net Assets per Unit Accounting Period Ended December 31 December 31 (92 days) $ $ Net Assets, Beginning of Accounting Period Shown Increase (Decrease) from Operations Total revenue Total expenses (0.20) (0.05) Realized gains (losses) Unrealized gains (losses) (0.73) (0.04) Total Increase (Decrease) from Operations (0.26) 0.05 Distributions From investment income (excluding dividends) From dividends From capital gains 0.05 Return of capital Total Annual Distributions Net Assets, End of Accounting Period Shown This information is derived from the Fund's Annual Audited Financial Statements. The net assets per unit presented in the financial statements might differ from the net asset value calculated for fund pricing purposes. The differences are explained in the notes to the financial statements. Net assets and distributions are based on the actual number of units outstanding at the relevant time. The increase or decrease from operations is based on the average number of units outstanding over the accounting period. Distributions were paid in cash or reinvested in additional units of the Fund, or both. The net assets are calculated in accordance with IFRS. Ratios and Supplemental Data Accounting Period Ended December 31 December 31 (92 days) Total net asset value (000's of $) 1 1 Number of units outstanding Management expense ratio (%) Management expense ratio before waivers or absorptions (%) Trading expense ratio (%) Portfolio turnover rate (%) Net asset value per unit ($) This information is provided as at the last day of the accounting period shown. Management expense ratio is based on total expenses including sales taxes for the accounting period indicated (excluding commission and other portfolio transaction costs) and is expressed as an annualized percentage of daily average net value during the accounting period. The trading expense ratio represents total commissions and other portfolio transaction costs expressed as an annualized percentage of daily average net asset value during the accounting period. The Fund's portfolio turnover rate indicates how actively the Fund portfolio's manager manages its portfolio investments. A portfolio turnover rate of 100% is equivalent to the Fund buying and selling all of the securities in its portfolio once in the course of the accounting period. The higher a Fund's portfolio turnover rate in an accounting period, the greater the trading costs payable by the Fund in the accounting period, and the greater the chance of an investor receiving taxable capital gains in the accounting period. There is not necessarily a relationship between a high turnover rate and the performance of a Fund.

10 Summary of Investment Portfolio As at December 31, 2015 Portfolio Top Holdings % of Net Asset Value Toronto-Dominion Bank 6.5 Royal Bank of Canada 5.3 Bank of Nova Scotia 4.6 Canadian National Railway Co. 3.7 Suncor Energy Inc. 3.7 Metro Inc. 3.1 Loblaw Companies Ltd. 3.0 Manulife Financial Corp. 2.9 Canadian Natural Resources Ltd. 2.8 Enbridge Inc. 2.8 Open Text Corp. 2.6 Alimentation Couche-Tard Inc., Class B 2.5 SNC-Lavalin Group Inc. 2.3 Canadian Tire Ltd., Class A 2.3 Cenovus Energy Inc. 2.2 Intact Financial Corp. 2.2 Cash, Money Market and Other Net Assets 2.1 Gildan Activewear Inc. 2.0 Thomson Reuters Corp. 2.0 Descartes Systems Group Inc. 1.8 Great-West Lifeco Inc. 1.8 CGI Group Inc., Class A 1.8 Stantec Inc. 1.6 CAE Inc. 1.5 Industrial Alliance, Insurance & Financial Services Inc Asset Mix % of Net Asset Value Canadian Equity 77.6 US Equity 13.6 International Equity 6.7 Cash, Money Market and Other Net Assets 2.1 Sector Allocation % of Net Asset Value Financials 29.0 Energy 19.1 Industrials 12.3 Consumer Staples 11.6 Information Technology 10.1 Consumer Discretionary 9.1 Health Care 4.2 Materials 1.3 Utilities 1.2 Cash, Money Market and Other Net Assets 2.1 Net asset value $65,890,808 The above table shows the top 25 positions held by the Fund. In the case of a Fund with fewer than 25 positions, all positions are indicated. The Summary of Investment Portfolio may change due to ongoing portfolio transactions of the investment fund. A quarterly update is available. Please consult our Web site at

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