Portfolio Series Portfolio Review Second Quarter 2010

Transcription

1 Portfolio Series Portfolio Review Second Quarter 2010

2 We are pleased to introduce Portfolio Review, a new quarterly report on Portfolio Series. 3 Portfolio Series Income Fund 7 Portfolio Series Conservative Fund 11 Portfolio Series Conservative Balanced Fund 15 Portfolio Series Balanced Fund 19 Portfolio Series Balanced Growth Fund Portfolio Review provides an enhanced level of detail on the holdings and activity in the Portfolio Series funds. A separate report is available for each of the seven Portfolios. The information provided in Portfolio Review includes: Underlying fund allocations Top 10 holdings by individual security Performance Allocations by sector, region, asset class and market cap, and their change over the prior quarter. In addition, each report includes detailed commentary explaining the fund s performance for the quarter. The commentary is provided by CI Investment Consulting, CI s in-house team of investment analysts responsible for managing and monitoring the Portfolio Series program. We hope you find Portfolio Review to be useful and informative. 23 Portfolio Series Growth Fund 27 Portfolio Series Maximum Growth Fund 2

3 Portfolio Series Income Fund Portfolio Managers Economic Overview After a string of solid gains, the world s stock markets paused during the second quarter of 2010 as global events took their toll on investor optimism. Worries that the Greek debt crisis would spill over to Portugal, Ireland, Italy and Spain set the stage for a re-emergence of selling pressures in every major equity market. Fears that the contagion would spread outside Europe provided the basis for increased investor anxiety. Amid the turmoil, Canada was the first of the G7 nations to fully emerge from recession and raise interest rates, as widening gaps appeared in the economic performances of the major economies. (In June, the Bank of Canada raised the overnight rate by 25 basis points.) While some positive earnings appeared, evidence of a still-struggling U.S. economy overshadowed corporate announcements. The unemployment rate at the end of the second quarter fell to 9.5%, reflecting the fact that many Americans gave up on their job searches. There was continued softness in U.S. consumer spending in the first quarter, after recording a 5.6% pace in the previous quarter. The Federal Reserve left interest rates unchanged and continued to state that they would remain low for an extended period. All of the main stock markets, with the exception of Canada, recorded a technical correction (a decline of 10% from the recent market peak) during the quarter. Despite avoiding a technical correction, the Canadian market reversed course during the second quarter and the S&P/TSX Composite Index gave up 5.5%. A retrenchment in consumer spending in April left GDP growth flat for the month and ended a seven-month string of growth in the economy. However, there were continued signs of underlying strength. Statistics Canada reported that nearly all of the jobs lost to the recession had been recovered. Underlying Fund Allocations Signature High Income Fund 26.5% Signature Canadian Bond Fund 20.2% Signature Corporate Bond Fund 15.8% CI Global Bond Fund 13.7% Signature Income & Growth Fund 10.1% CI Global High Dividend Advantage Fund 8.7% Signature Dividend Fund 5.1% Bond Information Portfolio yield (approx.) 5.3% Duration in years 4.6 Current asset mix Cash 5.7% Government and investment-grade corporate bonds 40.3% High-yield bonds 21.6% REITs, trusts & equities 32.5% Top Ten Holdings CIBC TD 0.45% 05Jul % France (Government of) 5% 25Oct % ABN Amro Bank TD 0.5% 02Jul % Brazil (Fed. Rep. of) 10% 01Jan % Royal Bank TD 0.45% 02Jul % BCE Inc. 0.9% France (Government of) 4.25% 25Apr % Canada Government 3.75% 01Jun % Teck Resources 10.75% 15May % Inter Pipeline Fund 0.7% 3

4 Portfolio Series Income Fund Portfolio Performance (Class A units) 1 Month 3 Months 6 Months 1 Year 3 Years 5 Years 10 Years Since Inception (December 1997) 0.9% -0.4% 0.9% 9.6% 1.9% 3.1% 4.8% 4.6% Asset Allocation Overview and Activity Different types of investments will respond differently to the markets, reinforcing the importance of a multi-level diversification strategy. A balanced asset mix ensures that investors are not dependent on any one asset class or security type to provide returns. This report is designed to provide you with an up-to-date portfolio overview of the Portfolio Series Income Fund, including the allocations across asset class, geographic region, equity sector and market capitalization. The arrows indicate whether the allocation for each category has increased or decreased since the previous quarter-end. Asset Class Geographic Regions 31.0% Foreign bond 29.1% Canadian bond 16.3% Canadian equity 8.4% U.S. equity 6.7% Cash 6.2% European equity 1.8% Asian equity 0.5% Emerging markets equity 45.3% Canada 25.4% U.S. 11.1% Other 6.0% Emerging markets 3.6% U.K. 3.4% France 2.6% Australia 0.9% Spain 0.9% Switzerland 0.7% Italy Equity Market Cap Equity Industry Sector 62.2% Large cap 26.4% Mid cap 11.4% Small cap 29.8% Financial services 17.4% Energy 11.9% Telecommunications 9.5% Utilities 9.5% Industrials 6.9% Consumer staples 4.7% Health care 4.2% Consumer discretionary 3.2% Information technology 2.9% Materials 4

5 Portfolio Series Income Fund Portfolio Commentary The Income portfolio generated a return of 0.4% for the second quarter of 2010, slightly underperforming the blended benchmark (75% DEX Universe Bond Index, 15% S&P/TSX Index, 10% MSCI World Index, C$), which returned 0.5%. Investor concerns over a slowdown in global growth and the possibility of a double-dip recession resulted in a dramatic shift away from equities to the safety of government bonds. As a result, global bonds in general made a positive contribution for the period, while exposure to global equities and income trusts was a drag on fund performance. The specific funds adding the most to overall portfolio performance were CI Global Bond Fund and Signature Canadian Bond Fund, while CI Global High Dividend Advantage Fund and Signature Income & Growth Fund detracted the most. Overall, the portion of the fund allocated to incomeproducing investments contributed 0.9% to portfolio performance for the quarter. CI Global Bond found strength in foreign currencies and government debt, making it the largest contributor in the income category. High-yield bonds emerged as one of the stronger performing asset classes for the quarter, and Signature Global Advisors believes they will continue to perform well in an environment of slow economic growth and falling defaults. Nonetheless, Signature High Income Fund detracted the most from the income category due to its exposure to equities and income trusts, which sold off for the period. Although REITs, income trusts and other high-yielding equities declined with broader indexes for the quarter, Signature does not expect this to be the start of a downtrend in these markets. Inflation is likely to stay low for the near term, allowing central banks the freedom to keep interest rates low, and keeping investor demand for these securities high. The Bank of Canada raised interest rates one-quarter of a percentage point in June, and though global interest rates remained at historical lows, the likelihood of other central banks following suit remained high. In a rising interest rate environment, bonds with longer durations will be hurt the most. The portfolio s interest rate risk is moderated by its exposure to corporate bonds with shorter durations and higher yields, as well as by alternative sources of income such as high-yielding equities that have lower sensitivity to interest rate movements. Signature is positioning the Canadian bond portion of the fund for a flatter yield curve, and continues to see value in corporate bonds. A large portion of the income portfolio s foreign currency exposure is strategically hedged back into the Canadian dollar, therefore significantly dampening the volatility from currency movements. Equities account for 30% of the portfolio, and with equities in many major markets experiencing a technical correction during the quarter (a decline of 10% from the most recent peak), the portfolio s equity holdings had a -1.3% impact on the portfolio s overall returns. There were few changes to the overall sector or asset allocation of the portfolio s equity component during the quarter. Global equity markets recorded weak returns in the second quarter following positive performance in the January-March period. The macroeconomic headwinds of a struggling U.S. economy, European sovereign debt issues and an overheating Chinese economy overwhelmed positive corporate operating results. In particular, cyclical and interest rate sensitive sectors fell sharply, with energy, financials and materials all recording weak returns. The energy sector was also impacted by the oil spill in the Gulf of Mexico. By contrast, more defensive sectors such as telecommunications, utilities and consumer staples had better relative performance. CI Global High Dividend Advantage Fund outperformed its MSCI World Index benchmark, but nonetheless was 5

6 Portfolio Series Income Fund the largest detractor from absolute performance for the period due to its global equity exposure. Signature Dividend Fund also posted negative results for the period. While the fund s preferred shares made small gains, its financial holdings were negatively impacted by sovereign debt issues, the uncertainty surrounding U.S. financial reform measures and the overall downdraft in global equity markets. Alfred Lam, CFA, Vice-President and Portfolio Manager Yoonjai Shin, CFA, Director Neelam Mistry, Analyst Lewis Harkes, CFA, Analyst Tony Mallozzi, Manager, Investment Services 6

7 Portfolio Series Conservative Fund Portfolio Managers Economic Overview After a string of solid gains, the world s stock markets paused during the second quarter of 2010 as global events took their toll on investor optimism. Worries that the Greek debt crisis would spill over to Portugal, Ireland, Italy and Spain set the stage for a re-emergence of selling pressures in every major equity market. Fears that the contagion would spread outside Europe provided the basis for increased investor anxiety. Amid the turmoil, Canada was the first of the G7 nations to fully emerge from recession and raise interest rates, as widening gaps appeared in the economic performances of the major economies. (In June, the Bank of Canada raised the overnight rate by 25 basis points.) While some positive earnings appeared, evidence of a still-struggling U.S. economy overshadowed corporate announcements. The unemployment rate at the end of the second quarter fell to 9.5%, reflecting the fact that many Americans gave up on their job searches. There was continued softness in U.S. consumer spending in the first quarter, after recording a 5.6% pace in the previous quarter. The Federal Reserve left interest rates unchanged and continued to state that they would remain low for an extended period. All of the main stock markets, with the exception of Canada, recorded a technical correction (a decline of 10% from the recent market peak) during the quarter. Despite avoiding a technical correction, the Canadian market reversed course during the second quarter and the S&P/TSX Composite Index gave up 5.5%. A retrenchment in consumer spending in April left GDP growth flat for the month and ended a seven-month string of growth in the economy. However, there were continued signs of underlying strength. Statistics Canada reported that nearly all of the jobs lost to the recession had been recovered. Underlying Fund Allocations Signature Canadian Bond Fund 24.4% Signature High Income Fund 18.9% Signature Corporate Bond Fund 12.6% Signature Select Canadian Corporate Class 6.0% Synergy Canadian Corporate Class 6.0% CI Canadian Investment Corporate Class 5.9% CI Global Bond Fund 5.9% CI International Value Corporate Class 4.7% CI American Value Corporate Class 4.6% CI American Small Companies Corporate Class 2.9% CI American Equity Corporate Class 2.8% Synergy American Corporate Class 2.7% CI International Corporate Class 2.6% Top Ten Holdings CIBC TD 0.45% 05Jul % ABN Amro Bank TD 0.5% 02Jul % Canada Government 3.75% 01Jun % Toronto-Dominion Bank 0.8% Canada Government 2.5% 01Jun % Canada Government 5.75% 01Jun % BCE Inc. 0.6% Royal Bank of Canada 0.6% Barrick Gold Corporation 0.5% Teck Resources 10.75% 15May19 0.5% 7

8 Portfolio Series Conservative Fund Portfolio Performance (Class A units) 1 Month 3 Months 6 Months 1 Year 3 Years 5 Years 10 Years Since Inception (December 1997) -0.5% -2.7% -1.1% 7.4% -1.4% 2.1% 3.8% 4.3% Asset Allocation Overview and Activity Different types of investments will respond differently to the markets, reinforcing the importance of a multi-level diversification strategy. A balanced asset mix ensures that investors are not dependent on any one asset class or security type to provide returns. This report is designed to provide you with an up-to-date portfolio overview of the Portfolio Series Conservative Fund, including the allocations across asset class, geographic region, equity sector and market capitalization. The arrows indicate whether the allocation for each category has increased or decreased since the previous quarter-end. Asset Class Geographic Regions 27.1% Canadian bond 19.0% Foreign bond 18.7% Canadian equity 16.8% U.S. equity 7.2% European equity 6.1% Cash 3.7% Asian equity 1.4% Emerging markets equity 45.9% 27.7% 10.4% 2.8% 2.2% 2.2% 1.6% 1.2% 1.0% 0.7% Canada U.S. Other Emerging markets U.K. Japan France Australia Switzerland Ireland Equity Market Cap Equity Industry Sector 71.7% Large cap 23.8% Mid cap 4.4% Small cap 24.5% Financial services 16.7% Energy 11.4% Industrials 10.9% Information technology 8.1% Materials 7.8% Consumer discretionary 6.5% Health care 5.8% Consumer staples 4.5% Telecommunications 3.8% Utilities 8

9 Portfolio Series Conservative Fund Portfolio Commentary Portfolio Series Conservative Fund generated a loss of 2.7% for the second quarter of 2010, underperforming its blended benchmark (60% DEX Universe Bond Index, 20% S&P/TSX Composite Index, 20% MSCI World Index C$), which returned 1.0%. In a period where global equities traded broadly lower, the portfolio s equity funds as a group detracted from overall performance. Although the Canadian equity market as measured by the S&P/TSX Index outperformed most other global bourses, the portfolio s Canadian equity funds detracted the most from performance due, in part, to their larger allocation to U.S. and international stocks. Signature Canadian Bond Fund made the greatest contribution to returns, as the flight-to-safety trade, led by fears of a slowdown in the global economy or potentially a double-dip recession, contributed to positive performance from bonds in general. The portfolio s income component added 1.0% of performance during the quarter. Signature Canadian Bond Fund s relatively large allocation and strong performance accounted for a large part of this gain. The fund benefited from overweight exposure to long-term bonds as well as positive security selection. High-yield bonds emerged as the one of the stronger performing asset classes for the quarter, and Signature Global Advisors believes they will continue to perform well in an environment of slow economic growth and falling defaults. Nonetheless, Signature High Income Fund detracted the most from the income category due to its exposure to equities and income trusts, which sold off for the period. Although REITs, income trusts and other high-yielding equities declined with broader indexes for the quarter, Signature does not expect this to be the start of a downtrend in these markets. Inflation is likely to stay low for the near term, allowing central banks the freedom to keep interest rates low, and keeping investor demand for these securities high. The Bank of Canada raised interest rates one-quarter of a percentage point in June, and though global interest rates remained at historical lows, the likelihood of other central banks following suit remained high. In a rising interest rate environment, bonds with longer durations will be hurt the most. The portfolio s interest rate risk is moderated by its exposure to corporate bonds with shorter durations and higher yields, as well as by alternative sources of income such as high-yielding equities that have lower sensitivity to interest rate movements. Signature is positioning the Canadian bond portion of the fund for a flatter yield curve, and continues to see value in corporate bonds. A large portion of the income portfolio s foreign currency exposure is strategically hedged back into the Canadian dollar, therefore significantly dampening the volatility from currency movements. Equities account for 45% of the portfolio, and with equities in many major markets experiencing a technical correction during the quarter (a decline of 10% from the most recent peak), the portfolio s equity holdings had a 3.6% impact on the portfolio s overall returns. There were few changes to the overall sector or asset allocation of the portfolio s equity component during the quarter. Global equity markets recorded weak returns in the second quarter following positive performance in the January-March period. The macroeconomic headwinds of a struggling U.S. economy, European sovereign debt issues and an overheating Chinese economy overwhelmed positive corporate operating results. In particular, cyclical and interest rate sensitive sectors fell sharply, with energy, financials and materials all recording weak returns. The energy sector was also impacted by the oil spill in the Gulf of Mexico. By contrast, more defensive sectors such as telecommunications, utilities and consumer staples had better relative performance. 9

10 Portfolio Series Conservative Fund CI American Small Companies Fund posted the smallest loss among the portfolio s equity funds during the period, as small-capitalizaiton stocks outperformed their large-cap counterparts. Synergy Canadian Corporate Class, however, detracted the most from the portfolio s equity component, mainly due to weak security selection in the energy and materials sectors. Overall, Portfolio Series Conservative Fund carries an underweight position in financials relative to the benchmark, due to the sector s sensitivity to interest rates. This underweight allocation to the sector added slightly to performance on a relative basis. Despite being underweight, financials are the largest sector allocation in the portfolio and detracted from absolute performance. The portfolio also has overweight positions in industrials and information technology, as these areas typically benefit from increased capital expenditure programs during an economic recovery. Alfred Lam, CFA, Vice-President and Portfolio Manager Yoonjai Shin, CFA, Director Neelam Mistry, Analyst Lewis Harkes, CFA, Analyst Tony Mallozzi, Manager, Investment Services 10

11 Portfolio Series Conservative Balanced Fund Portfolio Managers Economic Overview After a string of solid gains, the world s stock markets paused during the second quarter of 2010 as global events took their toll on investor optimism. Worries that the Greek debt crisis would spill over to Portugal, Ireland, Italy and Spain set the stage for a re-emergence of selling pressures in every major equity market. Fears that the contagion would spread outside Europe provided the basis for increased investor anxiety. Amid the turmoil, Canada was the first of the G7 nations to fully emerge from recession and raise interest rates, as widening gaps appeared in the economic performances of the major economies. (In June, the Bank of Canada raised the overnight rate by 25 basis points.) While some positive earnings appeared, evidence of a still-struggling U.S. economy overshadowed corporate announcements. The unemployment rate at the end of the second quarter fell to 9.5%, reflecting the fact that many Americans gave up on their job searches. There was continued softness in U.S. consumer spending in the first quarter, after recording a 5.6% pace in the previous quarter. The Federal Reserve left interest rates unchanged and continued to state that they would remain low for an extended period. All of the main stock markets, with the exception of Canada, recorded a technical correction (a decline of 10% from the recent market peak) during the quarter. Despite avoiding a technical correction, the Canadian market reversed course during the second quarter and the S&P/TSX Composite Index gave up 5.5%. A retrenchment in consumer spending in April left GDP growth flat for the month and ended a seven-month string of growth in the economy. However, there were continued signs of underlying strength. Statistics Canada reported that nearly all of the jobs lost to the recession had been recovered. Underlying Fund Allocations Signature Canadian Bond Fund 21.1% Signature High Income Fund 15.9% Signature Corporate Bond Fund 10.7% CI Canadian Investment Corporate Class 7.1% Signature Select Canadian Corporate Class 5.9% CI International Value Corporate Class 5.5% CI Global Bond Fund 5.0% CI International Corporate Class 4.4% Synergy Canadian Corporate Class 4.0% Harbour Corporate Class 3.9% CI American Small Companies Corporate Class 3.8% CI American Managers Corporate Class 3.7% CI American Value Corporate Class 3.7% Synergy American Corporate Class 2.8% CI American Equity Corporate Class 2.7% Top Ten Holdings CIBC TD 0.45% 05Jul % ABN Amro Bank TD 0.5% 02Jul % Toronto-Dominion Bank 0.9% Suncor Energy Inc. 0.8% Canada Government 3.75% 01Jun % Barrick Gold Corporation 0.6% Royal Bank of Canada 0.6% Canada Government 2.5% 01Jun % Canada Government 5.75% 01Jun % Canadian National Railway Company 0.5% 11

12 Portfolio Series Conservative Balanced Fund Portfolio Performance (Class A units) 1 Month 3 Months 6 Months 1 Year 3 Years 5 Years 10 Years Since Inception (December 2001) -0.9% -3.5% -2.1% 6.7% -2.7% 1.5% n/a 3.2% Asset Allocation Overview and Activity Different types of investments will respond differently to the markets, reinforcing the importance of a multi-level diversification strategy. A balanced asset mix ensures that investors are not dependent on any one asset class or security type to provide returns. This report is designed to provide you with an up-to-date portfolio overview of the Portfolio Series Conservative Balanced Fund, including the allocations across asset class, geographic region, equity sector and market capitalization. The arrows indicate whether the allocation for each category has increased or decreased since the previous quarter-end. Asset Class Geographic Regions 23.0% Canadian bond 42.2% Canada 20.5% U.S. equity 29.6% U.S. 19.1% Canadian equity 10.8% Other 16.0% Foreign bond 5.4% Emerging markets 8.7% European equity 3.2% U.K. 6.6% Cash 2.7% Japan 4.2% Asian equity 2.1% France 1.9% Emerging markets equity 1.6% Australia 1.4% Switzerland 1.1% Ireland Equity Market Cap Equity Industry Sector 74.2% Large cap 23.3% Financial services 22.0% Mid cap 15.8% Energy 3.7% Small cap 11.6% Information technology 11.4% Industrials 8.6% Materials 8.5% Consumer discretionary 7.1% Health care 6.6% Consumer staples 3.8% Telecommunications 3.3% Utilities 12

13 Portfolio Series Conservative Balanced Fund Portfolio Commentary Portfolio Series Conservative Balanced Fund posted a loss of 3.5% for the second quarter of 2010, underperforming its blended benchmark (50% DEX Universe Bond Index, 25% S&P/TSX Composite Index, 25% MSCI World Index C$), which lost 2.0%. During the period, investors became concerned about a number of macroeconomic factors, including a slowdown in the global economy or potential for a double-dip recession. This led to a flight to safety that benefited bond markets in general at the expense of global equity markets. As a result, the fund s bond positions added the most to absolute performance, while allocations to Canadian and U.S. equities had the strongest negative impact. Signature Canadian Bond Fund was the single holding with the greatest contribution to overall returns, while CI International Value Corporate Class detracted the most. Income-type securities comprise about 45% of the portfolio, and returned 0.8% for the quarter. Signature Canadian Bond Fund s strong performance and relatively large allocation within this portion of the fund boosted its positive contribution. The fund benefited from its overweight position in long-term bonds relative to its benchmark, as well as positive security selection. The portfolio s government bond positions added the most value. High-yield bonds emerged as one of the stronger performing asset classes for the quarter, and Signature Global Advisors believes they will continue to perform well in an environment of slow economic growth and falling defaults. Nonetheless, Signature High Income Fund detracted the most from the income category due to its exposure to equities and income trusts, which sold off for the period. Although REITs, income trusts and other high-yielding equities declined with broader indexes for the quarter, Signature does not expect this to be the start of a downtrend in these markets. Inflation is likely to stay low for the near term, allowing central banks the freedom to keep interest rates low, and keeping investor demand for these securities high. The Bank of Canada raised interest rates one-quarter of a percentage point in June, and though global interest rates remained at historical lows, the likelihood of other central banks following suit remained high. In a rising interest rate environment, bonds with longer durations will be hurt the most. The portfolio s interest rate risk is moderated by its exposure to corporate bonds with shorter durations and higher yields, as well as by alternative sources of income such as high-yielding equities that have lower sensitivity to interest rate movements. Signature is positioning the Canadian bond portion of the fund for a flatter yield curve, and continues to see value in corporate bonds. A large portion of the income portfolio s foreign currency exposure is strategically hedged back into the Canadian dollar, therefore significantly dampening the volatility from currency movements. The equity component of the fund, which makes up 55% of the overall portfolio, generated 4.3% of performance during the second quarter. There were few changes to the overall sector or asset allocation of the portfolio s equity component during the quarter. Global equity markets recorded weak returns in the second quarter following positive performance in the January-March period. The macroeconomic headwinds of a struggling U.S. economy, European sovereign debt issues and an overheating Chinese economy overwhelmed positive corporate operating results. In particular, cyclical and interest rate sensitive sectors fell sharply, with energy, financials and materials all recording weak returns. The energy sector was also impacted by the oil spill in the Gulf of Mexico. By contrast, more defensive sectors such as telecommunications, utilities 13

14 Portfolio Series Conservative Balanced Fund and consumer staples had better relative performance. Canadian equities as a group had an average return of -7.1%. This group outperformed both U.S. and international equities due to strength in the consumer discretionary, telecommunication and materials sectors. CI American Small Companies Fund posted the smallest loss among the portfolio s equity funds during the period, as small-cap stocks outperformed their large-cap counterparts. The broad-based weakness in international equity markets was the main reason why CI International Value Corporate Class detracted the most from the portfolio s performance. Nonetheless, good country and currency decisions such as overweighting German stocks and the yen helped this fund outperform its benchmark (MSCI EAFE Index C$). Overall, Portfolio Series Conservative Balanced Fund carries an underweight position in financials relative to the benchmark, due to the sector s sensitivity to interest rates. This underweight allocation to the sector added slightly to performance on a relative basis. Despite being underweight, financials are the largest sector allocation in the portfolio and detracted from absolute performance. The portfolio also has overweight positions in industrials and information technology, as these areas typically benefit from increased capital expenditure programs during an economic recovery. Alfred Lam, CFA, Vice-President and Portfolio Manager Yoonjai Shin, CFA, Director Neelam Mistry, Analyst Lewis Harkes, CFA, Analyst Tony Mallozzi, Manager, Investment Services 14

15 Portfolio Series Balanced Fund Portfolio Managers Economic Overview After a string of solid gains, the world s stock markets paused during the second quarter of 2010 as global events took their toll on investor optimism. Worries that the Greek debt crisis would spill over to Portugal, Ireland, Italy and Spain set the stage for a re-emergence of selling pressures in every major equity market. Fears that the contagion would spread outside Europe provided the basis for increased investor anxiety. Amid the turmoil, Canada was the first of the G7 nations to fully emerge from recession and raise interest rates, as widening gaps appeared in the economic performances of the major economies. (In June, the Bank of Canada raised the overnight rate by 25 basis points.) While some positive earnings appeared, evidence of a still-struggling U.S. economy overshadowed corporate announcements. The unemployment rate at the end of the second quarter fell to 9.5%, reflecting the fact that many Americans gave up on their job searches. There was continued softness in U.S. consumer spending in the first quarter, after recording a 5.6% pace in the previous quarter. The Federal Reserve left interest rates unchanged and continued to state that they would remain low for an extended period. All of the main stock markets, with the exception of Canada, recorded a technical correction (a decline of 10% from the recent market peak) during the quarter. Despite avoiding a technical correction, the Canadian market reversed course during the second quarter and the S&P/TSX Composite Index gave up 5.5%. A retrenchment in consumer spending in April left GDP growth flat for the month and ended a seven-month string of growth in the economy. However, there were continued signs of underlying strength. Statistics Canada reported that nearly all of the jobs lost to the recession had been recovered. Underlying Fund Allocations Signature Canadian Bond Fund 16.2% Signature High Income Fund 12.6% CI Canadian Investment Corporate Class 9.1% Signature Corporate Bond Fund 8.7% Signature Select Canadian Corporate Class 8.0% CI International Value Corporate Class 6.4% CI International Corporate Class 5.3% Synergy Canadian Corporate Class 5.1% CI American Value Corporate Class 4.6% CI Global Bond Fund 4.1% Harbour Corporate Class 4.0% CI American Small Companies Corporate Class 3.7% CI American Managers Corporate Class 3.7% CI American Equity Corporate Class 3.6% Synergy American Corporate Class 3.4% CI Emerging Markets Corporate Class 1.5% Top Ten Holdings Toronto-Dominion Bank 1.2% CIBC TD 0.45% 05Jul % Suncor Energy Inc. 0.9% ABN Amro Bank TD 0.5% 02Jul % Barrick Gold Corporation 0.8% Royal Bank of Canada 0.7% Microsoft Corporation 0.6% Canadian National Railway Company 0.6% Talisman Energy Inc. 0.6% BCE Inc. 0.5% 15

16 Portfolio Series Balanced Fund Portfolio Performance (Class A units) 1 Month 3 Months 6 Months 1 Year 3 Years 5 Years 10 Years Since Inception (November 1988) -1.3% -4.6% -3.2% 5.9% -4.1% 1.5% 2.5% 6.6% Asset Allocation Overview and Activity Different types of investments will respond differently to the markets, reinforcing the importance of a multi-level diversification strategy. A balanced asset mix ensures that investors are not dependent on any one asset class or security type to provide returns. This report is designed to provide you with an up-to-date portfolio overview of the Portfolio Series Balanced Fund, including the allocations across asset class, geographic region, equity sector and market capitalization. The arrows indicate whether the allocation for each category has increased or decreased since the previous quarter-end. Asset Class Geographic Regions 23.5% 21.5% 17.8% 12.6% 10.1% 6.2% 4.8% 3.5% U.S. equity Canadian equity Canadian bond Foreign bond European equity Cash Asian equity Emerging markets equity 39.3% 30.8% 10.5% 6.8% 3.4% 3.2% 2.0% 1.6% 1.4% 1.1% Canada U.S. Other Emerging markets U.K. Japan France Switzerland Australia Ireland Equity Market Cap Equity Industry Sector 76.9% 20.0% 3.2% Large cap Mid cap Small cap 23.1% 15.7% 12.1% 11.1% 9.0% 8.7% 7.1% 6.8% 3.5% 2.9% Financial services Energy Information technology Industrials Materials Consumer discretionary Health care Consumer staples Telecommunications Utilities 16

17 Portfolio Series Balanced Fund Portfolio Commentary Portfolio Series Balanced Fund recorded a loss of 4.6% for the quarter, underperforming the benchmark s loss of 3.1% (The benchmark is 40% DEX Universal Bond Index, 25% S&P/TSX Composite Index, 35% MSCI World Index C$). From a sector perspective, the portfolio s Canadian and U.S. equity exposures were the biggest drag on returns, while bonds in general posted better relative performance in a period when investors reduced risk due to fears of a renewed global economic slowdown. CI Canadian Investment Corporate Class was the largest detractor to performance, while Signature Canadian Bond Fund made the greatest contribution to overall returns. The portfolio s income component earned 0.5% during the period, with Signature Canadian Bond Fund adding the most significant contribution due to its large allocation and strong performance. Specifically, this fund benefited from exposure to long-term bonds, as well as positive security selection. Government bonds performed particularly well during the quarter, benefiting as investors fled equities for less risky investments. Signature Global Advisors anticipates the Bank of Canada will raise rates further this summer to be followed by the U.S. Federal Reserve later in the year. They are positioning the fund for a flatter yield curve, and continue to see value in corporate bonds. High-yield bonds emerged as one of the stronger performing asset classes for the quarter, and Signature believes they will continue to perform well in an environment of slow economic growth and falling defaults. Nonetheless, Signature High Income Fund detracted the most from the income category due to its exposure to equities and income trusts, which sold off for the period. A large portion of the income portfolio s foreign currency exposure is strategically hedged back into the Canadian dollar, therefore significantly dampening the volatility from currency movements. All of the main stock markets, with the exception of Canada, recorded a technical correction (a decline of 10% from the recent market peak) during the quarter. Despite this relatively strong result, the Canadian market reversed course during the second quarter and the S&P/TSX Composite Index gave up 5.5%. Canadian equities within the portfolio outperformed both U.S. and international equities due to strength in the consumer discretionary, telecommunication and materials sectors, posting an average return of -7.2%. The portfolio s equity funds combined to modestly underperform the equity benchmark, producing a -5.1% contribution to overall performance. On aggregate, the overweight position in foreign equities among the Canadian funds was a drag on returns, as was an overweight position in information technology and an underweight allocation to materials relative to the benchmark. CI Emerging Markets Corporate Class posted the best performance among the equity funds in the portfolio, benefiting from relative strength in emerging Asian countries like China, India and South Korea. The equity fund detracting the most from performance was CI Canadian Investment Corporate Class, due to its large allocation among equity funds, and its exposure to the weaker financials and energy sectors. The portfolio is underweight financials relative to the benchmark due to the sector s sensitivity to interest rates, and overweight industrials and information technology as these areas typically benefit the most during an economic recovery. Despite the underweight position in financials, this sector still had the largest allocation and detracted from absolute performance, although being underweight the sector added slightly on a relative basis. 17

18 Portfolio Series Balanced Fund All of the Canadian equity funds posted negative performance for the quarter. Harbour Corporate Class had the smallest loss for the group, benefiting from positive stock selection in the consumer staples sector and an overweight cash position. As a group, the Canadian equity funds had underweight positions in resources and financials and overweight positons in the information technology and industrials sectors relative to the S&P/TSX Composite Index. The portfolio s U.S. equity funds also combined for a loss during the quarter. CI American Small Companies Fund detracted the least, as small-cap stocks outperformed their large-cap counterparts for the period. As a group, the U.S. equity funds in the portfolio are underweight consumer staples stocks and overweight information technology relative to the S&P 500 Index. Despite posting negative performance as a group, the international equity funds in the portfolio outperformed their benchmark. The international equity portion of the portfolio is overweight information technology, energy and consumer staples relative to the MSCI EAFE Index, and underweight financials. Alfred Lam, CFA, Vice-President and Portfolio Manager Yoonjai Shin, CFA, Director Neelam Mistry, Analyst Lewis Harkes, CFA, Analyst Tony Mallozzi, Manager, Investment Services 18

19 Portfolio Series Balanced Growth Fund Portfolio Managers Economic Overview After a string of solid gains, the world s stock markets paused during the second quarter of 2010 as global events took their toll on investor optimism. Worries that the Greek debt crisis would spill over to Portugal, Ireland, Italy and Spain set the stage for a re-emergence of selling pressures in every major equity market. Fears that the contagion would spread outside Europe provided the basis for increased investor anxiety. Amid the turmoil, Canada was the first of the G7 nations to fully emerge from recession and raise interest rates, as widening gaps appeared in the economic performances of the major economies. (In June, the Bank of Canada raised the overnight rate by 25 basis points.) While some positive earnings appeared, evidence of a still-struggling U.S. economy overshadowed corporate announcements. The unemployment rate at the end of the second quarter fell to 9.5%, reflecting the fact that many Americans gave up on their job searches. There was continued softness in U.S. consumer spending in the first quarter, after recording a 5.6% pace in the previous quarter. The Federal Reserve left interest rates unchanged and continued to state that they would remain low for an extended period. All of the main stock markets, with the exception of Canada, recorded a technical correction (a decline of 10% from the recent market peak) during the quarter. Despite avoiding a technical correction, the Canadian market reversed course during the second quarter and the S&P/TSX Composite Index gave up 5.5%. A retrenchment in consumer spending in April left GDP growth flat for the month and ended a seven-month string of growth in the economy. However, there were continued signs of underlying strength. Statistics Canada reported that nearly all of the jobs lost to the recession had been recovered. Underlying Fund Allocations Signature Canadian Bond Fund 15.3% CI Canadian Investment Corporate Class 10.2% Signature Select Canadian Corporate Class 10.1% Signature High Income Fund 9.5% CI International Value Corporate Class 8.3% Signature Corporate Bond Fund 6.3% CI International Corporate Class 6.2% Harbour Corporate Class 5.0% CI American Managers Corporate Class 4.6% CI American Value Corporate Class 4.5% Synergy Canadian Corporate Class 4.0% CI American Small Companies Corporate Class 3.8% CI American Equity Corporate Class 3.7% Synergy American Corporate Class 3.4% CI Canadian Small/Mid Cap Fund Class 3.1% CI Emerging Markets Corporate Class 2.1% Top Ten Holdings Toronto-Dominion Bank 1.4% Suncor Energy Inc. 1.2% Barrick Gold Corporation 1.0% Royal Bank of Canada 0.9% CIBC TD 0.45% 05Jul % Microsoft Corporation 0.8% Talisman Energy Inc. 0.7% Canadian National Railway Company 0.7% EnCana Corporation 0.7% ABN Amro Bank TD 0.5% 02Jul % 19

20 Portfolio Series Balanced Growth Fund Portfolio Performance (Class A units) 1 Month 3 Months 6 Months 1 Year 3 Years 5 Years 10 Years Since Inception (December 2001) -1.7% -5.4% -3.9% 6.2% -5.2% 0.5% n/a 2.3% Asset Allocation Overview and Activity Different types of investments will respond differently to the markets, reinforcing the importance of a multi-level diversification strategy. A balanced asset mix ensures that investors are not dependent on any one asset class or security type to provide returns. This report is designed to provide you with an up-to-date portfolio overview of the Portfolio Series Balanced Growth Fund, including the allocations across asset class, geographic region, equity sector and market capitalization. The arrows indicate whether the allocation for each category has increased or decreased since the previous quarter-end. Asset Class Geographic Regions 25.1% 24.5% 15.2% 11.8% 7.4% 6.1% 5.5% 4.4% U.S. equity Canadian equity Canadian bond European equity Foreign bond Cash Asian equity Emerging markets equity 39.8% 30.2% 10.1% 6.7% 3.8% 3.7% 1.9% 1.6% 1.1% 1.1% Canada U.S. Other Emerging markets Japan U.K. Switzerland France Australia Ireland Equity Market Cap Equity Industry Sector 75.7% 19.9% 4.4% Large cap Mid cap Small cap 22.2% 15.8% 12.1% 11.1% 9.9% 8.8% 7.3% 7.1% 3.1% 2.6% Financial services Energy Information technology Industrials Materials Consumer discretionary Consumer staples Health care Telecommunications Utilities 20

21 Portfolio Series Balanced Growth Fund Portfolio Commentary The portfolio generated a return of -5.4% for the second quarter of 2010, underperforming the blended benchmark (30% DEX Universe Bond Index, 30% S&P/TSX Composite Index, 40% MSCI World Index C$), which earned -4.1%. During the period, investors became concerned about a number of macroeconomic factors, including a slowdown in the global economy or potential for a double-dip recession. This led to a flight to safety that benefited bond markets in general at the expense of global equity markets. As a result, the fund s bond positions added the most to absolute performance, while allocations to Canadian and U.S. equities had the strongest negative impact. Signature Canadian Bond Fund was the single holding with the greatest contribution to overall returns, while CI International Value Corporate Class detracted the most. The portfolio s income component earned 0.4% during the period. Signature Canadian Bond Fund, which has the largest allocation within the income category, benefited from exposure to long-term bonds, as well as positive security selection. Government bonds performed particularly well during the quarter, benefiting as investors fled equities for less risky investments. Signature Global Advisors anticipates the Bank of Canada will raise rates further this summer to be followed by the U.S. Federal Reserve later in the year. They are positioning the fund for a flatter yield curve, and continue to see value in corporate bonds. High-yield bonds emerged as one of the stronger performing asset classes for the quarter, and Signature believes they will continue to perform well in an environment of slow economic growth and falling defaults. Nonetheless, Signature High Income Fund detracted the most from the income category due to its exposure to equities and income trusts, which sold off for the period. A large portion of the income portfolio s foreign currency exposure is strategically hedged back into the Canadian dollar, therefore significantly dampening the volatility from currency movements. All of the main stock markets, with the exception of Canada, recorded a technical correction (a decline of 10% from the recent market peak) during the quarter. Despite this relatively strong result, the S&P/TSX Composite Index also declined 5.5%. The portfolio s 75% equity component modestly underperformed its benchmark for the period. On aggregate, the position in foreign equities among the Canadian funds was a drag on returns, as was an overweight position in information technology and an underweight position in materials relative to the benchmark. CI Emerging Markets Corporate Class posted the best performance among the equity funds in the portfolio, benefiting from relative strength in emerging Asian countries like China, India and South Korea. The broadbased weakness in international equity markets was the main reason why CI International Value Corporate Class detracted the most from the portfolio s performance. Nonetheless, good country and currency decisions such as overweighting German stocks and the yen helped this fund outperform its benchmark (MSCI EAFE Index C$). Overall, Portfolio Series Balanced Growth Fund carries an underweight position in financials relative to the benchmark, due to the sector s sensitivity to interest rates. This underweight allocation to the sector added slightly to performance on a relative basis. Despite being underweight, financials are the largest sector allocation in the portfolio and detracted from absolute performance. The portfolio also has overweight positions in industrials and information technology, as these areas typically benefit from increased capital expenditure programs during an economic recovery. 21

22 Portfolio Series Balanced Growth Fund The portfolio s Canadian funds as a group outperformed both U.S. and international equities based on strength in the consumer discretionary, telecommunication and materials sectors, generating an average return of -6.9%. The best-performing Canadian equity fund was CI Canadian Small/Mid Cap Fund, as small-capitalization stocks outperformed their large-cap counterparts for the quarter. On aggregate, the Canadian equity funds in the portfolio carry underweight positions relative to the benchmark in resources and financials, and overweight allocations in information technology and industrials. The Portfolio s U.S. equity funds also detracted from performance, with the relatively better performance of small-cap stocks allowing CI American Small Companies Fund to post the smallest loss for the group. On aggregate, the U.S. equity funds are underweight consumer staples stocks and overweight the information technology sector relative to the S&P 500 Index. The international equity funds in the portfolio outperformed their benchmark, despite posting negative performance overall. The addition of CI Emerging Markets Corporate Class added the most value, as this fund outperformed both the international equity benchmark as well as the other funds in the group. The international equity portion of the portfolio is overweight information technology, energy and consumer staples relative to MSCI EAFE Index, and underweight financials. Alfred Lam, CFA, Vice-President and Portfolio Manager Yoonjai Shin, CFA, Director Neelam Mistry, Analyst Lewis Harkes, CFA, Analyst Tony Mallozzi, Manager, Investment Services 22

23 Portfolio Series Growth Fund Portfolio Managers Economic Overview After a string of solid gains, the world s stock markets paused during the second quarter of 2010 as global events took their toll on investor optimism. Worries that the Greek debt crisis would spill over to Portugal, Ireland, Italy and Spain set the stage for a re-emergence of selling pressures in every major equity market. Fears that the contagion would spread outside Europe provided the basis for increased investor anxiety. Amid the turmoil, Canada was the first of the G7 nations to fully emerge from recession and raise interest rates, as widening gaps appeared in the economic performances of the major economies. (In June, the Bank of Canada raised the overnight rate by 25 basis points.) While some positive earnings appeared, evidence of a still-struggling U.S. economy overshadowed corporate announcements. The unemployment rate at the end of the second quarter fell to 9.5%, reflecting the fact that many Americans gave up on their job searches. There was continued softness in U.S. consumer spending in the first quarter, after recording a 5.6% pace in the previous quarter. The Federal Reserve left interest rates unchanged and continued to state that they would remain low for an extended period. All of the main stock markets, with the exception of Canada, recorded a technical correction (a decline of 10% from the recent market peak) during the quarter. Despite avoiding a technical correction, the Canadian market reversed course during the second quarter and the S&P/TSX Composite Index gave up 5.5%. A retrenchment in consumer spending in April left GDP growth flat for the month and ended a seven-month string of growth in the economy. However, there were continued signs of underlying strength. Statistics Canada reported that nearly all of the jobs lost to the recession had been recovered. Underlying Fund Allocations CI Canadian Investment Corporate Class 11.3% Signature Canadian Bond Fund 10.8% CI International Value Corporate Class 10.0% Signature Select Canadian Corporate Class 9.9% CI International Corporate Class 7.2% Signature High Income Fund 6.5% Harbour Corporate Class 6.1% CI American Value Corporate Class 5.4% Synergy Canadian Corporate Class 5.2% CI Canadian Small/Mid Cap Fund Class 4.8% CI American Managers Corporate Class 4.5% Signature Corporate Bond Fund 4.4% Synergy American Corporate Class 4.3% CI American Small Companies Corporate Class 4.0% CI American Equity Corporate Class 3.8% CI Emerging Markets Corporate Class 2.0% Top Ten Holdings Toronto-Dominion Bank 1.4% Suncor Energy Inc. 1.2% Barrick Gold Corporation 1.0% Royal Bank of Canada 0.9% CIBC TD 0.45% 05Jul % Microsoft Corporation 0.8% Talisman Energy Inc. 0.7% Canadian National Railway Company 0.7% EnCana Corporation 0.7% ABN Amro Bank TD 0.5% 02Jul % 23