TD Japanese Growth Fund

Transcription

1 (03/16) TD Mutual Funds for the period ended This contains financial highlights, but does not contain the complete annual financial statements of the investment fund. You can get a copy of the annual financial statements at your request, at no cost, by calling , by writing to us at TD Asset Management Inc., P.O. Box 100, 66 Wellington Street West, TD Bank Tower, Toronto-Dominion Centre, Toronto, Ontario, M5K 1G8, by to td.mutualfunds@td.com, or by visiting our website at tdassetmanagement.com or the SEDAR website at sedar.com Securityholders may also contact us or visit our website to get a copy of the investment fund s interim financial report, proxy voting policies and procedures, proxy voting disclosure record, or quarterly portfolio disclosure at no cost.

2 ntd Japanese Growth Fund Management Discussion of Fund Performance Investment Objectives and Strategies The investment objective of the TD Japanese Growth Fund ( Fund ) is to achieve long-term capital growth by investing primarily in equity securities of companies located in, or that have their principal activities in, Japan. In seeking to achieve this objective, the Fund focuses on companies that are operating in sound core business areas and that trade on reasonable valuations. In addition, the Portfolio Adviser tries to identify companies that offer shareholders growth and positive returns over the longer term. Although the Fund s primary focus will be on Japan, the Fund may also invest up to 20 percent of its assets in companies domiciled outside of Japan, provided the business of such companies is related to Japan. Risk The risks of investing in the Fund remain as outlined in the simplified prospectus. Results of Operations The Investor Series units of the Fund returned 23.9 percent* for the year ended ( Reporting Period ), versus 33.9 percent for the Fund s product benchmark, the TOPIX (C$). Returns for other series of the Fund may vary, largely due to differences in fees and expenses. Unlike the benchmark, the Fund s return is quoted after the deduction of fees and expenses. Market Update Japan s equity market posted a strong gain over the Reporting Period largely as a result of the quantitative easing measures instituted by the Bank of Japan ( BoJ ) and the Japanese government (an approach to economic policy commonly known as Abenomics ). These measures put significant pressure on the value of the Japanese yen relative to other major currencies and, while this hindered corporate revenue generated by exports, it was not enough to lower the positive investor sentiment for Japan s equity market. Global equity markets were volatile as growth concerns and significantly weak commodities markets offset the improving U.S. economy. Concerns over oil prices and global growth caused pockets of volatility globally. Beijing s surprise devaluation of the Chinese yuan in August 2015, along with unfavourable economic news, raised concerns over China s growth trajectory and its role in driving global growth, resulting in a spike in volatility in global markets. Notably, the divergence of global monetary policy contributed to significant volatility in the Reporting Period. Uncertainty over the timing of the interest rate increase by the U.S. Federal Reserve Board caused significant market turbulence. Conversely, central banks across the world, led by the European Central Bank, BoJ, People s Bank of China and Bank of Canada, continued to pursue monetary easing activities. Commodities price volatility was also an overarching theme in the Reporting Period. The return to Canadian investors was higher as the Canadian dollar depreciated approximately 15 percent versus the Japanese yen. Key Contributors/Detractors The Portfolio Adviser s preference for industrials over consumer staples and health care sectors detracted from relative performance, as did stock selection in the consumer discretionary sector and a preference for small-capitalization stocks. However, stock selection in the energy and financials sectors and a lower exposure to foreign currency contributed to performance. Individual detractors from performance included holdings in Hitachi Ltd., which declined over concerns regarding its exposure to China and slowing global gross domestic product growth, Teikoku Sen-I Co. Ltd., which reported disappointing earnings, and Rakuten Inc., whose earnings were challenged in light of increased competition. Individual contributors to performance included overweight exposures to GMO Internet Inc., which benefited from increasing capital returns to shareholders, Sanshin Electronics Co. Ltd., whose share price recovered during the Reporting Period, and Aichi Corporation, which appreciated in light of its strong growth in its core business. Recent Developments On October 23, 2015, TD Asset Management Inc. announced that the Fund would be terminated on or about April 15, As a result, the Fund no longer accepted additional investments effective December 1, The Fund continues to maintain a pro-cyclical sector stance and retains an overweight exposure to small-cap companies in light of their perceived attractive valuation. The Portfolio Adviser remains optimistic that improving corporate governance in Japan should result in stronger performance of Japanese equity markets and anticipates that the government pension fund s doubling of its equity weighting, to 50 percent, should benefit Japanese equity markets. Related Party Transactions Affiliates of TD Asset Management Inc. ( TDAM ) may earn fees and spreads in connection with various services provided to, or transactions with, the Fund, such as in connection with banking, custody, brokerage and derivatives transactions. Manager, Trustee and Portfolio Adviser: TDAM, a wholly-owned subsidiary of The Toronto-Dominion Bank ( TD ), is the manager, trustee and portfolio adviser of the Fund. The Fund pays TDAM an annual manage ment fee, which may vary for each series of Fund units, and an annual administration fee of 0.30 percent with respect to the Investor Series and Advisor Series units of the Fund. * This section compares the returns relative to the Fund s product benchmark. See the Past Performance section for a comparison of the Fund s performance relative to the general market index. 1

3 Distributor: For certain series of units of the Fund, TD Investment Services Inc., a wholly-owned subsidiary of TD, is the principal distributor for which it is paid a trailer commission by TDAM. Units of the Fund are also distributed through brokers and dealers including TD Waterhouse Canada Inc. ( TDW ), a wholly-owned subsidiary of TD. TDW, like other dealers, is paid a trailer commission by TDAM for distributing certain series of units of the Fund. Trailer commissions are paid by TDAM out of the management fees it receives from the Fund and are based on the average value of assets held by each dealer. Registrar and Transfer Agent: TD is the registrar and transfer agent of the Fund, and as such maintains all unitholder records, processes purchase, switch, conversion and redemption orders, issues investor statements and prepares annual tax reporting information on behalf of the Fund. TD earns a foreign exchange spread when unitholders switch between units of funds denominated in different currencies. The Fund also maintains bank accounts and overdraft provisions with TD for which TD earns a fee. Buying and Selling Securities: TDAM has established an independent review committee ( IRC ) which acts as an impartial and independent committee to review and provide recommendations or, if appropriate, approvals respecting any conflict of interest matters referred to it by TDAM. The IRC prepares, at least annually, a report of its activities for securityholders of the Fund. The report is available on the TDAM website at tdassetmanagement.com or at the securityholder s request at no cost by contacting TDAM (see front cover). The Fund did not engage in any portfolio transactions requiring IRC approval during the Reporting Period. 2

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 past five fiscal years, as applicable. Net Assets per Unit 1 INVESTOR SERIES Net Assets, Beginning of Year $ 7.16 $ 7.27 $ 5.52 $ 5.18 $ 5.84 Increase (Decrease) from Operations: Total Revenue Total Expenses (excluding distributions) (0.28) (0.24) (0.22) (0.16) (0.16) Realized Gains (Losses) for the Period Unrealized Gains (Losses) for the Period 1.14 (0.49) (0.66) Total Increase (Decrease) from Operations (0.14) (0.66) Distributions: From Net Investment Income (excluding dividends) From Dividends From Capital Gains Return of Capital Total Annual Distributions Net Assets at December 31 $ 8.87 $ 7.16 $ 7.27 $ 5.52 $ 5.18 ADVISOR SERIES Net Assets, Beginning of Year $ 8.23 $ 8.36 $ 6.35 $ 5.97 $ 6.72 Increase (Decrease) from Operations: Total Revenue Total Expenses (excluding distributions) (0.32) (0.27) (0.26) (0.18) (0.19) Realized Gains (Losses) for the Period Unrealized Gains (Losses) for the Period 1.18 (0.62) (0.76) Total Increase (Decrease) from Operations (0.20) (0.76) Distributions: From Net Investment Income (excluding dividends) From Dividends From Capital Gains Return of Capital Total Annual Distributions Net Assets at December 31 $ $ 8.23 $ 8.36 $ 6.35 $ This information is derived from the Fund s audited annual financial statements. The Fund adopted International Financial Reporting Standards ( IFRS ) on January 1, 2014 and accordingly adjusted the immediately preceding financial year ended December 31, 2013 to reflect the amounts in accordance with IFRS. Previously, financial statements were prepared as per Canadian generally accepted accounting principles ( GAAP ) under which the Fund measured fair values of its investments based on bid prices for long positions and ask prices for short positions. As such, the net assets per unit presented in the financial statements may have differed from the net asset value ( NAV ) per unit calculated for fund pricing purposes. Under IFRS, the Fund measures fair values of its investments based on close market prices, where the close market price falls within the bid-ask spread or based on quotations from recognized dealers. As such, the Fund s accounting policies for measuring the fair value of investments in the financial statements are substantively consistent with those used in measuring the NAV for transactions with unitholders. All figures presented prior to January 1, 2013 were prepared in accordance with Canadian GAAP. 2 Net assets and distributions are based on the actual number of units outstanding at the relevant time. The increase (decrease) from operations presented above starting from fiscal year 2013 are based on the weighted average number of units outstanding over the financial periods. The increase (decrease) from operations prior to 2013 were calculated by aggregating each valuation day s increase (decrease) from operations divided by the number of units outstanding on that date. This table is not intended to be a reconciliation of the net assets per unit. 3 Distributions were paid in cash or reinvested in additional units of the Fund, or both. 3

5 Net Assets per Unit 1 (continued) F-SERIES Net Assets, Beginning of Year $ 9.33 $ 9.34 $ 7.00 $ 6.48 $ 7.20 Increase (Decrease) from Operations: Total Revenue Total Expenses (excluding distributions) (0.21) (0.17) (0.18) (0.10) (0.11) Realized Gains (Losses) for the Period Unrealized Gains (Losses) for the Period 1.51 (0.83) (0.82) Total Increase (Decrease) from Operations (0.19) (0.72) Distributions: From Net Investment Income (excluding dividends) From Dividends From Capital Gains Return of Capital Total Annual Distributions Net Assets at December 31 $ $ 9.33 $ 9.34 $ 7.00 $ This information is derived from the Fund s audited annual financial statements. The Fund adopted International Financial Reporting Standards ( IFRS ) on January 1, 2014 and accordingly adjusted the immediately preceding financial year ended December 31, 2013 to reflect the amounts in accordance with IFRS. Previously, financial statements were prepared as per Canadian generally accepted accounting principles ( GAAP ) under which the Fund measured fair values of its investments based on bid prices for long positions and ask prices for short positions. As such, the net assets per unit presented in the financial statements may have differed from the net asset value ( NAV ) per unit calculated for fund pricing purposes. Under IFRS, the Fund measures fair values of its investments based on close market prices, where the close market price falls within the bid-ask spread or based on quotations from recognized dealers. As such, the Fund s accounting policies for measuring the fair value of investments in the financial statements are substantively consistent with those used in measuring the NAV for transactions with unitholders. All figures presented prior to January 1, 2013 were prepared in accordance with Canadian GAAP. 2 Net assets and distributions are based on the actual number of units outstanding at the relevant time. The increase (decrease) from operations presented above starting from fiscal year 2013 are based on the weighted average number of units outstanding over the financial periods. The increase (decrease) from operations prior to 2013 were calculated by aggregating each valuation day s increase (decrease) from operations divided by the number of units outstanding on that date. This table is not intended to be a reconciliation of the net assets per unit. 3 Distributions were paid in cash or reinvested in additional units of the Fund, or both. Ratios and Supplemental Data INVESTOR SERIES Total Net Asset Value (000s) 1 $ 12,150 $ 11,290 $ 14,032 $ 10,122 $ 11,201 Number of Units Outstanding 1 1,369,936 1,577,128 1,929,813 1,833,855 2,153,187 Management Expense Ratio (%) Management Expense Ratio Before Waivers or Absorptions (%) Trading Expense Ratio (%) Portfolio Turnover Rate (%) Net Asset Value per Unit $ 8.87 $ 7.16 $ 7.27 $ 5.52 $ 5.20 ADVISOR SERIES Total Net Asset Value (000s) 1 $ 2,487 $ 2,073 $ 2,932 $ 921 $ 1,200 Number of Units Outstanding 1 243, , , , ,483 Management Expense Ratio (%) Management Expense Ratio Before Waivers or Absorptions (%) Trading Expense Ratio (%) Portfolio Turnover Rate (%) Net Asset Value per Unit $ $ 8.23 $ 8.36 $ 6.35 $ This information is provided as at December 31 of the past five fiscal years, as applicable. 2 Management expense ratio ( MER ) is based on total expenses (excluding distributions, commissions and other portfolio transaction costs) for the stated period, including the Fund s proportionate share of the MER, if any, of the underlying fund(s), including exchange-traded funds ( ETFs ), in which the Fund has invested, and is expressed as an annualized percentage of daily average NAV during the period. It excludes any operating expenses waived or absorbed by TDAM, which may be discontinued at any time by TDAM at its discretion without notice. 3 The trading expense ratio represents total commissions and other portfolio transaction costs expressed as an annualized percentage of daily average NAV during the stated period. 4 The Fund s portfolio turnover rate indicates how actively the Fund s portfolio adviser manages its 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 stated period. The higher a fund s portfolio turnover rate, the greater the trading costs payable, directly or indirectly, by the fund in the period, 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 a fund. 4

6 Ratios and Supplemental Data (continued) F-SERIES Total Net Asset Value (000s) 1 $ 1,988 $ 1,641 $ 3,363 $ 1,446 $ 1,314 Number of Units Outstanding 1 169, , , , ,220 Management Expense Ratio (%) Management Expense Ratio Before Waivers or Absorptions (%) Trading Expense Ratio (%) Portfolio Turnover Rate (%) Net Asset Value per Unit $ $ 9.33 $ 9.34 $ 7.00 $ This information is provided as at December 31 of the past five fiscal years, as applicable. 2 Management expense ratio ( MER ) is based on total expenses (excluding distributions, commissions and other portfolio transaction costs) for the stated period, including the Fund s proportionate share of the MER, if any, of the underlying fund(s), including exchange-traded funds ( ETFs ), in which the Fund has invested, and is expressed as an annualized percentage of daily average NAV during the period. It excludes any operating expenses waived or absorbed by TDAM, which may be discontinued at any time by TDAM at its discretion without notice. 3 The trading expense ratio represents total commissions and other portfolio transaction costs expressed as an annualized percentage of daily average NAV during the stated period. 4 The Fund s portfolio turnover rate indicates how actively the Fund s portfolio adviser manages its 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 stated period. The higher a fund s portfolio turnover rate, the greater the trading costs payable, directly or indirectly, by the fund in the period, 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 a fund. Management Fees As manager and trustee of the Fund, TDAM is responsible for the overall business and affairs of the Fund including activities related to making units of the Fund available to investors, and providing, or arranging for the provision of, investment advisory services and marketing services to the Fund. In consideration for the provision of such services, each series of the Fund pays TDAM a management fee. Management fees are calculated and accrued as a percentage of the net asset value of each series of units of the Fund, as of the close of business on each business day for each series and are paid monthly to TDAM. The maximum management fee is the maximum fee that can be charged to each series of units of the Fund according to the simplified prospectus. TDAM may charge management fees that are less than the management fees TDAM is otherwise entitled to charge each series of units of the Fund. The actual manage ment fee is the annualized fee that was charged for the Reporting Period. TDAM may charge the maximum management fee without notice to unitholders. Management fees for the Reporting Period and a breakdown of the major services rendered for each series, as a percentage of the actual management fees, are as follows: Maximum Actual Dealer Waived (expressed as a %) Mgmt. Fee Mgmt. Fee Compensation Expenses Other Investor Series Advisor Series F-Series Investment advisory, trustee, marketing services and other. 5

7 Past Performance The following charts show how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. These returns include the reinvestment of all distributions and would be lower if an investor did not reinvest distributions. They do not include deduction of sales, switch, redemption, or other optional charges (which dealers may charge) or income taxes payable, and these returns would be lower if they did. The Fund s past performance does not necessarily indicate how it will perform in the future. Year-by-year returns The bar charts show how the Fund s performance has varied from year to year for each of the years shown. They show in percentage terms how an investment made on January 1 would have increased or decreased by December 31. Annual Compound Returns The following table shows the annual compound total returns for each series of units of the Fund for each of the periods indicated ended on, compared with the following benchmarks: Product Benchmark: TOPIX (C$) This index includes stocks of Japanese companies. General market indices: MSCI Japan Index (Net Dividend, C$) ( MSCI Japan Index (ND, C$) ) This index is comprised of a large number of widely-held Japanese companies, net of withholding taxes. Past 10 Past 5 Past 3 Past (expressed as a %) years years years year INVESTOR SERIES TD Japanese Growth Fund Product Benchmark General market: MSCI Japan Index (ND, C$) Since Past 5 Past 3 Past (expressed as a %) inception years years year ADVISOR SERIES (Start date September 6, 2006) TD Japanese Growth Fund Product Benchmark General market: MSCI Japan Index (ND, C$) F-SERIES (Start date September 6, 2006) TD Japanese Growth Fund Product Benchmark General market: MSCI Japan Index (ND, C$) Over the Reporting Period, units of the Investor Series and Advisor Series returned 23.9 percent, and F-Series returned 25.6 percent versus 31.4 percent for the broader MSCI Japan Index (ND, C$). Unlike the MSCI Japan Index (ND, C$), the Fund s return is quoted after the deduction of fees and expenses. The Portfolio Adviser s preference for industrials over consumer staples and health care sectors detracted from relative performance as did stock selection in the consumer discretionary sector. For 2014, the Product Benchmark s annualized returns were understated and should have been reported as 5.4 percent, 14.5 percent and 8.1 percent for the one, three and five year periods, respectively. The amounts of understatement were 1.3 percent, 2.1percent and 2.1 percent for the one, three and five year periods, respectively. 6

8 Summary of Investment Portfolio as at % of Net Asset Value as at % of Net Asset Value ASSET ALLOCATION Japanese Equities 99.7 Index Equivalents 0.1 Cash 0.7 Other Net Assets (Liabilities) (0.5) PORTFOLIO DETAILS Industrials 27.5 Consumer Discretionary 19.3 Financials 16.8 Information Technology 16.3 Materials 6.8 Telecommunication Services 4.8 Health Care 4.5 Consumer Staples 2.7 Utilities 1.0 Index Equivalents 0.1 Cash 0.7 Other Net Assets (Liabilities) (0.5) TOTAL NET ASSET VALUE $ 16,625,073 TOP 25 INVESTMENTS 1. Toyota Motor Corporation Mitsubishi UFJ Financial Group Inc Keyence Corporation Nippon Telegraph and Telephone Corporation Keisei Electric Railway Co., Ltd Sumitomo Mitsui Financial Group Inc Sawai Pharmaceutical Co., Ltd GMO Internet Inc Toray Industries Inc Shimano Inc Taiheiyo Cement Corporation Rakuten Inc Hitachi Ltd AICHI Corporation Bridgestone Corporation Showa Aircraft Industry Co., Ltd Optex Co., Ltd Sony Corporation DyDo Drinco Inc Honda Motor Co., Ltd Nittoc Construction Co., Ltd H2O Retailing Corporation Nakanishi Inc East Japan Railway Company SoftBank Corp. 1.5 Total % of Net Asset Value represented by these holdings 62.7 Note: Totals may not add due to rounding to one decimal place of individual figures. The Summary of Investment Portfolio may change due to ongoing portfolio transactions of the Fund. Updates are available quarterly. You may obtain the most current quarterly information by contacting TD Mutual Funds at , by writing to us at TD Asset Management Inc., P.O. Box 100, 66 Wellington Street West, TD Bank Tower, Toronto, Ontario, M5K 1G8, or by to td.mutualfunds@td.com 7

9 Caution regarding forward-looking statements Certain portions of this report, including, but not limited to, Results of Operations and Recent Developments, may contain forward-looking state ments including, but not limited to, statements about the Fund, its strategy, risks, 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 and similar forward-looking expressions or negative versions thereof. 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 general economic, political and relevant market factors, such as interest rates, foreign exchange rates, equity and capital markets, and the general business environment, in each case assuming no changes to applicable tax or other laws or government regulation. Expectations and projections about future events are inherently subject to, among other things, risks and uncertainties, some of which may be unforeseeable. Accordingly, assumptions concerning future economic and other factors may prove to be incorrect at a future date. Forward-looking statements are not guarantees of future performance, and actual events could differ materially from those expressed or implied in any forward-looking statements made by the Fund. Any number of important factors could con tribute to these digressions, including, but not limited to, general economic, political and relevant market factors in North America and internationally, interest and foreign exchange rates, equity and capital markets, business competition, tech nological change, changes in government relations, unexpected judicial or regulatory proceedings and catastrophic events. The above mentioned list of important factors is not exhaustive. You are encouraged to consider these and other factors carefully before making any investment decisions and you are urged to avoid placing any undue reliance on forward-looking statements. Further, there is no specific intention of updating any forward-looking statements contained herein whether as a result of new information, future events or otherwise. For Funds with references to FTSE TMX Canada indices: 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 index/indices ( the Index/Indices ) and/or the figure at which the said Index/Indices stand at any particular time on any particular day or otherwise. The Index/Indices are compiled and calculated by FTDCM and all copyright in the Index/Indices 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/Indices 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 the London Stock Exchange Group companies and is used by FTDCM under licence. TD Mutual Funds, TD Pools and TD Private Funds are managed by TD Asset Management Inc., a wholly-owned subsidiary of The Toronto-Dominion Bank. All trademarks are the property of their respective owners. The TD logo and other trade-marks are the property of The Toronto-Dominion Bank. 8