Sprott Short-Term Bond Fund

Transcription

1 Sprott Short-Term Bond Fund SEMI-ANNUAL MANAGEMENT REPORT OF FUND PERFORMANCE JUNE 30 The interim management report of fund performance is an analysis and explanation that is designed to complement and supplement an investment fund s financial statements. This report contains financial highlights but does not contain the complete interim financial statements of the investment fund. You can get a copy of the interim financial statements at your request, and at no cost, by calling , by visiting our website at or SEDAR at or by writing to us at: Sprott Asset Management LP, Royal Bank Plaza, South Tower, 200 Bay Street, Suite 2700, P.O. Box 27, Toronto, Ontario M5J 2J1. Securityholders 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.

2 Management Discussion of Fund Performance Investment Objective and Strategies The investment objective of the Sprott Short-Term Bond Fund (the Fund ) is to provide regular income while preserving capital and maintaining liquidity through investing primarily in short-term debt securities issued by Canadian federal, provincial and municipal governments as well as corporate issuers. To achieve the Fund s investment objective, the Fund will employ investment strategies based upon economic research, quantitative and technical analysis, the analysis of credit quality pertaining to prospective investments and establishing an evolving asset allocation containing government and corporate bonds. The Fund may invest a portion of its assets in short-term debt securities of foreign issuers. As part of its investment strategy, the Fund may engage in short selling as permitted by applicable securities legislation. Risk The risks of investing in the Fund are described in the Fund s simplified prospectus. The Fund is suitable for those investors who seek exposure to short-term high quality fixed income securities issued primarily by Canadian governments and companies. The Fund is suitable for investors with a low risk tolerance and a short-term investment horizon. There were no significant changes to the investment objective and strategies that affected the Fund s overall level of risk during the reporting period. Results of Operations and Recent Developments The Fund, Series A, returned 0.3% during the first six months of, compared to a 0.3% return for the Government of Canada 12 Month T- Bill index for the same period. The U.S. Federal Reserve Board raised interest rates in March and June, establishing an acceleration in the normalization of monetary policy. The Bank of Canada's ("BoC") speeches in June signaled a more aggressive attitude towards monetary policy. The Fund's structure remained steady through the volatility, with an overweight exposure to short-term corporate investment grade bonds compared to government bonds. Duration was the main contributor to the Fund's performance. An increase in short-term rates at the end of June, influenced by BoC speeches, also contributed to the Fund's performance, and credit spreads remained positive. Individual contributors included Bruce Power L.P. (2.844%, 06/23/21), Bank of Montreal (3.40%, 04/23/21) and Canadian Western Bank (2.788%, 09/13/21). Individual detractors from the Fund's performance included Canadian Natural Resources Ltd. (2.05%, 06/01/20), Canadian Imperial Bank of Commerce (2.35%, 06/24/19) and Loblaw Companies Limited (3.748%, 03/12/19). The Fund s net asset value decreased by 11.2% during the period, from 20.4 million as of December 31, to 18.1 million as of June 30,. This change was primarily due to net share redemption of 2.2 million. The management expense decreased compared to the prior period. SPROTT ASSET MANAGEMENT LP INTERIM MANAGEMENT REPORT OF FUND PERFORMANCE

3 Related Party Transactions MANAGEMENT FEES The Fund pays a management fee to the Manager, at an annual rate of up to 0.75% for Series A units, up to 0.5% for Series F units and is negotiated by the unitholders for Series I. The management fee is calculated and accrued daily based on daily net asset value of the applicable series of the Fund, and is paid monthly. For the six-month period ended June 30,, the Fund incurred management fees of 34,350 (including taxes). The breakdown of the services received in consideration of the management fees, as a percentage of management fees, is as follows: Portfolio Advisory Trailing Commission Sprott Short-Term Bond Fund Series A 67% 33% Sprott Short-Term Bond Fund Series F 59% 41% Sprott Short-Term Bond Fund Series I 100% Out of the management fees that the Manager received from the Fund, the Manager paid trailer commissions of 7,741 during the six-month period ended June 30, to Sprott Private Wealth LP, an affiliate of the Manager. OPERATING EXPENSES The Fund pays its own operating expenses, which include, but are not limited to, audit, legal, custodial, trustee, filing and administrative expenses as well as unitholder reporting costs. The Manager pays certain of these expenses on behalf of the Fund and then is reimbursed by the Fund. At its sole discretion, the Manager may waive or absorb a portion of the operating expenses of certain Funds. Amounts waived or absorbed by the Manager are reported in the Statements of Comprehensive Income. Waivers or absorptions can be terminated at any time without notice. For the six-month period ended June 30,, the Manager absorbed 36,537 of expenses. OTHER RELATED PARTY TRANSACTIONS The Fund relied on the approval, positive recommendation or standing instruction from the Fund s Independent Review Committee with respect to any related party transactions. SPROTT ASSET MANAGEMENT LP INTERIM MANAGEMENT REPORT OF FUND PERFORMANCE

4 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 six-month period ended June 30, and the years shown. The Fund s Net Assets per Unit 1 Series A Net assets, beginning of period Increase (decrease) from operations: Total revenue Total expenses (0.05) (0.09) (0.10) (0.08) (0.08) (0.08) Realized gains (losses) for the period (0.02) (0.04) (0.11) Unrealized gains (losses) for the period (0.01) (0.03) (0.03) (0.03) 0.07 Total increase (decrease) from operations Distributions: From income (excluding dividends) From dividends From capital gains Return of capital Total annual distributions Net assets, end of period Series F Net assets, beginning of period Increase (decrease) from operations: Total revenue Total expenses (0.03) (0.07) (0.07) (0.06) (0.06) (0.06) Realized gains (losses) for the period (0.02) (0.05) (0.09) Unrealized gains (losses) for the period (0.03) (0.02) (0.03) (0.01) 0.05 Total increase (decrease) from operations Distributions: From income (excluding dividends) From dividends From capital gains Return of capital Total annual distributions Net assets, end of period SPROTT ASSET MANAGEMENT LP INTERIM MANAGEMENT REPORT OF FUND PERFORMANCE

5 Series I Net assets, beginning of period Increase (decrease) from operations: Total revenue Total expenses - (0.01) (0.02) Realized gains (losses) for the period (0.02) (0.05) (0.14) Unrealized gains (losses) for the period 0.02 (0.04) (0.10) (0.02) 0.14 Total increase (decrease) from operations Distributions: From income (excluding dividends) From dividends From capital gains Return of capital Total annual distributions Net assets, end of period This information is derived from the Fund s interim and audited annual financial statements. Information related to year and all periods onwards has been prepared in compliance with International Financial Reporting Standards ( IFRS ) as published by the International Accounting Standards Board. Information related to all periods prior to January 1, has been prepared in compliance with Canadian generally accepted accounting principles ( Canadian GAAP ) as defined in Part V of the Chartered Professional Accountants of Canada Handbook Accounting. Under Canadian GAAP, the Fund was required to use bid prices for valuing long positions and ask prices for short positions. As such, the net assets per unit presented in the financial statements may differ from the net asset value calculated for transaction purposes prior to conversion to IFRS. 2 The increase/decrease from operations is based on the weighted average number of units outstanding over the financial period. Net assets and distributions are based on the actual number of units outstanding at the relevant time. This table is not intended to be a reconciliation of beginning to ending net assets per unit. 3 Distributions were reinvested in additional units of the Fund. 4 The final allocation of distributions for the period ended June 30, between income, dividends, capital gains and return of capital will be determined at December 31,. SPROTT ASSET MANAGEMENT LP INTERIM MANAGEMENT REPORT OF FUND PERFORMANCE

6 Ratios and Supplemental Data Series A Total net asset value (000s) 1 4,587 4,600 3,121 2,568 7,345 12,461 Number of units outstanding 1 467, , , , ,832 1,270,730 Management expense ratio % 0.94% 0.98% 0.84% 0.84% 0.84% Management expense ratio before waivers or absorptions % 1.43% 1.80% 1.41% 1.22% 1.25% Trading expense ratio 4 Portfolio turnover rate % 57.02% 51.41% 90.86% 45.23% % Net asset value per unit Series F Total net asset value (000s) 1 6,686 6,023 5,024 6,173 10,032 10,500 Number of units outstanding 1 681, , , ,706 1,029,273 1,070,063 Management expense ratio % 0.66% 0.69% 0.57% 0.57% 0.57% Management expense ratio before waivers or absorptions % 1.19% 1.52% 1.15% 0.95% 0.96% Trading expense ratio 4 Portfolio turnover rate % 57.02% 51.41% 90.86% 45.23% % Net asset value per unit Series I Total net asset value (000s) 1 6,864 9,802 4,804 1,465 1,934 4,088 Number of units outstanding 1 694, , , , , ,518 Management expense ratio % 0.11% 0.19% 0.00% 0.00% 0.00% Management expense ratio before waivers or absorptions % 0.59% 0.98% 0.61% 0.38% 0.46% Trading expense ratio 4 Portfolio turnover rate % 57.02% 51.41% 90.86% 45.23% % Net asset value per unit The information is provided as at June 30, and December 31 of the years shown prior to. 2 Management expense ratio ( MER ) is based on total expenses (excluding commissions and other portfolio transaction costs) for the stated period and is expressed as an annualized percentage of the daily average net asset value during the period. 3 The Manager may waive or absorb a portion of the operating expenses of the Fund. Waivers and absorption can be terminated at any time. 4 The trading expense ratio ( TER ) represents total commissions and other portfolio transaction costs expressed as an annualized percentage of daily average net asset value during the period. The TER includes dividend expense and securities borrowing expense paid by the Fund in connection with securities sold short. 5 The Fund s portfolio turnover rate indicates how actively the Fund s portfolio adviser trades 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 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 portfolio turnover is expressed as a non-annualized percentage. SPROTT ASSET MANAGEMENT LP INTERIM MANAGEMENT REPORT OF FUND PERFORMANCE

7 Past Performance The indicated rates of return are the historical total returns including changes in unit values and assume reinvestment of all distributions in additional units of the relevant Series of the Fund. These returns do not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that may reduce returns. Please note that past performance is not indicative of future performance. All rates of return are calculated based on the Net Asset Value of the particular Series of the Fund. Year-by-Year Returns The following chart indicates the non-annualized performance of each Series of the Fund for the six-month period ended June 30, and each of the previous twelve-month periods ended December 31 shown, unless otherwise noted. The chart shows, in percentage terms, how much an investment made on the first day of each period would have grown or decreased by the last day of each period. 10 Return (%) * 2011 Series A Series F Series I * Return from August 5, 2010 to December 31, 2010 for Series A and F and from December 7, 2010 to December 31, 2010 for Series I (not annualized). SPROTT ASSET MANAGEMENT LP INTERIM MANAGEMENT REPORT OF FUND PERFORMANCE

8 Summary of Investment Portfolio As at June 30, Portfolio Allocation Top 25 Long Positions % of Net Asset Value Issuer % of Net Asset Value Long Positions Bank of Montreal, 3.40%, Apr 23, Corporate Bonds 83.3 Bruce Power LP, 2.84%, Jun 23, Government Bonds 15.6 Toronto-Dominion Bank, 2.17%, Apr 2, Total Long Positions 98.9 Honda Canada Finance Inc., 2.27%, Jul 15, Cash 0.6 CPPIB Capital Inc., 1.10%, Jun 10, Other Net Assets 0.5 Canada Housing Trust No 1, 1.15%, Dec 15, Total Net Asset Value Royal Bank of Canada, 1.92%, Jul 17, American Express Canada Credit Corp., 2.31%, Mar 29, Molson Coors International LP, 2.25%, Sep 18, Canadian Western Bank, 2.79%, Sep 13, Loblaw Cos Ltd., 3.75%, Mar 12, Ford Credit Canada Ltd., 3.14%, Jun 14, Canadian Imperial Bank of Commerce, 2.35%, Jun 24, HSBC Bank Canada, 2.49%, May 13, Toyota Credit Canada Inc., 2.25%, May 23, Daimler Canada Finance Inc., 2.27%, Mar 26, Canadian Western Bank, 2.38%, Jan 23, RioCan REIT, 2.19%, Aug 26, Canadian Natural Resources Ltd., 2.05%, Jun 1, Royal Bank of Canada, 1.65%, Jul 15, Canadian Government Bond, 0.75%, May 1, John Deere Canada Funding Inc., 1.75%, Jan 28, Daimler Canada Finance Inc., 1.42%, Oct 2, Honda Canada Finance Inc., 1.82%, Dec 7, Bank of Montreal, 3.40%, Apr 23, Top 25 long positions as a percentage of net asset value 93.4 The Fund held no short positions as at June 30,. This summary of investment portfolio may change due to the ongoing portfolio transactions of the Fund. Quarterly updates of the Fund s investment portfolio are available on the Internet at SPROTT ASSET MANAGEMENT LP INTERIM MANAGEMENT REPORT OF FUND PERFORMANCE

9 Corporate Information Corporate Address Sprott Asset Management LP Royal Bank Plaza, South Tower 200 Bay Street, Suite 2700, P.O. Box 27 Toronto, Ontario M5J 2J1 T TOLL-FREE F E invest@sprott.com For additional information visit our website: Call our mutual fund information line for daily closing prices: or Auditors KPMG LLP Bay Adelaide Centre 333 Bay Street Suite 4600 Toronto, Ontario M5H 2S5 Legal Counsel Borden Ladner Gervais LLP Scotia Plaza 40 King Street West Toronto, Ontario M5H 3Y4 M 08 E