Select 70i30e Managed Portfolio. Portfolio Review Fourth Quarter 2012

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1 Portfolio Review Fourth Quarter 2012 Q4

2 Portfolio Managers Economic Overview In the income sector, investors continued to favour higher-yielding securities in the fourth quarter of 2012, spurred by low interest rates and ongoing fiscal concerns in the U.S. and Europe. The emphasis for this period was on investment-grade and high-yield corporate bonds, where prices continued to rise. Government bond prices in the U.S. and Canada, meanwhile, moderated slightly. Canadian income trusts and real estate investment trusts had strong results for the period. The Canadian and U.S. equity markets finished the quarter in positive territory, despite defensive investor sentiment for much of the quarter. Canada s S&P/TSX Composite Index added 1.7% for the quarter and 7.2% for all of U.S. stocks, as measured by the S&P 500 Index, rose 0.8% in the quarter and 13.5% for 2012 in Canadian dollar terms, capping a strong yet choppy year. Stock prices initially weakened in the fourth quarter on softer corporate earnings reports and concerns about the ability of politicians to find a compromise to the U.S. fiscal cliff of tax increases and budget cuts. The U.S. Federal Reserve s continued monetary easing programs and data indicating a nascent recovery in the housing market, however, helped to support equity prices into year-end. Underlying Fund Allocations CI Income Advantage Fund 69.6% Select U.S. Equity Managed Fund 9.6% Select International Equity Managed Fund 8.9% Select Canadian Equity Managed Fund 8.5% Harbour Corporate Class 2.2% Cash 1.1% Top Ten Holdings Canada Gov t 2.75% 01Jun22 1.1% U.S. Treasury Note 1.625% 15Nov21 1.1% Canada Gov t 4% 01Jun17 1.0% Canada Gov t 2% 01Mar14 0.8% Eli Lilly and Company 0.7% Westfield Group REIT 0.7% Canada Gov t 4% 01Jun41 0.6% TIPS 1.25% 15Apr14 0.6% Singapore Telecommunications 0.6% U.S. Treasury Note 0.875% 30Apr12 0.6% Overseas markets posted mainly positive returns in the fourth quarter. The advances came despite recession in Europe and sluggish growth in many other parts of the world. The MSCI World Index gained 3.8% for the quarter in Canadian dollars. Results were particularly robust for several European markets. Germany s DAX Index, for example, gained 5.5% in local currency terms as investors benefited from lower interest rates and greater confidence that the Eurozone would remain intact. Markets in Asia were also strong, with Hong Kong s Hang Seng Index benefiting from more stable growth in China. In Japan, where the central bank took steps to devalue the yen, the Nikkei Index climbed 17.2% for the quarter in local currency terms. 10 Portfolio Select Series

3 Portfolio Performance (Class A) 1 Month 3 Months 6 Months 1 Year 3 Years 5 Years 10 Years Since Inception (November 2006) 0.9% 2.0% 3.7% 8.1% 4.9% 3.2% N/A 2.6% Asset Allocation Overview and Activity Different types of investments will respond differently to the markets, reinforcing the importance of a multi-level diversification strategy. A balanced asset mix ensures that investors are not dependent on any one asset class or security type to provide returns. CI Investment Consulting combines its portfolio construction expertise with ongoing comprehensive research and recommendations from State Street Global Advisors, a world leader in asset allocation, to create portfolios designed to capture evolving opportunities in the various asset classes. This report is designed to provide you with an up-to-date portfolio overview of the Select 70i30e Managed Portfolio, including the allocations across asset class, geographic region, equity sector and market capitalization. The arrows indicate whether the allocation for each category has increased or decreased since the previous quarter-end. Asset Class Geographic Regions 20.5% 18.5% 17.4% 15.2% 11.0% 8.2% 6.5% 1.8% 0.9% Cash Canadian bond Foreign bond U.S. equity Canadian equity European equity Asian equity Emerging markets equity Other equity 29.5% 29.0% 24.8% 3.5% 3.4% 3.0% 1.8% 1.8% 1.7% 1.5% Canada Cash & Others U.S. Australia Emerging markets United Kingdom Germany France Netherlands Japan Equity Market Cap Equity Industry Sector 77.5% 17.0% 5.5% Large cap Mid-cap Small cap 29.1% 13.1% 10.8% 8.9% 7.7% 7.0% 6.6% 6.0% 5.1% 4.2% 1.5% Financial services Industrials Energy Consumer staples Information technology Consumer discretionary Health care Telecommunications Materials Utilities Other Portfolio Select Series 11

4 Portfolio Commentary The portfolio gained 2.0% during the quarter, outperforming its benchmark (70% DEX Universe Bond Index, 20% S&P/TSX Composite Index and 10% MSCI World Index C$), which rose 0.9%. Performance was driven by a variety of income sources. Allocations to dividend-paying equities and high-yield bonds made the largest contributions. The equity funds outperformed the broad equity markets as a group and also added significantly to overall performance. During the quarter, the major stimulus measures announced in September by European and U.S. central bankers continued to boost investor confidence, leading to strength in equities, mostly outside North America. U.S. equities were held back due to the country s so-called fiscal cliff concerns, but still managed to eke out a positive return for the quarter. The U.S. market finished the year with a double-digit return, far outpacing the Canadian market s gain, which was limited by weakness in the resource sector. Global real estate and high-yield bonds participated in the fourth quarter market rally. The U.S. dollar strengthened, while the Japanese yen declined dramatically in response to expectations that Japan s new leader would adopt a pro-growth monetary policy. Government bonds were out of favour as lenders expressed their preference for corporate bonds that are backed by superior credit fundamentals and offer higher yields. Our small overweight allocation to dividend-paying equities was the largest contributor to performance of the income portion, particularly from our positions in global real estate securities. Canadian government bonds posted a small gain, and were the weakest performing component of the portfolio. Our significantly underweight allocation to this asset class added to relative performance. The target allocation of the portfolio s income portion is 20% in each of Canadian government bonds, foreign government bonds, investment-grade corporate bonds, high-yield corporate bonds, and high-yielding equities. We held a higher than normal allocation to cash while holding less government bonds, which offer little to no yield in real terms. Despite unattractive valuations, government bonds have historically proven to be a very effective offset to equity risk and therefore justify a modest allocation within a conservative portfolio. We have recently been increasing our cash and equity positions, while reducing our allocation to high-yield bonds, which we believe have become somewhat expensive. The portfolio s interest rate risk is reduced through exposure to corporate bonds with shorter durations and higher yields, as well as to alternative sources of income such as high-yielding equities that have lower sensitivity to interest rate movements. In the income portion of the portfolio, a large portion of the foreign currency exposure is strategically hedged back to the Canadian dollar, dampening volatility from currency movements. However, depending on the level of exchange rates, we will adjust the exposure to foreign currencies to benefit from changing market conditions. Canadian government bonds currently offer very little protection against inflation. We expect to obtain modest growth and inflation protection through our allocation 12 Portfolio Select Series

5 to high-quality dividend-paying equities. Thus we are continuing to favour corporate bonds, global bonds and currencies, while maintaining underweight allocations to Canadian government bonds. global markets and strong representation in all major industrial sectors, making it a more attractive asset class than Canadian equities on a risk-adjusted basis. Having a diversified and flexible framework in the portfolio s income portion allows us to take advantage of changes in valuations in the market and continue providing steady income returns with low volatility. We expect to achieve modest growth and inflation protection through our allocation to high-quality dividendpaying equities. Alfred Lam, CFA, Vice-President and Portfolio Manager Yoonjai Shin, CFA, Director Lewis Harkes, CFA, Analyst Andrew Ashworth, Analyst In the equity portion, outperformance was due largely to an overweight allocation to international equities and strong returns from Select Canadian Equity Managed Fund. The Canadian equity fund benefited from the portion managed by Cambridge Advisors, which had strong performance thanks to stock selection in the energy sector and an underweight position in materials. QV Investors also added value. The sector allocation of the overall equity portion is more diversified than that of the Canadian economy and the S&P/TSX Composite Index, which has over 75% of its value concentrated in three sectors: energy, materials and financials. We continue to focus on company fundamentals and valuations to add value and avoid undue concentration in any one sector. From a regional perspective, the equity portion continued to have an overweight allocation to the U.S. and an underweight position in Canada. U.S. equities are supported by a diverse economy, with large exposure to Portfolio Select Series 13

6 Portfolio Select Series Portfolio Management Team Altrinsic Global Advisors, LLC follows a fundamental value approach in which the team seeks out high-quality undervalued companies worldwide. Founded by John Hock and associates, Altrinsic is based in Greenwich, Connecticut, and manages over US$10.6 billion in assets. Cambridge Advisors manages over $4 billion in assets and is led by Chief Investment Officer Alan Radlo and Portfolio Managers Robert Swanson and Brandon Snow. Combined, they have over 65 years of investment experience and have managed a number of multi-billion-dollar mutual fund portfolios. Cambridge Advisors is a division of CI Investments and has offices in Boston and Toronto. Epoch Investment Partners, Inc. is a New York-based investment management firm founded by Wall Street veteran William Priest and associates. Epoch uses a unique value-based approach that focuses on companies with superior shareholder yield. It manages over US$22.7 billion. Harbour Advisors, a division of CI Investments, is led by Portfolio Managers Gerry Coleman and Stephen Jenkins. Harbour s approach entails buying high-quality businesses at a sensible price, and following a patient, long-term outlook. Mr. Coleman s expertise has been recognized by his selection as Fund Manager of the Year in 2008 and Harbour manages about $14 billion. QV Investors Inc. is a Calgary-based, employee-owned portfolio management firm that serves individual and institutional investors. QV follows a value-based approach in which it seeks companies with better returns and lower valuations than those of the market. The firm is led by Chief Investment Officer Leigh Pullen and manages $3.4 billion in assets. Signature Global Advisors advantage is its approach in which asset class and sector specialists combine their research to develop a comprehensive picture of a company and its securities. The team of 32 investment professionals is led by Chief Investment Officer Eric Bushell, who was named Morningstar Fund Manager of the Decade in Signature manages over $35 billion. Picton Mahoney Asset Management is a portfolio management firm led by David Picton and Michael Mahoney. The use of quantitative analysis is the foundation of their approach. Picton Mahoney maintains a disciplined focus on fundamental change, coupled with strong risk controls and portfolio construction techniques. The firm manages about $6 billion. Tetrem Capital Management is an employee-owned investment management firm founded by Chief Investment Officer Daniel Bubis. It is based in Winnipeg and has an office in Boston. Tetrem uses a disciplined investment approach to invest in undervalued Canadian and U.S. companies. The firm manages about $5 billion.

7 For more information on Portfolio Select Series, please contact your CI Sales Representative or visit All commentaries are published by CI Investments Inc., the manager of all the funds described herein. They are provided as a general source of information and should not be considered personal investment advice or an offer or solicitation to buy or sell securities. Every effort has been made to ensure that the material contained in the commentaries is accurate at the time of publication. However, CI Investments Inc. cannot guarantee their accuracy or completeness and accepts no responsibility for any loss arising from any use of or reliance on the information contained herein. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise indicated and except for returns for periods less than one year, the indicated rates of return are the historical annual compounded total returns including changes in security value. All performance data assume reinvestment of all distributions or dividends and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Mutual fund securities are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer and there can be no assurances that the CI Money Market Funds will maintain its net asset value per security at a constant amount or that the full amount of your investment in these funds will be returned to you. CI Investments, the CI Investments design, Synergy Mutual Funds, Harbour Advisors, Harbour Funds, Global Managers and American Managers are registered trademarks of CI Investments Inc. Portfolio Select Series, Portfolio Series, Signature Funds, Signature Global Advisors and Cambridge Advisors are trademarks of CI Investments Inc. Cambridge Advisors is the business name of CI Global Holdings Inc.Certain portfolio managers of Cambridge Advisors are registered with CI Investments Inc. First published January Queen Street East, Twentieth Floor, Toronto, Ontario M5C 3G7 I Head Office / Toronto Calgary Montreal Vancouver Client Services English: French: FSC FPO _E (01/13)