Investors Canadian High Yield Income Fund

Transcription

1 Investors Canadian High Yield Income Fund Annual Management Report of Fund Performance FOR THE PERIOD ENDED MARCH 31, 218 CAUTION REGARDING 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, prior to the release of the next Management Report of Fund Performance. This annual Management Report of Fund Performance contains financial highlights, but does not contain the complete audited annual financial statements of the investment fund. If the audited annual financial statements of your investment fund did not accompany the mailing of this report, you may receive a copy of them, at your request, and at no cost, by calling ( if you live in Québec) or by writing to us at 447 Portage Avenue, Winnipeg, Manitoba, R3B 3H5 (21, boulevard Robert-Bourassa, bureau 2, Montréal (Québec), H3A 2A6 if you live in Québec), or by visiting our website at or SEDAR at Securityholders may also use 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. Every effort has been made to ensure that the information contained in this Report is accurate as of March 31, 218 (except when stated otherwise), however, the Fund cannot guarantee the accuracy or the completeness of this material. Please refer to the Fund s Prospectus and audited annual financial statements for more information. References to Consultant or Consultants mean Representative or Representatives in Québec. For current net asset values per security for the Fund and for more recent information on general market events, please visit our website at CAUTION REGARDING FUTURE PERFORMANCE Sales commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the Fund s offering documents before investing. The indicated rates of return are the historical annual compounded total returns including changes in security value and reinvestment of all distributions (except for fee rebates) and do not take into account sales, redemption, distribution or optional charges, advisory fees payable directly by securityholders in certain series, or income taxes payable by any investor that would have reduced returns. Mutual funds are not guaranteed. Their values change frequently and past performance may not be repeated. Copyright Investors Group Inc. 218 Trademarks, including Investors Group, are owned by IGM Financial Inc. and licensed to its subsidiary corporations.

2 Management Discussion of Fund Performance This management discussion of Fund performance presents views of the portfolio management team about the significant factors and developments during the past year that have affected the Fund s performance and outlook. Please read the Caution Regarding Forward-looking Statements located on the first page of this document. Investment Objective and Strategies The Fund aims to provide a high level of current income while offering the potential for moderate capital appreciation by investing primarily in high-yielding investments. To achieve the Fund s investment objective, corporate debt securities that are rated less than BBB (below traditional investment grade credit ratings) will constitute a core holding of the Fund, in addition to other investment grade debt securities. The Fund may also invest in Equity Income paying securities. The Fund will be actively managed and diversified across a broad range of companies and industries. The Fund may invest its assets in securities denominated in currencies other than the Canadian dollar. Up to 5% of the Fund s assets may be allocated to the sub-advisor for investment based on an assessment of the credit environment and overall economic and market conditions. These assets will be invested primarily in U.S. high-yield securities (including, but not limited to, non-investment grade bonds, debentures, convertible securities, assetbacked securities and notes), but may also be invested in securities of issuers outside the United States. The sub-advisor intends to diversify these investments by industry and company and to limit the foreign currency risk of its investments by hedging foreign currency exposure. The Fund may invest up to 5% of its assets in foreign securities. Risk The overall level of risk of investing in the Fund remains as discussed in the Prospectus, and is not expected to have significantly increased or decreased as a result of operations during the period. Accordingly, the Fund also remains suitable for the same investors as discussed in the Prospectus. Results of Operations CHANGES IN NET ASSETS The Fund s net assets decreased by 12.8% during the period to $1.1 billion. This change was comprised primarily of gains from operations of $11.8 million and a decrease of $171.8 million due to net securityholder activity. FEES AND EXPENSES The management expense ratios (MERs) for all series are generally similar to the MERs for the 12-month period ended March 31, 217. Total expenses paid vary period to period mainly as a result of changes in average assets in each series. Average net assets of the Fund for the period were $1.2 billion, a decrease of 4.7% compared to the period ended March 31, 217. INVESTMENT PERFORMANCE In accordance with National Instrument 816, the following comparison to a broad-based index has been included to help you understand the Fund s performance relative to the general performance of the markets. However, the portfolio management team cautions that the Fund s mandate may be different from the index shown. For a description of the index, see Annual Compound Returns. Also, it is important to note that investors cannot invest in an index. Indirect investments in an index are available; however, there are fees and transaction costs and other variables that will impact returns when investing in these products. Index returns included in the comparison below do not reflect these costs and variables. For the returns of all series and for longer-term performance of the Fund, see the Past Performance section of this report. Performance will vary by series primarily because fees and expenses may differ between series, or because securities of a series were not issued and outstanding for the entire reporting period. See Series Information for the annual expense rates for each series. For the year ended March 31, 218, the Series B securities returned.1% (after deducting fees and expenses paid by the Fund). In comparison, the FTSE TMX Canada Universe Bond Index Total Return returned 1.4%. Short-term and mid-term government bonds prices fell and yields increased over the period as the Bank of Canada raised its benchmark overnight interest rate three times, taking it to 1.25% from.5%. (Bond prices fall as yields rise.) Although the period started with strong economic data, growth slowed in the second half of 217, causing the Bank of Canada to remain cautious about further rate moves. This caution kept long-term rates in check while short-term rates rose sharply. As a result, long-term government bonds advanced, outperforming shortterm and mid-term bonds. Corporate bonds outperformed government bonds due to narrower credit spreads and higher interest income, resulting in positive total returns across all bond maturities. Generally, high-yield bonds overperformed the index over the period. Some investment-grade corporate bonds experienced price pressures, which detracted from Fund performance relative to the index. Relative performance benefitted from the narrowing of the difference between the rates for shorter-term and longer-term corporate bonds, driven in part by global economic growth and strong company fundamentals. The Fund s non-canadian investments contributed positively to relative returns as they outperformed their Canadian counterparts. Recent Developments (BASED ON INFORMATION AS AT APRIL 2, 218) Despite an increase in shorter-term bond yields as the period progressed, the portfolio management team expects yields to remain historically low over the medium term, similar to the past decade. While valuations in some segments of the high-yield bond market appear stretched, corporate bond and loan yields generally represent a reasonable spread over government bond yields in the current economic environment. Corporate credit fundamentals and profits remain healthy. Other Developments UPCOMING ADMINISTRATION FEE REDUCTIONS Effective on or about June 3, 218, the annual administration fee rate for Series C will be decreased by.5%.

3 Related Party Transactions I.G. Investment Management, Ltd. is the Manager, Trustee and Portfolio Advisor of the Fund. The Fund is offered through the Consultants of Investors Group Financial Services Inc. and Investors Group Securities Inc., together referred to as the Distributors. The Manager, Portfolio Advisor, Distributors and Trustee are, indirectly, wholly owned subsidiaries of IGM Financial Inc. Until October 23, 217, the following sub-advisor provided investment services to the Fund: Putnam Investments Canada ULC, operating as Putnam Management in Manitoba, and its affiliate, The Putnam Advisory Company, LLC Putnam Investments Canada ULC and The Putnam Advisory Company, LLC are indirectly affiliated with IGM Financial Inc. Effective October 23, 217, Mackenzie Financial Corporation replaced Putnam Investments Canada ULC as sub-advisor to the Fund. Mackenzie Financial Corporation is, indirectly, a wholly owned subsidiary of IGM Financial Inc. The Fund paid a management fee to the Manager and Portfolio Advisor for management and portfolio advisory services (see Management Fees). The Fund also paid the Manager an administration fee and in exchange the Manager paid the operating costs and expenses of the Fund, except for certain specified costs. The Trustee is responsible for the overall direction of the affairs of the Fund. The Fund paid the Trustee a fee for its services. See Series Information for the annual rates paid by each series (as a percent of average net assets) for these fees. Securityholders in Series U also pay an advisory fee directly to Investors Group. This fee is not included in the Fund s expenses. During the period, Investors Group reimbursed the Fund so that the Fund returns remained competitive. There is no assurance that fees or expenses will be waived in the future. Certain other investment funds, distributed by Investors Group, and other qualified investors may invest in Series P of this Fund. As at March 31, 218, this series comprised approximately 36.6% of the Fund s net assets. All such transactions in the Fund are executed in accordance with standing instructions approved by the Investors Group Funds Independent Review Committee and based on the net asset value per security determined in accordance with the stated policies of the Fund on each transaction day. No commissions or other transaction fees were paid by the Fund in relation to these transactions. As at March 31, 218, the Fund invests in other funds also managed by the Manager or affiliates of the Manager. These investments are in accordance with the standing instructions on conflict of interest matters approved by the Investors Group Funds Independent Review Committee. There is no duplication of management or other fees, and no commissions or redemption fees were paid by the Fund in relation to these transactions. Management Fees The Fund pays Investors Group a management fee. The management fee paid by each series is calculated as a percentage of the net asset value of the series, as of the close of business on each business day (see Series Information for rates payable by each series). Generally, management fees are used to pay costs incurred in providing investment advisory and management services and in part for distribution-related services provided by the Distributors. Securityholders in Series U pay an advisory fee directly to the Distributors for distribution-related services and therefore the management fee in that series is for investment advisory and management services only. For all other retail series (i.e. which excludes Series F, P and S, if issued), approximately 67% of management fees paid during the period represents investment advisory and management services, and approximately 33% represents distribution-related services. Expenses waived by the Manager were less than 1% of the management fees paid by the Fund. This may vary by series. Approximately 7% of the total fees paid by the Fund for the period relates to services provided by the Manager, Trustee and Portfolio Advisor, and approximately 3% relates to services provided by the Distributors.

4 Summary of Investment Portfolio AT MARCH 31, 218 The largest positions of the Fund (up to 25) at the end of the period, and the major asset classes in which the Fund was invested, are indicated below. This summary of investment portfolio may change due to ongoing portfolio transactions. The Fund s summary of investment portfolio will be updated as at the end of the next quarter. Please see the front page for information about how it can be obtained. Summary of Top 25 Long Positions % of net assets Investors Mortgage and Short Term Income Fund Series P 7.8 Province of Ontario 2.6% Cash and cash equivalents 2.8 Bank of Montreal 3.12% MTN 1.2 Parkland Fuel Corp. 6.% Callable A 1.2 Shaw Communications Inc. 5.5% Choice Properties Real Estate Investment Trust 3.56% Callable First Capital Realty Inc. 4.79% RioCan Real Estate Investment Trust 2.83% Fairfax Financial Holdings Ltd. 4.25% Callable Province of Ontario 2.6% Government of Canada 2.% Titan Acquisition Ltd. 7.75% Callable A.8 Resolute Forest Products Inc. 5.88% Pembina Pipeline Corp. 4.24% Callable 227 MTN.8 Videotron Ltd./Videotron Ltee. 5.13% Callable A.8 Pembina Pipeline Corp..8 General Motors Financial of Canada Ltd. 3.8% Morgan Stanley 3.% Series MPLE.8 TerraForm Power Operating LLC 5.% Callable A.8 Commonwealth of Bahamas 6.% Callable Russel Metals Inc. 6.% Callable Reg S.8 Gibson Energy Inc. 5.38% Callable.7 Whitecap Resources Inc..7 The Goldman Sachs Group Inc. 2.43% Callable Summary of Top 25 Short Positions % of net assets n/a - Summary of Composition of the Portfolio PORTFOLIO ALLOCATION % of net assets Bonds 87.7 Mutual Funds 7.8 Equities 4.4 Cash and cash equivalents 2.8 Other net assets (liabilities) (2.7) Total 1. BONDS SECTOR ALLOCATION Corporate Financials 14.5 Corporate Energy 13.1 Corporate Real Estate 1.3 Bank Loans 5.7 Corporate Utilities 4.4 Corporate Information Technology 4. Provincial Governments 3.8 Federal Government 1.3 Foreign Governments 1. Mortgage Backed.3 Corporate Other CREDIT RATING AAA 1.9 AA 7. A 9.7 BBB 26. BB 15.2 B 19.3 less than B 6.1 Unrated Series Information AT MARCH 31, 218 Inception Management Service Administration Trustee Series date fee (%) fee (%) fee (%) fee (%) Series A 7/13/ Series B 7/13/ Series C n/a Series Jdsc 7/13/ Series Jnl 7/13/ Series P 7/2/ Series U 7/12/ The fee rates in the table above are rounded to two decimals. Inception dates of the series are shown if within 1 years. Until December 31, 216, the annual administration fee rate for Series B, Jnl and U was.13%.

5 Past Performance It is important to remember that past performance doesn t necessarily indicate future performance. The returns presented below: assume that all distributions, except for fee rebates, are reinvested into the Fund; do not include sales charges, income taxes, optional expenses or advisory fees payable directly by securityholders in certain series, that reduce returns; show performance based on Canadian dollar returns; and show performance for each of the past 1 financial years, or since the series started. Financial years are as follows: - 29 six months ended March to 218 nths ended March 31 Inception dates of the series within these periods are shown in Series Information. Inception dates of the series within these periods are shown in Series Information. Performance during these periods may have been impacted by the following events: During some performance measurement periods, certain fees or expenses may have been waived or absorbed by the Manager. There is no assurance that fees will be waived in the future. Effective June 3, 212, the annual management fee rate for Series C decreased by.15% to 1.75%. Effective January 1, 217, the annual administration fee rate for Series B, Jnl and U decreased by.5% to.8%. Year-by-Year Returns These bar charts show how much an investment in securities made on the first day of each financial year would have increased or decreased by the end of the respective period. For the first year of a series, the percentage shown will be the actual return of the series from its inception date. The charts illustrate how the Fund s performance has changed over time. SERIES A % (3.7) 9.3. SERIES B % (3.7) SERIES C % (3.8) (3.7) 9.3. SERIES Jdsc % (3.4) SERIES Jnl % (3.5) 9.6.3

6 YEAR-BY-YEAR RETURNS (continued) SERIES P % (1.7) SERIES U % (2.3) Annual Compound Returns The following table compares the historical annual compound returns for each series with the index (or indices) shown below, for the periods shown ending March 31, 218. For a discussion of the Fund s recent performance relative to the index (or indices), see Results of Operations. Since (%) 1 yr 3 yrs 5 yrs 1 yrs inception Series A n/a 3.1 Series B n/a 3. Series C n/a Series Jdsc n/a 3.4 Series Jnl n/a 3.3 Series P n/a n/a 4.8 Series U n/a n/a 4.1 FTSE TMX Canada Universe Bond Index Total Return The annual compound return for the index presented in the table corresponds to the inception dates for Series A, B, Jdsc and Jnl. The comparative annual compound return for the index since the inception of each of the remaining series is as follows: Series P: 3.5%; Series U: 3.5%. The FTSE TMX Canada Universe Bond Index Total Return is designed to be a broad measure of the Canadian investmentgrade fixed-income market weighted by market cap.

7 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 past five financial years. Footnotes are presented after Ratios and Supplemental Data. Net Assets per Security 1 SERIES A SERIES B (in $), beginning of period (in $), beginning of period Total revenue Total expenses (.21) (.21) (.21) (.22) (.21) for the period.3.46 (.49) (.2) (.4) for the period (.53).13 (.2) (.13).9 operations.1.87 (.38) (excluding dividends) (.18) (.27) (.32) (.32) (.36) From dividends (.7) (.2) (.2) (.1) (.2) From capital gains (.1) distributions (.26) (.29) (.34) (.33) (.38) at period end Total revenue Total expenses (.21) (.21) (.21) (.22) (.22) for the period.3.46 (.49) (.2) (.4) for the period (.53).13 (.2) (.13).9 operations.1.87 (.38).16.4 (excluding dividends) (.18) (.26) (.31) (.32) (.36) From dividends (.7) (.2) (.2) (.1) (.2) From capital gains (.1) distributions (.26) (.28) (.33) (.33) (.38) at period end SERIES C SERIES Jdsc JDSC (in $), beginning of period (in $), beginning of period Total revenue Total expenses (.22) (.22) (.22) (.23) (.23) for the period (.51) (.2) (.4) for the period (.56).14 (.21) (.14).1 operations -.92 (.4) (excluding dividends) (.19) (.28) (.33) (.33) (.37) From dividends (.7) (.2) (.2) (.1) (.2) From capital gains (.1) distributions (.27) (.3) (.35) (.34) (.39) at period end Total revenue Total expenses (.18) (.18) (.18) (.19) (.18) for the period.3.46 (.49) (.2) (.4) for the period (.53).13 (.2) (.13).9 operations.4.9 (.35) (excluding dividends) (.2) (.3) (.34) (.34) (.38) From dividends (.7) (.2) (.2) (.1) (.2) From capital gains (.1) distributions (.28) (.32) (.36) (.35) (.4) at period end

8 Net Assets per Security 1 (continued) SERIES Jnl JNL (in $), beginning of period Total revenue Total expenses (.18) (.18) (.18) (.19) (.18) for the period.3.46 (.49) (.2) (.4) for the period (.53).13 (.2) (.13).9 operations.4.9 (.35) (excluding dividends) (.2) (.29) (.34) (.34) (.37) From dividends (.8) (.2) (.2) (.1) (.2) From capital gains (.1) distributions (.29) (.31) (.36) (.35) (.39) at period end SERIES U (in $), beginning of period Total revenue Total expenses (.6) (.6) (.6) (.7) (.5) for the period (.49) (.2).11 for the period (.53).13 (.2) (.13).14 operations (.24) (excluding dividends) (.28) (.4) (.43) (.43) (.36) From dividends (.11) (.3) (.3) (.2) (.2) From capital gains (.2) distributions (.41) (.43) (.46) (.45) (.38) at period end SERIES P (in $), beginning of period Total revenue Total expenses for the period.3.46 (.49) (.2) (.1) for the period (.53).13 (.2) (.13).32 operations (.17) (excluding dividends) (.32) (.47) (.49) (.49) (.4) From dividends (.13) (.3) (.3) (.2) (.2) From capital gains (.2) distributions (.47) (.5) (.52) (.51) (.42) at period end

9 Ratios and Supplemental Data SERIES A ($ s) 241, , , , ,32 outstanding ( s) 24,654 31,52 36,267 48,1 55,817 expense ratio (%) or absorptions (%) SERIES JDSC Jdsc ($ s) 176, , ,27 275, ,127 outstanding ( s) 18,15 25,75 29,742 27,54 18,75 expense ratio (%) or absorptions (%) SERIES B ($ s) 56,15 58,549 52,44 91, ,189 outstanding ( s) 5,737 5,839 5,513 9,45 1,779 expense ratio (%) or absorptions (%) SERIES JNL Jnl ($ s) 29,546 37,399 36,319 39,956 32,937 outstanding ( s) 3,11 3,717 3,834 3,923 3,183 expense ratio (%) or absorptions (%) SERIES C ($ s) 78,584 1,52 11,68 173,71 219,719 outstanding ( s) 7,631 9,477 11,134 16,252 2,229 expense ratio (%) or absorptions (%) SERIES P ($ s) 397, ,5 374, ,51 296,894 outstanding ( s) 4,473 41,591 39,482 47,915 28,781 expense ratio (%) or absorptions (%)

10 Ratios and Supplemental Data (continued) SERIES U ($ s) 17,192 56,665 34,97 33,429 11,364 outstanding ( s) 1,982 5,662 3,618 3,34 1,19 expense ratio (%) or absorptions (%) These calculations are prescribed by securities regulations and are not intended to be a reconciliation between opening and closing net assets per security. This information is derived from the Fund s audited annual financial statements presented in accordance with IFRS. Net asset values presented are consistent with the net asset values calculated in accordance with securities regulations for the purchase and redemption of the Fund s securities (pricing net asset values) and as such, pricing net asset values are not separately disclosed. 2 Commissions and other portfolio transaction costs are included in total expenses. 3 Net asset value and distributions are based on the actual number of securities outstanding at the relevant time. The increase/decrease from operations is based on the weighted average number of securities outstanding over the financial period. In the period a series is established, the financial information is provided from the date of inception to the end of the period. 4 Distributions were paid in cash, reinvested in additional securities of the Fund, or both. 5 ratio (MER) is based on total expenses, excluding commissions and other portfolio transaction costs, income taxes, and withholding taxes, for the stated period and is expressed as an annualized percentage of daily average net assets during the period, except as noted. In the period a series is established, the MER is annualized from the date of inception to the end of the period. Where a Fund directly or indirectly via derivative contract invests in securities of an Underlying Fund, the MERs presented for the Fund include the portion of MERs of the Underlying Fund(s) attributable to this investment. Correspondingly, the MERs presented for the Fund exclude any management or other fees that are waived as a result of its investment in the Underlying Fund(s). Certain expenses that are non-recurring and/or otherwise uncertain as to their future timing and amount have not been annualized. 6 The trading expense ratio (TER) represents total commissions and other portfolio transaction costs incurred as an annualized percentage of daily average net assets during the period. Where a Fund invests in securities of an Underlying Fund, the TERs presented for the Fund include the portion of TERs of the Underlying Fund(s) attributable to this investment. 7 The Fund s portfolio turnover rate indicates how actively the Fund s Portfolio Advisor manages its portfolio investments. A portfolio turnover rate of 1% is equivalent to the Fund buying and selling all of the securities in its portfolio once in the course of the period. Generally, the higher a Fund s portfolio turnover rate in a period, the greater the trading costs payable by it in the period, and the greater the chance of an investor receiving taxable capital gains in the period. There is not necessarily a relationship between a high turnover rate and the performance of a Fund. Transactions incurred to realign the Fund s portfolio after a fund merger, if any, are excluded from the portfolio turnover rate.