Financial Statements

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1 SCOTIA ASSET MANAGEMENT LIMITED SCOTIA PREMIUM MONEY MARKET FUND SCOTIA PREMIUM FIXED INCOME FUND and SCOTIA PREMIUM GROWTH FUND Financial Statements As at the year ended October 31, 2012

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3 TABLE OF CONTENTS CORPORATE DATA 4 GENERAL MANAGER S REPORT 5 ECONOMIC REVIEW 7 Gross Domestic Product (GDP) 7 Fiscal Accounts 7 Inflation 8 Foreign Exchange 8 MONEY AND CAPITAL MARKETS REVIEW 9 Domestic Money Market 9 Stock Market 10 FUND PERFORMANCE 10 Scotia Premium Money Market Fund (SPMMF) 10 Scotia Premium Fixed Income Fund (SPFIF) 11 Scotia Premium Growth Fund (SPGF) 12 AUDITED Financial Statements 13 Scotia Premium Money Market Fund (SPMMF) 13 Scotia Premium Fixed Income Fund (SPFIF) 37 Scotia Premium Growth Fund (SPGF) 65 DB&G Fund Managers Limited 3

4 CORPORATE DATA MANAGER Scotia Asset Management (Jamaica) Limited 7 Holborn Road, Kingston 10 Tel: / info@scotiabank.com Website: General Manager: Mr. Brian O. Frazer Board of Directors: Barbara Alexander - Chairperson Jacqueline Sharp - Director Lissant Mitchell - Director Audrey Richards - Director Katherine Bilyk - Director Angela Fowler - Director TRUSTEE JCSD Trustee Services Limited 40 Harbour Street Kingston AUDITORS KPMG Peat Marwick Chartered Accountants 6 Duke Street Kingston BANKERS The Bank of Nova Scotia Jamaica Limited 86 Slipe Road Kingston 5 ATTORNEYS-AT-LAW Hart Muirhead Fatta 53 Knutsford Boulevard Kingston 5 SUB-ADMINISTRATOR, REGISTRAR & TRANSFER AGENT State Street Cayman Trust Company, Ltd. 45 Market Street Suite 3206A Gardenia Court, Camana Bay Grand Cayman, Cayman Islands 4 Scotia Asset Management Limited

5 GENERAL MANAGER S REPORT Dear Unit Holder, During the year, Scotia Asset Management (Jamaica) Limited (SAMJ) successfully completed the conversion of all of its Unit Trust products to a single international platform. This platform will ultimately improve the company s operational efficiencies and offer increased benefits to investors in the Unit Trust Funds. The year-end also marks the one year anniversary since the launch of the Scotia Premium Money Market Fund which through consistent and strategic advertising combined with good fund performance has increased by $1.36 Billion to $1.42 Billion. With the regulatory changes introduced in the last two years and impending changes to the Collective Investment Schemes (CIS) regulation, the Unit Trust industry experienced a number of strategic transformations during the year, which included product development as well as merger and acquisition activities. This resulted in the total number of Unit Trust Funds in the industry increasing from thirteen (13) to eighteen (18), thereby fostering the growth of the market by approximately 36%. Unit Trust Industry Market Share Oct 2012 Manager 4 7.3% Manager A 35.5% SAMJ 50.2% Manager C 6.7% Scotia Asset Management Limited 5

6 As at October 31, 2012, the Unit Trust Industry stood at J$42.98 Billion with SAMJ controlling 50% with AUM of $21.6 billion compared to $20 billion as at the end of October Accordingly, during the fiscal year, SAMJ contributed $315 million to the revenues of Scotia Investments Jamaica Limited compared to $289 million the previous year. During the year, we reviewed the trust deeds of the SPFIF and the SPGF and brought them in line with the unit trust guidelines issued by the FSC in February 2010 and international best practice. The Fund Manager successfully completed the transfer of its fund operations to a new international mutual fund platform that provides improved efficiency, reduces operational risk and will now allow us to provide more investment options to you our valued unit holders. The Fund Manager will continue to be guided by its core investment principles based on asset allocation and diversification, in order to meet the long term objectives of your funds. In closing, I would like to thank the Board of Directors for their guidance and the entire team at Scotia Asset Management (Jamaica) for their hard work over the past year and I look forward to their support as we continue to grow your funds and deliver credible investment performance. Sincerely, SCOTIA ASSET MANAGMENT (JAMAICA) LIMITED Brian Frazer GENERAL MANAGER 6 Scotia Asset Management Limited

7 ECONOMIC REVIEW Gross Domestic Product (GDP) The local economy failed to maintain the economic momentum which ensued over calendar year 2011 when real GDP advanced 1.3% to record the first year of positive growth since the recession of At the turn of calendar year 2012, real GDP growth amounted to -0.1%, -0.2% and -0.9 for the first, second and third quarters respectively. This resulted from weak performances in the Goods Producing and Services industries which both posted declines. rvices industries which both posted declines. 8.0 Real GDP YOY Growth 2.5 Rate(%) Rate (%) -2.0 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Productive Sector (LHS) Service Sector (LHS) All Sectors (RHS) Source: STATIN, PIOJ, SIJL -0.5 Fiscal Accounts Central government s fiscal position reflected marked deterioration for FY 2011/12. The primary balance to GDP declined to 3.1% from the 4.5% for the previous year. This ensued from a weak showing on the revenue front with tax revenue growing at 3.6%, its lowest rate in two decades. The fiscal balance to GDP saw no improvement, remaining at -6.2% but fell short of the budgeted -3.8%. % of GDP FY 2011/12 Actual (% of GDP) versus FY 2011/12 Targets (% of GDP) Total Revenues Wages Debt/GDP Total Primary Balance Fiscal Balance FY 2011/12 FY 2011/ /13 targets Expenditure Source: MOF, SIJL Source: MOF SIJL Scotia Asset Management Limited 7

8 Inflation For the 12 months under review, inflation surfaced at 7.19% compared to 7.74% in the prior year. For the first 10 months, monthly inflation was stable at an average of 0.41% but spiked at the end of the period, due to the higher cost of utilities. Throughout most of the year inflation impact was driven by food and utility costs. 10.0% 7.5% Inflation 2.4% 1.9% Point-to-Point 5.0% 2.5% 0.0% 1.4% 0.9% 0.4% -0.1% Monthly Infaltion -2.5% Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Mthly Headline PTP Headline Source: STATIN, SIJL -0.6% Foreign Exchange For the period November 1, 2011 to October 31, 2012, the Jamaican dollar lost 5.32% of its value to its US dollar counterpart. The Jamaican dollar closed the period at an average selling rate of J$91.09/US$1. The Bank of Jamaica (BOJ) intervened in the foreign exchange market on numerous occasions due to strong demands for the US dollar resulting in the net international reserve (NIR) declining by US$ million to reach US$1.08 billion as at the end of October This represented weeks of goods and services imports, nearing the international benchmark of 12 weeks JMD/USD 12 Month Movements Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Source: SIJL, BOJ J$/US$1 8 Scotia Asset Management Limited

9 For the period, the local currency depreciated by 6.03% against the British Pound. Similarly, the Jamaican dollar lost 6.12% to the Canadian dollar as the exchange rate moved from J$86.48:CAD$1 at November 1, 2011 to J$91.77:CAD$1 at the end of the period. Money And Capital Markets Review Domestic Money Market The BOJ maintained its benchmark interest rate (30-day Certificate of deposit) at 6.25% throughout the year due to significant upside inflation risks induced by higher energy prices in addition to increased pressure on the local currency emanating partly from uncertainty surrounding a new IMF agreement. 7.0% 90-day T-Bill 180-day T-Bill 30-day OMO Yield (%) 6.0% 5.0% Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Source: SIJL, BOJ wever, market-determined interest rates inched higher for the one year period. The av However, market-determined interest rates inched higher for the one year period. The average yield on the 90-day Treasury bill (T-bill) tenor increased from 6.22% at start of November 2011 to 6.38% as at October Similarly, the 180-day inched higher by 42 basis points to finish the period at 6.69%. Stock Market For the financial year, the Jamaica Stock Exchange (JSE) Main Index registered a 5.72% decline. Movement in the main index came amidst a very challenging economic environment. Notwithstanding historically low interest rates, the JSE Main Market underwent significant downward pressure due mainly to investor reticence created by the inability of the government to finalize an agreement with the IMF. Scotia Asset Management Limited 9

10 JSE Main Index 100,000 95,000 90,000 85,000 80,000 75,000 JSE Main Market Activity Volume (Millions) Volume Traded Main Index The JSE Junior Market also fell, reversing the stellar performance it posted in the prior year to decline by 8.7% to end at points. There was one new entrant to the Junior Market during the year. Index Fund Performance JSE Junior Market Activity 300 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Scotia Premium Money Market Fund (SPMMF) The Scotia Premium Money Market Fund, was launched in October 2011 and after one year of subscription to the public, the Net Asset Value (NAV) stood at $1.4 Billion as at October 31, SPMMF is the first Money Market Unit Trust Fund of its type offered in Jamaica with attractive features that include no lock-up period, no encashment fee, quarterly cash flow and safety of capital. The Fund s NAV per share remains at its original issue price of $100. Accordingly, the return to investors is through the Fund s dividend yield which was 5.24% for the 12 month ended October The SPMMF adds to the suite of Unit Trust products offered by Scotia Investments Jamaica and was created to provide investors with a Cash Fund that preserves capital while offering an attractive quarterly dividend payment Volume (Millions) 10 Scotia Asset Management Limited

11 Scotia Premium Fixed Income Fund (SPFIF) The Scotia Premium Fixed Income Fund had a Net Asset Value of $18.3 Billion as at October 31, 2012, maintaining its dominance as the largest Unit Trust Fund in Jamaica. Moreover, the Fund accounted for 60% of the $33 Billion Fixed Income Unit Trust market. Fixed Income Market Share October 31, 2012 Rest of Market 40% SAMJ 60% During the year, the Fixed Income market proved challenging to generate returns that exceeded inflation as market rates registered a significant increase, as much as 200 basis points, resulting in the erosion of some of the increase in market value of the assets in the Fund. While the upward pressure on market rates was expected and the Fund Managers employed strategies to temper its effects, the return on the Fund was still impacted. Accordingly, the Fund s 12 month return and calendar year-to-date returns were 5.11% and 4.20%, respectively, whilst inflation for the corresponding periods were 6.65% and 5.27%, respectively. Compound Growth Rate of Return-As at October 31, Yr 5 Yr 3 Yr 1 Yr 6 Mths 3 Mths 3.53% 2.70% 2.07% 1.21% 5.11% 6.65% 8.64% 9.87% 11.46% 11.49% 11.76% 13.57% CPI PFIF Scotia Asset Management Limited 11

12 Scotia Premium Growth Fund (SPGF) The Scotia Premium Growth Fund stood at $1.8 Billion as at October 31, 2012, representing 37% of the $5 Billion Equity-based Unit Trust market. Equity Market Share October 31, 2012 Rest of Market 63% SAMJ 37% During the period, investor confidence deteriorated amidst concerns about the state of the local economy. This led to a lack lustre performance of the local stock market and resulted in declines in all Equity-based Unit Trust Funds. While this allowed the Fund Managers to take advantage of significant under-valuations in certain stocks, the PGF registered a 12 month return of negative 8.19% and a calendar year-to-date return of negative 9.16%. These returns compare favourably to the returns of the JSE Select Index of negative 16.56% and negative 16.08%, respectively Compound Growth Rate of Return-As at October 31, % % -8.19% -6.11% 10 Yr -1.27% 5 Yr 3 Yr 1 Yr 6 Mths 6.40% 14.47% 7.83% 10.29% 13.10% -0.12% 3 Mths 0.01% JSE Select Index PGF Disclaimers: Important information about the unit trust funds are contained in the respective Fund s Offering Circular. Please read the Fund s Offering Circular before investing. Offering Circulars are available from your local Investment Advisor, the Bank of Nova Scotia and affiliates branches. Always consult your professional tax and legal advisors with respect to your particular circumstances. Nothing herein is intended to constitute an offer or solicitation to transact business for either products or services in any jurisdiction where such an offer or solicitation would be unlawful. Unit values and investment returns for the Funds will fluctuate. Past performance is no guarantee of future performance and may not be repeated. Unit trust funds are not covered by your local Deposit Insurance Corporation or other government deposit insurer. Unit trust funds are not insured by, nor guaranteed by, The Bank of Nova Scotia or its affiliates. 12 Scotia Asset Management Limited

13 Scotia Premium Money Market Fund Financial Statements October 31, 2012 Scotia Asset Management Limited 13

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16 Scotia Premium Money Market Fund 16 Scotia Asset Management Limited

17 Scotia Premium Money Market Fund The financial statements on pages were approve for issue by the Board of Scotia Asset Management ( Jamaica) Limited on Feburary 26, 2013 and signed on behalf by. Scotia Asset Management Limited 17

18 Scotia Premium Money Market Fund 18 Scotia Asset Management Limited

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20 Scotia Premium Money Market Fund 20 Scotia Asset Management Limited

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22 Scotia Premium Money Market Fund 22 Scotia Asset Management Limited

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24 Scotia Premium Money Market Fund 24 Scotia Asset Management Limited

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36 Scotia Premium Money Market Fund 36 Scotia Asset Management Limited

37 Scotia Premium Fixed Income Fund Financial Statements October 31, 2012 Scotia Asset Management Limited 37

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40 Scotia Premium Fixed Income Fund 40 Scotia Asset Management Limited

41 Scotia Premium Fixed Income Fund The financial statements on pages were approve for issue by the Board of Scotia Asset Management ( Jamaica) Limited on Feburary 26, 2013 and signed on behalf by. Scotia Asset Management Limited 41

42 Scotia Premium Fixed Income Fund 42 Scotia Asset Management Limited

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58 Scotia Premium Fixed Income Fund 58 Scotia Asset Management Limited

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62 Scotia Premium Fixed Income Fund 62 Scotia Asset Management Limited

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65 Scotia Premium Growth Fund Financial Statements October 31, 2012 Scotia Asset Management Limited 65

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68 Scotia Premium Growth Fund 68 Scotia Asset Management Limited

69 Scotia Premium Growth Fund The financial statements on pages were approve for issue by the Board of Scotia Asset Management ( Jamaica) Limited on Feburary 26, 2013 and signed on behalf by. Scotia Asset Management Limited 69

70 Scotia Premium Growth Fund 70 Scotia Asset Management Limited

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