Lysander Corporate Value Bond Fund - Lysander Funds
Lysander Corporate Value Bond Fund
Management Report of Fund Performance
December 31, 2013
Management Report of Fund Performance As at December 31, 2013
A NOTE ABOUT FORWARD LOOKING STATEMENTS
This Management Report of Fund Performance includes certain statements that are “forward looking statements”. All statements, other than statements of historical fact, included in this Management Report of Fund Performance that address activities, events or developments that the Fund expects or anticipates will or may occur in the future, including such things as anticipated financial performance, are forward looking statements. The words “may”, “could”, “would”, “should”, “believe”, “plan”, “anticipate”, “expect”, “intend”, “forecast”, “objective” and similar expressions are intended to identify forward looking statements. These forward looking statements are subject to various risks and uncertainties, including the risks described in the Simplified Prospectus of the Fund, which could cause actual financial performance and expectations to differ materially from the anticipated performance or other expectations expressed. Readers are cautioned not to place undue reliance on these forward looking statements. All opinions contained in forward looking statements are subject to change without notice and are provided in good faith but without legal responsibility. The Fund has no specific intention of updating any forward looking statements whether as a result of new information, future events or otherwise, except as required by securities legislation. Certain research and information about specific holdings in the Fund, including any opinion, is based upon various sources believed to be reliable, but it cannot be guaranteed to be current, accurate or complete. It is for information only, and is subject to change without notice.
1
Management Report of Fund Performance As at December 31, 2013 This annual Management Report of Fund Performance of Lysander Corporate Value Bond Fund (the “Fund”) contains financial highlights for the year ended December 31, 2013 but does not contain the complete financial statements of the investment fund. This report should be read in conjunction with the interim financial statements of the Fund for the year ended December 31, 2013. You can get a copy of the interim financial statements at your request, and at no cost, by calling toll-free 1 877 308 6979, by writing to us at Lysander Funds Limited, 100 York Boulevard Suite 550, Richmond Hill Ontario, L4B 1J8, by visiting our website at www.lysanderfunds.com or at SEDAR at www.sedar.com. Unitholders may also contact us using one of these methods to request a copy of the investment funds’ proxy voting policies and procedures, proxy voting disclosure record, or quarterly portfolio disclosure.
Management Discussion of Fund Performance Investment Objective and Strategies Investment Objective: The Fund’s objective is to provide above average, long-term total returns consisting of interest income and some capital gains by investing primarily in fixed income securities. Investment Strategies The Fund’s holdings are not restricted by credit ratings. The Fund’s portfolio manager, Canso Investment Counsel (“Canso”), engages in opportunistic buying and selling of primarily corporate bonds using a contrarian approach. Canso believes that it is able to access market segments and exploit inefficiencies in the corporate bond market that are not available or apparent to most investors, due to its proprietary credit analysis and trading expertise. Canso tends to take a “bottom up” approach to portfolio construction, focusing on security selection. The exposure to credit risk in the Fund will depend on the phase of the credit cycle and the bottom up valuation of individual securities. When credit spreads are very tight, as they were in 1997 and again in early 2007, Canso’s valuation focus will concentrate the Fund on high quality corporate bonds which will reduce its credit risk. When credit spreads are wide, as they were in 2002, during the “credit crunch” in 2008-2009, and in selected market segments during the latter part of 2011, Canso will aim to exploit wide credit spreads to add to positions at attractive prices. While the Fund will consist primarily of corporate bonds and other credit instruments, it is expected that Canso will, from time to time, hold other securities in the Fund as a result of
2
Management Discussion of Fund Performance - continued exchanges, recapitalization and other reorganizations. The strategy employed by Canso has historically included convertible and distressed bonds. Canso may also purchase additional securities which may include, but are not limited to, equity securities, income trusts and exchange-traded funds. The aggregate exposure to securities other than bonds, other credit instruments and credit exchange-traded funds will be limited to 20% of the Fund’s net asset value. The Fund may from time to time also include a significant amount of cash and/or cash equivalents. Risks The Fund remains exposed to all of the risks described in its most recent Simplified Prospectus. In accordance with the methodology described in the Simplified Prospectus, we continue to rate the Fund as low-to-medium risk. We also continue to believe this Fund may be suitable for you if you plan to hold this investment for the medium to long term. The Fund offers two series of units, Series A and Series F. Each series of units is charged, as a separate series, the expenses attributable to that particular series. There is a risk, however, that the expenses of one series may affect the value of the other series when one series is unable to pay its expenses. In this case, the mutual fund as a whole is responsible for paying the additional expenses. Results of Operations During the period Canso employed its bottom-up process to buy and sell securities for the Fund. The Fund’s performance was driven by strength in its foreign issuer bonds and specific holdings such as YPG Financing Inc. (Yellow Media). This positioning and performance is entirely consistent with the Fund’s fundamental investment objective and strategies. There were no unusual trends in redemptions or sales. There were no significant changes to the components of revenue and expenses of the Fund and there were no unusual or infrequent events or transactions, economic changes or market conditions that affected performance beyond what would be reasonably expected. The Fund did not borrow money during the period.
3
Management Discussion of Fund Performance - continued Recent Developments In the period the Fund selectively reduced its weight in floating rate securities, given that their yields are no longer as attractive versus similar fixed rate counterparts. In the latter part of the period, the Fund purchased a convertible bond issue of Blackberry Ltd. This bond comes with a 6% coupon, significant protections for the bondholders, and a valuable conversion feature, in the opinion of the Portfolio Manager. The Fund’s future performance will be affected by future changes in the level of interest rates and by changes to the additional yield provided by corporate bonds over Government of Canada bonds. But, the degree to which these future changes occur are highly uncertain. There have been no changes to the manager or portfolio adviser, or change of control of the manager, or of the investment fund. There have been no actual or planned reorganizations, mergers or similar transactions. The membership of the independent review committee of the Fund did not change during the period. Transition to International Financial Reporting Standards The Fund will be required to adopt the International Financial Reporting Standards (“IFRS”) beginning in their fiscal 2014 year. In preparation to meet the requirements, Lysander Funds Limited (the “Manager”) has established a plan to perform the following steps in managing the transition to IFRS: a) Established a working group for the development and implementation of a transition plan and to provide oversight of the transition to IFRS; b) Commencing activities to identify key issues and the likely impacts resulting from the adoption of IFRS; and c) Initiating analysis with the fund administrator to reconfigure accounting systems used by the Funds. The key elements of the plan currently include the disclosures of the quantitative impact, if any, in the comparative 2013 financial statements and the preparation of the 2014 financial statements in accordance with IFRS. The Manager’s analysis is continuing, but the major qualitative impacts identified based on standards approved to date are the addition of a cash flow statement and the impact of classification of puttable instruments as a liability or as an equity. The Manager expects that there will be an impact on the financial statement presentation and disclosures of the Fund upon adoption of IFRS. Regardless of the financial statement impacts, the Manager has presently determined that there will be no quantitative impact to the transactional NAV of each series as a result of the changeover to IFRS.
4
Management Discussion of Fund Performance - continued Related Party Transactions Lysander Funds Limited is the manager of the Fund. The Manager provides or arranges for the provision of all general management and administrative services required by the Fund in its day-to-day operations, including but not limited to, calculating and reporting the net asset value of the Fund and its series, preparing all offering documents, unitholder recordkeeping and other administrative services. The Fund paid approximately $2,142,524 (including HST) in management fees to the Manager for the year ended December 31, 2013 (December 31, 2012: $282,224). Canso Investment Counsel is the portfolio manager (“Portfolio Manager”) of the Fund. The Portfolio Manager is responsible for all investment advice provided to the Fund including providing investment analysis and recommendations, making investment decisions and arranging for the acquisition and disposition of portfolio investments. Fees for providing these services is included in the management fee. The Fund paid approximately $461,505 (including HST) to the Portfolio Manager for the year ended December 31, 2013 (December 31, 2012: $55,772).
5
Financial Highlights The following tables show selected financial information for the years ended December 31, 2013, 2012 and 2011 for Series A and Series F, and is intended to help you understand the Series’ financial performance. Series A
Year ended
December 31, 2013
December 31, 2012
December 31, 2011*
$9.99
$9.40
-
Total revenue …………………………………………………………..
0.48
0.47
-
Total expenses…………………………………………………………
(0.16)
(0.17)
-
Realized gains (losses) …………………………………………………
(0.04)
0.02
-
Series Net assets Per Unit 1 Net assets, beginning of year………………………………………… Increase (decrease from operations):
Unrealized gains (losses)……………………………………………….
0.51
0.38
-
Total increase (decrease) from operations 2……………………………
$0.79
$0.70
-
From income (excluding dividends)……………………………………
(0.32)
(0.28)
-
From dividends………………………………………………………..
-
-
-
From capital gains …………………………………………………….
-
(0.02)
-
(0.32)
(0.30)
-
$10.49
$9.99
-
$118,737,240
$30,081,961
-
11,316,393
3,012,474
-
Management expense ratio ……………………………………………
1.58%
1.73%
-
Management expense ratio before waivers or absorption 5……………...
1.58%
1.97%
-
Portfolio turnover rate ………………………………………………..
51%
20%
-
Trading expense ratio7…………………………………………………
0.01%
-
-
Net asset value per unit, end of year …………………………………
$10.49
$9.99
-
Distributions:
2,3
Total Distributions ……….………………………………………… 2,3
Net assets, end of year …………………………………………… Ratios and Supplemental Data Net asset value 4……………………………………………………….. 4
Units outstanding …………………………………………………….. 5
6
*Series A commenced operations on December 28, 2011 and accordingly 2011 numbers are not available.
Notes 1 2 3 4 5 6
7
The information is derived from the Fund’s audited annual financial statements. The net asset per unit presented in the financial statements differs from the net asset value calculated for fund pricing purposes. An explanation of these differences can be found in the notes to the financial statements. Net assets and distributions are based on the actual numbers of units outstanding at the relevant time. The increase (decrease) in operations is based on the weighted average number of units outstanding over the financial year. This table is not intended to be a reconciliation of beginning to ending net assets per unit. Distributions were paid in cash or reinvested in additional units, or both. This information is provided at the end of the year shown. The management expense ratio is based on the total expenses of the year ended and is expressed as an annualized percentage of daily average net asset values during the year. The Fund was not a reporting issuer prior to December 23, 2011, and distributed under prospectus exemption. Therefore the management expense ratio may have been impacted as a result of different fees and expenses prior to the Fund becoming a reporting issuer. The Fund’s portfolio turnover rate indicates how actively the Fund’s portfolio adviser 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 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 high turnover rate and the performance of a fund. The portfolio turnover rate is calculated based on the lesser of purchases or sales of securities divided by the weighted average market value of portfolio securities, excluding short term securities The trading expense ratio represents total commissions and other portfolio transaction costs expressed as an annualized percentage of daily average net asset value during the year. 6
Series F
Year ended
December 31, 2013
December 31, 2012
December 31, 2011
$11.23
$10.53
$10.97
Total revenue …………………………………………………………..
0.57
0.56
0.54
Total expenses………………………………………………………….
(0.12)
(0.13)
(0.11)
Realized gains (losses) ……………………………………………….
(0.04)
0.03
0.13
Unrealized gains (losses)……………………………………………... Total increase (decrease) from operations 2 ……………………………
0.54
0.53
(0.44)
$0.95
$0.99
$0.12
Distributions: From income (excluding dividends)……………………………… ……. From dividends……………………………………………………….
(0.45)
(0.44)
(0.43)
-
-
-
From capital gains ……………………………………………………
-
(0.03)
(0.13)
Total Distributions 2,3…….…………………………………………..
(0.45)
(0.47)
(0.56)
$11.75
$11.23
$10.53
Net asset value 4………………………………………………………
$223,076,498
$36,394,406
$419,112
Units outstanding 4……………………………………………………
18,993,119
3,239,455
39,799
Management expense ratio …………………………………………..
1.01%
1.17%
0.86%
Management expense ratio before waivers or absorption 5…………….
1.01%
1.40%
4.64%
51%
20%
59%
Series Net assets Per Unit 1 Net assets, beginning of year……………………………………….. Increase (decrease from operations):
2,3
Net assets, end of year …………………………………………. Ratios and Supplemental Data
5
6
Portfolio turnover rate ………………………………………………. 7
Trading expense ratio ………………………………………………..
0.01%
-
-
Net asset value per unit, end of year ………………………………..
$11.75
$11.23
$10.53
Notes 1 2 3 4 5 6
7
The information is derived from the Fund’s audited annual financial statements. The net asset per unit presented in the financial statements differs from the net asset value calculated for fund pricing purposes. An explanation of these differences can be found in the notes to the financial statements. Net assets and distributions are based on the actual numbers of units outstanding at the relevant time. The increase (decrease) in operations is based on the weighted average number of units outstanding over the financial year. This table is not intended to be a reconciliation of beginning to ending net assets per unit. Distributions were paid in cash or reinvested in additional units, or both. This information is provided at the end of the year shown. The management expense ratio is based on the total expenses of the year ended and is expressed as an annualized percentage of daily average net asset values during the year. The Fund was not a reporting issuer prior to December 23, 2011, and distributed under prospectus exemption. Therefore the management expense ratio may have been impacted as a result of different fees and expenses prior to the Fund becoming a reporting issuer. The Fund’s portfolio turnover rate indicates how actively the Fund’s portfolio adviser 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 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 high turnover rate and the performance of a fund. The portfolio turnover rate is calculated based on the lesser of purchases or sales of securities divided by the weighted average market value of portfolio securities, excluding short term securities. The trading expense ratio represents total commissions and other portfolio transaction costs expressed as an annualized percentage of daily average net asset value during the year.
7
Management Fees The Manager provides or arranges the provision of all general management and administrative services required by the Fund, and as described in the section “Related Party Transactions” above. In consideration for such services, the Manager receives a monthly management fee, based on the net asset value of each Series, calculated daily and payable monthly. The Fund pays a management fee of 1.25% per annum for Series A units and 0.75% per annum for Series F units. Service fees or trailing commissions of a maximum of 0.50% per annum are paid on Series A units to dealers. This comprises 40% of the management fee of Series A units.
Past Performance The Fund became a reporting issuer on December 23, 2011. The commencement of operations as a reporting issuer for Series A was December 28, 2011 and for Series F December 23, 2011. Accordingly returns are shown for the relevant periods as indicated below. The performance information assumes that any distributions are reinvested in additional securities of the Fund. The performance information does not take into account sales, redemption, distribution or other optional charges that would have reduced returns or performance. Past performance does not necessarily indicate how the series will perform in the future.
Year – by - Year Returns
* For the year January 1, 2012 to December 31, 2012 ** For the year January 1, 2013 to December 31, 2013
8
Annual Compound Returns The following table shows the Fund’s annual compound return for each period indicated, compared with the DEX Universe Corporate Bond Index. The Index is divided into sub-indices based on credit rating: a combined AAA/AA sector, a single A sector, and a BBB sector. The returns of the Index are calculated without the deduction of fees and expenses, whereas the performance of the Fund is calculated after deducting such fees and expenses.
1
Year ended December 31, 2013
Since Inception2
Lysander Corporate Value Bond Fund : - Series A 1 - Series F 1
7.68 % 8.29 %
8.25 % 8.96 %
DEX Universe Corporate Bond Index3
0.84 %
3.49 %4
Returns are based on the net asset value per unit of the relevant series of the Fund and assume that all distributions were reinvested.
2
Period from December 28, 2011 to December 31, 2013 (Series A) and from December 23, 2011 to December 31, 2013 (Series F). Since inception returns are annualized. 3 Source: PC-Bond, a business unit of TSX Inc. Copyright © TSX Inc. All rights reserved. The information contained herein may not be redistributed, sold or modified or used to create any derivative work without the prior written consent of TSX Inc. THE USER AGREES THAT TSX INC. AND THE PARTIES FROM WHOM TSX INC. OBTAINS DATA DO NOT HAVE ANY LIABILITY FOR THE ACCURACY OR COMPLETENESS OF THE DATA PROVIDED OR FOR DELAYS, INTERRUPTIONS OR OMISSIONS THEREIN OR THE RESULTS TO BE OBTAINED THROUGH THE USE OF THIS DATA. THE USER FURTHER AGREES THAT NEITHER TSX INC. NOR THEPARTIES FROM WHOM IT OBTAINS DATA MAKE ANY REPRESENTATION, WARRANTY OR CONDITION, EITHER EXPRESS OR IMPLIED, AS TO THE RESULTS TO BE OBTAINED FROM THE USE OF THE DATA, OR AS TO THE MERCHANTABLE QUALITY OR FITNESS OF THE DATA FOR A PARTICULAR PURPOSE. 4 Period from December 23, 2011 to December 31, 2013.
9
Summary of Investment Portfolio As at December 31, 2013 Top 25 Holdings
% of NAV
Asset Mix
% of NAV
Royal Bank of Scotland
8.3%
Cash & Cash Equivalents
2.4%
Sallie Mae
7.7%
Canadian Issuer Fixed Income
48.1%
Lloyds Bank PLC
6.6%
Foreign Issuer Fixed Income
43.4%
Blackberry Ltd
6.5%
Canadian Equities
4.7%
Yellow Media Ltd.
4.7%
Other Assets
1.4%
Cogeco Cable Inc.
4.6%
Total
Xplornet Communications Inc.
4.5%
Unicredit SPA
3.8%
Commerzbank AG
3.8%
Sector
SNC Lavalin
3.2%
Cash & Cash Equivalents
2.4%
Goldman Sachs
3.2%
Financial
51.2%
YPG Financing Inc.
2.9%
Communication
26.5%
GE Capital
2.8%
Industrial
5.8%
Cash and cash equivalents
2.4%
Publishing/Printing
4.7%
WTH Car Rental ULC (AVIS)
2.4%
Energy
2.6%
Blackpress
2.4%
Infrastructure
2.2%
Standard Life
2.4%
Real Estate
1.6%
Honda Canada
2.2%
Securitization
1.6%
Shaw Communications Inc
2.1%
Other Assets
1.4%
Bank of America
1.9%
Total
Videotron Ltee.
1.9%
Enbridge Inc
1.8%
Penske Truck Leasing Canada
1.7%
Kimco
1.6%
Heathrow Funding Limited
1.4%
Total
86.8%
10
100.0%
% of NAV
100.0%
Management Report of Fund Performance
December 31, 2013
Management Report of Fund Performance As at December 31, 2013
A NOTE ABOUT FORWARD LOOKING STATEMENTS
This Management Report of Fund Performance includes certain statements that are “forward looking statements”. All statements, other than statements of historical fact, included in this Management Report of Fund Performance that address activities, events or developments that the Fund expects or anticipates will or may occur in the future, including such things as anticipated financial performance, are forward looking statements. The words “may”, “could”, “would”, “should”, “believe”, “plan”, “anticipate”, “expect”, “intend”, “forecast”, “objective” and similar expressions are intended to identify forward looking statements. These forward looking statements are subject to various risks and uncertainties, including the risks described in the Simplified Prospectus of the Fund, which could cause actual financial performance and expectations to differ materially from the anticipated performance or other expectations expressed. Readers are cautioned not to place undue reliance on these forward looking statements. All opinions contained in forward looking statements are subject to change without notice and are provided in good faith but without legal responsibility. The Fund has no specific intention of updating any forward looking statements whether as a result of new information, future events or otherwise, except as required by securities legislation. Certain research and information about specific holdings in the Fund, including any opinion, is based upon various sources believed to be reliable, but it cannot be guaranteed to be current, accurate or complete. It is for information only, and is subject to change without notice.
1
Management Report of Fund Performance As at December 31, 2013 This annual Management Report of Fund Performance of Lysander Corporate Value Bond Fund (the “Fund”) contains financial highlights for the year ended December 31, 2013 but does not contain the complete financial statements of the investment fund. This report should be read in conjunction with the interim financial statements of the Fund for the year ended December 31, 2013. You can get a copy of the interim financial statements at your request, and at no cost, by calling toll-free 1 877 308 6979, by writing to us at Lysander Funds Limited, 100 York Boulevard Suite 550, Richmond Hill Ontario, L4B 1J8, by visiting our website at www.lysanderfunds.com or at SEDAR at www.sedar.com. Unitholders may also contact us using one of these methods to request a copy of the investment funds’ proxy voting policies and procedures, proxy voting disclosure record, or quarterly portfolio disclosure.
Management Discussion of Fund Performance Investment Objective and Strategies Investment Objective: The Fund’s objective is to provide above average, long-term total returns consisting of interest income and some capital gains by investing primarily in fixed income securities. Investment Strategies The Fund’s holdings are not restricted by credit ratings. The Fund’s portfolio manager, Canso Investment Counsel (“Canso”), engages in opportunistic buying and selling of primarily corporate bonds using a contrarian approach. Canso believes that it is able to access market segments and exploit inefficiencies in the corporate bond market that are not available or apparent to most investors, due to its proprietary credit analysis and trading expertise. Canso tends to take a “bottom up” approach to portfolio construction, focusing on security selection. The exposure to credit risk in the Fund will depend on the phase of the credit cycle and the bottom up valuation of individual securities. When credit spreads are very tight, as they were in 1997 and again in early 2007, Canso’s valuation focus will concentrate the Fund on high quality corporate bonds which will reduce its credit risk. When credit spreads are wide, as they were in 2002, during the “credit crunch” in 2008-2009, and in selected market segments during the latter part of 2011, Canso will aim to exploit wide credit spreads to add to positions at attractive prices. While the Fund will consist primarily of corporate bonds and other credit instruments, it is expected that Canso will, from time to time, hold other securities in the Fund as a result of
2
Management Discussion of Fund Performance - continued exchanges, recapitalization and other reorganizations. The strategy employed by Canso has historically included convertible and distressed bonds. Canso may also purchase additional securities which may include, but are not limited to, equity securities, income trusts and exchange-traded funds. The aggregate exposure to securities other than bonds, other credit instruments and credit exchange-traded funds will be limited to 20% of the Fund’s net asset value. The Fund may from time to time also include a significant amount of cash and/or cash equivalents. Risks The Fund remains exposed to all of the risks described in its most recent Simplified Prospectus. In accordance with the methodology described in the Simplified Prospectus, we continue to rate the Fund as low-to-medium risk. We also continue to believe this Fund may be suitable for you if you plan to hold this investment for the medium to long term. The Fund offers two series of units, Series A and Series F. Each series of units is charged, as a separate series, the expenses attributable to that particular series. There is a risk, however, that the expenses of one series may affect the value of the other series when one series is unable to pay its expenses. In this case, the mutual fund as a whole is responsible for paying the additional expenses. Results of Operations During the period Canso employed its bottom-up process to buy and sell securities for the Fund. The Fund’s performance was driven by strength in its foreign issuer bonds and specific holdings such as YPG Financing Inc. (Yellow Media). This positioning and performance is entirely consistent with the Fund’s fundamental investment objective and strategies. There were no unusual trends in redemptions or sales. There were no significant changes to the components of revenue and expenses of the Fund and there were no unusual or infrequent events or transactions, economic changes or market conditions that affected performance beyond what would be reasonably expected. The Fund did not borrow money during the period.
3
Management Discussion of Fund Performance - continued Recent Developments In the period the Fund selectively reduced its weight in floating rate securities, given that their yields are no longer as attractive versus similar fixed rate counterparts. In the latter part of the period, the Fund purchased a convertible bond issue of Blackberry Ltd. This bond comes with a 6% coupon, significant protections for the bondholders, and a valuable conversion feature, in the opinion of the Portfolio Manager. The Fund’s future performance will be affected by future changes in the level of interest rates and by changes to the additional yield provided by corporate bonds over Government of Canada bonds. But, the degree to which these future changes occur are highly uncertain. There have been no changes to the manager or portfolio adviser, or change of control of the manager, or of the investment fund. There have been no actual or planned reorganizations, mergers or similar transactions. The membership of the independent review committee of the Fund did not change during the period. Transition to International Financial Reporting Standards The Fund will be required to adopt the International Financial Reporting Standards (“IFRS”) beginning in their fiscal 2014 year. In preparation to meet the requirements, Lysander Funds Limited (the “Manager”) has established a plan to perform the following steps in managing the transition to IFRS: a) Established a working group for the development and implementation of a transition plan and to provide oversight of the transition to IFRS; b) Commencing activities to identify key issues and the likely impacts resulting from the adoption of IFRS; and c) Initiating analysis with the fund administrator to reconfigure accounting systems used by the Funds. The key elements of the plan currently include the disclosures of the quantitative impact, if any, in the comparative 2013 financial statements and the preparation of the 2014 financial statements in accordance with IFRS. The Manager’s analysis is continuing, but the major qualitative impacts identified based on standards approved to date are the addition of a cash flow statement and the impact of classification of puttable instruments as a liability or as an equity. The Manager expects that there will be an impact on the financial statement presentation and disclosures of the Fund upon adoption of IFRS. Regardless of the financial statement impacts, the Manager has presently determined that there will be no quantitative impact to the transactional NAV of each series as a result of the changeover to IFRS.
4
Management Discussion of Fund Performance - continued Related Party Transactions Lysander Funds Limited is the manager of the Fund. The Manager provides or arranges for the provision of all general management and administrative services required by the Fund in its day-to-day operations, including but not limited to, calculating and reporting the net asset value of the Fund and its series, preparing all offering documents, unitholder recordkeeping and other administrative services. The Fund paid approximately $2,142,524 (including HST) in management fees to the Manager for the year ended December 31, 2013 (December 31, 2012: $282,224). Canso Investment Counsel is the portfolio manager (“Portfolio Manager”) of the Fund. The Portfolio Manager is responsible for all investment advice provided to the Fund including providing investment analysis and recommendations, making investment decisions and arranging for the acquisition and disposition of portfolio investments. Fees for providing these services is included in the management fee. The Fund paid approximately $461,505 (including HST) to the Portfolio Manager for the year ended December 31, 2013 (December 31, 2012: $55,772).
5
Financial Highlights The following tables show selected financial information for the years ended December 31, 2013, 2012 and 2011 for Series A and Series F, and is intended to help you understand the Series’ financial performance. Series A
Year ended
December 31, 2013
December 31, 2012
December 31, 2011*
$9.99
$9.40
-
Total revenue …………………………………………………………..
0.48
0.47
-
Total expenses…………………………………………………………
(0.16)
(0.17)
-
Realized gains (losses) …………………………………………………
(0.04)
0.02
-
Series Net assets Per Unit 1 Net assets, beginning of year………………………………………… Increase (decrease from operations):
Unrealized gains (losses)……………………………………………….
0.51
0.38
-
Total increase (decrease) from operations 2……………………………
$0.79
$0.70
-
From income (excluding dividends)……………………………………
(0.32)
(0.28)
-
From dividends………………………………………………………..
-
-
-
From capital gains …………………………………………………….
-
(0.02)
-
(0.32)
(0.30)
-
$10.49
$9.99
-
$118,737,240
$30,081,961
-
11,316,393
3,012,474
-
Management expense ratio ……………………………………………
1.58%
1.73%
-
Management expense ratio before waivers or absorption 5……………...
1.58%
1.97%
-
Portfolio turnover rate ………………………………………………..
51%
20%
-
Trading expense ratio7…………………………………………………
0.01%
-
-
Net asset value per unit, end of year …………………………………
$10.49
$9.99
-
Distributions:
2,3
Total Distributions ……….………………………………………… 2,3
Net assets, end of year …………………………………………… Ratios and Supplemental Data Net asset value 4……………………………………………………….. 4
Units outstanding …………………………………………………….. 5
6
*Series A commenced operations on December 28, 2011 and accordingly 2011 numbers are not available.
Notes 1 2 3 4 5 6
7
The information is derived from the Fund’s audited annual financial statements. The net asset per unit presented in the financial statements differs from the net asset value calculated for fund pricing purposes. An explanation of these differences can be found in the notes to the financial statements. Net assets and distributions are based on the actual numbers of units outstanding at the relevant time. The increase (decrease) in operations is based on the weighted average number of units outstanding over the financial year. This table is not intended to be a reconciliation of beginning to ending net assets per unit. Distributions were paid in cash or reinvested in additional units, or both. This information is provided at the end of the year shown. The management expense ratio is based on the total expenses of the year ended and is expressed as an annualized percentage of daily average net asset values during the year. The Fund was not a reporting issuer prior to December 23, 2011, and distributed under prospectus exemption. Therefore the management expense ratio may have been impacted as a result of different fees and expenses prior to the Fund becoming a reporting issuer. The Fund’s portfolio turnover rate indicates how actively the Fund’s portfolio adviser 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 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 high turnover rate and the performance of a fund. The portfolio turnover rate is calculated based on the lesser of purchases or sales of securities divided by the weighted average market value of portfolio securities, excluding short term securities The trading expense ratio represents total commissions and other portfolio transaction costs expressed as an annualized percentage of daily average net asset value during the year. 6
Series F
Year ended
December 31, 2013
December 31, 2012
December 31, 2011
$11.23
$10.53
$10.97
Total revenue …………………………………………………………..
0.57
0.56
0.54
Total expenses………………………………………………………….
(0.12)
(0.13)
(0.11)
Realized gains (losses) ……………………………………………….
(0.04)
0.03
0.13
Unrealized gains (losses)……………………………………………... Total increase (decrease) from operations 2 ……………………………
0.54
0.53
(0.44)
$0.95
$0.99
$0.12
Distributions: From income (excluding dividends)……………………………… ……. From dividends……………………………………………………….
(0.45)
(0.44)
(0.43)
-
-
-
From capital gains ……………………………………………………
-
(0.03)
(0.13)
Total Distributions 2,3…….…………………………………………..
(0.45)
(0.47)
(0.56)
$11.75
$11.23
$10.53
Net asset value 4………………………………………………………
$223,076,498
$36,394,406
$419,112
Units outstanding 4……………………………………………………
18,993,119
3,239,455
39,799
Management expense ratio …………………………………………..
1.01%
1.17%
0.86%
Management expense ratio before waivers or absorption 5…………….
1.01%
1.40%
4.64%
51%
20%
59%
Series Net assets Per Unit 1 Net assets, beginning of year……………………………………….. Increase (decrease from operations):
2,3
Net assets, end of year …………………………………………. Ratios and Supplemental Data
5
6
Portfolio turnover rate ………………………………………………. 7
Trading expense ratio ………………………………………………..
0.01%
-
-
Net asset value per unit, end of year ………………………………..
$11.75
$11.23
$10.53
Notes 1 2 3 4 5 6
7
The information is derived from the Fund’s audited annual financial statements. The net asset per unit presented in the financial statements differs from the net asset value calculated for fund pricing purposes. An explanation of these differences can be found in the notes to the financial statements. Net assets and distributions are based on the actual numbers of units outstanding at the relevant time. The increase (decrease) in operations is based on the weighted average number of units outstanding over the financial year. This table is not intended to be a reconciliation of beginning to ending net assets per unit. Distributions were paid in cash or reinvested in additional units, or both. This information is provided at the end of the year shown. The management expense ratio is based on the total expenses of the year ended and is expressed as an annualized percentage of daily average net asset values during the year. The Fund was not a reporting issuer prior to December 23, 2011, and distributed under prospectus exemption. Therefore the management expense ratio may have been impacted as a result of different fees and expenses prior to the Fund becoming a reporting issuer. The Fund’s portfolio turnover rate indicates how actively the Fund’s portfolio adviser 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 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 high turnover rate and the performance of a fund. The portfolio turnover rate is calculated based on the lesser of purchases or sales of securities divided by the weighted average market value of portfolio securities, excluding short term securities. The trading expense ratio represents total commissions and other portfolio transaction costs expressed as an annualized percentage of daily average net asset value during the year.
7
Management Fees The Manager provides or arranges the provision of all general management and administrative services required by the Fund, and as described in the section “Related Party Transactions” above. In consideration for such services, the Manager receives a monthly management fee, based on the net asset value of each Series, calculated daily and payable monthly. The Fund pays a management fee of 1.25% per annum for Series A units and 0.75% per annum for Series F units. Service fees or trailing commissions of a maximum of 0.50% per annum are paid on Series A units to dealers. This comprises 40% of the management fee of Series A units.
Past Performance The Fund became a reporting issuer on December 23, 2011. The commencement of operations as a reporting issuer for Series A was December 28, 2011 and for Series F December 23, 2011. Accordingly returns are shown for the relevant periods as indicated below. The performance information assumes that any distributions are reinvested in additional securities of the Fund. The performance information does not take into account sales, redemption, distribution or other optional charges that would have reduced returns or performance. Past performance does not necessarily indicate how the series will perform in the future.
Year – by - Year Returns
* For the year January 1, 2012 to December 31, 2012 ** For the year January 1, 2013 to December 31, 2013
8
Annual Compound Returns The following table shows the Fund’s annual compound return for each period indicated, compared with the DEX Universe Corporate Bond Index. The Index is divided into sub-indices based on credit rating: a combined AAA/AA sector, a single A sector, and a BBB sector. The returns of the Index are calculated without the deduction of fees and expenses, whereas the performance of the Fund is calculated after deducting such fees and expenses.
1
Year ended December 31, 2013
Since Inception2
Lysander Corporate Value Bond Fund : - Series A 1 - Series F 1
7.68 % 8.29 %
8.25 % 8.96 %
DEX Universe Corporate Bond Index3
0.84 %
3.49 %4
Returns are based on the net asset value per unit of the relevant series of the Fund and assume that all distributions were reinvested.
2
Period from December 28, 2011 to December 31, 2013 (Series A) and from December 23, 2011 to December 31, 2013 (Series F). Since inception returns are annualized. 3 Source: PC-Bond, a business unit of TSX Inc. Copyright © TSX Inc. All rights reserved. The information contained herein may not be redistributed, sold or modified or used to create any derivative work without the prior written consent of TSX Inc. THE USER AGREES THAT TSX INC. AND THE PARTIES FROM WHOM TSX INC. OBTAINS DATA DO NOT HAVE ANY LIABILITY FOR THE ACCURACY OR COMPLETENESS OF THE DATA PROVIDED OR FOR DELAYS, INTERRUPTIONS OR OMISSIONS THEREIN OR THE RESULTS TO BE OBTAINED THROUGH THE USE OF THIS DATA. THE USER FURTHER AGREES THAT NEITHER TSX INC. NOR THEPARTIES FROM WHOM IT OBTAINS DATA MAKE ANY REPRESENTATION, WARRANTY OR CONDITION, EITHER EXPRESS OR IMPLIED, AS TO THE RESULTS TO BE OBTAINED FROM THE USE OF THE DATA, OR AS TO THE MERCHANTABLE QUALITY OR FITNESS OF THE DATA FOR A PARTICULAR PURPOSE. 4 Period from December 23, 2011 to December 31, 2013.
9
Summary of Investment Portfolio As at December 31, 2013 Top 25 Holdings
% of NAV
Asset Mix
% of NAV
Royal Bank of Scotland
8.3%
Cash & Cash Equivalents
2.4%
Sallie Mae
7.7%
Canadian Issuer Fixed Income
48.1%
Lloyds Bank PLC
6.6%
Foreign Issuer Fixed Income
43.4%
Blackberry Ltd
6.5%
Canadian Equities
4.7%
Yellow Media Ltd.
4.7%
Other Assets
1.4%
Cogeco Cable Inc.
4.6%
Total
Xplornet Communications Inc.
4.5%
Unicredit SPA
3.8%
Commerzbank AG
3.8%
Sector
SNC Lavalin
3.2%
Cash & Cash Equivalents
2.4%
Goldman Sachs
3.2%
Financial
51.2%
YPG Financing Inc.
2.9%
Communication
26.5%
GE Capital
2.8%
Industrial
5.8%
Cash and cash equivalents
2.4%
Publishing/Printing
4.7%
WTH Car Rental ULC (AVIS)
2.4%
Energy
2.6%
Blackpress
2.4%
Infrastructure
2.2%
Standard Life
2.4%
Real Estate
1.6%
Honda Canada
2.2%
Securitization
1.6%
Shaw Communications Inc
2.1%
Other Assets
1.4%
Bank of America
1.9%
Total
Videotron Ltee.
1.9%
Enbridge Inc
1.8%
Penske Truck Leasing Canada
1.7%
Kimco
1.6%
Heathrow Funding Limited
1.4%
Total
86.8%
10
100.0%
% of NAV
100.0%
