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Premium Income Corporation

 

PIC.PR.A
PIC.A

Portfolio Manager Updates

 

Portfolio Manager Updates for 2017-07-31

As of July 31, 2017, the Net Asset Value (“NAV”) of the Fund was $21.61 versus $21.93 per unit on April 30, 2017. The Fund’s two share classes are listed on the Toronto Stock Exchange as PIC.A and PIC.PR.A. They closed on July 31, 2017 at $6.85 and $15.11 respectively which, when combined, represent a 1.6% premium to the NAV.

Distributions totaling $0.20319 were paid to the Class A shareholders and $0.215625 were paid to the Preferred shareholders during the quarter.

The Canadian banks in general were flat during the third quarter with the S&P/TSX Diversified Banks Sub Index up 1.1% on a total return basis when adding back the dividends paid by the banks during the period.

The banks within the portfolio produced varying returns during the quarter with National Bank of Canada (“NA”) strongly outperforming the group with a total return of 7.0%. Meanwhile, the Bank of Montreal (“BMO”) lagged the group with a negative total return of 1.2% during the period.

The Bank of Montreal and the National Bank of Canada each announced a dividend increase in the quarter, increasing it by 2.3% and 3.6% respectively.

Volatility levels for the Canadian banks remained at the low end of the range of the past few years so the Fund continued to be less active with its covered-call writing strategy during the quarter with an average 0.7% of the portfolio subject to covered-calls vs. 7.2% in the previous quarter.

 

Portfolio Manager Updates for 2017-04-30

As of April 30, 2017, the Net Asset Value (“NAV”) of the Fund was $21.93 versus $22.66 per unit on January 31, 2017. The Fund’s two share classes are listed on the Toronto Stock Exchange as PIC.A and PIC.PR.A. They closed on April 30, 2017 at $6.72 and $15.29 respectively which, when combined, represent a 0.4% premium to the Net Asset Value.

Distributions totaling $0.20319 were paid to the Class A shareholders and $0.215625 were paid to the Preferred shareholders during the quarter.

The Canadian banks continued their strong rally from last year into the second quarter with the S&P/TSX Diversified Banks Sub Index making an all-time high on February 23rd. Since then, the banks have corrected 5.8% to the end of April, 2017 due to a flattening yield curve and credit concerns mounting over rising home prices in Toronto and Vancouver.

The banks within the portfolio produced varying returns during the quarter with the Royal Bank of Canada (“RBC”) slightly outperforming the group with a total return of 0.8%. Meanwhile, the Toronto-Dominion Bank (“TD”) lagged the group with a negative total return of 3.8% during the period.

The Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank of Canada and The Toronto-Dominion Bank each announced a dividend increase in the quarter, increasing it by 2.7%, 2.4%, 4.8% and 9.1% respectively.

Volatility levels for the Canadian banks remained at the low end of the range of the past few years so the Fund continued to be less active with its covered-call writing strategy during the quarter with an average 7.2% of the portfolio subject to covered-calls vs. 4.4% in the previous quarter.

 

Portfolio Manager Updates for 2017-01-31

As of January 31, 2017, the Net Asset Value (“NAV”) of the Fund was $22.66 versus $21.00 per unit on October 31, 2016. The Fund’s two share classes are listed on the Toronto Stock Exchange as PIC.A and PIC.PR.A. They closed on January 31, 2017 at $7.03 and $15.29 respectively which, when combined, represent a 1.5% discount to the NAV.

Distributions totaling $0.20319 were paid to the Class A shareholders and $0.215625 were paid to the Preferred shareholders during the quarter.

The Canadian banks were up very strongly during the period, with an average total return of 12.2% for the Big 5 banks, which significantly outperformed the broader S&P/TSX Composite Index’s total return of 4.8%. Markets reacted strongly to the election of Donald Trump as the President of the United States and expectations that more favourable fiscal and tax policies along with less regulation will provide growth to the economy. The banks reported fourth quarter earnings during the period with Industry EPS growth of 4.8% year-over-year, aided mostly by stronger trading revenue, better than expected loan growth as well as positive operating leverage.

The banks within the portfolio produced varying returns during the quarter with the National Bank of Canada outperforming the group with a total return of 18.5%. Meanwhile, the Bank of Nova Scotia lagged the group but still posted a total return of 8.9% during the period.

The Bank of Montreal, Canadian Imperial Bank of Commerce and the National Bank of Canada each announced a dividend increase in the quarter, increasing it by 2.3%, 1.8% and 2.5% respectively.

Volatility levels for the Canadian banks remained at the low end of the range for the past few years so the Fund was less active with its covered-call writing strategy during the quarter with an average 4.4% of the portfolio subject to covered-calls.

 

Portfolio Manager Updates for 2016-10-31

As of October 31, 2016, the Net Asset Value (“NAV”) of the Fund was $21.00 versus $20.41 per unit on July 31, 2016. The Fund’s two share classes are listed on the Toronto Stock Exchange as PIC.A and PIC.PR.A. They closed on October 31, 2016 at $5.81 and $15.13 respectively which, when combined, represent a 0.3% discount to the NAV.

Distributions totaling $0.20319 were paid to the Class A shareholders and $0.215625 were paid to the Preferred shareholders during the quarter.

The Canadian banks were up strongly during the period, with an average price return of 5.9% for the Big 5 banks, which significantly outperformed the broader S&P/TSX Composite return of 2.1%. The banks reported third quarter earnings during the period that mostly beat street estimates, aided mostly by stronger trading and capital market related revenues as well as lower provisions for credit losses (PCL).

The banks within the portfolio produced varying returns during the quarter with the Bank of Nova Scotia outperforming the group with a total return of 9.8%. Meanwhile, the Bank of Montreal lagged the group but still posted a total return of 3.0% during the period.

The Bank of Nova Scotia and the Royal Bank of Canada each announced a dividend increase in the quarter, increasing it by 2.8% and 2.5% respectively.

Volatility levels for the Canadian banks remained at the low end of the range of the past few years, so the Fund was less active with its covered-call writing strategy during the quarter with an average 4.6% of the portfolio subject to covered-calls. The Fund ended the period with 5.5% of the portfolio subject to covered-calls.

 

Portfolio Manager Updates for 2016-07-31

As of July 31, 2016, the Net Asset Value (“NAV”) of the Fund was $20.41 versus $20.80 per unit on April 30, 2016. The Fund’s two share classes are listed on the Toronto Stock Exchange as PIC.A and PIC.PR.A. They closed on July 31, 2016 at $5.55 and $15.00 respectively which, when combined, represent a 0.7% premium to the underlying NAV.

Distributions totaling $0.20319 were paid to the Class A shareholders and $0.215625 were paid to the Preferred shareholders during the quarter.

The Canadian banks were up slightly during the period, with a price return of 1.3%, which trailed the broader S&P/TSX Composite with a 4.5% increase over the same period. Aided mostly by lower provision for credit losses (“PCL”) and lower expenses, the banks reported second quarter earnings during the period that mostly met street estimates. Conversely, revenues were weaker than expected, particularly net interest income.

The banks within the portfolio produced varying returns during the quarter with the Bank of Montreal (BMO) outperforming the group with a total return of 3.4%. Meanwhile, the Canadian Imperial Bank of Commerce (CM) lagged behind its peers, down 0.9% during the period.

The Bank of Nova Scotia (BNS) and the Royal Bank of Canada (RY) each announced a dividend increase in the quarter, increasing it by 2.8% and 2.5% respectively.

The Fund did utilize its covered-call writing strategy slightly during the quarter with, on average, 8.9% of the portfolio subject to covered calls. The Fund ended the quarter with 1.0% of the portfolio subject to covered calls.

 

Portfolio Manager Updates for 2016-04-30

As of April 30, 2016, the Net Asset Value (“NAV”) of the Fund was $20.80 versus $19.70 per unit on January 31, 2016. The Fund’s two share classes are listed on the Toronto Stock Exchange as PIC.A and PIC.PR.A. They closed on April 29, 2016 at $5.90 and $14.88 respectively which, when combined, represent a 2 cent discount to the NAV.

Distributions totaling $0.20319 were paid to the Class A shareholders and $0.215625 were paid to the Preferred shareholders during the quarter.

The Canadian banks (the “Banks”) rallies strongly during the period, generating a total return of 10.0%, slightly outperforming the broader S&P/TSX Composite which increased 9.7% over the same period. The Banks reported first quarter earnings during the period that exceeded street estimates, aided by higher trading revenues and strong fee income. Higher impaired loan formations were reported across the group with most of the increase due to energy provisions but amounts remained modest.

The Banks within the portfolio produced varying returns during the quarter with the Bank of Nova Scotia (BNS) outperforming the group with a total return of 16.0%. Meanwhile, the Toronto-Dominion Bank (TD) lagged, but still had a total return of 6.4% during the period.

BNS, CIBC, RBC and TD each announced a dividend increase in the quarter, increasing it by 2.9%, 2.6%, 2.5% and 7.8% respectively. This was the sixth quarter in a row that CIBC increased its dividend rate.

The Fund did utilize its covered-call writing strategy during the quarter with an average 13.9% of the portfolio subject to covered-calls. The Fund ended the quarter with none of the portfolio subject to covered-calls.

 

Portfolio Manager Updates for 2016-01-31

As of January 31, 2016, the Net Asset Value (“NAV”) of the Fund was $19.70 versus $20.79 per unit on October 31, 2015. The Fund’s two share classes are listed on the Toronto Stock Exchange as PIC.A and PIC.PR.A. They closed on January 31, 2016 at $5.05 and $14.96 respectively which, when combined, represent a 1.6% premium to the NAV.

Distributions totaling $0.20319 were paid to the Class A shareholders and $0.215625 were paid to the Preferred shareholders during the quarter.

The Canadian banks traded sideways for most of November and December 2015 before declining significantly (over 9%) along with the broader market in the first 3 weeks of January 2016 on concerns that a global recession and possibly deflation were around the corner. And then, similar to what we have witnessed over the past year or so, markets bounced back with a vengeance in the final week of January with Canadian banks ending the period down less than 3%. The banks reported fourth quarter earnings during the period which met or exceeded street estimates, but did so with questionable quality as there were some one-time tax gains, gain from pensions as well as lower than expected provisions for loan losses, especially for those related to the Energy sector.

The banks within the portfolio produced varying returns during the quarter with the Bank of Montreal outperforming the group with a total return of 0.04%. Meanwhile, the Canadian Imperial Bank of Commerce (“CIBC”) lagged behind its peers, declining 8.1% during the period after outperforming in the previous 2 quarters.

Only CIBC announced a dividend increase in the quarter, increasing it by 2.7%. This was the fifth quarter in a row that CIBC increased its dividend rate.

The Fund did utilize its covered-call writing strategy slightly during the quarter with an average 6.2% of the portfolio subject to covered calls. The Fund ended the quarter with none of the portfolio subject to covered calls.

Due to our expectations that Canadian bank earnings growth will continue to slow in 2016 and our concerns regarding loan loss provisions, especially for those related to the Energy industry, the Fund’s cash position was increased in the first quarter to 13.7% vs. 6.5% at the end of the previous quarter.

 

Portfolio Manager Updates for 2015-10-31

As of October 31, 2015, the Net Asset Value (“NAV”) of the Fund was $20.79 versus $20.94 per unit on July 31, 2015. The Fund’s two share classes are listed on the Toronto Stock Exchange as PIC.A and PIC.PR.A. They closed on October 30, 2015 at $6.16 and $15.14 respectively which, when combined, represent a 2.5% premium to the NAV.

Distributions totaling $0.20319 were paid to the Class A shareholders and $0.215625 were paid to the Preferred shareholders during the quarter.

The Canadian banks demonstrated resilient performance in the fourth quarter with the S&P/TSX Diversified Banks Total Return Index clawing its way to a total return of 1.1% after declining almost 9% in the first three weeks of August along with the broader market swoon. The banks continued to show steady earnings supported by stable domestic banking revenues, a greater contribution from U.S. and International banking along with cyclically low credit charges.

The banks within the portfolio produced varying returns during the quarter with the Canadian Imperial Bank of Commerce (“CIBC”) outperforming the group with a total return of 8.6%. Meanwhile, the Bank of Nova Scotia (“BNS”) lagged behind its peers, declining 3.1% during the period.

BNS, CIBC and the Royal Bank of Canada (“RBC”) each announced a dividend increase in the quarter, increasing it by 2.9%, 2.7% and 2.6% respectively. This was the fourth quarter in a row that CIBC increased its dividend rate.

The Fund did increase its covered-call writing slightly during the quarter with an average 10.0% of the portfolio subject to covered calls vs. 10.4% the previous quarter. The Fund ended October with 4.1% of the portfolio subject to covered calls.

The Fund maintained its invested position for most of the period and ended the fourth quarter with a cash position of 6.5% vs. 6.7% at the end of the previous quarter.

 

Portfolio Manager Updates for 2015-07-31

As of July 31, 2015, the Net Asset Value (“NAV”) of the Fund was $20.94 versus $22.31 per unit on April 30, 2015. The Fund’s two share classes are listed on the Toronto Stock Exchange as PIC.A and PIC.PR.A. They closed on July 31, 2015 at $6.31 and $15.20 respectively which, when combined, represent a 2.7% premium to the NAV.

Distributions totaling $0.20319 were paid to the Class A shareholders and $0.215625 were paid to the Preferred shareholders during the quarter.

The Canadian banks continued their see-saw performance during the third quarter ending July 31, 2015. After declining over 10% in the first quarter, followed by a bounce back of 11.1% in the second quarter, the banks rolled back down with the S&P/TSX Diversified Banks Total Return Index declining 3.9% during the period. Although the banks for the most part reported better than expected earnings during the quarter, challenging growth fundamentals as well as ongoing uncertainty associated with weak energy prices have provided some headwinds for the group.

All the banks within the portfolio declined during the quarter with the Bank of Montreal declining the most with a negative return of 6.3%. Meanwhile, the Canadian Imperial Bank of Commerce (“CIBC”) outperformed during the period, but still declined 2.4%.

Both the CIBC and National Bank of Canada announced a dividend increase in the quarter, increasing it by 2.8% and 4% respectively. This was the third quarter in a row that CIBC increased its dividend rate.

The Fund maintained its covered-call writing during the quarter with, on the average, 10.4% of the portfolio subject to covered-calls vs. 11.9% the previous quarter. The Fund ended July with 14.4% of the portfolio subject to covered-calls.

The Fund maintained its invested position for the majority of the period and ended the third quarter with a cash position of 6.7% vs. 5.0% at the end of the previous quarter.

 

Portfolio Manager Updates for 2015-04-30

As of April 30, 2015, the Net Asset Value (“NAV”) of the Fund was $22.31 versus $20.74 per unit on January 31, 2015. The Fund’s two share classes are listed on the Toronto Stock Exchange as PIC.A and PIC.PR.A. They closed on April 30, 2015 at $7.28 and $15.36 respectively which, when combined, represent a 1.5% premium to the Net Asset Value.

Distributions totaling $0.20319 were paid to the Class A shareholders and $0.215625 were paid to the Preferred shareholders during the quarter.

After declining over 10% the previous quarter, the Canadian banks bounced back with the S&P/TSX Diversified Banks Total Return Index up 11.1% during the period vs. the broader TSX Composite Index up 4.5%. After reporting weaker than expected fourth quarter earnings, Canadian Banks surprised to the upside by reporting better than expected first quarter earnings that were helped by stronger trading revenues and lower provisions for credit losses.

All the banks within the portfolio advanced during the quarter with the Royal Bank of Canada (“RBC”) leading the way up 12.8%. Meanwhile, Bank of Montreal (“BMO”) lagged the group during the period, but still generated a strong return of 9.0%. The Fund also now holds National Bank of Canada, which it is now permitted to purchase after securityholders approved a proposal to change the investment restrictions of the Fund at the end of 2014.

Four of the six banks announced a dividend increase in the quarter with The Toronto-Dominion Bank increasing their dividend by 8.5%. The Canadian banks continue to perform well on an operating basis despite slowing retail loan growth and low net interest margin pressures.

The Fund did increase its covered-call writing during the quarter with an average 11.9% of the portfolio subject to covered-calls vs. 3.4% the previous quarter. The Fund ended April with 6.6% of the portfolio subject to covered-calls.

The Fund maintained its invested position for the majority of the period and ended the second quarter with a cash position of 5.0% vs. 0.5 % at the end of the previous quarter.

 

Portfolio Manager Updates for 2015-01-31

As of January 31, 2015, the Net Asset Value (“NAV”) per Unit of the Fund was $20.74 versus $23.60 on October 31, 2014. The Fund’s two share classes are listed on the Toronto Stock Exchange as PIC.A and PIC.PR.A. They closed on January 30, 2014 at $7.15 and $15.41 respectively which, when combined, represent a 8.8% premium to the NAV.

Distributions totaling $0.20319 were paid to the Class A shareholders and $0.215625 were paid to the Preferred shareholders during the quarter.

The Canadian banks continued to decline this quarter after reaching a new high during the previous quarter on September 18, 2014. The S&P/TSX Diversified Banks Total Return Index declined 10.02% during the period on weaker than expected 4th quarter earnings as well as concerns regarding the banks’ loan and capital markets exposure to Energy companies. All five banks declined during the quarter with the Canadian Imperial Bank of Commerce (“CIBC”) leading the downtrend generating a total return of negative 13.42%. Meanwhile, The Toronto-Dominion Bank outperformed during the period, but still generated a negative return of 8.0%.

Two of the five banks announced dividend increases in the quarter with the Bank of Montreal and CIBC increasing their dividend by 2.6% and 3.0% respectively. The Canadian banks continue to perform well on an operating basis despite slowing retail loan growth and net interest margin pressures.

Volatility for the Canadian banks moved higher for most of the quarter coinciding with the weak performance for the group. The S&P/TSX Diversified Banks Index had 2 periods during the quarter where the index declined by more than 9%, increasing the implied volatility for the group. The Fund did some covered-call writing with an average 3.4% of the portfolio subject to covered-calls vs. 2.7% in the previous quarter. The Fund ended the quarter with nil% of the portfolio subject to covered-calls.

The Fund maintained its invested position for the majority of the period and ended the first quarter with a cash position of 0.5% vs. 0.8 % at the end of the previous quarter.

The Canadian banks profitability is likely to grow at a slower pace 2015 due to slower consumer loan growth and narrow net interest margins. However, in the context of low interest rates, the valuation of companies within the portfolio remains at attractive levels when measured by price to earnings ratios or current dividend yields. The Canadian Banks are likely to continue to return capital to shareholders in the form of dividend increases and share buybacks due to their strong capital ratios.

 

Portfolio Manager Updates for 2014-10-31

As of October 31, 2014, the Net Asset Value (“NAV”) of the Fund was $23.60 versus $24.26 per unit on July 31, 2014. The Fund’s two share classes are listed on the Toronto Stock Exchange as PIC.A and PIC.PR.A. They closed on October 31, 2014 at $8.30 and $15.60 respectively which, when combined, represent a 1.3% premium to the NAV.

Distributions totaling $0.20319 were paid to the Class A shareholders and $0.215625 were paid to the Preferred shareholders during the quarter.

As a reminder, as per the Management Information Circular dated August 20, 2010, the Fund will change the quarterly distribution for the Class A shares to a floating rate distribution calculated as approximately 8% per annum of the NAV of the Class A Shares. Due to consolidation of the Class A shares on November 1, 2010 on the basis of 0.738208641 new shares for each old share, the NAV threshold per unit for the Class A share floating distribution is $25.00.

On October 23, 2014, the Fund announced a follow-on offering on offering of preferred shares and class A shares. On November 10, 2014, the Fund announced it has completed a treasury offering of 900,000 preferred shares at a price of $15.60 per shares and 900,000 class A shares at a price of $8.92 per shares for gross proceeds of $22.1 million.

After reaching a new high on September 18th, the S&P/TSX Diversified Banks Total Return Index declined during the period and ended October 31, 2014 at 4,610.92 vs. 4,649.67 on July 31, 2014. Three of the five banks generated a positive total return during the quarter with the Canadian Imperial Bank of Commerce leading the group generating a total return of 2.7%. Meanwhile, The Bank of Nova Scotia lagged during the period, down 5.8% on concerns that slowing growth in Latin America would have a negative effect on its operations there.

Two of the five banks announced dividend increases in the quarter with the Bank of Nova Scotia and the Royal Bank of Canada increasing their dividend by 3.1% and 5.6% respectively. The Canadian banks continue to perform well despite slowing retail loan growth and net interest margin pressures.

Volatility for the Canadian banks spiked above 20 for a brief period in mid-October as the banks along with many global equity markets corrected over 10% from their highs in September. However, volatility quickly retraced as the banks bounced back over 6% from the intra-day low reached on October 16, 2014.

The Fund was fairly inactive in its covered-call writing with an average 3.1% of the portfolio subject to covered-calls vs. 2.7% in the prior quarter. The Fund ended the quarter with nil% of the portfolio subject to covered-calls.

The Fund maintained its invested position for the majority of the period and ended the fourth quarter with a cash position of 0.8%, which is unchanged compared to the prior quarter.

The Canadian banks are expected to improve profitability in 2015 due to lower loan losses and better capital market related revenues. Consequently, Canadian banks are likely to continue to return capital to shareholders in the form of dividend increases and share buybacks.

 

Portfolio Manager Updates for 2014-07-31

As of July 31, 2014, the Net Asset Value (“NAV”) of the Fund was $24.26 versus $22.81 per unit on April 30, 2014. The Fund’s two share classes are listed on the Toronto Stock Exchange as PIC.A and PIC.PR.A. They closed on July 31, 2014 at $8.30 and $15.61 respectively which, when combined, represent a 1.4% discount to the NAV.D

Distributions totaling $0.20319 were paid to the Class A shareholders and $0.215625 were paid to the Preferred shareholders during the quarter.

As a reminder, as per the Management Information Circular dated August 20, 2010, the Fund will change the quarterly distribution for the Class A shares to a floating rate distribution that will vary and will be calculated as approximately 8% per annum of the NAV of the Class A Shares once the NAV of the Fund reaches $25.00 per unit.

The S&P/TSX Diversified Banks Total Return Index advanced to new highs during the period and ended July 31, 2014 at 4,649.67 vs. 4,238.34 on April 30, 2014. Each of the five banks within the portfolio was up during the quarter with the Bank of Nova Scotia leading the group generating a total return of 12.1%. Meanwhile, the Canadian Imperial Bank of Commerce (“CIBC”) lagged during the period, but was still up 4.6%.

The strong performance was partly attributable to second quarter earnings reported during the period that were generally better than analysts’ estimates due to lower loan loss provisions as well as strong wealth management revenues. Two of the five banks announced dividend increases in the quarter with the Bank of Montreal and CIBC increasing their dividends by 2.6% and 2.1% respectively. The Canadian banks continue to perform well despite slowing retail loan growth and net interest margin pressures.

Volatility for the Canadian banks continued to remain low for the period. The Fund was fairly inactive in its covered-call writing with an average 2.7% of the portfolio subject to covered-calls vs. 2.0% in the previous quarter. The Fund ended the quarter with nil% of the portfolio subject to covered calls.

The Fund maintained its invested position for the majority of the period and ended the second quarter with a cash position of 0.8% vs. 0.9% at the end of the previous quarter.

The Canadian banks are expected to improve profitability in 2014 due to lower loan losses and better capital market-related revenues. Consequently, Canadian Banks are likely to continue to return capital to shareholders in the form of dividend increases and share buybacks.

 

Portfolio Manager Updates for 2014-04-30

As of April 30, 2014, the Net Asset Value (“NAV”) of the Fund was $22.81 versus $21.12 per unit on January 31, 2014. The Fund’s two share classes are listed on the Toronto Stock Exchange as PIC.A and PIC.PR.A. They closed on April 30, 2014 at $7.10 and $15.62 respectively which, when combined, represent a 0.4% discount to the NAV.

Distribution of $0.20319 was paid to the Class A shareholders and $0.215625 was paid to the Preferred shareholders during the quarter.

The S&P/TSX Diversified Banks Total Return Index advanced to new highs during the period and ended April 30, 2014 at 4,238.34 vs. 3,852.71 on January 31, 2014. Each of the five banks within the portfolio was up during the quarter with the Bank of Montreal leading the group generating a total return of 12.1%. Meanwhile, the Royal Bank of Canada lagged during the period, but was still up 7.2%.

The strong performance was partly due to reporting first quarter earnings during the period that were generally better than analysts’ estimates due to lower loan loss provisions as well as strong wealth management revenues. Four of the five banks announced dividend increases in the quarter with The Toronto-Dominion Bank surprising the street announcing a second increase in as many quarters. The Canadian banks continue to perform well despite slowing retail loan growth and net interest margin pressures.

Volatility for the Canadian banks continued to remain low for the period. The Fund was fairly inactive in its covered-call writing with an average 2.0% of the portfolio subject to covered calls vs. 2.7% in the previous quarter. The Fund ended the quarter with nil% of the portfolio subject to covered calls.

The Fund maintained its invested position for the majority of the period and ended the second quarter with a cash position of 0.9% vs. 1.1% at the end of the previous quarter.

The Canadian banks are expected to improve profitability in 2014 due to lower loan losses and better capital market related revenues. Consequently, Canadian banks are likely to continue to return capital to shareholders in the form of dividend increases and share buybacks.

 

Portfolio Manager Updates for 2014-01-31

As of January 31, 2014, the Net Asset Value (“NAV”) of the Fund was $21.12 versus $21.95 per unit on October 31, 2013. The Fund’s two share classes are listed on the Toronto Stock Exchange as PIC.A and PIC.PR.A. They closed on January 31, 2014 at $6.20 and $15.36 respectively which, when combined, represent a 2.1% premium to the NAV.

Distributions of $0.20319 were paid to the Class A shareholders and $0.215625 were paid to the Preferred shareholders during the quarter.

The S&P/TSX Diversified Banks Total Return Index was down slightly during the period ending January 31, 2014 at 3,852.71 vs. 3,909.34 on October 31, 2013. Four of the five banks within the portfolio declined during the quarter with only The Toronto-Dominion Bank (TD) generating a positive total return of 1.6%. Meanwhile, the Bank of Montreal (BMO) lagged the group during the period, down 5.2%. After performing strongly into the end of 2013, the Canadian banks corrected along with the broader markets in January of 2014 as concerns arose regarding emerging market growth and also after the U.S. Federal Reserve Bank announced the second $10 billion taper of bond purchases on January 29, 2014.

Canadian banks reported fourth quarter earnings during the period that were generally better than analysts’ estimates. Two of the five banks announced dividend increases in the quarter while the remainder left dividends unchanged. The Canadian banks continued to perform very well despite slowing retail loan growth and net interest margin pressures.

Volatility for the Canadian banks continued to remain low for the period. The Fund was fairly inactive in its covered-call writing with an average 2.7% of the portfolio subject to covered-calls vs. 16.1% in the previous quarter. The Fund ended the first quarter with 15.5% of the portfolio subject to covered-calls.

The Fund maintained its invested position for the majority of the period and ended the first quarter with a cash position of 1.1% vs. 1.2% at the end of the previous quarter.

The Canadian banks are expected to improve profitability in 2014 due to positive operating leverage and better capital market related revenues. Consequently, Canadian Banks are likely to continue to return cash to shareholders in the form of dividend increases and share buybacks.

 

Portfolio Manager Updates for 2013-10-31

As of October 31, 2013, the Net Asset Value (“NAV”) of the Fund was $21.95 versus $20.25 per unit on July 31, 2013. The Fund’s two share classes are listed on the Toronto Stock Exchange as PIC.A and PIC.PR.A. They closed on October 31, 2013 at $6.57 and $15.20 respectively which, when combined, represent a 0.8% discount to the NAV.

Distributions totaling $0.20319 were paid to the Class A shareholders and $0.215625 were paid to the Preferred shareholders during the quarter.

The S&P/TSX Diversified Banks Total Return Index was up during the period ending October 31, 2013 at 3,909.34 vs. 3,495.46 on July 31, 2013. All five banks within the portfolio posted strong total returns during the quarter with the Canadian Imperial Bank of Commerce leading the group up 15.2% while the Royal Bank of Canada lagged the group, but was still up 10.2%. After trading relatively sideways for the first half of 2013, the Canadian banks rallied strongly starting in July on expectations of better net interest margins as the yield curve has steepened considerably since May.

Canadian banks reported third quarter earnings during the period that were mostly above analysts’ estimates although top line revenue growth was a bit weaker than expected. Domestic retail loan growth continues to slow while net interest margins were stable. Most banks were able to offset these headwinds with stronger capital markets-related revenues along with lower loan loss provisions. The Bank of Nova Scotia, Royal Bank of Canada (“RBC”) and The Toronto-Dominion Bank increased their dividends in the quarter with RBC posting the largest increase at 6.3%.

Volatility for the Canadian banks continued to remain low for the period. The Fund was similarly active as the previous quarter in its covered-call writing with an average 16.1% of the portfolio subject to covered-calls vs. 19.4% the previous quarter. The Fund ended the fourth quarter with 8.3% of the portfolio subject to covered-calls.

The Fund maintained its invested position for the majority of the period and ended the fourth quarter with a cash position of 1.2% vs. 3.6% at the end of the previous quarter.

The Canadian banks are expected to improve profitability in 2014 due to positive operating leverage, strong wealth management revenues and improved net interest margins. Consequently, Canadian Banks are likely to continue to return capital to shareholders in the form of dividend increases and share buybacks. The stocks within the portfolio remain at attractive levels when measured by price to earnings ratios or current dividend yields which should continue to act as support for the share prices.

 

Portfolio Manager Updates for 2013-07-31

As of July 31, 2013, the Net Asset Value (“NAV”) of the Fund was $20.25 versus $20.34 per unit on April 30, 2013. The Fund’s two share classes are listed on the Toronto Stock Exchange as PIC.A and PIC.PR.A. They closed on July 31, 2013 at $5.78 and $15.46 respectively which, when combined, represent a 4.9% premium to the NAV.

Distributions totaling $0.20319 were paid to the Class A shareholders and $0.215625 were paid to the Preferred shareholders during the quarter.

The S&P/TSX Diversified Banks Total Return Index was up during the period ending July 31, 2013, closing at 3,495.46 vs. 3,371.27 on April 30, 2013. Four of the five banks within the portfolio posted positive total returns during the quarter with the Royal Bank of Canada (“RBC”) leading the group up 6.6% while the Canadian Imperial Bank of Commerce (“CIBC”) lagged the group for the second quarter in a row, down 2.0% on continued concerns of the bank losing market share in the domestic residential mortgage market since exiting the mortgage broker channel in 2012.

Canadian banks reported second quarter earnings during the period that were mostly above analyst’s estimates although top line revenue growth was a bit weaker than expected. Domestic retail loan growth continues to slow while net interest margins continue to narrow. Most banks were able to offset these headwinds with stronger capital markets related revenues along with lower loan loss provisions. Only CIBC increased its dividend, by 2.13%, in the quarter as the four other banks had raised their dividends in the prior quarter.

Volatility for the Canadian banks continued to remain low for the period. The Fund was more active than the previous quarter in its covered-call writing with an average 19.4% of the portfolio subject to covered calls vs. 1.7% the previous quarter. The Fund ended the third quarter with 10.8% of the portfolio subject to covered calls.

The Fund maintained its invested position for the majority of the period and ended the third quarter with a cash position of 3.6% vs. 1.0% at the end of the previous quarter.

The profitability of Canadian banks continues to grow at a slower pace in 2013 due to decelerating consumer loan growth, lower net interest margins and the potential for a slowdown in the residential housing market in Canada. However, the Canadian banks have been able to somewhat offset lower consumer loan growth with strong commercial loan growth as well as reduced loan loss expenses. In the context of low interest rates and the potential for the Canadian Banks to continue to raise their dividends, the valuations of companies within the portfolio remain at attractive levels when measured by price to earnings ratios or current dividend yields which should continue to act as support for the share prices.

 

Portfolio Manager Updates for 2013-04-30

As of April 30, 2013, the Net Asset Value (“NAV”) of the Fund was $20.34 versus $20.91 per unit on January 31, 2013. The Fund’s two share classes are listed on the Toronto Stock Exchange as PIC.A and PIC.PR.A. They closed on April 30, 2013 at $5.77 and $15.90 respectively which, when combined, represent a 6.54% premium to the NAV.

Distributions totaling $0.20319 were paid to the Class A shareholders and $0.215625 were paid to the Preferred shareholders during the quarter.

While the U.S. equity market continued to rally from the previous quarter hitting new all-time highs during the period, in Canada, the S&P/TSX Composite was down during the period. This was mainly due to weakness in the Materials sector from precious metals equities as a result of stronger U.S. dollar during the period which led to some downward pressure on gold bullion prices. Base metal equities were also down during the period on concerns of a slowdown in economic growth in China.

The S&P/TSX Diversified Banks Total Return Index was relatively flat during the period ending April 30, 2013 at 3371.27 vs. 3385.14 on January 31, 2013. Three of the five banks posted positive returns during the quarter although the difference between best and worst performing bank was quite narrow. The Bank of Montreal (“BMO”) led the group during the period up 1.5% while the Canadian Imperial Bank of Commerce (“CM”) lagged the group down 2.0%.

Canadian banks reported first quarter earnings during the period that were mostly above analyst’s estimates although top line revenue growth was a bit weaker than expected. Domestic retail loan growth continues to slow while net interest margins continue to narrow. Most banks were able to offset these headwinds with stronger capital markets related revenues along with lower loan loss provisions. Four of the five banks increased their dividends in the quarter, with CIBC being the only bank to maintain its dividend rate.

Volatility for the Canadian banks remained low for the period. The Fund was less active than the previous quarter in its covered-call writing with an average of 1.7% of the portfolio subject to covered calls vs. 31.7% in the previous quarter. The Fund ended the second quarter with 4.3% of the portfolio subject to covered calls.

The Fund maintained its invested position for the majority of the period and ended the second quarter with a cash position of 1.0% vs. 2.8% at the end of the previous quarter.

The profitability of Canadian banks continues to grow at a slower pace in 2013 due to decelerating consumer loan growth, lower net interest margins and the potential for a slowdown in the residential housing market in Canada. However, the Canadian banks have been able to somewhat offset lower consumer loan growth with strong commercial loan growth as well as reduced loan loss expenses. In the context of low interest rates and the potential for the Canadian Banks to continue to raise their dividends, the valuations of companies within the portfolio remain at attractive levels when measured by price to earnings ratios or current dividend yields which should continue to act as support for the share prices.

 

Portfolio Manager Updates for 2013-01-31

As of January 31, 2013, the Net Asset Value (“NAV”) of the Fund was $20.91 versus $20.53 per unit on October 31, 2012. The Fund’s two share classes are listed on the Toronto Stock Exchange as PIC.A and PIC.PR.A. They closed on January 31, 2013 at $6.14 and $15.61 respectively which, when combined, represent a 4.02% premium to the NAV.

Distributions totaling $0.20319 were paid to the Class A shareholders and $0.215625 were paid to the Preferred shareholders during the quarter.

Markets continued to rally from the previous quarter supported by improving economic outlooks globally as well as the dissipation of concerns surrounding the “Fiscal Cliff” as a last minute agreement was made in the U.S. that increased taxation but pushed out the mandatory spending cuts to March 1, 2013.

The S&P/TSX Diversified Banks Total Return Index increased to 3385.14 on January 31, 2013 from 3149.98 on October 31, 2012. All five banks posted positive returns during the quarter. The Royal Bank of Canada (“RBC”) continued its outperformance relative to the group from the previous quarter, up 10.2% while The Toronto-Dominion Bank (“TD”) lagged the group for the second consecutive quarter, but still rose 3.5% during the period.

In addition to the improving global market backdrop during the period, Canadian banks also reported steady fourth quarter earnings that were mostly in line with analysts’ estimates. None of the banks increased their dividends in the quarter, which was largely expected after all five banks raised their dividends in the previous quarter. Following the announcement of issuer bids by both Canadian Imperial Bank of Commerce (“CM”) and RBC in the previous quarter, the Bank of Montreal (“BMO”) announced the filing of its own normal course issuer bid to purchase shares in the market.

Volatility for the Canadian banks continued to decline this quarter other than the brief spike in market volatility in general around the U.S. presidential election. The Fund was active in its covered-call writing with, on average, 31.7% of the portfolio subject to covered calls during the period. However, the Fund ended the first quarter with none of the portfolio subject to covered calls.

The Fund maintained its invested position for the majority of the period and ended the first quarter with a cash position of 2.8% vs. 0.8% at the end of the previous quarter.

The profitability of Canadian banks is likely to grow at a slower pace in 2013 due to decelerating consumer loan growth, lower net interest margins, and the potential for a slowdown in the residential housing market in Canada. However, the Canadian banks have been able to somewhat offset lower consumer loan growth with strong commercial loan growth and reduced operating expenses. In the context of low interest rates, the valuations of companies within the portfolio remain at attractive levels when measured by price to earnings ratios or current dividend yields which should continue to act as support for their share prices.

 

Portfolio Manager Updates for 2012-10-31

As of October 31, 2012, the Net Asset Value (“NAV”) of the Fund was $20.53 versus $20.04 per unit on July 31, 2012. The Fund’s two share classes are listed on the Toronto Stock Exchange as PIC.A and PIC.PR.A. They closed on October 31, 2012 at $5.85 and $15.49 respectively which, when combined, represent a 3.95% premium to the Net Asset Value.

Distributions totaling $0.20319 were paid to the Class A shareholders and $0.215625 were paid to the Preferred shareholders during the quarter.

After declining amid European debt crisis concerns and fears of a decelerating global economy during the previous quarter, markets rallied strongly in the fourth quarter on the back of new monetary stimulus initiatives and bond purchase programs announced by major global central banks over the period.

The S&P/TSX Diversified Banks Total Return Index increased to 3149.98 on October 31, 2012 from 2952.48 on July 31, 2012. All five banks posted positive returns during the quarter. The Royal Bank of Canada (“RBC”) rallied the most after lagging the group the previous quarter, up 12.0% while The Toronto-Dominion Bank (“TD”) lagged the group, but still up 3.9% during the period.

In addition to the improving global market backdrop during the period, Canadian banks also reported better than expected 3rd quarter earnings in August and all five banks also raised their dividends during the quarter by 3-7%. TD increased its payout ratio to 40-50% from 35-45% while Canadian Imperial Bank of Commerce and RBC also announced normal course issuer bids to repurchase shares during the period. At the end of October, RBC also announced they were acquiring the auto finance and deposit business of ALLY Credit Canada Ltd. for $4.1 billion while TD announced they were acquiring Target Corporation’s U.S. Visa and private label credit card portfolio for an undisclosed amount.

Volatility for the Canadian banks declined back towards the lows over the period as concerns about the European debt crisis subsided. During the period, the Fund reduced its covered-call writing activity and ended the quarter with none of the portfolio subject to covered calls.

The Fund maintained its invested position for the majority of the period and ended the quarter with a cash position of 0.8% vs. 4.9% at the end of the previous quarter.

The profitability of Canadian banks is likely to grow at a slower pace in 2013 due to decelerating consumer loan growth, lower net interest margins and the potential for a slowdown in the residential housing market in Canada. However, the banks are likely to reduce expenses to offset lower revenues. In the context of low interest rates, the valuations of companies within the portfolio remain at attractive levels when measured by price to earnings ratios or current dividend yields which should continue to act as support for the share prices.

 

Portfolio Manager Updates for 2012-07-31

As of July 31, 2012, the Net Asset Value (“NAV”) of the Fund was $20.04 versus $21.38 per unit on April 30, 2012. The Fund’s two share classes are listed on the Toronto Stock Exchange as PIC.A and PIC.PR.A. They closed on July 31, 2012 at $5.90 and $15.20 respectively which, when combined, represent a 5.29% premium to the NAV.

Distributions totaling $0.20319 were paid to the Class A shareholders and $0.215625 were paid to the Preferred shareholders for the quarter ended July 31, 2012.

The S&P/TSX Diversified Banks Total Return Index decreased to 2952.48 on July 31, 2012 from 3094.13 on April 30, 2012. After rallying in the first two quarters, the Canadian banks pulled back a bit on continued concerns regarding the European debt crisis as well as growing fears of a decelerating global economy.

All five banks posted negative returns during the quarter. The Canadian Imperial Bank of Commerce (“CM”) led the group posting the least negative return of 0.33% while the Royal Bank of Canada lagged the group down 8.99% after Moody’s Investor Service cut RBC’s credit rating by two notches on June 21, 2012.

The Canadian banks as a group did report better-than-expected second quarter earnings on strong trading revenues and stable net interest margins. Capital ratios continue to remain strong and National Bank of Canada raised their dividend in the quarter by 5.3%. We expect all the banks to continue with dividend increases throughout fiscal 2012.

Volatility for the Canadian banks rose to their highest level of 2012 as concerns about the European debt crisis moved to the forefront once again. During the period, the Fund increased its covered call writing activity and ended the quarter with 73.9% of the portfolio subject to covered calls. The Fund also bought some puts in the quarter and ended the period with approximately 25% of the portfolio hedged with protective put options.

The Fund maintained its invested position for most of the period and ended the quarter with a cash position of 4.9% vs. 0.9% at the end of the previous quarter.

The profitability of Canadian banks is likely to grow at a slower pace in 2012 due to decelerating consumer loan growth and lower net interest margins. However, in the context of low interest rates, the valuations of companies within the portfolio remain at attractive levels when measured by price to earnings ratios or current dividend yields and this should continue to act as support for the share prices.

 

Portfolio Manager Updates for 2012-04-30

As of April 30, 2012, the Net Asset Value (“NAV”) of the Fund was $21.38 versus $20.93 per unit on January 31, 2012. The Fund’s two share classes are listed on the Toronto Stock Exchange as PIC.A and PIC.PR.A. They closed on April 30, 2012 at $6.69 and $15.20 respectively which, when combined, represent a $0.51 or 2.39% premium to the NAV.

Distributions totaling $0.20319 were paid to the Class A shareholders and $0.215625 were paid to the Preferred shareholders during the quarter.

The S&P/TSX Diversified Banks Total Return Index increased to 3094.13 on April 30, 2012 from 2903.01 on January 31, 2012. The Canadian banks continued to rally in the fiscal second quarter after bottoming in late November last year on the back of better-than-expected first quarter earnings.

Four of the five banks posted positive returns during the quarter with only the Canadian Imperial Bank of Commerce posting a modest negative return of 1.12% on concerns regarding the sale of its FirstLine mortgage platform and the potential loss of market share in this business.

The Canadian banks as a group did report better-than-expected first quarter earnings on improved trading revenues and net interest margins. Capital ratios continue to remain strong even though reported regulatory capital was reduced during the period due to the impact of adhering to International Financial Reporting Standards as well as the adoption of the new regulatory capital standard of Basel 2.5. Three of the five banks raised their dividends in the quarter by an average of 6 percent. We expect the banks to continue with dividend increases throughout fiscal 2012.

Volatility for the Canadian banks was low during the period and the Fund reduced its covered call writing activity. The percent of the portfolio subject to covered calls on average during the period was 15.3% and ended the quarter with none of the portfolio subject to covered calls.

The Fund ended the quarter with a cash position of 0.9% vs. 5.2% at the end of the previous quarter due to some covered calls on Toronto-Dominion Bank getting exercised near the end of January.

The Canadian banks profitability is likely to grow at a slower pace in 2012 due to decelerating consumer loan growth and lower net interest margins. However, in the context of low interest rates, the valuations of companies within the portfolio remain at attractive levels when measured by price to earnings ratios or current dividend yields and this should continue to act as support for the share prices.

 

Portfolio Manager Updates for 2012-01-31

As of January 31, 2012, the Net Asset Value (“NAV”) of the Fund was $20.93 versus $20.81 per unit on October 31, 2011. The Fund’s two share classes are listed on the Toronto Stock Exchange as PIC.A and PIC.PR.A. They closed on October 31, 2011 at $6.38 and $14.81 respectively which, when combined, represent a $0.26 or 1.24% premium to the NAV.

Distributions totaling $0.20319 were paid to the Class A shareholders and $0.215625 were paid to the Preferred shareholders during the quarter.

During the quarter the S&P/TSX Diversified Banks Total Return Index increased to 2903.01 from 2800.44 on October 31, 2011. After bottoming in late November, the Canadian banks staged a rally along with broader equity markets at end of 2011 and into January 2012 on the likelihood that the European Central Bank along with other European Union countries would help bail out Greece as well as gradually improving economic statistics in the U.S.

Four of the five Canadian banks posted positive returns during the quarter with only the Bank of Nova Scotia (“BNS”) posting a modest negative return of 0.89% on concerns about the Bank’s capital position relative to the new Basel III requirements that are to be implemented at the end of January 2013. On February 1, 2012, BNS announced a common share offering for $1.51 billion in order to shore up their capital in advance of the upcoming Basel rules.

The Canadian bank’s as a group did report better than expected fourth quarter earnings on improved net interest margins and commercial loan growth. Capital ratios continue to build; however, none of the banks within the portfolio raised their dividends in the quarter. We expect the banks to resume dividend increases in fiscal 2012.

Volatility for the Canadian banks remained high until December and then started to decline as fourth quarter earnings for the banks came in better than expected and economic statistics in the U.S. started to improve. The Fund was active in writing covered calls during the period even though volatility declined as the Strathbridge Selective Overwriting (“SSO”) strategy provided signals to write calls. The percent of the portfolio subject to covered calls on average during the period was 23.4% and the Fund ended the quarter with approximately 39% of the portfolio subject to covered calls.

The Fund ended the quarter with a cash position of 5.2% vs. 1.2% at the end of the previous quarter due to some covered calls being exercised on Toronto-Dominion Bank in January.

The Canadian banks profitability is likely to grow at a slower pace in 2012 due to decelerating consumer loan growth and lower net interest margins. In the context of low interest rates, the valuations of companies within the portfolio remain at attractive levels when measured by price to earnings ratios or current dividend yields. Due to their strong capital ratios, Canadian banks are likely to continue to return capital to shareholders in the form of higher dividends.

 

Portfolio Manager Updates for 2011-10-31

The Net Asset Value of the Fund at October 31, 2011 was $20.81 versus $21.37 per unit on July 31, 2011. The Fund’s two share classes are listed on the Toronto Stock Exchange as PIC.A and PIC.PR.A. They closed on October 31, 2011 at $6.03 and $14.56 respectively which, when combined, represent a $0.22 or 1.06% discount to the Net Asset Value.

Distributions totaling $0.20319 were paid to the Class A shareholders and $0.215625 were paid to the Preferred shareholders during the quarter.

During the quarter the S&P/TSX Diversified Banks Total Return Index decreased to 2800.44 from 2844.72 on July 31, 2011. After peaking in early April, the Canadian banks continued to decline with broader equity markets over the summer on increased concerns of European sovereign credit risks and the potential impact on global economic growth. However, markets stabilized in early October and rallied into year-end on the likelihood that the European Central Bank along with other European Union countries would help bail out Greece.

Four of the five banks had modest negative returns during the period with only the Canadian Imperial Bank of Commerce posting a positive return of 4.19%. Similar to last quarter, Royal Bank underperformed the other banks in the portfolio, down 4.35% on weaker than expected trading revenues. The banks as a group did report better than expected third quarter earnings but this was overshadowed by macro concerns relating to Europe. Capital ratios continue to look strong however, and both the Canadian Imperial Bank of Commerce and The Toronto-Dominion Bank raised their dividend in the quarter. We expect the banks to continue with dividend increases throughout fiscal 2012.

Due to the higher level of volatility in the Canadian banks for the majority of the period, the Fund increased its level of selective covered call writing activity as the higher volatility did compensate the Fund enough to justify this activity. The Fund ended October 31, 2011 with approximately 31% of the portfolio subject to covered calls.

The Fund also opportunistically purchased some put protection on the ishares S&P/TSX Capped Financial Index Fund (“XFN”) during the period due to concerns of European sovereign default risk increasing as well as the U.S. debt ceiling controversy impacting Canadian financials. The Fund ended October 31, 2011 with approximately 3% of the Fund subject to protective puts.

The Fund ended the quarter with a cash position of 1.2% vs. 1.6% at the end of the previous quarter.

The Canadian banks are expected to improve their profitability and capital ratios in 2012 due to improving credit, good expense control and leverage to an economic recovery. Consequently, Canadian banks are likely to continue to return capital to shareholders.

 

Portfolio Manager Updates for 2011-07-31

The Net Asset Value of the Fund at July 31, 2011 was $21.37 versus $23.18 per unit on April 30, 2011. The Fund’s two share classes are listed on the Toronto Stock Exchange as PIC.A and PIC.PR.A. They closed on July 31, 2011 at $7.20 and $15.15 respectively which, when combined, represent a $0.98 or 4.59% premium to the Net Asset Value.

Distributions totaling $0.20319 were paid to the Class A shareholders and $0.215625 were paid to the Preferred shareholders during the quarter.

During the quarter the S&P/TSX Financials Total Return Index decreased to 2320.86 from 2490.04 on April 30, 2011. After posting strong performance the previous quarter, the Canadian banks declined during the period due to weaker than expected second quarter earnings as well as heightened sovereign credit risks emanating out of Europe. Reversing their strong performance last quarter, all five banks had a negative return with the Royal Bank leading the way, down 12.88%. The Bank of Montreal posted the best relative performance of the group during the period but still declined 2.28%. These returns are reflective of the weaker than expected second quarter earnings reported by the banks due to net interest margin compression and lower capital market related revenues. Capital ratios continue to look strong however, and the Royal Bank of Canada and, for the second time in the last 3 quarters, the National Bank of Canada raised their dividend in the quarter. We expect the other banks to follow with dividend increases throughout the remainder of fiscal 2011.

Due to the low level of volatility in the Canadian banks for the majority of the period, the covered call writing activity was opportunistic as the lower volatility did not compensate the fund enough to justify a passive call writing approach. The fund ended July 30, 2011 with no portfolio investments subject to covered calls.

The fund ended the quarter with a cash position of 1.6% vs. 0.4% at the end of the previous quarter end.

The Canadian banks are expected to improve their profitability and capital ratios throughout the remainder of 2011 due to improving credit, good expense control and leverage to an improving economy. Consequently, Canadian banks are expected to resume dividend growth, share buybacks and pursuing acquisitions.

 

Portfolio Manager Updates for 2011-04-30

The Net Asset Value of the Fund at April 30, 2011 was $23.18 versus $21.98 per unit on January 31, 2011. The Fund’s two share classes are listed on the Toronto Stock Exchange as PIC.A and PIC.PR.A. They closed on April 30, 2011 at $8.31 and $15.25 respectively which, when combined, represent a $0.38 or 1.64% premium to the Net Asset Value.

Distributions totaling $0.20319 were paid to the Class A shareholders and $0.215625 were paid to the Preferred shareholders during the quarter.

During the quarter the S&P/TSX Financials Total Return Index increased to 2490.04 from 2331.05 on January 31, 2011. After trading relatively flat the previous quarter, the Canadian banks posted strong performance during the period. All five banks within the portfolio had a positive return with the Royal Bank leading the way, up 11.95% after delivering better than expected first quarter earnings on robust trading revenues. The Bank of Nova Scotia lagged the group during the period but still posted a respectable 3.07% total return. These returns are reflective of the solid fiscal first quarter earnings reported by the banks in late February, 2011 on strong retail and wealth management earnings. Capital ratios continued to increase on a year over year basis and both The Toronto-Dominion Bank and the Bank of Nova Scotia increased their dividend in the quarter. We expect the other banks to follow with dividend increases throughout the remainder of fiscal 2011.

Volatility of the bank shares was low during the period other than a brief spike in March when the horrific earthquake and tsunami in Japan occurred. The fund was opportunistic in writing covered calls on most of the banks during the quarter.

The fund ended the quarter with a cash position of 0.4% vs. 5.8% at the end of the previous quarter end. The funds increased its invested position on the back of strong first quarter earnings results from the banks.

The Canadian banks are expected to improve their profitability and capital ratios throughout the remainder of 2011 due to improving credit, good expense control and leverage to an improving economy. Consequently, Canadian banks are expected to resume dividend growth, share buybacks and pursue acquisitions.

 

 

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