CUMIS
                               Second Quarter 2003




Table of Contents

Special Commentary...........................
CUMIS




         Special Commentary
         A Perspective on the “New” Heights of the Canadian Dollar

         The Can...
CUMIS




Canada’s lower rate of productivity               Break-even Exchange Rate:
                                    ...
CUMIS




There are a number of reasons why accurately forecasting currency exchange rates is an
extremely difficult task....
CUMIS




selectively hedging away currency exposures would result in higher – not lower –
volatility.

There are also som...
CUMIS




Executive Summary


Capital Market Review
                                                                      ...
CUMIS




those companies and industries with the highest leverage to economic recovery, there was
some consolidation of h...
CUMIS




Capital Market Review

                                                               Three         Year-to-    ...
CUMIS




Commentary on Investment Returns

                                                         Three          Year-t...
CUMIS




Fixed Income
The second quarter witnessed one of the strongest bond rallies of the past ten years with
all secto...
CUMIS




Review of Last Quarter’s Strategy


Asset Mix
Last quarter…we reiterated our decision to favour equities in your...
CUMIS




Fixed Income
Last quarter… although it was our view that economic fundamentals would push yields
higher, we stru...
CUMIS




Canadian Equities
Last quarter…we wrote “boring as it may sound, we foresee few changes to the portfolio
in the ...
CUMIS




    incumbent telecommunications provider in Switzerland, Smith & Nephew, a UK-
    based orthopaedics company a...
CUMIS




Market Outlook & Strategy

There has been a meaningful change in the outlook for the Canadian and U.S. economies...
CUMIS




In stark contrast, Canada’s economic outlook has become more clouded in recent months.
Although the SARS outbrea...
CUMIS




Amongst domestic holdings, we would, conceptually, like to start trimming Financial
Services slightly and adding...
CUMIS




Component Pooled Fund Returns


   As of June 30, 2003
                                                         ...
CUMIS




Phillips, Hager & North Update – Second Quarter 2003


Announcements
s   There were no personnel changes for the...
CUMIS




Corporate Governance – Proxy Voting

Phillips, Hager & North adopted revised Proxy Voting Guidelines in 2003 (a ...
CUMIS




 Corporation                             Proposal                    Vote                     Rationale

       ...
CUMIS




U.S. Equities: Proposals voted against Management this quarter
       Corporation                     Proposal  ...
CUMIS




       Corporation                       Proposal                  Vote                     Rationale

 General ...
CUMIS




       Corporation                      Proposal                 Vote                     Rationale

 Northern T...
CUMIS




      Corporation                      Proposal                 Vote                     Rationale

            ...
CUMIS




 Corporation                             Proposal                   Vote                     Rationale
         ...
CUMIS




 Corporation                         Proposal                     Vote                     Rationale
           ...
CUMIS




    Summary of Purchases and Sales


    PH&N Balanced Pension Trust

    Short Term Purchases – April 1 to June...
CUMIS




    Summary of Purchases and Sales


    PH&N Balanced Pension Trust

    Short Term Sales – April 1 to June 30,...
CUMIS




Summary of Purchases and Sales


PH&N Balanced Pension Trust

Short Term Maturities – April 1 to June 30, 2003
P...
CUMIS




    Summary of Purchases and Sales


    PH&N Balanced Pension Trust

    Short Term Maturities – April 1 to Jun...
CUMIS




    Summary of Purchases and Sales


    PH&N Balanced Pension Trust

    Bond Purchases – April 1 to June 30, 2...
CUMIS




    Summary of Purchases and Sales


    PH&N Balanced Pension Trust

    Bond Sales – April 1 to June 30, 2003
...
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INVESTMENT MANAGEMENT REPORT

  1. 1. CUMIS Second Quarter 2003 Table of Contents Special Commentary........................................................................................................... 1 Executive Summary............................................................................................................ 5 Capital Market Review ....................................................................................................... 7 Commentary on Investment Returns .................................................................................. 8 Review of Last Quarter’s Strategy.................................................................................... 10 Market Outlook & Strategy .............................................................................................. 14 Appendices Component Pooled Fund Returns ..................................................................................... 17 Phillips, Hager & North Update – Second Quarter 2003.................................................. 18 Corporate Governance – Proxy Voting............................................................................. 19 Summary of Purchases and Sales ..................................................................................... 27 Statement of Investments.................................................................................................. 67 Phillips, Hager & North Investment Management Ltd.
  2. 2. CUMIS Special Commentary A Perspective on the “New” Heights of the Canadian Dollar The Canadian dollar surged, rather suddenly, in the first half of 2003. The primary factor behind this move was the substantial weakness of the U.S. dollar against many other currencies, including the Canadian dollar. The U.S. has an unsustainably large foreign trade gap, and one of the main ways this deficit will shrink is through a weaker U.S. dollar. A secondary consideration that Canada – U.S. Exchange Rate helped boost the Canadian dollar was a 76 favourable economic backdrop. 74 72 Improved confidence about a rebound Cents U.S. 70 in global growth, rising commodity 68 prices, and relatively appealing 66 Canadian yields all helped attract 64 investment to Canada, leading to an 62 appreciation in the dollar. 60 1997 1998 1999 2000 2001 2002 2003 Largest 6-Month Rallies in the Therefore, although it was widely Canadian Dollar Since 1971 21 expected that the Canadian dollar 17.8 18 would strengthen, the recent move has Percent Appreciation 15 been astonishingly swift. As shown in 12 8.4 the adjacent chart, this was by far the 9 6.6 6.5 6 5.8 5.6 5.5 5.4 5.3 largest six-month appreciation in 3 recent history and the consequences of 0 this move will be significant. May 18/99 Jun 24/88 Apr 13/87 May 20/03 Aug 23/90 Sep 01/95 Jan 04/83 Jun 24/76 Jun 27/02 6 Months Ending Impact of the Soaring Loonie A stronger currency diminishes the cost advantage of Canadian producers relative to U.S.-based competitors. The chart on the following page depicts the “break-even” exchange rate for the manufacturing sector. This rate is defined as the value of the Canadian dollar that equalises production costs in Canada and the U.S. Reflecting Phillips, Hager & North Investment Management Ltd. 1
  3. 3. CUMIS Canada’s lower rate of productivity Break-even Exchange Rate: Canadian Manufacturing Sector growth, i.e., the output produced per 100 hour of work, the break-even exchange 95 90 rate has declined for the past two Cents U.S. 85 decades. Canadian producers, 80 however, had generally maintained a 75 cost advantage against the U.S. during 70 'Break-even' Exchange Rate this time. As the chart shows, this 65 Actual Exchange Rate 60 advantage has been greatly reduced 1981 1984 1987 1990 1993 1996 1999 2002 recently. As a result, industries that rely heavily on exports to the U.S. or that compete directly with imports from the U.S. – for instance, wood and paper products, furniture, and electrical equipment makers – will be hurt more than others. While this change in the competitive landscape will be partly offset by an expected pick- up in U.S. growth, the Canadian dollar’s rise will result in a significant blow to Canada’s foreign trade. Moreover, the speed of the move could add to the cost of the adjustment, augmenting the job losses and layoffs that we are already seeing in the headlines. Acting as a brake on the economy’s momentum, the stronger Canadian dollar will, effectively, substitute for the higher interest rates that were expected for the second half of 2003. In fact, the Bank of Canada is now more likely to reduce interest rates in the coming months in order to mitigate the currency impact. As a result of lower financing costs, borrowers can be counted among the rally’s beneficiaries; however, there should also be a few longer-term benefits for all Canadians. First, by increasing the foreign goods and assets that Canadians can exchange for a given sum, the dollar’s appreciation increases the nation’s wealth. A second benefit flows from the fact that Canada imports about 70% of its machinery and equipment. By reducing the cost of these imports, and by encouraging more capital-intensive production, the currency’s appreciation will help boost labour productivity. This, in turn, will boost the standard of living for all Canadians in the long run. Currencies & Our Investment Process For the past several years, forecasters have stubbornly predicted a strengthening Canadian dollar. Then, rather abruptly, this year the U.S. dollar weakened dramatically causing the “loonie” to climb higher than anyone expected. Phillips, Hager & North Investment Management Ltd. 2
  4. 4. CUMIS There are a number of reasons why accurately forecasting currency exchange rates is an extremely difficult task. First, currency markets are quite volatile, so rapid short-run swings are the norm, rather than the exception. Second, is the fact that it can take a very long time for economic fundamentals to influence currency markets. For instance, economic theory suggests that current account deficits should herald currency weakness. Nevertheless, substantial U.S. current account deficits and Canada’s growing current account surpluses did not prevent the decline of the Canadian dollar from 75 cents U.S. in 1997 to its historic low of 62.02 cents U.S. in 2002. Only recently, has concern about trade imbalances contributed to the current weakness of the U.S. dollar. Finally, the attribution of historical returns EAFE Component Returns – Currency Impact Percent, Compound at Annual Rate 18 shows us that of the factors contributing to Impact of Change in the Canadian Dollar 15 Local Currency Return aggregate performance, currency tends to 12 be of lesser importance. The adjacent chart 9 shows the breakdown between market 6 3 returns and currency impact for eighteen 0 major industrialized economies from SW NO OE SG CH HK NE DK UK US DE CA AU BE ES FR JP IT -3 December 1970 to 2002. For primarily these reasons, while the impact of currency movements on the general economic outlook as well as on the competitiveness of specific businesses and/or industries is an important part of our analysis, it would be rare – if ever – that a particular investment decision would be based solely on expected changes in foreign exchange rates. Hedging about Hedging The negative impact of the stronger Canadian dollar on the performance of unhedged foreign investments has rekindled debate on the issue of currency hedging. It should be noted, however, that despite the “loonie’s” recent appreciation, Canadian investors in U.S. securities have had their returns boosted by more than 1.5% per year since the end of 1991 due to the decline of the Canadian dollar over this period. More generally, given the inherent difficulty in forecasting currencies, we believe it is inappropriate to try to “time the dollar” via a currency hedge – for example, either buying foreign currency options or tactically hedging away currency risk to try to boost investment returns. In the absence of a reliable forecast of foreign exchange rates, we also believe that the cost of hedging over long periods would likely exceed the gains. Moreover, the extreme difficulty in predicting currency moves would likely mean that Phillips, Hager & North Investment Management Ltd. 3
  5. 5. CUMIS selectively hedging away currency exposures would result in higher – not lower – volatility. There are also some automatic benefits that accrue to Canadian investors from not hedging away foreign currency exposures in their investment portfolio. On the one hand, the Canadian dollar tends to fall when stock markets are weak. As a result, the foreign currency exposure helps reduce the volatility of investment performance. In addition, the dollar tends to decline when Canadian interest rates fall. Consequently, maintaining the currency exposure helps boost returns when yields in Canada become less attractive and when the liabilities of pension plans tend to rise. If currency exposure is hedged away instead, these benefits are forsaken. In general, we think it is better to let these automatic stabilizers dampen volatility, rather than exposing portfolios to the “zero sum game” of forecast exchanging rates and timing currency markets. Phillips, Hager & North Investment Management Ltd. 4
  6. 6. CUMIS Executive Summary Capital Market Review S&P/TSX Composite & MSCI World Indices Equity market strength continued through the 113 MSCI World (ex-Canada) Index second quarter. The S&P/TSX Composite 111 Canada S&P/TSX Composite Index Index gained 10.6%, the S&P 500 Index was 109 up 6.6% and the MSCI EAFE Index rose 107 10.2%.1 The Canadian bond market was also 105 very strong with the S C Universe Bond 103 101 Index gaining 5.1%. 99 Apr-03 Mar-03 Jun-03 May-03 Commentary on Investment Returns The Balanced Pension Trust (BPT) earned 8.1% in the second quarter. This compares favourably with its benchmark return of 7.6%. Over the past twelve months, the BPT was up 2.7% representing a 2.0% relative value-added. While asset mix policy has been a bit of a headwind for relative performance over the year, the BPT was very well positioned to benefit from the recent stock market rally. Security selection decisions have added value in both periods. Review of Last Quarter’s Strategy At last quarter’s close, we did not anticipate much change to the portfolio’s structure either in terms of asset mix policy or within the individual asset classes. Indeed, to the benefit of aggregate returns, there was very little change. The rising equity markets prompted us to take some profits and rebalance the mix to target weights. As proposed, the duration of the bond portfolio was kept slightly shorter than that of the market. In retrospect, given the further interest rate declines, this strategy was premature; however, it was positively offset by our decision to maintain a significant allocation to corporate bonds. The structure of the Canadian equity portfolio did not change meaningfully in the quarter, and while the global holdings remained biased to 1 Foreign equity results are reported in Canadian dollar terms throughout this report. Phillips, Hager & North Investment Management Ltd. 5
  7. 7. CUMIS those companies and industries with the highest leverage to economic recovery, there was some consolidation of holdings during the quarter. Market Outlook and Strategy A stronger Canadian dollar, and one-off shocks such as the SARS outbreak and mad cow disease have all dimmed the near term economic outlook for Canada. The forecast for the U.S. economy, on the other hand, has improved as a result of meaningful monetary easing, a weaker currency and planned tax cuts. Bond valuations are stretched, and conditions are ripe for a drop in bond prices. Consequently, we will continue to maintain a modestly short duration position with a bias to underweight shorter-term bonds. Although credit fundamentals are improving for the corporate bond market; valuations are on the expensive side and our strategy will be to take further profits if these bonds continue to outperform. Within the Canadian equity portfolio, we anticipate further profit-taking from the Telecommunications area in particular. Conceptually we would like to add to our Materials holdings; however, there are few companies that meet our investment criteria, which we do not already own. Generally therefore, we do not foresee any changes to the major themes within either the domestic or global portfolios. Phillips, Hager & North Investment Management Ltd. 6
  8. 8. CUMIS Capital Market Review Three Year-to- One Four Years Months Date Year Annualized As of June 30, 2003 % % % % p.a. S&P/TSX Composite Index 10.6 6.7 -0.3 1.5 S&P/TSX 10% Capped Index 10.6 6.7 -0.3 5.1 S&P 500 Index 6.6 -3.9 -10.3 -8.6 MSCI EAFE Index 10.2 -5.9 -16.3 -8.4 MSCI World (ex-Canada) Index 8.1 -4.7 -12.9 -9.2 SC Universe Bond Index 5.1 4.4 11.3 7.6 SC 30–Day T–Bill Index 0.8 1.4 2.8 3.9 Sector Returns – Second Quarter 2003 S&P/TSX Composite S&P 500 MSCI EAFE MSCI World Sector % % % % Consumer Discretionary 15.3 10.8 11.8 11.4 Consumer Staples 13.6 2.2 1.0 2.5 Energy 7.1 -1.1 6.8 3.1 Financials 10.2 9.4 17.6 12.9 Health Care 14.9 2.0 5.9 3.3 Industrials 16.2 7.0 9.9 8.1 Information Technology 20.8 9.3 15.8 10.8 Materials 1.3 5.1 7.1 6.0 Telecommunication Services 19.6 12.3 10.7 11.6 Utilities 13.4 12.1 5.4 8.0 Note: all foreign returns are expressed in Canadian dollars. Phillips, Hager & North Investment Management Ltd. 7
  9. 9. CUMIS Commentary on Investment Returns Three Year-to- One Four Months Date Year Years Components & Benchmarks % % % % Balanced Pension Trust 8.1 3.6 2.7 2.8 BPT Benchmark* 7.6 2.8 0.7 1.6 Canadian Equities 10.9 9.1 5.5 7.0 S&P/TSX Composite Index 10.6 6.7 -0.3 1.5 Global Equities** 8.4 -5.3 -12.7 -10.6 MSCI World Index (ex-Canada) ** 8.1 -4.7 -12.9 -9.2 Bonds 4.9 4.6 11.7 8.1 SC Universe Bond Index 5.1 4.4 11.3 7.6 Note: All performance data is shown on a gross or “pre-fee” basis. * Current benchmark composition: 35% S&P/TSX Capped Composite Index, 25% MSCI World Index (ex Canada), 35% SC Universe Bond Index, 5% SC 30-Day T-Bill Index. ** All foreign returns are expressed in Canadian dollars. Asset Mix The past eighteen months have tested our patience as stock investors. Last quarter, we discussed buying into a declining equity market in order to rebalance the portfolio to desired targets. While this felt like a difficult decision at the time, these tough decisions often prove to be the best decisions. During the second quarter, we were well rewarded by being positioned for the sharp advances in stock prices. While security selection was positive to aggregate performance, the lion’s share of value added, approximately 0.4 %, is attributable to asset mix policy. Phillips, Hager & North Investment Management Ltd. 8
  10. 10. CUMIS Fixed Income The second quarter witnessed one of the strongest bond rallies of the past ten years with all sectors benefiting from the enormous amount of liquidity moving into financial markets. Your portfolio broadly kept pace with this strong market. Two of our major strategies provided offsetting results; namely, the somewhat negative impact of maintaining a modestly short duration was offset by the benefits of our decision to overweight corporate bonds. Canadian Equities With the focus of investors returning to more fundamental issues like the economy and corporate earnings, confidence improved noticeably and the S&P/TSX Composite Index experienced one of its strongest quarters of the past eight years. The Index rose 10.6% and your portfolio out-performed with a return of 10.9%. Most of the quarter’s value added is attributable to our decision to overweight Telecommunications while maintaining a below market exposure to the beleaguered Materials sector. Perhaps most significantly, over twelve months, the portfolio earned 5.5% compared to the 0.3% decline in the benchmark. Sources of value-added were broad-based with security selection and industry sector allocation contributing almost equally. Global Equities As discussed in previous commentaries, the conditions for a global equity market rally have been in place for some time. Interest rates have been cut to levels not seen since the 1960s and the dividend yield from equities has become very attractive in comparison with bond market yields; world equity markets staged a welcome rally during the second quarter of the year. In Canadian dollar terms, the MSCI World (ex Canada) Index rose an impressive 8.1%. Your global equity portfolio earned 8.4% in the quarter with the portfolio benefiting from both security selection and industry sector allocation decisions. Stock selection in the Financials, Industrials, and Consumer Discretionary sectors were particularly strong. The portfolio’s pro-recovery orientation kept the twelve month results essentially in line with the market. Phillips, Hager & North Investment Management Ltd. 9
  11. 11. CUMIS Review of Last Quarter’s Strategy Asset Mix Last quarter…we reiterated our decision to favour equities in your asset mix and stated that we expected to maintain this stance. Anticipating that a recovering economy would eventually result in higher interest rates, we expressed caution about the bond market. s With the dramatic rally in stock prices, the equity weight in your portfolio rose above our target; consequently, we took profits in June and realigned the asset mix back to our targets. With the strength in the Canadian dollar, domestic stocks did much better than their foreign counterparts, therefore all of the sales were made from Canadian holdings. Proceeds were added to short-term reserves. s As bond prices advanced further, we also took some profits and, as above, added the proceeds to short-term reserves. Balanced Pension Trust Portfolio Asset Mix Benchmark Mar 31/03 Jun 30/03 % % % Cash & Short Term 5.0 3.0 3.6 Bonds 35.0 32.1 31.5 Equities: Canadian 35.0 39.1 38.5 Global 25.0 25.8 26.4 Total Equities 60.0 64.9 64.9 Total 100.0 100.0 100.0 Phillips, Hager & North Investment Management Ltd. 10
  12. 12. CUMIS Fixed Income Last quarter… although it was our view that economic fundamentals would push yields higher, we struggled to analyse the impact of the Iraqi war and recognized the possibility that economic problems “were more ingrained than at first thought.” Consequently, although the duration of the portfolio was kept slightly short, we were not prepared to take a very aggressive stance on this strategy. We expected continued strength from the corporate bond market. s Declining inflation and concerns over the state of the global economy, led to strong demand for bonds. Hence, our duration strategy detracted from performance. Fortunately, the “sizing” of the strategy mitigated the impact of this decision; namely reflecting the rather murky picture provided by our key indicators, we did not take an aggressive duration position. s With credit fundamentals continuing to improve and investors’ appetite for yield on the rise, the corporate bond market shone in the second quarter. The SC Corporate Index was up 5.5%. Although we took some profits as credit spreads narrowed, our commitment to maintaining a significant position in corporates for most of the quarter was a key positive for the portfolio. Security selection within the corporate sector was positive due to positions in the financial sector and those in some new issues by the Power Group of companies. Exposure to the BBB sector was also beneficial. This was partially offset by the lack of exposure to Bombardier bonds, which had a very strong quarter, and by our underweight in some utility issues. Bond Characteristics As of June 30, 2003 Maturity Analysis Issuer Analysis < 1 Yr Fed > 10 Yrs 8.7% 1 - 5 Yrs 40.8% Corp 27.1% 35.6% 38.4% 5 - 10 Yrs Prov 28.6% 20.8% Yield: 4.46% Duration: 6.02 Years Average Term: 9.41 Years Phillips, Hager & North Investment Management Ltd. 11
  13. 13. CUMIS Canadian Equities Last quarter…we wrote “boring as it may sound, we foresee few changes to the portfolio in the coming months.” Our thesis for some time has been that a modest and gradual economic recovery is underway. We planned to leave our fundamental stance - emphasizing Financials while downplaying Materials - unchanged, believing that the former would benefit from this economic backdrop and that earnings expectations for the latter were too high. In addition we planned to retain a meaningful overweight positions in Technology and Telecom stocks. As anticipated, few changes were made during the quarter. s As valuations rose, we trimmed our positions in both Cognos and TELUS. The portfolio is now market-weight Cognos and still has a significant overweight position in TELUS. s As valuations became more attractive in the Materials sector, we made modest additions to NOVA Chemicals and Teck Cominco. We also added to our position in CP Ships. s Our position in Onex Corporation was rebuilt. This company has a talented management team and the share price declined from the $19.50 level where we sold, to the $14 level where we began repurchasing. Global Equities Last quarter… we noted that the portfolio was positioned for economic recovery and consequently, there should be little need for strategic realignment in the near term. This indeed proved to be the case. We also expressed our positive view on the Energy sector and pointed out that the only sector with leverage to economic recovery that we were still underweight was Consumer Discretionary. s Notwithstanding the pro-growth bias of the portfolio as a whole, we began reducing the number of companies held in order to concentrate our investments in those holdings in which we have the highest conviction. As a result, ten names were eliminated from the portfolio in the quarter. s The liquidated investments fell into two general categories. The first consisted of stocks that had become fully valued. For instance; Altana, the German pharmaceutical company, Woolworths, an Australian food retailer, Swisscom, the Phillips, Hager & North Investment Management Ltd. 12
  14. 14. CUMIS incumbent telecommunications provider in Switzerland, Smith & Nephew, a UK- based orthopaedics company and Gillette. s The second category of sales consisted of companies whose business prospects had deteriorated. Examples would be UPM Kymmene, a Finnish paper company whose profitability will be adversely affected by the appreciating Euro, Hellenic Telecom (Greece), where we are very sceptical of the company’s increasing commitment to Romania, and SBC Communications in the United States, as the competitive and regulatory environment in that country shows no signs of easing. s Notable additions to the portfolio were James Hardie Industries, Sandvik and Taiwan Semiconductor Manufacturing Company. James Hardie is an Australian- based building materials producer, which earns the vast majority of its profits in North America where its patented fibre-cement products are rapidly gaining market share relative to wood and plastic. Sandvik is a Swedish producer of high quality tooling products, and Taiwan Semiconductor enjoys the number one position in its field of producing microchips. s Although we realigned our Energy holdings during the quarter, no additional commitment was made to the sector. The repositioning involved a purchase of Chevron Texaco, sourced from a partial sale of Exxon Mobile, and the elimination of Royal Dutch Petroleum. As a result, our European energy holdings are now concentrated in BP, Total Fina Elf and ENI. s Lastly, we added to the Consumer Discretionary area through purchases of Sony and the U.S. department store, Kohl’s. We also added to our positions in Viacom, Target, Fuji Photo Film and Hilton Group. These investments were sourced primarily from the sale of fully priced companies such as Gillette and Woolworths. Phillips, Hager & North Investment Management Ltd. 13
  15. 15. CUMIS Market Outlook & Strategy There has been a meaningful change in the outlook for the Canadian and U.S. economies over the past three months; namely, while the likelihood of a rebound in the U.S. has strengthened, Canada’s economic outlook has dimmed somewhat. As a result, growth in the U.S. over the remainder of this year is likely to outpace growth in Canada for the first time since 1998. Following a relatively weak expansion in the first half of 2003, we see a number of factors providing a boost to U.S. growth in the coming months. Importantly, there has been a broad-based easing of financial conditions; last quarter’s sharp stock market rally will help encourage business investment and household spending. Further, a weaker U.S. dollar will improve the competitive position of U.S. manufacturers, (although, it may take a while before this provides much lift for the U.S. economy), and low interest rates will continue to support demand for housing and other consumer durable goods. Additionally, U.S. growth should benefit from the recent federal budget agreement introducing $350 billion of spending and tax cuts over the next 10 years. More than half of this total will be distributed during 2003 and 2004. The impact of this largess will be mitigated by the fact that consumers will, no doubt, save a portion of these funds and by the need of some state governments to raise taxes and reduce spending. Overall, however, the latest fiscal stimulus should provide a substantial enhancement for growth in the coming year. Relative Valuation: S&P 500 versus 10-year The U.S. economy is still weighed down by Treasuries U.S. Weekly Leading Index, Economic Cycle Research Institute stubbornly high energy prices and the lack 9 of vigour in business investment. 6 Nonetheless, signs of positive economic 3 Percent 0 momentum are starting to emerge. -3 Consumer confidence remains relatively -6 weak, but has improved following the end -9 U.S. Weekly Leading Index Level Consistent with a Recession of the conflict in Iraq. U.S. purchasing -12 1998 1999 2000 2001 2002 2003 managers report a meaningful improvement Vertical bar indicates the timing of a recession in the U.S. in both production and new orders and, as shown in the chart above, a leading index of the U.S. economy has accelerated substantially, fostering hopes that brighter days lie ahead. Phillips, Hager & North Investment Management Ltd. 14
  16. 16. CUMIS In stark contrast, Canada’s economic outlook has become more clouded in recent months. Although the SARS outbreak has been contained, the bad publicity will continue to undercut tourism. Worries about Bovine Spongiform Encephalopathy – a.k.a. “mad cow” disease – will curtail Canada’s exports of beef and related products, and the recent sharp rally in the Canadian dollar will dampen the growth of exports. Canada’s labour market has started to soften and, given the sub-par rate of growth expected in the second half of the year, it remains vulnerable. As a result, inflationary pressures will continue to fade, likely persuading the Bank of Canada to reduce interest rates in the months ahead. Despite the current gloom, however, we expect lower interest rates, firming commodity prices, and a rebound in the U.S. economy to all help bolster growth in Canada in 2004. Bond Market Outlook Lower interest rates, accommodative fiscal policy, and, in the case of the United States, a declining currency are providing a substantial amount of economic stimulus. We have seen some of this liquidity make its way into the financial markets, and there are tentative signs that this is indeed making its way into the real economy thus sustaining growth. With bond valuations stretched, conditions are ripe for a drop in bond prices; hence, we will continue to maintain a modestly short duration position with a bias to underweight shorter-term bonds. As was the case last quarter, we are unlikely to take large interest rate positions since the “hangover” from the asset bubble is obviously still having an impact and central banks are expected to keep policy rates at low levels for an extended period of time. Credit fundamentals are improving for the corporate bond market; however, following the rally in credit spreads over the past nine months, valuations are on the expensive side (albeit not at extremes) and most investors have a “full” allocation to this sector. Our strategy is to keep a modest overweight and benefit from the yield pick up and to take further profits if these bonds continue to outperform. Active security and industry selection will continue to be an important feature for this sector of the portfolio. Stock Market Outlook The focus of investors seems to have moved firmly back to the economy. The latest economic statistics are being eagerly seized, quickly examined, and pronounced as either of great benefit or of great worry. The fact that these numbers are often preliminary and later revised (often in the other direction) appears not to matter. Stepping back from the short-term noise, we believe the U.S. economy continues to recover, albeit at a slow and gradual pace. Phillips, Hager & North Investment Management Ltd. 15
  17. 17. CUMIS Amongst domestic holdings, we would, conceptually, like to start trimming Financial Services slightly and adding to the Materials and Industrials sectors; however, there are few companies in these sectors that meet our quality and/or valuation constraints which we do not already own. The prospect of selling a well managed, highly profitable financial institution like the Royal Bank to buy a poorly managed, financially leveraged mining company is somewhat under whelming. In the Technology and Telecom areas, few changes are planned. Sentiment towards these sectors has significantly improved and, if events unfold as we expect, i.e., the economic recovery continues and capital spending improves, we are likely to continue trimming positions as prices rise. Within the global holdings, we expect to retain the current bias toward economic recovery in the portfolio and to continue concentrating the holdings. The markets have thus far been largely driven by liquidity; looking ahead, we anticipate market strength to be more earnings driven and are therefore focused on those companies which will be leaders in the next phase of economic expansion. Phillips, Hager & North Investment Management Ltd. 16
  18. 18. CUMIS Component Pooled Fund Returns As of June 30, 2003 3 Mths 1 Yr 3 Yrs 5 Yrs 10 Yrs Funds % % % % % Balanced Pension Trust 8.09 2.66 -1.58 3.06 8.39 Canadian Equity Plus Pension Trust 10.09 0.66 -4.54 2.48 9.88 Dividend Income Fund 12.02 6.78 10.29 10.26 17.13 U.S. Equity Fund 6.27 -11.50 -13.41 -5.85 7.54 Overseas Equity Fund✝ 10.12 -16.25 N/A N/A N/A Short Term Bond & Mortgage Fund 3.10 7.85 7.78 6.76 N/A Bond Fund 5.00 12.10 9.22 7.45 8.89 Canadian Money Market Fund 0.81 2.91 3.80 4.35 4.69 Indices S&P/TSX Composite Index 10.62 -0.27 -10.37 0.53 7.78 S&P 500 Index* 6.59 -10.31 -13.71 -3.12 10.68 EAFE Index* 10.17 -16.32 -15.96 -5.47 3.38 SC Universe Bond Index 5.08 11.26 8.80 6.92 8.52 Short Term Bond Index 3.20 7.77 7.75 6.57 7.17 30 Day Treasury Bills 0.76 2.78 3.63 4.07 4.39 Note: All performance data is shown on a gross or “pre-fee” basis. ✝ Fund merged with Euro-Pacific Equity Fund on March 9, 2001 * In Canadian Dollar terms. Phillips, Hager & North Investment Management Ltd. 17
  19. 19. CUMIS Phillips, Hager & North Update – Second Quarter 2003 Announcements s There were no personnel changes for the nine-member global equity team or the fourteen-member fixed-income team. s Andrew MacDonald joined PH&N in 2003 as a Canadian equity research analyst. Andy, 43 (AB, Princeton University, 1983); began his career in the investment business in 1984. For the past twelve years, he worked at a leading Canadian investment management firm where he spent the first six years as an investment counsellor and portfolio manager for discretionary private clients. For the last six years, Andy worked primarily in Canadian equity research and portfolio management, with additional responsibilities in global equity research and asset allocation. Phillips, Hager & North Investment Management Ltd. 18
  20. 20. CUMIS Corporate Governance – Proxy Voting Phillips, Hager & North adopted revised Proxy Voting Guidelines in 2003 (a copy of this document can be obtained from www.phn.com). Each proxy circular contains proposals to be voted by shareholders, along with management’s analysis and recommendations on each. The instances where we have voted against management are listed below. Canadian Equities: Proposals voted against Management this quarter Corporation Proposal Vote Rationale Barrick Gold Corp. Director - all related directors Withhold The board consists of a majority of related directors. BMTC Group Inc. Board Withhold Board structure has multiple problems. Adopt new by-law re: quorum Against New quorum requirement is too low. Bombardier Inc. Director - L. Beaudoin, J. Withhold Related director who sits on a board Beaudoin, J. Fontaine committee. Allow board to appoint two Against Shareholders should elect all board additional directors members. Canadian National Director - V. Darkes, E. Lumley Withhold Related directors who sit on a Railway board/committees. Cardiome Pharma Corp. Authorize new class of preferred Against Blank cheque preferred stock can be used stock as an anti-takeover measure. Approve issuance of shares in one Against Dilution at 50% is too high. or more private placements Cognos Inc. Director - J. Tory Withhold Related director who sits on a board committee. Approve stock option plan Against The plan is excessive. Adopt a policy of expensing For Shows true cost of compensation policies options in the financial statements. Enbridge Inc. Amend by-law Against New quorum requirement is too low. Encana Corp. Adopt new by-law re: quorum Against New quorum requirement is too low. Four Seasons Hotels Ratify and confirm the voting rights Against Dual class capital structures are Inc. adjustment mechanism of the detrimental to minority shareholders rights. Variable Multiple Voting Shares Great-West Lifeco Inc. Director - P. Desmarais Jr., R. Withhold Related director who sits on a board Gratton, M. Plessis-Belair, G. committee. Veilleux. Auditor independence proposal For Ensures auditor provides only audit services. Inex Pharmaceuticals Director - J. Miller Withhold Related director who sits on a board Corp. committee. Phillips, Hager & North Investment Management Ltd. 19
  21. 21. CUMIS Corporation Proposal Vote Rationale Amend stock option plan Against The plan is excessive. Leons Furniture Director - all related directors Withhold The board consists of a majority of related directors. Magna International Inc. Director - all related directors Withhold The board consists of a majority of related directors. Masonite International Director - A. McFarland, S. Spears Withhold Related director who sits on a board Corp. committee. Maverick Tube Canada Director - G. Einsberg Withhold Mr. Einsberg is Chair and CEO. Ltd. Approve stock option plan Against The plan is excessive. Petro-Canada Adopt a policy of expensing For Shows true cost of compensation policies options in the financial statements. Ritchie Brothers Director - D. Ritchie, C. Cmolik, P. Withhold The board consists of a majority of related Blake directors. Stressgen Amend 2001 equity incentive plan Against The plan is excessive. Biotechnologies Corp. Sun Life Financial Separate positions of Chair and For An independent Chair helps to ensure Services CEO board independence. Suncor Energy Inc. Adopt a policy of expensing For Shows true cost of compensation policies options in the financial statements. TD Bank Separate positions of Chair and For An independent Chair helps to ensure CEO board independence. CEO & CFO to certify financials For Sarbanes-Oxley Act requires certification. Teknion Corp. Director - D. Feldberg Withhold Mr. Feldberg is Chair and CEO. Telus Corp. Director - A. Giammarino, D. Petri Withhold Related director who sits on a board committee. Amend articles re: quorum Against New quorum requirement is too low. Tesma International Inc. Director - all related directors Withhold The board consists of a majority of related directors. Amend stock option plan Against The plan allows for discretionary director options. Thomson Corp. Director - W. Beattie, J. Tory Withhold Related director who sits on a board committee. Toromont Industries Ltd. Adopt new by-law re: quorum Against New quorum requirement is too low. Vector Aerospace Corp. Board Withhold CEO is Chair and all board committees have related directors. Phillips, Hager & North Investment Management Ltd. 20
  22. 22. CUMIS U.S. Equities: Proposals voted against Management this quarter Corporation Proposal Vote Rationale Abbott Laboratories Director - M. White Withhold Mr. White is Chair and CEO. Altria Group Inc. Director - B. King Withhold Attended less than 75% of board and committee meetings. Director - C. Helu Withhold Related director who sits on a board committee. Submit shareholders rights plan For Safeguards shareholders interests. (poison pill) to shareholder vote American Express Co. Director - K. Chenault Withhold Mr. Chenault is Chair and CEO. American International Director - M. Greenberg Withhold Mr. Greenberg is Chair and CEO. Group Inc. Bank of New York Director - T. Renyi Withhold Mr. Renyi is Chair and CEO. Approve omnibus stock plan Against The plan is excessive. Bristol Myers Submit shareholders rights plan For Safeguards shareholders interests. (poison pill) to shareholder vote Separate positions of Chair and For An independent Chair helps to ensure CEO board independence. Chevron Texaco Corp. Director - S. Nunn Withhold Related director who sits on a board committee. Director - D. O'Rielly Withhold Mr. O'Rielly is Chair and CEO. Approve non-employee director Against Directors should not receive options. omnibus stock plan Submit shareholders rights plan For Safeguards shareholders interests. (poison pill) to shareholder vote Citigroup Inc. Submit severance agreements to a For Will help prevent excessive agreements. shareholder vote. Coca-Cola Co. Amend stock option plan Against The plan is excessive. Colgate-Palmolive Co. Submit executive compensation For Shareholders should approve any plan plans to a shareholder vote that dilutes their ownership. Separate positions of Chair and For An independent Chair helps to ensure CEO board independence. Eli Lilly & Co. Adopt a policy of expensing For Shows true cost of compensation policies options in the financial statements. Exxon Mobil Corp. Director - L. Raymond Withhold Mr. Raymond is Chair and CEO. Submit shareholders rights plan For Safeguards shareholders interests. (poison pill) to shareholder vote Separate positions of Chair and For An independent Chair helps to ensure CEO board independence. Gannett Inc. Director - J. Arnelle Withhold Related director who sits on a board committee. Amend omnibus stock plan Against The plan is excessive. Phillips, Hager & North Investment Management Ltd. 21
  23. 23. CUMIS Corporation Proposal Vote Rationale General Electric Co. Submit shareholders rights plan For Safeguards shareholders interests. (poison pill) to shareholder vote Limit composition of committees to For Ensures board independence. independent directors Require chairman is an For An independent Chair helps to ensure independent director board independence. Goldman Sachs Group Approve omnibus stock plan Against Plan permits repricing and is excessive. Inc. Declassify board of directors For Annual election of directors best serves shareholder interests. HCA Inc. Director - J. Bovender Withhold Related director who sits on a board committee. Home Depot Inc. Director - H. Langone Withhold Related director who sits on a board committee. Submit shareholders rights plan For Safeguards shareholders interests. (poison pill) to shareholder vote Separate positions of Chair and For An independent Chair helps to ensure CEO board independence. IBM Corp. Director - S. Palmisano Withhold Mr. Palmisano is Chair and CEO. Adopt a policy of expensing For Shows true cost of compensation policies options in the financial statements. Intel Corp. Adopt a policy of expensing For Shows true cost of compensation policies options in the financial statements. John Hancock Financial Director - R. Fast Withhold Related director who sits on a board Services committee. Kraft Foods. Inc. Director - all related directors Withhold The board consists of a majority of related directors. Laboratory Corporation Director - T. MacMahon Withhold Mr. MacMahon is Chair and CEO. of America Holdings Director - J. Powell Withhold Related director who sits on a board committee. Amend omnibus stock plan Against The plan is excessive. Merck & Co. Inc. Directors Withhold Board has ignored shareholder proposals that have received majority support. Declassify board of directors For Annual election of directors best serves shareholder interests. Merrill Lynch & Co. Inc. Approve omnibus stock plan Against The plan is excessive. Metlife Inc. Director - all related directors Withhold The board consists of a majority of related directors. National Commerce Director - J. Reed Withhold Related director who sits on a board Financial Corp. committee. Approve omnibus stock plan Against The plan is excessive. Phillips, Hager & North Investment Management Ltd. 22
  24. 24. CUMIS Corporation Proposal Vote Rationale Northern Trust Corp. Director - R. Helman Withhold Related director who sits on a board committee. Director - W. Osborn Withhold Mr. Osborn is Chair and CEO. Occidential Petroleum Amend omnibus stock plan Against The plan is excessive. Corp. Submit shareholders rights plan For Safeguards shareholders interests. (poison pill) to shareholder vote PepsiCo Inc. Approve omnibus stock plan Against The plan is excessive. Praxair Inc. Submit shareholders rights plan For Safeguards shareholders interests. (poison pill) to shareholder vote Semtech Corp. Director - J. Poe Withhold Mr. Poe is Chair and CEO. SPX Corp. Director - J. Blystone Withhold Mr. Blystone is Chair and CEO. Approve omnibus stock plan Against The plan is excessive. State Street Corp. Director - D. Spina Withhold Mr. Spina is Chair and CEO. Exempt the board from the For This provision weakens shareholders Massachusetts General Laws, ability to remove directors with poor Chapter 156B, Section 50A(a) performance. Target Corp. Director - R. Ulrich Withhold Mr. Ulrich is Chair and CEO. Texas Instruments Inc. Board Withhold Adopted option plan without shareholder approval. Approve non-employee director Against Directors should not receive options. omnibus stock plan Limit executive stock based For Would provide controls over recent board awards behavior. U.S. Bancorp Directors Withhold Board has ignored shareholder proposals that have received majority support. Adopt a policy of expensing For Shows true cost of compensation policies options in the financial statements. Submit executive retirement plan For The current plan has excessive elements. to a shareholder vote. Adopt simple majority vote For Currently the supermajority is set at 80%, requirement. which is too high. Union Pacific Corp. Director - J. Hope Withhold Related director who sits on a board committee. Submit severance agreements to a For Will help prevent excessive agreements. shareholder vote. UnitedHealth Group Inc. Director - W. McGuire Withhold Mr. McGuire is Chair and CEO. Adopt a policy of expensing For Shows true cost of compensation policies options in the financial statements. Verizon Director - C. Lee Withhold Mr. Lee is a related director and is CEO. Communications Corp. Phillips, Hager & North Investment Management Ltd. 23
  25. 25. CUMIS Corporation Proposal Vote Rationale Require majority of independent For Ensures board independence. directors on board and limit composition of committees to independent directors Submit severance agreements to a For Will help prevent excessive agreements. shareholder vote Prohibit auditor from providing For Ensures auditor independence. non-audit services Wal-Mart Stores Require two-thirds of independent For This proposal will help to ensure board directors on board independence. Submit participation in deferred For This plan results in compensation over compensation plan to a vote and above the disclosed compensation. This additional compensation is not adequately disclosed. Washington Mutual Inc. Director - K. Killinger Withhold Mr. Killinger is Chair and CEO. Waters Corp. Director - E. Conrad, T. Salice Withhold Related director who sits on a board committee. Director - D. Berthiaume Withhold Mr. Berthiaume is Chair and CEO. Approve omnibus stock plan Against The plan is excessive. Wells Fargo & Co. Director - R. Kovacevich Withhold Mr. Kovacevich is Chair and CEO. Director - R. Joss, D. Rice, M. Withhold Related director who sits on a board Wright committee. Adopt a policy of expensing For Shows true cost of compensation policies options in the financial statements. Global Equities: Proposals voted against Management this quarter Corporation Proposal Vote Rationale Amvescap Plc. Approve remuneration report Against The option plan is excessive. Director - all related directors Withhold The board consists of a majority of related directors. Astrazeneca Plc. Director - all related directors Withhold The board consists of a majority of related directors. Approve remuneration report Against The option plan is excessive. Approve employee savings related Against The option plan is excessive. share option plan British Aerospace Plc. Approve remuneration report Against The option plan is excessive. Director - all related directors Withhold The board consists of a majority of related directors. British American Director - T. Visser Withhold Related director who sits on a board Tobacco Plc. committee. Bunzl Plc. Director - A. Habgood Withhold Mr. Habgood is Chair and CEO. Carnival Corp. Amend articles re: merger Against Contained an unreasonable anti-takeover Phillips, Hager & North Investment Management Ltd. 24
  26. 26. CUMIS Corporation Proposal Vote Rationale mechanism. Amend articles re: lower board Against Gives board authority to act with a minority quorum of board members present. Eliminate shareholders right to act Against This proposal restricts shareholders rights. by written consent Daikin Industries Ltd. Appoint internal statutory auditors Against The proposed candidate is classified as independent, but is a legal adviser to the company. Approve retirement bonuses for Against These bonuses compromise the directors and statutory auditors independence of the statutory auditors. Fanuc Ltd. Amend articles Against This proposal weakens the rights of minority shareholders. Appoint internal statutory auditors Against Management classifies these individuals as independent, when they are not. Approve retirement bonuses for Against These bonuses compromise the directors and statutory auditors independence of the statutory auditors. Fuji Photo Film Co. Ltd. Appoint internal statutory auditors Against Management classifies these individuals as independent, when they are not. Honda Motor Corp. Appoint internal statutory auditors Against Management classifies these individuals as independent, when they are not. Approve retirement bonuses for Against These bonuses compromise the directors and statutory auditors independence of the statutory auditors. Hoya Corp. Approve retirement bonuses for Against These bonuses compromise the statutory auditors independence of the statutory auditors. NTT DoMoCo Inc. Amend articles to increase the Against This proposal weakens the rights of number of internal auditors, and minority shareholders. lower quorum requirement Appoint internal statutory auditor Against The proposed candidate is classified as independent, but works for a subsidiary of the majority shareholder Rio Tinto Plc. Director - L. Davis, D. Mayhew Withhold The board consists of a majority of related directors. Rohm Co. Approve retirement bonuses for Against These bonuses compromise the statutory auditors independence of the statutory auditors. Secom Co. Ltd. Amend articles Against This proposal weakens the rights of minority shareholders. Approve retirement bonuses for Against These bonuses compromise the directors and statutory auditors independence of the statutory auditors. Shin-Etsu Chemical Co. Appoint internal statutory auditors Against Management classifies these individuals Ltd. as independent, when they are not. SMC Corp. Amend articles Against This proposal weakens the rights of minority shareholders. Approve retirement bonuses for Against These bonuses compromise the Phillips, Hager & North Investment Management Ltd. 25
  27. 27. CUMIS Corporation Proposal Vote Rationale directors and statutory auditors independence of the statutory auditors. Sony Corp. Director - A. Okada Withhold Related director who sits on a board committee. Amend articles to require For Will increase transparency, and provide disclosure of compensation levels useful information to shareholders. of individual directors and statutory auditors Tesco Plc. Director - all related directors Withhold The board consists of a majority of related directors. Toyota Motor Corp. Appoint internal statutory auditors Against Management classifies these individuals as independent, when they are not. Approve retirement bonuses for Against These bonuses compromise the directors and statutory auditors independence of the statutory auditors. Amend articles to require company For Allows shareholders more time to consider to hold AGM on a day other than proxy. peak meeting date Amend articles to require For Will increase transparency, and provide disclosure of individual useful information to shareholders. compensation levels for directors and statutory auditors Yamanouchi Approve retirement bonuses for Against These bonuses compromise the Pharmaceutical Co. directors and statutory auditors independence of the statutory auditors. Yamato Transport Co. Amend articles Against This proposal weakens the rights of Ltd. minority shareholders. Approve retirement bonuses for Against These bonuses compromise the directors and statutory auditors independence of the statutory auditors. Phillips, Hager & North Investment Management Ltd. 26
  28. 28. CUMIS Summary of Purchases and Sales PH&N Balanced Pension Trust Short Term Purchases – April 1 to June 30, 2003 Par Value Issuer Security Price Net Amount 600,000 ALBERTA PROV DPN 3.128 MAY 30 03 99.85 599,076.00 400,000 ALBERTA PROV DPN 3.134 MAY 30 03 99.82 399,280.00 1,000,000 ALBERTA PROV DPN 3.158 JUN 30 03 99.88 998,790.00 900,000 ALBERTA PROV DPN 3.166 MAY 29 03 99.92 899,298.00 200,000 ALBERTA PROV DPN 3.182 JUN 30 03 99.85 199,704.00 5,000,000 ALCAN ALUMINIUM D/N 3.379 MAY 01 03 99.93 4,996,300.00 200,000 ALTA MUNI FIN D/N 2.992 APR 23 03 99.87 199,738.00 1,900,000 ALTA MUNI FIN D/N 2.997 APR 23 03 99.88 1,897,663.00 1,100,000 ALTA MUNI FIN D/N 3.002 APR 23 03 99.89 1,098,735.00 23,730,000 ALTA MUNI FIN D/N 3.007 APR 23 03 99.89 23,704,608.90 24,300,000 ALTA MUNI FIN PDN 3.152 JUN 09 03 99.78 24,245,568.00 5,600,000 ALTA MUNI FIN PDN 3.158 JUL 07 03 99.88 5,593,224.00 1,300,000 ALTA MUNI FIN PDN 3.158 MAY 13 03 99.88 1,298,427.00 200,000 ALTA MUNI FIN PDN 3.158 MAY 20 03 99.88 199,758.00 220,000 ALTA MUNI FIN PDN 3.167 MAY 08 03 99.87 219,714.00 1,500,000 ALTA MUNI FIN PDN 3.175 JUN 23 03 99.83 1,497,525.00 3,200,000 ALTA MUNI FIN PDN 3.181 JUN 23 03 99.83 3,194,432.00 300,000 ALTA TREASURY BR BDN 3.209 MAY 05 03 99.84 299,526.00 15,305,000 ALTA TREASURY BR BDN 3.235 APR 30 03 99.94 15,295,510.90 20,000,000 ALTA TREASURY BR PDN 3.130 MAY 14 03 99.94 19,988,000.00 18,100,000 ALTA TREASURY BR PDN 3.183 MAY 07 03 99.94 18,088,959.00 5,900,000 BANK OF N.S. B/A 3.247 MAY 23 03 99.72 5,883,775.00 18,400,000 CANADA GOVT T/B 3.065 JUL 31 03 99.71 18,346,088.00 25,000,000 CANADA GOVT T/B 3.166 JUN 05 03 99.92 24,980,500.00 1,600,000 CANADA GOVT T/B 3.192 JUN 05 03 99.87 1,597,904.00 25,700,000 CANADA GOVT T/B 3.204 JUN 05 03 99.89 25,670,702.00 4,000,000 GE CDA ENT CO D/N 3.247 MAY 02 03 99.92 3,996,800.00 600,000 HONDA CDA FIN D/N 3.285 MAY 28 03 99.99 599,946.00 100,000 ONTARIO PROV PTB 3.148 MAY 21 03 99.70 99,699.00 7,000,000 ONTARIO PROV PTB 3.163 JUL 07 03 99.83 6,987,890.00 900,000 PLAZA TRUST D/N 3.286 JUN 30 03 99.96 899,676.00 26,270,000 QUEBEC PROV DPN 3.014 APR 22 03 99.90 26,243,992.70 79,300,000 QUEBEC PROV DPN 3.136 JUL 09 03 99.84 79,170,741.00 500,000 QUEBEC PROV DPN 3.148 MAY 16 03 99.84 499,225.00 1,600,000 QUEBEC PROV DPN 3.148 MAY 21 03 99.89 1,598,208.00 2,000,000 QUEBEC PROV DPN 3.158 MAY 27 03 99.88 1,997,580.00 3,900,000 QUEBEC PROV DPN 3.167 MAY 27 03 99.90 3,895,944.00 3,700,000 QUEBEC PROV DPN 3.168 JUN 03 03 99.84 3,694,228.00 4,200,000 QUEBEC PROV DPN 3.176 MAY 14 03 99.89 4,195,254.00 2,400,000 QUEBEC PROV DPN 3.176 MAY 15 03 99.89 2,397,288.00 83,500,000 QUEBEC PROV DPN 3.192 JUN 20 03 99.87 83,390,615.00 200,000 QUEBEC PROV DPN 3.215 JUN 20 03 99.91 199,824.00 500,000 ROYAL BANK CDA B/A 3.175 APR 30 03 99.83 499,175.00 600,000 ROYAL BANK CDA T/D 3.200 JUN 23 03 100.00 600,000.00 700,000 ROYAL BANK CDA T/D 3.200 JUN 24 03 100.00 700,000.00 5,000,000 ROYAL BANK CDA T/D 3.200 MAY 07 03 100.00 5,000,000.00 300,000 ROYAL BANK CDA T/D 3.200 MAY 20 03 100.00 300,000.00 400,000 ROYAL BANK CDA T/D 3.200 MAY 21 03 100.00 400,000.00 900,000 ROYAL BANK CDA T/D 3.200 MAY 22 03 100.00 900,000.00 900,000 ROYAL BANK CDA T/D 3.200 MAY 27 03 100.00 900,000.00 700,000 ROYAL BANK CDA T/D 3.200 MAY 30 03 100.00 700,000.00 600,000 ROYAL BANK CDA T/D 3.220 JUN 24 03 100.00 600,000.00 6,500,000 SHELL CANADA D/N 3.285 APR 25 03 99.99 6,499,415.00 19,300,000 T D BANK B/A 3.247 MAY 23 03 99.72 19,246,925.00 19,600,000 T D BANK BDN 3.247 JUN 26 03 99.85 19,570,404.00 -------------- ------------- 477,825,000 477,175,635.50 Phillips, Hager & North Investment Management Ltd. 27
  29. 29. CUMIS Summary of Purchases and Sales PH&N Balanced Pension Trust Short Term Sales – April 1 to June 30, 2003 Par Value Issuer Security Price Net Amount Cost 800,000 ALBERTA PROV DPN 3.158 JUN 30 03 99.95 799,584.00 799,032.00 4,600,000 ALTA MUNI FIN PDN 3.152 JUN 09 03 99.91 4,595,716.00 4,589,696.00 400,000 ALTA MUNI FIN PDN 3.158 JUL 07 03 99.90 399,584.00 399,516.00 13,800,000 CANADA GOVT T/B 2.892 APR 10 03 99.93 13,790,998.00 13,775,988.00 14,900,000 CANADA GOVT T/B 3.204 JUN 05 03 99.95 14,892,103.00 14,883,014.00 500,000 QUEBEC PROV DPN 3.014 APR 22 03 99.93 499,665.00 499,505.00 15,500,000 QUEBEC PROV DPN 3.136 JUL 09 03 99.92 15,487,755.00 15,474,735.00 1,000,000 QUEBEC PROV DPN 3.167 MAY 27 03 99.96 999,560.00 998,960.00 600,000 QUEBEC PROV DPN 3.168 JUN 03 03 99.99 599,946.00 599,064.00 15,600,000 QUEBEC PROV DPN 3.192 JUN 20 03 99.99 15,598,452.00 15,579,564.00 -------------- ------------- --------------- 67,700,000 67,663,363.00 67,599,074.00 Phillips, Hager & North Investment Management Ltd. 28
  30. 30. CUMIS Summary of Purchases and Sales PH&N Balanced Pension Trust Short Term Maturities – April 1 to June 30, 2003 Par Value Issuer Security Price Net Amount Cost 600,000 ALBERTA PROV DPN 3.128 MAY 30 03 99.85 599,076.00 599,076.00 400,000 ALBERTA PROV DPN 3.134 MAY 30 03 99.82 399,280.00 399,280.00 200,000 ALBERTA PROV DPN 3.158 JUN 30 03 99.88 199,758.00 199,758.00 900,000 ALBERTA PROV DPN 3.166 MAY 29 03 99.92 899,298.00 899,298.00 200,000 ALBERTA PROV DPN 3.182 JUN 30 03 99.85 199,704.00 199,704.00 5,000,000 ALCAN ALUMINIUM D/N 3.379 MAY 01 03 99.93 4,996,300.00 4,996,300.00 200,000 ALTA MUNI FIN D/N 2.992 APR 23 03 99.87 199,738.00 199,738.00 1,900,000 ALTA MUNI FIN D/N 2.997 APR 23 03 99.88 1,897,663.00 1,897,663.00 1,100,000 ALTA MUNI FIN D/N 3.002 APR 23 03 99.89 1,098,735.00 1,098,735.00 23,730,000 ALTA MUNI FIN D/N 3.007 APR 23 03 99.89 23,704,608.90 23,704,608.90 19,700,000 ALTA MUNI FIN PDN 3.152 JUN 09 03 99.78 19,655,872.00 19,655,872.00 1,300,000 ALTA MUNI FIN PDN 3.158 MAY 13 03 99.88 1,298,427.00 1,298,427.00 200,000 ALTA MUNI FIN PDN 3.158 MAY 20 03 99.88 199,758.00 199,758.00 220,000 ALTA MUNI FIN PDN 3.167 MAY 08 03 99.87 219,714.00 219,714.00 1,500,000 ALTA MUNI FIN PDN 3.175 JUN 23 03 99.83 1,497,525.00 1,497,525.00 3,200,000 ALTA MUNI FIN PDN 3.181 JUN 23 03 99.83 3,194,432.00 3,194,432.00 300,000 ALTA TREASURY BR BDN 3.209 MAY 05 03 99.84 299,526.00 299,526.00 15,305,000 ALTA TREASURY BR BDN 3.235 APR 30 03 99.94 15,295,510.90 15,295,510.90 20,000,000 ALTA TREASURY BR PDN 3.130 MAY 14 03 99.94 19,988,000.00 19,988,000.00 18,100,000 ALTA TREASURY BR PDN 3.183 MAY 07 03 99.94 18,088,959.00 18,088,959.00 5,900,000 BANK OF N.S. B/A 3.247 MAY 23 03 99.72 5,883,775.00 5,883,775.00 1,200,000 CANADA GOVT T/B 2.859 APR 10 03 99.71 1,196,532.00 1,196,532.00 800,000 CANADA GOVT T/B 2.890 APR 24 03 99.70 797,600.00 797,600.00 25,200,000 CANADA GOVT T/B 2.892 APR 10 03 99.83 25,156,152.00 25,156,152.00 400,000 CANADA GOVT T/B 2.903 APR 24 03 99.67 398,700.00 398,700.00 2,800,000 CANADA GOVT T/B 2.912 APR 24 03 99.67 2,790,648.00 2,790,648.00 700,000 CANADA GOVT T/B 2.924 APR 10 03 99.86 699,048.00 699,048.00 1,300,000 CANADA GOVT T/B 2.924 APR 10 03 99.87 1,298,336.00 1,298,336.00 2,200,000 CANADA GOVT T/B 2.925 APR 10 03 99.83 2,196,304.00 2,196,304.00 4,000,000 CANADA GOVT T/B 2.925 APR 10 03 99.84 3,993,600.00 3,993,600.00 900,000 CANADA GOVT T/B 2.948 APR 10 03 99.88 898,911.00 898,911.00 800,000 CANADA GOVT T/B 2.951 APR 10 03 99.89 799,160.00 799,160.00 13,100,000 CANADA GOVT T/B 2.976 APR 10 03 99.89 13,085,066.00 13,085,066.00 25,000,000 CANADA GOVT T/B 3.166 JUN 05 03 99.92 24,980,500.00 24,980,500.00 1,600,000 CANADA GOVT T/B 3.192 JUN 05 03 99.87 1,597,904.00 1,597,904.00 10,800,000 CANADA GOVT T/B 3.204 JUN 05 03 99.89 10,787,688.00 10,787,688.00 4,000,000 GE CDA ENT CO D/N 3.247 MAY 02 03 99.92 3,996,800.00 3,996,800.00 600,000 HONDA CDA FIN D/N 3.285 MAY 28 03 99.99 599,946.00 599,946.00 100,000 ONTARIO PROV PTB 3.148 MAY 21 03 99.70 99,699.00 99,699.00 900,000 PLAZA TRUST D/N 3.286 JUN 30 03 99.96 899,676.00 899,676.00 25,770,000 QUEBEC PROV DPN 3.014 APR 22 03 99.90 25,744,487.70 25,744,487.70 500,000 QUEBEC PROV DPN 3.148 MAY 16 03 99.84 499,225.00 499,225.00 1,600,000 QUEBEC PROV DPN 3.148 MAY 21 03 99.89 1,598,208.00 1,598,208.00 2,000,000 QUEBEC PROV DPN 3.158 MAY 27 03 99.88 1,997,580.00 1,997,580.00 2,900,000 QUEBEC PROV DPN 3.167 MAY 27 03 99.90 2,896,984.00 2,896,984.00 3,100,000 QUEBEC PROV DPN 3.168 JUN 03 03 99.84 3,095,164.00 3,095,164.00 4,200,000 QUEBEC PROV DPN 3.176 MAY 14 03 99.89 4,195,254.00 4,195,254.00 2,400,000 QUEBEC PROV DPN 3.176 MAY 15 03 99.89 2,397,288.00 2,397,288.00 67,900,000 QUEBEC PROV DPN 3.192 JUN 20 03 99.87 67,811,051.00 67,811,051.00 200,000 QUEBEC PROV DPN 3.215 JUN 20 03 99.91 199,824.00 199,824.00 500,000 ROYAL BANK CDA B/A 3.175 APR 30 03 99.83 499,175.00 499,175.00 1,500,000 ROYAL BANK CDA T/D 2.950 APR 01 03 100.00 1,500,000.00 1,500,000.00 600,000 ROYAL BANK CDA T/D 3.200 JUN 23 03 100.00 600,000.00 600,000.00 700,000 ROYAL BANK CDA T/D 3.200 JUN 24 03 100.00 700,000.00 700,000.00 5,000,000 ROYAL BANK CDA T/D 3.200 MAY 07 03 100.00 5,000,000.00 5,000,000.00 300,000 ROYAL BANK CDA T/D 3.200 MAY 20 03 100.00 300,000.00 300,000.00 400,000 ROYAL BANK CDA T/D 3.200 MAY 21 03 100.00 400,000.00 400,000.00 900,000 ROYAL BANK CDA T/D 3.200 MAY 22 03 100.00 900,000.00 900,000.00 900,000 ROYAL BANK CDA T/D 3.200 MAY 27 03 100.00 900,000.00 900,000.00 Phillips, Hager & North Investment Management Ltd. 29
  31. 31. CUMIS Summary of Purchases and Sales PH&N Balanced Pension Trust Short Term Maturities – April 1 to June 30, 2003 (continued) Par Value Issuer Security Price Net Amount Cost 700,000 ROYAL BANK CDA T/D 3.200 MAY 30 03 100.00 700,000.00 700,000.00 600,000 ROYAL BANK CDA T/D 3.220 JUN 24 03 100.00 600,000.00 600,000.00 6,500,000 SHELL CANADA D/N 3.285 APR 25 03 99.99 6,499,415.00 6,499,415.00 19,300,000 T D BANK B/A 3.247 MAY 23 03 99.72 19,246,925.00 19,246,925.00 19,600,000 T D BANK BDN 3.247 JUN 26 03 99.85 19,570,404.00 19,570,404.00 -------------- ------------- --------------- 384,425,000 383,938,914.50 383,938,914.50 Phillips, Hager & North Investment Management Ltd. 30
  32. 32. CUMIS Summary of Purchases and Sales PH&N Balanced Pension Trust Bond Purchases – April 1 to June 30, 2003 Par Value Issuer Security Price Net Amount 1,825,000 ALLIANCE PIPELINE 5.546 DEC 31 23 100.00 1,825,000.00 975,000 ANDERSON EXP LTD 7.250 JUL 18 05 103.91 1,013,142.00 1,675,000 ASSOCIATES CAPITAL 4.850 APR 25 08 99.95 1,674,112.25 1,250,000 BANK OF N.S. BATS 6.626 JUN 30 12 105.33 1,316,670.50 30,325,000 CANADA GOVT 3.500 JUN 01 05 99.61 30,207,945.50 125,145,000 CANADA GOVT 5.000 DEC 01 03 100.90 126,277,113.10 92,055,000 CANADA GOVT 5.250 JUN 01 12 104.79 96,460,122.10 8,295,000 CANADA GOVT 5.500 JUN 01 10 107.19 8,891,046.50 15,140,000 CANADA GOVT 5.750 JUN 01 03 100.23 15,175,329.50 35,300,000 CANADA GOVT 6.000 JUN 01 11 111.21 39,255,440.25 58,755,000 CANADA GOVT 5.500 JUN 01 09 104.78 61,562,109.50 58,875,000 CANADA GOVT 6.000 JUN 01 08 110.23 64,896,682.20 875,000 CANADA GOVT 7.250 JUN 01 07 111.90 979,125.00 19,758,000 CANADA GOVT 8.000 JUN 01 23 135.67 26,805,486.70 15,420,000 CANADA GOVT 8.000 JUN 01 27 133.76 20,626,557.20 3,410,000 CANADA HOUSING TRUST 3.700 SEP 15 08 99.78 3,402,463.90 2,600,000 CDN PACIFIC RAILWAY 4.900 JUN 15 10 99.84 2,595,814.00 1,100,000 ENBRIDGE INC 7.200 JUN 18 32 100.82 1,109,020.00 900,000 GE CAPITAL CANADA 5.300 JUL 24 07 102.92 926,262.00 2,250,000 GE CAPITAL CDA FUND 5.000 APR 23 08 99.97 2,249,212.50 1,500,000 GREATER TOR AIRPORT 6.250 DEC 13 12 105.38 1,580,625.00 1,225,000 GREATER TOR AIRPORT 6.250 JAN 30 12 99.45 1,218,250.25 1,875,000 GREATER TOR AIRPORT 6.700 JUL 19 10 107.31 2,012,064.75 250,000 GREATER TOR AIRPORT 6.980 OCT 15 32 94.76 236,897.50 775,000 GREATER TOR AIRPORT 7.100 JUN 04 31 99.44 770,660.00 3,600,000 HOUSEHOLD FINANCE 4.500 JUL 02 08 99.90 3,596,508.00 1,250,000 INVESTORS GROUP 7.110 MAR 07 33 100.65 1,258,147.50 1,700,000 MERRILL LYNCH CDA 5.350 NOV 19 07 105.23 1,788,978.00 2,800,000 MLMLI CAN10 A2 5.245 JUN 12 13 100.00 2,800,000.00 9,465,000 ONTARIO PROV 7.600 JUN 02 27 127.77 12,093,228.15 3,975,000 SUN LIFE SLEECS 6.865 DEC 31 11 110.10 4,376,374.25 4,625,000 TD CATS 7.600 DEC 31 09 112.05 5,182,351.50 3,050,000 TERASEN INC 4.850 MAY 08 06 99.88 3,046,218.00 8,000,000 TORONTO-DOMINION F/F 5.690 JUN 03 13-18 99.98 7,998,560.00 250,000 WESTCOAST ENERGY 7.300 DEC 18 26 101.43 253,575.00 500,000 WESTCOAST ENERGY 8.500 NOV 23 15 112.75 563,775.00 -------------- ------------- 520,768,000 556,024,867.60 Phillips, Hager & North Investment Management Ltd. 31
  33. 33. CUMIS Summary of Purchases and Sales PH&N Balanced Pension Trust Bond Sales – April 1 to June 30, 2003 Par Value Issuer Security Price Net Amount Cost 1,200,000 BANK OF N.S. BATS 6.282 JUN 30 13 103.98 1,247,737.00 1,213,968.00 675,000 BC TEL 10.650 JUN 19 21 132.45 894,010.50 682,934.15 3,075,000 BC TEL 11.900 NOV 22 15 135.56 4,168,346.00 3,734,249.13 542,000 BC TEL 12.000 MAY 31 10 125.88 682,280.44 504,873.00 925,000 BELL CANADA 6.150 JUN 15 09 C 104.94 970,704.25 894,896.93 23,690,000 CANADA GOVT 3.500 JUN 01 05 99.88 23,661,572.00 23,598,556.60 7,985,000 CANADA GOVT 4.250 DEC 01 04 100.73 8,043,458.50 8,104,434.36 91,660,000 CANADA GOVT 5.000 DEC 01 03 100.86 92,450,821.50 92,498,140.81 93,665,000 CANADA GOVT 5.250 JUN 01 12 104.13 97,532,473.40 96,902,813.99 4,625,000 CANADA GOVT 5.250 JUN 01 13 101.76 4,706,307.50 4,654,340.60 38,885,000 CANADA GOVT 5.500 JUN 01 10 105.17 40,894,575.40 40,614,365.03 15,140,000 CANADA GOVT 5.750 JUN 01 03 100.17 15,165,738.00 15,175,329.50 2,625,000 CANADA GOVT 5.750 SEP 01 06 105.27 2,763,442.50 2,770,995.70 35,300,000 CANADA GOVT 6.000 JUN 01 11 112.20 39,606,855.25 39,255,440.25 4,040,000 CANADA GOVT 4.250 DEC 01 21 RR 145.59 5,881,754.17 5,198,984.23 22,655,000 CANADA GOVT 5.500 JUN 01 09 107.27 24,301,686.75 23,723,857.69 114,483,000 CANADA GOVT 6.000 JUN 01 08 107.32 122,859,999.50 122,892,770.19 875,000 CANADA GOVT 7.250 JUN 01 07 111.88 978,950.00 979,125.00 15,195,000 CANADA GOVT 8.000 JUN 01 23 134.67 20,462,610.90 20,363,121.73 16,638,000 CANADA GOVT 8.000 JUN 01 27 138.48 23,040,395.05 21,891,661.20 925,000 CANADA LIFE CLICS 6.679 JUN 30 12 104.58 967,351.50 925,703.00 2,075,000 ENBRIDGE INC 7.220 JUL 24 30 99.93 2,073,554.25 2,060,682.50 900,000 GE CAPITAL CANADA 5.300 JUL 24 07 103.01 927,126.00 912,727.65 1,000,000 GREAT WEST LIFE 6.140 MAR 21 18 110.04 1,100,360.00 992,524.89 1,450,000 GREATER TOR AIRPORT 6.980 OCT 15 32 97.95 1,420,273.25 1,415,016.09 625,000 LOBLAW COS 6.850 MAR 01 32 103.18 644,876.50 623,106.25 460,000 NOVA GAS TRANS LTD 12.200 FEB 28 16 149.21 686,375.20 682,147.80 1,100,000 RBC TRUCS 7.183 JUN 30 11 109.39 1,203,345.00 1,133,330.00 7,990,000 TORONTO-DOMINION F/F 5.690 JUN 03 13-18 104.98 8,388,275.20 7,988,561.80 800,000 TRANSCANADA PIPELINE 8.230 JAN 16 31 113.36 906,860.50 871,856.00 475,000 TRANSCANADA PIPELINE 11.800 NOV 20 20 150.30 713,939.00 655,500.00 825,000 WESTCOAST ENERGY 7.300 DEC 18 26 103.02 849,951.00 791,631.25 410,000 WESTCOAST ENERGY 9.900 JAN 10 20 131.92 540,872.00 502,395.48 -------------- ------------- --------------- 512,913,000 550,736,878.01 545,210,040.79 Phillips, Hager & North Investment Management Ltd. 32

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