Fixed Income Summary

The fixed income portfolio’s return for the year was 2.1% compared to 2.3% for its benchmark.  Canadian bond yields at year-end were only 35 to 41 basis points higher than where they were twelve months earlier.  Inflation moved above the Bank of Canada’s target level of 2% and is not expected to fall back in line until the second half of 2008.  Canadian GDP growth was 2.8% nationally in 2006 and is expected to be around 2.4% for 2007.  The largest factor globally over the last year was U.S. housing and its related sub-prime lending.  This will remain the largest concern for the next twelve months as the U.S. housing market has the potential to derail GDP growth globally and its corresponding sub-prime lending story has thrown global credit markets into turmoil as financial institutions become increasingly wary of lending to each other.