Building on our strengths. Expanding our leadership.

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1 2008 Annual Repor t Building on our strengths. Expanding our leadership. It has been a pivotal year for Morneau Sobeco Income Fund. We doubled in size, maintained our focus on excellence in client service and continued to deliver solid and consistent results to our unitholders. During the year, we significantly expanded our leadership in human resources solutions with the acquisition of Shepell fgi, Canada s leading provider of workplace health and productivity solutions. This strategic investment brought together the knowledge and expertise of 2,200 employees at Morneau Sobeco and Shepell fgi, creating increased capabilities and service offerings, and a larger business base. By building on our core strengths in pension and benefits consulting and outsourcing, Morneau Sobeco Income Fund is well positioned for further long-term profitable growth through the delivery of exceptional human resources consulting and outsourcing solutions.

2 Chairman and CEO Message to Unitholders Building on our strengths The merger of two leading human resource companies has created exciting new growth opportunities for Morneau Sobeco Income Fund and has provided us with an enhanced portfolio of solutions to address our clients needs. Our acquisition of Shepell fgi is an ideal fit with Morneau Sobeco. The employee assistance programs, workplace health management and organizational training services provided by Shepell fgi are focused on improving workplace health and productivity. These offerings complement our comprehensive suite of pension and benefits consulting and outsourcing solutions. With a combined base of more than 6,000 clients, including blue chip corporations, governments, agencies and institutions, Shepell fgi has enhanced the breadth of our client offerings and further extended our ability to grow our business base. Like Morneau Sobeco, Shepell fgi benefits from strong margins and a recurring revenue business model that rewards consistent excellence in client service with a high degree of client retention, long-term relationships, and expanding mandates that drive revenue growth over time. In 2008, we continued to expand our geographic presence in Canada and the United States. We grew our pension consulting and outsourcing footprint in Western Canada with the acquisition of Leong & Associates. The addition of this British Columbia-based actuarial and pension consulting firm expands our capabilities to serve our Western Canadian clients directly. As well, we enhanced our reach into the U.S. through a strategic alliance with Sibson Consulting, a leading provider of human resources solutions with more than 20 locations across the United States.

3 Who we are, what we do Morneau Sobeco Income Fund is the largest Canadian human resource consulting and outsourcing firm focused on pensions, benefits, employee assistance programs (EAP) and other workplace health and productivity solutions. We help clients reduce costs, increase productivity and improve their competitive positions by supporting their employees financial security, health and well-being. Staking our leadership in an emerging field We have positioned Morneau Sobeco Income Fund as a leader in the expanding field of workplace health management solutions the business of keeping individuals at work, and helping employees who are not actively at work get back on the job, quickly and successfully. Increasingly, our clients employees are facing challenges such as mental and physical illness, financial difficulties, child or elder care, and legal, housing or relationship problems which keep them away from work. These challenges cut across all occupations and organizations. Our clients see these concerns in human terms, as well as in increased health benefit costs and lost productivity. Keeping employees productive at work, and helping to minimize their lost time, calls for capabilities and resources that extend our benefits consulting and outsourcing expertise to the EAP and workplace health management skill sets acquired with Shepell fgi. We believe that our workplace health management solutions have long-term growth potential and that we are well positioned as a leader in this field. Consistency in service excellence The foundation of Morneau Sobeco s success has been a clear focus on service excellence to meet our clients needs today, and to anticipate and deliver solutions for the challenges they may face tomorrow. To support our long-standing commitment to client service excellence in an organization that doubled its size in 2008, we expanded our senior management team under the leadership of our new,. In addition, to keep pace with our growth and expand the wealth of knowledge, experience and valued guidance, we strengthened our Board with the addition of three new members. In 2008 we welcomed to the Board; Jill Denham, previously Vice-Chair of CIBC Retail Markets; Diane MacDiarmid, who is Executive Vice, Corporate Resources with Bentall Capital LLP and previously president of Mercer Delta Consulting Canada, and John Rogers, previously and CEO of MDS Inc., a TSX- and NYSE-listed company Financial performance In 2008 we continued our record of achieving growth in revenue and EBITDA. We generated additional business by marketing our enhanced portfolio of human resources solutions to current clients and by attracting new clients. As a result, our financial performance for 2008 met our expectations. Morneau Sobeco Income Fund reported annual revenue of $249.7 million, net income of $8.8 million, and Standardized EBITDA 1 of $50.1 million. Cash from operations was $35.3 million, Standardized Distributable Cash 2 was $27.3 million or $0.917 per unit (basic), and Adjusted Consolidated Distributable Cash 3 was $43.5 million or $1.23 per unit (basic). As expected, the acquisition of Shepell fgi was immediately accretive and enabled us to increase our monthly cash distribution from $ to $ per unit, with the July 2008 distribution. These results incorporate Shepell fgi from June 2, 2008 and Leong & Associates from October 1, Expanding our market leadership Morneau Sobeco Income Fund entered 2009 with solid yearover-year momentum that was enhanced with the 2008 expansion of our EAP service offering and other workplace health and productivity solutions. While we recognize the challenges of the current economic environment, we remain cautiously optimistic about our opportunities in 2009.

4 Revenue Growth ($ millions) Financial Highlights Revenue $249.7million Net income $8.8 million Our clients are seeking solutions that help them manage strategic human resource issues and challenges. We anticipate that fluctuating economic conditions may present new growth opportunities for Morneau Sobeco Income Fund through challenges emerging from pension plan shortfalls, increased use of EAP, and continued interest in cost reduction through pension and benefit plan outsourcing. We also see greater focus on the active management of employee health to help maintain corporate productivity and manage rising health benefit costs. Our industry expertise, our understanding of the issues our clients are facing, and our ability to provide effective solutions and anticipate their future needs remain our core strengths. This is the strong foundation upon which we will build Morneau Sobeco Income Fund in 2009 and beyond. Standardized EBITDA $50.1 million Monthly cash distributions increased by 7.0% in July 2008 Chairman and Chief Executive Officer Number of clients generating more than $100,000 in revenue over460 1 Standardized EBITDA is defined as net income before interest expense, income taxes (recovery), depreciation, amortization and non-controlling interest. 2 Standardized Distributable Cash is defined as cash from operating activities, including the effects of change in non-cash operating working capital, less maintenance capital expenditures and Consolidated Distributable Cash available to non-controlling interest. Consolidated Distributable Cash is defined as cash from operating activities adjusted for maintenance capital expenditures. 3 Adjusted Consolidated Distributable Cash is defined as cash from operating activities adjusted for maintenance capital expenditures excluding changes in non-cash operating working capital.

5 Comprehensive solutions for pensions, benefits and workplace health and productivity We take over the costly and time-consuming administration of clients pension and benefits plans. We offer client-branded websites and call centres, transaction support, individualized information and decision-support tools for employees. Pension & Benefits Outsourcing Employee Assistance Programs We offer counselling and education services for employees personal and family needs. These services support the health and well-being of employees and help to reduce workplace absenteeism and enhance productivity. We assist clients with the design, funding requirements, management and financial control, implementation and communication of employee pension and benefits plans. Pension & Benefits Consulting Workplace Health Management Solutions We help clients reduce the incidence, duration and costs of absenteeism and disability claims through preventive measures, as well as programs to facilitate a faster return to work following absence or disability. Client case study: Client and Overview Our case study client is the Canadian arm of a leading international financial services organization and has an employee population of 4,000. When our relationship began in 1998, the client provided its employees with a traditional benefits program with a core of common benefits and enhanced user-paid coverage. Challenges and the solutions Benefits Consulting Benefits Outsourcing Employee Assistance Programs Workplace Health Management Solutions Situation: At the beginning of our relationship, the client periodically relied on Morneau Sobeco for consulting services for its traditional benefits program. By 2004 it became apparent that the needs of our client and its employees had outgrown the original benefits plan. It was time for a complete redesign. Outcome: Our Benefits Consulting group designed a flexible new plan that enables employees to tailor their benefits to their particular needs and to update their choices as their needs change. The new plan incorporates, and benefits from, the employee feedback and data gathered through the benefits administration services provided by our Outsourcing group since Situation: Early in our relationship, the client determined that its existing benefits administration system no longer met its requirements. The client needed a better solution. Outcome: We developed and administer an outsourced solution that fully meets the client s needs and enables it to focus on its core business. In addition, we identified and helped the client manage more than $1 million in previously unrecognized benefits plan liability exposures. In addition to providing valuable intelligence during the benefits plan redesign led by our Consulting team, our Outsourcing group ensured a successful, seamless transition to the new benefits plan. Situation: Through our support of the health and well-being of our client s employees we are able to gather data and provide analytics and reporting on a privacy assured basis. Through this process, our EAP specialists recognized that employees were struggling with child-care and parenting issues that were affecting their ability to remain productive at work. Outcome: We delivered a targeted promotion of our Shepell fgi Family Support Program which provides solutions to help employees deal with personal family concerns. As a result of employees using this Program, our client has reported improved productivity as employees are less preoccupied with managing childcare and parenting issues. Situation: In the early 2000s, our Consulting group helped our client understand that their expenses were increasing as a result of rising employee absences as well as claims for Short Term Disability (STD) and Long Term Disability (LTD). STD claims involved 25% of its employees, while LTD costs had increased 70% over three years. Outcome: By focusing on early intervention and return to work, leveraged with insights gained through our EAP services, we designed and manage a workplace health management program to mitigate STD continued claims and pre-empt casual absences from becoming disability claims. Our program reduced STD claims 10%, with a 27% reduction in duration, saving the client $1.8 million in the first year. STD claims again declined in 2008, resulting in a saving of $2 million. These positive results enabled our Consulting group to negotiate 2008 long-term disability insurance for the client at 2006 rates.

6 General information Head Office 895 Don Mills Road Suite 700 One Morneau Sobeco Centre Toronto, Ontario M3C 1W3 Phone: Facsimile: Web site: Annual Meeting Wednesday, May 13, :00 p.m. The Toronto Board of Trade 1 First Canadian Place (Adelaide Street Entrance) East Dining Room, 4th Floor Toronto, Ontario M5X 1C1 Transfer Agent CIBC Mellon Trust Company 320 Bay Street Toronto, Ontario M5H 4A6 Exchange and Symbol Toronto Stock Exchange (TSX): MSI.UN Executive Leadership Chairman and Chief Executive Officer Nancy Lala Chief Financial Officer Pierre Chamberland Chief Operating Officer, Morneau Sobeco Rod Phillips Chief Executive Officer, Shepell fgi Board of Trustees Robert Chisholm Audit Committee Chair David Day Lead Trustee CNCG Committee member Jill Denham Audit Committee member Diane MacDiarmid CNCG Committee member W. F. Morneau, Sr. Honorary Chairman Chairman and Chief Executive Officer John Rogers CNCG Committee Chair Audit Committee member This document contains "forward-looking statements within the meaning of applicable securities laws, such as statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts. Use of words such as may, will, expect, believe, or other words of similar effect may indicate a forward-looking statement. These statements are not guarantees of future performance and are subject to numerous risks and uncertainties which are more fully described in Morneau Sobeco s Management Discussion and Analysis dated March 3, 2009 and found at Risks include our ability to maintain profitability and growth, integration of Shepell fgi, potential undisclosed liabilities associated with our acquisitions, reliance on information systems and technology, and reputational risk. Many of these risk factors can affect the Fund s actual results and could cause its actual results to differ materially from those expressed or implied in any forward-looking statement made by the Fund or on its behalf. Given these risk factors, investors should not place undue reliance on forward-looking statements as a prediction of actual results. All forward-looking statements in this document are qualified by these cautionary statements. These statements are made as at March 3, 2009 and, except as required by applicable law, the Fund undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Additionally, the Fund undertakes no obligation to comment on analyses, expectations or statements made by third parties in respect of the Fund, its financial or operating results or its securities.