Investment Objective

The objective of this fund is to provide relatively stable, consistent rates of return through a portfolio of debt and fixed income instruments, including futures and derivatives, issued by governments and corporations from around the world.

Fund Details

• Term: 9.0
• Duration: 6.2
• Yield: 5.3
• Avg. Quality: AA

Growth of $1,000†

Asset Mix

Annual Returns to September 30 (%)
1999	2000	2001	2002	2003	2004	2005	2006	2007	2008
—	—	—	—	—	—	—	—	—	3.7
Annualized Returns to September 30, 2008 (%)
Qtr*	6 mo*	1 yr	2 yr	3 yr	4 yr	5 yr	6 yr	7 yr	10 yr
-2.6	-2.6	3.7	—	—	—	—	—	—	—

†Growth is calculated based on compounded monthly returns.
*Performance for the quarter and 6 months to September 30 represent the actual total return of the funds for the period, and are not annualized.

Putnam Investments - Core Manager
Boston, MA., founded 1937, managing $137.0 billion.

While we maintained a neutral exposure to term structure in Canada, active term structure positioning in the U.S. was unfavourable. Our swap spread steepening position in the U.S. was detrimental as short-term funding issues pushed swap spreads wider in the front end of the curve. International term structure positioning aided returns due to our long duration stance in Europe, steepening yield curve bias in the U.K., and Europe versus U.S. rates.

Prepayment speeds continued to slow this quarter, contributing to rapidly improving fundamentals for interest-only CMO cash flows. However, challenging technicals persisted leading to the underperformance of our strategies in this sector. In credit, our underweight allocation to investment-grade corporates benefited relative returns as the sector underperformed equal-duration government bonds during the quarter.

State Street Global Advisors - Enhanced Core/Active Bond Manager
Montreal, founded 1978, managing $1.9 trillion.

The DEX Universe Bond Index posted a -0.37% negative total return for the third quarter of 2008 while 10 year Government of Canada yields remained virtually unchanged to close the quarter yielding 3.72%. This negative market return can be largely attributed to the underperformance of the corporate sector which lagged the Federal index by 1.81% for Q3 while aggregate corporate spreads continued to deteriorate to end the quarter at their widest levels in over 20 years. The market action over the quarter remains consistent with our view that the ramifications of the sub-prime crisis still remain to be fully understood by investors and will remain a source of volatility over the foreseeable future.

All performance is presented in Canadian dollar terms, gross of investment management fees. Past performance is not indicative of future results.