Annual Report Segregated Funds December 31, 2005 1059(2005/12/31) THE EQUITABLE LIFE INSURANCE COMPANY OF CANADA
Table of Contents Responsibility for Financial Reporting................................................. 1 Auditors Report.................................................................. 2 Segregated Funds That Invest In Underlying Funds..................................... 3 Accumulative Income Fund......................................................... 4-6 American Growth Fund............................................................ 7-9 Asian-Pacific Equity Fund.......................................................... 10-12 Asset Allocation Fund............................................................. 13-16 Canadian Bond Fund............................................................. 17-19 Canadian Stock Fund............................................................. 20-22 Common Stock Fund............................................................. 23-25 Equitable Life AIM Canadian Premier Fund............................................ 26-28 Equitable Life Bissett Dividend Income Fund........................................... 29-31 Equitable Life Franklin Templeton Balanced Growth Portfolio.............................. 32-35 Equitable Life Franklin Templeton Balanced Income Portfolio.............................. 36-39 Equitable Life Franklin Templeton Diversified Income Portfolio............................. 40-43 Equitable Life Franklin Templeton Global Growth Portfolio................................ 44-47 Equitable Life Franklin Templeton Growth Portfolio...................................... 48-51 Equitable Life Franklin Templeton Maximum Growth Portfolio.............................. 52-55 Equitable Life Mackenzie Universal U.S. Emerging Growth Fund........................... 56-58 Equitable Life MB Canadian Equity Value Fund......................................... 59-61 Equitable Life Templeton Global Bond Fund............................................ 62-64 Equitable Life Templeton Growth Fund................................................ 65-67 Equitable Life Trimark Europlus Fund................................................. 68-70 Equitable Life Trimark Global Balanced Fund........................................... 71-73 European Equity Fund............................................................ 74-76 International Fund................................................................ 77-80 Money Market Fund.............................................................. 81-83 U.S. Equity Fund................................................................. 84-86 Financial Statements.............................................................. 87-99 Notes to Financial Statements...................................................... 100-104 Page
Responsibility for Financial Reporting The accompanying financial statements have been prepared by The Equitable Life Insurance Company of Canada, the manager of the Segregated Funds (the Funds ), and approved by the Board of Directors. The Funds manager is responsible for the information and representations contained in these financial statements and other sections of the annual report. The Canadian Life and Health Insurance Association Inc. (CLHIA) has issued disclosure guidelines prescribing consistent reporting practices for financial reporting. These statements are in compliance with the CLHIA guidelines. The Equitable Life Insurance Company of Canada maintains appropriate processes to ensure that relevant and reliable financial information is produced. The financial statements have been prepared in accordance with Canadian generally accepted accounting principles and include certain amounts that are based on estimates and judgements. The significant accounting policies which management believe are appropriate for the Funds are described in Note 2 to the financial statements. KPMG LLP are the external auditors of the Funds, appointed by the Board of Directors of The Equitable Life Insurance Company of Canada. They audited the financial statements in accordance with Canadian generally accepted auditing standards to enable them to express their opinion on the financial statements. Their report appears with these financial statements. Ronald E. Beettam President and Chief Executive Officer Timothy M. Strome Vice-President, Finance and Chief Financial Officer February 20, 2006
Auditors Report To the Directors of The Equitable Life Insurance Company of Canada and to the Unitholders of The Equitable Life Insurance Company of Canada Segregated Funds (the Funds ) listed below: Accumulative Income Fund American Growth Fund Asian-Pacific Equity Fund Asset Allocation Fund Canadian Bond Fund Canadian Stock Fund Common Stock Fund Equitable Life AIM Canadian Premier Fund Equitable Life Bissett Dividend Income Fund Equitable Life Franklin Templeton Balanced Growth Portfolio Equitable Life Franklin Templeton Balanced Income Portfolio Equitable Life Franklin Templeton Diversified Income Portfolio Equitable Life Franklin Templeton Global Growth Portfolio Equitable Life Franklin Templeton Growth Portfolio Equitable Life Franklin Templeton Maximum Growth Portfolio Equitable Life Mackenzie Universal U.S. Emerging Growth Fund Equitable Life MB Canadian Equity Value Fund Equitable Life Templeton Global Bond Fund Equitable Life Templeton Growth Fund Equitable Life Trimark Europlus Fund Equitable Life Trimark Global Balanced Fund European Equity Fund International Fund Money Market Fund U.S. Equity Fund We have audited the Statements of Investment Portfolio and the Statements of Net Assets of each of the Funds as at December 31, 2005 and 2004 and the Statements of Operations, Changes in Net Assets, and Net Realized Gain (Loss) on Sale of Investments for the years then ended. These financial statements are the responsibility of The Equitable Life Insurance Company of Canada. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentations. In our opinion, these financial statements present fairly, in all material respects, the financial position of the Funds as at December 31, 2005 and 2004, the investments held as at December 31, 2005 and 2004 and the results of their operations and the changes in net assets for the years then ended in accordance with Canadian generally accepted accounting principles. Chartered Accountants Waterloo, Ontario February 20, 2006
Segregated Funds That Invest In Underlying Funds The following Segregated Funds of The Equitable Life Insurance Company of Canada currently invest 100% of their net asset value, other than cash, in the underlying fund(s) indicated. The Equitable Life Insurance Company of Canada has included the Fundamental Investment Objectives of both the Segregated Funds and the underlying fund(s) within the information contained on the pages for each of these Segregated Funds. Equitable Life Segregated Fund Accumulative Income Fund American Growth Fund Canadian Bond Fund Canadian Stock Fund Common Stock Fund Equitable Life AIM Canadian Premier Fund Equitable Life Bissett Dividend Income Fund Equitable Life Franklin Templeton Balanced Growth Portfolio Equitable Life Franklin Templeton Balanced Income Portfolio Equitable Life Franklin Templeton Diversified Income Portfolio Equitable Life Franklin Templeton Global Growth Portfolio Equitable Life Franklin Templeton Growth Portfolio Equitable Life Franklin Templeton Maximum Growth Portfolio Equitable Life MB Canadian Equity Value Fund Equitable Life Templeton Global Bond Fund Equitable Life Trimark Europlus Fund Equitable Life Trimark Global Balanced Fund Underlying Fund MB Fixed Income Fund McLean Budden American Equity Fund MB Fixed Income Fund MB Canadian Equity Plus Fund MB Canadian Equity Plus Fund AIM Canadian Premier Fund Bissett Dividend Income Fund Franklin Templeton Balanced Growth Portfolio Franklin Templeton Balanced Income Portfolio Franklin Templeton Diversified Income Portfolio Franklin Templeton Global Growth Portfolio Franklin Templeton Growth Portfolio Franklin Templeton Maximum Growth Portfolio MB Canadian Equity Value Fund Templeton Global Bond Fund Trimark Europlus Fund Trimark Global Balanced Fund The following Segregated Funds of The Equitable Life Insurance Company of Canada currently invest 100% of their net asset value, other than cash, in shares of the underlying mutual fund corporation indicated. The Equitable Life Insurance Company of Canada has included the Fundamental Investment Objectives of both the Segregated Funds and the underlying fund(s) within the information contained on the pages for each of these Segregated Funds. Equitable Life Segregated Fund Equitable Life Mackenzie Universal U.S. Emerging Growth Fund Equitable Life Templeton Growth Fund Underlying Mutual Fund Corporation Mackenzie Universal U.S. Emerging Growth Capital Class Templeton Growth Fund, Ltd. The Asset Allocation Fund is a Segregated Fund of The Equitable Life Insurance Company of Canada and currently invested in a mix of underlying pooled funds managed by McLean Budden Limited, including the MB Canadian Equity Fund, MB Fixed Income Fund, MB Global Equity Fund and MB Money Market Fund.
Accumulative Income Fund Fundamental Investment Objective To achieve returns through a combination of capital appreciation and interest income primarily through exposure to Canadian debt securities, corporate debentures and short-term market investments. Fundamental Investment Objective of the Underlying Fund The MB Fixed Income Fund aims to provide a moderate real rate of return, through income and capital gains, by investing in a diversified portfolio of primarily Canadian dollar debt and from time-to-time U.S. debt. The MB Fixed Income Fund will only invest in investment grade debt. Returns in excess of income will be gained through active duration, yield curve and sector management. Investor Benefits The Fund is designed for investors who: seek current income higher than money market rates and are willing to accept price fluctuations want to balance their equity portfolio with a fixed-income investment want a portfolio of bonds with differing maturities Management of the Fund and Invested Assets The Fund is managed by The Equitable Life Insurance Company of Canada and currently invests exclusively in the MB Fixed Income Fund managed by McLean Budden Limited. Prior to December 10, 2001, the invested assets of the Fund were managed by The Equitable Life Insurance Company of Canada. Available Products Direction 2000; Flexible Retirement Annuity policies; Group RRSP/Pension policies that were issued prior to October 1, 1994. Fund Performance The performance data shown assumes that all income / realized net gains (losses) are retained by the Fund in the periods shown and are reflected in higher (lower) unit values of the Fund. Included in the following performance data are the Fund s net historical returns which reflect changes in unit values, reinvested distributions and management fees, but do not take into account sales, redemptions or income taxes and exclude any other contractually arranged fees that may be payable or credited that would affect returns. Past performance is not indicative of future results. Unit value, investment returns and yields will fluctuate with the market value of the Fund s assets. Market Performance (underlying fund) The key performance contribution came from term-to-maturity (duration) management as the underlying fund maintained a considerably longer duration than the Index during a period of declining yields for long-term bonds. The higher yields provided by the U.S. pay component also added value. However, the U.S. pay bond position was an offsetting factor as the Canadian dollar rose. The year ended with a continued overweight position in long-term bonds that resulted in a duration that was 0.7 of a year longer than the Index. This is based on the view that low inflation and slowing economic growth will continue in 2006. Relative to the Index, mid-term bonds remained overweight by 8% with a corresponding underweight position in short-term bonds. The U.S. pay position was increased as the Canadian dollar moved higher and ended the quarter at 7% overweight. This stance is based on the expectation the Canadian dollar will move lower against its U.S. counterpart.
Accumulative Income Fund Year-by-Year Returns The following bar chart shows the net annual performance of the Fund, for each of the years shown, and illustrates that the Fund s performance has changed from year to year. The bar chart shows, in percentage terms, how much an investment made on January 1 in each year would have increased / decreased by December 31 in that year. 30% 20% 10% 11.9% 9.6% 8.9% 8.9% 6.7% 7.7% 6.1% 7.3% 6.0% 0% -10% -1.1% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 The manager of the invested assets has changed during the reporting period, as noted in the Management of the Fund and Invested Assets section. Overall Past Performance The following line graph shows the growth of a hypothetical $10,000 investment in the Fund (net of any applicable front-end charges at the time of investment), as compared to the change in the Scotia Capital Universe Total Return Index. The Scotia Capital Universe Total Return Index is widely recognized and used by investment professionals as a benchmark for Canadian bond funds. $25,000 $20,000 $15,000 $10,000 $5,000 $0 $10,000 $20,944 $19,937 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Accumulative Income Fund Scotia Capital Universe Total Return Index The manager of the invested assets has changed during the reporting period, as noted in the Management of the Fund and Invested Assets section. Annual Compound Returns The following table shows the historical net annual compound return of the Fund as compared to the benchmark Scotia Capital Universe Total Return Index. 1 Year 3 Year 5 Year 10 Year Accumulative Income Fund 6.0% 6.4% 6.7% 7.1% Scotia Capital Universe Total Return Index 6.5% 6.8% 7.4% 7.7%
Accumulative Income Fund STATEMENT OF INVESTMENT PORTFOLIO December 31, 2005 Unit Average Market % of Net Value # of Units Cost Value Assets MB Fixed Income Fund $ 57.03 129,342 $ 7,280,291 $ 7,376,381 99.98 Cash 1,571 1,571 0.02 $ 7,281,862 $ 7,377,952 100.00% The Accumulative Income Fund is 100% invested in the MB Fixed Income Fund. The following information is unaudited and is based on information as provided by McLean Budden Limited. It represents the top 25 holdings within the underlying fund. Average Market % of % Coupon Maturity $ Par Value Cost Value Fund Government of Canada 5.75 JUN 01 29 240,770,000 $ 283,572,224 $ 301,094,924 9.17 Government of Canada 4.00 SEP 01 10 184,100,000 189,195,763 184,661,505 5.62 Government of Canada 8.00 JUN 01 27 105,915,000 144,929,814 164,548,485 5.01 Government of Canada 4.50 JUN 01 15 144,540,000 150,380,680 150,430,005 4.58 Government of Canada 5.25 JUN 01 12 136,035,000 148,443,419 146,086,626 4.45 Province of Ontario 6.50 MAR 08 29 110,785,000 121,256,197 141,374,954 4.30 Government of Canada 4.25 SEP 01 08 132,925,000 135,207,410 134,143,922 4.08 Province of Quebec 6.00 OCT 01 12 89,760,000 95,592,499 98,848,200 3.01 Province of Ontario 4.50 MAR 08 15 87,990,000 90,446,559 89,614,295 2.73 Province of Ontario 5.38 DEC 02 12 78,955,000 82,520,330 84,799,249 2.58 Province of British Columbia 6.38 AUG 23 10 71,450,000 76,990,022 78,399,942 2.39 Government of Canada 8.00 JUN 01 23 48,620,000 65,712,441 72,295,995 2.20 Province of Ontario 5.00 MAR 08 14 58,805,000 59,945,167 61,951,068 1.89 Royal Bank of Canada 5.45 NOV 04 18 47,570,000 48,203,276 50,735,308 1.54 Province of Quebec 6.00 OCT 01 29 41,180,000 42,013,965 48,633,580 1.48 Province of British Columbia 6.35 JUN 18 31 37,510,000 39,937,415 48,237,485 1.47 Province of Ontario 4.50 FEB 03 15 40,975,000 47,170,172 46,823,030 1.43 European Investment Bank 4.63 MAY 15 14 39,220,000 47,423,062 46,151,855 1.41 Toronto Dominion Bank 4.54 SEP 05 13 41,772,000 42,151,585 42,204,340 1.28 Bank of Nova Scotia 3.47 SEP 02 08 42,685,000 42,680,732 42,003,747 1.28 Bank of Montreal 4.55 AUG 01 17 40,445,000 40,440,956 40,542,472 1.23 Province of Manitoba 5.85 JAN 25 11 34,570,000 35,426,712 37,352,885 1.14 Province of Manitoba 7.50 FEB 22 10 28,435,000 37,408,239 36,524,584 1.11 Canada Housing Trust 3.75 MAR 15 10 36,835,000 36,419,870 36,430,736 1.11 Province of Quebec 4.60 MAY 26 15 30,385,000 34,699,298 34,562,366 1.05 67.54%
American Growth Fund Fundamental Investment Objective To achieve long-term capital growth primarily through exposure to U.S. equity securities of large and mid-sized U.S. companies. Fundamental Investment Objective of the Underlying Fund The McLean Budden American Equity Fund aims for long-term capital growth by investing in U.S. equity securities. Investor Benefits The Fund is designed for long-term investors who: seek U.S. equity investments with attractive growth prospects are willing to accept moderate share-price volatility and foreign currency risk seek capital growth over time (at least 5 years) Management of the Fund and Invested Assets The Fund is managed by The Equitable Life Insurance Company of Canada and currently invests exclusively in the McLean Budden American Equity Fund managed by McLean Budden Limited. Available Products Group RRSP/Pension; Life Income Fund; Personal Investment Portfolio; Registered Retirement Income Fund; Pivotal Solutions; Pivotal Solutions Registered Retirement Income Fund; Pivotal Solutions Life Income Fund. Fund Performance The performance data shown assumes that all income / realized net gains (losses) are retained by the Fund in the periods shown and are reflected in higher (lower) unit values of the Fund. Included in the following performance data are the Fund s net historical returns which reflect changes in unit values, reinvested distributions and management fees, but do not take into account sales, redemptions or income taxes and exclude any other contractually arranged fees that may be payable or credited that would affect returns. Past performance is not indicative of future results. Unit value, investment returns and yields will fluctuate with the market value of the Fund s assets. Market Performance (underlying fund) Three-quarters of the underlying fund s value added was attributable to stock selection while favourable industry sector allocation accounted for the remainder. Stock selection was strongest in energy and information technology but was partly offset by weak results in health care and financials. During the year, the underlying fund increased its exposure to materials and information technology, while lowering exposure to health care and consumer discretionary. The managers anticipate an increase in capital spending on strength in corporate profits as companies begin to expand their businesses again, which will benefit the information technology and industrials sectors. Given the current interest rate environment with its flat yield curve and narrow spread, the managers believe it is prudent to underweight financials as it will be difficult for earnings to grow much further under these conditions. The underlying fund currently favours the industrials, information technology and telecommunication services sectors, while maintaining a relatively low exposure to financials and consumer discretionary.
American Growth Fund Year-by-Year Returns The following bar chart shows the net annual performance of the Fund, for each of the years shown, and illustrates that the Fund s performance has changed from year to year. The bar chart shows, in percentage terms, how much an investment made on January 1 in each year would have increased / decreased by December 31 in that year. 20% 10% 0% -10% 8.1% -0.1% 4.8% 1.3% 0.4% -20% -30% -19.8% 2000 2001 2002 2003 2004 2005 Overall Past Performance The following line graph shows the growth of a hypothetical $10,000 investment in the Fund, as compared to the change in the S&P 500 Total Return Index. The S&P 500 Total Return Index is widely recognized and used by investment professionals as a benchmark for U.S. equity funds. $15,000 $10,000 $5,000 $10,000 $9,889 $8,432 $0 1998 1999 2000 2001 2002 2003 2004 2005 American Growth Fund S&P 500 Total Return Index Annual Compound Returns The following table shows the historical net annual compound return of the Fund as compared to the benchmark S&P 500 Total Return Index. Since 1 Year 3 Year 5 Year Inception American Growth Fund 0.4% 2.1% -3.1% -0.2% S&P 500 Total Return Index 1.6% 3.4% -4.4% -2.4%
American Growth Fund STATEMENT OF INVESTMENT PORTFOLIO December 31, 2005 Unit Average Market % of Net Value # of Units Cost Value Assets McLean Budden American Equity Fund - Class B $ 35.66 381,301 $ 15,454,673 $ 13,597,182 100.00 Cash 312 312 0.00 $ 15,454,985 $ 13,597,494 100.00% The American Growth Fund is 100% invested in the McLean Budden American Equity Fund. The following information is unaudited and is based on information as provided by McLean Budden Limited. It represents the top 25 holdings within the underlying fund. % Coupon/ $ Par Value/ Average Market % of Class Maturity # of Shares Cost Value Fund Citigroup Inc. Common 575,000 $ 29,744,155 $ 32,598,329 5.79 Pfizer Inc. Common 810,000 29,692,771 22,066,363 3.92 Microsoft Corporation Common 710,000 22,664,002 21,689,385 3.85 Alcoa Inc. Common 580,000 17,360,738 20,035,331 3.56 Federal National Mortgage Association Common 345,000 26,360,059 19,671,845 3.49 Amern International Group Inc. Common 245,000 18,808,716 19,528,040 3.47 Royal Bank of Canada 4.00 JAN 03 06 14,200,000 16,588,440 16,588,440 2.95 Tyco International Ltd. Common 480,000 14,254,341 16,182,841 2.87 Schlumberger Ltd. Common 131,000 8,207,674 14,867,273 2.64 Duke Energy Corporation Common 430,000 11,105,936 13,788,849 2.45 United Technologies Corporation Common 210,000 9,637,047 13,715,953 2.44 AT&T Inc. Common 476,000 13,207,250 13,617,988 2.42 Colgate Palmolive Company Common 210,000 13,009,451 13,455,912 2.39 Valero Energy Corporation Common 220,000 5,925,821 13,261,406 2.35 First Data Corporation Common 261,000 11,623,877 13,113,758 2.33 Viacom Inc. Class B 340,000 14,343,453 12,948,329 2.30 Honeywell International Inc. Common 293,000 11,025,982 12,750,027 2.26 Transocean Inc. Ordinary 155,000 4,738,057 12,618,838 2.24 Burlington Northern Santa Fe Corporation Common 148,000 7,567,912 12,244,325 2.17 Cisco Systems Inc. Common 550,000 11,212,443 10,999,771 1.95 Morgan Stanley Dean Witter & Co. Common 165,000 9,793,719 10,936,805 1.94 3M Company Common 120,000 10,538,524 10,864,260 1.93 Apache Corporation Common 135,000 5,986,415 10,806,084 1.92 Intel Corporation Common 370,000 10,990,582 10,788,561 1.92 Wyeth Common 200,000 9,498,426 10,763,795 1.91 67.46%
Asian-Pacific Equity Fund Fundamental Investment Objective To achieve long-term capital appreciation by investing in Asian-Pacific equities through exchange traded index futures contracts. Supplementary Information on the Fundamental Investment Objective The Fund will replicate various Asian-Pacific equity indices by investing primarily in index futures contracts of major Asian- Pacific stock indices as well as liquid short-term obligations issued or guaranteed by the Government of Canada, any Canadian province or any Canadian corporation whose short-term debt is rated R-1 or higher by a recognized rating agency. For Fund investment purposes, "Asian-Pacific" currently includes Japan, Hong Kong, Singapore, Malaysia, Korea, Thailand, Australia and New Zealand. The mix between the Asian-Pacific countries/stocks may be adjusted periodically based on economic and market conditions. The Asian-Pacific Equity Fund may also invest in common or preferred shares, convertible securities, treasury bills, bonds, debentures, notes and money market instruments, either Canadian or Asian-Pacific. Investor Benefits The Fund is designed for investors who: want broad-based Asian-Pacific equity exposure to high-quality Asian-Pacific companies are willing to accept high price volatility and foreign currency risk seek capital growth over time (at least 5 years) Management of the Fund and Invested Assets The Fund, including its invested assets, is managed by The Equitable Life Insurance Company of Canada. Available Products Group RRSP/Pension; Life Income Fund; Personal Investment Portfolio; Registered Retirement Income Fund. Fund Performance The performance data shown assumes that all income / realized net gains (losses) are retained by the Fund in the periods shown and are reflected in higher (lower) unit values of the Fund. Included in the following performance data are the Fund s net historical returns which reflect changes in unit values, reinvested distributions and management fees, but do not take into account sales, redemptions or income taxes and exclude any other contractually arranged fees that may be payable or credited that would affect returns. Past performance is not indicative of future results. Unit value, investment returns and yields will fluctuate with the market value of the Fund s assets. Market Performance China once again continued to outpace the rest of the world in growth during 2005, with Chinese GDP gaining over 9% for 2005. With a 40% plus gain, the Japanese Nikkei 225 roared back to life after years of dismal showings, leading people to think Japan has finally turned the corner. In addition, the China trade surplus ballooned to near $1 trillion throughout the 12 months of 2005.
Asian-Pacific Equity Fund Year-by-Year Returns The following bar chart shows the net annual performance of the Fund, for each of the years shown, and illustrates that the Fund s performance has changed from year to year. The bar chart shows, in percentage terms, how much an investment made on January 1 in each year would have increased / decreased by December 31 in that year. 20% 10% 13.5% 6.5% 15.9% 0% -10% -20% -30% -40% -11.0% -21.0% -27.6% 2000 2001 2002 2003 2004 2005 Overall Past Performance The following line graph shows the growth of a hypothetical $10,000 investment in the Fund, as compared to the change in the MSCI Pacific Total Return Index. The MSCI Pacific Total Return Index is widely recognized and used by investment professionals as a benchmark for Asian-Pacific equity funds. $15,000 $10,000 $5,000 $0 $10,000 $8,723 $7,218 1999 2000 2001 2002 2003 2004 2005 Asian Pacific Equity Fund MSCI Pacific Total Return Index Annual Compound Returns The following table shows the historical net annual compound return of the Fund as compared to the benchmark MSCI Pacific Total Return Index. Since 1 Year 3 Year 5 Year Inception Asian-Pacific Equity Fund 15.9% 11.9% -2.0% -5.2% MSCI Pacific Total Return Index 19.2% 14.6% 1.5% -2.2%
Asian-Pacific Equity Fund STATEMENT OF INVESTMENT PORTFOLIO December 31, 2005 Average Market % of Net (CASH BASIS) % Coupon Maturity $ Par Value Cost Value Assets Cash and Short-Term Notes Cash - Canadian $ 16,477 $ 16,477 0.57 * Cash - Foreign 160,293 160,293 5.58 Accrued Investment Income - 6,187 0.22 Alcan Inc. 3.35 JAN 31 06 100,000 99,707 99,707 3.47 * Daimler Chrysler Canada Finance Inc. 3.34 JAN 03 06 170,000 169,597 169,597 5.91 Daimler Chrysler Canada Finance Inc. 3.35 JAN 19 06 70,000 69,801 69,801 2.43 * Enbridge Inc. 3.23 JAN 20 06 200,000 199,084 199,084 6.93 * EnCana Corporation 3.32 JAN 25 06 150,000 149,456 149,456 5.20 * Gaz Metro Inc. 3.35 FEB 13 06 230,000 228,533 228,533 7.96 * GE Capital Canada Funding 3.29 JAN 23 06 160,000 159,525 159,525 5.56 * H&R Block Canada, Inc. 3.33 JAN 10 06 175,000 174,491 174,491 6.08 HBOS Treasury Services plc 3.32 JAN 12 06 140,000 139,619 139,619 4.86 John Deere Credit Inc. 3.31 JAN 17 06 85,000 84,739 84,739 2.95 * Manitoba Telecom Services Inc. 3.31 JAN 06 06 220,000 219,443 219,443 7.64 PACCAR Financial Ltd. 3.24 JAN 03 06 100,000 99,716 99,716 3.47 * Potash Corporation of Saskatchewan Inc. 3.40 JAN 30 06 220,000 219,347 219,347 7.64 Volvo Treasury Canada Inc. 3.45 FEB 24 06 150,000 149,098 149,098 5.19 * VW Credit Canada Inc. 3.33 JAN 16 06 230,000 229,413 229,413 7.99 Wells Fargo Financial Canada Corp. 3.34 FEB 13 06 100,000 99,427 99,427 3.46 Total Cash and Short-term Notes 2,667,766 2,673,953 93.11 Fixed Income TransAlta Utilities Corp. 6.05 JAN 16 06 91,000 93,512 91,177 3.18 # of Month of Futures Contracts Contracts Expiry Australia SPI 4 MAR 2006-11,179 0.39 Hong Kong Hang Seng 1 JAN 2006 - (3,593) (0.13) Japan Topix 14 MAR 2006-69,421 2.42 Australia dollar currency 5 MAR 2006 - (9,191) (0.32) Japanese yen currency 15 MAR 2006-26,372 0.92 United States dollar currency (24)** MAR 2006-12,285 0.43 Total Futures Contracts - 106,473 3.71 Total Fund Assets $ 2,761,278 $ 2,871,603 100.00% * 10 largest holdings. ** A negative number represents a short position. Market % of Net (EXPOSURE BASIS) Value Assets Australia $ 403,390 14.05 Hong Kong 111,310 3.88 Japan 2,268,913 79.01 Cash and Short-Term Notes 87,990 3.06 Total Fund Assets $ 2,871,603 100.00%
Asset Allocation Fund Fundamental Investment Objective To achieve long-term growth of principal and income through exposure to a balanced combination of stocks, bonds, mortgages and money market instruments. The asset mix will be regularly monitored and reallocated in order to optimize returns. Fundamental Investment Objectives of the Underlying Funds The MB Canadian Equity Fund aims to provide a superior real rate of return, primarily through capital appreciation, by investing in a diversified portfolio of Canadian equities. Security selection will emphasize companies which are considered to be undervalued in relation to their historical price, industry competitors and/or overall market, or have prospects for above average earnings growth. The MB Fixed Income Fund aims to provide a moderate real rate of return, through income and capital gains, by investing in a diversified portfolio of primarily Canadian dollar debt and from time-to-time U.S. debt. The MB Fixed Income Fund will only invest in investment grade debt. Returns in excess of income will be gained through active duration, yield curve and sector management. The MB Global Equity Fund aims to provide a superior real rate of return, primarily through capital appreciation, by investing in a diversified portfolio of non-canadian equities. Security selection will emphasize large companies, which are considered to be undervalued in relation to their historical price, industry competitors and/or the overall market, or have prospects for above average earnings growth. The MB Money Market Fund aims to provide a real rate of return through investing in a diversified portfolio of Canadian dollar debt with a maturity of less than one year. It is expected that the vast majority of the MB Money Market Fund s return will be derived from income. Investor Benefits The Fund is designed for investors who: seek less volatility than in an all-stock portfolio and more growth potential than in an all-bond portfolio seek fairly steady current income and growth potential over time are willing to assume a moderate level of principal risk Management of the Fund and Invested Assets The Fund is managed by The Equitable Life Insurance Company of Canada and currently invests exclusively in a mix of units of pooled funds managed by McLean Budden Limited, where the amount invested in each is determined by McLean Budden Limited. Prior to December 10, 2001, the invested assets of the Fund were managed by The Equitable Life Insurance Company of Canada. Available Products Direction 2000 Plus; Equation Universal Life; Group RRSP/Pension; Life Income Fund; Personal Investment Portfolio; Registered Retirement Income Fund; Pivotal Solutions; Pivotal Solutions Registered Retirement Income Fund; Pivotal Solutions Life Income Fund.
Asset Allocation Fund Fund Performance The performance data shown assumes that all income / realized net gains (losses) are retained by the Fund in the periods shown and are reflected in higher (lower) unit values of the Fund. Included in the following performance data are the Fund s net historical returns which reflect changes in unit values, reinvested distributions and management fees, but do not take into account sales, redemptions or income taxes and exclude any other contractually arranged fees that may be payable or credited that would affect returns. Past performance is not indicative of future results. Unit value, investment returns and yields will fluctuate with the market value of the Fund s assets. Market Performance (underlying funds) The Canadian equities underperformed as a result of weak stock selection and sector allocation. While stock selection within information technology was positive, its influence was more than offset by weak results in materials and energy. An underweight position in the high-flying energy sector was the key factor behind the negative sector allocation. The global equity portion of the underlying fund underperformed as a result of weak stock selection in health care, financials and industrials, which more than offset good selection in energy and information technology. Sector allocation was modestly negative. At year end the underlying fund s asset mix modestly favoured equities, holding approximately 3% more in this asset class while underweighting bonds. Year-by-Year Returns The following bar chart shows the net annual performance of the Fund, for each of the years shown, and illustrates that the Fund s performance has changed from year to year. The bar chart shows, in percentage terms, how much an investment made on January 1 in each year would have increased / decreased by December 31 in that year. 20% 16.3% 15.7% 10% 0% 8.8% 1.3% 1.3% 10.4% 5.9% 8.2% -10% -5.4% -7.6% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 The manager of the invested assets has changed during the reporting period, as noted in the Management of the Fund and Invested Assets section.
Asset Allocation Fund Overall Past Performance The following line graph shows the growth of a hypothetical $10,000 investment in the Fund, as compared to the change in a weighted average mix comprised of 40% Scotia Capital Universe Total Return Index, 55% S&P/TSX Composite Total Return Index and 5% Scotia Capital T-Bill Index. The Scotia Capital Universe Total Return Index, S&P/TSX Composite Total Return Index and Scotia Capital T-Bill Index are widely recognized and used by investment professionals as a benchmark for Canadian bonds, Canadian equities and Canadian short-term investments respectively. The percentages used in the weighted average mix are representative of the objective of this Fund. $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $0 $10,000 $25,426 $16,622 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Asset Allocation Fund 40% Scotia Capital Universe Total Return Index, 55% S&P TSX Composite Total Return Index, 5% Scotia Capital T-Bill Index The manager of the invested assets has changed during the reporting period, as noted in the Management of the Fund and Invested Assets section. Annual Compound Returns The following table shows the historical net annual compound return of the Fund as compared to the benchmark weighted average mix of 40% Scotia Capital Universe Total Return Index, 55% S&P/TSX Composite Total Return Index and 5% Scotia Capital T-Bill Index. 1 Year 3 Year 5 Year 10 Year Asset Allocation Fund 8.2% 8.2% 2.0% 5.2% 40% Scotia Capital Universe Total Return Index, 55% S&P/TSX Composite Total Return Index, 5% Scotia Capital T-Bill Index 15.8% 14.7% 7.2% 9.8%
Asset Allocation Fund STATEMENT OF INVESTMENT PORTFOLIO December 31, 2005 Unit Average Market % of Net Value # of Units Cost Value Assets MB Canadian Equity Fund $ 12.59 1,680,108 $ 17,016,794 $ 21,152,559 36.53 MB Fixed Income Fund 57.03 296,915 16,733,123 16,933,056 29.25 MB Global Equity Fund 13.95 1,146,813 15,362,705 15,998,041 27.63 MB Money Market Fund 10.00 380,966 3,809,657 3,809,657 6.58 Cash 4,475 4,475 0.01 $ 52,926,754 $ 57,897,788 100.00% The Asset Allocation Fund is 100% invested in a mix of the MB Canadian Equity Fund, MB Fixed Income Fund, MB Global Equity Fund and the MB Money Market Fund. The following information is unaudited and is based on information as provided by McLean Budden Limited. It represents the top 5 holdings within each of the underlying funds. % of % Coupon/ $ Par Value/ Average Market Underlying Class Maturity # of Shares Cost Value Fund MB Canadian Equit y Fund Royal Bank of Canada Common 1,497,053 $ 89,929,022 $ 135,947,383 5.37 Bank of Nova Scotia Common 2,508,790 73,926,443 115,755,571 4.57 Manulife Financial Corporation Common 1,600,249 74,988,957 109,248,999 4.31 EnCana Corporation Common 2,051,804 72,483,113 107,842,818 4.26 Canadian National Railway Company Common 990,540 54,310,942 92,258,896 3.64 22.15% MB Fixed Income Fund Government of Canada 5.75 JUN 01 29 240,770,000 $ 283,572,224 $ 301,094,924 9.17 Government of Canada 4.00 SEP 01 10 184,100,000 189,195,763 184,661,505 5.62 Government of Canada 8.00 JUN 01 27 105,915,000 144,929,814 164,548,485 5.01 Government of Canada 4.50 JUN 01 15 144,540,000 150,380,680 150,430,005 4.58 Government of Canada 5.25 JUN 01 12 136,035,000 148,443,419 146,086,626 4.45 28.83% MB Global Equity Fund Citigroup Inc. Common 786,600 $ 40,381,846 $ 44,594,514 2.95 Pfizer Inc. Common 1,315,000 47,054,068 35,823,788 2.37 BP PLC ADR 418,000 24,669,861 31,359,114 2.08 Toyota Motor Corporation ADR 240,000 20,097,921 29,332,100 1.94 Deutsche Bank AG Ordinary 259,000 20,066,723 29,309,355 1.94 11.28% MB Money Market Fund Canadian Treasury Bills 3.18 AUG 10 06 148,200,000 $ 144,098,963 $ 144,098,963 14.34 Canadian Treasury Bills 3.41 OCT 05 06 140,900,000 136,453,115 136,453,115 13.58 HSBC Bank Canada 3.10 JAN 17 06 65,600,000 65,091,600 65,091,600 6.48 Canadian Treasury Bills 3.88 NOV 30 06 66,350,000 63,990,999 63,990,999 6.37 Citibank Canada 3.34 FEB 27 06 48,400,000 47,987,148 47,987,148 4.78 45.55%
Canadian Bond Fund Fundamental Investment Objective To achieve returns through a combination of capital appreciation and interest income through exposure to high-quality Canadian debt securities. Fundamental Investment Objective of the Underlying Fund The MB Fixed Income Fund aims to provide a moderate real rate of return, through income and capital gains, by investing in a diversified portfolio of primarily Canadian dollar debt and from time-to-time U.S. debt. The MB Fixed Income Fund will only invest in investment grade debt. Returns in excess of income will be gained through active duration, yield curve and sector management. Investor Benefits The Fund is designed for investors who: seek current income higher than money market rates and are willing to accept price fluctuations want to balance their equity portfolio with fixed-income investments seek a portfolio of bonds with differing maturities Management of the Fund and Invested Assets The Fund is managed by The Equitable Life Insurance Company of Canada and currently invests exclusively in the MB Fixed Income Fund managed by McLean Budden Limited. Prior to December 10, 2001, the invested assets of the Fund were managed by The Equitable Life Insurance Company of Canada. Available Products Direction 2000 Plus; Equation Universal Life; Group RRSP/Pension; Life Income Fund; Personal Investment Portfolio; Registered Retirement Income Fund; Pivotal Solutions; Pivotal Solutions Registered Retirement Income Fund; Pivotal Solutions Life Income Fund. Fund Performance The performance data shown assumes that all income / realized net gains (losses) are retained by the Fund in the periods shown and are reflected in higher (lower) unit values of the Fund. Included in the following performance data are the Fund s net historical returns which reflect changes in unit values, reinvested distributions and management fees, but do not take into account sales, redemptions or income taxes and exclude any other contractually arranged fees that may be payable or credited that would affect returns. Past performance is not indicative of future results. Unit value, investment returns and yields will fluctuate with the market value of the Fund s assets. Market Performance (underlying fund) The key performance contribution came from term-to-maturity (duration) management as the underlying fund maintained a considerably longer duration than the Index during a period of declining yields for long-term bonds. The higher yields provided by the U.S. pay component also added value. However, the U.S. pay bond position was an offsetting factor as the Canadian dollar rose. The year ended with a continued overweight position in long-term bonds that resulted in a duration that was 0.7 of a year longer than the Index. This is based on the view that low inflation and slowing economic growth will continue in 2006. Relative to the Index, mid-term bonds remained overweight by 8% with a corresponding underweight position in short-term bonds. The U.S. pay position was increased as the Canadian dollar moved higher and ended the quarter at 7% overweight. This stance is based on the expectation the Canadian dollar will move lower against its U.S. counterpart.
Canadian Bond Fund Year-by-Year Returns The following bar chart shows the net annual performance of the Fund, for each of the years shown, and illustrates that the Fund s performance has changed from year to year. The bar chart shows, in percentage terms, how much an investment made on January 1 in each year would have increased / decreased by December 31 in that year. 20% 10% 10.1% 7.7% 7.1% 7.4% 4.8% 5.8% 5.4% 4.2% 4.1% 0% -2.6% -10% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 The manager of the invested assets has changed during the reporting period, as noted in the Management of the Fund and Invested Assets section. Overall Past Performance The following line graph shows the growth of a hypothetical $10,000 investment in the Fund, as compared to the change in the Scotia Capital Universe Total Return Index. The Scotia Capital Universe Total Return Index is widely recognized and used by investment professionals as a benchmark for Canadian bond funds. $25,000 $20,000 $20,944 $15,000 $10,000 $10,000 $16,840 $5,000 $0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Canadian Bond Fund Scotia Capital Universe Total Return Index The manager of the invested assets has changed during the reporting period, as noted in the Management of the Fund and Invested Assets section. Annual Compound Returns The following table shows the historical net annual compound return of the Fund as compared to the benchmark Scotia Capital Universe Total Return Index. 1 Year 3 Year 5 Year 10 Year Canadian Bond Fund 4.1% 4.6% 4.9% 5.4% Scotia Capital Universe Total Return Index 6.5% 6.8% 7.4% 7.7%
Canadian Bond Fund STATEMENT OF INVESTMENT PORTFOLIO December 31, 2005 Unit Average Market % of Net Value # of Units Cost Value Assets MB Fixed Income Fund $ 57.03 689,249 $ 38,913,892 $ 39,307,871 99.94 Cash 22,877 22,877 0.06 $ 38,936,769 $ 39,330,748 100.00% The Canadian Bond Fund is 100% invested in the MB Fixed Income Fund. The following information is unaudited and is based on information as provided by McLean Budden Limited. It represents the top 25 holdings within the underlying fund. Average Market % of % Coupon Maturity $ Par Value Cost Value Fund Government of Canada 5.75 JUN 01 29 240,770,000 $ 283,572,224 $ 301,094,924 9.17 Government of Canada 4.00 SEP 01 10 184,100,000 189,195,763 184,661,505 5.62 Government of Canada 8.00 JUN 01 27 105,915,000 144,929,814 164,548,485 5.01 Government of Canada 4.50 JUN 01 15 144,540,000 150,380,680 150,430,005 4.58 Government of Canada 5.25 JUN 01 12 136,035,000 148,443,419 146,086,626 4.45 Province of Ontario 6.50 MAR 08 29 110,785,000 121,256,197 141,374,954 4.30 Government of Canada 4.25 SEP 01 08 132,925,000 135,207,410 134,143,922 4.08 Province of Quebec 6.00 OCT 01 12 89,760,000 95,592,499 98,848,200 3.01 Province of Ontario 4.50 MAR 08 15 87,990,000 90,446,559 89,614,295 2.73 Province of Ontario 5.38 DEC 02 12 78,955,000 82,520,330 84,799,249 2.58 Province of British Columbia 6.38 AUG 23 10 71,450,000 76,990,022 78,399,942 2.39 Government of Canada 8.00 JUN 01 23 48,620,000 65,712,441 72,295,995 2.20 Province of Ontario 5.00 MAR 08 14 58,805,000 59,945,167 61,951,068 1.89 Royal Bank of Canada 5.45 NOV 04 18 47,570,000 48,203,276 50,735,308 1.54 Province of Quebec 6.00 OCT 01 29 41,180,000 42,013,965 48,633,580 1.48 Province of British Columbia 6.35 JUN 18 31 37,510,000 39,937,415 48,237,485 1.47 Province of Ontario 4.50 FEB 03 15 40,975,000 47,170,172 46,823,030 1.43 European Investment Bank 4.63 MAY 15 14 39,220,000 47,423,062 46,151,855 1.41 Toronto Dominion Bank 4.54 SEP 05 13 41,772,000 42,151,585 42,204,340 1.28 Bank of Nova Scotia 3.47 SEP 02 08 42,685,000 42,680,732 42,003,747 1.28 Bank of Montreal 4.55 AUG 01 17 40,445,000 40,440,956 40,542,472 1.23 Province of Manitoba 5.85 JAN 25 11 34,570,000 35,426,712 37,352,885 1.14 Province of Manitoba 7.50 FEB 22 10 28,435,000 37,408,239 36,524,584 1.11 Canada Housing Trust 3.75 MAR 15 10 36,835,000 36,419,870 36,430,736 1.11 Province of Quebec 4.60 MAY 26 15 30,385,000 34,699,298 34,562,366 1.05 67.54%
Canadian Stock Fund Fundamental Investment Objective To achieve long-term capital appreciation through exposure to a diversified portfolio of Canadian and foreign equities. Fundamental Investment Objective of the Underlying Fund The MB Canadian Equity Plus Fund aims to provide a superior real rate of return, primarily through capital appreciation, by investing in a diversified portfolio of Canadian and foreign equities. Typically, at least 75% of the Canadian equity portion of the MB Canadian Equity Plus Fund will be invested in the largest one hundred stocks traded on the Toronto Stock Exchange as measured by available public float. Foreign equity selection will generally be companies that are leaders in their respective industries. Investor Benefits The Fund is designed for investors who: want Canadian and some foreign equity investments are willing to accept share-price volatility and foreign currency risk seek capital growth and income over time (at least 5 years) Management of the Fund and Invested Assets The Fund is managed by The Equitable Life Insurance Company of Canada and currently invests exclusively in the MB Canadian Equity Plus Fund managed by McLean Budden Limited. From May 1, 1997 to October 31, 1998, the invested assets of the Fund were managed by Guardian Capital Inc. Prior to May 1, 1997, the invested assets of the Fund were managed by Phillips, Hager & North Investment Management Ltd. Available Products Direction 2000 Plus; Equation Universal Life; Group RRSP/Pension; Life Income Fund; Personal Investment Portfolio; Registered Retirement Income Fund; Pivotal Solutions; Pivotal Solutions Registered Retirement Income Fund; Pivotal Solutions Life Income Fund. Fund Performance The performance data shown assumes that all income / realized net gains (losses) are retained by the Fund in the periods shown and are reflected in higher (lower) unit values of the Fund. Included in the following performance data are the Fund s net historical returns which reflect changes in unit values, reinvested distributions and management fees, but do not take into account sales, redemptions or income taxes and exclude any other contractually arranged fees that may be payable or credited that would affect returns. Past performance is not indicative of future results. Unit value, investment returns and yields will fluctuate with the market value of the Fund s assets. Market Performance (underlying fund) The Canadian equity portion of the underlying fund underperformed as a result of weak stock selection and sector allocation. While stock selection within information technology was positive, its influence was more than offset by weak results in materials and energy. An underweight position in the high-flying energy sector was the key factor behind the negative sector allocation. The global equity portion of the underlying fund underperformed as a result of weak stock selection in health care, financials and industrials, which more than offset good selection in energy and information technology. Sector allocation was modestly negative. At year end, the underlying fund is overweight information technology and industrials based on the expectation of increased capital spending by corporations. The most significant underweight is focused on the energy sector.
Canadian Stock Fund Year-by-Year Returns The following bar chart shows the net annual performance of the Fund, for each of the years shown, and illustrates that the Fund s performance has changed from year to year. The bar chart shows, in percentage terms, how much an investment made on January 1 in each year would have increased / decreased by December 31 in that year. 40% 30% 20% 10% 27.1% 11.6% 23.2% 15.7% 18.3% 14.2% 8.1% 0% -10% -20% -0.5% -11.3% -12.4% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 The manager of the invested assets has changed during the reporting period, as noted in the Management of the Fund and Invested Assets section. Overall Past Performance The following line graph shows the growth of a hypothetical $10,000 investment in the Fund, as compared to the change in the S&P/TSX Composite Total Return Index. The S&P/TSX Composite Total Return Index is widely recognized and used by investment professionals as a benchmark for Canadian equity funds. $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $0 $10,000 $28,324 $22,818 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Canadian Stock Fund S&P/TSX Composite Total Return Index The manager of the invested assets has changed during the reporting period, as noted in the Management of the Fund and Invested Assets section. Annual Compound Returns The following table shows the historical net annual compound return of the Fund as compared to the benchmark S&P/TSX Composite Total Return Index. 1 Year 3 Year 5 Year 10 Year Canadian Stock Fund 14.2% 13.4% 4.9% 8.6% S&P/TSX Composite Total Return Index 24.1% 21.7% 6.6% 11.0%