Canadian High Income Equity Fund : Annual Report – 2023

Canadian High Income

Equity Fund

Annual Report 2023

VALUE

INTEGRITY PERFORMANCE

THE FOUNDATION FOR EXCELLENCE

MANAGEMENT REPORT OF FUND PERFORMANCE

March 18, 2024

This annual management report of fund performance for Canadian High Income Equity Fund (the "Fund") contains financial highlights but does not contain the audited annual financial statements of the Fund. The audited annual financial statements follow this report. You may obtain a copy of the audited annual or unaudited interim financial statements, at no cost, by calling 1-866-642-6001 or by sending a request to Investor Relations, Brompton Funds, Bay Wellington Tower, Brookfield Place, 181 Bay Street, Suite 2930, Box 793, Toronto, Ontario, M5J 2T3, or by visiting our website atwww.bromptongroup.comor SEDAR at www.sedar.com. Unitholders may also contact Brompton Funds by using one of these methods to request a copy of the Fund's proxy voting policies and procedures, proxy voting disclosure record, Independent Review Committee's report, or quarterly portfolio disclosure.

THE FUND

Canadian High Income Equity Fund is a mutual fund trust managed by Brompton Funds Limited (the "Manager"). The investment manager of the Fund is Bloom Investment Counsel, Inc. (the "Investment Manager"). The units of the Fund are traded on the Toronto Stock Exchange ("TSX") under the symbol CIQ.UN. The units are RRSP, DPSP, RRIF, RESP, TFSA and FHSA eligible.

INVESTMENT OBJECTIVES AND STRATEGIES

Canadian High Income Equity Fund is designed to provide unitholders with a high monthly distribution and the opportunity for capital appreciation through investment in an actively managed portfolio of publicly listed or traded Canadian securities. The Fund invests in an actively managed portfolio of publicly listed or traded Canadian securities across a broad range of industries.

RECENT DEVELOPMENTS

Market Conditions

Monetary policy response to persistently higher levels of inflation over the Bank of Canada's 2% target rate has led to higher interest rates and fluctuations in securities prices. The Fund's Net Asset Value reflecting the value of the Fund's portfolio based on the most recent valuation date can be found on the Fund's webpage atwww.bromptongroup.com.

RISKS

Risks associated with an investment in the units of the Fund are discussed in the Fund's 2023 annual information form, which is available on the Fund's website atwww.bromptongroup.comor on SEDAR at www.sedar.com. There were no changes to the risks during the year ended December 31, 2023, that could materially affect an investment in the units of the Fund as they were discussed.

RESULTS OF OPERATIONS

Distributions

Cash distributions for the year ended December 31, 2023 amounted to $0.48 per unit, unchanged from 2022. This reflected monthly payment of $0.04 per unit in 2023. Since inception on February 18, 2010, the Fund has paid total cash distributions of $9.23 per unit.

The Fund has a distribution reinvestment plan which allows participating unitholders to automatically reinvest monthly distributions, commission free, in additional units of the Fund. Pursuant to this plan, 2,256 units were acquired in the market at an average price of $6.83 per unit and 440 units were issued from treasury at an average price of $7.13 during year ended December 31, 2023.

Revenue and Expenses

The Fund earned revenue of $0.29 per unit in 2023, unchanged from 2022. Expenses in 2023 amounted to $0.21 per unit compared to $0.20 per unit in 2022.

Net Asset Value

The Net Asset Value per unit of the Fund was $6.80 at December 31, 2023, down by 2.7% from $6.99 at December 31, 2022. The aggregate Net Asset Value of the Fund was $7.30 million at December 31, 2023, down from $8.50 million at December 31, 2022.

Investment Portfolio

As at December 31, 2023, the Fund's investment portfolio included 23 securities across 9 sectors compared to 25 securities across 9 sectors at December 31, 2022. The investment weightings and a detailed listing of the Fund's security holdings is provided in the financial statements.

For the year ended December 31, 2023, the Fund's portfolio recorded a net realized gain of $0.11 million and a net change in unrealized gain of $0.09 million. The Financials, Industrials and Energy sectors saw notable gains, resulting in a combined net gain of $0.56 million. However, the losses in the Utilities, Real Estate and Consumer Discretionary sectors detracted the Funds overall performance.

Portfolio Sectors

% of	Change in
Net Asset Value	Realized	Unrealized	Total
Net Gains (Losses) by Sector (millions)	as of 31-Dec-23	$	$	$
Communication Services	6.1	-	(0.02)	(0.02)
Consumer Discretionary	12.8	0.04	(0.15)	(0.11)
Consumer Staples	7.5	0.04	0.03	0.07
Energy	19.0	0.02	0.10	0.12
Financials	22.8	0.05	0.21	0.26
Industrials	15.4	0.12	0.06	0.18
Materials	4.6	(0.09)	0.06	(0.03)
Real Estate	3.2	(0.07)	(0.03)	(0.10)
Utilities	6.6	-	(0.17)	(0.17)
Cash & other net assets (liabilities)	2.0	-	-	-
Total	100.0	0.11	0.09	0.20
Liquidity and Capital Resources

To provide liquidity for unitholders, units of the Fund are listed on the TSX under the symbol CIQ.UN. Investors may redeem their units at Net Asset Value, less applicable costs, in accordance with the Fund's redemption provisions.

RELATED PARTY TRANSACTIONS

Related party transactions consist of services provided by the Manager pursuant to a management agreement. See the Management Fees section below.

MANAGEMENT FEES

Pursuant to a management agreement, the Manager provides management, investment management and administrative services to the Fund, for which it is paid a management fee equal to 1.25% per annum of the Net Asset Value of the Fund, plus applicable taxes. The Manager is responsible for paying the fees of the Investment Manager. The management fee is used by the Manager to cover certain costs to administer the Fund, the cost of the Investment Manager and for profit. For the year ended December 31, 2023, management fees amounted to $0.1 million (year ended December 31, 2022 - $0.1 million).

FINANCIAL HIGHLIGHTS

The following tables show selected key financial information about the Fund and are intended to help readers understand the Fund's financial performance for the fiscal years indicated. This information is derived from the Fund's audited annual financial statements which have been prepared in accordance with IFRS Accounting Standards. The information in the following tables is presented in accordance with National Instrument ("NI") 81-106 and, as a result, does not act as a continuity of opening and closing Net Assets per unit. The increase (decrease) in Net Assets from operations is based on average units outstanding during the year, and all other numbers are based on actual units outstanding at the relevant point in time.

Net Assets per Unit1

For the year ended December 31

Net Assets per unit, beginning of year2 Increase (decrease) from operations:3

2023 $ 6.99

2022 $ 7.97

2021 $ 7.15

2020 $

2019 $

7.89 7.14

Total revenue

0.29

0.29

0.28

0.28 0.35

Total expenses Realized gains (losses) Unrealized gains (losses)

(0.21)

(0.20)

(0.19)

(0.16) (0.20)

0.09

0.32

0.75

(0.06) (0.47)

0.08

(0.96)

0.50

(0.40) 1.68

Total increase (decrease) in Net Assets from operations

0.25

(0.55)

1.34

(0.34) 1.36

Distributions to unitholders:2

From net investment income

Return of capital

Total distributions to unitholders Net Assets per unit, end of year2

0.02 0.46 0.48 6.80

0.03 0.45 0.48 6.99

0.04 0.44 0.48 7.97

0.07 0.10 0.44 0.50 0.51 0.60 7.15 7.89

• 1 The financial information was prepared in accordance with IFRS Accounting Standards.

• 2 Net Assets per unit and distributions per unit are based on the actual number of units outstanding at the relevant time.

• 3 The increase (decrease) in Net Assets from operations per unit is based on the weighted average number of units outstanding over the fiscal year.

  Ratios and Supplemental Data (Based on Net Asset Value)

  As at December 31

  2023

  2022

  2021

  2020 2019

  Net Asset Value ($) (000s) Number of units outstanding (000s) Management expense ratio ("MER")1 Trading expense ratio2

  7,297

  8,453

  10,746

  • 12,040 15,043

    1,073

    1,209

    1,348

  • 1,685 1,905

  2.99%

  2.62%

  2.32%

  • 2.35% 2.52%

    0.05%

    0.04%

    0.05%

  • 0.07% 0.07%

    Portfolio turnover rate3

    2.79%

    13.85%

    3.95%

  • 15.18% 12.27%

  Net Asset Value per unit ($) Closing market price - units ($)

  6.80

  6.99

  7.97

  7.15 7.89

  6.53

  6.85

  7.85

  7.08 7.62

• 1 MER is based on the requirements of NI 81-106 and includes the total expenses (excluding commissions and other portfolio transaction costs) of the Fund for the stated year, including interest expense and issuance costs, and is expressed as an annualized percentage of the average Net Asset Value of the period.

• 2 The trading expense ratio represents total commissions expressed as an annualized percentage of daily average Net Asset Value of the Fund during the period.

• 3 The Fund's portfolio turnover rate indicates how actively the Fund's Investment Manager manages its portfolio investments. A portfolio turnover rate of 100% is equivalent to the Fund buying and selling all of the securities in its portfolio once in the course of the year. The higher the Fund's portfolio turnover rate in a year, the greater the trading costs payable by the Fund in the year and the greater the chance of an investor receiving taxable capital gains in the year. There is not necessarily a relationship between a high turnover rate and the performance of the Fund. Portfolio turnover rate is calculated by dividing the lesser of the cost of purchases and the proceeds of sales of portfolio securities for the year, excluding cash and short-term investments maturing in less than one year, by the average market value of such investments during the period.

PAST PERFORMANCE

The following chart and table show the past performance of the Fund. Past performance does not necessarily indicate how the Fund will perform in the future. The information shown is based on Net Asset Value per unit and assumes that cash distributions made by the Fund were reinvested (at Net Asset Value per unit) in additional units of the Fund.

The bar chart shows the Fund's return for the years ended December 31, 2014 to December 31, 2023. The chart shows, in percentage terms, how an investment held in a unit of the Fund on the first day of each fiscal period would have changed by the last day of the fiscal period.

Year-by-Year Return

Returns (%)

The following table shows the Fund's compound return for each period indicated compared with the S&P/TSX Composite Total Return Index ("Composite Index") and the S&P/TSX High Dividend Total Return Index ("High Dividend Index") (together the "Indices"). The Composite Index tracks the performance, on a market-weight basis and a total return basis, of a broad index of large-capitalization issuers listed on the TSX. The Composite High Dividend Index tracks the performance, on a market-weight basis and a total return basis, of 50-75 highest dividend yielding securities within the Composite Index. Since the Fund is actively managed, the sector weightings differ from those of the Indices. For these reasons, it is not expected that the Fund's performance will mirror that of the Indices. Furthermore, the Indices are calculated without the deduction of management fees, fund expenses, and trading commissions, whereas the performance of the Fund is calculated after deducting such fees and expenses.

Annual Compound Returns

1-Year 3-Year 5-Year 10-Year % % % %

Canadian High Income Equity Fund	4.3	5.0	6.3	1.9
S&P/TSX High Dividend Total Return Index	7.0	13.6	11.3	6.6
S&P/TSX Composite Total Return Index	11.8	9.7	11.3	7.6

The Fund returned 4.3% in 2023, underperforming both the High Dividend Index and Composite Index. The High Dividend Index is weighted at approximately 31% in the Financials sector and 30% in the Energy sector and the Composite Index is weighted at approximately 31% in the Financials sector and 17% in the Energy sector. In comparison, the Fund's investment portfolio demonstrates a more diversified weighting, with approximately 23% in the Financials sector and 19% in the Energy sector. Please see the Portfolio Manager's report for a detailed discussion of the economy, markets, Fund performance and outlook.

SUMMARY OF INVESTMENT PORTFOLIO

As at December 31, 2023

Total Net Asset Value	$	7,297,476
% of Net
Portfolio Composition	Asset Value
Financials	22.8
Energy	19.0
Industrials	15.4
Consumer Discretionary	12.8
Consumer Staples	7.5
Utilities	6.6
Communication Services	6.1
Materials	4.6
Real Estate	3.2
Total Investments	98.0
Cash	3.0
Other net assets (liabilities)	(1.0)
Total Net Asset Value	100.0
% of Net
Top 25 Holdings	Asset Value
goeasy Ltd.	6.3
Ag Growth International Inc.	6.2
Parkland Corporation	6.0
Premium Brands Holdings Corp.	5.3
TFI International Inc.	5.2
Transcontinental Inc.	5.0
Toronto-Dominion Bank	4.9
Keyera Corp.	4.9
Manulife Financial Corporation	4.7
Chemtrade Logistics Income Fund	4.6
Rogers Communications Inc.	4.3
Enbridge Inc.	4.2
Sun Life Financial Inc.	4.1
Superior Plus Corp.	4.0
Park Lawn Corporation	3.9
Gibson Energy Inc.	3.9
Canadian Tire Corp.	3.9
Boralex Inc.	3.7
5

Canadian High Income Equity Fund - Annual Report 2023
SUMMARY OF INVESTMENT PORTFOLIO (cont'd)
% of Net
Top 25 Holdings (cont'd)	Asset Value
Altus Group Limited	3.2
Cash	3.0
Northland Power Inc.	2.9
Bank of Nova Scotia	2.8
Empire Co. Ltd.	2.2
Telus Corporation	1.8
Total	101.0

The investment portfolio may change due to ongoing portfolio transactions of the investment fund. Quarterly updates are available on the Fund's website atwww.bromptongroup.comwithin 60 days of each quarter end.

2023 TAX INFORMATION

The following information is applicable to holders who, for the purpose of the Income Tax Act (Canada), are resident in Canada and hold units as capital property outside of an RRSP, DPSP, RRIF, RESP, TFSA or FHSA. Unitholders should receive a T3 slip from their investment dealer providing this information. T3 supplementary slips for holdings of the Fund will indicate Other Income (Investment Income and Non-Investment Income) in Box 26, Foreign Non-Business Income in Box 25, Capital Gains in Box 21 and Eligible Dividend Income in Box 49. Dividend income is subject to the standard gross-up and federal dividend tax credit rules. The return of capital component is a non-taxable amount that serves to reduce the adjusted cost base of Fund units and is reported on the T3 supplementary slips in Box 42.

The following table outlines the breakdown in the Fund's distributions declared in 2023 on a per unit basis.

Eligible	Return of	Total
Dividends	Capital	Distributions
Record Date	Payment Date	$	$	$
31-Jan-23	14-Feb-23	0.00186	0.03814	0.04000
28-Feb-23	14-Mar-23	0.00186	0.03814	0.04000
31-Mar-23	17-Apr-23	0.00186	0.03814	0.04000
28-Apr-23	12-May-23	0.00186	0.03814	0.04000
31-May-23	14-Jun-23	0.00186	0.03814	0.04000
30-Jun-23	17-Jul-23	0.00186	0.03814	0.04000
31-Jul-23	15-Aug-23	0.00186	0.03814	0.04000
31-Aug-23	15-Sep-23	0.00186	0.03814	0.04000
29-Sep-23	16-Oct-23	0.00186	0.03814	0.04000
31-Oct-23	14-Nov-23	0.00186	0.03814	0.04000
30-Nov-23	14-Dec-23	0.00186	0.03814	0.04000
29-Dec-23	15-Jan-24	0.00186	0.03814	0.04000
0.02232	0.45768	0.48000

This information is of a general nature and does not constitute legal or tax advice to any particular investor. Accordingly, investors are advised to consult their own tax advisors with respect to their individual circumstances.

INVESTMENT MANAGER

Bloom Investment Counsel, Inc.

For over 35 years, Bloom Investment Counsel has been managing segregated investment portfolios for wealthy individuals, foundations, corporations, institutions and trusts. In addition to its conventional investment management business, Bloom currently manages specialty high-income equity portfolios, comprised of dividend paying common equity securities, income trusts and real estate investment trusts, for three TSX listed closed-end funds.

INVESTMENT MANAGER'S REPORT January 2, 2024

Canadian Economy

It came as no surprise that the Bank of Canada (BoC) held interest rates flat at 5% during the fourth quarter of 2023. The Canadian economy is now at a point where it needs to prove that it can successfully ward off the impact of past rate hikes and other economic setbacks to successfully result in a soft landing. While inflation remains sticky it appears that either a tremendous rebound in the economy, a dramatically weaker Canadian dollar or a further increase in inflation are the only drivers which would cause the BoC to return to hiking interest rates. With the current economic backdrop, rate cuts are a more likely scenario in the second half of 2024.

November's Canadian Consumer Price Index (CPI) data somewhat disappointingly remained in the 3% range, highlighting that the inflation fight is not over yet. However, the underlying trend is lower and despite an expected higher result in December, it appears that the BoC's 3.3% expectation for the average inflation rate in the fourth quarter may be correct. Price increases were seen in 7 of the 8 categories surveyed with recreation, shelter and alcohol/tobacco leading the way. More moderate results were seen in food, transportation, and health/personal care. Regionally, Quebec, Ontario, and British Columbia all experienced annual inflation rates higher than the national average with below average inflation in Alberta. Despite this slight disappointment, it must be noted that inflation is a lagging indicator and while it highlights past economic conditions the overall trend is slowing which is a positive sign for rate cuts this year.

There is no doubt that the Canadian economy is struggling with Q3 GDP falling at a 1.1% annual rate, clearly missing expectations for a 0.1% increase. On the positive side, Q2 GDP was revised significantly upward from -0.2% to 1.4% thereby avoiding at least one definition of a recession (two consecutive quarters of declining GDP). However, growth has slowed year-over-year to 0.5%, the weakest level, excluding the pandemic period, since 2015. The biggest decline was seen in business investment with both construction and machinery and equipment declining. Consumer spending was essentially flat and government spending and residential construction both surprised on the upside. Expectations are for 0.5% GDP growth in 2024.

With a slowdown in real GDP growth combined with a strong 3% increase in population growth, real GDP per capita was a weak 2.5%, levels usually witnessed during recessionary periods. Likewise, per-capita disposable income after inflation continues to decline and is now in-line with pre-COVID levels. On the positive side, at 3.1%, Canadian household credit growth has continued to ease, reporting the lowest rate on record since 1991. This is a far cry from the cycle peak at 8.6% in May 2022. Similarly, residential mortgage growth has declined to 3.5% year-over-year, significantly lower than the double-digit figures experienced in early 2022 and consumer loan growth has halved from a 4.4% level in 2022 to the current 2.2% level.

On the employment front not much changed with November's statistics. There was a decent increase (25,000) in Canadian employment; however, the unemployment rate continues to rise reaching 5.8%, up 0.8% since April. The current restrictive monetary environment and surging immigration make it challenging for the economy to keep pace with population growth. Weak domestic demand has resulted in an increase in employees being laid off. With a lag between the impacts of monetary policy on the employment rate it is expected that unemployment will get worse before we see improvement. This slackening on the supply side is expected to negatively impact wage growth but on the other hand, it is expected to temper inflation.

Canadian retail sales rose 0.7% in October, slightly below the flash estimate of 0.8% but marking a second consecutive monthly increase. While this may not sound so impressive, it is remarkable how well the Canadian consumer has fared during a period of immense economic headwinds. However, estimates for November are for flat nominal sales. October's results were largely driven by clothing and accessories (+2.4%) and general merchandise (+2.0%) with autos increasing 1.2%. It is likely that vehicle sales growth will continue to slow given the impact of higher-rate financing and the continued rise in inventories. It is expected that this slowing momentum will continue, resulting in flat real consumer spending in 2024. An impressive nine of ten provinces posted gains in the month with Alberta being the exception. It is interesting to highlight that a significant gap between Canadian and U.S. retail sales remains with U.S. nominal sales increasing more than 30% from pre-pandemic levels compared to a roughly 20% increase in Canada.

Mortgage rates appear to have peaked with Canadian housing affordability at the worst level since the 1980s, which is expected to put pressure on housing prices. In October, housing starts rose slightly demonstrating resilience in a challenging market but are still expected to show a decline in 2023 from each of the past two years. Canadian existing home sales, on the other hand, are now at the low end of the pre-pandemic range with demand weakened by high financing rates.

Canadian Investment Markets

The investing community was not surprised by the BoC's decision to hold rates at the end of the year. The markets appear priced for a rate cut sooner rather than later; however, the BoC is not quite as bullish and is waiting to see more fulsome data before committing to any easing in its monetary policy. One must not forget that this economic cycle is different from any over the past 40 years as the level of inflation from the start was much higher and the economy, thus far, has been surprisingly resilient to interest rate hikes. The stock market underestimated the speed at which interest rates would climb and is possibly overestimating the pace at which they will decline. Assuming the economy cooperates with the most recent tightening policies, we expect a more dovish tone from the BoC at its January meeting with interest rates remaining flat until the middle of 2024 after which time we expect to see the slow start of an easing in Canada's monetary policy.

Canada is expected to trail other global economies due to heavily indebted consumers who continue to digest this past year's rate hikes. Household consumption will have to slow but there remains some cushion available to households due to an increase in home values partially offsetting the impact of a 45% increase in mortgage rates, providing some financial flexibility. This, coupled with the uncertainty of a possible Canadian election, could result in a bumpier ride in the Canadian stock market than its U.S. counterpart.

2023 was a challenging year for Canadian investors with the market experiencing few of the tailwinds that helped other markets despite it generating a mid-single digit return for the year. The traditional outperforming sectors in the S&P/TSX Composite Index such as Financials, lagged in 2023 and the market demonstrated minimal breadth with gains generated from Information Technology, a relatively small sector of the market. The S&P/TSX Composite Index trades at roughly a 30% discount to its U.S. peers with the Canadian market trading in the 13x Price/Earnings range compared to the U.S. market which is in the 19x Price/Earnings range. This is one of the widest discounts in 30-40 years. The Magnificent Seven (Apple, Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia and Tesla) continue to dominate the U.S. market at around 30% of the S&P 500 Index, making it increasingly difficult for the Canadian market to close the relative valuation gap. Going forward, we believe the Canadian market's breadth will widen with several sectors benefitting from an expected decline in interest rates.

As we have continuously highlighted, the speed at which the stock market adjusts to news flow continues to surprise investors with 2023 being no exception. This was further highlighted earlier in the year with the market's reaction to the U.S. regional banking crisis. On the other hand, one can argue that the combined impact from high inflation and interest rates had less of an impact on the stock market than most investors would have expected.

The S&P/TSX Composite Index increased 7.3% in the quarter with the S&P/TSX Composite High Dividend Index increasing 5.9%. For the year, the S&P/TSX Composite Index increased 8.1% with the S&P/TSX Composite High Dividend Index increasing 1.3%. With a higher proportion of resource and interest rate sensitive stocks and a lack of mega cap growth stocks, the Canadian market lagged the U.S. market throughout 2023.

The top performing sectors in the quarter were: Information Technology +24.0%, Financials +12.8% and Real Estate +10.7%. The Information Technology sector was predominantly impacted by a rebound in Shopify's stock price after falling sharply in 2022. As the market started to focus on the prospect for rate cuts in 2024, interest rate sensitive sectors such as the Financials and Real Estate started to show gains in the latter half of the quarter. The three worst performing sectors in the quarter were Energy, Materials and Health Care.

In the fourth quarter, after a long period of negative returns, the Canadian bond market performed impressively. This followed the U.S. Fed and the BoC providing the appearance of a policy pivot on the direction of interest rates at the start of that quarter. While administered rates will not fall for several months, the market prices of bonds reacted quite violently to the perceived pivot. Long-term (30-year) Government of Canada Bonds appreciated in value by 19.1%, mid-term (10-year) bonds by 9.0% and short-term (5-year) bonds by 5.8%. These extremely strong returns wiped out the losses of the prior nine months, so that returns over the last twelve months were quite positive. Respectively these were 9.0%, 5.1% and 4.2%, but still below the 2023 return of the S&P/TSX index. 90-Day Treasury Bills returned 1.3% for the last quarter and 4.7% for the last year.

During the last quarter the Loonie appreciated in value by 2.2% to $1.3226 against its U.S. counterpart. In 2023, our currency appreciated by 2.3%. Over those twelve months there was a reasonable amount of volatility influenced by the price of oil, interest rates and the ongoing lack of Canadian competitiveness compared to the U.S. with the Loonie seeing a high of $1.3111 and a low of $1.3881.

Canadian High Income Equity Fund Performance

The best performing stocks in the Fund for the year were Parkland Corporation, goeasy Ltd. and TFI International Inc. Sectors that contributed the greatest positive performance to the Fund were Financials, Energy and Industrials.

The most recent measure of Active Share for Canadian High Income Equity Fund was a very high 82.0%. Active Share is a measure of the percentage of stock holdings in a manager's portfolio that differs from the benchmark index. Bloom believes this high Active Share gives the Fund a greater ability to take advantage of upside opportunities or protect against downside risk very distinctly in comparison to the great number of less active manager's with performance that closely follows the benchmark.

Canadian High Income Equity Fund Portfolio Changes

With our customized approach to investment management, tailoring the Fund's portfolio, for the year we added to Canadian High Income Equity Fund's position in TELUS Corporation, initiated a new position in Empire Company and trimmed the Fund's position in Ag Growth International Inc., TFI International Inc., Premium Brands Holdings Corporation, Parkland Corporation, Barrick Gold Corporation, Manulife Financial Corporation, Sun Life Financial Inc., Chemtrade Logistics Income Fund, Bank of Nova Scotia, and Canadian Tire Corporation Limited. We sold the Fund's positions in Propel Holdings Inc. and Allied Properties REIT.

Outlook

This past year was a challenging year for Canadian dividend paying equities with increased competition from rising interest rates and bond yields. Now, with a more favourable fundamental backdrop, this sector of the market has several catalysts. The key catalyst is the reversal of fund flows that had previously chased high yielding money market funds and short-term deposits such as Treasury bills and GICs. In particular, lower interest rates and a normalization of the yield curve are key drivers for this change. Not only do we expect dividend-paying equities to be the beneficiary of lower interest rates, but we also expect them to remain less volatile than the remainder of the market as has been the case over many decades.

Valuations for Canadian equities are much more compressed than their U.S. counterparts and, accordingly, yields on Canadian dividend-paying equities remain very attractive. This is particularly apparent in interest rate sensitive sectors such as Telecommunications and Utilities whose stock prices have been overly punished by the economic backdrop.

2023 proved to be a volatile and somewhat complicated market for investors. The year saw a continuation of the struggle between interest rate hikes and inflation which to many investors' surprise demonstrated more resiliency than expected for numerous companies' earnings. As we start 2024, inflation appears to be coming under control and administered interest rates should be at their peak. The expectation for a soft landing and a reduction in rates over the next couple of years is expected to be positive for the equity market and in particular dividend-paying equities. However, with current macroeconomic events and the uncertainty of the timing of rate cuts, 2024 could prove to be more challenging than many investors expect. We remain focused on quality dividend-paying stocks which have, as previously noted, proved over many decades to be less volatile than, and to outperform, non-dividend paying stocks. As always, we remain patient and prudent in our approach to investing and look forward to another rewarding year.