Investors Mortgage and Short Term Income Fund

Transcription

1 Investors Mortgage and Short Term Income Fund Annual Management Report of Fund Performance FOR THE PERIOD ENDED MARCH, CAUTION REGARDING FORWARD-LOOKING STATEMENTS This report may contain forward-looking statements about the Fund, including its strategy, expected performance and condition. Forward-looking statements include statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as expects, anticipates, intends, plans, believes, estimates or negative versions thereof and similar expressions. In addition, any statement that may be made concerning future performance, strategies or prospects, and possible future Fund action, is also a forward-looking statement. Forward-looking statements are based on current expectations and projections about future events and are inherently subject to, among other things, risks, uncertainties and assumptions about the Fund and economic factors. Forward-looking statements are not guarantees of future performance, and actual events and results could differ materially from those expressed or implied in any forward-looking statements made by the Fund. Any number of important factors could contribute to these digressions, including, but not limited to, general economic, political and market factors in North America and internationally, interest and foreign exchange rates, global equity and capital markets, business competition, technological change, changes in government regulations, unexpected judicial or regulatory proceedings, and catastrophic events. We stress that the above mentioned list of important factors is not exhaustive. We encourage you to consider these and other factors carefully before making any investment decisions and we urge you to avoid placing undue reliance on forward-looking statements. Further, you should be aware of the fact that the Fund has no specific intention of updating any forward-looking statements whether as a result of new information, future events or otherwise, prior to the release of the next Management Report of Fund Performance. This annual Management Report of Fund Performance contains financial highlights, but does not contain the complete audited annual financial statements of the investment fund. If the audited annual financial statements of your investment fund did not accompany the mailing of this report, you may receive a copy of them, at your request, and at no cost, by calling ( if you live in Québec) or by writing to us at 7 Portage Avenue, Winnipeg, Manitoba, RB H (, boulevard Robert-Bourassa, bureau, Montréal (Québec), HA A6 if you live in Québec), or by visiting our website at or SEDAR at Securityholders may also use one of these methods to request a copy of the investment fund s proxy voting policies and procedures, proxy voting disclosure record, or quarterly portfolio disclosure. Every effort has been made to ensure that the information contained in this Report is accurate as of March, (except when stated otherwise), however, the Fund cannot guarantee the accuracy or the completeness of this material. Please refer to the Fund s Prospectus and audited annual financial statements for more information. References to Consultant or Consultants mean Representative or Representatives in Québec. For current net asset values per security for the Fund and for more recent information on general market events, please visit our website at CAUTION REGARDING FUTURE PERFORMANCE Sales commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the Fund s offering documents before investing. The indicated rates of return are the historical annual compounded total returns including changes in security value and reinvestment of all distributions (except for fee rebates) and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any investor that would have reduced returns. Mutual funds are not guaranteed. Their values change frequently and past performance may not be repeated. Copyright Investors Group Inc. Trademarks owned by IGM Financial Inc. and licensed to its subsidiary corporations.

2 ANNUAL MANAGEMENT REPORT OF FUND PERFORMANCE MARCH, Management Discussion of Fund Performance This management discussion of Fund performance presents views of the portfolio management team about the significant factors and developments during the past year that have affected the Fund s performance and outlook. Please read the caution regarding forward-looking statements located on the first page of this document. Investment Objective and Strategies The Fund aims to provide a consistent level of current income by investing primarily in short-term debt securities and mortgages on improved real estate in Canada. To achieve the Fund s investment objective, it will diversify its portfolio by investing primarily in fixed term, liquid debt securities, including both corporate and government-issued (or guaranteed) debt securities, as well as Canada Mortgage Bonds, mortgage-backed securities and mortgages. It is expected that over the long term the mortgage component of the Fund s portfolio will generally not be more than about % of its assets. The Fund may invest up to % of its assets in residential mortgages with terms exceeding five years, but generally the Fund intends to invest in mortgages with terms of less than five years. The Fund may also invest up to % of its assets in equity securities. Generally speaking, it is the Fund s intention that its investment in foreign securities will range from % to % of its assets, but the Fund may invest up to % of its assets in foreign securities from time to time. Risk The overall level of risk of investing in the Fund remains as discussed in the Prospectus, and is not expected to have significantly increased or decreased as a result of operations during the period. Accordingly, the Fund also remains suitable for the same investors as discussed in the Prospectus. Results of Operations CHANGES IN NET ASSETS The Fund s net assets increased by.9% during the period to $.9 billion. This change was comprised primarily of gains of $6. million from investment operations and an increase of $.9 million due to net securityholder subscriptions. FEES AND EXPENSES The management expense ratios (MERs) for all series are generally similar to the MERs for the -month period ended March,. Total expenses paid vary period to period mainly as a result of changes in average assets in each series. Average net assets of the Fund for the period were $.6 billion, an increase of.6% compared to the period ended March,. INVESTMENT PERFORMANCE In accordance with National Instrument 8-6, the following comparison to a broad-based index has been included to help you understand the Fund s performance relative to the general performance of the markets, but the portfolio management team cautions that the Fund s mandate may be different from the index shown. For a description of the index, see Annual Compound Returns. Also, investors cannot invest in an index without incurring fees and expenses, which are not reflected in the index returns. For the returns of all series and for longer-term performance of the Fund, see the Past Performance section of this report. Performance will vary by series primarily because fees and expenses may differ between series, or because securities of a series were not issued and outstanding for the entire reporting period. See Series Information for the annual expense rates for each series. For the year ended March,, the Series A securities returned.8% (after deducting fees and expenses paid by the Fund). In comparison, the FTSE TMX Canada Universe Bond Index returned.%. Canada s bond market advanced over the period as yields fell and bond prices rose. A surprise rate cut by the Bank of Canada in January in response to a sharp drop in oil prices late in drove yields lower as the market adjusted to lower growth and inflation expectations. Additional actions by other central banks globally to force bond yields lower to combat disappointing global economic growth also contributed to positive returns. Yields declined steadily through most of the period, bottoming in early February before rising slightly on concerns about when the U.S. Federal Reserve might raise interest rates as U.S. growth appeared on track to outperform other major economies. Government and corporate bonds both gained, with the best returns coming from long-term bonds. Corporate bonds attracted investors seeking higher returns than those offered by safer government securities. The Fund underperformed the index over the period. Because of the Fund s short-term income mandate, the Fund had no exposure to long-term bonds, which negatively influenced performance. Additionally, the Fund s exposure to shorter-term corporate bonds and direct mortgage holdings generated lower returns compared to the index given their lower interest rate sensitivity. Recent Developments (BASED ON INFORMATION AS AT APRIL, ) The Canadian economy was significantly impacted by the sharp drop in energy prices during the last three months of. As a result, the Bank of Canada cut the Overnight Rate by.% to.7% in January of to support growth and weaken the Canadian dollar. The effects of these adjustments will take time to filter through the economy. The bond market is currently factoring in a significant probability that the Bank of Canada will cut the Overnight Rate further in order to fight the effects of lower energy investment and a negative impact to employment. Over the past several quarters, Canadian growth has been supported by personal consumption and construction-related activity. The Bank of Canada is trying to foster an environment where the economy will rebalance toward exports and business investment. Fund positioning is focused on short-term bonds and mortgage investments with exposure bias to higher-yielding direct mortgages and corporate bonds for yield enhancement and lower interest rate sensitivity versus the index, pending signs of further recovery in the U.S. in what is likely to be a very low-yielding environment for an extended period.

3 ANNUAL MANAGEMENT REPORT OF FUND PERFORMANCE MARCH, Other Developments UPCOMING MERGER Investors Group proposes to merge Investors Short Term Capital Yield Class into this Fund on or about May,. Aside from increasing the size of the Fund, the merger is not a material transaction for the Fund. INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) Effective April,, the Fund adopted IFRS as its basis of accounting as required by the Canadian Accounting Standards Board (AcSB). Previously, the Fund prepared its financial statements in accordance with Canadian generally accepted accounting principles as defined in Part V of the Chartered Professional Accountant (CPA) Handbook (Canadian GAAP). The financial statements for the period ended March,, including comparative information, are the first annual financial statements prepared on an IFRS basis. The impact of the change from Canadian GAAP to IFRS has been applied retrospectively and is disclosed in the notes to the financial statements. Key changes to the financial statements as a result of the implementation of IFRS are: Statement of Financial Position replaces the Statement of Net Assets: - For financial reporting purposes, generally the Fund now values its exchange-traded investments at closing price, which is determined to be the price within the bid/ask range that represents the best estimate of fair value. This eliminates the difference under Canadian GAAP between net assets and net asset value as at the financial statement reporting dates. - The Fund s issued and redeemable securities have been classified as a financial liability. Statement of Comprehensive Income replaces the Statement of Operations. Statement of Changes in Financial Position replaces the Statement of Changes in Net Assets. The Fund now presents a Statement of Cash Flows. Other notable changes to the financial statements include reclassification of certain balances, changes to the format of the financial statements, and additional or enhanced information in the notes to the financial statements, including a detailed note and reconciliation on the Fund s transition from Canadian GAAP to IFRS.

4 ANNUAL MANAGEMENT REPORT OF FUND PERFORMANCE MARCH, Related Party Transactions I.G. Investment Management, Ltd. is the Manager, Trustee and Portfolio Advisor of the Fund. The Fund is offered through the Consultants of Investors Group Financial Services Inc. and Investors Group Securities Inc., together referred to as the Distributors. The Manager, Portfolio Advisor, Distributors and Trustee are, indirectly, wholly owned subsidiaries of IGM Financial Inc. The Fund paid a management fee to the Manager and Portfolio Advisor for management and portfolio advisory services (see Management Fees). The Manager is also entitled to charge up to.% on the value of the mortgage portfolio for mortgage administration and servicing costs. The Fund also paid the Manager an administration fee and in exchange the Manager paid the operating costs and expenses of the Fund, except for certain specified costs. The Trustee is responsible for the overall direction and management of the affairs of the Fund. The Fund paid the Trustee a fee for its services. See Series Information for the annual rates paid by each series (as a percent of average net assets) for these fees. Securityholders in Series U also pay an advisory fee directly to Investors Group. This fee is not included in the Fund s expenses. Certain other investment funds distributed by Investors Group and other qualified investors may invest in Series P or S of this Fund. All such transactions in the Fund are executed in accordance with standing instructions approved by the Investors Group Funds Independent Review Committee and based on the pricing NAV per security determined in accordance with the stated policies of the Fund on each transaction day. No commissions or other transaction fees were paid by the Fund in relation to these transactions. As at March,, these funds held approximately 77.8% of the Fund s net assets. During the period, the Fund acquired mortgages from the Manager valued at $9. million at time of purchase. The fair value of the mortgages at acquisition was calculated using the Modified Lender s Rate method. Under the terms of the purchase transaction, the Manager retains the credit risk exposure associated with the mortgages acquired by the Fund. All mortgage purchase transactions were in accordance with standing instructions approved by the Investors Group Funds Independent Review Committee. As at March,, the Fund held bonds issued by the Manager valued at $6. million. This investment is in accordance with standing instructions approved by the Investors Group Funds Independent Review Committee and represents.% of the Fund s net assets. Management Fees The Fund pays Investors Group a management fee. The management fee paid by each series is calculated as a percentage of the net asset value of the series, as of the close of business on each business day (see Series Information for rates payable by each series). Management fees were used in part to pay costs incurred in providing investment advisory and management services, and distribution-related services including the cost of financial planning services, Consultant commissions and bonuses, marketing and other Fund promotional activities and educational conferences. For the -month period ended March,, on average approximately % of the total management fee revenue received from all Investors Group funds was attributable to investment advisory and management services. The balance of these fees was used to fund the payment of distribution-related services. For this Fund, investment advisory and management services represented approximately 6%, and distribution-related services represented approximately %, of the management fees paid (excluding fees paid by non-retail series if issued) for the period ended March,. This may vary by series depending upon the assets invested in each series.

5 ANNUAL MANAGEMENT REPORT OF FUND PERFORMANCE MARCH, Summary of Investment Portfolio AT MARCH, The largest holdings of the Fund (up to ) at the end of the period, and the major asset classes in which the Fund was invested, are indicated below. The Fund held no short positions at the end of the period. This summary of investment portfolio may change due to ongoing portfolio transactions. The Fund s summary of investment portfolio will be updated as at the end of the next quarter. Please see the front page for information about how it can be obtained. Summary of Top Holdings % of net asset value Province of Ontario.% Cash and cash equivalents.6 Canada Housing Trust No..% --8. Canada Housing Trust No..% --8. Bank of Montreal.9% Royal Bank of Canada.77% --8. Royal Bank of Canada.8% Bank of Montreal.8% 6--. Bank of Montreal.% The Bank of Nova Scotia.6% --9. The Bank of Nova Scotia.% --8. Home Trust Co..9% Bank of Montreal.% The Bank of Nova Scotia.7% --. The Toronto-Dominion Bank.7% --6. First National Financial Group Corp..% The Toronto-Dominion Bank.7% Home Trust Co..9% Canadian Imperial Bank of Commerce.9% Bank of Montreal.% Home Trust Co..8% Golden Credit Card Trust.% Royal Bank of Canada.8% The Toronto-Dominion Bank.% The Toronto-Dominion Bank.6% Summary of Composition of the Portfolio BY ASSET TYPE % of net asset value Canadian Bonds 9.6 Mortgages Cash and cash equivalents.6 Other net assets (liabilities).. CANADIAN BONDS BY SECTOR Corporate Non Convertible 6. Mortgage Backed 6. Federal Government. Provincial Governments MORTGAGES BY YEAR OF MATURITY BY INTEREST RATE less than.%...% 9...%.7..% 9. greater than.%. 7. Series Information AT MARCH, Inception Management Service Administration Trustee Series date fee (%) fee (%) fee (%) fee (%) Series A 7// Series B 7//. -.. Series C n/a. -.. Series Jdsc 7// Series Jnl 7//. -.. Series P 7// Series S /6/ Series U 7//. -.. Inception dates of the series are shown if within the Financial years detailed in Past Performance. For details see Related Party Transactions. Securities are only available for purchase by other investment funds or other qualified investors.

6 ANNUAL MANAGEMENT REPORT OF FUND PERFORMANCE MARCH, Past Performance It is important to remember that past performance doesn t necessarily indicate future performance. The returns presented below: assume that all distributions, except for fee rebates, are reinvested into the Fund; do not include sales charges, income taxes, optional expenses or advisory fees payable directly by securityholders in certain series, that reduce returns; show performance based on Canadian dollar returns; and show performance for each of the past financial years, or since the series started. Financial years are as follows: - 6 to 8 nths ended September - 9 six months ended March - to nths ended March Inception dates of the series within these periods are shown in Series Information. Performance during these periods may have been impacted by the following events: In June 6, the investment objective and strategy of the Fund was revised to allow the Fund to better diversify its investments in non-mortgage assets. In conjunction with these changes, the Fund began to pay an annual mortgage administration and servicing fee of.% on the value of mortgages serviced by the Manager, and the annual management fee was also reduced by.% to.%. In October 7, the Fund began to pay an administration fee. In exchange, the Manager began to pay certain operating costs and expenses which previously had been paid by the Fund. Year-by-Year Returns These bar charts show how much an investment in securities made on the first day of each financial year would have increased or decreased by the end of the respective period. For the first year of a series, the percentage shown will be the actual return of the series from its inception date. The charts illustrate how the Fund s performance has changed over time. SERIES A % SERIES B % SERIES C % SERIES Jdsc %..6.. SERIES Jnl %.9.6..

7 ANNUAL MANAGEMENT REPORT OF FUND PERFORMANCE MARCH, YEAR-BY-YEAR RETURNS (CONTINUED) SERIES P % SERIES S % (.) Annual Compound Returns The following table compares the historical annual compound returns for each series with the index (or indices) shown below, for the periods shown ending March,. For a discussion of the Fund s recent performance relative to the index (or indices), see Results of Operations. Since (%) yr yrs yrs yrs inception Series A.8 n/a n/a n/a. Series B.7 n/a n/a n/a. Series C.7... n/a Series Jdsc. n/a n/a n/a. Series Jnl. n/a n/a n/a. Series P.7.. n/a. Series S.7..6 n/a. Series U. n/a n/a n/a.9 FTSE TMX Canada Universe Bond Index The annual compound return since inception for the index presented in the table corresponds to Series A, B, Jdsc and Jnl. The comparative annual compound return since inception for the index for each of the remaining series is as follows: Series P:.9%; Series S:.8%; Series U: 7.7%. The FTSE TMX Canada Universe Bond Total Return Index is designed to be a broad measure of the Canadian investmentgrade fixed income market weighted by market cap. SERIES U %.7..

8 ANNUAL MANAGEMENT REPORT OF FUND PERFORMANCE MARCH, Financial Highlights The following tables show selected key financial information about the Fund and are intended to help you understand the Fund s financial performance for up to the past five financial years. Footnotes are presented after Ratios and Supplemental Data. Net Assets per Security SERIES A SERIES B (in $), beginning of period n/a n/a (in $), beginning of period n/a n/a Total revenue... n/a n/a Total expenses (.9) (.9) (.) n/a n/a for the period. (.) (.) n/a n/a for the period.6 (.7) (.) n/a n/a Total increase operations.8..7 n/a n/a (excluding dividends) (.7) (.) (.) n/a n/a From dividends n/a n/a From capital gains n/a n/a Return of capital n/a n/a Total annual distributions (.7) (.) (.) n/a n/a at period end n/a n/a Total revenue... n/a n/a Total expenses (.) (.) (.) n/a n/a for the period. (.) (.) n/a n/a for the period.6 (.7) (.) n/a n/a Total increase operations.7..7 n/a n/a (excluding dividends) (.7) (.) (.) n/a n/a From dividends n/a n/a From capital gains n/a n/a Return of capital n/a n/a Total annual distributions (.7) (.) (.) n/a n/a at period end n/a n/a SERIES C SERIES Jdsc JDSC (in $), beginning of period n/a n/a (in $), beginning of period Total revenue Total expenses (.) (.) (.) (.) (.) for the period - (.) (.) -. for the period. (.) -. (.) Total increase operations (excluding dividends) (.9) (.7) (.6) (.) (.9) From dividends From capital gains Return of capital Total annual distributions (.9) (.7) (.6) (.) (.9) at period end Total revenue... n/a n/a Total expenses (.6) (.6) (.) n/a n/a for the period. (.) (.) n/a n/a for the period.6 (.7) (.) n/a n/a Total increase operations..7.9 n/a n/a (excluding dividends) (.9) (.6) (.) n/a n/a From dividends n/a n/a From capital gains n/a n/a Return of capital n/a n/a Total annual distributions (.9) (.6) (.) n/a n/a at period end n/a n/a

9 ANNUAL MANAGEMENT REPORT OF FUND PERFORMANCE MARCH, Net Assets per Security (CONTINUED) SERIES Jnl JNL (in $), beginning of period n/a n/a Total revenue... n/a n/a Total expenses (.7) (.7) (.) n/a n/a for the period. (.) (.) n/a n/a for the period.6 (.7) (.) n/a n/a Total increase operations..6.8 n/a n/a (excluding dividends) (.9) (.) (.) n/a n/a From dividends n/a n/a From capital gains n/a n/a Return of capital n/a n/a Total annual distributions (.9) (.) (.) n/a n/a at period end n/a n/a SERIES P (in $), beginning of period Total revenue Total expenses (.) (.) (.) (.) (.) for the period. (.) (.) -. for the period.7 (.8) (.).9 (.) Total increase operations (excluding dividends) (.) (.7) (.) (.) (.9) From dividends From capital gains Return of capital Total annual distributions (.) (.7) (.) (.) (.9) at period end SERIES S SERIES U (in $), beginning of period n/a n/a n/a (in $), beginning of period Total revenue Total expenses (.) (.) (.) (.) (.9) for the period. (.) (.) -. for the period.7 (.8) (.). (.) Total increase operations (excluding dividends) (.7) (.) (.) (.) (.9) From dividends From capital gains Return of capital Total annual distributions (.7) (.) (.) (.) (.9) at period end Total revenue.. n/a n/a n/a Total expenses (.) (.) n/a n/a n/a for the period. - n/a n/a n/a for the period.7 (.) n/a n/a n/a Total increase operations..7 n/a n/a n/a (excluding dividends) (.) (.8) n/a n/a n/a From dividends - - n/a n/a n/a From capital gains - - n/a n/a n/a Return of capital - - n/a n/a n/a Total annual distributions (.) (.8) n/a n/a n/a at period end n/a n/a n/a

10 ANNUAL MANAGEMENT REPORT OF FUND PERFORMANCE MARCH, Ratios and Supplemental Data SERIES A Total net asset value (pricing NAV) ($ s),9 7,7,7 n/a n/a outstanding ( s),7 6,88,67 n/a n/a expense ratio (%) n/a n/a or absorptions (%) n/a n/a ratio (%) n/a n/a rate (%) n/a n/a Net asset value per security (pricing NAV) ($) n/a n/a SERIES JDSC Jdsc Total net asset value (pricing NAV) ($ s),78 8,67 8,6 n/a n/a outstanding ( s),7,98 8,68 n/a n/a expense ratio (%) n/a n/a or absorptions (%) n/a n/a ratio (%) n/a n/a rate (%) n/a n/a Net asset value per security (pricing NAV) ($) n/a n/a SERIES B Total net asset value (pricing NAV) ($ s),887 8,9 9,89 n/a n/a outstanding ( s),7 6, 9, n/a n/a expense ratio (%) n/a n/a or absorptions (%) n/a n/a ratio (%) n/a n/a rate (%) n/a n/a Net asset value per security (pricing NAV) ($) n/a n/a SERIES JNL Jnl Total net asset value (pricing NAV) ($ s),8,9,977 n/a n/a outstanding ( s),9,6,6 n/a n/a expense ratio (%) n/a n/a or absorptions (%) n/a n/a ratio (%) n/a n/a rate (%) n/a n/a Net asset value per security (pricing NAV) ($) n/a n/a SERIES C Total net asset value (pricing NAV) ($ s) 9,769 67,6 7,,76,89,8,9 outstanding ( s) 8,7 7,967 9, 69,9 6,76 expense ratio (%) or absorptions (%) ratio (%) rate (%) Net asset value per security (pricing NAV) ($) SERIES P Total net asset value (pricing NAV) ($ s),76,88,88,78 6,8 6,9,89 outstanding ( s) 6,878 9,88,8,,97 expense ratio (%) or absorptions (%) ratio (%) rate (%) Net asset value per security (pricing NAV) ($)

11 ANNUAL MANAGEMENT REPORT OF FUND PERFORMANCE MARCH, Ratios and Supplemental Data (CONTINUED) SERIES S Total net asset value (pricing NAV) ($ s) 69,6 6,76 7,7 9,77,9 outstanding ( s) 6,9 6,99,67,97 6 expense ratio (%) or absorptions (%) ratio (%) rate (%) Net asset value per security (pricing NAV) ($) SERIES U Total net asset value (pricing NAV) ($ s),8,8 n/a n/a n/a outstanding ( s), n/a n/a n/a expense ratio (%).. n/a n/a n/a or absorptions (%).. n/a n/a n/a ratio (%) - - n/a n/a n/a rate (%) n/a n/a n/a Net asset value per security (pricing NAV) ($) n/a n/a n/a These calculations are prescribed by securities regulations and are not intended to be a reconciliation between opening and closing net assets per security. This information is derived from the Fund s audited annual financial statements. The financial information presented for the periods ended March, and is determined in accordance with IFRS. Information for periods prior to April, is derived from financial statements prepared in accordance with Canadian GAAP. Prior to April,, the net assets per security presented in the financial statements may be different from the net asset value calculated for Fund pricing purposes. This difference was due to the requirements of Canadian GAAP which may have resulted in a different valuation of investments held by the Fund in accordance with Canadian GAAP than the market value used to determine net asset value of the Fund for the purchase and redemption of the Fund s securities (pricing NAV). The pricing NAV per security at the end of the period is disclosed in Ratios and Supplemental Data. Effective April,, commissions and other portfolio transaction costs are included in total expenses. Prior to April,, these costs were reported within realized and unrealized gains (losses) for the period for the purposes of these tables. Net asset value and distributions are based on the actual number of securities outstanding at the relevant time. The increase/decrease from operations is based on the weighted average number of securities outstanding over the financial period. In the period a series is established, the financial information is provided from the date of inception to the end of the period. Distributions were paid in cash, reinvested in additional securities of the Fund, or both. 6 ratio (MER) is based on total expenses, excluding commissions and other portfolio transaction costs, for the stated period and is expressed as an annualized percentage of daily average net assets during the period, except as noted. In the period a series is established, the MER is annualized from the date of inception to the end of the period. Where a Fund directly or indirectly via derivative contract invests in securities of an Underlying Fund, the MERs presented for the Fund include the portion of MERs of the Underlying Fund(s) attributable to this investment. Correspondingly, the MERs presented for the Fund exclude any management or other fees that are waived as a result of its investment in the Underlying Fund(s). Certain expenses that are non-recurring and/or otherwise uncertain as to their future timing and amount have not been annualized. 7 The trading expense ratio (TER) represents total commissions and other portfolio transaction costs incurred as an annualized percentage of daily average net assets during the period. Where a Fund invests in securities of an Underlying Fund, the TERs presented for the Fund include the portion of TERs of the Underlying Fund(s) attributable to this investment. 8 The Fund s portfolio turnover rate indicates how actively the Fund s Portfolio Advisor manages its portfolio investments. A portfolio turnover rate of % is equivalent to the Fund buying and selling all of the securities in its portfolio once in the course of the period. Generally, the higher a Fund s portfolio turnover rate in a period, the greater the trading costs payable by the Fund in the period, and the greater the chance of an investor receiving taxable capital gains in the period. There is not necessarily a relationship between a high turnover rate and the performance of a Fund. Transactions incurred to realign the Fund s portfolio after a fund merger, if any, are excluded from the portfolio turnover rate.

12 Memo