AGF Floating Rate Income Fund. Scott Page, CFA Co-Director of Eaton Vance Floating-Rate Loan Group

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1 AGF Floating Rate Income Fund Scott Page, CFA Co-Director of Eaton Vance Floating-Rate Loan Group

2 Scott Page, MBA, CFA Co-Director of Floating-Rate Loans, Eaton Vance 32-year industry veteran Portfolio Manager on AGF Floating Rate Income Fund since inception Eaton Vance Management launched the first ever U.S. floating-rate loan in

3 Agenda Floating-Rate Loan Primer Floating-Rate Loan Market Update Why Floating-Rate Loans now? Why Select AGF Floating Rate Income Fund AGF Floating Rate Income Fund Review 63

4 Floating-Rate Loan Primer 64

5 Floating-Rate Loan Primer Corporate debt issued by below-investment-grade borrowers Most issuers are significant in size and scale and many are familiar household names Companies undertake loans for recapitalizations, acquisitions and refinancings Coupon income from floating-rate loans resets regularly (about every days on average) to maintain a fixed spread over a variable base rate, usually LIBOR Loans are often referred to as senior and secured. They typically have the highest priority of claims in an issuer s capital structure and are secured by specific collateral Other common monikers: bank loans, leveraged loans, senior loans (all are synonymous) Data provided is for informational use only. Past performance is no guarantee of future results. It is not possible to invest directly in an Index. See end of report for important additional information. 65

6 Investment Universe Profile Senior secured lending to significant corporate issuers Floating-rate loans represent a well-protected senior layer of issuer capital structure Significant junior capital cushion (i.e. equity and highyield bonds) provides attractive loan-to-value Secured by collateral including issuer accounts receivable, inventory, property, plant, equipment and/or stock Weighted Average Company Capital Structure: Floating-Rate Loans High-Yield Bonds $5.2B Revenue & $828M EBITDA $9.4 Billion Enterprise Value Equity $3,146 US$2 Million B $1,490 Million $4,764 Million 3.9x (33% of cap structure) 5.6x (16% of cap structure) 11.3x (51% of cap structure) Fixed Charge Coverage: 2.1x Interest Coverage: 3.9x Source: Eaton Vance, 12/31/2014. For illustrative purposes only. Not meant to represent any Eaton Vance Funds. It is not possible to invest directly in an index. 66

7 Floating-Rate Loan Market Update 67

8 Q4 Supply Growth Eased on Higher Market Yields Supply expansion about half the speed QoQ Par amount of Outstanding Loans ($B) $800B $700B $682 $832 3 months $27 $600B $500B $400B $300B $200B $100B $0B '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 Source: S&P/LCD and S&P/LSTA Leveraged Loan Index, December 31,

9 CLOs Accounting for Majority of Visible Demand Visible Inflows Retail still in reverse (but moderating in early January); Institutional mandates additive Source: S&P/LCD, December 31,

10 Borrowing Proposition Remains in Check Debt & Enterprise Values as EBITDA Multiples Avg. Interest Coverage Ratio of Outstanding Loans Total Enterprise Values here Lending here Outer edge multiples contained; generationally low interest costs a mitigating factor Source: S&P/LCD. 70

11 Default Rates Well Below Long-Term Averages Sound fundamentals have helped limit default scenarios $70B $60B Lagging 12-Month Default Rate by Principal Amount Amount to Default 12% 10% Default Rate Actual Default Rate $50B $40B $30B $20B $10B $0B '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 8% 6% 4% Amount Recovered On Default (Assumes 70% Recoveries) Credit Loss 2% Given Default (Assumes 70% 0% Recoveries) '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 Source: S&P/LCD and S&P/LSTA Leveraged Loan Index. 71

12 Loan Prices have Recently Rebounded after Soft Technicals in Q $100 Average Prices $98 $96 $97.0 $94 $92 $90 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Source: S&P/LCD and S&P/LSTA Leveraged Loan Index. 72

13 Spreads Reasonable Remain well wide of prior-era lows 500 Nominal Spread of Outstanding Loans '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 Source: S&P/LCD and S&P/LSTA Leveraged Loan Index. 73

14 Spreads Remain Well Wide of 2006/2007 Levels 2,000 Spread to Maturity of Outstanding Loans 1,500 bps 1, '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 Source: S&P/LCD and S&P/LSTA Leveraged Loan Index. Data provided is for informational use only. Past performance is no guarantee of future results. It is not possible to invest directly in an Index. See end of report for important additional information. Default rate is calculated as the amount default over the last twelve months divided by the amount outstanding at the beginning of the twelve-month period. 74

15 Why Floating-Rate Loans Now 75

16 High Yield per Unit of Duration May help amplify yield today, while significantly shortening portfolio duration Floating-Rate Loans vs. Select Asset Classes Source: Morningstar, December 31,

17 Positive Return Tendencies for 20 Years 1%-2% per quarter most common historically; skew has helped drive tendencies positive Distribution of All Quarterly Total Returns: 1992-Q Negative Quarters Positive Quarters Returns have been positive in 87% of quarters since Q Q Q Source: Zephyr, December 31,

18 Negative Correlation a Hedge for High-Quality Bonds 10-Year Correlation with U.S. Treasuries Anti-bond characteristics: may help offset core bond positions driven by interest rates Source: Morningstar, December 31,

19 Easy Monetary Conditions May Persist but when tightening ultimately comes, loans should benefit Cumulative Loan Performance During Prior Rising Rate Environments 6/99-5/00 Loans: 3.93% Bonds: 2.11% 6/04-6/06 Loans: 12.66% Bonds: 6.55% 2/94 2/95 Loans: 10.39% Bonds: 0.01% Source: Morningstar, December 31,

20 The Future: Will Rates Rise, Stay Level, Fall? Looking ahead, most interest-rate scenarios favour loans (thanks to generationally low rates) Loans vs. Bonds: Hypothetical Returns in Various Rate Scenarios Source: Eaton Vance, December 31, Interest-Rate changes (in basis points) 80

21 Thinking about Baseline Forward Returns Fed guidance is for higher short-term rates 15% Weighted Average Absolute All-In Rate 3-Month LIBOR Spread 10% Fed Rate Hike Cycle: 6/04-6/06 (17 hikes totaling 425 bps) 5% What s Next for Short Rates? 0% Source: S&P/LCD, March 31,

22 Why AGF Floating Rate Income Fund 82

23 Advantage of Eaton Vance s Experience A pioneer in floating-rate loan investment management Measurable track record since 1989 Significant floating-rate loan investment resources and specialization Extensive contiguous experience of investment team Focus on delivering incremental outperformance with lower volatility than the Index and peers Continuity of philosophy, process and team over time Systematic risk-weighted portfolio construction underpinned by bottom-up credit research Years Experience Managing Floating-Rate Loans Median 8.9 Years Eaton Vance (Since 1989) Eaton Vance (1989) Competitor Floating-Rate Loan Managers (Institutional & Retail) evestment Alliance/Morningstar, 12/31/2014. Based on combined evestment Alliance Floating-Rate Bank Loan Fixed Income universe and Morningstar Bank Loan category using oldest investment offering for each firm. 83

24 Floating-Rate Loan Strategy Assets Vehicles and assets managed* Institutional ($9,867 m) Structured Products ($2,497 m) Floating-Rate Loan AUM: $40.8 b (by vehicle) $50 $45 $40 $35 $30 Floating-Rate Loan AUM: $40.8 b (by calendar year) $40.8b Closed End Funds and Sleeves ($4,026 m) Sub-Advised ($2,813 m) Mutual Funds ($21,611 m) $25 $20 $15 $10 $5 $ Eaton Vance Management (and affiliates) as of 12/31/2014 *The above AUM data includes those vehicles sponsored by Eaton Vance which generally only have a portion of their total investments allocated to the Floating-Rate sector. 84

25 Extensive and Experienced Investment Team Team Leadership Scott Page, CFA 33 Years Experience (25 with Eaton Vance) Craig Russ 29 Years Experience (18 with Eaton Vance) John Redding 30 Years Experience (17 with Eaton Vance) Andrew Sveen, CFA 20 Years Experience (16 with Eaton Vance) Credit Research Ralph Hinckley, CFA Broadcast/Cable TV, Telecom, Publishing 17 Years Experience (11 with Eaton Vance) Catherine McDermott Auto, Gaming, Packaging 26 Years Experience (14 with Eaton Vance) Peter Campo, CFA Building Products, Insurance, Oil & Gas 19 Years Experience (11 with Eaton Vance) Michael Turgel, CFA Food, Metals, Utilities 12 Years Experience (8 with Eaton Vance) Jeff Hesselbein, CFA Healthcare, Pharmaceuticals, Theme Parks 18 Years Experience (15 with Eaton Vance) Heath Christensen, CFA Aerospace/Defense, Software, Travel 11 Years Experience (11 with Eaton Vance) Daniel McElaney, CFA Business Equip/Services, Chemicals/Plastics, Consumer Products 11 Years Experience (10 with Eaton Vance) Cyril Legrand 4 Years Experience (4 with Eaton Vance) Brad Richards 3 Years Experience (3 with Eaton Vance) Brian Keenan Business Equip/Services, Healthcare, Telecom 5 Years Experience (5 with Eaton Vance) William Holt, CFA Casinos, Financials, Restaurants, Technology, Semiconductors 13 Years Experience (10 with Eaton Vance) Elizabeth Chou Retailers (excl Food & Drug) 5 Years Experience (5 with Eaton Vance) Samuel Tripp 1 Year Experience (1with Eaton Vance Audrey S. Grant 1 Year Experience (1with Eaton Vance) 85

26 Extensive and Experienced Capabilities Trading Recovery Management / Credit Advisory Andrew Sveen, CFA 20 Years Experience (16 with Eaton Vance) Jake Lemle 7 Years Experience (7 with Eaton Vance) David Aloise 40 Years Experience (15 with Eaton Vance) David McKown 57 Years Experience (15 with Eaton Vance) Structured Products Operations & Compliance Product & Portfolio Strategy Michael Kinahan, CFA 28 Years Experience (17 with Eaton Vance) Michael Botthof 23 Years Experience (17 with Eaton Vance) Christopher Remington 16 Years Experience (6 with Eaton Vance) Howard Tiffen 43 Years Experience (2 with Eaton Vance) Additional Staff: 2 structured product professionals Additional Staff: 7 operations/compliance professionals 86

27 Investment Process Investable Universe Select Universe Target Portfolio 1500 Loans Qualitative Analysis Quantitative Analysis 1000 Loans Investment team identifies most appropriate opportunity set S&P/LSTA Leveraged Loan Index & select non-u.s. loans Apply criteria (examples): Minimum deal size Maximum leverage Qualitative assessments Structural Analysis Relative Value Analysis Select universe analyzed through fundamental credit research process Time-tested bottom-up credit research Relative risk rankings assigned by analysts Source: Eaton Vance. Illustrative purposes only. Not meant to represent any Eaton Vance Funds Loans Systematic risk-weighted construction driven by relative risk rankings Focus on diversification Position sizing optimized for optimal risk/return profile 87

28 AGF Floating Rate Income Fund Review 88

29 AGF Floating Rate Income Fund Portfolio Statistics Asset Distribution Assets by Country Other Asset Distributions Bank Loans 84.3% U.S % Covenant Lite 65.16% Corporate Bonds 12.6% Australia 0.93% 2nd Lien Bank Loans 4.45% Equity 0.1% Bermuda 0.23% Net Cash & Equivalents 3.0% Canada 3.47% Portfolio Credit Quality % of MV Total 100.0% Cayman Islands 0.32% Baa 0.7% France 0.63% Ba 33.0% Portfolio Statistics (Loan Portfolio) Germany 0.86% B 59.0% Total Net Assets: $284.9mm Luxembourg 3.14% Caa 5.5% Number of Loans: 322 Netherlands 2.50% Ca 0.1% Average loan size: $0.746mm Total Foreign 12.08% Total 100.0% Average loan size of TNA: 0.26% Total % Total loans (mkt value): $240.2mm Weighted Average Credit Rating B1 Weighted average price (loans) 97.75% Top Ten Industries Weighted average years to maturity 4.87 Business Equipment & Services 9.58% Top Ten Holdings Weighted average days to reset 62 Health Care 9.52% Transdigm, Inc. 1.64% Loan duration Electronics/Electrical 8.06% Asurion LLC 1.42% Weighted average spread 3.76% Oil & Gas 6.86% Ineos US Finance LLC 1.25% Weighted average LIBOR 1.00% Chemicals & Plastics 6.74% Syniverse Holdings, Inc. 1.14% Weighted average all-in rate 4.76% Retailers (except food & drug) 5.91% Dell Inc. 1.09% YTM 5.34% Financial Intermediaries 4.71% B.C. Unlimited Liability Company 1.03% Insurance 3.43% Guggenheim Partners, LLC 0.86% Portfolio Statistics (Bond Portfolio) Industrial Equipment 3.40% AmWINS Group, LLC 0.82% Number of Bonds: 73 Food Service 3.36% Apex Tool Group, LLC 0.82% Total bonds (mkt value): $35.7mm Total 61.56% Kronos Incorporated 0.82% Weighted average price (bonds) % Total 10.90% Weighted average years to maturity 5.81 Portfolio Stats (Total Portfolio) Bond duration 3.18 Fund duration 0.55 Weighted average g coupon 7.32% Fund weighted average years to maturity 4.83 YTM 6.78% Net Yield 3.59% YTW 6.03% Source: Eaton Vance, March 31,

30 AGF Floating Rate Income Fund Performance Calendar Return, USD As of March 31, AGF Floating Rate Income Fund (Gross) 2.5% 5.9% AGF Floating Rate Income Fund (Net) 0.6% 3.9% S&P/LSTA Leveraged Loan Index (USD) 1.6% 5.3% Annualized Return USD As of March 31, mo. 1-yr PSD* AGF Floating Rate Income Fund (Gross) 2.2% 3.1% 5.1% AGF Floating Rate Income Fund (Net) 1.8% 1.2% 3.1% S&P/LSTA Leveraged Loan Index (USD) 2.1% 2.5% 4.8% Source: AGF Investment Operations, as of March 31, USD. *Performance Start Date of May 1,

31 Why AGF Floating Rate Income Fund, Why Now Eaton Vance is the largest floating-rate manager in North America with experience in this asset class dating back to 1989, substantially longer than any competing product in Canada. Floating-rate loans typically perform well in rising interest rate environments because of their short duration. Floating-rate loans have low to negative correlations with other typical fixedincome and equity asset classes Senior and secured: floating-rate loans have the highest priority in a company s capital structure and are generally backed by hard assets in the form of collateral Short term: loans have an average life of three years and their coupons reset approximately every 55 days, resulting in little to no duration risk associated with these securities. 91

32 Available Marketing Support For you and your clients 92

33 Disclaimers Eaton Vance Management (Boston, Massachusetts), Portfolio Manager of AGF Floating Rate Income Fund, is an International Adviser relying on an exemption from Canadian registration requirements under National Instrument All information is in Canadian dollars. The indicated rates of return are the historical annual compounded total return including changes in unit value and reinvestment of all dividends and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any security holder that would have reduced returns. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The payment of distributions should not be confused with a fund s performance, rate of return or yield. If distributions paid by the fund are greater than the performance of the fund, your original investment will shrink. Distributions paid as a result of capital gains realized by a fund, and income and dividends earned by a fund are taxable in your hands in the year they are paid. Your adjusted cost base will be reduced by the amount of any returns of capital. If your adjusted cost base falls below zero, you will have to pay capital gains tax on the amount below zero. Past performance is not necessarily a guide to future performance. The value of investments and the income from them can fall as well as rise. Investments denominated in foreign currencies are subject to fluctuations in exchange rates, which may have an adverse affect on the value of the investments, sale proceeds, and on dividend or interest income. Investors may not necessarily recoup the full value of their original investment. Investors should be aware that forward looking statements and forecasts may not be realised. The commentaries contained herein are provided as a general source of information based on information available as of March 31, 2015 and should not be considered as personal investment advice or an offer or solicitation to buy and / or sell securities. Every effort has been made to ensure accuracy in these commentaries at the time of publication, however accuracy cannot be guaranteed. Market conditions may change and the manager accepts no responsibility for individual investment decisions arising from the use or reliance on the information contained herein. 1 of 2 DISCLAIMER CONTINUED ON FOLLOWING PAGE 93

34 Disclaimers References to specific securities are presented to illustrate the application of our investment philosophy only and are not to be considered recommendations by AGF Investments Inc. or Eaton Vance. The specific securities identified and described in this presentation do not represent all of the securities purchased, sold or recommended for the portfolio, and it should not be assumed that investments in the securities identified were or will be profitable. The information contained herein was provided by AGF Investment Operations and intends to provide you with information related to the AGF Floating Rate Income Fund at a point in time. It is not intended to be investment advice applicable to any specific circumstance and should not be construed as investment advice. Market conditions may change impacting the composition of a portfolio. AGF Investments Inc. and Eaton Vance Management assume no responsibility for any investment decisions made based on the information provided herein. Publication date: April 20, of 2 94