Imperial Canadian Dividend Pool

Transcription

1 Imperial Canadian Dividend Pool (Effective February 1, 2011, the name will change to Imperial Canadian Diversified Income Pool) Annual Management Report of Fund Performance for the financial year ended December 31, 2010 All figures are reported in Canadian dollars unless otherwise noted. This annual management report of fund performance contains financial highlights but does not contain the complete annual financial statements of the investment fund. If you have not received a copy of the annual financial statements with this annual management report of fund performance, you can get a copy of the annual financial statements at your request, and at no cost, by calling us toll-free at , by writing to us at CIBC, 5650 Yonge Street, 19th Floor, Toronto, Ontario, M2M 4G3, or by visiting or the SEDAR website at Unitholders 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. Management Discussion of Fund Performance Investment Objective and Strategies Investment Objective: Imperial Canadian Dividend Pool (the Pool) seeks to generate income and potential capital growth by investing primarily in Canadian income-generating equity securities and debt securities. Investment Strategies: The Pool practices a prudent bottom-up, valueoriented investment strategy that gives dominant weighting to fundamental characteristics of the individual stocks. Risk The Pool is a Canadian dividend and income equity fund that is suitable for medium-term investors. Under the volatility classification guidelines recommended by the Investment Funds Institute of Canada, the Pool is classified as having a low level of volatility. During the period, the overall level of risk of investing in the Pool remains as discussed in the simplified prospectus and did not increase or decrease as a result of operations. Results of Operations The portfolio sub-advisor of the Pool is CIBC Global Asset Management Inc. (CIBC Global). The commentary that follows reflects the views of CIBC Global and provides a summary of the results of operations for the period ended December 31, All dollar figures are expressed in thousands, unless otherwise indicated. The Pool s net asset value increased by 11% during the period, from $501,517 as at December 31, 2009 to $558,141 as at December 31, Net sales of $2,387 and positive investment performance contributed to this increase in net asset value. During the period, equity markets pulled back sharply at times over fears of a double-dip recession in the U.S., monetary tightening initiatives by Chinese authorities and its potential negative impact on the global economy, and the possible negative effects of any sovereign debt default by select European countries. Late in the third quarter and during most of the fourth quarter, equity markets climbed as fears subsided. The U.S. Federal Reserve Board announced a second round of quantitative easing in November to support the economy. The U.S. administration also announced that it will keep former President Bush s tax cuts in exchange for extended unemployment benefits for the long-term unemployed and cuts to payroll taxes. As a result, the U.S. outlook improved and the probability of a worsening global economic slowdown decreased in the short term. The Canadian equity component of the Pool is focused on capital preservation and dividend yield support. As such, it is underweight in resource and energy stocks, while being overweight in the financials, utilities, telecommunication services, consumer staples, and consumer discretionary sectors. During the period, CIBC Global eliminated the following stocks in the Pool because it believes they reached their fair valuations: Empire Co., Fairfax Financial Holdings Ltd., Shaw Communications Inc., Husky Energy, and Imperial Oil Ltd. CIBC Global sold the Pool s position in Yellow Media Inc. and reduced the position in Bell Aliant Regional Communications Income Fund. The proceeds from these sales were used to purchase selected resource stocks such as Labrador Iron Ore Royalty Corp. and Vermilion Energy Inc., while adding to its position in Barrick Gold Corp. CIBC Global also increased the Pool s dividend yield with purchases of Groupe Aeroplan Inc. and adding to positions in Canadian Imperial Bank of Commerce, Royal Bank of Canada, and Rogers Communications Inc. The fixed income component of the Pool was positioned defensively during the second and third quarters of the period on the expectation of modestly higher interest rates. The term structure bias was for a flatter yield curve on the expectation of rate increases by the Bank of Canada. During the period, bond yields fell, partially due to European sovereign debt crisis fears, and mid-term bonds performed better than expected. The portfolio had an overweight position in corporate bonds with a large holding in the financials sector. The fixed income interest rate sensitivity was returned to neutral by the fourth quarter, while corporate spreads narrowed leading to better performance.

2 Recent Developments Effective February 1, 2011, the Pool s name will be changed to Imperial Canadian Diversified Income Pool. Harmonized Sales Tax (HST) The introduction of HST in Ontario and British Columbia impacted the Pool s management expense ratio (MER). Prior to July 1, 2010, the Pool paid federal goods and services tax (GST) at a rate of 5% on management fees and other operating expenses. Beginning on July 1, 2010, the HST, which combines the provincial sales tax with the federal goods and services tax, applies to these fees and expenses at a tax rate higher than the GST. The federal rules allow the Pool s applicable HST rate to be calculated as a weighted average based on the value of units held by unitholders residing in each province and territory of Canada. International Financial Reporting Standards (IFRS) In January 2011, the Accounting Standards Board (AcSB) amended the Introduction to Part I of the CICA Handbook Accounting to allow investment companies, which include investment funds, to adopt IFRS for the first time no later than interim and annual financial statements relating to annual periods beginning on or after January 1, Investment companies electing to defer the first time adoption may continue to apply existing Canadian generally accepted accounting principles (Canadian GAAP) until the changeover to IFRS. The Pool will defer the first time adoption and adopt IFRS beginning January 1, As at December 31, 2010, the Manager has developed a changeover plan to meet this timetable. Related Party Transactions Canadian Imperial Bank of Commerce (CIBC) and its affiliates have the following roles and responsibilities with respect to the Pool, and receive the fees described below in connection with their roles and responsibilities: Manager CIBC is the manager (the Manager) of the Pool. CIBC will receive management fees with respect to the day-to-day business and operations of the Pool. The Pool may pay the Manager an annual maximum management fee of up to 0.25% of the net asset value of the Pool, as described in the section entitled Management Fees. Trustee CIBC Trust Corporation, a wholly-owned subsidiary of CIBC, is the trustee (the Trustee) of the Pool. The Trustee holds title to the property (cash and securities) of the Pool on behalf of its unitholders. Portfolio Advisor CIBC Asset Management Inc. (CAMI), a wholly-owned subsidiary of CIBC, is the portfolio advisor (the Portfolio Advisor) of the Pool. The Portfolio Advisor provides, or arranges to provide, investment advice and portfolio management services to the Pool. Portfolio Sub-Advisor CAMI has retained CIBC Global, a wholly-owned subsidiary of CIBC, as the portfolio sub-advisor of the Pool, to provide investment advice and portfolio management services to the Pool. CAMI pays a fee to CIBC Global. Discretionary Managers As at the date of this report, units of the Pool are exclusively offered through discretionary investment management services provided by the Trustee, CIBC Private Investment Counsel Inc. (CPIC), and CIBC Global (collectively, the Discretionary Managers), each a whollyowned subsidiary of CIBC. The Discretionary Managers purchase units of the Pool on behalf of their clients and are registered unitholders of the Pool. CIBC Investor Services Inc. (CIBC ISI) and CIBC Securities Inc. (CIBC SI), each a wholly-owned subsidiary of CIBC, are the dealers through which clients are referred to the Trustee and CIBC Personal Portfolio Services. There are no compensation arrangements with these dealers in respect to the sale of units of the Pool. However, the Trustee receives fees from its clients for offering discretionary managed accounts, which may hold units of the Pool. CIBC receives fees from the Trustee for the services of CIBC advisors with CIBC ISI and CIBC SI, in assisting clients in opening discretionary investment management accounts with the Trustee, and for acting as the clients ongoing relationship manager. CIBC is responsible for the remuneration of the CIBC advisors and may pay the CIBC advisors out of such fees. Further details of the arrangement between CIBC and the Trustee are disclosed in the discretionary investment management account agreement between the Trustee and clients. CPIC and CIBC Global receive fees from their clients for offering discretionary managed accounts, which may hold units of the Pool, and may pay a portion of such fees to their investment counselors. Brokerage Arrangements and Soft Dollars Portfolio sub-advisors make decisions, including the selection of markets and dealers and the negotiation of commissions, with respect to the purchase and sale of portfolio securities, certain derivative products (including futures), and the execution of portfolio transactions. Brokerage business may be allocated by portfolio sub-advisors, including CIBC Global, to CIBC World Markets Inc. (CIBC WM) and CIBC World Markets Corp., each a subsidiary of CIBC. CIBC WM and CIBC World Markets Corp. may also earn spreads on the sale of fixed income, other securities, and certain derivative products (including forwards) to the Pool. A spread is the difference between the bid and ask prices for a security in the applicable marketplace, with respect to the execution of portfolio transactions. The spread will differ based upon various factors such as the nature and liquidity of the security. Dealers, including CIBC WM and CIBC World Markets Corp., may furnish goods and services other than order execution to portfolio sub-advisors, including CIBC Global, that process trades through them (referred to in the industry as soft dollar arrangements). These goods and services are paid for with a portion of brokerage commissions and assist portfolio sub-advisors, including CIBC Global, with investment decision-making services to the Pool or relate directly to the execution of portfolio transactions on behalf of the Pool. As per the terms of the portfolio sub-advisory agreement, such soft dollar arrangements are in compliance with applicable laws. The Portfolio Advisor has entered into an expense reimbursement agreement with CIBC Global on behalf of the Pool. The agreement provides that custodial fees directly related to portfolio transactions incurred by the Pool, otherwise payable by the Pool, shall be paid by CIBC Global, and/or dealer(s) directed by CIBC Global, up to the 2

3 amount of the credits generated under soft dollar arrangements from trading on behalf of the Pool during that month. In addition, the Manager may enter into commission recapture arrangements with certain dealers with respect to the Pool. Any commission recaptured will be paid to the Pool. During the period, brokerage commissions and other fees of $382 were paid by the Pool to CIBC WM. Spreads associated with fixed income securities, other securities, and certain derivative products are not ascertainable and, for that reason, are not included in the dollar values. No brokerage commissions or other fees were paid by the Pool to CIBC World Markets Corp. Service Provider CIBC Mellon Global Securities Services Company (CIBC GSS) provides certain services to the Pool, including securities lending, fund accounting and reporting, and portfolio valuation. Such servicing fees are paid by the Manager and charged to the Pool on a recoverable basis. CIBC indirectly owns a 50% interest in CIBC GSS. Pool Transactions The Pool may enter into one or more of the following transactions in reliance on the standing instructions rendered by the Independent Review Committee (IRC): trade in securities of CIBC; invest in the securities of issuers for which CIBC WM, CIBC World Markets Corp., or another related party acts as an underwriter during the distribution of such securities and the 60-day period following the conclusion of such distribution of the underwritten securities to the public; purchase securities from or sell securities to CIBC WM, CIBC World Markets Corp., or another related party, where acting as principal; and purchase or sell securities of an issuer from or to another investment fund managed by the Manager or an affiliate of the Manager. The relevant standing instructions require that the transactions (i) be made free from any influence of an entity related to the Manager or CIBC Global, and without taking into account any consideration relevant to an entity related to the Manager or CIBC Global, (ii) represent the business judgment of the Manager and CIBC Global, uninfluenced by considerations other than the best interests of the Pool, (iii) be conducted in accordance with CAMI s and CIBC Global s policies and procedures, and (iv) achieve a fair and reasonable result for the Pool. The Manager is required to report a material breach in respect of the standing instructions to the IRC. Custodian The Custodian holds all cash and securities for the Pool and ensures that those assets are kept separate from any other cash or securities that the custodian might be holding. CIBC Mellon Trust Company is the custodian of the Pool (the Custodian). The Custodian may hire sub-custodians for the Pool. The fees for services of the Custodian directly related to the execution of portfolio transactions by the Pool are paid by CIBC Global and/or dealer(s) directed by CIBC Global up to the amount of the credits generated under soft dollar arrangements from trading on behalf of the Pool during that month. All other fees for the services of the Custodian are paid by the Manager and charged to the Pool on a recoverable basis. CIBC owns a 50% interest in the Custodian. 3

4 Financial Highlights The following tables show selected key financial information about the Pool and are intended to help you understand the Pool s financial performance for the periods ended December 31. The Pool s Net Assets per Unit¹ Class A Units Net Assets, beginning of period $17.91 $16.20 $20.52 $20.86 $19.53 Increase (decrease) from operations: Total revenue $ 0.73 $ 0.71 $ 0.84 $ 0.83 $ 0.81 Total expenses (0.02) (0.02) (0.01) (0.02) (0.01) Realized gains (losses) for the period (0.03) Unrealized gains (losses) for the period (3.92) (0.54) 0.68 Total increase (decrease) from operations 2 $ 1.93 $ 2.42 $ (1.91) $ 0.41 $ 2.31 Distributions: From income (excluding dividends) $ 0.33 $ 0.36 $ 0.44 $ 0.31 $ 0.32 From dividends From capital gains Return of capital Total Distributions 3 $ 0.70 $ 0.69 $ 2.38 $ 0.79 $ 0.94 Net Assets, end of period $19.15 $17.91 $16.20 $20.52 $ This information is derived from the Pool s audited annual financial statements. The net assets 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 number of units outstanding at the relevant time. The total 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 additional units of the Pool, or both. Ratios and Supplemental Data Class A Units Total Net Asset Value (000s) 4 $558,141 $501,517 $382,006 $586,260 $529,109 Number of Units Outstanding 4 29,099,326 27,941,131 23,507,820 28,527,171 25,332,510 Management Expense Ratio % 0.10% 0.08% 0.07% 0.07% Management Expense Ratio before waivers or absorptions % 0.34% 0.33% 0.32% 0.33% Trading Expense Ratio % 0.05% 0.07% 0.02% 0.03% Portfolio Turnover Rate % 71.23% 42.03% 16.99% 8.73% Net Asset Value per Unit $19.18 $17.95 $16.25 $20.55 $ This information is presented as at December 31 of the period shown. 5 Management expense ratio is based on the total expenses of the fund (excluding commissions and other portfolio transaction costs), incurred by or allocated to a class of units for the period shown, expressed as an annualized percentage of the daily average net asset value of that class during the period. 6 The decision to waive and/or absorb management fees and operating expenses is at the discretion of the Manager. The practice of waiving and/or absorbing management fees and operating expenses may continue indefinitely or may be terminated at any time without notice to unitholders. 7 The trading expense ratio represents total commissions and other portfolio transaction costs expressed as an annualized percentage of the daily average net asset value during the period. Spreads associated with fixed income securities trading are not ascertainable and, for that reason, are not included in the trading expense ratio calculation. 8 The portfolio turnover rate indicates how actively the portfolio sub-advisor manages the portfolio investments. A portfolio turnover rate of 100% is equivalent to a fund buying and selling all of the securities in its portfolio once in the course of the period. The higher a portfolio turnover rate in a period, the greater the trading costs payable by a fund in the period, and the greater the chance of an investor receiving taxable capital gains in the year. There is not necessarily a relationship between a high turnover rate and the performance of a fund. 4

5 Management Fees The Pool, either directly or indirectly, pays an annual management fee to the Manager in consideration for the provision of, or arranging for the provision of, management, distribution, and portfolio advisory services. This fee is calculated as a percentage of the Pool s net asset value and is calculated and credited daily, and paid monthly. The Pool is required to pay all applicable taxes on the management fees. For the period ended December 31, 2010, of the management fees collected from the Pool, approximately 100% is attributable to general administration, investment advice, and profit. Past Performance The performance data provided assumes reinvestment of distributions only and does not take into account sales, redemption, distribution, or other optional charges payable by any unitholder that would have reduced returns. Past performance does not necessarily indicate how a fund will perform in the future. The Pool s primary benchmark is the S&P/TSX Composite Index. The S&P/TSX Composite Index is intended to represent the Canadian equity market and includes the largest companies listed on the TSX. The Pool s secondary benchmark is a blended index consisting of 45% S&P/TSX Composite Index, 20% DEX Short Term Bond Index, 20% DEX Mid Term Bond Index, and 15% BMO Nesbitt Burns 50 Preferred Shares Index (Blended Benchmark). The DEX Short Term Bond Index is intended to represent the Canadian short-term bond market and contains bonds with remaining effective terms greater than or equal to 1 year and less than or equal to 5 years. The DEX Mid Term Bond Index is comprised of Canadian Investment-grade bonds with remaining terms greater than 5 years and less than or equal to 10 years. Returns are calculated daily and are weighted by market capitalization. The BMO Nesbitt Burns 50 Preferred Shares Index is intended to represent the Canadian preferred stock market and is comprised of 50 preferred shares issued by Canadian companies. For the period, Class A units of the Pool returned 11.0%. Class A units underperformed both the S&P/TSX Composite Index return of 17.6% and the Blended Benchmark return of 11.9% for the same period. The Pool s returns are after the deduction of fees and expenses. See the section entitled Financial Highlights for the management expense ratio. Year-by-Year Returns The bar chart shows the annual performance of the Pool for each of the periods shown, and illustrates how the performance has changed from period to period. The bar chart shows, in percentage terms, how an investment made on January 1 would have increased or decreased by December 31, unless otherwise indicated. Class A Units 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% 16.2% 15.1% 11.6% 12.0% 11.0% 2.3% 2.2% -9.4% 03 a a 2003 return is for the period from November 24, 2003 to December 31,

6 Annual Compound Returns The table shows the annual compound total return of the Pool for each indicated period ended on December 31, The annual compound total return is also compared to the Pool s applicable benchmark(s). Class A Units Class A Units S&P/TSX Composite Index Blended Benchmark 1 Year 11.0% 17.6% 11.9% 3 Years 5.0% 2.1% 4.7% 5 Years 5.8% 6.5% 5.0% Since Inception (for the period from November 24, 2003 to December 31, 2010) 8.3% 10.6% 7.8% Summary of Investment Portfolio (as at December 31, 2010) The summary of investment portfolio may change due to ongoing portfolio transactions of the investment fund. A quarterly update is available by visiting The Top Positions table includes a fund s 25 largest positions. For funds with fewer than 25 positions in total, all positions are shown. Cash and cash equivalents are shown in total as one position. %of Portfolio Breakdown Net Asset Value Financials Corporate Bonds Energy Provincial Government & Guaranteed Bonds Utilities 6.79 Cash & Cash Equivalents 5.88 Materials 5.40 Telecommunication Services 5.09 Consumer Discretionary 4.43 Government of Canada & Guaranteed Bonds 4.37 Industrials 2.52 Consumer Staples 1.48 Municipal Government & Guaranteed Bonds 0.61 Other Assets, Less Liabilities 0.02 %of Top Positions Net Asset Value Cash & Cash Equivalents 5.88 Royal Bank of Canada 3.31 Bank of Nova Scotia 2.96 Bank of Montreal 2.68 Barrick Gold Corp Toronto-Dominion Bank (The) 2.19 TransCanada Corp Suncor Energy Inc Province of Quebec, 5.50%, 2014/12/ BCE Inc Canadian National Railway Co Canadian Utilities Ltd., Class A 1.94 Magna International Inc., Class A 1.78 Province of Ontario, 4.20%, 2018/03/ Province of British Columbia, 4.65%, 2018/12/ Franco-Nevada Corp Province of Quebec, Series B079, 4.50%, 2016/12/ Canadian Imperial Bank of Commerce 1.57 Canada Housing Trust No. 1, Series 29, 2.75%, 2014/09/ Cenovus Energy Inc National Bank of Canada 1.19 Manulife Financial Corp Province of Quebec, 4.50%, 2018/12/ Enbridge Inc EnCana Corp

7 This document may contain forward-looking statements. Forward-looking statements include statements that are predictive in nature, that depend upon or refer to future events or conditions, that include words such as expects, anticipates, intends, plans, believes, estimates, or other similar wording. In addition, any statements that may be made concerning future performance, strategies, or prospects and possible future actions taken by the fund, are also forwardlooking statements. These statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results and achievements of the fund to differ materially from those expressed or implied by such statements. Such factors include, but are not limited to: general economic; market and business conditions; fluctuations in securities prices, interest rates, and foreign currency exchange rates; changes in government regulations; and catastrophic events. We do not undertake, and specifically disclaim, any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments, or otherwise prior to the release of the next management report of fund performance.

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