Canadian Fixed Income Corporate Class

Transcription

1 This annual management report of fund performance contains financial highlights but does not contain the complete annual financial statements of the investment fund. You can get a copy of the annual financial statements at your request, and at no cost, by calling , by writing to us at United Financial, 2 Queen Street East, Twentieth Floor, Toronto, ON, M5C 3G7 or by visiting our website at or SEDAR at Securityholders may also contact us using one of these methods to request a copy of the investment fund s proxy voting policies and procedures, proxy voting disclosure record, or quarterly portfolio disclosure. INVESTMENT OBJECTIVE AND STRATEGIES The primary investment objective of the Canadian Fixed Income Corporate Class (the Fund ) is to maximize performance through current income and capital appreciation while maintaining safety of capital primarily through investments in liquid securities of or guaranteed by the Government of Canada or any province thereof, obligations of and deposits in interest-bearing accounts in any chartered bank or trust company, in government or corporate bonds and debentures, in mortgages or in other fixed income investments, preferred stock and other mutual funds. The portfolio advisor may analyze variables such as economic growth, rate of inflation, monetary policy, demand and supply for bonds to arrive at its own expectation on interest rates and the yield curve, which affect the future performance of the underlying investments. Corporate securities are diversified and carefully analyzed by the portfolio advisor for their creditworthiness. The overall portfolio is expected to have an investment grade credit rating. In the event of adverse market, economic and/or political conditions, the portfolio advisor may invest in cash and cash equivalent securities. The Fund may also use derivatives such as options, futures, forward contracts and swaps as permitted by securities regulations. The Fund currently achieves its investment objectives by investing all of its assets in Canadian Fixed Income Pool (the underlying fund ). RISK There were no changes to the Fund over the period of this report that materially affected the overall level of risk associated with the Fund. This Fund is suitable for investors who want a low risk investment with the potential for capturing some capital growth, and have a short and/or medium investment horizon. Signature Global Asset Where 217 was marked by compression of volatility and outperformance of risky assets, markets witnessed the return of uncertainty and volatility in the first quarter of 218. U.S. President Donald Trump s tax bill helped kick off the new year with the expectation that the effects of the bill on an already strong U.S. economy would increase inflation expectations. The effect caused government bond yields to rise dramatically in January. By the end of March, the escalation of a possible trade war between China and the U.S. was enough to prompt risk spreads to widen and the U.S. government bond yields to retrace, with the U.S. -year Treasury yield ending the quarter at 2.76%. Similarly, the -year Canadian bond yield rose for most of 217, then took a step back in February and March, ending the quarter yielding approximately 2.%. Monetary policy for the period resumed its slow pivot of normalization. Both the Bank of Canada and the U.S. Federal Reserve (Fed) raised rates in the first quarter of the new year. The Bank of Canada increased the overnight target rate to 1.25% in January and was cautious regarding the prospects for future shifts, as NAFTA talks continue unresolved. South of the boarder, the Fed, under newly elected Chair Jerome Powell, raised rates in March to 1.5%-1.75%. The European Central Bank and the Bank of Japan, on the other hand, remain further behind, with both central banks providing accommodative policy and beginning to signal that the end of such accommodative policy is within sight. Spreads for risky assets, in particular corporate bond and emerging market debt (U.S. dollar debt), widened in the first quarter of 218, but are still significantly below their long-term averages. The total return outcome of the portfolio was primarily driven by the net compression of government and corporate credit spreads, with some offset coming from the rise in Canadian interest rates. RESULTS OF OPERATIONS The net asset value of the Fund increased by $151.7 million to $859. million from March 31, 217 to March 31, 218. The Fund had net sales of $149.2 million during. The portfolio s performance increased assets by $6.1 million. The Fund paid distributions totalling $3.6 million. Class A shares returned -1.3% after fees and expenses for the one-year period ended March 31, 218. Over the same time period, the Fund s benchmark returned 1.4%. The benchmark is the FTSE TMX Canada Universe Bond Return Index. On a relative to benchmark basis, duration and yield curve positioning was the main source of underperformance. Overweight corporate credit positioning was alpha accretive, amid a significant tightening of credit spreads. Overweight exposures to U.S. inflation-linked bonds, agency mortgages and investment grade emerging market sovereign debt were all beneficial for alpha, given their outperformance relative to their respective nominal government benchmark bonds. The performance of the Fund s other classes is substantially similar to that of Class A shares, except for differences in the structure of fees and expenses. For the returns of the Fund s other classes, please refer to the Past performance section. The following commentary pertains to the results of operations of the underlying fund. Duration and yield curve positioning subtracted the most from portfolio alpha, due to the Canadian term structure flattening sharply following a hawkish shift from the Bank of Canada during the second and third quarter of 217. Our underweight position in longer maturity Canadian bonds during this period hindered performance, with the Canada yield curve flattening between the -year and 3-year terms over these two quarters, and more substantially during the full reporting period. CIG

2 U.S. dollar exposure net of hedges was negative for alpha, with the U.S. dollar weakening at the Canadian dollar during the reporting period amid the Bank of Canada s move toward higher interest rates. Foreign currency positions in the portfolio are actively managed through a hedging overlay. Underweight government credit positioning also reduced alpha, as spreads in this sector tightened materially during the first nine months of the reporting period and only partly retraced afterward. The portfolio duration sits close to benchmark, with a lingering underweight in the 2-year area of the yield curve. Provincial bonds are used to manage this yield curve position while collecting better income. In the spread product domain, we are moderately overweight corporate credit, underweight Canadian government agency debt, and retain modest positions in U.S.-dollar denominated agency mortgages and inflation-linked bonds. Over the first quarter of 218, we added to Canadian duration mainly in longer maturities, and shifted exposure toward this area of the yield curve from shorter maturity Canadian bonds. In addition, we sold our U.S. investment-grade emerging market sovereign debt holdings and tactically increased our U.S. inflation-linked bond positions early in the period, before moving most of this exposure back to the Canadian market later in the quarter. Lawrence Park Asset During the period, Canadian bond yields rose following the trend of global interest rates which began in 217 and accelerated in the first quarter of 218. The Canadian bond broad index returned just over 1% for the period, with price-based losses offsetting coupon-based returns. Central bank activity continues to dominate market sentiment. The Bank of Canada hiked rates three times in the past 12 months the first interest rate hikes in Canada since 2. Meanwhile, the U.S. Federal Reserve continues to increase rates and forecasts more hikes in 218. Perhaps more significantly for bond investors is an expected increase in U.S. Treasury supply in coming years. The Fed commenced balance sheet reduction, a program which will take a number of years to complete and will result in up to $5 billion of additional treasury and mortgage-backed bonds sold into the market per month. Following the recent tax reforms in the U.S., the Congressional Budget Office forecast the U.S. budget deficit could increase to as much as $1 trillion by 22, which would require a significant increase in the amount of Treasury issuance. Although both stories are priced into the market, we still believe it will contribute to the overall normalization of North American and global interest rates in coming quarters and years. The portfolio is approximately 8% invested in Canadian fixed-income securities, with the balance invested in U.S. and European bank and corporate bonds. Currency hedges are strictly maintained to reduce exchange rate sensitivity on foreign holdings. We run an active management approach and continually rotate the portfolio to take advantage of relative value opportunities. During the period we reduced exposure to BBB-rated securities by about % in favour of securities rated single-a or higher. In the current environment we believe it is prudent to maintain a high level of portfolio quality, as spreads have become compressed, and we will look for periods of market pullback to rotate back into higher-yielding securities. Portfolio sensitivity to credit spreads was increased moderately to offset the loss of yield from holding high-quality bonds. Overall, the Fund underperformed its benchmark for the period. RECENT DEVELOPMENTS Signature Global Asset Although risky assets have pulled back due to rising rates and increased risks of trade wars, global growth remains constructive. We continue to advocate a well-diversified portfolio of exposures as the best way to navigate the current environment in fixed income, including duration positioning across different portions of the yield curve, credit spreads, interest rate volatility and inflation compensation. Lawrence Park Asset Uncertainty regarding inflation, U.S. trade policy and central bank activity have led to increased volatility in both bond and equity markets. Higher inflation has caused credit spreads to widen, dampening near-term performance but improving portfolio yield. In this environment, we anticipate our focus on high-quality investment-grade credit with interest rate and currency hedges in place will continue to offer an attractive, lowvolatility solution for risk averse investors. Effective April 3, 218, Karen Fisher became a member of the CI Board of Governors ( BOG ) and the Independent Review Committee ( IRC ) of the Fund. Meanwhile, Christopher Hopper resigned from the role as a member of the BOG and IRC. RELATED PARTY TRANSACTIONS Manager, Portfolio Advisor and Registrar CI Investments Inc. is the Manager, Portfolio Advisor and Registrar of the Fund. CI Investments Inc. is a subsidiary of CI Financial Corp. The Manager, in consideration for management fees, provided management services required in the day-to-day operations of the Fund. The Manager bears all of the operating expenses of the Fund (other than taxes, borrowing costs and new governmental fees) in return for a fixed administration fee. After finishing at multi-year tights, corporate credit spreads retraced somewhat in the first quarter of 218. So far, Canadian markets are proving fairly resilient during the pullback, while U.S. markets have experienced more selling from Asian and European investors. Despite the recent volatility, Canadian and international investors have continued to look for low-duration corporate bonds as a replacement for traditional ratesensitive fixed-income instruments. Our approach of maintaining low rate duration and focusing on credit-based returns is designed to reduce volatility and diversify from traditional fixed income. We generally hope that the Fund will outperform traditional bond strategies during periods of rising interest rates, and underperform during periods of falling interest rates. fee and fixed administration fee rates as at March 31, 218, for each of the classes are shown below: Annual management fee rate (%) Annual fixed administration fee rate (%) A Shares E Shares E3 Shares E4 Shares

3 Annual management fee rate (%) Annual fixed administration fee rate (%) E5 Shares ET8 Shares E3T8 Shares E4T8 Shares E5T8 Shares F Shares F3 Shares F4 Shares.6.12 F5 Shares.58.8 FT8 Shares F3T8 Shares F4T8 Shares.6.12 F5T8 Shares.58.8 c) purchases or sales of other investment funds managed by the Manager or their affiliates; and d) mergers involving the Fund and another fund managed by the Manager that is subject to National Instrument Investment Funds. The applicable standing instructions require that related party transactions be conducted in accordance with the Manager s policies and procedures and that the Manager advise the IRC of any material breach of a condition of the standing instructions. The standing instructions require, among other things, that investment decisions in respect of related party transactions (a) are free from any influence by an entity related to the Manager and without taking into account any consideration relevant to an entity related to the Manager; (b) represent the business judgment of the Manager uninfluenced by considerations other than the best interests of the Fund; (c) are made in compliance with the Manager s policies and procedures; and (d) achieve a fair and reasonable result for the Fund. Transactions made by the Manager under the standing instructions are subsequently reviewed by the IRC on a quarterly basis to monitor compliance. The Fund relied on the IRC s standing instructions regarding related party transactions during this reporting year. I Shares Paid directly by investor - IT8 Shares Paid directly by investor - OF Shares W Shares Paid directly by investor.17 WT8 Shares Paid directly by investor.17 The Manager received $.9 million in management fees and $.9 million in fixed administration fees for. Fees Approximately 24% of total management fees were used to pay for sales and trailing commissions and other services required. The remaining 76% of management fees were used to pay for investment management and other general administration. Principal Distributor The Manager has the exclusive right to arrange for the distribution of shares of the Fund. Pursuant to a series of agreements, the right to distribute such shares has been granted, on a collective basis, to the following dealers, each of which is an affiliate of the Manager. Assante Capital Ltd. Assante Financial Ltd. Independent Review Committee The Fund received standing instructions from the Fund s Independent Review Committee with respect to the following related party transactions: a) trades in securities of CI Financial Corp.; b) purchases or sales of securities of an issuer from or to another investment fund managed by the Manager; 3

4 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 past five years, as applicable. Net Assets per Share ($) (1) (2) (4) * Increase (decrease) from operations: Dividends: Realized Unrealized increase net investment Net assets Net assets at the beginning of year (2) revenue expenses distributions) (decrease) from operations (2) income ) capital Return of capital (2, 3) at the end of shown (2) $ $ $ $ $ $ $ $ $ $ $ $ A Shares Commencement of operations October 22, 27 Mar. 31, (.34).1 (.22) (.13) Mar. 31, (.33) (.28) - (.28) Mar. 31, (.31).9 (.48) (.32) - (.4) (.) - (.14) Mar. 31, (.3) (.3) (.6) - (.9) 13. Mar. 31, (.3).3 (.).5 - (.4) - - (.4) 12.4 E Shares Commencement of operations September 26, 28 Mar. 31, (.29).1 (.17) (.5) Mar. 31, (.28) (.29) - (.29) Mar. 31, (.26).8 (.51) (.22) - (.4) (.) - (.14) Mar. 31, (.26) (.3) (.6) - (.9) Mar. 31, (.25).3 (.9).16 - (.4) - - (.4) E3 Shares Mar. 31, (.21) - (.34) (.2) E4 Shares Mar. 31, (.2) - (.37) (.21) E5 Shares Mar. 31, (.2) - (.31) (.19) ET8 Shares Commencement of operations June 22, 211 Mar. 31, (.16) - (.) (.6) (.56) (.56) 6.34 Mar. 31, (.16) (.16) (.61) (.77) 6.97 Mar. 31, (.16).4 (.35) (.9) - (.2) (.6) (.66) (.74) 7.52 Mar. 31, (.17) (.2) (.4) (.69) (.75) 8.4 Mar. 31, (.18).2 (.3).21 - (.3) - (.74) (.77) 8.65 *Footnotes for the tables are found at the end of the Net Assets per Share section of the Financial Highlights. 4

5 FINANCIAL HIGHLIGHTS (cont d) Net Assets per Share ($) (1) (2) (4) * Increase (decrease) from operations: Dividends: Realized Unrealized increase net investment Net assets Net assets at the beginning of year (2) revenue expenses distributions) (decrease) from operations (2) income ) capital Return of capital (2, 3) at the end of shown (2) $ $ $ $ $ $ $ $ $ $ $ $ E3T8 Shares Mar. 31, (.2) - (.7) (.32) (.72) (.72) E4T8 Shares Mar. 31, (.2) - (.15) (.7) (.72) (.72) E5T8 Shares Mar. 31, (.19) - (.31) (.19) (.72) (.72) F Shares Mar. 31, (.11) - (.49) (.4) F3 Shares Mar. 31, (.11) - (.47) (.1) F4 Shares Mar. 31, (.11) - (.41) *Footnotes for the tables are found at the end of the Net Assets per Share section of the Financial Highlights. 5

6 FINANCIAL HIGHLIGHTS (cont d) Net Assets per Share ($) (1) (2) (4) * Increase (decrease) from operations: Dividends: Realized Unrealized increase net investment Net assets Net assets at the beginning of year (2) revenue expenses distributions) (decrease) from operations (2) income ) capital Return of capital (2, 3) at the end of shown (2) $ $ $ $ $ $ $ $ $ $ $ $ F5 Shares Mar. 31, (.) - (.32) (.) FT8 Shares Mar. 31, (.11) - (.32) (.1) (.72) (.72) F3T8 Shares Mar. 31, (.) - (.73) (.72) (.72) F4T8 Shares Mar. 31, (.) - (.31) (.) (.72) (.72) F5T8 Shares Mar. 31, (.9) - (.31) (.9) (.72) (.72) I Shares Commencement of operations September 8, 28 Mar. 31, (.5).1 (.34) Mar. 31, (.2) (.34) - (.34) 14.9 Mar. 31, (.6).8 - (.4) (.12) - (.16) Mar. 31, (.3) (.6) - (.9) Mar. 31, (.11).45 - (.4) - - (.4) 13.6 *Footnotes for the tables are found at the end of the Net Assets per Share section of the Financial Highlights. 6

7 FINANCIAL HIGHLIGHTS (cont d) Net Assets per Share ($) (1) (2) (4) Increase (decrease) from operations: Dividends: Realized Unrealized increase net investment Net assets Net assets at the beginning of year (2) revenue expenses distributions) (decrease) from operations (2) income ) capital Return of capital (2, 3) at the end of shown (2) $ $ $ $ $ $ $ $ $ $ $ $ IT8 Shares Commencement of operations June 22, 211 Mar. 31, (.2) - (.16) (.62) (.62) 7.2 Mar. 31, (.1).3 (.2) (.17) (.66) (.83) 7.74 Mar. 31, (.32).4 - (.2) (.7) (.7) (.79) 8.18 Mar. 31, (.2) (.4) (.71) (.77) 8.94 Mar. 31, (.2).34 - (.3) - (.76) (.79) 9.1 OF Shares Commencement of operations May 22, 28 Mar. 31, (.2) - (.43) (.12) Mar. 31, (.19) (.28) - (.28) Mar. 31, (.17).7 (.74).7 - (.4) (.) - (.14) Mar. 31, (.16) (.3) (.5) - (.8) 12.7 Mar. 31, (.16).2 (.9).15 - (.4) - - (.4) W Shares Commencement of operations October 22, 27 Mar. 31, (.8).1 (.34) Mar. 31, (.5) (.35) - (.35) Mar. 31, (.3). (.6).4 - (.5) (.12) - (.17) Mar. 31, (.3) (.3) (.7) - (.) 15.3 Mar. 31, (.3).3 (.12).37 - (.5) - - (.5) WT8 Shares Commencement of operations June 22, 211 Mar. 31, (.4) - (.15) (.62) (.62) 7.15 Mar. 31, (.3) (.17) (.66) (.83) 7.71 Mar. 31, (.2).5 (.38).3 - (.2) (.7) (.7) (.79) 8.16 Mar. 31, (.2) (.2) (.4) (.72) (.78) 8.93 Mar. 31, (.2).2 (.12).23 - (.3) - (.76) (.79) 9.2 (1) This information is derived from the Fund s audited annual financial statements. (2) Net assets per share and per share are based on the actual number of shares outstanding for the relevant class at the relevant time. The increase (decrease) in net assets from operations per share is based on the weighted average number of shares outstanding for the relevant class over the fiscal year. (3) Dividends are automatically reinvested in additional shares of the Fund. (4) This information is provided for s ended March 31. 7

8 FINANCIAL HIGHLIGHTS (cont d) Ratios and Supplemental Data (1) (5) * net assets (5) Number of shares outstanding (5) before taxes (2) after taxes (2) Effective HST rate for the year (2) Harmonized Trading Portfolio sales tax (2) (3) turnover rate (4) $ s s % % % % % % A Shares Commencement of operations October 22, 27 Mar. 31, Mar. 31, Mar. 31, Mar. 31, 215 1, Mar. 31, 214 1, E Shares Commencement of operations September 26, 28 Mar. 31, ,7 2, Mar. 31, ,49 3, Mar. 31, ,489 3, Mar. 31, ,397 3, Mar. 31, ,99 3, E3 Shares Mar. 31, 218 9, E4 Shares Mar. 31, 218 3, E5 Shares Mar. 31, 218 4, ET8 Shares Commencement of operations June 22, 211 Mar. 31, 218 1, Mar. 31, 217 1, Mar. 31, 216 1, Mar. 31, Mar. 31, *Footnotes for the tables are found at the end of the Financial Highlights section. 8

9 FINANCIAL HIGHLIGHTS (cont d) Ratios and Supplemental Data (1) (5) * net assets (5) Number of shares outstanding (5) before taxes (2) Harmonized sales tax (2) after taxes (2) Effective HST rate for the year (2) Trading (3) Portfolio turnover rate (4) $ s s % % % % % % E3T8 Shares Mar. 31, E4T8 Shares Mar. 31, E5T8 Shares Mar. 31, F Shares Mar. 31, 218 4, F3 Shares Mar. 31, 218 3, F4 Shares Mar. 31, 218 1, *Footnotes for the tables are found at the end of the Financial Highlights section. 9

10 FINANCIAL HIGHLIGHTS (cont d) Ratios and Supplemental Data (1) (5) * net assets (5) Number of shares outstanding (5) before taxes (2) Harmonized sales tax (2) after taxes (2) Effective HST rate for the year (2) Trading (3) Portfolio turnover rate (4) $ s s % % % % % % F5 Shares Mar. 31, FT8 Shares Mar. 31, F3T8 Shares Mar. 31, F4T8 Shares Mar. 31, F5T8 Shares Mar. 31, I Shares Commencement of operations September 8, 28 Mar. 31, ,837 17, Mar. 31, ,494 14, Mar. 31, ,979 11, Mar. 31, ,439 9, Mar. 31, 214 9,798 6, *Footnotes for the tables are found at the end of the Financial Highlights section.

11 FINANCIAL HIGHLIGHTS (cont d) Ratios and Supplemental Data (1) (5) net assets (5) Number of shares outstanding (5) before taxes (2) Harmonized sales tax (2) after taxes (2) Effective HST rate for the year (2) Trading (3) Portfolio turnover rate (4) $ s s % % % % % % IT8 Shares Commencement of operations June 22, 211 Mar. 31, 218 8,615 1, Mar. 31, 217 6, Mar. 31, 216 2, Mar. 31, 215 1, Mar. 31, OF Shares Commencement of operations May 22, 28 Mar. 31, Mar. 31, Mar. 31, Mar. 31, Mar. 31, W Shares Commencement of operations October 22, 27 Mar. 31, ,752 31, Mar. 31, ,84 26, Mar. 31, ,85 23, Mar. 31, ,94 23, Mar. 31, ,825 2, WT8 Shares Commencement of operations June 22, 211 Mar. 31, ,48 4, Mar. 31, ,123 4, Mar. 31, ,325 2, Mar. 31, 215 2,94 2, Mar. 31, ,771 1, (1) This information is derived from the Fund s audited annual financial statements. (2) is calculated based on expenses charged to the Fund commissions and other portfolio transaction costs) and is expressed as an annualized percentage of daily average net assets for, including the Fund s proportionate share of any underlying fund(s) expenses, if applicable. The Effective HST tax rate is calculated using the attribution percentage for each province based on shareholder residency and can be different from 13%. (3) The trading represents total commissions and other portfolio transaction costs expressed as an annualized percentage of daily average net assets during, including the Fund s proportionate share of such expenses of any underlying fund(s), if applicable. (4) The Fund s portfolio turnover rate indicates how actively the Fund s portfolio advisor manages its portfolio investments. A portfolio turnover rate of % is equivalent to the Fund buying and selling all of the securities in its portfolio once in the course of the fiscal year. The higher a Fund s portfolio turnover rate in a year, the greater the trading costs payable by the Fund in, and the greater the chance of an investor receiving taxable capital in. There is not necessarily a relationship between a higher turnover rate and the performance of a Fund. Portfolio turnover rate is calculated by dividing the lesser of the cost of purchases and the proceeds of sales of portfolio securities for, and excluding cash and short-term investments maturing in less than one year, and before assets acquired from a merger, if applicable, by the average of the monthly fair value of investments during. (5) This information is provided for s ended March

12 PAST PERFORMANCE This section describes how the Fund has performed in the past. Remember, past returns do not indicate how the Fund will perform in the future. The information shown assumes that made by the Fund in s shown were reinvested in additional shares of the relevant classes of the Fund. In addition, the information does not take into account sales, redemption, distribution or other optional charges that would have reduced returns or performance. Year-by-Year Returns The following charts show the Fund s annual performance for each of s shown and illustrate how the Fund s performance has changed from year to year. In percentage terms, the charts show how much an investment made on the first day of each financial year would have grown or decreased by the last day of each financial year, except where noted. A Shares E Shares ET8 Shares I Shares Mar. 29 Mar. 2 Mar. 211 Mar. 216 Mar. 217 Mar. 218 Mar. 29 Mar. 2 Mar. 211 Mar. 216 Mar. 217 Mar. 218 Mar. 216 Mar. 217 Mar. 218 Mar. 29 Mar. 2 Mar. 211 Mar. 216 Mar. 217 Mar. 218 IT8 Shares OF Shares W Shares WT8 Shares Mar. 216 Mar. 217 Mar. 218 Mar. 29 Mar. 2 Mar. 211 Mar. 216 Mar. 217 Mar. 218 Mar. 29 Mar. 2 Mar. 211 Mar. 216 Mar. 217 Mar. 218 Mar. 216 Mar. 217 Mar return is for the period from September 26, 28 to March 31, return is for the period from June 22, 211 to March 31, return is for the period from September 8, 28 to March 31, return is for the period from May 22, 28 to March 31, 29.

13 Annual Compound Returns The following table shows the Fund s annual compound returns for each year indicated, compared to the FTSE TMX Canada Universe Bond Return Index. The FTSE TMX Canada Universe Bond Return Index is a market capitalization weighted index that measures the performance of the Canadian investment-grade fixed income market. The Index consists of fixed rate bonds denominated in Canadian dollars, with a remaining effective term to maturity of at least one year, rated BBB or higher. The Index is comprised of four main credit or borrower categories: bonds issued by the Government of Canada (including Crown Corporations), Provincial bonds (including provincially-guaranteed securities), Municipal bonds and Corporate bonds. The Corporate sector is further divided into sub-sectors based on major industry groups: Financial, Communication, Industrial, Energy, Infrastructure, Real Estate and Securitization. The Corporate sector is also divided into sub-indices based on credit rating: a combined AAA/AA sector, a single A sector and a BBB sector. A discussion of the performance of the Fund as compared to the benchmark is found in the Results of Operations section of this report. One Year (%) Three Years (%) Five Years (%) Ten Years (%) Since Inception (%) A Shares (1.3) (.3) n/a FTSE TMX Canada Universe Bond Return Index n/a E Shares (.9) n/a 3. FTSE TMX Canada Universe Bond Return Index n/a 4.7 ET8 Shares (1.). 1.3 n/a 2.4 FTSE TMX Canada Universe Bond Return Index n/a 3.8 I Shares n/a 4.9 FTSE TMX Canada Universe Bond Return Index n/a 4.7 IT8 Shares n/a 4. FTSE TMX Canada Universe Bond Return Index n/a 3.8 OF Shares (.2) n/a 2.9 FTSE TMX Canada Universe Bond Return Index n/a 4.5 W Shares n/a FTSE TMX Canada Universe Bond Return Index n/a WT8 Shares n/a 4. FTSE TMX Canada Universe Bond Return Index n/a

14 SUMMARY OF INVESTMENT PORTFOLIO as at March 31, 218 Category % of Net Assets Category % of Net Assets Top 25 Holdings* % of Net Assets Country allocation* Long Positions Canada U.S.A Cash & Equivalents Short-Term Investments U.K Exchange-Traded Fund(s) Other Net Assets (Liabilities)....7 Switzerland....6 Cayman Islands....4 Luxembourg....3 Jersey Island....3 France....3 Netherlands....3 Bermuda....3 Ireland....2 Mexico....2 Indonesia....2 Argentina....2 Brazil....1 South Africa....1 British Virgin Islands....1 Turkey....1 Russia....1 Spain....1 Australia....1 Marshall Islands....1 Colombia....1 Peru....1 Germany.... Italy.... Japan.... Bahamas.... Interest Rate Swaps.... Panama.... Hungary.... Future Contracts.... Philippines.... St. Lucia.... Foreign Currency Forward Contracts... (.4) Long Positions.... Sector allocation* Long Positions Corporate Bonds Provincial Bonds Canadian Government Bonds Cash & Equivalents Asset-Backed Securities Foreign Government Bonds Short-Term Investments Financials Exchange-Traded Fund(s) Other Net Assets (Liabilities)....7 Utilities....3 Energy....3 Real Estate....2 Telecommunication Services....1 Private Placements....1 Warrants.... Consumer Staples.... Interest Rate Swaps.... Preferred Shares.... Industrials.... Future Contracts.... Materials.... Foreign Currency Forward Contracts... (.4) Long Positions.... Short Positions Future Contracts... (.) Short Positions... (.) Province of Ontario 3.5% 6/2/ Government of Canada 1.25% 2/1/ Cash & Equivalents Province of Ontario 2.4% 6/2/ Province of Ontario 2.6% 6/2/ Province of Quebec 2.5% 9/1/ Province of Quebec 3.75% 9/1/ Government of Canada 1.75% 3/1/ Province of Ontario 2.8% 6/2/ Province of Quebec 3% 9/1/ Government of Canada 1.25% 11/1/ Government of Canada 2.75% 12/1/ Province of Quebec 2.75% 9/1/ Province of Quebec 3.5% 12/1/ Short-Term Investments Government of Canada.75% 3/1/ Province of British Columbia 3.2% 6/18/ Province of Ontario 2.9% 6/2/ United States Treasury Inflation Indexed Bonds.125% 4/15/ Province of Ontario 2.6% 6/2/ Province of British Columbia 6.35% 6/18/ Government of Canada 2.75% 12/1/ ishares iboxx $ Investment Grade Corporate Bond ETF....5 Bank of Montreal 3.34% 12/8/ Sobeys Inc., 3.52% 8/8/ Net Assets (in $ s) $858,986 Short Positions Future Contracts... (.) Short Positions... (.) *These are holdings and the breakdown of the underlying fund. The summary of investment portfolio may change due to ongoing portfolio transactions of the Fund and updates will be available on a quarterly basis. A NOTE ON FORWARD-LOOKING STATEMENTS This report may contain forward-looking statements about the Fund, its future performance, strategies or prospects, and possible future Fund action. The words may, could, should, would, suspect, outlook, believe, plan, anticipate, estimate, expect, intend, forecast, objective, and similar expressions are intended to identify forward-looking statements. Forward-looking statements are not guarantees of future performance. Forward-looking statements involve inherent risks and uncertainties, both about the Fund and general economic factors, so it is possible that predictions, forecasts, projections and other forward-looking statements will not be achieved. We caution you not to place undue reliance on these statements as a number of important factors could cause actual events or results to differ materially from those expressed or implied in any forward-looking statement made by the Fund. These factors include, but are not limited to, general economic, political and market factors in Canada, the United States and internationally, interest and foreign exchanges rates, global equity and capital markets, business competition, technological changes, changes in laws and regulations, judicial or regulatory judgments, legal proceedings and catastrophic events. The above list of important factors that may affect future results is not exhaustive. Before making any investment decisions, we encourage you to consider these and other factors carefully. All opinions contained in forward-looking statements are subject to change without notice and are provided in good faith but without legal responsibility. 14