Lysander Short Term and Floating Rate Fund

Transcription

1 Lysander Short Term and Floating Rate Fund Management Report of Fund Performance December 31, 2013

2 Management Report of Fund Performance As at December 31, 2013 A NOTE ABOUT FORWARD LOOKING STATEMENTS This Management Report of Fund Performance includes certain statements that are forward looking statements. All statements, other than statements of historical fact, included in this Management Report of Fund Performance that address activities, events or developments that the Fund expects or anticipates will or may occur in the future, including such things as anticipated financial performance, are forward looking statements. The words may, could, would, should, believe, plan, anticipate, expect, intend, forecast, objective and similar expressions are intended to identify forward looking statements. These forward looking statements are subject to various risks and uncertainties, including the risks described in the Simplified Prospectus of the Fund, which could cause actual financial performance and expectations to differ materially from the anticipated performance or other expectations expressed. Readers are cautioned not to place undue reliance on these forward looking statements. All opinions contained in forward looking statements are subject to change without notice and are provided in good faith but without legal responsibility. The Fund has no specific intention of updating any forward looking statements whether as a result of new information, future events or otherwise, except as required by securities legislation. Certain research and information about specific holdings in the Fund, including any opinion, is based upon various sources believed to be reliable, but it cannot be guaranteed to be current, accurate or complete. It is for information only, and is subject to change without notice. 1

3 Management Report of Fund Performance As at December 31, 2013 This annual Management Report of Fund Performance of Lysander Short Term and Floating Rate Fund (the Fund ) contains financial highlights for the year ended December 31, 2013 but does not contain the complete financial statements of the investment funds. This report should be read in conjunction with financial statements of the Fund for the year ended December 31, You can get a copy of the financial statements at your request, and at no cost, by calling toll-free , by writing to us at Lysander Funds Limited, 100 York Boulevard Suite 550, Richmond Hill Ontario, L4B 1J8, by visiting our website at or at SEDAR at Unitholders may also contact us using one of these methods to request a copy of the investment funds proxy voting policies and procedures, proxy voting disclosure record, or quarterly portfolio disclosure. Management Discussion of Fund Performance Investment Objective The Fund s objective is to provide total returns consisting principally of interest income by investing primarily in short term fixed income and floating rate debt securities of Canadian and foreign issuers. Investment Strategies The Fund s Portfolio Manager, Canso Investment Counsel ( Canso ), engages in opportunistic buying and selling of securities using a contrarian approach. Canso believes that it is able to access market segments and exploit inefficiencies in the corporate bond market that are not available or apparent to most investors, due to its proprietary credit analysis and trading expertise. Canso also applies its credit analysis expertise to the selection of equity securities for the Fund. The Fund s portfolio positions will primarily be invested in fixed income and floating rate debt securities of Canadian and foreign issuers. It also may invest in debt securities convertible into common stock, and fixed income and floating rate debt securities of governments, government agencies, supranational agencies, companies, trusts and limited partnerships. Some of the Fund s portfolio positions will, under normal circumstances, be invested in securities of foreign issuers. The Fund may hold all or a portion of its assets in cash or cash equivalents or invest in short term bonds or money market instruments in response to adverse market, economic and/or political conditions or for liquidity, defensive or other purposes. As a result, the Fund may not always be fully invested in accordance with its investment objectives. More details are contained in the Fund s simplified prospectus. 2

4 Management Discussion of Fund Performance, continued Risks The Fund remains exposed to all of the risks described in its most recent Simplified Prospectus. In addition, at December 31, 2013, three unitholders held approximately 36.6% of the Series A units of the Fund. This exposed the Fund to the Large Transaction Risk described in the Simplified Prospectus relating to a large possible redemption. In accordance with the methodology described in the Simplified Prospectus, we continue to rate the Fund as medium risk. We also continue to believe this Fund may be suitable for you if you plan to hold this investment for the medium to long term. The Fund offers two series of units, Series A and Series F. Each series of units is charged, as a separate series, the expenses attributable to that particular series. There is a risk, however, that the expenses of one series may affect the value of the other series if one series is unable to pay its expenses. In this case, the mutual fund as a whole is responsible for paying the additional expenses. Results of Operations During the period Canso employed its bottom-up process to buy and sell securities for the Fund. At the end of the period, the Fund s yield-to-maturity (before taking into account any expenses of the Fund) was roughly 2.6% with an average term-to-maturity of slightly less than 3 years. This positioning and performance is entirely consistent with the Fund s fundamental investment objective and strategies. There were no unusual trends in redemptions or sales. There were no significant changes to the components of revenue and expenses of the Fund and there were no unusual or infrequent events or transactions, economic changes or market conditions that affected performance beyond what would be reasonably expected. The Fund did not borrow money during the period. Recent Developments The Fund s future performance will be affected by the future direction of equity markets and by future changes in the level of interest rates and by changes to the additional yield provided by corporate bonds over Government of Canada bonds. But, the degree to which these future changes occur are highly uncertain. There have been no changes to the manager or portfolio adviser, or change of control of the manager, or of the investment fund in the period. There have been no actual or planned reorganizations, mergers or similar transactions. The membership of the independent review committee of the Fund was unchanged during the period. 3

5 Management Discussion of Fund Performance, continued Transition to International Financial Reporting Standards The Fund will be required to adopt the International Financial Reporting Standards ( IFRS ) beginning in their fiscal 2014 year. In preparation to meet the requirements, Lysander Funds Limited (the Manager ) has established a plan to perform the following steps in managing the transition to IFRS: a) Established a working group for the development and implementation of a transition plan and to provide oversight of the transition to IFRS; b) Commencing activities to identify key issues and the likely impacts resulting from the adoption of IFRS; and c) Initiating analysis with the fund administrator to reconfigure accounting systems used by the Funds. The key elements of the plan currently include the disclosures of the quantitative impact, if any, in the comparative 2013 financial statements and the preparation of the 2014 financial statements in accordance with IFRS. The Manager s analysis is continuing, but the major qualitative impacts identified based on standards approved to date are the addition of a cash flow statement and the impact of classification of puttable instruments as a liability or as an equity. The Manager expects that there will be an impact on the financial statement presentation and disclosures of the Fund upon adoption of IFRS. Regardless of the financial statement impacts, the Manager has presently determined that there will be no quantitative impact to the transactional NAV of each series as a result of the changeover to IFRS. Related Party Transactions Lysander Funds Limited is the manager of the Fund. The Manager provides or arranges for the provision of all general management and administrative services required by the Fund in its day-today operations, including but not limited to, calculating and reporting the net asset value of the Fund and its series, preparing all offering documents, unitholder recordkeeping and other administrative services. The Fund paid approximately $7,178 (including HST) in management fees to the Manager for the year ended December 31, 2013 (December 31, 2012: Nil). Canso Investment Counsel is the portfolio manager ( Portfolio Manager ) of the Fund. The Portfolio Manager is responsible for all investment advice provided to the Fund including providing investment analysis and recommendations, making investment decisions and arranging for the acquisition and disposition of portfolio investments. Fees for providing these services is included in the management fee. The Fund paid approximately $1,070 (including HST) to the Portfolio Manager for the year ended December 31, 2013 (December 31, 2012: Nil). 4

6 Financial Highlights The following table shows selected financial information for the period ended December 31, 2013 for Series A and F, and is intended to help you understand the Series financial performance. Series A Period ended December 31, 2013 December 31, 2012* Series Net assets Per Unit 1 Net assets, beginning of period $ Increase (decrease from operations): Total revenue Total expenses (0.05) - Realized gains (losses) (0.01) - Unrealized gains (losses). (0.01) - Total increase (decrease) from operations Distributions: From income (excluding dividends) (0.05) - From dividends From capital gains/losses Total Distributions 2,3.. (0.05) - Net assets, end of period 2,3 $ Ratios and Supplemental Data Net asset value 4.. 1,501,197 - Units outstanding ,189 - Management expense ratio % - Management expense ratio before waivers or absorption % - Portfolio turnover rate 6 5% - Trading expense ratio % - Net asset value per unit, end of period. $ *Series A commenced operations on September 18, 2013 and accordingly prior period numbers are not available. Notes 1 The information is derived from the Fund s audited annual financial statements. The net asset per unit presented in the financial statements differs from the net asset value calculated for fund pricing purposes. An explanation of these differences can be found in the notes to the financial statements. 2 Net assets and distributions are based on the actual numbers of units outstanding at the relevant time. The increase (decrease) in operations is based on the weighted average number of units outstanding over the financial period. This table is not intended to be a reconciliation of beginning to ending net assets per unit. 3 Distributions were paid in cash or reinvested in additional units, or both. 4 This information is provided at the end of the period shown. 5 The management expense ratio is based on the total expenses of the period ended and is expressed as an annualized percentage of daily average net asset values during the period. 6 The Fund s portfolio turnover rate indicates how actively the Fund s portfolio adviser 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 year. The higher a fund s portfolio turnover rate in a year, the greater the trading costs payable by the fund in the period, and the greater the chance of an investor receiving taxable capital gains in the period. There is not necessarily a relationship between a high turnover rate and the performance of a fund. The portfolio turnover rate is calculated based on the lesser of purchases or sales of securities divided by the weighted average market value of portfolio securities, excluding short term securities 7 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 period. 5

7 Series F Period ended December 31, 2013 December 31, 2012* Series Net assets Per Unit 1 Net assets, beginning of period $ Increase (decrease from operations): Total revenue Total expenses (0.03) - Realized gains (losses) (0.01) - Unrealized gains (losses). (0.01) - Total increase (decrease) from operations Distributions: From income (excluding dividends) (0.06) - From dividends - - From capital gains/losses Total Distributions 2,3.. (0.06) - Net assets, end of period 2,3 $ Ratios and Supplemental Data Net asset value 4.. 5,918,828 - Units outstanding ,908 - Management expense ratio % - Management expense ratio before waivers or absorption % - Portfolio turnover rate 6 5% - Trading expense ratio Net asset value per unit, end of period. $ *Series F commenced operations on September 18, 2013 and accordingly prior period numbers are not available. Notes 1 The information is derived from the Fund s audited annual financial statements. The net asset per unit presented in the financial statements differs from the net asset value calculated for fund pricing purposes. An explanation of these differences can be found in the notes to the financial statements. 2 Net assets and distributions are based on the actual numbers of units outstanding at the relevant time. The increase (decrease) in operations is based on the weighted average number of units outstanding over the financial period. This table is not intended to be a reconciliation of beginning to ending net assets per unit. 3 Distributions were paid in cash or reinvested in additional units, or both. 4 This information is provided at the end of the period shown. 5 The management expense ratio is based on the total expenses of the period ended and is expressed as an annualized percentage of daily average net asset values during the period. 6 The Fund s portfolio turnover rate indicates how actively the Fund s portfolio adviser 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 year. The higher a fund s portfolio turnover rate in a year, the greater the trading costs payable by the fund in the period, and the greater the chance of an investor receiving taxable capital gains in the period. There is not necessarily a relationship between a high turnover rate and the performance of a fund. The portfolio turnover rate is calculated based on the lesser of purchases or sales of securities divided by the weighted average market value of portfolio securities, excluding short term securities 7 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 period. 6

8 Management Fees The Manager provides or arranges the provision of all general management and administrative services required by the Fund, and as described in the section Related Party Transactions above. In consideration for such services, the Manager receives a monthly management fee, based on the net asset value of each Series, calculated daily and payable monthly. The Fund pays a management fee of 1.05% per annum for Series A units and 0.55% per annum for Series F units. Service fees or trailing commissions of a maximum of 0.50% per annum are paid on Series A units to dealers. This comprises approximately 50% of the management fee of Series A units. Past Performance The commencement of operations as a reporting issuer for Series A and Series F was September 18, Accordingly, returns are shown for the relevant period as indicated below. The performance information assumes that any distributions are reinvested in additional securities of the Fund. The performance information does not take into account sales, redemption, distribution or other optional charges that would have reduced returns or performance. Past performance does not necessarily indicate how the series will perform in the future. Series A: 0.36% 1,2 Series F: 0.52% 1,3 1: Returns are not annualized 2: Series A return is for the period September 18, 2013 to December 31, : Series F return is for the period September 18, 2013 to December 31, 2013 Year-by-Year Returns As the Fund has been in operation for less than a year, no year by year returns are available. Annual Compound Returns As the Fund has been in operation for less than a year, no annual compound returns are available. 7

9 Summary of Investment Portfolio As at December 31, 2013 Top 25 Holdings % of NAV Asset Mix % of NAV Met Life Global Funding 7.8% Cash & Cash Equivalents 1.2% Central 1 Credit Union 7.3% Canadian Issuer Fixed Income 55.4% GE Capital 7.3% Foreign Issuer Fixed Income 43.2% Enbridge Inc 5.2% Other Assets 0.2% Royal Bank of Scotland 4.9% Total 100.0% Manulife 4.8% Hydro One 4.8% Sun Life Financial 4.7% Leisureworld 4.1% Honda Canada 3.9% Sector Mix % of NAV Lloyds Bank PLC 3.8% Financial 63.7% Sallie Mae 3.8% Private Placements 16.0% Goldman Sachs 3.7% Energy 7.4% Kimco 3.7% Infrastructure 4.8% Standard Life 3.6% Real Estate 3.7% WTH Car Rental ULC (AVIS) 3.6% Communication 3.0% Morgan Stanley 3.6% Cash and cash equivalents 1.2% Principal Fin. Gl. Fdn 3.4% Other Assets 0.2% Unicredit SPA 2.9% Total 100.0% YPG Financing Inc. 2.8% Commerzbank AG 2.2% National Grid Electrical 2.2% AON Finance 2.1% Cash and cash equivalents 1.2% 407 East Development Group General Partnership 0.8% Total 98.2% 8