HSBC Canadian Bond Pooled Fund. Annual Management Report of Fund Performance for the year ended December 31, 2016

Transcription

1 HSBC Canadian Bond Pooled Fund Annual Management Report of Fund Performance for the year ended December 31, 2016

2 HSBC Canadian Bond Pooled Fund Management Discussion of Fund Performance In this document, you and your refer to the unitholder of the Fund; we, us and our refer to HSBC Global Asset Management (Canada) Limited; and the Fund refers to the HSBC Canadian Bond Pooled Fund. We are the manager and primary investment advisor of the Fund. Introduction This Annual Management Report of Fund Performance contains financial highlights but does not contain the complete annual or semi-annual financial statements of the investment fund. You may obtain a copy of the Fund s annual or semi-annual financial statements at your request, at no cost, by calling us toll-free at , by visiting our website at by visiting the SEDAR website at or by writing to us at: Corporate Secretary HSBC Global Asset Management (Canada) Limited 3rd Floor, 885 West Georgia Street Vancouver, BC V6C 3E8 You may also contact us using one of these methods to request a copy of the Fund s proxy voting policies and procedures, proxy voting disclosure record or quarterly statement of investment portfolio. Investment Objective and Strategies The fundamental investment objective of this Fund is to provide regular income and long-term capital growth. To achieve its objectives, the Fund invests primarily in investment-grade bonds, debentures, commercial and residential mortgage-backed securities, asset-backed securities and other fixed income securities either issued or guaranteed by the Government of Canada, a province or municipality of Canada, Canadian corporations or Canadian master trusts. Risk The risks of investing in the Fund remain as discussed in the Simplified Prospectus. During the year ended December 31, 2016, there was no material change to the risk level of the Fund or to the Fund s sensitivity to interest rate changes, changes to the shape of the yield curve, credit risk, market risk or currency risk. The magnitude of the Fund s active strategy positions remains consistent with its long- term risk profile. This Fund is suitable for investors who want to earn interest income and grow their capital. Investors in this Fund should have a medium-term investment time horizon and a low to medium tolerance for risk in their returns. Results of Operations As of December 31, 2016, the Fund s net assets increased by 3.7% to $790.1 million from $762.2 million at the end of Of this increase, a $18.7 million gain was attributable to investment performance and $9.2 million was attributable to net contributions to the Fund. 1 Investment Performance The HSBC Canadian Bond Pooled Fund rose 2.52% for the year ending December 31, 2016, while the benchmark, FTSE TMX Universe Bond Index rose 1.66% over the same period. The Fund s lower duration, or interest rate risk, had a small positive impact on relative performance in 2016, as did security selection within the Fund s corporate holdings. The Fund s overweight position in residential mortgages and corporate bonds, including a small exposure to high-yield, was a source of outperformance on the year, while the Fund s higher running yield also had a positive impact on relative returns. The first three quarters of 2016 brought with them no shortage of surprises, including a sharp sell-off in risk assets in the first quarter and the shock result delivered by Brexit. Market expectations for the impact of a growth and reflation agenda from the Trump administration quickly lent support to equity and credit markets while putting upward pressure on government bond yields. This upward pressure on yields was further magnified by the Federal Reserve s decision to raise US overnight rates by 25 basis points in December. For global fixed income markets the result was the worst quarterly performance in over a decade. The 10-year Government of Canada bond yield, commonly looked at as a proxy for the broad market, spiked 72 basis points to 1.72% in in the fourth quarter. There continued to be significant divergence in the performance of the different sectors of the market. Corporate bonds were the best-performing sector of the market. Recent Developments At this point, with longer-term yields expected to rise modestly over the next year, the objective will be to maintain the Fund s interest rate exposure at or slightly below the benchmark in the near term. With yields at the short end of the yield curve relatively anchored, we would expect that upward pressure on longer-term yield will lead to a steepening of the yield curve. We feel that the corporate sector remains fundamentally sound with improving earnings growth and defensively positioned balance sheets. With valuations in credit markets having cheapened over the past few quarters we continue to prefer provincial and corporate bonds over Government of Canada bonds and will look to remain overweight these sectors. Pro-growth policy initiatives in the US are expected to boost not only US, but global growth in the next few years. The resumption of the US Federal Reserve s tightening of monetary policy may temper those expectations somewhat, but this tightening cycle is expected to see rates raised at a measured pace. The Bank of Canada is expected to remain on hold in That said, one more cut remains possible if growth fails to improve as expected.

3 HSBC Canadian Bond Pooled Fund Related Party Transactions We, on behalf of the Fund, or the Fund Manager, may, from time to time, enter into transactions or arrangements with or involving other members of the HSBC Group or other people or companies related or connected to us or the Fund. To proceed with the transactions, the Fund relies on the positive recommendation of the Fund s Independent Review Committee. A condition of this positive recommendation is that the transactions are performed in accordance with our policy on Related Party Transactions. For more general information on persons related to the Fund and the types of potential transactions, see the Fund s Simplified Prospectus. The following is a summary of current transactions and arrangements with entities that are related to us or the Fund. Manager and Investment Advisor We are the manager and primary investment advisor of the Fund. As manager, we manage the overall business and operations of the Fund. As primary investment advisor, we provide investment advice and portfolio management services to the Fund. We receive a fee from the Fund for these services. Trustee Services For the year ended December 31, 2016, the Fund paid HSBC Trust Company (Canada) (an affiliate) $4,000 (December 31, 2015, $5,000) for acting as trustee. Distribution Services The Fund is distributed through us, HSBC Investment Funds (Canada) Inc. (our wholly owned subsidiary). We may pay distribution and servicing fees to our related party distributor based on the value of the units held in the investor s account, and additionally, in some cases, on the amount of the initial purchase. Fund on Fund Investing During the year ended December 31, 2016, the Fund invested in units of the HSBC Mortgage Fund, which is also managed by us. To proceed with the transactions, the Fund relied on the positive recommendation of the Fund s Independent Review Committee by way of Standing Instruction. A condition of this positive recommendation was that the transactions were performed in accordance with our policy on fund on fund investing. 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 years shown. This information is derived from the Fund s audited annual financial statements. The information in the following tables is based on prescribed regulations, and as a result, is not expected to add due to the increase/decrease in net assets from operations being based on average units outstanding during the year and all other numbers being based on actual units outstanding at the relevant point in time. HSBC Canadian Bond Pooled Fund Net Assets per Unit (1) Years ended December Net assets per unit, beginning of year (2) $12.13 $12.18 $11.63 $12.05 $11.94 Increase (decrease) from operations: Total revenue Total expenses (0.01) (0.01) (0.01) (0.01) Realized gains (losses) Unrealized gains (losses) (0.19) (0.10) 0.51 (0.44) (0.05) Total increase (decrease) from operations (2) $0.30 $0.35 $0.94 $(0.01) $0.60 Distributions to unitholders: From income (excluding dividends) (0.42) (0.42) (0.41) (0.43) (0.44) From dividends From capital gains (0.09) (0.06) From return of capital Total annual distributions (2,3) $(0.51) $(0.42) $(0.41) $(0.43) $(0.50) Net assets per unit, end of year (2) $11.93 $12.13 $12.18 $11.61 $12.05 Ratios and Supplemental Data NAV (in 000s) (4) $790,135 $762,227 $691,241 $507,963 $349,279 Units outstanding (in 000s) (4) 66,245 62,820 56,750 43,685 28,948 Management expense ratio ( MER ) (5) 0.05% 0.06% 0.07% 0.07% 0.08% MER before absorbed or waived fees (5) 0.05% 0.06% 0.07% 0.07% 0.08% Portfolio turnover rate (6) 37.19% 21.85% 22.32% 54.66% 38.87% Trading expense ratio (7) n/a n/a n/a n/a n/a NAV per unit (4) $11.93 $12.13 $12.18 $11.63 $12.07 (1) This information is derived from the Fund s audited annual financial statements. 2016, 2015, 2014, and 2013 balances are stated in IFRS balances are stated in accordance with Canadian GAAP. For 2012 the net assets per unit presented in the financial statements may differ from the net asset value calculated for fund pricing purposes. Thereafter, under IFRS, the net asset per unit presented in the financial statements is the same as the net asset value calculated for fund pricing purposes (2) Net assets per unit and distributions per unit are based on the actual number of units outstanding at the relevant time. The increase/decrease in net assets from operations per unit is based on the weighted average number of units outstanding over the fiscal year. (3) Distributions are automatically reinvested in additional units of the Fund, unless the unitholder withdraws from the automatic reinvestment plan by providing written notice to us. (4) This information is provided as at year-end. (5) Management expense ratio is based on total expenses (excluding distributions, commissions and other portfolio transaction costs) for the stated period and is expressed as an annualized percentage of daily average net asset value during the year. In the year a Fund is established, the MER is annualized from the date of inception to the 2

4 HSBC Canadian Bond Pooled Fund end of the period. We may have waived or absorbed certain fees and expenses otherwise payable by the Fund. The amount of expenses absorbed or waived is at the discretion of and can be terminated at anytimebyus. (6) The Fund s portfolio turnover rate indicates how actively the Fund s portfolio advisor 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 the Fund s portfolio turnover rate in a year, the greater the trading costs payable by the Fund in the year, 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 the Fund. The rate is calculated based on the lesser of purchases or sales of securities divided by the average weighted market value of the portfolio securities, excluding short-term securities. (7) The trading expense ratio represents commissions and other portfolio transaction costs expressed as an annualized percentage of daily average net asset value during the year. Management Fees For the year ended December 31, 2016, the Fund did not pay management fees. You pay us, HSBC Investment Funds (Canada) Inc., HSBC Private Wealth Services (Canada) Inc., or your approved advisor a management fee that is based on the amount you have invested with us or your approved advisor (which may be subject to certain minimum annual fees). It is negotiated between you and us, HSBC Investment Funds (Canada) Inc., or your approved advisor. Further details can be found in the Fund s Simplified Prospectus. Management fees paid to us were used to pay costs for managing the investment portfolio, providing investment analysis and recommendations, making investment decisions, making brokerage arrangements for the purchase and sale of the investment portfolio and providing other services. The management fees also funded commission payments and other compensation (collectively distribution costs ), to sales representatives and registered dealers and brokers including HSBC Investment Funds (Canada) Inc., and HSBC Bank Canada, for units of the Fund bought and held by unitholders. Finally, we used management fees to pay for additional marketing and distribution services to the Fund. For the year ended December 31, 2016, approximately 42% of the total management fees paid to us for all HSBC Pooled Funds were used to fund distribution costs. Past Performance The performance information shown assumes that all distributions made by the Fund in the years shown were reinvested in additional securities of the Fund. The performance information does not take into account management fees, sales, redemption, distribution, optional charges or expenses you may be charged outside of the Fund or the effect of any income tax you may have to pay as a result of your investment in the Fund that would have reduced returns or performance. The Fund s past performance does not necessarily indicate how it will perform in the future. Year-to-Year Returns Years ended December 31 The following bar chart shows the Fund s annual performance for each of the years shown, and illustrates how the Fund s performance changed from year to year. In percentage terms, the bar chart shows how much an investment made on the first day of each financial year would have grown or decreased by the last day of each financial year. Annual Returns 15% 10% 5% 0% -5% 3.5% 4.4% 7.3% 7.7% 8.7% 5.1% -0.1% 8.4% 3.1% 2.5% Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec Annual Compound Returns Years ended December 31, 2016 The following table shows the Fund s historical annual compound total returns for the years indicated, compared with the benchmark index, the FTSE TMX Canada Universe Bond Index, over the same period. This index is a broad measure of the total return for the Canadian bond market, covering marketable Canadian bonds with a term to maturity of more than one year. 1Year 3Year 5Year 10Year HSBC Canadian Bond Pooled Fund 2.52% 4.64% 3.77% 5.03% FTSE TMX Canada Universe Bond Index 1.66% 4.61% 3.23% 4.78% Summary of Investment Portfolio As at December 31, 2016 Asset Mix Percentage of NAV Corporate Bonds 45.54% Government Bonds 39.00% Mutual Funds 9.70% Asset Backed 3.51% Cash & Equivalents 2.25% Total % 3

5 HSBC Canadian Bond Pooled Fund Top 25 Holdings Percentage of NAV HSBC Mortgage Fund - Institutional Series 8.15% Government of Canada, 4.00% 06/01/ % Province of Ontario, 5.60% 06/02/ % Province of Ontario, 3.45% 06/02/ % Province of British Columbia, 4.70% 06/18/ % CDP Financial Inc., 4.60% 07/15/ % Government of Canada, 0.43% 04/06/ % Government of Canada, 5.75% 06/01/ % Province of British Columbia, 5.70% 06/18/ % Province of Quebec, 4.25% 12/01/ % Province of Saskatchewan, 5.00% 03/05/ % Province of New Brunswick, 3.55% 06/03/ % BHP Billiton Finance Ltd., 3.23% 05/15/ % Province of Ontario, 2.85% 06/02/ % SPDR Barclays Capital High Yield Bond ETF 1.54% Peel Regional Municipality, 5.10% 06/29/ % AT&T Inc., 3.83% 11/25/ % Province of Manitoba, 3.25% 09/05/ % WestJet Airlines Ltd., 3.29% 07/23/ % Canadian Western Bank, 3.08% 01/14/ % Commonwealth Bank of Australia, 5.15% 04/09/ % Merrill Lynch & Co., Inc., 5.29% 05/30/ % Province of Manitoba, 4.05% 09/05/ % BP Capital Markets PLC, 3.50% 11/09/ % Pembina Pipeline Corp., 3.71% 08/11/ % Total oftop 25 Holdings 57.51% The Summary of Investment Portfolio may change due to ongoing portfolio transactions of the Fund, and is available quarterly. The Fund invests in other mutual funds, and the prospectus and other information about the underlying funds is available on SEDAR at 4

6 For more information You can find more information about HSBC Pooled Funds in the Fund s Simplified Prospectus, Annual Information Form, Annual and Semi-Annual Report and Fund Facts. You can get a copy of these documents at no cost by calling us toll-free at or by contacting your authorized dealer. These documents and other information about the Fund, such as information circulars and material contracts, are also available at Copies of the Annual and Semi-Annual Report, Simplified Prospectus, Annual Information Form, Annual and Interim Management Report of Fund Performance and Fund Facts are available on our website at How to reach us HSBC Global Asset Management (Canada) Limited Vancouver 3rd Floor, 885 West Georgia Street Vancouver, BC V6C 3E8 Toronto Suite 300, 70 York Street Toronto, ON M5J 1S9 Toll-free: Fax: global_asset_management@hsbc.ca Website: A NOTE ON FORWARD-LOOKING STATEMENTS This report may contain forward-looking statements about the Fund, including its strategy, expected performance and condition. Forward-looking statements include statements that are predictive in nature that depend upon or refer to future events or conditions, or that include words such as expects, anticipates, intends, plans, believes, estimates or negative versions thereof and similar expressions. In addition, any statement that may be made concerning future performance, strategies or prospects, and possible future Fund action, is also a forward-looking statement. Forward-looking statements are based on current expectations and projections about future events and are inherently subject to, among other things, risks, uncertainties and assumptions about the Fund and economic factors. Forward-looking statements are not guarantees of future performance, and actual events and results could differ materially from those expressed or implied in any forward-looking statements made by the Fund. Any number of important factors could contribute to these digressions, including, but not limited to, general economic, political and market factors in North America and internationally, interest and foreign exchange rates, global equity and capital markets, business competition, technological change, changes in government regulations, unexpected judicial or regulatory proceedings, and catastrophic events. We stress that the above-mentioned list of important factors is not exhaustive. We encourage you to consider these and other factors carefully before making any investment decisions and we urge you to avoid placing undue reliance on forward-looking statements. Further, you should be aware of the fact that the Fund has no specific intention of updating any forward-looking statements, whether as a result of new information, future events or otherwise. Sources: HSBC Global Asset Management (Canada) Limited, FTSE TMX Global Debt Capital Markets Inc. FTSE TMX Global Debt Capital Markets Inc. ( FTDCM ), FTSE International Limited ( FTSE ), the London Stock Exchange Group companies (the Exchange ) or TSX Inc. ( TSX and together with FTDCM, FTSE and the Exchange, the Licensor Parties ). The Licensor Parties make no warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the FTSE TMX Canada Index and/or the figure at which the said Index stands at any particular time on any particular day or otherwise. The Index is compiled and calculated by FTDCM and all copyright in the Index values and constituent lists vests in FTDCM. The Licensor Parties shall not be liable (whether in negligence or otherwise) to any person for any error in the Index and the Licensor Parties shall not be under any obligation to advise any person of any error therein. TMX is a trade mark of TSX Inc. and is used under licence. FTSE is a trade mark of FTSE International Limited and is used by FTDCM under licence. Unauthorized reproduction, distribution, transmission or publication without our prior written consent is strictly prohibited. Issued by HSBC Global Asset Management (Canada) Limited ( ) DFS

7 HSBC Canadian Dividend Pooled Fund Annual Management Report of Fund Performance for the year ended December 31, 2016

8 HSBC Canadian Dividend Pooled Fund Management Discussion of Fund Performance In this document, you and your refer to the unitholder of the Fund; we, us and our refer to HSBC Global Asset Management (Canada) Limited; and the Fund refers to the HSBC Canadian Dividend Pooled Fund. We are the manager and primary investment advisor of the Fund. Introduction This Annual Management Report of Fund Performance contains financial highlights but does not contain the complete annual or semi-annual financial statements of the investment fund. You may obtain a copy of the Fund s annual or semi-annual financial statements at your request, at no cost, by calling us toll-free at , by visiting our website at by visiting the SEDAR website at or by writing to us at: Corporate Secretary HSBC Global Asset Management (Canada) Limited 3rd Floor, 885 West Georgia Street Vancouver, BC V6C 3E8 You may also contact us using one of these methods to request a copy of the Fund s proxy voting policies and procedures, proxy voting disclosure record or quarterly statement of investment portfolio. Investment Objective and Strategies The fundamental investment objective of this Fund is to provide dividend income and medium- to long-term capital growth. To achieve its objectives, the Fund invests primarily in a diversified portfolio of Canadian common equities, preferred equities, income trust units and fixed income securities. When investing in fixed income securities, the Fund will invest primarily in investment-grade securities, and when investing in common shares, the Fund will invest primarily in high-dividend-paying companies listed on the Toronto Stock Exchange. A portion of the Fund may be in the form of cash or cash equivalents. Risk The risks of investing in the Fund remain as discussed in the Simplified Prospectus. This Fund is suitable for investors who want to earn income in the form of dividends and grow their capital. Investors in this Fund should have a medium-term investment time horizon and a medium tolerance for risk in their returns. Results of Operations As of December 31, 2016, the Fund s net assets increased by 6.8% to $283.3 million from $265.2 million at the end of Of this increase, a $60.5 million gain was attributable to investment performance offset by $42.4 million net withdrawals from Fund. Investment Performance The HSBC Canadian Dividend Pooled Fund rose 23.61% for the year ending December 31, The benchmark, S&P/TSX Capped Composite Index, was up 21.08% for the same period. The global developed equity market rose 4.05% in the fourth quarter and 4.41% for all of 2016, as measured by the MSCI World Index (C$). The S&P/TSX Composite Index rose 4.54% during the fourth quarter. The Canadian bond market slipped 3.44% in the fourth quarter, and gained 1.66% for the year, as measured by the FTSE TMX Universe Bond Index. The best-performing domestic equity market sectors in 2016 were materials, energy and financials; the weakest were health care, technology and real estate. The Fund provided strong absolute returns in 2016, exceeding its benchmark due to being underweight health care, technology and real estate while being overweight financials, and had positive stock selection within the materials, consumers, utilities, industrials and technology sectors. The Fund remains well diversified across cyclical and defensive sectors. S&P/TSX earnings contracted by 2% in 2016 impacted by weakness in energy and health care, despite broad-based growth across most other sectors. For 2017, earnings growth is expected to resume in the 15%+ range, which would be constructive for the market. Recent Developments The global economy continued expanding at a slow pace; the outlook for China remains steady, with marginal improvements expected for Europe and Japan, while US growth expectations have increased post-election, justifying the recent interest rate increase by the Federal Reserve. The Canadian economy continues to lag that of the US but with an improving backdrop from anticipated fiscal stimulus and a recovering commodity price environment. We expect continued modest positive global growth in 2017 as cyclical tailwinds emerge aided by easy monetary policy and an increasing probability of meaningful fiscal stimulus. Equity market valuations are less attractive than a year ago, but concurrent with the outlook for earnings growth in the 15% range, following two down years, remains supportive of equities. However, we do expect that potential headwinds including disappointing global growth, renewed commodity price weakness, geopolitical concerns and divergent and potentially less accommodative-than-expected monetary policy could hamper earnings growth and investor sentiment, causing bouts of higher volatility in Related Party Transactions We, on behalf of the Fund, or the Fund Manager, may, from time to time, enter into transactions or arrangements with or involving other members of the HSBC Group or other people or companies related or connected to us or the Fund. To proceed with the transactions, the Fund relies on the positive recommendation of the Fund s Independent Review Committee. A condition of this positive recommendation is that the transactions are performed in 1

9 HSBC Canadian Dividend Pooled Fund accordance with our policy on Related Party Transactions. For more general information on persons related to the Fund and the types of potential transactions, see the Fund s Simplified Prospectus. The following is a summary of current transactions and arrangements with entities that are related to us or the Fund. Manager and Investment Advisor We are the manager and primary investment advisor of the Fund. As manager, we manage the overall business and operations of the Fund. As primary investment advisor, we provide investment advice and portfolio management services to the Fund. We receive a fee from the Fund for these services. Trustee Services For the year ended December 31, 2016, the Fund paid HSBC Trust Company (Canada) (an affiliate) $2,000 (December 31, 2015, $2,000) for acting as trustee. Distribution Services The Fund is distributed through us, HSBC Investment Funds (Canada) Inc. (our wholly owned subsidiary). We may pay distribution and servicing fees to our related party distributor based on the value of the units held in the investor s account, and additionally, in some cases, on the amount of the initial purchase. Fund on Fund Investing During the year ended December 31, 2016, the Fund invested in units of other HSBC Mutual Funds that are also managed by us. To proceed with the transactions, the Fund relied on the positive recommendation of the Fund s Independent Review Committee by way of Standing Instruction. A condition of this positive recommendation was that the transactions were performed in accordance with our policy on fund on fund investing. Purchases of Securities Underwritten by a Related Party During the year ended December 31, 2016, the Fund invested in certain securities that were underwritten, in whole or in part, by entities that are a related party to us. To proceed with the transactions, the Fund relied on the approval of the Fund s Independent Review Committee by way of Standing Instruction. A condition of this approval was that the transactions were performed in accordance with our policy on Purchases of Securities Underwritten by a Related Party. 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 years shown. This information is derived from the Fund s audited annual financial statements. The information in the following tables is based on prescribed regulations, and as a result, is not expected to add due to the increase/decrease in net assets from operations being based on average units outstanding during the year and all other numbers being based on actual units outstanding at the relevant point in time. HSBC Canadian Dividend Pooled Fund Net Assets per Unit (1) Years ended December Net assets per unit, beginning of year (2) $22.52 $24.33 $22.16 $19.03 $17.76 Increase (decrease) from operations: Total revenue Total expenses (0.01) (0.01) (0.02) (0.02) (0.02) Realized gains (losses) (0.11) Unrealized gains (losses) 3.96 (1.95) Total increase (decrease) from operations (2) $5.25 $(1.18) $2.68 $3.72 $1.76 Distributions to unitholders: From income (excluding dividends) (0.03) (0.03) (0.04) (0.02) (0.01) From dividends (0.73) (0.64) (0.56) (0.53) (0.51) From capital gains From return of capital Total annual distributions (2,3) $(0.76) $(0.67) $(0.60) $(0.55) $(0.52) Net assets per unit, end of year (2) $27.00 $22.52 $24.33 $22.15 $19.03 Ratios and Supplemental Data NAV (in 000s) (4) $283,296 $265,197 $234,242 $162,245 $109,380 Units outstanding (in 000s) (4) 10,494 11,777 9,630 7,321 5,743 Management expense ratio ( MER ) (5) 0.05% 0.06% 0.07% 0.11% 0.12% MER before absorbed or waived fees (5) 0.05% 0.06% 0.07% 0.11% 0.12% Portfolio turnover rate (6) 9.78% 11.55% 13.27% 18.28% 18.72% Trading expense ratio (7) 0.03% 0.04% 0.04% 0.05% 0.05% NAV per unit (4) $27.00 $22.52 $24.33 $22.16 $19.05 (1) This information is derived from the Fund s audited annual financial statements. 2016, 2015, 2014, and 2013 balances are stated in IFRS balances are stated in accordance with Canadian GAAP. For 2012 the net assets per unit presented in the financial statements may differ from the net asset value calculated for fund pricing purposes. Thereafter, under IFRS, the net asset per unit presented in the financial statements is the same as the net asset value calculated for fund pricing purposes (2) Net assets per unit and distributions per unit are based on the actual number of units outstanding at the relevant time. The increase/decrease in net assets from operations per unit is based on the weighted average number of units outstanding over the fiscal year. (3) Distributions are automatically reinvested in additional units of the Fund, unless the unitholder withdraws from the automatic reinvestment plan by providing written notice to us. (4) This information is provided as at year-end. (5) Management expense ratio is based on total expenses (excluding distributions, commissions and other portfolio transaction costs) for the stated period and is expressed as an annualized percentage of daily average net asset value during the year. In the year a Fund is established, the MER is annualized from the date of inception to the 2

10 HSBC Canadian Dividend Pooled Fund end of the period. We may have waived or absorbed certain fees and expenses otherwise payable by the Fund. The amount of expenses absorbed or waived is at the discretion of and can be terminated at anytimebyus. (6) The Fund s portfolio turnover rate indicates how actively the Fund s portfolio advisor 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 the Fund s portfolio turnover rate in a year, the greater the trading costs payable by the Fund in the year, 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 the Fund. The rate is calculated based on the lesser of purchases or sales of securities divided by the average weighted market value of the portfolio securities, excluding short-term securities. (7) The trading expense ratio represents commissions and other portfolio transaction costs expressed as an annualized percentage of daily average net asset value during the year. Management Fees For the year ended December 31, 2016, the Fund did not pay management fees. You pay us, HSBC Investment Funds (Canada) Inc., HSBC Private Wealth Services (Canada) Inc., or your approved advisor a management fee that is based on the amount you have invested with us or your approved advisor (which may be subject to certain minimum annual fees). It is negotiated between you and us, HSBC Investment Funds (Canada) Inc., or your approved advisor. Further details can be found in the Fund s Simplified Prospectus. Management fees paid to us were used to pay costs for managing the investment portfolio, providing investment analysis and recommendations, making investment decisions, making brokerage arrangements for the purchase and sale of the investment portfolio and providing other services. The management fees also funded commission payments and other compensation (collectively distribution costs ), to sales representatives and registered dealers and brokers including HSBC Investment Funds (Canada) Inc., and HSBC Bank Canada, for units of the Fund bought and held by unitholders. Finally, we used management fees to pay for additional marketing and distribution services to the Fund. For the year ended December 31, 2016, approximately 42% of the total management fees paid to us for all HSBC Pooled Funds were used to fund distribution costs. Past Performance The performance information shown assumes that all distributions made by the Fund in the years shown were reinvested in additional securities of the Fund. The performance information does not take into account management fees, sales, redemption, distribution, optional charges or expenses you may be charged outside of the Fund or the effect of any income tax you may have to pay as a result of your investment in the Fund that would have reduced returns or performance. The Fund s past performance does not necessarily indicate how it will perform in the future. Year-to-Year Returns Years ended December 31 The following bar chart shows the Fund s annual performance for each of the years shown, and illustrates how the Fund s performance changed from year to year. In percentage terms, the bar chart shows how much an investment made on the first day of each financial year would have grown or decreased by the last day of each financial year. Annual Returns 40% 30% 20% 10% 0% -10% -20% -30% -40% 3.0% -28.8% 30.5% 12.2% -5.3% 10.1% 19.5% 12.6% -4.7% 23.6% Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec Annual Compound Returns Years ended December 31, 2016 The following table shows the Fund s historical annual compound total returns for the years indicated, compared with the benchmark index, the S&P/TSX Capped Composite Index, over the same period. This index tracks changes in the share price of the largest companies listed on the Toronto Stock Exchange, representing a broad range of industries. 1Year 3Year 5Year 10Year HSBC Canadian Dividend Pooled Fund 23.61% 9.84% 11.77% 5.89% S&P/TSX Capped Composite Index 21.08% 7.06% 8.25% 4.72% Summary of Investment Portfolio As at December 31, 2016 Asset Mix Percentage of NAV Canadian Equities 96.93% Mutual Funds 2.32% Cash & Equivalents 0.75% Total % 3

11 HSBC Canadian Dividend Pooled Fund Sector Mix Percentage of NAV Financials 38.83% Energy 19.08% Consumer Discretionary 8.32% Industrials 8.17% Materials 5.57% Consumer Staples 5.45% Telecommunication Services 4.71% Utilities 3.41% Mutual Funds 2.32% Information Technology 2.08% Real Estate 1.31% Cash & Equivalents 0.75% Total % Top 25 Holdings Percentage of NAV Royal Bank of Canada 6.86% Toronto-Dominion Bank 6.86% Bank of Nova Scotia 5.65% Canadian National Railway Company 4.22% Suncor Energy Inc. 4.00% Enbridge Inc. 3.33% Canadian Natural Resources Ltd. 3.26% Canadian Imperial Bank of Commerce 2.99% Manulife Financial Corp. 2.99% Bank of Montreal 2.93% TransCanada Corp. 2.91% Brookfield Asset Management Inc., Class A 2.53% Alimentation Couche-Tard Inc., Class B 2.48% Brookfield Infrastructure Partners LP 2.32% HSBC Mortgage Fund - Institutional Series 2.25% Dollarama Inc. 2.17% Magna International Inc., Class A 2.09% CGI Group Inc. 2.08% BCE Inc. 1.99% Canadian Tire Corp., Ltd., Class A, Non-Voting Shares 1.98% Sun Life Financial Inc. 1.82% Loblaw Cos., Ltd. 1.58% Intact Financial Corp. 1.57% Imperial Oil Limited 1.45% Rogers Communications Inc. 1.40% Total oftop 25 Holdings 73.71% The Summary of Investment Portfolio may change due to ongoing portfolio transactions of the Fund, and is available quarterly. The Fund invests in other mutual funds, and the prospectus and other information about the underlying funds is available on SEDAR at 4

12 For more information You can find more information about HSBC Pooled Funds in the Fund s Simplified Prospectus, Annual Information Form, Annual and Semi-Annual Report and Fund Facts. You can get a copy of these documents at no cost by calling us toll-free at or by contacting your authorized dealer. These documents and other information about the Fund, such as information circulars and material contracts, are also available at Copies of the Annual and Semi-Annual Report, Simplified Prospectus, Annual Information Form, Annual and Interim Management Report of Fund Performance and Fund Facts are available on our website at How to reach us HSBC Global Asset Management (Canada) Limited Vancouver 3rd Floor, 885 West Georgia Street Vancouver, BC V6C 3E8 Toronto Suite 300, 70 York Street Toronto, ON M5J 1S9 Toll-free: Fax: global_asset_management@hsbc.ca Website: A NOTE ON FORWARD-LOOKING STATEMENTS This report may contain forward-looking statements about the Fund, including its strategy, expected performance and condition. Forward-looking statements include statements that are predictive in nature that depend upon or refer to future events or conditions, or that include words such as expects, anticipates, intends, plans, believes, estimates or negative versions thereof and similar expressions. In addition, any statement that may be made concerning future performance, strategies or prospects, and possible future Fund action, is also a forward-looking statement. Forward-looking statements are based on current expectations and projections about future events and are inherently subject to, among other things, risks, uncertainties and assumptions about the Fund and economic factors. Forward-looking statements are not guarantees of future performance, and actual events and results could differ materially from those expressed or implied in any forward-looking statements made by the Fund. Any number of important factors could contribute to these digressions, including, but not limited to, general economic, political and market factors in North America and internationally, interest and foreign exchange rates, global equity and capital markets, business competition, technological change, changes in government regulations, unexpected judicial or regulatory proceedings, and catastrophic events. We stress that the above-mentioned list of important factors is not exhaustive. We encourage you to consider these and other factors carefully before making any investment decisions and we urge you to avoid placing undue reliance on forward-looking statements. Further, you should be aware of the fact that the Fund has no specific intention of updating any forward-looking statements, whether as a result of new information, future events or otherwise. Sources: HSBC Global Asset Management (Canada) Limited, Bloomberg. FTSE TMX Global Debt Capital Markets Inc. ( FTDCM ), FTSE International Limited ( FTSE ), the London Stock Exchange Group companies (the Exchange ) or TSX Inc. ( TSX and together with FTDCM, FTSE and the Exchange, the Licensor Parties ). The Licensor Parties make no warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the FTSE TMX Canada Index and/or the figure at which the said Index stands at any particular time on any particular day or otherwise. The Index is compiled and calculated by FTDCM and all copyright in the Index values and constituent lists vests in FTDCM. The Licensor Parties shall not be liable (whether in negligence or otherwise) to any person for any error in the Index and the Licensor Parties shall not be under any obligation to advise any person of any error therein. TMX is a trade mark of TSX Inc. and is used under licence. FTSE is a trade mark of FTSE International Limited and is used by FTDCM under licence. Unauthorized reproduction, distribution, transmission or publication without our prior written consent is strictly prohibited. Issued by HSBC Global Asset Management (Canada) Limited ( ) DFS

13 HSBC Canadian Equity Pooled Fund Annual Management Report of Fund Performance for the year ended December 31, 2016

14 HSBC Canadian Equity Pooled Fund Management Discussion of Fund Performance In this document, you and your refer to the unitholder of the Fund; we, us and our refer to HSBC Global Asset Management (Canada) Limited; and the Fund refers to the HSBC Canadian Equity Pooled Fund. We are the manager and primary investment advisor of the Fund. Introduction This Annual Management Report of Fund Performance contains financial highlights but does not contain the complete annual or semi-annual financial statements of the investment fund. You may obtain a copy of the Fund s annual or semi-annual financial statements at your request, at no cost, by calling us toll-free at , by visiting our website at by visiting the SEDAR website at or by writing to us at: Corporate Secretary HSBC Global Asset Management (Canada) Limited 3rd Floor, 885 West Georgia Street Vancouver, BC V6C 3E8 You may also contact us using one of these methods to request a copy of the Fund s proxy voting policies and procedures, proxy voting disclosure record or quarterly statement of investment portfolio. Investment Objective and Strategies The fundamental investment objective of this Fund is to achieve long-term capital growth. To achieve its objectives, the Fund invests primarily in publicly traded common shares, preferred shares, rights, special warrants and convertible securities. A portion of the Fund may be in the form of cash or cash equivalents. When investing in common shares, the Fund will invest primarily in large cap companies listed on the Toronto Stock Exchange. Risk The risks of investing in the Fund remain as discussed in the Simplified Prospectus. This Fund is suitable for investors who want to achieve long-term capital growth and have a long-term investment time horizon. Investors in this Fund should have a medium tolerance for risk in their returns. Results of Operations As of December 31, 2016, the Fund s net assets increased by 14.7% to $740.8 million from $645.9 million at the end of Of this increase, a $150.2 million gain was attributable to investment performance offset by $55.3 million net withdrawals from Fund. Investment Performance The HSBC Canadian Equity Pooled Fund was up 23.48% for the year ending December 31, 2016, while the benchmark S&P/TSX Capped Composite Index gained 21.08% for the same period. The global developed equity market rose 4.05% in the fourth quarter and 4.41% for all of 2016, as measured by the MSCI World Index (C$). The S&P/TSX Capped Composite Index rose 4.5% during the fourth quarter. The Canadian bond market, as measured by the FTSE TMX Universe Bond Index lost 3.4% in the fourth quarter, and gained 1.7% for the year. The best-performing domestic equity market sectors in 2016 were materials, energy and financials; the weakest were health care, technology and real estate. The Fund provided strong absolute returns in 2016, exceeding its benchmark due to being underweight health care and real estate while being overweight financials, and had positive stock selection within the technology, consumer discretionary, consumer staples and utility sectors. The Fund remains well diversified across cyclical and defensive sectors. S&P/TSX earnings contracted by 2% in 2016 impacted by weakness in energy and health care (despite broad-based growth across most other sectors). For 2017, earnings growth is expected to resume in the 15%+ range, which would be constructive for the market. Recent Developments The global economy continued expanding at a slow pace; the outlook for China remains steady, with marginal improvements expected for Europe and Japan, while US growth expectations have increased post-election, justifying the recent interest rate increase by the Federal Reserve. The Canadian economy continues to lag that of the US but with an improving backdrop from anticipated fiscal stimulus and a recovering commodity price environment. We expect continued modest positive global growth in 2017 as cyclical tailwinds emerge aided by easy monetary policy and an increasing probability of meaningful fiscal stimulus. Equity market valuations are less attractive than a year ago but concurrent with the outlook for earnings growth in the 15% range (following two down years), remains supportive of equities. However, we do expect that potential headwinds including disappointing global growth, renewed commodity price weakness, geopolitical concerns and divergent and potentially less accommodative than expected monetary policy could hamper earnings growth and investor sentiment, causing bouts of higher volatility in Related Party Transactions We, on behalf of the Fund, or the Fund Manager, may, from time to time, enter into transactions or arrangements with or involving other members of the HSBC Group or other people or companies related or connected to us or the Fund. To proceed with the transactions, the Fund relies on the positive recommendation of the Fund s Independent Review Committee. A condition of this positive recommendation is that the transactions are performed in 1

15 HSBC Canadian Equity Pooled Fund accordance with our policy on Related Party Transactions. For more general information on persons related to the Fund and the types of potential transactions, see the Fund s Simplified Prospectus. The following is a summary of current transactions and arrangements with entities that are related to us or the Fund. Manager and Investment Advisor We are the manager and primary investment advisor of the Fund. As manager, we manage the overall business and operations of the Fund. As primary investment advisor, we provide investment advice and portfolio management services to the Fund. We receive a fee from the Fund for these services. Trustee Services For the year ended December 31, 2016, the Fund paid HSBC Trust Company (Canada) (an affiliate) $4,000 (December 31, 2015, $4,000) for acting as trustee. Distribution Services The Fund is distributed through us, HSBC Investment Funds (Canada) Inc. (our wholly owned subsidiary). We may pay distribution and servicing fees to our related party distributor based on the value of the units held in the investor s account, and additionally, in some cases, on the amount of the initial purchase. Purchases of Securities Underwritten by a Related Party During the year ended December 31, 2016, the Fund invested in certain securities that were underwritten, in whole or in part, by entities that are a related party to us. To proceed with the transactions, the Fund relied on the approval of the Fund s Independent Review Committee by way of Standing Instruction. A condition of this approval was that the transactions were performed in accordance with our policy on Purchases of Securities Underwritten by a Related Party. 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 years shown. This information is derived from the Fund s audited annual financial statements. The information in the following tables is based on prescribed regulations, and as a result, is not expected to add due to the increase/decrease in net assets from operations being based on average units outstanding during the year and all other numbers being based on actual units outstanding at the relevant point in time. HSBC Canadian Equity Pooled Fund Net Assets per Unit (1) Years ended December Net assets per unit, beginning of year (2) $37.75 $40.75 $36.44 $31.65 $29.67 Increase (decrease) from operations: Total revenue Total expenses (0.02) (0.02) (0.02) (0.03) (0.03) Realized gains (losses) (0.40) Unrealized gains (losses) 6.86 (3.46) Total increase (decrease) from operations (2) $8.86 $(2.31) $5.06 $5.68 $2.73 Distributions to unitholders: From income (excluding dividends) (0.01) From dividends (1.19) (1.01) (0.86) (0.79) (0.78) From capital gains From return of capital Total annual distributions (2,3) $(1.19) $(1.01) $(0.87) $(0.79) $(0.78) Net assets per unit, end of year (2) $45.43 $37.75 $40.75 $36.42 $31.65 Ratios and Supplemental Data NAV (in 000s) (4) $740,780 $645,901 $507,687 $337,211 $226,124 Units outstanding (in 000s) (4) 16,306 17,110 12,460 9,254 7,136 Management expense ratio ( MER ) (5) 0.04% 0.05% 0.05% 0.08% 0.08% MER before absorbed or waived fees (5) 0.04% 0.05% 0.05% 0.08% 0.08% Portfolio turnover rate (6) 9.72% 10.19% 14.37% 18.59% 19.86% Trading expense ratio (7) 0.03% 0.03% 0.05% 0.05% 0.04% NAV per unit (4) $45.43 $37.75 $40.75 $36.44 $31.69 (1) This information is derived from the Fund s audited annual financial statements. 2016, 2015, 2014, and 2013 balances are stated in IFRS balances are stated in accordance with Canadian GAAP. For 2012 the net assets per unit presented in the financial statements may differ from the net asset value calculated for fund pricing purposes. Thereafter, under IFRS, the net asset per unit presented in the financial statements is the same as the net asset value calculated for fund pricing purposes (2) Net assets per unit and distributions per unit are based on the actual number of units outstanding at the relevant time. The increase/decrease in net assets from operations per unit is based on the weighted average number of units outstanding over the fiscal year. (3) Distributions are automatically reinvested in additional units of the Fund, unless the unitholder withdraws from the automatic reinvestment plan by providing written notice to us. (4) This information is provided as at year-end. (5) Management expense ratio is based on total expenses (excluding distributions, commissions and other portfolio transaction costs) for the stated period and is expressed as an annualized percentage of daily average net asset value during the year. In the year a Fund is established, the MER is annualized from the date of inception to the 2