Signature Mortgage Fund Management Report of Fund Performance for the year ended March 31, 2012

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1 This annual management report of fund performance contains financial highlights but does not contain the complete annual financial statements of the investment fund. You can get a copy of the annual financial statements at your request, and at no cost, by calling , by writing to us at CI Investments Inc., 2 Queen Street East, Twentieth Floor, Toronto, ON M5C 3G7 or by visiting our website at or SEDAR at Securityholders may also contact us using one of these methods to request a copy of the investment fund s proxy voting policies and procedures, proxy voting disclosure record, or quarterly portfolio disclosure. INVESTMENT OBJECTIVE AND STRATEGIES The objective of Signature Mortgage Fund (the Fund ) is to provide investors with the opportunity to earn as high a level of income as is compatible with reasonable protection of investing capital, through investing in mortgages. Each mortgage must be a first mortgage on real estate located in Canada. The portfolio advisor performs a top down assessment of mortgage rate trends and seeks the best possible distribution of mortgage maturity dates. To achieve the objective of the Fund, the portfolio advisor uses the following strategies: each mortgage must not be more than 75% of the appraised value of the mortgaged property, unless the mortgage is insured or guaranteed by a government or the excess over 75% is insured by a licensed insurance company mortgages have a fixed rate of interest, generally have a term of between one to five years, and an amortization period usually between 20 and 30 years each mortgage must be a first mortgage on real estate located in Canada, in both residential and commercial properties. The Fund may invest in mortgages or pools of mortgages. It does not invest in foreign securities. It may use derivatives, but only as permitted by securities regulations. Any cash waiting to be invested in mortgages or to meet liquidity requirements may be invested in debt securities. RISK The risks associated with investing in this Fund remain as discussed in the prospectus. The Fund is suitable for investors who want regular income, want a stable investment, are investing for the short and/or medium term and can tolerate low risk. RESULTS OF OPERATIONS The net asset value of the Fund increased by $2.3 million to $50.7 million from March 31, 2011 to March 31, The Fund had net sales of $2.4 million during the period. The portfolio s performance increased assets by $0.8 million. The Fund paid distributions totalling $0.9 million. The one-year return for Class A units was 1.6% and Class F units was 2.1% as compared to the return of its benchmark of 6.2%. The benchmark is the DEX MBS Composite Index. By the start of the second quarter of 2011, the escalation of fiscal crises in Europe, uprisings in the Middle East, and the Japanese earthquake disaster introduced significant risks to the nascent global expansion. In mid-summer, despite considerably stimulative measures, data indicated that the U.S. economy was growing at an annualized 1% or 2%, and that Canada s economy actually contracted in the second quarter. In the Eurozone, the drag of austerity programs, intended to right the fiscal paths of the indebted peripheral countries, brought its expansion to a near standstill. The third quarter brought further shocks in the form of the politicization of the U.S. debt ceiling legislation and a deepening of the Eurozone sovereign debt crisis. Also, U.S. statistics indicated employment growth had stalled and budget cuts at the state and local level negatively affected the economy. In response, the U.S. Federal Reserve committed to not raising policy rates for two years and announced yet another bond purchase program intended to lower long-dated interest rates. In Europe, bond investors began to demand higher yields on peripheral debt, as a vicious cycle of rating agency downgrades and political paralysis threatened to add Italy and Spain to the list of nations public markets were unwilling to fund. However, policymakers there responded in December with several measures intended to stabilize the financial system, the most important of them being a pledge to provide unlimited liquidity to the banking sector in two tranches over the first quarter of In exchange for this unprecedented support, the embattled peripheral countries were expected to implement economic adjustments. With these measures in place, peripheral government yields gradually receded over the quarter. In the U.S., investors enjoyed a rosier perspective given the economic momentum generated in the fourth quarter of Consumer spending proved resilient. Auto sales surged, which in turn sparked a broader inventory re-stocking cycle. The job market showed signs of acceleration. Recently, several members of the Fed hinted that the U.S. economy might not need additional accommodation. As a result, bond yields finally broke out of the narrow range in which they traded throughout the quarter. The Canadian picture does not appear to be nearly as vibrant. The commodityintensive trade activity of 2011 is gradually giving way to a cycle of service and manufacture export, a dynamic for which Canada is poorly positioned. RECENT DEVELOPMENTS The global growth baton is being passed from Europe (a victim of its own political and currency construct) and China (a victim of the law of large numbers) to a cautiously resurgent U.S. The transition has not been smooth and there is no consensus on the sustainability of the U.S. expansion, given broadening weakness elsewhere. Economic indicators abound for both bulls and bears to make their case. What can be concluded with certainty, however, is that policymakers have exhibited their predisposition to extremely accommodative policy so long as there is any uncertainty about the outlook. This means that no policy tool will 1 CIG

2 be taken off the table and current rates of inflation, though off their highs, are not likely to recede much further. One sign that markets may be coming to this realization is that inflation expectations (as measured by real return bonds) rose 25 to 50 basis points in the first quarter of 2012 in various developed markets. The biggest risk in pursuing this policy is a meaningful loss in the credibility of central banks and the possibility, though unlikely, of currency and bond market non-sponsorship of their policies. 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. RELATED PARTY TRANSACTIONS Manager, Portfolio Advisor, Trustee and Registrar CI Investments Inc. is the Manager, Portfolio Advisor, Trustee and Registrar of the Fund. CI Investments Inc. is a subsidiary of CI Financial Corp. The Manager, in consideration for management fees provides management services required in the day-to-day operations of the Fund. The Manager bears all of the operating expenses of the Fund (other than taxes, borrowing costs and new governmental fees) in return for a fixed administration fee. Management fee and fixed administration fee rates as at March 31, 2012, for each of the classes are shown below: Management Fees Approximately 29% of total management fees were used to pay for sales and trailing commissions. The remaining 71% of management fees were used for investment management and other general administration. Broker commissions During the period, the Fund did not pay brokerage commissions to The Bank of Nova Scotia or its subsidiaries. The Bank of Nova Scotia has a significant interest in CI Financial Corp., the parent company of CI Investments Inc. Independent Review Committee The Fund received standing instructions from the Board of Governors ( BoG ) in its capacity as the Independent Review Committee ( IRC ) with respect to the following Related Party Transactions: a) trades in securities of CI Financial Corp. and The Bank of Nova Scotia; b) purchases or sales of securities of an issuer from or to another investment fund managed by the Manager (referred to as Inter-Fund Trades ); and c) mergers of funds with another fund that is subject to National Instrument ( Fund Mergers ). The applicable standing instructions require that Related Party Transactions be conducted in accordance with the Manager s policies and procedures. The Manager is required to advise the BoG of any material breach of a condition of the standing instructions. The standing instructions require, among other things, that the investment decision in respect to Related Party Transactions (a) are made by the Manager free from any influence by any entities related to the Manager and without taking into account any consideration to any affiliate of the Manager; (b) represent the business judgment of the Manager uninfluenced by considerations other than the best interests of the Fund; and (c) are made in compliance with the Manager s policies and procedures. Transactions made by the Manager under the standing instructions are subsequently reviewed by the BoG on a quarterly basis to monitor compliance. The Fund relied on the BoG s standing instructions regarding Related Party Transactions during this reporting period. Class A Class F Annual management fee rate (%) Annual fixed administration fee rate (%) The Manager received $0.8 million in management fees and $0.10 million in fixed administrative fees for the period. 2

3 FINANCIAL HIGHLIGHTS The following tables show selected key financial information about the Fund and are intended to help you understand the Fund s financial performance for the past five years, as applicable. The Ratios & Supplemental Data shown below are based on net asset values. The Fund s Net Assets per Unit ($) (1) (2) * Class A Commencement of operations May 1, 1993 Net assets, beginning of year (1, 7) Increase (decrease) in operations: Total revenue Total expenses Realized gains (losses) for the year Unrealized gains (losses) for the year Total increase (decrease) from operations (2) Distributions: From income (excluding dividends) From dividends From capital gains Return of capital (2, 3) Total distributions Net assets at end of year shown (2, 7) Ratios & Supplemental Data Total net asset value ($000 s) (7) Number of units outstanding (000 s) Portfolio turnover rate (%) (5) Trading expense ratio (%) (6) Net asset value per unit ($) (7) Management Expense Ratio Management expense ratio before taxes (%) (4) Harmonized sales tax (HST)/Goods and services tax (GST) (%) (4) Management expense ratio after taxes (%) (4) Effective HST Rate/GST, for the prior year or period (%) (4) Year ended Year ended Year ended Year ended Year ended March 31, 2012 March 31, 2011 March 31, 2010 March 31, 2009 March 31, 2008 $ $ $ $ $ (0.21) (0.21) (0.20) (0.20) (0.20) (0.02) - (0.01) (0.04) (0.02) (0.01) (0.01) (0.19) (0.21) (0.21) (0.24) (0.27) (0.19) (0.21) (0.21) (0.24) (0.27) ,573 48,327 47,919 49,603 54,183 4,921 4,693 4,654 4,836 5, *Footnotes for the tables are found at the end of the Financial Highlights section. 3

4 FINANCIAL HIGHLIGHTS (cont d) The Fund s Net Assets per Unit ($) (1) (2) Class F Commencement of operations August 28, 2006 Net assets, beginning of year (1, 7) Increase (decrease) in operations: Total revenue Total expenses Realized gains (losses) for the year Unrealized gains (losses) for the year Total increase (decrease) from operations (2) Distributions: From income (excluding dividends) From dividends From capital gains Return of capital (2, 3) Total distributions Net assets at end of year shown (2, 7) Ratios & Supplemental Data Total net asset value ($000 s) (7) Number of units outstanding (000 s) Portfolio turnover rate (%) (5) Trading expense ratio (%) (6) Net asset value per unit ($) (7) Management Expense Ratio Management expense ratio before taxes (%) (4) Harmonized sales tax (HST)/Goods and services tax (GST) (%) (4) Management expense ratio after taxes (%) (4) Effective HST Rate/GST, for the prior year or period (%) (4) Year ended Year ended Year ended Year ended Year ended March 31, 2012 March 31, 2011 March 31, 2010 March 31, 2009 March 31, 2008 $ $ $ $ $ (0.15) (0.15) (0.14) (0.03) (0.14) (0.02) - (0.01) (0.01) (0.02) (0.03) (0.18) (0.12) 0.37 (0.24) (0.26) (0.25) (0.05) (0.31) (0.24) (0.26) (0.25) (0.05) (0.31) (1) This information is derived from the Fund s audited annual financial statements. The net assets per unit presented in the financial statements differs from the net asset value calculated for Fund pricing purposes. An explanation of these differences can be found in the notes to the financial statements or in footnote (7) below. (2) Net assets per unit and distributions per unit are based on the actual number of units outstanding for the relevant class at the relevant time. The increase (decrease) from operations per unit is based on the weighted average number of units outstanding for the relevant class over the fiscal year. (3) Distributions were paid in cash or automatically reinvested in additional units of the Fund. (4) Management expense ratio is calculated based on expenses charged to the Fund (excluding commissions and other portfolio transaction costs) and is expressed as an annualized percentage of daily average net asset value for the period. As of July 1, 2010, Ontario combined the federal goods and services tax ("GST" - 5%) with the provincial retail sales tax ("PST" - 8%). The combination resulted in a Harmonized sales tax ("HST") rate of 13%. The Effective HST tax rate is calculated using the attribution percentage for each province based on unitholder residency and can be different from 13%. For any particular year, the rate shown will be prorated based on the different rates in effect during that year. For the year ended March 31, 2011, the rate applied is 5% for the period April 1, 2010 to June 30, 2010 and the Fund s Effective HST rate for the period from July 1, 2010 to March 31, The rate shown for the year ended March 31, 2011 is the time weighted average of these rates. Begining April, 2011, the HST rate is based on the residing of the unitholder. (5) The Fund s portfolio turnover rate indicates how actively the Fund s portfolio advisor 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 fiscal year. The higher a 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 higher turnover rate and the performance of a 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, and excluding cash and short term investments maturing in less than one year, and before assets acquired from a merger, if applicable, by the average of the market value of investments during the year. (6) The trading expense ratio represents total commissions and other portfolio transaction costs disclosed in the Statements of Operations expressed as an annualized percentage of daily average net asset value of the Fund during the year. (7) Section 14.2 of National Instrument requires the net assets of an investment fund to be calculated using the fair value of the Fund s assets and liabilities. Canadian GAAP requires a different valuation method for calculating net assets. For the purpose of processing unitholder transactions, net assets are calculated based on the closing market price (referred to as Net Asset Value ), while for financial statement purposes net assets are calculated based on bid/ask price (referred to as Net Assets ). 4

5 PAST PERFORMANCE This section describes how the Fund has performed in the past. Past returns do not indicate how the Fund will perform in the future. The information shown assumes that distributions made by the Fund in the years shown were reinvested in additional units of the relevant classes of the Fund. In addition, the information does not take into account sales, redemption, distribution or other optional charges that would have reduced returns or performance. Year-by-Year Returns The following chart shows the Fund s annual performance for each of the years shown and illustrate how the Fund s performance has changed from year to year. In percentage terms, the chart shows how much an investment made on the first day of each financial year would have grown or decreased by the last day of each financial year, except where noted Annual Compound Returns The following table shows the Fund s annual compound returns for each period indicated, compared to the DEX MBS Composite Index. The DEX MBS Composite Index measures the total return performance on both opened and closed pools of mortgage-backed securities, with monthly history dating back to The index has term ranges defined by weighted average modified duration and is separated into six term categories: 1-2 years, 2-5 years, 1-5 years, 5-10 years, over 10 years and composite (one year and over). A discussion of the performance of the Fund as compared to the benchmark is found in the Results of Operations section of this report. One Three Five Ten Since Year Years Years Years Inception Class A (%) N/A DEX MBS Composite Index (%) N/A Class F (%) N/A N/A 1.9 DEX MBS Composite Index (%) N/A N/A * Dec Dec Dec Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar This figure is for the period from January 1, 2005 to March 31, *This figure is for the period from August 28, 2006 to March 31, Class A Class F 5

6 Summary of Investment Portfolio as at March 31, 2012 Portfolio Breakdown Percentage of Category Net Asset Value (%) Top 25 Holdings Percentage of Security Name Net Asset Value (%) Top 25 Holdings (cont d) Percentage of Security Name Net Asset Value (%) Country allocation Canada Short-Term Investments Cash & Equivalents Other Assets (net) Sector allocation Asset Backed Securities Corporate Bonds Short-Term Investments Cash & Equivalents Canadian Government Bonds Other Assets (net) Canada Mortgage Pool # % 11/01/ Canadian Mortgage Pools 2.53% 05/01/ Merrill Lynch Financial Assets Inc., 5.441% 03/12/ Schooner Trust 5.34% 06/12/ Canada Mortgage Pool # % 05/01/ Merrill Lynch Financial Assets Inc., 4.659% 10/12/ Canada Mortgage Pool # % 09/01/ NHA MBS, Pool# % 12/01/ Canada Mortgage Pool # % 11/01/ Canadian Mortgage Pools 2.65% 09/01/ Canadian Mortgage Pools 6.45% 01/01/ Canada Mortgage Pool # % 08/01/ Canadian Mortgage Pools 1.5% 12/01/ NHA MBS, Pool# % 09/01/ Canadian Mortgage Pools 3.8% 09/01/ N-45 First CMBS Issuer Corp., 4.968% 11/01/ Merrill Lynch Financial Assets Inc., 5.635% 03/12/ Canadian Mortgage Pools 3.8% 09/01/ N-45 First CMBS Issuer Corp., 4.968% 11/01/ Merrill Lynch Financial Assets Inc., 5.635% 03/12/ Canada Mortgage Pool # % 03/01/ Short-Term Investments Cash & Equivalents Canada Mortgage Pool # % 09/01/ Merrill Lynch Financial Assets Inc., 4.743% 03/12/ Government of Canada 2.5% 09/01/ Merrill Lynch Financial Assets Inc., 4.596% 10/12/ Canada Mortgage Pool # % 10/01/ Total Net Asset Value (in $000 s) $50,704 The summary of investment portfolio may change due to ongoing portfolio transactions of the Fund and updates will be available on a quarterly basis. A NOTE ON FORWARD-LOOKING STATEMENTS This report may contain forward-looking statements about the Fund, its future performance, strategies or prospects, and possible future Fund action. The words may, could, should, would, suspect, outlook, believe, plan, anticipate, estimate, expect, intend, forecast, objective, and similar expressions are intended to identify forward-looking statements. Forward-looking statements are not guarantees of future performance. Forward-looking statements involve inherent risks and uncertainties, both about the Fund and general economic factors, so it is possible that predictions, forecasts, projections and other forward-looking statements will not be achieved. We caution you not to place undue reliance on these statements as a number of important factors could cause actual events or results to differ materially from those expressed or implied in any forward-looking statement made by the Fund. These factors include, but are not limited to, general economic, political and market factors in Canada, the United States and internationally, interest and foreign exchanges rates, global equity and capital markets, business competition, technological changes, changes in laws and regulations, judicial or regulatory judgments, legal proceedings and catastrophic events. The above list of important factors that may affect future results is not exhaustive. Before making any investment decisions, we encourage you to consider these and other factors carefully. All opinions contained in forward-looking statements are subject to change without notice and are provided in good faith but without legal responsibility. 6