Imperial Canadian Diversified Income Pool. Annual Management Report of Fund Performance

Transcription

1 Imperia Canadian Diversified Income Poo Annua Management Report of Fund Performance for the financia year ended December 31, 2015 A figures are reported in Canadian doars uness otherwise noted This annua management report of fund performance contains financia highights but does not contain the compete annua financia statements of the investment fund If you have not received a copy of the annua financia statements with this annua management report of fund performance, you can get a copy of the annua financia statements at your request, and at no cost, by caing us to-free at , by writing to us at CIBC, 18 York Street, Suite 1300, Toronto, Ontario, M5J 2T8, or by visiting wwwcibccom/mutuafunds or the SEDAR website at wwwsedarcom Unithoders may aso contact us using one of these methods to request a copy of the investment fund s proy voting poicies and procedures, proy voting discosure record, or quartery portfoio discosure Management Discussion of Fund Performance Investment Objective and Strategies Investment Objective: Imperia Canadian Diversified Income Poo (the Poo) seeks to generate income and potentia capita growth by investing primariy in Canadian income-generating equity securities and debt securities Investment Strategies: The Poo empoys a bottom-up, vaue-oriented investment strategy that gives dominant weighting to fundamenta characteristics of individua stocks Risk The Poo is a Canadian neutra baanced fund that is suitabe for medium-term investors who can toerate ow investment risk For the period ended December 31, 2015, the Poo s overa eve of risk remains as discussed in the simpified prospectus Resuts of Operations The portfoio advisor of the Poo is CIBC Asset Management Inc (CAMI or the Portfoio Advisor) The commentary that foows provides a summary of the resuts of operations for the period ended December 31, 2015 A doar figures are epressed in thousands, uness otherwise indicated The Poo's net asset vaue decreased by 8% during the period, from $746,595 as at December 31, 2014 to $685,910 as at December 31, 2015 Net redemptions of $31,070 and negative investment performance resuted in an overa decrease in net asset vaue Cass A units of the Poo posted a return of -37% for the period The Poo s primary benchmark, the S&P/TSX Composite Dividend Inde (the benchmark), returned -77% for the same period The Poo s return is after the deduction of fees and epenses, unike the benchmark Steady US economic growth during the period was offset by weak growth in Europe and a disappointing growth rate in China Canada s economy contracted in the first haf of 2015, eading the Bank of Canada to cut interest rates twice The US doar strengthened against a number of currencies on the epectation that the US Federa Reserve Board woud increase its federa funds rate in 2015 The stronger US doar, combined with weaker industria demand from China, caused commodity prices to fa Moreover, after two separate meetings in 2015, the Organization of the Petroeum Eporting Countries (OPEC) did not cut its oi production quotas, and non-opec oi production did not decrease As a resut, oi prices decined further, with the West Teas Intermediate price down approimatey 39% In this economic environment, Canadian corporate earnings growth was weak The Poo s arge overweight eposure to the outperforming utiities and teecommunication services sectors contributed to its performance, as did its arge underweight aocation to the weak materias and sight underweight aocation to the energy sectors The most significant individua contributors to the Poo s performance incuded Aimentation Couche-Tard Inc (Aimentation Couche-Tard), Emera Inc (Emera) and Cinepe Inc (Cinepe) Aimentation Couche-Tard benefited from strong operationa resuts, improving fue retai margins and the potentia for acquisition growth The outook for Emera was for stabe but modest earnings growth, with the epectation of near-term dividend growth in the mid-singe digits During 2015, Emera bid for TECO Energy Inc, a US-based utiity, which is epected to be a further boost to earnings Cinepe benefited from its fim reeases, steady increase in concession and media saes, and an above-average dividend yied Large underweight aocations to the strongy performing consumer discretionary, consumer stapes and information technoogy sectors detracted from the Poo s reative performance Individua detractors from the Poo s performance incuded Westshore Terminas Investment Corp (Westshore Terminas), Inter Pipeine Ltd (Inter Pipeine) and AtaGas Ltd (AtaGas) Westshore Terminas strugged with weak therma commodity prices, which caused some of its cients to negotiate ower voume throughputs at Westshore Terminas faciities The company reduced

2 Imperia Canadian Diversified Income Poo its revenue and earnings outook and cut its dividend Inter Pipeine s share price decined as a resut of ower energy prices and concerns about weak voume growth over the ong term from Canadian oi sands producers Despite this, with over 90% of its earnings generated from fee-for-service or from cost-of-service contracts, the Portfoio Advisor epects steady free cash fow and dividend growth for Inter Pipeine over the short term AtaGas faced weak Aberta power prices However, its financia resuts were soid and the company increased its dividend during the year The Portfoio Advisor added a new hoding in Brookfied Asset Management Inc based on its asset management fee growth profie and epectations of significant acquisitions with the proceeds of the company s equity issue Eement Financia Corp, a ease financing services company, was purchased on the epectation that equity proceeds wi go toward funding acquisitions in the areas of rai and feet easing Boardwak REIT was added on share price weakness, as the company s stock price fe amid concerns about sower revenue growth in its Aberta operations The Poo s eisting hoding in TELUS Corp was increased on share price weakness, and on the strength of the company s growing heath care information data service Hodings eiminated from the Poo over the period incuded Barrick God Corp (Barrick God), Cenovus Energy Inc (Cenovus), Teck Resources Ltd (Teck Resources) and Godcorp Inc (Godcorp) Barrick God is re-structuring, and the company wi need to se assets to reduce high debt eves in a ow commodity price environment Cenovus was sod as a resut of the weaker energy price environment and the stock s high reative vauation Teck Resources was sod on concerns that ower metaurgica coa and copper prices coud negativey affect financia resuts Godcorp was sod on disappointing operationa resuts and ower-than-epected production and cash fow growth The Portfoio Advisor trimmed the Poo s hodings in Aimentation Couche-Tard foowing a period of strong stock price performance The Poo s hodings in Empire Co Ltd were aso trimmed in response to successive disappointing quartery operationa resuts, a more intense competitive environment and a weaker earnings growth outook Recent Deveopments During the period, there were no events or activities that had a materia impact on the Poo Reated Party Transactions Canadian Imperia Bank of Commerce (CIBC) and its affiiates have the foowing roes and responsibiities with respect to the Poo, and receive the fees described beow in connection with their roes and responsibiities Manager CIBC is the Manager of the Poo CIBC receives management fees with respect to the day-to-day business and operations of the Poo The Poo pays the Manager a maimum annua management fee rate of 025% of the net asset vaue of the Poo, as described in the section entited Management Fees Trustee CIBC Trust Corporation (CIBC Trust), a whoy-owned subsidiary of CIBC, is the trustee (the Trustee) of the Poo The Trustee hods tite to the property (cash and securities) of the Poo on behaf of its unithoders Portfoio Advisor The portfoio advisor provides, or arranges to provide, investment advice and portfoio management services to the Poo CAMI, a whoy-owned subsidiary of CIBC, is the portfoio advisor of the Poo Discretionary Managers As at the date of this report, units of the Poo are offered through discretionary investment management services provided by certain subsidiaries of CIBC (coectivey, the Discretionary Managers) The Discretionary Managers may incude CIBC Trust and CAMI The Discretionary Managers arrange to purchase, switch, and redeem units of the Poo on behaf of their cients who have entered into discretionary investment management agreements with one of the Discretionary Managers The Discretionary Managers are the registered unithoders of the Poos for the purposes of receiving a unithoder materias and having the right to vote a proies with respect to units of the Poo Units of the Poo are aso offered to investors in connection with certain products offered by affiiated deaers pursuant to the terms of the account agreements governing such products There are no compensation arrangements with these deaers in respect of the sae of units of the Poo However, CIBC Trust receives fees from its cients for offering discretionary management services and, from these fees, CIBC Trust may pay affiiated deaers and other CIBC members for services provided in connection with the cient s discretionary investment managed account, which may hod units of the Poo CIBC receives fees from CIBC Trust for the services of CIBC advisors that assist investors with opening discretionary investment management accounts where CIBC Trust acts as the Discretionary Manager and for acting as the investors ongoing reationship manager CIBC is responsibe for the remuneration of the CIBC advisors and may pay the CIBC advisors out of such fees Further detais of the arrangement between CIBC and CIBC Trust may be found in the discretionary investment management agreement between CIBC Trust and investors CAMI receives fees from their cients for offering discretionary investment managed accounts, which may hod units of the Poo, and may pay a portion of such fees to their investment counseors Brokerage Arrangements and Soft Doars The Portfoio Advisor makes decisions, incuding the seection of markets and deaers and the negotiation of commissions, with respect to the purchase and sae of portfoio securities, certain derivative products (incuding futures), and the eecution of portfoio transactions Brokerage business may be aocated by the Portfoio 2

3 Imperia Canadian Diversified Income Poo Advisor to CIBC Word Markets Inc (CIBC WM) and CIBC Word Markets Corp, each a subsidiary of CIBC CIBC WM and CIBC Word Markets Corp may aso earn spreads on the sae of fied income and other securities and certain derivative products (incuding forwards) to the Poo A spread is the difference between the bid and ask prices for a security in the appicabe marketpace, with respect to the eecution of portfoio transactions The spread wi differ based upon various factors such as the type and iquidity of the security Deaers, incuding CIBC WM and CIBC Word Markets Corp, may furnish goods and services other than order eecution to the Portfoio Advisor in partia echange for processing trades through them (referred to in the industry as soft doar arrangements) These goods and services are paid for with a portion of the brokerage commissions and assist the Portfoio Advisor with investment decision-making services for the Poo or reate directy to the eecution of portfoio transactions on behaf of the Poo In addition, CIBC may enter into commission recapture arrangements with certain deaers with respect to the Poo Any commission recaptured wi be paid to the Poo During the period, the Poo paid brokerage commissions and other fees of $890 to CIBC WM; the Poo did not pay any brokerage commissions or other fees to CIBC Word Markets Corp Spreads associated with fied income and other securities are not ascertainabe and, for that reason, cannot be incuded when determining these amounts Poo Transactions The Poo may enter into one or more of the foowing transactions (the Reated Party Transactions) in reiance on the standing instructions issued by the Independent Review Committee (IRC): invest in or hod equity securities of CIBC or issuers reated to a portfoio sub-advisor; invest in or hod non-echange-traded debt securities of CIBC or an issuer reated to CIBC in a primary offering and in the secondary market; invest in or hod debt securities of CIBC or issuers reated to a portfoio sub-advisor purchased in the secondary market; make an investment in the securities of an issuer for which CIBC WM, CIBC Word Markets Corp, or any affiiate of CIBC (a Reated Deaer) acts as an underwriter during the offering of the securities at any time during the 60-day period foowing the competion of the offering of such securities (in the case of a private pacement offering, in accordance with the eemptive reief order granted by the Canadian securities reguatory authorities and in accordance with the poicies and procedures reating to such investment); purchase equity or debt securities from or se them to a Reated Deaer, where it is acting as principa; undertake currency and currency derivative transactions where a Reated Deaer is the counterparty; and purchase securities from or se securities to another investment fund or a managed account managed by the Manager or an affiiate of the Manager At east annuay, the IRC reviews the Reated Party Transactions for which they have issued standing instructions The IRC is required to advise the Canadian securities reguatory authorities if it determines that an investment decision was not made in accordance with conditions of its approva Custodian CIBC Meon Trust Company is the custodian of the Poo (the Custodian) The Custodian hods a cash and securities for the Poo and ensures that those assets are kept separate from any other cash or securities that the Custodian might be hoding The Custodian aso provides other services to the Poo incuding record-keeping and processing of foreign echange transactions The Custodian may hire sub-custodians for the Poo The fees and spreads for services of the Custodian directy reated to the eecution of portfoio transactions by the Poo are paid by CAMI and/or deaer(s) directed by CAMI, up to the amount of the credits generated under soft doar arrangements from trading on behaf of the Poo during that month A other fees and spreads for the services of the Custodian are paid by the Manager and charged to the Poo on a recoverabe basis CIBC owns a 50% interest in the Custodian Service Provider CIBC Meon Goba Securities Services Company (CIBC GSS) provides certain services to the Poo, incuding securities ending, fund accounting and reporting, and portfoio vauation Such servicing fees are paid by the Manager and charged to the Poo on a recoverabe basis CIBC indirecty owns a 50% interest in CIBC GSS 3

4 Imperia Canadian Diversified Income Poo Financia Highights The foowing tabes show seected key financia information about the Poo and are intended to hep you understand the Poo s financia performance for the period ended December 31 The Poo's Net Assets per Unit¹ - Cass A Units Net Assets, beginning of period $ 2250 $ 2119 $ 2036 $ 1932 $ 1915 Increase (decrease) from operations: Tota revenue $ 077 $ 077 $ 075 $ 072 $ 073 Tota epenses (004) (003) (002) (001) (001) Reaized gains (osses) for the period (047) Unreaized gains (osses) for the period (109) (002) Tota increase (decrease) from operations 2 $ (083) $ 205 $ 153 $ 171 $ 087 Distributions: From income (ecuding dividends) $ 022 $ 023 $ 024 $ 023 $ 028 From dividends From capita gains Return of capita Tota Distributions 3 $ 073 $ 074 $ 074 $ 069 $ 072 Net Assets, end of period $ 2096 $ 2250 $ 2119 $ 2033 $ This information is derived from the Poo's audited annua financia statements The Poo adopted Internationa Financia Reporting Standards (IFRS) on January 1, 2014 Previousy, the Poo prepared its financia statements in accordance with Canadian Generay Accepted Accounting Principes (GAAP) as defined in Part V of the CPA Canada Handbook Under Canadian GAAP, the Poo measured fair vaues of its investments in accordance with CICA Handbook Section 3855 which required the use of bid prices for ong positions and ask prices for short positions As such, the net assets per unit figure presented in the financia statements may differ from the net asset vaue cacuated for fund pricing purposes An epanation of these differences can be found in the notes to the financia statements issued prior to January 1, 2014 Upon adoption of IFRS, the Poo measures the fair vaue of its investments by using the cose market prices, where the cose market price fas within the bid-ask spread As such, the Poo's accounting poicies for measuring the fair vaue of investments in the financia statements are consistent with those used in measuring the net asset vaue for transactions with unithoders Accordingy, the opening net asset figure as at January 1, 2013 was restated to refect accounting poicy adjustments made in accordance with IFRS A figures presented for periods prior to January 1, 2013 were prepared in accordance with Canadian GAAP and subsequent thereto were prepared in accordance with IFRS 2 Net assets and distributions are based on the actua number of units outstanding at the reevant time The tota increase (decrease) from operations is based on the weighted average number of units outstanding during the period 3 Distributions were paid in cash, reinvested in additiona units of the Poo, or both Ratios and Suppementa Data - Cass A Units Tota Net Asset Vaue (000s) 4 $ 685,910 $ 746,595 $ 679,987 $ 687,241 $ 607,889 Number of Units Outstanding 4 32,717,006 33,177,932 32,084,657 33,747,774 31,420,972 Management Epense Ratio 5 016% 014% 007% 007% 005% Management Epense Ratio before waivers or absorptions 6 029% 029% 031% 031% 031% Trading Epense Ratio 7 001% 002% 002% 001% 001% Portfoio Turnover Rate % 2257% 1462% 1283% 1342% Net Asset Vaue per Unit $ 2096 $ 2250 $ 2119 $ 2036 $ This information is presented as at December 31 of the period(s) shown 5 Management epense ratio is based on the tota epenses of the poo (ecuding commissions and other portfoio transaction costs), incurred by or aocated to a cass of units for the period shown, epressed as an annuaized percentage of the daiy average net asset vaue of that cass during the period 6 The decision to waive and/or absorb management fees and operating epenses is at the discretion of the Manager The practice of waiving and/or absorbing management fees and operating epenses may continue indefinitey or may be terminated at any time without notice to unithoders 7 The trading epense ratio represents tota commissions and other portfoio transaction costs before income taes epressed as an annuaized percentage of the daiy average net asset vaue during the period Spreads associated with fied income securities trading are not ascertainabe and, for that reason, are not incuded in the trading epense ratio cacuation 8 The portfoio turnover rate indicates how activey the portfoio advisor and/or portfoio sub-advisor manages the portfoio investmentsa portfoio turnover rate of 100% is equivaent to a fund buying and seing a of the securities in its portfoio once in the course of the period The higher a portfoio turnover rate in a period, the greater the trading costs payabe by a fund in the period, and the greater the chance of an investor receiving taabe capita gains in the year There is not necessariy a reationship between a high turnover rate and the performance of a fund 4

5 Imperia Canadian Diversified Income Poo Management Fees The Poo, either directy or indirecty, pays an annua management fee to CIBC to cover the costs of managing the Poo Management fees are based on the net asset vaue of the Poo and are cacuated daiy and paid monthy Management fees are paid to CIBC in consideration for providing, or arranging for the provision of, management, distribution, and portfoio advisory services Advertising and promotiona epenses, office overhead epenses, traiing commissions, and the fees of the portfoio sub-advisor(s) are paid by CIBC out of the management fees received from the Poo The Poo is required to pay appicabe taes on the management fees paid to CIBC Refer to the Simpified Prospectus for the maimum annua management fee rate For the period ended December 31, 2015, 100% of the management fees coected from the Poo was attributabe to genera administration, investment advice, and profit Past Performance The performance data provided assumes reinvestment of distributions ony and does not take into account saes, redemption, distribution, or other optiona charges payabe by any unithoder that woud have reduced returns Past performance does not necessariy indicate how a fund wi perform in the future The Poo s returns are after the deduction of fees and epenses See the section entited Financia Highights for the management epense ratio Year-by-Year Returns The bar chart shows the annua performance of the Poo for each of the periods shown, and iustrates how the performance has changed from period to period The bar chart shows, in percentage terms, how an investment made on January 1 woud have increased or decreased by December 31, uness otherwise indicated Cass A Units Annua Compound Returns This tabe shows the annua compound return of each cass of units of the Poo for each indicated period ended on December 31, 2015 The annua compound tota return is aso compared to the Poo s benchmark(s) During the period, the Poo's primary and bended benchmarks were changed to better refect the Poo's strategic asset mi The Poo s current primary benchmark is the S&P/TSX Composite Dividend Inde The Poo s previous primary benchmark is the S&P/TSX Composite Inde The Poo s bended benchmark (Bended Benchmark) is comprised of the foowing: 45% S&P/TSX Composite Dividend Inde 20% FTSE TMX Canada Mid Term Bond Inde 5

6 Imperia Canadian Diversified Income Poo 20% FTSE TMX Canada Short Term Bond Inde 15% BMO Nesbitt Burns 50 Preferred Share Inde The Poo s previous bended benchmark (Previous Bended Benchmark) is comprised of the foowing: 45% S&P/TSX Composite Inde 20% FTSE TMX Canada Mid Term Bond Inde 20% FTSE TMX Canada Short Term Bond Inde 15% BMO Nesbitt Burns 50 Preferred Share Inde 1 Year 3 Years 5 Years 10 Years* or Since Inception* Inception Date Cass A units -37% 45% 54% 56% November 24, 2003 S&P/TSX Composite Dividend Inde -77% 51% 34% 48% S&P/TSX Composite Inde -83% 46% 23% 44% Bended Benchmark -79% 18% 26% 42% Previous Bended Benchmark -46% 29% 29% 44% * If a cass of units has been outstanding for ess than 10 years, the annua compound return since inception is shown BMO Nesbitt Burns 50 Preferred Shares Inde is intended to represent the Canadian preferred stock market and is comprised of 50 preferred shares issued by Canadian companies FTSE TMX Canada Mid Term Bond Inde is comprised of Canadian Investment-grade bonds with remaining terms greater than 5 years and ess than or equa to10 years Returns are cacuated daiy and are weighted by market capitaization FTSE TMX Canada Short Term Bond Inde is intended to represent the Canadian short-term bond market It contains bonds with remaining effective terms greater than or equa to one year and ess than or equa to 5 years S&P/TSX Composite Dividend Inde aims to provide a broad-based benchmark of Canadian dividend-paying stocks It incudes a stocks in the S&P/TSX Composite Inde with positive annua dividend yieds as of the atest rebaancing of the S&P/TSX Composite Inde S&P/TSX Composite Inde is intended to represent the Canadian equity market and incudes the argest companies isted on the TSX A discussion of the reative performance of the Poo compared to its primary benchmark(s) can be found in Resuts of Operations 6

7 Imperia Canadian Diversified Income Poo Summary of Investment Portfoio (as at December 31, 2015) The summary of investment portfoio may change due to ongoing portfoio transactions of the investment fund A quartery update is avaiabe by visiting wwwcibccom/mutuafunds The Top Positions tabe shows a fund s 25 argest positions For funds with fewer than 25 positions in tota, a positions are shown Cash and cash equivaents are shown in tota as one position % of Net Asset Portfoio Breakdown Vaue Financias 316 Corporate Bonds 174 Energy 113 Other Equities 80 Provincia Government & Guaranteed Bonds 75 Government of Canada & Guaranteed Bonds 68 Teecommunication Services 57 Industrias 44 Utiities 38 Other Bonds 23 Cash & Cash Equivaents 11 Other Assets, ess Liabiities 01 % of Net Asset Top Positions Vaue Toronto-Dominion Bank (The) 42 Canadian Nationa Raiway Co 42 Roya Bank of Canada 39 Bank of Montrea 35 Bank of Nova Scotia 30 Canadian Imperia Bank of Commerce 27 BCE Inc 27 TELUS Corp 21 Franco-Nevada Corp 20 Canada Housing Trust No 1, Series '56', 235%, 2018/12/15 19 Aimentation Couche-Tard Inc, Cass 'B' 19 Enbridge Inc 19 Suncor Energy Inc 18 Manuife Financia Corp 17 Cinepe Inc 16 Intact Financia Corp 15 Canada Housing Trust No 1, 380%, 2021/06/15 14 Province of British Coumbia, 465%, 2018/12/18 14 Province of Quebec, 425%, 2021/12/01 14 Canadian Utiities Ltd, Cass 'A' 13 Magna Internationa Inc, Cass 'A' 13 TransCanada Corp 13 Bank of Montrea, Caabe, 284%, 2020/06/04 13 Province of Quebec, Series 'B113', 375%, 2024/09/01 12 Roya Bank of Canada, 197%, 2022/03/

8 The management report of fund performance may contain forward-ooking statements Forward-ooking statements incude statements that are predictive in nature, that depend upon or refer to future events or conditions, or that incude words such as epects, anticipates, intends, pans, beieves, estimates, or other simiar wording In addition, any statements that may be made concerning future performance, strategies, or prospects and possibe future actions taken by the fund, are aso forward-ooking statements These statements invove known and unknown risks, uncertainties, and other factors that may cause the actua resuts and achievements of the fund to differ materiay from those epressed or impied by such statements Such factors incude, but are not imited to: genera economic, market, and business conditions; fuctuations in securities prices, interest rates, and foreign currency echange rates; changes in government reguations; and catastrophic events We do not undertake, and specificay discaim, any obigation to update or revise any forward-ooking statements, whether as a resut of new information, future deveopments, or otherwise prior to the reease of the net management report of fund performance

9 Imperia Poos CIBC 18 York Street, Suite 1300 Toronto, Ontario M5J 2T Website wwwcibccom/mutuafunds