IA Clarington Global Tactical Income Class. Interim Management Report of Fund Performance September 30, 2017

Transcription

1 Series A, F, F6, F8, L, L6, L8, T6 and T8 Shares September 30, This interim management report of fund performance contains financial highlights but does not contain either the interim financial report or annual financial statements of the investment fund. You can get a copy of the interim financial report or annual financial statements at your request, and at no cost, by calling , by writing to us at 522 University Avenue, Suite 700, Toronto, ON M5G 1Y7, or by visiting our website at or SEDAR at Securityholders may also contact us using one of these methods to request a copy of the investment fund's proxy policies and procedures, proxy voting disclosure record, or quarterly portfolio disclosure.

2 September 30, Management Discussion of Fund Performance The management discussion of fund performance for IA Clarington Global Tactical Income Class (the "Fund") represents management's view of the significant factors and developments affecting the Fund's performance and outlook for the 6-month period ended September 30,. IA Clarington Investments Inc. is the manager (the "Manager") of the Fund. The Fund's Portfolio Manager is Industrial Alliance Investment Management Inc. ("IAIM" or the "Portfolio Manager"). Loomis, Sayles & Company L.P. ("Loomis Sayles" or the "fund manager") and IA Clarington Investments Inc. ("IAC") are the Portfolio Sub-Advisors. The Fund invests substantially all of the Fund's assets in units of IA Clarington Global Tactical Income Fund (the "Reference Fund"). Its performance therefore largely reflects the performance of that fund. The discussion that follows in "Results of Operations" and "Recent Developments" reflects the portfolio holdings and characteristics of the Reference Fund. The reference to "Loomis Sayles" in those sections refers to Loomis, Sayles & Company L.P., one of the Portfolio Sub-Advisors of the Reference Fund. The Fund is closed to new purchases and switches. Results of Operations The Fund's Net Assets decreased by 4.7% or $0.9 million during the period, from $19 million on March 31, to $18.1 million on September 30,. This change in Net Assets resulted from a decrease of $1.5 million due to net redemptions, a decrease of $0.2 million due to distributions and an increase of $0.8 million due to investment operations, including market volatility, income and expense. The average Net Asset Value of the Fund decreased by 11.4% or $2.4 million in comparison to the prior period, from $21.1 million to $18.7 million. Average Net Asset Value influence revenue earned and expenses incurred by the Fund during the period. Series T8 shares of the Fund returned 4.2% for the six-month period ending September 30,. The performance of the other series of the Fund is substantially similar, save for differences in fees and expense structure. Refer to the "Past Performance" section for performance information of each series. The Fund's broad-based benchmark, the MSCI AC World Index a, returned 2.9% for the same six-month period. The comparison to this broad-based index has been provided to help you understand the Fund's performance relative to the general performance of the global equity market. The Fund's benchmark, which is composed of the MSCI AC World Index a (60%) and the Citigroup World Government Bond Index (Currency Hedged) (40%), returned 2.2% for the same period. This comparison to Fund performance is more useful, because it more closely reflects the asset classes in which the Fund invests. The Fund s return calculation for all series includes fees and expenses, which are not applicable in generating a return for the benchmark. The Fund s larger equity allocation contributed to performance as the equity component outperformed its benchmark. Stock selection, particularly in the information technology sector, contributed to performance, as did equity exposure in the industrials, financials and health care sectors. Individual equity contributors included Alibaba Group Holding Ltd., Facebook Inc. and Roper Technologies Inc. Alibaba announced results and revenue forecasts that exceeded consensus expectations. Facebook s earnings results exceeded investors expectations, with strong revenue growth and margin expansion. Roper Technologies performed well, particularly in September, benefiting from anticipated U.S. tax reform. The Fund s fixed-income component outperformed its benchmark. An overweight allocation to corporate bonds contributed to performance as a result of solid corporate earnings, global growth, benign inflation, accommodative central banks and strong demand, particularly from Asian and European investors. The Fund s overweight allocations to the banking and communications industries, and to the consumer (both cyclical and noncyclical) and energy sectors also contributed to performance. Exposure to highyield bonds contributed as these did well amid investors search for better yields. An overweight exposure to B- and BB-rated bonds was positive for returns. Metal and mining companies within these segments did well, including Freeport-McMoRan Inc., Arcelor Mittal SA and First Quantum Minerals Ltd. Security selection among emerging markets hard currency issuers from Latin America also contributed to results. Exposure to the consumer discretionary sector detracted from performance. Individual equity detractors included AutoZone Inc., Wells Fargo & Co. and Newell Brands Inc. AutoZone shares declined after the company announced underwhelming results. Shares also came under pressure from fears about competition from Amazon.com Inc. Wells Fargo s shares underperformed amid weak results. Newell Brands stock declined sharply in September after the company announced estimates of the impact of Hurricane Harvey. In the Fund s fixed-income component, the Fund s minimal unhedged exposure to the U.S. dollar detracted from relative returns. Modest unhedged exposure to emerging markets countries, such as Argentina, Colombia and Brazil, also weighed on performance. An underweight allocation to eurozone Treasuries, particularly from Italy and France, detracted from performance. Individual bond selections in the telecommunication services sector, particularly among U.S. media companies, failed to keep pace. Select bonds from the cyclical and noncyclical consumer sectors also negatively impacted the Fund s returns. During the period, several new holdings were added. Danaher Corp. was added for its record of mergers and acquisitions. Intercontinental Exchange Inc. was purchased based on the growth potential of its data services business. McCormick & Co. Inc. was added for its diversified business model, strong management team and history of innovation. Halma PLC was added based on its growing dividend and strong cash generation. CBRE Group Inc. was purchased on the expectation of future growth, to be driven by capital allocation, acquisition activity and revenue growth as property prices rise. Existing holdings in Alibaba were increased for its expected revenue growth. Global equity markets posted positive but modest returns for the period, as measured by the MSCI All Country World Index a. The majority of sectors posted positive results, led by information technology. The materials, industrials and financials sectors outperformed the broader market. Cyclical sectors performed well, with the exception of the energy sector. 1

3 September 30, Results of Operations (continued) HCL Technologies Ltd. was eliminated amid concerns regarding its competitive position in a rapidly changing industry. ITV PLC was exited after the fund manager lost confidence in the company s ability to grow its intrinsic value, specifically, its advertising segment. CVS Health Corp. was eliminated because of the increased possibility that new legislation could affect its pharmacy benefit manager economics, and growing revenue pressure in its retail pharmacy business. AutoZone was sold amid concerns about its business model in an environment of rising price transparency. Newell Brands was eliminated as consumers shift online could have a significant long-term impact on the company. Recent Developments The desire to invest in riskier assets such as equities remained strong over the period, and the fund manager expects it to continue into Stable growth and inflation are expected to persist in the absence of a geopolitical shock. Despite improving growth, developed economy inflation remains below central banks targets, and therefore, monetary policy makers will likely shift gears slowly. The fund manager expects the U.S. Federal Reserve Board to raise interest rates in December. Government bond yields are expected to rise modestly. An inflation surprise could spur less positive outcomes for bonds, but the fund manager believes that medium- to long-term yields are likely to move only moderately higher over the next 12 months. Strong earnings expectations outside the U.S. could lead to further U.S. dollar outflows into other countries and markets. While firm global growth is not a factor for U.S. Treasury returns, it is a positive factor for a variety of assets including emerging markets bonds, currencies and global credit spreads (the difference in yield between debt instruments with similar terms, but different credit ratings). Related Party Transactions The Portfolio Manager is affiliated with the Manager as they are both under common control of Industrial Alliance Insurance and Financial Services Inc. ("Industrial Alliance"). For its portfolio management services, the Portfolio Manager charged the Manager fees based on the Fund's Net Asset Value. For the provision of management services, the Manager received management fees from the Fund, based on the average Net Asset Values of the respective series. The management fees paid are disclosed in the financial statements. The Manager paid the operating expenses of the Fund (the Operating Expenses ) in exchange for the payment by the Fund of a fixed rate administration fee (the Administration Fee ) to the Manager with respect to each series of the Fund, except for Series I and Series V, if applicable. The Manager pays the operating expenses of the Fund, other than Fund Costs, in exchange for the payment by the Fund of a fixed rate administration fee (the Administration Fee ) to the Manager with respect to each series of the Fund, except for Series I and Series V, if applicable. The expenses charged to the Fund in respect of the Administration Fee are disclosed in the Fund s financial statements. The Administration Fee is equal to a specified percentage of the net asset value of a series, calculated and paid in the same manner as the management fees for the Fund. The Fund s most recent simplified prospectus contains further details about the Administration Fee. In addition to the Administration Fee, each series of the Fund is responsible for its proportionate share of certain other operating expenses ( Fund Costs ). Further details about Fund Costs can be found in the Fund s most recent simplified prospectus. The Manager, at its sole discretion, may waive or absorb a portion of a series expenses. These waivers or absorptions may be terminated at any time without notice. During the 6-month period ended September 30,, the Fund did not pay brokerage commissions to Industrial Alliance Securities Inc., a subsidiary of Industrial Alliance. 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 periods indicated. The information on the following tables is based on prescribed regulations and as a result, is not expected to add down due to the increase (decrease) in net assets from operations being based on average shares outstanding during the period and all other numbers being based on actual shares outstanding at the relevant point in time. Footnotes for the tables are found at the end of the Financial Highlights section. Series A 5 Net Assets, beginning of period Total revenue Total expenses (0.17) (0.31) (0.30) (0.30) (0.35) (0.26) Realized gains (losses) for the period 0.10 (3) Unrealized gains (losses) for the period (0.90) (1) Total increase (decrease) from operations (0.47) From dividends 4 - (5) (9) (3) (0.21) - From capital gains (5) - Return of capital Total dividends 3 - (5) (9) (3) (0.26) - Net Assets, end of period Series F 5 Net Assets, beginning of period Total revenue Total expenses (9) (0.15) (0.15) (0.15) (0.17) (0.13) Realized gains (losses) for the period 0.11 (2) Unrealized gains (losses) for the period (1.01) Total increase (decrease) from operations (0.34) From dividends 4 - (6) (0.10) (3) (0.22) - From capital gains (4) - Return of capital Total dividends 3 - (6) (0.10) (3) (0.26) - Net Assets, end of period

4 September 30, Financial Highlights (continued) Series F6 5 Net Assets, beginning of period Total revenue Total expenses (5) (0.10) (0.11) (0.11) (0.14) (0.11) Realized gains (losses) for the period 7 (1) Unrealized gains (losses) for the period (0.37) (1) Total increase (decrease) from operations From dividends 4 - (4) (7) (2) (0.18) - From capital gains (3) - Return of capital (0.24) (0.57) (0.60) (0.60) (0.75) (0.60) Total dividends 3 (0.24) (0.61) (0.67) (0.62) (0.96) (0.60) Net Assets, end of period Series F8 5 Net Assets, beginning of period Total revenue Total expenses (5) (9) (0.10) (0.10) (0.13) (0.11) Realized gains (losses) for the period 6 (1) Unrealized gains (losses) for the period (0.66) 0.17 (8) (2) Total increase (decrease) from operations (0.25) From dividends 4 - (3) (7) (2) (0.17) - From capital gains (4) - Return of capital (0.36) (0.72) (0.72) (0.72) (0.84) (0.67) Total dividends 3 (0.36) (0.75) (0.79) (0.74) (1.05) (0.67) Net Assets, end of period Series L 5 Net Assets, beginning of period Total revenue Total expenses (0.17) (0.31) (0.30) (0.30) (0.36) (0.26) Realized gains (losses) for the period 0.10 (3) Unrealized gains (losses) for the period (0.91) (4) Total increase (decrease) from operations (0.48) From dividends 4 - (5) (9) (3) (0.21) - From capital gains (5) - Return of capital Total dividends 3 - (5) (9) (3) (0.26) - Net Assets, end of period Series L6 5 Net Assets, beginning of period Total revenue Total expenses (0.10) (0.20) (0.20) (0.21) (0.27) (0.23) Realized gains (losses) for the period 6 (2) Unrealized gains (losses) for the period (0.70) 0.11 (4) (0.28) Total increase (decrease) from operations (0.34) From dividends 4 - (4) (7) (2) (0.17) - From capital gains (1) - Return of capital (0.24) (0.48) (0.48) (0.48) (0.65) (0.52) Total dividends 3 (0.24) (0.52) (0.55) (0.50) (0.83) (0.52) Net Assets, end of period Series L8 5 Net Assets, beginning of period Total revenue Total expenses (9) (0.18) (0.20) (0.21) (0.28) (0.22) Realized gains (losses) for the period 5 (4) Unrealized gains (losses) for the period (0.60) Total increase (decrease) from operations (0.31) From dividends 4 - (3) (6) (2) (0.16) - From capital gains (5) - Return of capital (0.30) (0.69) (0.72) (0.72) (0.83) (0.66) Total dividends 3 (0.30) (0.72) (0.78) (0.74) (1.04) (0.66) Net Assets, end of period Series T6 5 Net Assets, beginning of period Total revenue Total expenses (0.11) (0.21) (0.22) (0.23) (0.30) (0.23) Realized gains (losses) for the period 6 (2) Unrealized gains (losses) for the period (0.68) Total increase (decrease) from operations (0.36) From dividends 4 - (4) (7) (2) (0.17) - From capital gains (4) - Return of capital (0.24) (0.48) (0.48) (0.48) (0.65) (0.52) Total dividends 3 (0.24) (0.52) (0.55) (0.50) (0.86) (0.52) Net Assets, end of period

5 September 30, Financial Highlights (continued) Series T8 5 Net Assets, beginning of period Total revenue Total expenses (9) (0.18) (0.20) (0.21) (0.27) (0.22) Realized gains (losses) for the period 5 (2) Unrealized gains (losses) for the period (0.59) 9 4 (2) Total increase (decrease) from operations (0.32) From dividends 4 - (3) (6) (2) (0.16) - From capital gains (5) - Return of capital (0.30) (0.69) (0.72) (0.72) (0.83) (0.66) Total dividends 3 (0.30) (0.72) (0.78) (0.74) (1.04) (0.66) Net Assets, end of period The per share data is derived from the Fund's audited annual financial statements. For financial years beginning before April 1, the Fund's financial statements were prepared in accordance with Canadian generally accepted accounting principles ("GAAP"). For financial years beginning after April 1, the Fund's financial statements were prepared in accordance with International Financial Reporting Standards ("IFRS"). Under IFRS, the Net Assets per share presented in the financial statements is the same as the Net Asset Value calculated for fund pricing purposes. 2 Net Assets and dividends are based on the actual number of shares outstanding at the relevant time. The increase/decrease from operations is based on the weighted average number of shares outstanding over the financial period. 3 Dividends were paid in cash or reinvested in additional shares of the Fund, or both. 4 Dividends qualified for Canadian dividend tax credit, when applicable. 5 The period ended March 31, is a 15-month fiscal period. Series A Total NAV ($) (000's) 1 7,835 8,432 10,615 16,001 24,951 19,729 Number of shares outstanding (000's) ,371 2,200 1,956 Management expense ratio (%) 2, NAV per share ($) Series F Total NAV ($) (000's) 1 3,683 3,602 3,354 3,563 11,493 8,450 Number of shares outstanding (000's) Management expense ratio (%) 2, NAV per share ($) Series F6 Total NAV ($) (000's) ,218 1,858 1,243 Number of shares outstanding (000's) Management expense ratio (%) 2, NAV per share ($) Series F8 Total NAV ($) (000's) Number of shares outstanding (000's) Management expense ratio (%) 2, NAV per share ($) Series L Total NAV ($) (000's) ,016 1, Number of shares outstanding (000's) Management expense ratio (%) 2, NAV per share ($) Series L6 Total NAV ($) (000's) Number of shares outstanding (000's) Management expense ratio (%) 2, NAV per share ($)

6 September 30, Financial Highlights (continued) Series L8 Total NAV ($) (000's) Number of shares outstanding (000's) Management expense ratio (%) 2, NAV per share ($) Series T6 Total NAV ($) (000's) 1 3,700 4,006 5,478 7,922 14,770 10,406 Number of shares outstanding (000's) ,640 1,208 Management expense ratio (%) 2, NAV per share ($) Series T8 Total NAV ($) (000's) ,035 1,654 2,906 4,970 5,183 Number of shares outstanding (000's) Management expense ratio (%) 2, NAV per share ($) This information is provided as at each period shown. 2 Management expense ratios are based on total expenses (excluding commissions, withholding taxes and other portfolio transaction costs) of each series for the stated period and are expressed as an annualized percentage of each series' daily average NAV during the period. 3 The annual Management Fees and Fixed Administration Fees net of waivers, if any, excluding HST, for the Fund were 2.35% for Series A, 1.08% for Series F, 1.08% for Series F6, 1.08% for Series F8, 2.35% for Series L, 2.15% for Series L6, 2.35% for Series L8, 2.35% for Series T6 and 2.36% for Series T8. 4 At its sole discretion, the Manager may have waived management fees or absorbed expenses of the Fund. 5 The trading expense ratio represents total commissions incurred directly or indirectly by way of an underlying fund, as applicable, and other portfolio transaction costs expressed as an annualized percentage of the Fund's daily average NAV during the period. 6 The Fund's portfolio turnover rate indicates how actively the fund manager 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 period. The higher a Fund's portfolio turnover rate in a period, the greater the trading costs payable by the Fund in the period, and the greater the chance of an investor receiving taxable capital gains in the period. There is not necessarily a relationship or correlation between a high turnover rate and the performance of a Fund. The value of any trades to realign the Fund's portfolio after a fund merger, if any, is excluded from the portfolio turnover rate. Management Fees Management fees paid by the Fund per series are based on applying the annual management fee rate per series to the daily average NAV of each series and are recorded on an accrual basis. The following is a breakdown of major services received by the Fund in consideration of the management fees for the period, as a percentage of the management fee: Management Fees (%) Series Trailer commissions Other Series A FE LL First 3 years LL After 3 years DSC First 7 years DSC After 7 years Series F, F6 and F8-100 Series L, L6 and L8 ASC First year ASC Year 2 and ASC After 3 years Series T6 and T8 FE LL First 3 years LL After 3 years DSC First 7 years DSC After 7 years FE - front end; LL - low load; DSC - deferred sales charge; ASC - advisor service charge Other - includes general administration, investment advice and profit. Past Performance The performance information shown (based on NAV) assumes that all dividends made by the Fund in the periods shown were reinvested in additional shares of the Fund. The performance information does not take into account sales, redemption, dividends or other optional charges, or income taxes payable by any investor that would have reduced returns or performance. How the Fund has performed in the past does not necessarily indicate how it will perform in the future. The Fund s investment objective, strategies and portfolio manager changed on December 30,. These changes may have impacted the Fund s performance. 5

7 September 30, Past Performance (continued) Year-by-Year Returns The bar charts show the Fund's performance for each of the periods indicated. The charts show, in percentage terms, how an investment made on the first day of each period would have increased or decreased by the last day of the period presented. Series A Series F Series F Series F Series L Series L Series L * * * 6

8 September 30, Past Performance (continued) Series T Series T * Return shown is for the partial period ended December Return shown is for the 15-month period ended March 31,. Return shown is for the 6-month period ended September 30, Summary of Investment Portfolio As at September 30, The following tables are an outline of the investments held in the Reference Fund as a percentage of its Net Asset Value. The summary of investment portfolio shown, as a percentage of total NAV, may change due to ongoing portfolio transactions of the Fund and a quarterly update is available on the Manager's website. Sector Allocation % Corporate bonds Information technology Financials Industrials 9.96 Consumer discretionary 9.03 Federal bonds and guarantees 7.10 Consumer staples 5.30 Health care 4.84 Materials 4.10 Other net assets 2.56 Short-term investments 2.00 Energy 1.42 Provincial bonds and guarantees 0.57 Real Estate 0.50 Municipal bonds The positions held by the Reference Fund by country are allocated as follows: Country Allocation % United States Europe Asia 9.81 Canada 6.71 Cash and Cash Equivalents 5.90 South America 2.31 North America - Other 1.33 Africa 0.60 Australia & Oceania 0.43 International 0.28 Caribbean 0.19 Central America 8 Other Assets Less Liabilities (1.34) 100 7

9 September 30, Summary of Investment Portfolio (continued) The top positions held by the Reference Fund (up to 25) are as follows: Top Holdings % Cash and Cash Equivalents 5.90 Alibaba Group Holding Ltd., Sponsored ADR 4.15 Facebook Inc The Sherwin-Williams Co Roper Technologies Inc Marriott International, Inc., Class A 2.54 AIA Group Ltd Nestlé SA 2.23 Alphabet Holding Company Inc Northrop Grumman Corp UnitedHealth Group Inc Danaher Corp Legal & General Group PLC 1.83 The Goldman Sachs Group Inc Thales SA 1.76 The Priceline Group Inc S&P Global Inc Amazon.com Inc Accenture 1.47 Atlas Copco AB 1.46 M&T Bank Corp NovaCore Communities Corp., Pfd., Class C 1.41 Government of Canada, 0.500%, Texas Instruments Inc CGI Group Inc., SV 1.28 You can obtain the prospectus and other information on the investment funds in which the Fund invests, if any, at (for Canadian investment funds) and (for U.S. investment funds). Source: MSCI Inc. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. Forward-Looking Statements This management report of fund performance may contain forward-looking statements which reflect the current expectations of the Manager (or, where indicated, the Portfolio Manager or Portfolio Sub-Advisor or fund manager) regarding the Fund s future growth, results of operations, performance and business prospects and opportunities. These statements reflect the current beliefs of the person to which the statements are attributed with respect to future events and are based on information currently available to that person. Forward looking statements involve significant risks, uncertainties and assumptions. Many factors could cause the Fund s actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements. These factors could include, among other things, general economic, political and market factors, including interest and foreign exchange rates, business competition, changes in government regulations or in tax laws. Please refer to the prospectus for a discussion of some specific risks that are associated with mutual funds. Although the forward-looking statements contained in this report are based upon what management currently believes to be reasonable assumptions, the Manager cannot assure current or prospective investors that actual results, performance or achievements will be consistent with these forward-looking statements. 8

10 Administrative Office: 522 University Avenue, Suite 700 Toronto, Ontario M5G 1Y Head Office: 1080 Grande Allée West PO Box 1907, Station Terminus Québec City, Québec G1K 7M3 funds@iaclarington.com