26JUL201212454834
Short-Term
Bond
Class
SPROTT ASSET MANAGEMENT LP
INTERIM MANAGEMENT REPORT OF FUND PERFORMANCE
2012
Management Discussion of Fund Performance
*Investment Objective and Strategies
The investment objective of the Sprott Short-Term Bond Class (the ‘‘Fund’’) is to seek a similar return to its underlying fund, Sprott Short-Term Bond Fund (the ‘‘Underlying Fund’’) by investing substantially all of its assets in securities of that fund. The investment objective of the Underlying Fund is to provide regular income while preserving capital and maintaining liquidity through investing primarily in short-term debt securities issued by Canadian federal, provincial and municipal governments as well as corporate issuers. To achieve the Underlying Fund’s investment objective, it will employ investment strategies based upon economic research, quantitative and technical analysis, the analysis of credit quality pertaining to prospective investments and establishing an evolving asset allocation containing government and corporate bonds.
Risk
The risks of investing in the Fund are described in the Fund’s simplified prospectus. The Fund is suitable for those investors who seek exposure to short-term high quality fixed income securities issued primarily by Canadian governments and companies. The Fund is suitable for investors with a low risk tolerance and a short-term investment horizon.
Results of Operations
The Fund ended June 30, 2012 with a total net asset value of $1.7 million. Of this, 97.7% was invested in units of the Underlying Fund. At the end of the period, the Underlying Fund held approximately 76% of the portfolio in short-term corporate bonds. The Underlying Fund follows a strategy which typically limits the term-to-maturity of the bond portfolio to two years. Accordingly, a meaningful allocation to corporate bonds is used to provide additional yield with limited risk.
Following a relatively strong initial two months to the year, global investors became risk averse towards the end of February when it became clear that the U.S. Federal Reserve had no intention of providing additional rounds of money printing to foster a stronger economy. Investors quickly favoured government fixed-income securities over equities. Investors drove yields to exceptionally low levels as capital preservation overshadowed desires for investment gains. Illustrating this behavior was the German 2-year bond which turned negative toward the end of May.
Highlighting the exceptionally low interest rate environment in Canada was the Government’s February 23rd announcement that the
one-year rate on Canada Savings Bonds was 0.65%. The premium on protection of principal has created an environment of negative real interest rates where the total return earned on government fixed income is exceeded by the current inflation rate.
The current environment remains unstable on the global stage, punctuated by the emergence of a Spanish banking crisis which reignited deep concerns over the future health of Europe’s financial health and even the future of the Euro. We continue to position the Underlying Fund in the corporate bonds of large cap North American companies which are delivering solid financial performance, though the environment for earning strong yields remains constrained.
The net asset value of the Fund increased 289% from $436 thousand as of December 31, 2011 to $1.7 million as of June 30, 2012. The increase was primarily the result of net share issuances of $1.2 million. The management expense ratio of Series A was unchanged from the prior period, while higher sales of securities holdings caused the portfolio turnover rate to rise.
Recent Developments
F U T U R E A C C O U N T I N G S TA N DA R D S
consistent with the requirements under IFRS. IFRS is expected to affect the overall presentation of financial statements and additional disclosure in the notes to financial statements will be required. The Manager will continue to monitor new standards and amendments to existing IFRS standards and evaluate their impact on the Fund.
Related Party Transactions
M A N A G E M E N T F E E S
The Fund pays a management fee to the Manager, at an annual rate of up to 0.75% for Series A shares, up to 0.5% for Series F shares and is negotiated by the shareholders for Series I. The management fee is calculated and accrued daily based on daily net asset value of the applicable series of the Fund, and is paid monthly. For the six months ended June 30, 2012, the Fund incurred management fees of $4,385 (including taxes). The breakdown of the services received in consideration of the management fees, as a percentage of management fees, is as follows:
Portfolio Trailing
Advisory Commission
Sprott Short-Term Bond Class – Series A 68% 32%
Sprott Short-Term Bond Class – Series F 100% –
Sprott Short-Term Bond Class – Series I 100% –
Out of the management fees that the Manager received from the Fund, the Manager paid trailer commissions of $726 during the six-month period ended June 30, 2012, to Sprott Private Wealth LP, an affiliate of the Manager.
O P E R AT I N G E X P E N S E S
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 six-months ended June 30, 2012 and the period ended December 31, 2011.
The Fund’s Net Assets per Share1
June 30, Dec 31,
2012 20113
Series A $ $
Net assets, beginning of period 10.03 10.00
Increase (decrease) from operations:
Total revenue 0.16 0.08
Total expenses (0.04) (0.02)
Realized gains (losses) for the period (0.02) –
Unrealized gains (losses) for the period 0.02 (0.03)
Total Increase (decrease) from operations2 0.12 0.03
Distributions: – –
Total annual distributions – –
Net assets, end of period 10.12 10.03
June 30, Dec 31,
2012 20113
Series F $ $
Net assets, beginning of period 10.00 10.00
Increase (decrease) from operations:
Total revenue 0.15 0.04
Total expenses (0.03) –
Realized gains (losses) for the period (0.01) –
Unrealized gains (losses) for the period (0.02) (0.05)
Total Increase (decrease) from operations2 0.09 (0.01)
Distributions: – –
Total annual distributions – –
The Fund’s Net Assets per Share
June 30, 20124
Series I $
Net assets, beginning of period 10.00
Increase (decrease) from operations:
Total revenue 0.03
Total expenses –
Realized gains (losses) for the period –
Unrealized gains (losses) for the period (0.04)
Total Increase (decrease) from operations2 (0.01)
Distributions: –
Total annual distributions –
Net assets, end of period 9.99
1 This information is derived from the Fund’s unaudited interim and audited annual financial statements. The net assets per share presented in the financial statements may differ 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.
2 The increase/decrease from operations is based on the weighted average number of share outstanding over the financial period. Net assets and distributions are based on the actual number of share outstanding at the relevant time. This table is not intended to be a reconciliation of beginning to ending net assets per share.
3 Information provided is for the period from October 17, 2011 (launch date) for Series A and from December 7, 2011 (first issuance) for Series F, to December 31, 2011. 4 Information provided is for the period from June 27, 2012 (first issuance) to June 30, 2012 for Series I.
Ratios and Supplemental Data
June 30, Dec 31,
Series A 2012 2011
Total net asset value (000s)1 $1,105 $188
Number of shares outstanding1 109,241 18,742
Management expense ratio2
0.84% 0.84%
Management expense ratio before waivers or absorptions3 11.23% 38.62%
Trading expense ratio3 0.01% 0.00%
Portfolio turnover rate4 46.01% –
Net asset value per share1
$10.12 $10.03
June 30, Dec 31,
Series F 2012 2011
Total net asset value (000s)1
$554 $247
Number of shares outstanding1 54,825 24,744
Management expense ratio2 0.57% 0.53%
Management expense ratio before waivers or absorptions3 13.42% 23.15%
Trading expense ratio4
0.01% 0.00%
Portfolio turnover rate5 46.01% –
Ratios and Supplemental Data continued
June 30,
Series I 2012
Total net asset value (000s)1 $25
Number of shares outstanding1 2,500
Management expense ratio2
0.00%
Management expense ratio before waivers or absorptions3 68.30%
Trading expense ratio4 0.01%
Portfolio turnover rate5 46.01%
Net asset value per share1
$9.99
1 The information is provided as at June 30, 2012 and December 31 of the year shown.
2 Management expense ratio (‘‘MER’’) is based on total expenses (excluding commissions and other portfolio transaction costs) for the stated period and is expressed as an annualized percentage of daily average net asset value during the period.
3 The Manager may waive or absorb a portion of the operating expenses of the Fund. Waivers and absorption can be terminated at any time.
4 The trading expense ratio (‘‘TER’’) represents total commissions and other portfolio transaction costs expressed as an annualized percentage of daily average net asset value during the period. The TER includes dividend expense and securities borrowing expense paid by the Fund in connection with securities sold short.
31JUL201202563221
Past Performance
The indicated rates of return are the historical total returns including changes in share values and assume reinvestment of all distributions in additional shares of the relevant Series of the Fund. These returns do not take into account sales, redemption, distribution or optional charges or income taxes payable by any shareholder that may reduce returns. Please note that past performance is not indicative of future performance. All rates of return are calculated based on the Net Asset Value of the particular Series of the Fund.
Year-by-Year Returns
The following chart indicates the non-annualized performance of each Series of the Fund for the six months ended June 30, 2012 and for the period shown. The chart shows, in percentage terms, how much an investment made on the first day of each period would have grown or decreased by the last day of each period.
0.01 0.84 0.98 -0.04 0.34 -10% 0% 10% 2011* 2012** Series A Series F Series I
RETURN
Summary of Investment Portfolio
As at June 30, 2012
Portfolio Allocation The top 25 holdings of the Underlying Fund, as a percentage of the
net asset value of the Underlying Fund are as follows:
% of % of
Net Asset Value Issuer Net Asset Value
Long Positions Canada Housing Trust No. 1, 2.05%, June 15, 2017 10.0
Mutual Fund Units 97.7 Canada Housing Trust No. 1, 2.2%, March 15, 2014 4.3
Thompson Reuters Corp., 5.2%, December 1, 2014 3.6
Total Long Positions 97.7
GE Capital Canada Funding Co., 2.95%, February 10, 2014 3.6
Cash (1.4)
TELUS Corp., 4.95%, May 15, 2014 3.6
Other Net Assets 3.7
Capital Power LP, 4.6%, December 1, 2015 3.5
Total Net Asset Value 100.0 Bank of Nova Scotia, FRN, 4.99%, March 27, 2018 3.5
Daimler Canada Finance, 3.16%, April 14, 2014 3.4 HSBC Bank Canada, 2.901%, January 13, 2017 3.4 BP Capital Markets PLC, 2.74%, February 24, 2017 3.4 Canadian Western Bank, 2.57%, November 4, 2014 3.4 John Deere Credit Inc., 1.85%, January 24, 2014 3.4 Caterpillar Financial Services Ltd., 2.64%, December 3, 2013 3.1 John Deere Credit Inc., 2.25%, October 14, 2014 3.1 Ford Auto Securitization Trust, 1.75%, April 15, 2014 3.1 Royal Bank of Canada, 2.05%, January 13, 2015 2.7 Toyota Credit Canada Inc., 2.45%, February 27, 2017 2.6 Caisse Centrale Desjardins du Quebec, 3.11%, December 4, 2014 2.4 Metropolitan Life Global Funding I, FRN, 2.18%, June 17, 2014 2.4 Westpac Banking Corp., 3.75%, December 1, 2014 2.3
BMW Canada Inc., 2.64%, August 10, 2015 2.0
Bell Canada, 4.85%, June 30, 2014 1.8
Ford Auto Securitization Trust, 2.43%, June 15, 2013 1.8 Royal Bank of Canada, FRN, 5.00%, June 6, 2018 1.7
OMERS Realty Corp., 4.09%, June 4, 2013 1.7
Top 25 positions as a percentage of net asset value 79.8
