CI American Value Fund

Transcription

1 This annual management report of fund performance 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, and at no cost, by calling , by writing to us at CI Investments Inc., 2 Queen Street East, Twentieth Floor, Toronto, ON, M5C 3G7 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 voting policies and procedures, proxy voting disclosure record, or quarterly portfolio disclosure. INVESTMENT OBJECTIVE AND STRATEGIES The objective of the CI American Value Fund (the Fund ) is to achieve longterm capital growth by investing primarily in a broadly diversified portfolio of American equity securities. To achieve the objective of the Fund the portfolio advisor invests primarily in common shares of larger U.S. companies through following a disciplined value style, focuses on companies that are considered undervalued in relation to their future prospects and offer good absolute and relative value as characterized by measures such as lower than average price/book and price/earnings, and higherthanaverage dividend yield as compared to the overall market, and using a bottomup stock selection process to evaluate a company s current position and future prospects. The portfolio advisor may invest in companies located outside of the U.S. and may invest in corporate debt and/or convertible securities. The portfolio advisor uses techniques such as fundamental analysis to assess growth potential of a company. This means evaluating the financial condition and management of a company, its industry and the overall economy. The Fund may use derivatives, but only as permitted by securities regulations. In order to earn additional income, it may also enter into securities lending transactions, repurchase transactions and reverse repurchase transactions, to the extent permitted by securities regulations. RISK The risks remain as discussed in the prospectus. The Fund is suitable for investors who want a U.S. equity fund that focuses on value, are investing for the medium and/or long term, and can tolerate medium risk. RESULTS OF OPERATIONS The net asset value of the Fund decreased by $6. million to $661.8 million from March 31, 15 to March 31, 16. The Fund had net redemptions of $43.6 million during the year. The portfolio s performance decreased assets by $15.7 million. The Fund paid distributions totalling $.7 million. The oneyear return for Class A units was 3.%, Class E units was 2.9%, Class F units was 1.9%, Class I units was.6%, Insight units was 2.% and Class O units was.8%, as compared to the return of its benchmark of 4.2%. The benchmark is the S&P 5 Total Return Index. Stocks had a volatile year. Fears about Greece potentially leaving the Eurozone were quickly eclipsed by falling oil prices and China s slowing growth rate, which elevated concerns about the health of the global economy. Oil prices touched a 13year low, dropping below $27 per barrel before recovering to around $ as more constructive dialog from Saudi Arabia and declining capital expenditures in the U.S. helped improve sentiment. Investors were shaken in midaugust by China s surprise devaluation of the renminbi. China s reported economic growth rate for 15 was the slowest in 25 years. Markets endured two corrections, ending the period slightly higher for largecap stocks and lower for smallcap stocks. Longterm interest rates were also volatile and credit spreads widened. The best returns by far came from the defensive telecommunications services and utilities sectors as investors sought safety and yield. The sharpest declines came from energy, financials and materials stocks. Earnings for energy stocks declined with the glut in oil supplies and a continued drop in oil prices. Materials were hurt by falling commodity prices, exacerbated by slumping demand from China. Financials struggled with slow economic growth, a flat yield curve, a drop off in trading revenues and concerns about negative interest rates which were implemented in the Eurozone and Japan during the period. Health care stocks began the period on a tear after the Supreme Court upheld a key component of the Affordable Care Act, and then underperformed on worries about pricing, which remained under a cloud of political uncertainty. Economic data pointed to weakness early in the period due to bad weather and West Coast port disruptions, but eventually picked up. Jobs reports rebounded and stayed robust for most of the period. The U.S. Federal Reserve raised interest rates in December for the first time in nearly a decade. Earnings growth stalled and turned negative, although dividends and share buybacks continued at a brisk pace, setting a record in 15. The Fund underperformed the benchmark for the period. While security selection was positive in the utilities sector, selection in other sectors more than offset that advantage. Certain holdings within financials, health care, and consumer discretionary detracted from relative results amongst others. Six of ten sectors of the index experienced positive returns for the period. The telecommunications sector was the best performing area. Against this backdrop the portfolio s lessthanindexweight in telecommunications also detracted from relative results. This factor was mostly offset by the portfolio s lessthanindex weight in energy for the period. A bottom contributor to results included McKesson Corporation. The health care services company lowered its outlook for fiscal 16 based on its belief that generic pharmaceutical pricing trends will be weaker than previously expected. A top contributor was Microsoft Corp. The company continues to make progress in transitioning its business model to compete successfully in a world that will increasingly be dominated by mobile and cloudbased computing. The largely subscriptionbased business generates strong recurring cash flows that will continue to be used for regular dividend increases and share repurchases. CIG 75

2 RECENT DEVELOPMENTS The global economy continues to lumber ahead at an unusually slow pace. In an effort to stimulate growth, six central banks have now moved to negative interest rate regimes, reflecting the depletion of conventional policy tools and the diminishing returns of quantitative easing measures already in place. Even the U.S. Federal Reserve has acknowledged that it is studying the option, although the U.S. is currently moving in the opposite direction. The December rate hike by the Fed and the end of its asset purchase program, a strong dollar, and a spike in highyield spreads have all contributed to tighter U.S. financial conditions in recent months. Despite the best efforts of central banks, global growth is inhibited by a lack of demand. Those who believe we are in a period of secular stagnation point to greater incentives to save combined with reduced investment, driven by slow growth in the labour force, cheaper capital goods, tighter lending standards and new, technologybased business models that require less capital investment. Governments have not taken up the slack, with fiscal policies stunted by a combination of excessive sovereign debt, austerity measures and political gridlock. Revenues will be held hostage to the current slowgrowth environment, with some variations by region. The U.S. economy has the best growth profile thanks to favourable demographics, a more flexible workforce and less dependence on exports. And after a long absence, real disposable income is beginning to rise. On the other end of the spectrum, countries with substantial export relationships with China will continue to lag. In the current slowgrowth environment, equity returns will likely be lower than what many investors anticipate in nominal terms. Topline growth has become more difficult to achieve and stocks no longer have the benefit of the broadbased valuation expansion that propelled markets as central banks began to ramp up their quantitative easing programs. In real terms, however, with inflation negligible in most parts of the world, companies that can consistently grow free cash flow and exercise good capital allocation decisions should continue to provide attractive returns. RELATED PARTY TRANSACTIONS Manager, Portfolio Advisor, Trustee and Registrar CI Investments Inc. is the Manager, Portfolio Advisor, Trustee and Registrar of the Fund. CI Investments Inc. is a subsidiary of CI Financial Corp. The Manager, in consideration for management fees, provides management services required in the daytoday operations of the Fund. The Manager bears all of the operating expenses of the Fund (other than taxes, borrowing costs and new governmental fees) in return for a fixed administration fee. Management fee and fixed administration fee rates as at March 31, 16, for each of the classes are shown below: Annual management fee rate (%) Annual fixed administration fee rate (%) Class EF Class F Class I Paid directly by investor Class Insight Class O Paid directly by investor.15 The Manager received $9.2 million in management fees and $1.1 million in fixed administrative fees for the year. Management Fees Approximately 27% of total management fees were used to pay for sales and trailing commissions. The remaining 73% of management fees were used for investment management and other general administration. Independent Review Committee The Fund received standing instructions from the Board of Governors ( BoG ) in its capacity as the Independent Review Committee ( IRC ) with respect to the following Related Party Transactions: a) trades in securities of CI Financial Corp.; b) purchases or sales of securities of an issuer from or to another investment fund managed by the Manager (referred to as InterFund Trades ); and c) mergers of funds with another fund that is subject to National Instrument 8112 ( Fund Mergers ). The applicable standing instructions require that Related Party Transactions be conducted in accordance with the Manager s policies and procedures. The Manager is required to advise the BoG of any material breach of a condition of the standing instructions. The standing instructions require, among other things, that the investment decision in respect to Related Party Transactions (a) are made by the Manager free from any influence by any entities related to the Manager and without taking into account any consideration to any affiliate of the Manager; (b) represent the business judgment of the Manager uninfluenced by considerations other than the best interests of the Fund; and (c) are made in compliance with the Manager s policies and procedures. Transactions made by the Manager under the standing instructions are subsequently reviewed by the BoG on a quarterly basis to monitor compliance. The Fund relied on the BoG s standing instructions regarding Related Party Transactions during this reporting year. Annual management fee rate (%) Annual fixed administration fee rate (%) Class A Class E

3 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 years, as applicable. Net Assets per Unit (1) (2) (8) * Class A Commencement of operations May 27, 1957 Year Ended Year Ended Year Ended Year Ended Year Ended Yea Mar. 31, 16 Mar. 31, 15 Mar. 31, 14 Mar. 31, 13^ Mar. 31, 12^ Mar (.75) (.65) (.53) (.41) (.38) (4.85) (.94) ,95 429, ,29 219, ,415 13,132 13,996 13,292 11,771 11, Class E Commencement of operations October 4, 11 Period from Year Ended Year Ended Year Ended Year Ended Inception to Mar. 31, 16 Mar. 31, 15 Mar. 31, 14 Mar. 31, 13^ Mar. 31, 12^ (.5) (.44) (.36) (.27) (.15) (3.55) (.75) ,437 3,561 1, *Footnotes for the tables are found at the end of the Financial Highlights section. ^Historical figures are based on Canadian GAAP, for more details refer to footnote 7.

4 FINANCIAL HIGHLIGHTS (cont d) Net Assets per Unit ($) (1) (2) (8) * Class EF Commencement of operations July 29, 15 Period from Inception to Mar. 31, 16 $ (.8).84 (.95) (.7) Peri Ince Mar. Class F Commencement of operations November 17, Year Ended Year Ended Year Ended Year Ended Year Ended Yea Mar. 31, 16 Mar. 31, 15 Mar. 31, 14 Mar. 31, 13^ Mar. 31, 12^ Mar (.) (.17) (.14) (.11) (.1) (2.35) (.28) (.1) (.6) (.3) (.1) (.6) (.3) ,215 71,219 56,1 38,821 28,29 4,452 4,767 4,771 4,329 3, *Footnotes for the tables are found at the end of the Financial Highlights section. ^Historical figures are based on Canadian GAAP, for more details refer to footnote 7.

5 FINANCIAL HIGHLIGHTS (cont d) Net Assets per Unit ($) (1) (2) (8) * Class I Commencement of operations November 1, 1996 Year Ended Year Ended Year Ended Year Ended Year Ended Yea Mar. 31, 16 Mar. 31, 15 Mar. 31, 14 Mar. 31, 13^ Mar. 31, 12^ Mar (6.6) (.25) (.14) (.7) (.52) (.36) (.8) (.14) (.7) (.52) (.36) (.8) ,838 6,41 156, , ,538 4,8 5,431 5,249 6,499 1,571 Class Insight Commencement of operations July 15, 3 Year Ended Year Ended Year Ended Year Ended Year Ended Yea Mar. 31, 16 Mar. 31, 15 Mar. 31, 14 Mar. 31, 13^ Mar. 31, 12^ Mar (.36) (.31) (.25) (.) (.18) (3.95) (.51) (.13) (.7) (.4) (.13) (.7) (.4) ,142 1,457 1,488 1,582 2, *Footnotes for the tables are found at the end of the Financial Highlights section. ^Historical figures are based on Canadian GAAP, for more details refer to footnote 7. 5

6 FINANCIAL HIGHLIGHTS (cont d) Net Assets per Unit ($) (1) (2) (8) Class O Commencement of operations October 4, 11 Period from Year Ended Year Ended Year Ended Year Ended Inception to Mar. 31, 16 Mar. 31, 15 Mar. 31, 14 Mar. 31, 13^ Mar. 31, 12^ (.4) (.3) (.3) (.2) (.1) (3.52) (.21) (.4) (.28) (.27) (.19) (.3) (.4) (.28) (.27) (.19) (.3) ,177 9,897 4,47 1, ^Historical figures are based on Canadian GAAP, for more details refer to footnote 7. (1) This information is derived from the Fund s audited annual financial statements. (2) Net assets per unit and distributions per unit are based on the actual number of units outstanding for the relevant class at the relevant time. The increase (decrease) in net attributable to holders of redeemable units per unit is based on the weighted average number of units outstanding for the relevant class over the fiscal year. (3) Distributions are automatically reinvested in additional units of the Fund. (4) Management expense ratio is calculated based on expenses charged to the Fund (excluding commissions and other portfolio transaction costs) and is expressed as an annualized percentage of daily average net assets for the year. As of July 1, 1, Ontario combined the federal goods and services tax ( GST 5%) with the provincial retail sales tax ( PST 8%). The combination resulted in a Harmonized sales tax ( HST ) rate of 13%. The Effective HST tax rate is calculated using the attribution percentage for each province based on unitholder residency and can be different from 13%. (5) 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 fiscal year. The higher a Fund s portfolio turnover rate in a year, the greater the trading costs payable by the Fund in the year, and the greater the chance of an investor receiving taxable capital gains in the year. There is not necessarily a relationship between a higher turnover rate and the performance of a Fund. Portfolio turnover rate is calculated by dividing the lesser of the cost of purchases and the proceeds of sales of portfolio securities for the year, and excluding cash and shortterm investments maturing in less than one year, and before assets acquired from a merger, if applicable, by the average of the monthly fair value of investments during the year. (6) The trading expense ratio represents total commissions and other portfolio transaction costs disclosed in the statements of comprehensive income expressed as an annualized percentage of daily average net assets of the Fund during the year. (7) For financial years beginning on or after April 1, 13 the financial highlights are derived from the financial statements prepared in accordance with International Financial Reporting Standards ( IFRS ). IFRS allows net assets to be calculated based on the last traded market price for financial assets and financial liabilities where the last traded price falls within the day s bidask spread. There are no differences between the net assets calculated for purpose of processing unitholders transactions and the net assets attributable to holders of redeemable units used for financial statement reporting purposes. For financial years before April 1, 13, the financial highlights are derived from the financial statements prepared in accordance with Canadian GAAP. Under Canadian GAAP net assets for financial statement purposes were calculated based on bid/ask price while for purpose of processing unitholder transactions net assets were calculated based on the closing market price. (8) This information is provided as at March 31 of the years shown. 6

7 PAST PERFORMANCE This section describes how the Fund has performed in the past. Remember, past returns do not indicate how the Fund will perform in the future. The information shown assumes that distributions made by the Fund in the years shown were reinvested in additional units of the relevant classes of the Fund. In addition, the information does not take into account sales, redemption, distribution or other optional charges that would have reduced returns or performance. YearbyYear Returns The following charts show the Fund s annual performance for each of the years shown and illustrate how the Fund s performance has changed from year to year. In percentage terms, the charts show how much an investment made on the first day of each financial year would have grown or decreased by the last day of each financial year, except where noted. Class A Class E Class F Class I Mar. 7 Mar. 8 Mar. 9 Mar. 1 Mar. 11 Mar. 14 Class Insight Class O Mar. 7 Mar. 8 Mar. 9 Mar. 1 Mar. 11 Mar. 14 Mar. 16 Mar. 14 Mar. 16 Mar. 16 Mar. 14 Mar. 16 Mar. 7 Mar. 8 Mar. 9 Mar. 1 Mar. 11 Mar. 14 Mar. 7 Mar. 8 Mar. 9 Mar. 1 Mar. 11 Mar Mar Mar This figure is for the period from October 4, 11 to March 31, 12.

8 Annual Compound Returns The following table shows the Fund s annual compound returns for each year indicated, compared to the S&P 5 Total Return Index. broad measure of the stock performance of the largest U.S. companies with market capitalization in excess of US$5.3 billion. The S&P 5 Total Return Index is an index composed of 5 stocks weighted by capitalization and representing all major U.S. industries. The Index is a A discussion of the performance of the Fund as compared to the benchmark is found in the Results of Operations section of this report. One Year (%) Three Years (%) Five Years (%) Ten Years (%) Since Inception (%) Class A (3.) n/a S&P 5 Total Return Index n/a Class E (2.9) 17.1 n/a n/a 17.6 S&P 5 Total Return Index n/a n/a 21.4 Class F (1.9) n/a S&P 5 Total Return Index n/a Class I (.6) n/a S&P 5 Total Return Index n/a Class Insight (2.) n/a S&P 5 Total Return Index n/a Class O (.8) 19.6 n/a n/a.3 S&P 5 Total Return Index n/a n/a

9 Summary of Investment Portfolio as at March 31, 16 Portfolio Breakdown Percentage of Portfolio Breakdown (cont d) Percentage of Top 25 Holdings Percentage of Category Net Assets (%) Category Net Assets (%) Security Name Net Assets (%) Country allocation U.S.A Ireland Israel U.K Switzerland Cash & Equivalents....6 Other Net Assets (Liabilities)... (.1) Sector allocation Information Technology Financials Consumer Discretionary Health Care Industrials Consumer Staples Utilities Energy Materials Telecommunication Services Cash & Equivalents....6 Other Net Assets (Liabilities)... (.1) Apple Inc Microsoft Corp UnitedHealth Group Inc General Electric Co Visa Inc., Class A Boeing Co Oracle Corp Allergan PLC Danaher Corp McKesson Corp PepsiCo Inc American International Group Inc BlackRock Inc. (USD) Gilead Sciences Inc TJX Co., Inc Alphabet Inc., Class C CME Group Inc Time Warner Inc AbbVie Inc WEC Energy Group Inc Rockwell Collins Inc IngersollRand PLC Advance Auto Parts Inc Fidelity National Information Services Inc Occidental Petroleum Corp Total Net Assets (in $ s) $661,781 The summary of investment portfolio may change due to ongoing portfolio transactions of the Fund and updates will be available on a quarterly basis. A NOTE ON FORWARDLOOKING STATEMENTS This report may contain forwardlooking statements about the Fund, its future performance, strategies or prospects, and possible future Fund action. The words may, could, should, would, suspect, outlook, believe, plan, anticipate, estimate, expect, intend, forecast, objective, and similar expressions are intended to identify forwardlooking statements. Forwardlooking statements are not guarantees of future performance. Forwardlooking statements involve inherent risks and uncertainties, both about the Fund and general economic factors, so it is possible that predictions, forecasts, projections and other forwardlooking statements will not be achieved. We caution you not to place undue reliance on these statements as a number of important factors could cause actual events or results to differ materially from those expressed or implied in any forwardlooking statement made by the Fund. These factors include, but are not limited to, general economic, political and market factors in Canada, the United States and internationally, interest and foreign exchanges rates, global equity and capital markets, business competition, technological changes, changes in laws and regulations, judicial or regulatory judgments, legal proceedings and catastrophic events. The above list of important factors that may affect future results is not exhaustive. Before making any investment decisions, we encourage you to consider these and other factors carefully. All opinions contained in forwardlooking statements are subject to change without notice and are provided in good faith but without legal responsibility.