Investment Approach

Investment Objectives

The Trust's investment objectives are to:

provide holders of the units ("Unitholders") with a stable stream of monthly cash distributions targeted to be $0.0542 per unit (representing approximately a 6.5% per annum yield on the issue price of $10.00 per unit); and
preserve the net asset value per unit in order to return at least the original issue price of units ($10.00 per unit) to Unitholders on or about October 19, 2015 and provide to Unitholders an opportunity for capital appreciation above the original issue price.

Investment Strategy

The portfolio consists of income producing securities including Canadian business income trusts, real estate investment trusts ("REITs"), utility income trusts, corporate bonds and convertible bonds. The Trust will be managed to substantially replicate the CC&L Income Fund, a strategy managed by the Investment Manager which has similar investment objectives to those of the Portfolio.

The CC&L Income Fund was established in February 2001 with investment objectives and an investment strategy similar to those of the Trust. Over the period from inception of the fund to June 30, 2005, its net asset value per unit increased from $10.00 to $16.92 and quarterly distributions totalled $4.55 per unit. The average annual distribution has been approximately 10.0% measured against initial unit value. As with the CC&L Income Fund, the Investment Manager will employ a disciplined, conservative process with respect to the Trust aimed at generating stable cash flows and preserving capital. A wide range of income generating assets will be evaluated using a bottom-up, company-level analysis which emphasizes credit-oriented factors. This analysis drives both security selection and asset allocation. Quantitative, macro-economic considerations such as interest rates and economic growth will be continuously reviewed relative to the sensitivity of the Trust to those factors. When the Investment Manager considers it appropriate, adjustments will be made to the asset mix of the Trust and/or interest rate hedging strategies will be used.

Security Selection. The evaluation of both bonds and income trusts is conducted by the fixed income team, which relies on a credit-oriented framework to identify those securities that the Investment Manager considers as likely to produce the desired portfolio characteristics. Corporate bond selection is based on a structured checklist approach, incorporating over 50 financial, operating, competitive and market considerations and including statistics generated by proprietary models. This structured selection process ensures that all issuers are evaluated on a consistent basis. Income trusts are evaluated in accordance with criteria adapted from the credit-oriented fixed income checklist adjusted to reflect the particular requirements of investing in businesses that are managed to maximize cash distributions. The Investment Manager's conservative bias leads to a focus on business income trusts, REITs and utility income trusts. The strategy generally favours trusts that have a strong competitive position and stable revenues and avoids trusts where access to capital is important to replace depleting assets and where reinvestment levels are considered inadequate.
Interest Rate Management. The Investment Manager devotes considerable resources towards managing the interest rate exposure inherent in all of its income-oriented investments. This is accomplished by portfolio design and construction as well as the use of derivative instruments such as interest rate futures and options to hedge this exposure. Where appropriate, the Investment Manager intends to employ these and other techniques in the management of the Trust. The hedging strategy is designed to protect against significant interest rate increases that may occur over an investment horizon. Such strategy is not intended to enhance the returns of the Trust but only to minimize the impact of increases in interest rates. A portfolio constructed for a rising rate environment is one that is biased towards instruments whose prices are expected to fall less when rates rise, such as bonds with a short time to maturity or the income trust units of businesses with pricing power. Examples of hedging strategies used by the Investment Manager include short selling bonds or interest rate futures or buying options to pay a fixed interest rate by way of a swap agreement. The Investment Manager believes that the hedging strategies it employs will assist the Trust to achieve its investment objectives.

The Investment Manager's approach to Selecting the Portfolio

The Investment Manager will provide investment advisory and portfolio management services to the Trust. The Investment Manager, also part of the Connor, Clark & Lunn Financial Group, was established in March 1982 and has offices in Vancouver and Toronto. The Investment Manager's 12-person fixed income team manages in assets. The team works in conjunction with the Investment Manager's equity team and is supported by an analytical staff of 23 people. The fixed income team has a proven track record of outperformance. The CC&L Bond composite has had an average annual value added of 0.29% above the Scotia Capital Universe Bond Index over the last five years, which ranks the Investment Manager among the first quartile of Canadian bond managers over that period, and has performed above such index in 87.5% of the rolling 12-month periods over this time. This strong investment performance has resulted in almost $1 billion of new mandates during the past year. The Investment Manager performs particularly well both in absolute terms and relative to other fixed income managers during down markets.