Semi-Annual Financial Statements for the period ended June 30, 2012

Transcription

1 2012 Semi-Annual Financial Statements for the period ended June 30, 2012 Signature Diversified Value Trust Signature Ongoing Business Trust

2 Table of Contents SIGNATURE DIVERSIFIED VALUE TRUST Financial Statements Statement of Investment Portfolio Statements of Net Assets Statements of Operations and Retained Earnings (Deficit) Statements of Changes in Net Assets Statements of Cash Flows Trust Specific Financial Instruments Risks SIGNATURE ONGOING BUSINESS TRUST Financial Statements Statement of Investment Portfolio Statements of Net Assets Statements of Operations and Retained Earnings (Deficit) Statements of Changes in Net Assets Statements of Cash Flows Trust Specific Financial Instruments Risks Notes to the Financial Statements Trusts Information CI Investments Inc., the Manager of the Trusts, appoints independent auditors to audit the Trusts Annual Financial Statements. Under Canadian securities laws (National Instrument ), if an auditor has not reviewed the Semi-Annual Financial Statements, this must be disclosed in an accompanying notice. The Trusts independent auditors have not performed a review of these Semi-Annual Financial Statements in accordance with standards established by the Canadian Institute of Chartered Accountants.

3 SIGNATURE DIVERSIFIED VALUE TRUST Financial Statements (unaudited) Statement of Investment Portfolio (as at June 30, 2012) Number of Shares/ Average Fair Par Value Description Cost ($) Value ($) EQUITIES SUBJECT TO FORWARD CONTRACT (35.0%) 19,828 Canfor Corp.* 192, ,117 21,968 Celestica Inc.* 139, ,124 17,727 CGI Group Inc.* 340, ,425 1,750 Crew Energy Inc.* 18,725 10,062 1,787 Research In Motion Ltd.* 44,335 13, , ,148 FINANCIALS (41.6%) 4,270 Allied Properties REIT 59, ,787 5,034 Brookfield Asset Management Inc., Class A 159, ,595 3,400 Brookfield Office Properties Inc. 56,961 60,248 3,530 Canadian REIT 80, ,177 6,389 Cominar REIT 89, ,889 1,540 Crombie REIT 22,132 22,515 1,759 Davis & Henderson Income Corp. 32,437 30,343 4,218 First Capital Realty Inc. 74,037 77,232 4,130 H&R REIT 64, ,937 1,320 Northern Property Real Estate Investment Trust 38,541 43, NorthWest Healthcare Properties REIT 2,909 3,252 2,200 PlazaCorp Retail Properties Ltd. 9,326 10,164 3,410 Primaris Retail Real Estate Investment Trust 60,471 79, ,421 1,017,405 ENERGY (25.5%) 1,866 AltaGas Ltd. 52,595 53,946 3,600 ARC Resources Ltd. 73,178 82,224 2,450 Bonavista Energy Corp. 49,009 39,004 1,700 Crescent Point Energy Corp. 56,288 64,464 3,080 Gibson Energy Inc. 59,331 63, Keyera Corp. 12,606 13,926 5,500 Suncor Energy Inc. 156, ,920 5,761 Veresen Inc. 73,723 69,535 1,700 Vermilion Energy Inc. 57,314 77, , ,112 *Securities sold forward as part of the Forward Contract Agreement. Percentages shown in brackets relate investments at fair value to net assets of the Trust. The accompanying notes are an integral part of these financial statements. 1

4 SIGNATURE DIVERSIFIED VALUE TRUST Financial Statements (unaudited) (cont d) Statement of Investment Portfolio (as at June 30, 2012) (cont d) Number of Shares/ Average Fair Par Value Description Cost ($) Value ($) CONSUMER DISCRETIONARY (1.3%) 3,000 Whistler Blackcomb Holdings Inc. 33,034 32,700 Commissions and other portfolio transaction costs (676) Total Equities (103.4%) 2,108,072 2,535,365 DERIVATIVE INSTRUMENTS Forward Contract (-3.8%) (see Schedule A) (93,664) Total Investments (99.6%) 2,108,072 2,441,701 Other Net Assets (Liabilities) (0.4%) 11,188 Net Assets (100.0%) 2,452,889 Schedule A Forward Contract (-3.8%) Investments sold forward Fair Value ($) Canfor Corp. (240,712) Celestica Inc. (162,563) CGI Group Inc. (433,780) Crew Energy Inc. (10,063) Research In Motion Ltd. (13,474) (860,592) Notional Units Underlying Trust Fair Value ($) 121,276 Signature Ongoing Business Trust 766,928 Total Forward Contract Value (93,664) Settlement Date Credit Rating of Counterparty 31-Dec.-12 A-1+ Credit ratings are obtained from Standard & Poor s, where available, otherwise ratings are obtained from: Moody's Investors Service, Dominion Bond Rating Services or Canadian Bond Rating Services. Percentages shown in brackets relate investments at fair value to net assets of the Trust. The accompanying notes are an integral part of these financial statements. 2

5 SIGNATURE DIVERSIFIED VALUE TRUST Financial Statements (unaudited) (cont d) Statements of Net Assets (in $000 s except for per unit amounts and number of units outstanding) As at As at June 30, 2012 December 31, 2011 ASSETS Investments at fair value* Cash Unrealized gain on forward contract Receivable for securities sold Dividends and accrued interest receivable LIABILITIES Payable for securities purchased Payable for unit redemptions Management fees payable Unrealized loss on forward contract Service fees payable Distributions payable Spread fee payable Borrowing fee payable Accrued expenses Net assets and unitholders equity UNITHOLDERS EQUITY Unit capital Contributed surplus Retained earnings (deficit) Net assets and unitholders equity *Investments at cost Net assets per unit (Note 9) Number of units outstanding (Note 3) 2,535 2, ,585 2, ,453 2,487 1,221 1, ,174 1,049 2,453 2,487 2,108 2, , ,519 The accompanying notes are an integral part of these financial statements. 3

6 SIGNATURE DIVERSIFIED VALUE TRUST Financial Statements (unaudited) (cont d) Statements of Operations and Retained Earnings (Deficit) (in $000 s except for per unit amounts) For the periods ended June INVESTMENT INCOME Dividends Interest Fees rebate Less: Foreign withholding taxes EXPENSES Management fees (Note 4) Administrative expenses (Note 4) Service fees (Note 4) Legal fees Audit fees Independent review committee fees Harmonized sales tax/goods and services tax Net investment income (loss) for the period Realized and unrealized gain (loss) on investments and commissions and other portfolio transaction costs Realized gain (loss) on investments Foreign exchange gain (loss) Commissions and other portfolio transaction costs Forward fees (Note 4) Change in unrealized appreciation (depreciation) of investments and derivatives Net gain (loss) on investments Increase (decrease) in net assets from operations Increase (decrease) in net assets from operations per unit STATEMENTS OF RETAINED EARNINGS (DEFICIT) Retained earnings (deficit), beginning of period Increase (decrease) in net assets from operations (Excess) deficiency on amounts paid on units redeemed Distribution from net income Distribution from realized gains Retained earnings (deficit), end of period Contributed surplus, beginning of period (Excess) deficiency on amounts paid on units redeemed Contributed surplus, end of period (9) (1) (4) (5) (46) (175) , (5) 1, The accompanying notes are an integral part of these financial statements. 4

7 SIGNATURE DIVERSIFIED VALUE TRUST Financial Statements (unaudited) (cont d) Statements of Changes in Net Assets (in $000 s) For the periods ended June Net assets, beginning of period CAPITAL TRANSACTIONS Cost of units redeemed and repurchased (Excess) deficiency on amounts paid on units redeemed DISTRIBUTIONS TO UNITHOLDERS From net income From realized gains From return of capital Increase (decrease) in net assets from operations Net assets, end of period 2,487 2,642 (5) (159) (167) (164) (167) ,453 2,607 Statements of Cash Flows (in $000 s) For the periods ended June CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES Net investment income (loss) Proceeds from sale of investments Purchase of investments Net change in non-cash balances related to operations FINANCING ACTIVITIES Distributions paid Cost of units redeemed and repurchased Increase (decrease) in cash during the period Cash (Bank overdraft), beginning of period Cash (Bank overdraft), end of period (9) ,199 (786) (862) (2) (1) (165) (169) (36) (200) (201) (369) (13) (20) The accompanying notes are an integral part of these financial statements. 5

8 SIGNATURE DIVERSIFIED VALUE TRUST Trust Specific Financial Instruments Risks (Note 13) (unaudited) The Trust s investments were concentrated in the following segments: as at December 31, 2011 Category Net Assets (%) Financials 46.1 Equities Subject to Forward Contract 39.1 Energy 16.2 Other Net Assets (Liabilities) -0.6 Forward Contract -0.8 The Signature Diversified Value Trust (the Trust ) is exposed to the financial instrument risks of the Signature Ongoing Business Trust. The Trust was created to obtain exposure to a diversified portfolio consisting primarily of securities of Canadian publicly traded ongoing business trusts by virtue of the Forward Agreement. By entering into the Forward Agreement, the Trust assumed the risk exposure of the Signature Ongoing Business Trust, as well as credit risk to the Counterparty of the Forward Agreement in respect of any positive amount of the value of the Forward Contract. The Trust also provides unitholders with exposure to the returns of an actively managed portfolio consisting primarily of securities of Canadian publicly traded real estate investment trusts, oil and gas trusts and energy infrastructure funds (the Resource and Real Estate Portfolio ). Details of the Signature Ongoing Business Trust s financial instruments risk exposure can be found in the Trust Specific Financial Instruments Risk in the Signature Ongoing Business Trust financial statements. As at June 30, 2012, the credit rating of the Counterparty to the Forward Agreement was A-1+ ( A-1+). For details relating to other price risk, credit risk, currency risk, interest rate risk and fair value hierarchy, refer to the audited annual financial statements as at December 31, 2011, as the Trust s exposure to those risks remains unchanged. The accompanying notes are an integral part of these financial statements. 6

9 SIGNATURE ONGOING BUSINESS TRUST Financial Statements (unaudited) Statement of Investment Portfolio (as at June 30, 2012) Number of Shares/ Average Fair Par Value Description Cost ($) Value ($) CANADA (93.2%) 4,384 Aimia Inc. 56,920 59,316 5,820 Algonquin Power & Utilities Corp. 33,548 38,296 1,084 BCE Inc. 43,049 45,474 1,700 Bell Aliant Inc. 42,375 43, Canadian Imperial Bank of Commerce 35,234 35, Canadian National Railway Co. 74,321 78, Capital Power Corp. 15,470 15, Enbridge Inc. 7,797 8,116 1,510 Enbridge Income Fund Holdings Inc. 28,159 33,975 8,690 Inter Pipeline Fund LP 72, , Labrador Iron Ore Royalty Corp. 15,713 30, Manitoba Telecom Services Inc. 9,215 9,583 2,990 Northland Power Inc. 35,712 53, Rogers Communications Inc., Class B 18,961 19, TELUS Corp., Non-Voting Shares 45,916 50, TransCanada Corp. 17,167 17,052 1,900 Tricon Capital Group Inc. 7,804 7,904 Commissions and other Portfolio Transaction Costs (1,005) Total Equities (93.2%) 558, ,739 DERIVATIVE INSTRUMENT Foreign Currency Forward Contracts (0.0%) (see Schedule A) 15 Total Investments (93.2%) 558, ,754 Other Net Assets (Liabilities) (6.8%) 52,451 Net Assets (100.0%) 766,205 Schedule A Foreign Currency Forward Contracts (0.0%) Credit Rating of Settlement Contract Unrealized Contracts Counterparty the Counterparty Date Rate ($) Pay Receive Gain (Loss) ($) 1 Morgan Stanley A-2 12-Sep (2,053) Canadian $ 2,000 US $ (14) 1 Morgan Stanley A-2 12-Sep (2,000) US $ 2,068 Canadian $ 29 Total Foreign Currency Forward Contracts Value 15 Credit ratings are obtained from Standard & Poor s, where available, otherwise ratings are obtained from: Moody's Investors Service, Dominion Bond Rating Services or Canadian Bond Rating Services. Percentages shown in brackets relate investments at fair value to net assets of the Trust. The accompanying notes are an integral part of these financial statements. 7

10 SIGNATURE ONGOING BUSINESS TRUST Financial Statements (unaudited) (cont d) Statements of Net Assets (in $000 s except for per unit amounts and number of units outstanding) As at As at June 30, 2012 December 31, 2011 ASSETS Investments at fair value* Cash Receivable for securities sold Dividends and accrued interest receivable LIABILITIES Management fees payable Distributions payable Accrued expenses Net assets and unitholders equity UNITHOLDERS EQUITY Unit capital Contributed surplus Retained earnings (deficit) Net assets and unitholders equity *Investments at cost Net assets per unit (Note 9) Number of units outstanding (Note 3) ,012 1,190 1,184 1,142 (1,430) (1,381) , ,697 The accompanying notes are an integral part of these financial statements. 8

11 SIGNATURE ONGOING BUSINESS TRUST Financial Statements (unaudited) (cont d) Statements of Operations and Retained Earnings (Deficit) (in $000 s except for per unit amounts) For the periods ended June INVESTMENT INCOME Dividends Interest Income distribution from investments Fees rebate Less: Foreign withholding taxes EXPENSES Management fees (Note 4) Administrative expenses (Note 4) Audit fees Legal fees Independent review committee fees Harmonized sales tax/goods and services tax Net investment income (loss) for the period Realized and unrealized gain (loss) on investments and commissions and other portfolio transaction costs Realized gain (loss) on investments Foreign exchange gain (loss) Commissions and other portfolio transaction costs Change in unrealized appreciation (depreciation) of investments and derivatives Net gain (loss) on investments Increase (decrease) in net assets from operations Increase (decrease) in net assets from operations per unit STATEMENTS OF RETAINED EARNINGS (DEFICIT) Retained earnings (deficit), beginning of period Increase (decrease) in net assets from operations (Excess) deficiency on amounts paid on units redeemed Distribution from net income Distribution from realized gains Retained earnings (deficit), end of period Contributed surplus, beginning of period (Excess) deficiency on amounts paid on units redeemed Contributed surplus, end of period (1) (1) (38) (140) 16 (12) (1,381) (1,279) (73) (12) (1,430) (1,279) 1,142 1, ,184 1,142 The accompanying notes are an integral part of these financial statements. 9

12 SIGNATURE ONGOING BUSINESS TRUST Financial Statements (unaudited) (cont d) Statements of Changes in Net Assets (in $000 s) For the periods ended June Net assets, beginning of period CAPITAL TRANSACTIONS Cost of units redeemed (Excess) deficiency on amounts paid on units redeemed DISTRIBUTIONS TO UNITHOLDERS From net income From realized gains From return of capital Increase (decrease) in net assets from operations Net assets, end of period 951 1,253 (178) (219) (136) (202) (73) (12) (102) (73) (114) Statements of Cash Flows (in $000 s) For the periods ended June CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES Net investment income (loss) Proceeds from sale of investments Purchase of investments Commissions and other portfolio transaction costs Net change in non-cash balances related to operations FINANCING ACTIVITIES Distributions paid Cost of units redeemed Increase (decrease) in cash during the period Cash (Bank overdraft), beginning of period Cash (Bank overdraft), end of period (420) (177) (73) (141) (136) (202) (209) (343) (54) (50) The accompanying notes are an integral part of these financial statements. 10

13 SIGNATURE ONGOING BUSINESS TRUST Trust Specific Financial Instruments Risks (Note 13) (unaudited) The Trust s investments were concentrated in the following segments: as at December 31, 2011 Category Net Assets (%) Canada 77.5 Other Net Assets (Liabilities) 11.2 Bermuda 11.1 Italy 0.2 Canada 90.6 r Assets (net) 9.4 For details relating to other price risk, credit risk, currency risk, interest rate risk and fair value hierarchy, refer to the audited annual financial statements as at December 31, 2011, as the Trust s exposure to those risks remains unchanged. The accompanying notes are an integral part of these financial statements. 11

14 Notes to the Financial Statements (unaudited) 1. THE TRUSTS Signature Diversified Value Trust (the Trust ) is a closed-end investment trust established under the laws of the Province of Ontario pursuant to a trust agreement dated October 30, On November 15, 2002, the Trust completed an initial public offering of 2,500,000 units at $10 per unit. The Trust s units are listed on the Toronto Stock Exchange, under the symbol SDF.UN. On December 4, 2002, an over-allotment option granted to agents was exercised for 230,000 units at $10 per unit. The Trust will terminate operations on December 31, 2012 (the Termination Date ), and the net assets will be distributed pro rata to unitholders unless an alternative later termination date is approved by the unitholders. Through a forward agreement with TD Global Finance (the Forward Agreement ), the Trust provides unitholders with exposure to the performance of the Signature Ongoing Business Trust, a diversified portfolio consisting primarily of securities of Canadian publicly traded ongoing business trusts. The Trust also provides unitholders with exposure to the returns of an actively managed portfolio consisting primarily of securities of Canadian publicly traded real estate investment trusts, oil and gas trusts and energy infrastructure funds (the Resource and Real Estate Portfolio ). The Investment Advisor (described below) may, on behalf of the Trust, settle all or part of the Forward Agreement prior to the Termination Date and invest the net proceeds (after any distributions to unitholders necessary to ensure that the Trust is not liable for income tax) in additional investments for the Resource and Real Estate Portfolio. Similarly, the Investment Advisor may, on behalf of the Trust, dispose of securities in the Resource and Real Estate Portfolio, invest the net proceeds (after any distributions to unitholders necessary to ensure that the Trust is not liable for income tax) in the Common Share Portfolio and adjust the Forward Agreement or enter into new Forward Agreements to provide additional exposure to the Ongoing Business Trust Portfolio. In addition, the Trust may settle all or part of the Forward Agreement prior to the Termination Date to the extent necessary to fund monthly distributions, redemptions of units, payment for purchases of units in the market and expenses of the Trust. Signature Ongoing Business Trust is an investment trust established under the laws of the Province of Ontario on October 30, On November 15, 2002, the Signature Ongoing Business Trust completed its initial exempt offering of 2,000,000 units at $10 per unit. The Signature Ongoing Business Trust will terminate operations on December 31, 2012 (the Termination Date ), and the net assets will be distributed pro rata to the unitholder unless an alternative later termination date is approved by the unitholder. The manager of Signature Diversified Value Trust and Signature Ongoing Business Trust (the Trusts ) is CI Investments Inc. (the Manager and the Trustee ). 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These financial statements have been prepared in accordance with Canadian Generally Accepted Accounting Principles ( Canadian GAAP ). Significant accounting policies used in preparing the semi-annual financial statements are consistent with those used in preparing the annual financial statements. The semi-annual financial statements should be read in conjunction with Trusts December 31, 2011 annual financial statements. (a) Valuation of Investments Canadian GAAP requires the fair value of financial instruments traded in an active market to be measured based on an investment s bid/ask price depending on the investment position (long/short). For the purpose of processing unitholder transactions, net asset value is calculated based on the closing market price of investments(referred to as Net Asset Value ), while for financial statement purposes net assets are calculated based on bid/ask price of investments (referred to as Net Assets ). In accordance with National Instrument , a comparison between the Net Asset Value per unit and the Net Assets per unit is disclosed in Note 9. 12

15 Notes to the Financial Statements (unaudited) (cont d) At the financial reporting date, listed securities are valued based on the bid price for securities held long and the ask price for securities held short. Unlisted securities are valued based on price quotations from recognized investment dealers, or failing that, their fair value is determined by the Manager on the basis of the latest reported information available. Fixed income securities, debentures, money market investments and other debt instruments including short-term investments, are valued at the bid quotation from recognized investment dealers. Underlying funds are valued on each business day at their net asset value as reported by the underlying funds manager. (b) Forward Contracts The Trusts may enter into forward contracts. Forward foreign currency contracts are valued on each valuation day based on the difference between the value of the contract on the date the contract originated and the value of the contract on the valuation day. All unrealized gains (losses) arising from forward foreign currency contracts are recorded as part of Change in unrealized appreciation (depreciation) of investments and derivatives in the Statements of Operations and Unrealized gain (loss) on futures and foreign currency forward contracts in the Statements of Net Assets until the contracts are closed out or expire, at which time the gains (losses) are realized and reported as Realized gain (loss) on investments in the Statements of Operations. The value of the forward contract as part of the Forward Agreement on the valuation date is equal to the gain or loss that would be realized if the contract was closed out or expired. Investments sold forward as part of the Forward Agreement are valued at the market close price, and the Underlying Fund is valued at its net asset value as reported by the Underlying Fund s manager on the valuation date for purposes of determining the value of the forward contract. All gains (losses) arising from the forward agreement are recorded as part of Change in unrealized appreciation (depreciation) of investments and derivatives in the Statements of Operations and Unrealized gain (loss) on forward contract in the Statements of Net Assets until the contract is closed out or expire; at which time the gains (losses) are realized and reported as Realized gain (loss) on investments in the Statements of Operations. 3. UNITHOLDERS EQUITY Units issued and outstanding represent the capital of the Signature Diversified Value Trust. The relevant changes pertaining to subscription and redemption of the Signature Diversified Value Trust units are disclosed in the Statements of Changes in Net Assets. In accordance with the objectives and risk management polices outlined in Note 13, the Signature Diversified Value Trust endeavors to invest subscriptions received in appropriate investments while maintaining sufficient liquidity to meet redemptions through utilizing a short-term borrowing facility or partial settlement of the Forward Agreement. Signature Diversified Value Trust is authorized to issue an unlimited number of transferable, redeemable trust units of one class, each of which represents an equal, undivided interest in the net assets of Signature Diversified Value Trust. Unitholders are entitled to redeem their units outstanding monthly (the Monthly Redemption ) or at the end of each year (the Annual Redemption ). Monthly redemption price per unit is equal to the lesser of: (a) 90% of the 10 day average trading price on the applicable monthly valuation date; and (b) the closing market price per unit on the applicable monthly valuation date. Annual redemption price per unit is equal to Net Asset Value per unit determined on the annual valuation date. Unless the transfer agent and registrar is directed that units are being surrendered for redemption pursuant to the Monthly Redemption, units surrendered for redemption within the period commencing 45 days and ending ten business days prior to the second last day of December in any year will be deemed to have been surrendered for the Annual Redemption. Signature Diversified Value Trust endeavours to provide the unitholder with monthly distributions of $ per unit ($0.80 per annum to yield 8.00% on the subscription price of $10.00 per unit). Distributions commenced on December 31, 2002, and are expected to continue until the termination of Signature Diversified Value Trust. 13

16 Notes to the Financial Statements (unaudited) (cont d) For the periods ended June 30, net capital transactions of Signature Diversified Value Trust consisted of the following: Unit Transactions Balance, beginning of period 411, ,519 Units purchased for cancellation (Note 5) - - Units redeemed - - Balance, end of period 411, ,519 Units issued and outstanding represent the capital of the Signature Ongoing Business Trust. The relevant changes pertaining to subscription and redemption of the Signature Ongoing Business Trust units are disclosed in the Statements of Changes in Net Assets. In accordance with the objectives and risk management polices outlined in Note 13, the Signature Ongoing Business Trust endeavors to invest subscriptions received in appropriate investments while maintaining sufficient liquidity to meet redemptions through utilizing a short-term borrowing facility or disposal of investments when necessary. Signature Ongoing Business Trust is authorized to issue an unlimited number of transferable, redeemable trust units of one class, each of which represents an equal, undivided interest in the net assets of Signature Ongoing Business Trust. The counterparty is entitled to redeem their units daily. Units will be redeemed at the net asset value per unit on such date. The Signature Ongoing Business Trust endeavours to provide the unitholder with monthly distributions per unit. For the periods ended June 30, net capital transactions of Signature Ongoing Business Trust consisted of the following: Unit Transactions Balance, beginning of period 142, ,717 Units redeemed (21,421) (26,020) Balance, end of period 121, ,697 When units of the Trusts are redeemed at a price per unit which is lower than the average cost per unit of capital, the difference is included in Contributed surplus on the Statements of Net Assets. If the redemption price is greater than the average cost of capital, the difference is first charged to Contributed surplus until the entire account is eliminated, and the remaining amount is charged to Retained Earnings (Deficit) in the Statements of Net Assets. 4. FEES AND OTHER EXPENSES (a) Management Fees As compensation for management services rendered to Signature Diversified Value Trust, the Manager is entitled to receive an annual management fee in an amount equal to 1.10% of the Net Asset Value of the Resource and Real Estate Portfolio, payable monthly in arrears. The Manager is also entitled to an annual management fee of 0.55% of its Net Asset Value of the Trust s assets, other than the Resource and Real Estate Portfolio, payable monthly in arrears, and an amount equal to the service fee payable to dealers which is equal to 0.40% annually of the Net Asset Value of units held by clients of the sales representatives of such dealers, payable semi-annually in arrears. Signature Ongoing Business Trust pays to the Manager an annual management fee equal to 0.55% of its Net Asset Value calculated and paid monthly. (b) Administrative Expenses The Trusts are also responsible for all their expenses incurred in connection with their operations and administration (fees shown as administration fees include: trustee fees, transfer agency, custody and accounting fees). Audit fees, legal fees and independent review committee fees are disclosed separately. 14

17 Notes to the Financial Statements (unaudited) (cont d) (c) Service Fees The Manager will pay to registered dealers of the Trust an annual fee of 0.40% of the Net Asset Value per unit for units held by clients of the sales representatives of the registered dealers calculated and payable semi-annually in arrears. (d) Forward Agreement Fees Signature Diversified Value Trust will pay to the counterparties under the Forward Agreement a fee of approximately 0.65% per annum of the market value of notional exposure to Signature Ongoing Business Trust under the Forward Agreement ( spread fee ), plus an ongoing fee ( borrowing fee ) which may vary based upon hedging costs associated with the Forward Agreement, calculated and paid monthly in arrears. 5. MARKET REPURCHASE PROGRAM In accordance with the Trust s prospectus, and to enhance liquidity and to provide support to the units, the Trust has a mandatory market purchase program under which the Trust, subject to exceptions contained in the Trust Agreement and in compliance with any regulatory requirements, is obligated to purchase its own units for cancellation. If, on any business day, the price at which units are offered for sale is less than 90% of the Net Asset Value per unit determined as of the most recent valuation date, the Trust will offer to purchase for cancellation any units offered in the market at the then prevailing market price. The maximum number of units to be purchased in any three month period will not be over 1.25% of the number of units outstanding at the beginning of such period. During the periods ended June 30, 2012 and 2011, the Trust purchased no units for cancellation. 6. BROKERAGE AND OTHER COMMISSIONS Commissions paid for security transactions during the periods ended June 30, were as follows: (in $000 s) Brokerage Commissions Signature Diversified Value Trust 1 - Signature Ongoing Business Trust 1 1 (in $000 s) Soft Dollar Commissions Signature Diversified Value Trust - - Signature Ongoing Business Trust - - A portion of brokerage commissions paid was used to cover research and market data services, termed soft dollar commissions. These amounts have been estimated by the Manager. 7. SECURITIES LENDING The Trust may engage in securities lending. Under a Securities Lending Agreement: (i) the borrower will pay to the Trust a negotiated securities lending fee and will make compensation payments to the Trust equal to any distributions received by the borrower on the securities borrowed; (ii) the securities loans must qualify as securities lending arrangements for the purposes of the Income Tax Act (Canada); and (iii) the Trust will receive prescribed collateral security which it may pledge as security under the Forward Agreement. The minimum level of collateralization in respect of a loan of Common Share Portfolio securities will be 105%. As at June 30, 2012 and 2011, the Trust was not engaged in securities lending. 15

18 Notes to the Financial Statements (unaudited) (cont d) 8. INCOME TAX LOSSES CARRY FORWARD Net capital losses may be carried forward indefinitely to reduce future net realized capital gains. Non-capital losses arising in taxation years 2004 and 2005 may be carried forward ten years. Non-capital losses arising in taxation years after 2005 may be carried forward twenty years. Non-capital losses carried forward may reduce future taxable income. Skylon Diversified Value Trust Losses carry forwards (in $000 s) 2011 Net capital losses carry forward 580 Year of expiry Total Non-capital losses carry forward _ Skylon Ongoing Business Trust had no net capital losses carry forward or non-capital losses carry forward as at December 31, NET ASSETS COMPARISON In accordance with National Instrument , a comparison of net assets per unit and net asset value per unit as at June 30, is as follows: Signature Diversified Value Trust 2012 ($) 2011 ($) Net assets per unit Net asset value per unit Skylon Ongoing Business Trust 2012 ($) 2011 ($) Net assets per unit Net asset value per unit RELATED PARTY TRANSACTIONS The Bank of Nova Scotia has a significant interest in CI Financial Corp., the parent company of the Manager. The Trusts may have direct or indirect holdings in The Bank of Nova Scotia and/or CI Financial Corp. as identified in the Statement of Investment Portfolio of the Trusts, if applicable. 11. INTERNATIONAL FINANCIAL REPORTING STANDARDS On February 13, 2008, the Canadian Accounting Standards Board ( AcSB ) confirmed that the use of International Financial Reporting Standards ( IFRS ) will be required for all publicly accountable profit-oriented enterprises for interim and annual financial statements relating to fiscal years beginning on or after January 1, On December 12, 2011, the AcSB confirmed deferral of the IFRS changeover date for investment funds. Based on the AcSB decision, IFRS will become effective for interim and annual financial statements relating to fiscal years beginning on or after January 1, Based on the Manager s current evaluation of the differences between IFRS and Canadian GAAP, the Manager currently does not expect any impact to net asset value or net asset value per unit, at this time, as a result of the transition to IFRS, and expects that the main impact will be on the financial statements, where additional disclosures or changes in presentation will be required. Further updates on the progress in the implementation of the IFRS transition plan and any changes to reporting will be provided during the implementation period leading up to the transition date. 16

19 Notes to the Financial Statements (unaudited) (cont d) 12. FINANCIAL INSTRUMENTS The categorization of financial instruments is as follows: investments and derivatives are classified as held for trading and are stated at fair value. Receivable for securities sold and dividends and accrued interest receivable are designated as loans and receivables. They are recorded at amortized cost which approximates their fair value due to their short-term nature. Similarly, payable for unit redemptions, payable for securities purchased, management fees payable, accrued expenses, service fees payable, distributions payable, spread fee payable and borrowing fee payable are designated as financial liabilities and are carried at their amortized cost which approximates their fair value, due to their short-term nature. Financial liabilities are generally settled within three months. 13. FINANCIAL INSTRUMENTS RISK Risk Management The Trusts are exposed to a variety of financial instrument risk: credit risk, liquidity risk and market risk (including interest rate risk, currency risk and other price risk). The level of risk to which each Trust is exposed to depends on the investment objective and the type of investments the Trust holds. The value of the investments within the portfolio can fluctuate daily as a result of changes in prevailing interest rates, economic and market conditions and company specific news related to investments held by the Trusts. The Manager of the Trusts may minimize potential adverse effects of these risks on each Trusts performance by, but not limited to, regular monitoring of the investment positions and market events, diversification of the investment portfolio by asset type, country, sector, term to maturity within the constraints of the stated objectives, and through the usage of derivatives to hedge certain risk exposures. Other Price Risk Other price risk is the risk that the value of financial instruments will fluctuate as a result of changes in market prices (other than those arising from interest rate risk or currency risk). The value of each investment is influenced by the outlook of the issuer and by general economic and political conditions, as well as industry and market trends. All securities present a risk of loss of capital. Except for options written, future contracts sold short and investments sold short, the maximum risk resulting from financial instruments is equivalent to their fair value. Other assets and liabilities are monetary items that are short-term in nature and therefore are not subject to significant other price risk. Interest Rate Risk Interest rate risk is the risk that the fair value of interest-bearing investments and interest rate derivative instruments will fluctuate due to changes in prevailing levels of market interest rates. As a result, the value of the Trusts will be affected by changes in applicable interest rates as they invest in debt securities and income trusts. If interest rates fall, the fair value of existing debt securities may increase due to the increase in yield. Alternatively, if interest rates rise, the yield of existing debt securities decrease which may then lead to a decrease in their fair value. The magnitude of the decline will generally be greater for long-term debt securities than for short-term debt securities. Interest rate risk also applies to the Trusts if they invest in convertible securities. The fair value of these securities varies inversely with interest rates, similar to other debt securities. However, since they may be converted into common shares, convertible securities are generally less affected by interest rate fluctuations than other debt securities. Currency Risk Currency risk arises from financial instruments that are denominated in a currency other than the Canadian dollar, the functional currency of the Trusts. As a result, the Trusts may be exposed to the risk that the value of securities denominated in other currencies will fluctuate due to changes in exchange rates. Equities traded in foreign markets are exposed to currency risk as the prices denominated in foreign currencies are converted to the Trusts functional currency to determine their fair value. 17

20 Notes to the Financial Statements (unaudited) (cont d) Credit Risk Credit risk is the risk that a security issuer or counterparty to a financial instrument will fail to meet its financial obligations. The fair value of debt instruments includes consideration of the credit worthiness of the debt issuer. Credit risk exposure for derivative instruments, if applicable, is based on each Trust s unrealized gain of the contractual obligations with the counterparty as at the reporting date. The credit risk exposure of the Trusts other assets are represented by their carrying amount as disclosed in the Statements of Net Assets. Credit ratings for fixed income securities, preferred securities and derivative instruments are obtained from Standard & Poor s, where available, otherwise ratings are obtained from: Moody's Investors Service, Dominion Bond Rating Services or Canadian Bond Rating Services. Credit ratings can be either long-term or short-term. Short-term credit ratings are generally assigned to those obligations and derivative instruments considered short-term in nature. The table below provides a cross-reference between the long-term credit ratings disclosed in the Credit Rating table inclusive of the short-term credit ratings disclosed in the derivatives schedules in the Statement of Investment Portfolio. Credit Rating as per Credit Risk table Credit Rating as per derivatives schedules AAA/Aaa/A++ A-1+ AA/Aa/A+ A-1, A-2, A-3 A B, B-1 BBB/Baa/B++ B-2 BB/Ba/B+ B-3 B C CCC/Caa/C++ - CC/Ca/C+ - C and Lower D Not Rated WR Significant cash balances as disclosed in the Statements of Net Assets are, maintained by the Custodian, RBC Investor Services. The Manager monitors the credit worthiness of the custodian on a regular basis. All transactions executed by the Trusts in listed securities are settled / paid for upon delivery using approved brokers. The risk of default is considered minimal, as delivery of securities sold is only made once the broker has received payment. Payment is made on a purchase once the securities have been received by the broker. The trade will fail if either party fails to meet its obligation. Liquidity Risk Liquidity risk is the risk that the Trusts may not be able to settle or meet their obligations, on time or at a reasonable price. The Signature Ongoing Business Trust is exposed to daily cash redemptions of redeemable units. Therefore, the Signature Ongoing Business Trusts aims to invest the majority of its assets in investments that are traded in active markets and can be readily disposed of. In addition, the Signature Ongoing Business Trust aims to retain sufficient cash and cash equivalent positions to maintain liquidity. From time to time, the Signature Ongoing Business Trust may enter into derivative contracts or invests in unlisted securities that may not trade in an organized market and may be illiquid. Illiquid securities are identified in the Statement of Investment Portfolio of the Signature Ongoing Business Trust, if applicable. The Trust is exposed to monthly and annual cash redemptions that will be financed by partial settlements of the Forward Agreement. Fair Value Hierarchy The Trusts are required to classify financial instruments measured at fair value using a fair value hierarchy. Investments whose values are based on quoted market prices in active markets are classified as Level 1. This level may include publicly traded equities, exchange traded and retail mutual funds, exchange traded warrants, futures contracts, traded options, American depositary receipts ( ADRs ) and Global depositary receipts ( GDRs ). 18

21 Notes to the Financial Statements (unaudited) (cont d) Financial instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified as Level 2. These may include fixed income securities, mortgage backed securities ( MBS ), short-term instruments, non-traded warrants, over-the-counter options, structured notes of indexed securities, foreign currency forward contracts and swap instruments. Investments classified as Level 3 have significant unobservable inputs. Level 3 instruments may include private equities, private term loans, private equity funds and certain derivatives. As observable prices are not available for these securities, the Trusts may use a variety of valuation techniques to derive the fair value. Details of individual Trusts exposure to financial instruments risks including the fair value hierarchy classifications are available in the Trust Specific Financial Instruments Risks section of the financial statements of each Trust. 19

22 Trusts Information Manager and Trustee CI Investments Inc. 2 Queen Street East, 20th Floor Toronto, Ontario M5C 3G7 Phone: (416) Fax: (416) Toll Free: service@ci.com Custodian RBC Investor Services 155 Wellington Street West 5th Floor Toronto, Ontario M5V 3L3 Auditor PricewaterhouseCoopers LLP 18 York Street Suite 2600 Toronto, Ontario M5J 0B2 Registrar & Transfer Agent Computershare Investor Services Inc. 100 University Avenue 8th Floor Toronto, Ontario M5J 2Y1 Listed The Toronto Stock Exchange Ticker Symbol SDF.UN For more information on the Trusts, visit us online at 20

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