Semi-Annual Financial Statement as at September 30, issued by Lakeview Asset Management

Transcription

1 Semi-Annual Financial Statement as at September 30, 2012 issued by Lakeview Asset Management

2 A look inside Overview About the CI Funds Board of Governors Letter from the CI Funds Board of Governors Equity Fund Lakeview Disciplined Leadership Canadian Equity Fund Income Fund Lakeview Disciplined Leadership High Income Fund Notes to the Financial Statements Legal Notice CI Investments Inc., the Manager of the Funds, appoints independent auditors to audit the Funds Annual Financial Statements. Under Canadian securities laws (National Instrument ), if an auditor has not reviewed the Semi-Annual Financial Statements, this must be disclosed in an accompanying notice. The Funds independent auditors have not performed a review of these Semi-Annual Financial Statements in accordance with standards established by the Canadian Institute of Chartered Accountants.

3 2 Queen Street East, Twentieth Floor Toronto, Ontario M5C 3G7 Telephone: Toll Free: Facsimile: Enclosed are the Financial Statements for your CI Investments mutual funds for the six months ending September 30, Inside is important information about each fund, including its financial statements for the period and a list of the portfolio holdings at the end of the period. Additional information about your funds can be found on our website, If you have any questions about your investments, please contact your financial advisor. CI is proud to partner with advisors across Canada. We believe investors are most successful when they follow an investment plan developed with the assistance of a qualified advisor. CANADA S INVESTMENT COMPANY CI has been investing on behalf of Canadians since 1965 and has grown to become one of Canada s largest investment fund companies. We manage over $73 billion on behalf of two million Canadians. CI is a subsidiary of CI Financial Corp., a TSX-listed financial services firm with $97 billion in fee-earning assets at September 30, CI provides one of the industry s widest selections of investment products and services and a strong lineup of leading portfolio management teams. Our portfolio management expertise is offered through several platforms, including mutual funds, tax-efficient funds, segregated funds, and managed solutions. You may also contact CI Client Services at Thank you for investing with us. 1

4 About the CI Funds Board of Governors The CI Funds Board of Governors was voluntarily established by CI in 1998 making it one of the first such fund governance bodies in Canada. The Board of Governors acts as an independent governance body the Funds, providing impartial judgment on conflicts of interest with a view to the best interests of the Funds and investors. The Board of Governors recommends the best course of action to achieve a fair and reasonable result on any conflict of interest issues, and CI takes into account its recommendation in accordance with its fiduciary duty to the Funds. All of the members of the Board are independent of CI. The Board of Governors are compensated as recommended by the Canadian securities regulators in their rule and as set out in its mandate. These expenses are paid by CI and charged to the Funds as part of their administration fee. The members of the Board of Governors are: William Harding, Managing Partner, Alpine Asset Advisors AG Governor since June 2005 The Board of Governors mandate is set out in a separate charter and reviewed annually by the Board to ensure its mandate conforms to the expectations and requirements of Canadian securities regulators. Along with dealing with conflicts of interest, the mandate provides that the Board acts as an audit committee for the Funds for the purpose of reviewing the financial statements of the Funds with the auditors of the Funds and reviews holdings, purchases and sales by the Funds of securities of The Bank of Nova Scotia and CI Financial Corp. The Board also reviews and discusses on a regular basis matters including compliance of the Funds with CI s relevant policies and procedures, approval of the Funds auditors and the fees paid to those auditors, and the performance of the Board and its members. The Board of Governors adheres to the requirements set out by Canadian securities regulators in National Instrument Independent Review Committee for Investment Funds which requires all mutual funds in Canada to have independent review committees. Stuart P. Hensman, Corporate Director Governor since December 2004 Christopher M. Hopper, President, KLQ Mechanical Ltd. Governor since May 2007 Sharon M. Ranson, President, The Ranson Group Governor since December 2004 James M. Werry, Corporate Director Governor since September 2011 Further information regarding the Board is available at including the Board s full mandate. Letter from the CI Funds Board of Governors The CI Funds Board of Governors is pleased to report on its activities in respect of the semi-annual period ended September 30, 2012 and to date. The Governors are appointed pursuant to the Declarations of Trust governing the Funds. The Governors have reviewed, commented on and approved the CI Code of Ethics and Conduct, which establishes rules of conduct designed to ensure fair treatment of the Funds securityholders and that, at all times, the interests of the Funds and their securityholders are placed above personal interests of employees, officers and directors of the Manager and each of its subsidiaries and affiliates, the subadvisers, and the Governors, through the application of the highest standards of integrity and ethical business conduct. The CI Code of Ethics and Conduct requires the prior clearance of personal trades and restricts the ability of staff to trade any securities held by the Funds. The objective is not only to remove any potential for real conflict of interest but to avoid any perception of conflict. The Manager's year 2012 report on compliance with the CI Code of Ethics and Conduct and other relevant policies has been provided to the Governors in a timely and satisfactory manner. The Governors report that management has been open and cooperative, permitting the Governors to meet with subadvisers, to meet with individual department heads and personnel to review control mechanisms and compliance procedures, including those relating to the personal securities trading activity of employees, and to consider other matters that affect the Funds. During 2012, the Governors also acted as the audit committee of the Funds. The audit committee reviewed, with the Funds auditors, the planning, scope and results of the audit of the financial statements of the Funds for the year In November 2012, the Board of Governors received and accepted the Semi-Annual Financial Statements of the Funds. Stuart P. Hensman Chair, Board of Governors November

5 Lakeview Disciplined Leadership Canadian Equity Fund Statement of Investment Portfolio as at September 30, 2012 (unaudited) No. of Shares/ Average Fair Par Value Cost ($) Value ($) MATERIALS (29.4%) 20,500 Agrium Inc. 1,919,220 2,084,850 70,600 Allied Nevada Gold Corp.* 2,205,770 2,715, ,100 EcoSynthetix Inc.* 1,347, ,818 48,375 Foran Mining Corp. 98,685 26,606 40,900 Franco-Nevada Corp.* 2,011,012 2,365,656 24,600 Goldcorp Inc. 1,109,460 1,108, ,800 New Gold Inc. 1,396,564 1,525,404 68,900 RPM International Inc. 1,948,693 1,934, ,600 Sandstorm Gold Ltd.* 2,440,436 3,079,824 69,400 Silver Wheaton Corp. 2,204,794 2,708, ,400 Yamana Gold Inc. 2,095,035 2,261,112 18,777,278 20,367,201 FINANCIALS (19.6%) 26,100 Berkshire Hathaway Inc., Class B 2,210,132 2,262,044 72,100 Brookfield Asset Management Inc., 2,404,716 2,444,911 71,900 Calloway REIT 1,792,906 2,144,058 86,100 Cominar REIT* 1,848,872 2,073,288 90,700 H&R REIT 2,117,447 2,278,384 17,800 Visa Inc., * 1,849,632 2,349,926 12,223,705 13,552,611 ENERGY (17.0%) 91,300 ARC Resources Ltd.* 2,159,245 2,182,070 34,900 Crescent Point Energy Corp.* 1,436,290 1,516, ,100 Gibson Energy Inc.* 1,851,739 2,443,483 95,500 Inter Pipeline Fund LP 1,465,036 2,044,655 1,007,300 Southern Pacific Resource Corp. 1,460,585 1,390,074 70,150 Tourmaline Oil Corp. 2,044,662 2,147,993 10,417,557 11,725,029 CONSUMER DISCRETIONARY (12.5%) 142,100 Aimia Inc. 2,115,728 2,081,765 67,400 Comcast Corp., 1,967,002 2,368,656 61,300 Gildan Activewear Inc.* 1,902,220 1,907,043 45,200 Lyondellbasell Industries N.V. 2,220,589 2,293,823 8,205,539 8,651,287 INFORMATION TECHNOLOGY (11.5%) 3,400 Apple Inc. 2,260,722 2,230,772 82,900 CGI Group Inc. 2,054,503 2,187,731 16,700 Constellation Software Inc. 1,649,100 1,732,291 2,400 Google Inc., 1,787,076 1,780,259 7,751,401 7,931,053 HEALTH CARE (5.1%) 17,000 Biogen Idec Inc. 2,335,914 2,493,884 43,300 Pfizer Inc. 1,067,960 1,057,614 3,403,874 3,551,498 INDUSTRIALS (3.2%) 26,800 Canadian Pacific Railway Ltd. 2,186,213 2,184,200 No. of Shares/ Average Fair Par Value Cost ($) Value ($) WARRANTS (0.3%) 1,100,000 Pacific Coal Resources Ltd., Warrants (14Mar16) - 5,500 46,666 Sandstorm Gold Ltd., Warrants (07Sep17) - 184, ,297 Commission and other portfolio transaction costs (62,153) Total Equities (99.6%) 63,587,178 68,852,511 DERIVATIVE INSTRUMENTS Foreign Currency Forward Contracts (0.0%) (see Schedule A) (1,467) Short Futures Contract (0.0%) (see Schedule B) 247 Total Investments (99.6%) 63,587,178 68,851,291 Other Net Assets (Liabilities) (0.4%) 281,401 Net Assets (100.0%) 69,132,692 EXCHANGE-TRADED FUNDS (1.0%) 47,100 Sprott Physical Gold Trust 683, ,335 *Denotes all or part of securities on loan. Percentages shown in brackets relate investments at fair value to net assets of the Fund. 3 CIG

6 Lakeview Disciplined Leadership Canadian Equity Fund Statement of Investment Portfolio as at September 30, 2012 (unaudited) (cont d) Schedule A Foreign Currency Forward Contracts (0.0%) Credit Rating Settlement Contract Unrealized Contracts Counterparty of the Counterparty Date Rate ($) Pay Receive Gain (Loss) ($) 1 Toronto-Dominion Bank A Nov (4,709,520) Canadian $ 4,800,000 US $ 15,214 1 Toronto-Dominion Bank A-1+ 7-Nov (15,000,000) US $ 14,705,100 Canadian $ (57,266) 1 Toronto-Dominion Bank A Nov (6,000,000) US $ 5,946,600 Canadian $ 40,585 Total Foreign Currency Forward Contracts Value (1,467) Schedule B Short Futures Contracts (0.0%) Contracts Futures Expiry Date Price ($) Country Cost ($) Fair Value ($) (12) S&P Canada 60 Index Futures 22-Dec Canadian $ (1,680,672) (1,681,680) (83) S&P500 Index E-mini Futures 21-Dec-12 1, US $ (5,853,992) (5,852,737) (7,534,664) (7,534,417) Exercise Price ($) (7,534,664) Total Short Future Contracts Value 247 Credit ratings are obtained from Standard & Poor s, where available, otherwise ratings are obtained from: Moody's Investors Service, Dominion Bond Rating Services or Canadian Bond Rating Services. Percentages shown in brackets relate investments at fair value to net assets of the Fund. 4

7 Lakeview Disciplined Leadership Canadian Equity Fund Financial Statements (unaudited) Statements of Net Assets (in $000 s except for per unit amounts and units outstanding) Statements of Operations for the periods ended September 30 (in $000 s except for per unit amounts) Assets Investments at fair value* Cash Short-term investments Margin for short sales Income taxes recoverable Daily variation margin on derivative investments Unrealized gain on futures and foreign currency forward contracts Cash collateral received for securities on loan (Note 6) Swaps, swaptions and options at fair value Receivable for unit subscriptions Receivable for securities sold Fees rebate receivable Receivable for dividends and accrued interest Liabilities Bank overdraft Management fees payable Accrued expenses Unrealized loss on futures and foreign currency forward contracts Swaps, swaptions and options at fair value Payable for securities purchased Payable for unit redemptions Payable for cash collateral under securities lending (Note 6) Investments sold short at fair value** Distributions payable Net assets and unitholders' equity **Investments at cost **Investments sold short at cost Net assets per class Net assets per unit (see Schedule of Net Assets per Unit and Net Asset Value per Unit) as at as at September 30, 2012 March 31, ,853 83, , ,793 88, , ,315 69,133 87,500 63,587 78,487 59,893 75,224 6,121 9,073 3,119 3, Income Dividends Interest Securities lending (Note 6) Derivative income (loss) Income distribution from investments Fees rebate Commitment fee income Less: Foreign withholding taxes Expenses Management fees (Note 5) Administrative fees (Note 5) Interest expense Harmonized sales tax/goods and services tax Provision for income tax Net investment income (loss) for the period Realized and unrealized gain (loss) on investments and commissions and other portfolio transaction costs Realized gain (loss) on investments Foreign exchange gain (loss) Commissions and other portfolio transaction costs Capital gain distribution from investments Change in unrealized appreciation (depreciation) of investments Net gain (loss) on investments per class per unit (Note 2) (32) (22) 635 1, , ,364 (189) (117) (1,272) (9,607) (131) 81 (320) (904) (184) (9,997) (1,907) (20,427) (2,096) (20,544) (1,856) (17,084) (202) (2,837) (38) (623) (0.33) (2.11) (0.31) (2.08) (0.15) (2.18) Number of units outstanding (see Schedule of Fund Unit Transactions) 5,244,747 6,441, , , , ,759 5

8 Lakeview Disciplined Leadership Canadian Equity Fund Financial Statements (unaudited) Statements of Changes in Net Assets for the periods ended September 30 (in $000 s) Statements of Changes in Net Assets (cont d) for the periods ended September 30 (in $000 s) Net assets, beginning of period Capital transactions Proceeds from units issued Reinvested distributions (Note 7) Amounts paid for units redeemed Distributions to investors From realized gains From net income From return of capital Net assets, end of period 75, ,979 6,189 6,922 (19,664) (19,908) (13,475) (12,986) (1,856) (17,084) 59,893 88,909 Total Fund Net assets, beginning of period Capital transactions Proceeds from units issued Reinvested distributions (Note 7) Amounts paid for units redeemed Distributions to investors From realized gains From net income From return of capital Net assets, end of period 87, ,368 6,988 10,599 (23,259) (22,884) (16,271) (12,285) (2,096) (20,544) 69, ,539 Net assets, beginning of period Capital transactions Proceeds from units issued Reinvested distributions (Note 7) Amounts paid for units redeemed Distributions to investors From realized gains From net income From return of capital Net assets, end of period 9,073 18, ,677 (3,547) (1,885) (2,750) 1,792 (202) (2,837) 6,121 17,155 Net assets, beginning of period Capital transactions Proceeds from units issued Reinvested distributions (Note 7) Amounts paid for units redeemed Distributions to investors From realized gains From net income From return of capital Net assets, end of period 3,203 5, (48) (1,091) (46) (1,091) (38) (623) 3,119 3,475 6

9 Lakeview Disciplined Leadership Canadian Equity Fund Financial Statements Supplementary Schedules (unaudited) Schedule of Fund Unit Transactions for the periods ended September 30 Schedule of Fees (Note 5) as at September 30, 2012 (%) Balance, beginning of period Units issued for cash Units issued for reinvested distributions (Note 7) Units redeemed Balance, end of period Balance, beginning of period Units issued for cash Units issued for reinvested distributions (Note 7) Units redeemed Balance, end of period 6,441,207 8,517, , ,326 (1,749,726) (1,554,490) 5,244,747 7,494, ,440 1,276,090 68, ,926 (304,949) (144,614) 516,264 1,408,402 Annual management fee rate Annual fixed administration fee rate Paid directly by investor Balance, beginning of period Units issued for cash Units issued for reinvested distributions (Note 7) Units redeemed Balance, end of period 243, , (3,758) (74,151) 240, ,142 Schedule of Net Assets per Unit and Net Asset Value per Unit (Note 2) as at September 30 (in $) Net assets per unit Net asset value per unit Net assets per unit Net asset value per unit Net assets per unit Net asset value per unit Schedule of Commissions for the periods ended September 30 (in $000 s) Brokerage commissions Soft Dollar commissions 5 72 Schedule of Securities Lending (Note 6) as at September 30 (in $000 s) Loaned Collateral (non-cash) 17,050 5,729 17,902 6,016 A portion of brokerage commissions paid was used to cover research and market data services, termed soft dollar commissions. This amount has been estimated by the Manager of the Fund. 7

10 Lakeview Disciplined Leadership Canadian Equity Fund Fund Specific Financial Instruments Risks (Note 11) (unaudited) The Fund s investments were concentrated in the following segments: as at March 31, 2012 Categories Net Assets (%) Consumer Discretionary Financials Information Technology Energy Materials Industrials Telecommunication Services Other Net Assets (Liabilities) Cash & Equivalents Foreign Currency Forward Contracts During the six-month period the Fund's exposure to currency risk changed significantly as disclosed in the section below. For details relating to other price risk, credit risk, interest rate risk and fair value hierarchy, refer to the audited annual financial statements as at March 31, 2012, as the Fund's exposure to those risks remains unchanged. Currency Risk The tables below summarize the Fund's exposure to currency risk. as at September 30, 2012 Financial Instruments Derivatives Total Currency Net Exposure Exposure Exposure Assets Currency (in $000 s) (in $000 s) (in $000 s) (%) US Dollar 19,479 (15,929) 3, Total 19,479 (15,929) 3, as at March 31, 2012 Financial Instruments Derivatives Total Currency Net Exposure Exposure Exposure Assets Currency (in $000 s) (in $000 s) (in $000 s) (%) US Dollar 43,285 (19,452) 23, Total 43,285 (19,452) 23, As at September 30, 2012, had the Canadian dollar strengthened or weakened by 10% (March 31, %) in relation to all other foreign currencies held in the Fund, with all other variables held constant, net assets of the Fund would have decreased or increased, respectively, by approximately $355,000 (March 31, $2,383,000). In practice, actual results may differ from this analysis and the difference may be material. 8

11 Lakeview Disciplined Leadership High Income Fund Statement of Investment Portfolio as at September 30, 2012 (unaudited) No. of Shares/ Average Fair Par Value Cost ($) Value ($) FINANCIALS (33.4%) 550,800 Allied Properties REIT 12,851,892 17,570, ,100 Artis REIT* 9,933,406 13,424, ,400 Brookfield Asset Management Inc., 5,944,244 5,744, ,400 Calloway REIT 14,186,287 18,917, ,801 Cominar REIT* 14,485,274 17,260,568 50,500 Crombie REIT 758, , ,200 Duke Realty Corp. 12,079,133 12,000,177 5,655,000 Dundee International Real Estate Investment Trust 5.5% 07/31/2018 5,655,000 5,843, ,700 Dundee REIT* 9,535,989 12,440, ,675 Granite Real Estate Inc. 16,598,098 17,563, ,952 H&R REIT 14,356,535 18,386,634 USD 2,200,000 National Money Mart Co., % 12/15/2016 2,366,544 2,417,452 USD 12,475,000 Northgroup Preferred Capital Corp., 6.378% 01/29/ ,097,383 12,276, ,400 Primaris Retail Real Estate Investment Trust 12,927,217 15,994,542 1,966,000 Pure Industrial Real Estate Trust 7,731,623 9,731, ,900 RioCan REIT* 8,007,939 9,232, ,500 The Bank of Nova Scotia 6,182,531 6,168, ,700 Toronto-Dominion Bank 12,403,493 12,422, ,100, ,162,535 ENERGY (26.5%) 414,757 AltaGas Ltd. 11,740,547 13,998, ,500 ARC Resources Ltd.* 12,026,025 12,153, ,100 Crescent Point Energy Corp.* 17,769,622 18,779,066 5,100,000 Flint Energy Services Ltd., 7.5% 06/15/2019 5,107,500 5,603, ,300 Gibson Energy Inc.* 13,075,370 17,049, ,999 Inter Pipeline Fund LP 10,706,951 19,632, ,800 Keyera Corp. 14,703,999 15,729,540 10,800,000 Paramount Resources Ltd., 8.25% 12/13/ ,862,625 11,271, ,800 Parkland Fuel Corp. 6,305,444 8,661, ,700 Pembina Pipeline Corp. 3,256,086 4,682,023 8,035,000 Perpetual Energy Inc., 8.75% 03/15/2018* 7,938,580 7,412, ,500 Peyto Exploration & Development Corp. 6,235,786 6,766,695 3,592,100 Southern Pacific Resource Corp. 5,208,545 4,957,098 6,400,000 Southern Pacific Resource Corp., 6% 06/30/2016 6,400,000 6,672, ,300 TransCanada Corp. 11,209,616 11,143, ,546, ,512,688 MATERIALS (11.5%) 12,200,000 Allied Nevada Gold Corp., 8.75% 06/01/ ,043,750 12,627,000 1,209,100 Canexus Corp.* 8,127,724 10,361,987 USD 7,100,000 Detour Gold Corp., 5.5% 11/30/2017 7,365,866 7,461, ,200 Franco-Nevada Corp. 6,293,540 6,200,448 USD 4,500,000 IAMGOLD Corp., 6.75% 10/01/2020 4,370,162 4,336,368 USD 8,640,000 Inmet Mining Corp., 8.75% 06/01/2020 8,609,486 8,803, ,900 Labrador Iron Ore Royalty Corp. 4,650,096 5,161,180 7,625,000 Russel Metals Inc., 6% 04/19/2022 7,625,000 7,818,802 2,215,000 Russel Metals Inc., Convertible 7.75% 09/30/2016 2,215,000 2,691,668 5,580,000 Sherritt International Corp., 7.5% 09/24/2020 5,580,000 5,698,575 66,880,624 71,160,746 No. of Shares/ Average Fair Par Value Cost ($) Value ($) TELECOMMUNICATION SERVICES (9.7%) 226,600 American Tower Corp., 14,506,802 15,904, ,700 AT&T Inc. 15,371,846 15,554, ,800 BCE Inc. 11,134,531 12,476, ,000 TELUS Corp. 5,583,198 6,511, ,100 TELUS Corp., Non-Voting Shares 8,688,602 9,415,650 55,284,979 59,861,887 INDUSTRIALS (9.1%) 13,676,000 Air Canada % 08/01/2015* 13,677,940 14,154,660 USD 1,500,000 Air Canada 9.25% 08/01/2015 1,363,098 1,533, ,900 General Electric Co. 12,389,705 12,659,343 3,300,000 IBI Group Inc., 7% 12/31/2014 3,300,000 3,361,380 4,900,000 Kruger Products LP 8% 08/09/2018 4,900,000 5,055,167 3,500,000 Livingston International Inc., % 11/09/2015 3,544,500 3,663, ,392 Westshore Terminals Investment Corp. 13,512,354 15,723,961 52,687,597 56,152,089 UTILITIES (3.5%) 894,600 Innergex Renewable Energy Inc. 8,623,977 9,616,950 2,000,000 Innergex Renewable Energy Inc., 5.75% 04/30/2017 2,000,000 2,171, ,760 Northland Power Inc.* 8,420,900 9,728,558 19,044,877 21,516,508 EXCHANGE-TRADED FUNDS (2.0%) 765,900 Alerian MLP ETF 12,981,457 12,479,068 CONSUMER DISCRETIONARY (1.9%) 326,400 Cineplex Inc. 6,641,342 9,739,776 1,900,000 Corus Entertainment Inc., Callable 7.25% 02/10/2017* 1,900,000 2,002,125 8,541,342 11,741,901 HEALTH CARE (0.9%) 433,200 Leisureworld Senior Care Corp. 4,417,009 5,324,028 Principal amounts stated in: USD U.S. Dollar Commission and other portfolio transaction costs (520,428) Total Bonds & Equities (98.5%) 539,965, ,911,450 DERIVATIVE INSTRUMENTS Foreign Currency Forward Contracts (0.0%) (see Schedule A) (66,058) Short Future Contracts (0.0%) (see Schedule B) (2,246) Total Investments (98.5%) 539,965, ,843,146 Other Net Assets (Liabilities) (1.5%) 9,060,467 Net Assets (100.0%) 619,903,613 *Denotes all or part of securities on loan. CI Investments Inc., the Manager, is a corporation controlled by CI Financial Corp. The Bank of Nova Scotia has a significant interest in CI Financial Corp. Investments in The Bank of Nova Scotia are identified above. Percentages shown in brackets relate investments at fair value to net assets of the Fund. 9 CIG

12 Lakeview Disciplined Leadership High Income Fund Statement of Investment Portfolio as at September 30, 2012 (unaudited) (cont d) Schedule A Foreign Currency Forward Contracts (0.0%) Credit Rating Settlement Contract Unrealized Contracts Counterparty of the Counterparty Date Rate ($) Pay Receive Gain (Loss) ($) 1 Toronto-Dominion Bank A Nov (32,000,000) US $ 31,715,200 Canadian $ 216,452 1 Toronto-Dominion Bank A-1+ 7-Nov (74,000,000) US $ 72,545,160 Canadian $ (282,510) Total Foreign Currency Forward Contracts Value (66,058) Schedule B Short Futures Contracts (0.0%) Contracts Futures Expiry Date Price ($) Country Cost ($) Fair Value ($) (65) S&P Canada 60 Index Futures 22-Dec Canadian $ (9,103,640) (9,109,100) (187) S&P500 Index E-mini Futures 21-Dec-12 1, US $ (13,189,501) (13,186,287) (22,293,141) (22,295,387) Exercise Price ($) (22,293,141) Total Short Future Contracts Value (2,246) Credit ratings are obtained from Standard & Poor s, where available, otherwise ratings are obtained from: Moody's Investors Service, Dominion Bond Rating Services or Canadian Bond Rating Services. Percentages shown in brackets relate investments at fair value to net assets of the Fund. 10

13 Lakeview Disciplined Leadership High Income Fund Financial Statements (unaudited) Statements of Net Assets (in $000 s except for per unit amounts and units outstanding) Assets Investments at fair value* Cash Short-term investments Margin for short sales Income taxes recoverable Daily variation margin on derivative investments Unrealized gain on futures and foreign currency forward contracts Cash collateral received for securities on loan (Note 6) Swaps, swaptions and options at fair value Receivable for unit subscriptions Receivable for securities sold Fees rebate receivable Receivable for dividends and accrued interest Liabilities Bank overdraft Management fees payable Accrued expenses Unrealized loss on futures and foreign currency forward contracts Swaps, swaptions and options at fair value Payable for securities purchased Payable for unit redemptions Payable for cash collateral under securities lending (Note 6) Performance fees payable (Note 5) Investments sold short at fair value** Distributions payable Net assets and unitholders' equity **Investments at cost **Investments sold short at cost Net assets per class as at as at September 30, 2012 March 31, , ,744 1,802 4,434 1,179 1, ,263 3,468 2,510 6,310 5,026 4, , , ,852 1,944 1, ,771 2,748 5,006 9, , , , , , ,514 91,396 87,716 18,876 18,708 Statements of Operations for the periods ended September 30 (in $000 s except for per unit amounts) Income Dividends Interest Securities lending (Note 6) Derivative income (loss) Income distribution from investments Fees rebate Commitment fee income Less: Foreign withholding taxes Expenses Management fees (Note 5) Administrative fees (Note 5) Interest expense Harmonized sales tax/goods and services tax Net investment income (loss) for the period Realized and unrealized gain (loss) on investments and commissions and other portfolio transaction costs Realized gain (loss) on investments Foreign exchange gain (loss) Commissions and other portfolio transaction costs Capital gain distribution from investments Change in unrealized appreciation (depreciation) of investments Net gain (loss) on investments per class per unit (Note 2) 8,591 5,796 3,743 5, (223) (5) 12,231 11,982 5,337 4, ,616 5,178 5,615 6,804 (433) 3,863 (94) 85 (645) (497) 16,057 (31,009) 14,885 (27,558) 20,500 (20,754) 16,313 (17,927) 3,390 (2,265) 797 (562) 0.42 (0.59) 0.54 (0.56) 0.71 (0.55) Net assets per unit (see Schedule of Net Assets per Unit and Net Asset Value per Unit) Number of units outstanding (see Schedule of Fund Unit Transactions) 38,830,806 38,616,714 6,401,361 6,219,213 1,116,874 1,130,752 11

14 Lakeview Disciplined Leadership High Income Fund Financial Statements (unaudited) Statements of Changes in Net Assets for the periods ended September 30 (in $000 s) Statements of Changes in Net Assets (cont d) for the periods ended September 30 (in $000 s) Net assets, beginning of period Capital transactions Proceeds from units issued Reinvested distributions (Note 7) Amounts paid for units redeemed Distributions to investors From realized gains From net income From return of capital Net assets, end of period 504, ,089 90,143 96,275 11,082 8,663 (98,433) (47,465) 2,792 57,473 (3,513) - (9,336) (7,551) (1,138) (3,583) (13,987) (11,134) 16,313 (17,927) 509, ,501 Total Fund Net assets, beginning of period Capital transactions Proceeds from units issued Reinvested distributions (Note 7) Amounts paid for units redeemed Distributions to investors From realized gains From net income From return of capital Net assets, end of period 610, , , ,979 13,007 10,030 (120,906) (56,851) 5,124 75,158 (4,186) - (11,116) (8,834) (1,356) (4,159) (16,658) (12,993) 20,500 (20,754) 619, ,188 Net assets, beginning of period Capital transactions Proceeds from units issued Reinvested distributions (Note 7) Amounts paid for units redeemed Distributions to investors From realized gains From net income From return of capital Net assets, end of period 87,716 49,764 19,532 22,747 1,713 1,186 (18,687) (7,852) 2,558 16,081 (571) - (1,512) (1,034) (185) (456) (2,268) (1,490) 3,390 (2,265) 91,396 62,090 Net assets, beginning of period Capital transactions Proceeds from units issued Reinvested distributions (Note 7) Amounts paid for units redeemed Distributions to investors From realized gains From net income From return of capital Net assets, end of period 18,708 15,924 3,348 2, (3,786) (1,534) (226) 1,604 (102) - (268) (249) (33) (120) (403) (369) 797 (562) 18,876 16,597 12

15 Lakeview Disciplined Leadership High Income Fund Financial Statements Supplementary Schedules (unaudited) Schedule of Fund Unit Transactions for the periods ended September 30 Schedule of Fees (Note 5) as at September 30, 2012 (%) Balance, beginning of period Units issued for cash Units issued for reinvested distributions (Note 7) Units redeemed Balance, end of period Balance, beginning of period Units issued for cash Units issued for reinvested distributions (Note 7) Units redeemed Balance, end of period 38,616,714 28,182,076 6,939,494 7,357, , ,121 (7,575,297) (3,644,480) 38,830,806 32,563,199 6,219,213 3,460,917 1,383,670 1,628, ,204 85,729 (1,322,726) (567,341) 6,401,361 4,607,802 Annual management fee rate Annual fixed administration fee rate Paid directly by investor Balance, beginning of period Units issued for cash Units issued for reinvested distributions (Note 7) Units redeemed Balance, end of period 1,130, , , ,099 12,711 11,257 (230,014) (95,688) 1,116,874 1,059,436 Schedule of Net Assets per Unit and Net Asset Value per Unit (Note 2) as at September 30 (in $) Net assets per unit Net asset value per unit Net assets per unit Net asset value per unit Net assets per unit Net asset value per unit Schedule of Commissions for the periods ended September 30 (in $000 s) Brokerage commissions Soft Dollar commissions 9 37 Schedule of Securities Lending (Note 6) as at September 30 (in $000 s) Loaned Collateral (non-cash) 108,627 69, ,058 72,530 A portion of brokerage commissions paid was used to cover research and market data services, termed soft dollar commissions. This amount has been estimated by the Manager of the Fund. 13

16 Lakeview Disciplined Leadership High Income Fund Fund Specific Financial Instruments Risks (Note 11) (unaudited) The Fund s investments were concentrated in the following segments: as at March 31, 2012 Categories Net Assets (%) Long Positions: Financials Energy Corporate Bonds Telecommunication Services Industrials Utilities Consumer Discretionary Materials Funds Other Net Assets (Liabilities) Health Care Cash & Equivalents Total Long Positions Short Positions: Health Care... (0.1) Total Short Positions... (0.1) During the six-month period the Fund's exposure to credit risk and currency risk changed significantly as disclosed in the section below. For details relating to other price risk, interest rate risk and fair value hierarchy, refer to the audited annual financial statements as at March 31, 2012, as the Fund's exposure to those risks remains unchanged. Currency Risk The tables below summarize the Fund's exposure to currency risk. as at September 30, 2012 Financial Instruments Derivatives Total Currency Net Exposure Exposure Exposure Assets Currency (in $000 s) (in $000 s) (in $000 s) (%) US Dollar 109,613 (104,230) 5, Singapore Dollar Total 109,629 (104,230) 5, as at March 31, 2012 Financial Instruments Derivatives Total Currency Net Exposure Exposure Exposure Assets Currency (in $000 s) (in $000 s) (in $000 s) (%) US Dollar 100,639 (33,917) 66, Singapore Dollar Total 100,655 (33,917) 66, As at September 30, 2012, had the Canadian dollar strengthened or weakened by 10% (March 31, %) in relation to all other foreign currencies held in the Fund, with all other variables held constant, net assets of the Fund would have decreased or increased, respectively, by approximately $540,000 (March 31, $6,674,000). In practice, actual results may differ from this analysis and the difference may be material. Credit Risk The Fund was invested in fixed income securities, preferred securities and derivative instruments, as applicable, with the following credit ratings: as at September 30, 2012* Credit Rating^ Net Assets (%) AA/Aa/A+ 0.2 A 2.0 BBB/Baa/B BB/Ba/B+ 3.2 B 9.4 Not Rated 6.0 Total 21.7 as at March 31, 2012* Credit Rating^ Net Assets (%) AA/Aa/A+ 0.2 A 2.0 BBB/Baa/B BB/Ba/B+ 1.9 B 5.6 Not Rated 6.5 Total 16.5 *Credit ratings are obtained from Standard & Poor s, where available, otherwise ratings are obtained from: Moody's Investors Service, Dominion Bond Rating Services or Canadian Bond Rating Services, respectively. ^Refer to Note 11 for Credit Rating cross reference. 14

17 Lakeview Disciplined Leadership Funds Notes to the Financial Statements as at September 30, 2012 (unaudited) 1. THE FUND The Lakeview Disciplined Leadership Funds consist of Lakeview Disciplined Leadership High Income Fund and Lakeview Disciplined Leadership Canadian Equity Fund (collectively the Funds ) and are mutual fund trusts governed by the laws of Ontario pursuant to a master declaration of trust. The Funds were established on June 15, 2004 and operations commenced on July 5, The Funds Amended and Restated Master Declaration of Trust dated July 20, 2007 established the creation of three classes for each Fund:, and units. units are available to all investors. units are available to investors who participate in certain programs or are members of certain groups. units are available to institutional clients and investors who have been approved and have entered into a Account Agreement with CI Investments Inc. The Statement of Investment Portfolio and Schedule of Fees for each of the Funds are as at September 30, The Statements of Net Assets are as at September 30, 2012 and March 31, Schedule of Net Assets per Unit, Net Asset Value per Unit and Schedule of Securities Lending are as at September 30, 2012 and The Statements of Operations, Statements of Changes in Net Assets, Schedule of Fund Unit Transactions and Schedule of Commissions are for the periods ended September 30, 2012 and The Fund Specific Financial Instruments Risks for each of the Funds are as at September 30, 2012 and March 31, 2012, as applicable. Effective as of close of business on September 7, 2012, the following Fund was merged: Terminating Fund Continuing Fund Lakeview Disciplined Leadership Cambridge American Equity Corporate Class U.S. Equity Fund The Manager adopted the acquisition method of accounting for the merger of the Fund. Under this method one of the Funds is identified as the acquiring Fund, and is referred to as the Continuing Fund and any other Fund involved in the merger is referred to as the Terminating Fund. This identification is based on the comparison of the relative net asset value of the Fund as well as consideration of the continuation of such aspects of the Continuing Fund as: investment objectives and practices and type of portfolio securities. (a) Valuation of Investments Canadian GAAP requires the fair value of financial instruments traded in an active market to be measured based on an investment s bid/ask price depending on the investment position (long/short). For the purpose of processing unitholder transactions, net asset value is calculated based on the closing market price of investments (referred to as Net Asset Value ), while for financial statement purposes net assets are calculated based on bid/ask price of investments (referred to as Net Assets ). In accordance with National Instrument , a comparison between the Net Asset Value per unit and the Net Assets per unit is disclosed in the Schedule of Net Assets per Unit and Net Asset Value per Unit. At the financial reporting date, listed securities are valued based on the bid price for securities held long and the ask price for securities held short. Unlisted securities are valued based on price quotations from recognized investment dealers, or failing that, their fair value is determined by the Manager on the basis of the latest reported information available. Fixed income securities, debentures, money market investments and other debt instruments including short-term investments, are valued at the bid quotation from recognized investment dealers. The fair value of private placements is determined by using valuation models that may be based, in part, on assumptions that are not supported by observable market inputs. These methods and procedures may include, but are not limited to, performing comparisons with prices of comparable or similar securities, obtaining valuation related information from issuers and/or other analytical data relating to the investment and using other available indications of value. These values are independently assessed by the Manager to ensure that they are reasonable. However, because of the inherent uncertainty of valuation, the estimated fair values for the aforementioned securities and interests may be materially different from the values that would have been used had a ready market for the investment existed. The fair values of private placements are affected by the perceived credit risks of the issuer, predictability of cash flows and the length of time to maturity. (b) Forward Contracts A Fund may enter into forward currency contracts. Forward currency contracts are valued on each valuation day based on the difference between the value of the contract on the date the contract originated and the value of the contract on the valuation day. Effective as of the close of business on September 7, 2012, the Continuing Fund acquired all of the assets of the corresponding Terminating Fund in exchange for units in the Continuing Fund. The value of the units of the Continuing Fund issued in connection with these mergers, were equal to the net assets transferred from the respective Terminating Fund. The cost associated with the merger was borne by the Manager. All unrealized gains (losses) arising from forward currency contracts are recorded as part of Change in unrealized appreciation (depreciation) of investments in the Statements of Operations and Unrealized gain (loss) on futures and foreign currency forward contracts in the Statements of Net Assets until the contracts are closed out or expire, at which time the gains (losses) are realized and reported as Realized gain (loss) on investments in the Statements of Operations. Net Asset Units Terminating Fund Continuing Fund Acquired ($) Issued Lakeview Disciplined Cambridge American Leadership U.S. Equity Fund Equity Corporate Cass 8,961,980 1,986,551 The Terminating Fund s result is not included in these financial statements. 2. SIGNIFICANT ACCOUNTING POLICIES The financial statements are prepared in accordance with Canadian Generally Accepted Accounting Principles ( Canadian GAAP ). Significant accounting policies used in preparing the semi-annual financial statements are consistant with these used in preparing the annual financial statements. The semi-annual financial statements should be read in conjunction with the Funds March 31, 2012 annual financial statements. (c) Futures Contracts Futures contracts are valued on each valuation day using the bid/ask price posted on the related public exchange. All unrealized gains (losses) arising from futures contracts are recorded as part of Change in unrealized appreciation (depreciation) of investments in the Statements of Operations and Unrealized gain (loss) on futures and foreign currency forward contracts in the Statements of Net Assets until the contracts are closed out or expire, at which time the gains (losses) are realized and reported as Realized gain (loss) on investments in the Statements of Operations. 3. UNITHOLDERS EQUITY Units issued and outstanding represent the capital of each Fund. 15

18 Lakeview Disciplined Leadership Funds Notes to the Financial Statements as at September 30, 2012 (unaudited) Each Fund is authorized to issue an unlimited number of redeemable, transferable units of each class. The Funds have no restrictions or specific capital requirements, except for the minimum subscription / redemption amounts. The relevant changes pertaining to subscription and redemption of each Fund s units are disclosed in the Statements of Changes in Net Assets and the Schedule of Fund Unit Transactions. In accordance with the objectives and risk management polices outlined in Note 11, the Funds endeavor to invest subscriptions received in appropriate investments while maintaining sufficient liquidity to meet redemptions through utilizing a short-term borrowing facility or disposal of investments when necessary. Performance Fees In addition to management fees, and F units of the Funds pay the Manager a performance fee equal to 20% of the amount by which the class of units of a Fund outperforms that Fund s benchmark and where the value of the class of units of the Fund exceeds the value of the class of units of that Fund as at the date of the last performance fee payment in any given calendar quarter. The fee is accrued and calculated daily and payable on a quarterly basis. Performance fees for units, if applicable, are negotiated between the Manager and the unitholder and will be paid directly by the unitholder. 4. INCOME TAXES The Funds qualify as mutual fund trusts under the provisions of the Income Tax Act (Canada) and are not subject to tax on net income, including net realized taxable capital gains for the taxation year, which is paid or payable to unitholders at the end of the taxation year. However, such part of each Fund s taxable income and net realized capital gains that is not so paid or payable will be taxable to that Fund. Income tax on net realized capital gains not paid or payable will generally be recoverable by virtue of refunding provisions contained in the Income Tax Act (Canada) and provincial income tax legislation, as redemptions occur. It is the intention of each Fund to distribute all net income and sufficient net realized capital gains so that the Fund will not generally be liable for income tax thereon. Occasionally, a Fund may distribute more than it earns. This excess distribution is a return of capital and is not taxable to unitholders. Net capital losses may be carried forward indefinitely to reduce future net realized capital gains. Non capital losses arising in taxation years 2004 and 2005 may be carried forward ten years. Non capital losses arising in taxation years after 2005 may be carried forward twenty years. Non-capital losses carried forward may reduce future net investment income. 5. MANAGEMENT FEE AND OTHER EXPENSES Management Fees CI Investments Inc. is the Manager of each Fund and in consideration for management fees provides management services required in the day-to-day operations of the Funds including management of the investment portfolios of the Funds. The management fee is calculated as a fixed annual percentage of the net asset value of each class of a Fund (other than ) at the end of each business day. Investors in units are charged management fees directly as negotiated between the investor and the Manager. The Manager may reduce the effective management fee payable for unitholders who invest large amounts in a particular Fund by reducing the management fee charged to that Fund and directing the Fund to make a management fee distribution in the amount of the reduction. Management fee distributions are automatically reinvested in additional units of the relevant class of the Fund. Administration Fees The Manager bears all of the operating expenses of the Funds (other than certain taxes, borrowing costs and new governmental fees) in return for fixed annual administration fees ( Administration Fees ). Administration Fees are calculated as a fixed annual percentage of the net asset value of each class of a Fund (other than ) at the end of each business day. Investors in units are charged administration fee directly as negotiated between the investor and the Manager. Refer to Fund specific schedules in the financial statements for management fee and administration fee rates applicable to each class. The applicable benchmarks are: Lakeview Disciplined Leadership High Income Fund: a 50/50 blend of the DEX Universe Bond Index and S&P/TSX Capped Income Trust Total Return Index. Lakeview Disciplined Leadership Canadian Equity Fund: S&P/TSX Composite Total Return Index 6. SECURITIES LENDING Certain Funds have entered into a securities lending program with their custodian, RBC Investor Services Trust ("RBC"). The aggregate market value of all securities loaned by a Fund cannot exceed 50% of the assets of the Fund. A Fund will receive collateral of at least 102% of the value of securities on loan. Collateral will generally be comprised of cash and obligations of or guaranteed by the Government of Canada or a province thereof, or by the United States government or its agencies, but may include obligations of other governments with appropriate credit ratings. For those Funds participating in the program, amounts for securities loaned and the collateral received, appear on the Fund specific schedules in the financial statements and income from securities lending is included in "Securities lending" in the Statements of Operations and any cash collateral received or cash collateral payable is included in the Statements of Net Assets in Cash collateral received for securities on loan or Payable for cash collateral under securities lending. 7. REINVESTMENT OF DISTRIBUTIONS All distributions made by each class of the Funds are automatically reinvested in additional units of that class at the current NAV per unit, without any acquisition charges. The unitholder may withdraw from the automatic reinvestment plan by providing written notice to the Manager, and will thereafter receive a cash distribution. 8. RELATED PARTY TRANSACTIONS The Bank of Nova Scotia has a significant interest in CI Financial Corp, the parent company of the Manager. The Funds may have direct or indirect holdings in The Bank of Nova Scotia and/or CI Financial Corp. as identified in the Statement of Investment Portfolio of each of the Funds, if applicable. The Funds paid the following broker commissions to The Bank of Nova Scotia during the periods ended September 30: Funds (in $) (in $) Lakeview Disciplined Leadership Canadian Equity Fund 2,004 20,800 Lakeview Disciplined Leadership High Income Fund 17,554 31, INTERNATIONAL FINANCIAL REPORTING STANDARDS On February 13, 2008, the Canadian Accounting Standards Board ( AcSB ) confirmed that the use of International Financial Reporting Standards ( IFRS ) will be required for all publicly accountable profitoriented enterprises for interim and annual financial statements relating to fiscal years beginning on or after January 1, On December 12, 2011, the AcSB confirmed deferral of the IFRS changeover date for investment funds. Based on the AcSB decision IFRS will become effective for interim and annual financial statements relating to fiscal years beginning on or after January 1,

19 Lakeview Disciplined Leadership Funds Notes to the Financial Statements as at September 30, 2012 (unaudited) Based on the Manager s current evaluation of the differences between IFRS and Canadian GAAP, the Manager currently does not expect any impact to net asset value or net asset value per unit, at this time, as a result of the transition to IFRS, and expects that the main impact will be on the financial statements, where additional disclosures or changes in presentation will be required. Further updates on the progress in the implementation of the IFRS transition plan and any changes to reporting will be provided during the implementation period leading up to the transition date. 10. FINANCIAL INSTRUMENTS The categorization of financial instruments is as follows: investments and derivatives are classified as held for trading and are stated at fair value. Receivable for unit subscriptions, receivable for dividends and accrued interest, receivable for securities sold, management fee rebate receivable and other receivables are designated as loans and receivables. They are recorded at amortized cost which approximates their fair value due to their short-term nature. Similarly, payable for unit redemptions, payable for securities purchased, management fees payable, performance fees payable, accrued expenses and other payables are designated as financial liabilities and are carried at their amortized cost which approximates their fair value, due to their short-term nature. Financial liabilities are generally paid within three months. 11. FINANCIAL INSTRUMENTS RISK Risk Management The Funds are exposed to a variety of financial instruments risks: credit risk, liquidity risk and market risk (including interest rate risk, currency risk and other price risk). The level of risk to which each Fund is exposed depends on the investment objective and the type of investments the Fund holds. The value of the investments within the portfolio can fluctuate daily as a result of changes in prevailing interest rates, economic and market conditions and company specific news related to investments held by the Funds. The Manager of the Funds may minimize potential adverse effects of these risks on the Funds performance by, but not limited to, regular monitoring of the Funds positions and market events, diversification of the investment portfolio by asset type, country, sector, term to maturity within the constraints of the stated objectives, and through the usage of derivatives to hedge certain risk exposures. Credit Risk Credit risk is the risk that a security issuer or counterparty to a financial instrument will fail to meet its financial obligations. The fair value of a debt instrument includes consideration of the credit worthiness of the debt issuer. The carrying amount of debt instruments as presented on the Statement of Investment Portfolio represent the credit risk exposure of each Fund. Credit risk exposure for derivative instruments is based on each Fund s unrealized gain on the contractual obligations with the counterparty as at the reporting date. The credit rating of counterparty to a derivative instrument is disclosed in the Statement of Investment Portfolio or in the Fund Specific Financial Instruments Risks section of the financial statements of each Fund, if applicable. The credit risk exposure of the Fund s other assets are represented by their carrying amount as disclosed in the Statements of Net Assets. Credit ratings for debt securities, preferred securities and derivative instruments are obtained from Standard & Poor s, where available, otherwise ratings are obtained from: Moody's Investors Service, Dominion Bond Rating Services or Canadian Bond Rating Services. Credit ratings can be either long-term or short-term. Short-term credit ratings are generally assigned to those obligations and derivative instruments considered short-term in nature. The table below provides a cross-reference between the long-term credit ratings disclosed in the Credit Rating table inclusive of the short-term credit ratings disclosed in the Derivatives Schedules in the Statement of Investment Portfolio. Credit Rating as per Credit Risk table Credit Rating as per Derivative Schedules AAA/Aaa/A++ A-1+ AA/Aa/A+ A-1, A-2, A-3 A B, B-1 BBB/Baa/B++ B-2 BB/Ba/B+ B-3 B C CCC/Caa/C++ - CC/Ca/C+ - C and Lower D Not Rated WR Cash balances as disclosed in the Statements of Net Assets are maintained by the custodian, RBC Investor Services Trust. The Manager monitors the credit worthiness of the custodian on a regular basis. All transactions executed by a Fund in listed securities are settled / paid for upon delivery using approved brokers. The risk of default is considered minimal, as delivery of securities sold is only made once the broker has received payment. Payment is made on a purchase once the securities have been received by the broker. The trade will fail if either party fails to meet its obligation. Liquidity Risk Liquidity risk is the risk that a Fund may not be able to settle or meet its obligations, on time or at a reasonable price. The Funds are exposed to daily cash redemption of redeemable units. Therefore, the Funds invest the majority of their assets in investments that are traded in active markets and can be readily disposed of. In addition, the Funds retain sufficient cash and cash equivalents positions to maintain liquidity. From time to time, the Funds may enter into derivative contracts or invest in unlisted securities that may not trade in an organized market and may be illiquid. Illiquid securities, if applicable, are identified in the Statement of Investment Portfolio of each Fund. Interest Rate Risk Interest rate risk is the risk that the fair value of interest-bearing investments will fluctuate due to changes in prevailing levels of market interest rates. As a result, the value of the Funds that invest in debt securities and/or income trusts will be affected by changes in applicable interest rates. If interest rates fall, the fair value of existing debt securities may increase due to the increase in yield. Alternatively, if interest rates rise, the yield of existing debt securities may decrease which may then lead to a decrease in their fair value. The magnitude of the decline will generally be greater for longterm debt securities than for short-term debt securities. Interest rate risk also applies to Funds that invest in convertible securities. The fair value of these securities varies inversely with interest rates, similar to other debt securities. However, since they may be converted into common shares, convertible securities are generally less affected by interest rate fluctuations than other debt securities. 17