2009

Annual Financial Statements for the year ended December 31, 2009

Skylon Growth & Income Trust

Table of Contents Management and Auditors’ Reports . . . . . . . . .

1

SKYLON GROWTH & INCOME TRUST Financial Statements Statement of Investment Portfolio . . . . . . . . . . .

2

Statements of Net Assets . . . . . . . . . . . . . . . . . .

11

Statements of Operations and Retained Earnings (Deficit) . . . . . . . . . . . . . .

12

Statements of Changes in Net Assets . . . . . . . . .

13

Statements of Cash Flows

................

13

Instruments Risks . . . . . . . . . . . . . . . . . . . . .

14

Notes to the Financial Statements . . . . . . . . . . .

19

Trust Information . . . . . . . . . . . . . . . . . . . . . . .

26

Trust Specific Financial

Management and Auditors’ Reports MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING The accompanying financial statements have been prepared by CI Investments Inc., the Manager of the Skylon Growth & Income Trust (the “Trust”), and approved by the Board of Directors of the Manager. The Trust’s Manager is responsible for the information and representations contained in these financial statements and other sections of this report. CI Investments Inc. maintains appropriate processes to ensure that relevant and reliable financial information is produced. The financial statements have been prepared in accordance with Canadian generally accepted accounting principles and include certain amounts that are based on estimates and judgments. The significant accounting policies which management believes are appropriate for the Trust are described in Note 2 to the financial statements. PricewaterhouseCoopers LLP are the external auditors of the Trust. They have audited the financial statements in accordance with Canadian generally accepted auditing standards to enable them to express to the unitholders their opinion on the financial statements. Their report is set out below.

Toronto, Ontario March 24, 2010

Peter W. Anderson Chief Executive Officer CI Investments Inc.

Douglas J. Jamieson Chief Financial Officer CI Investments Inc.

AUDITORS’ REPORT To the unitholders of Skylon Growth & Income Trust (the “Trust”): We have audited the Statement of Investment Portfolio of the Trust as at December 31, 2009, the Statements of Net Assets as at December 31, 2009 and 2008 and the Statements of Operations and Retained Earnings (Deficit), Changes in Net Assets and Cash Flows for the years ended December 31, 2009 and 2008. These financial statements are the responsibility of the Trust’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these financial statements present fairly, in all material respects, the financial position of the Trust as at December 31, 2009 and 2008, and the results of its operations, the changes in its net assets and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.

Toronto, Ontario March 24, 2010

Annual Financial Statements as at December 31, 2009

Chartered Accountants, Licensed Public Accountants

1

SKYLON GROWTH & INCOME TRUST Financial Statements Statement of Investment Portfolio (as at December 31, 2009) Number of Shares/ Face Amount

Description

Average Cost ($)

Fair Value ($)

161,306

130,829

Financials (20.5%) 57,470 USD

103,000

71,937

79,314

Allied Properties REIT

168,826

216,562

8,226

Altus Group Income Fund

148,582

97,560

3,400

Artis REIT

44,840

37,910

11,250

Banco Santander Brasil SA

337,887

345,795

11,200

Banco Santander Central Hispano SA

198,713

194,591

57,630

Bank of America Corp.

822,256

912,387

62,600

Bank of America Corp., Preferred

997,721

981,199

Bank of Nova Scotia††

292,463

328,589

Barclays PLC

346,841

296,267

63,300 1,242

Boardwalk REIT

42,141

45,681

1,058

Boston Pizza Royalties Income Fund

13,863

12,802

1,114 11,090 5,148 320,000 107

USD

54,153

65,591

320,000

368,781

1,508

1,500 696,488

10,242

Canadian REIT

209,302

277,661

90,000

CB Richard Ellis Service 11.625% 06/15/2017

99,015

105,020

14,588

Chartwell Seniors Housing REIT

90,905

102,262

13,148

Cominar REIT

175,503

253,493

48,000

Couche-Tard Finance Corp., Callable 7.5% 12/15/2013

61,772

51,343

Davis & Henderson Income Fund

65,263

60,768 58,758

55,000

Canadian Apartment Properties REIT

78,533 258,841

646,043

DuPont Fabros Technology LP 8.5% 12/15/2017

58,846

1,800

FBR Capital Markets Corp.

11,317

11,656

3,861

First Capital Realty Inc.

65,989

83,050

225,017

208,032

First Capital Realty Inc., 144A 5.5% 09/30/2017

30,000

Ford Motor Credit Co. 8.7% 10/01/2014

31,567

15,337

32,972

Genworth MI Canada Inc.

290,111

413,332

8,300

Great-West Lifeco Inc.

137,987

222,606

5,160

H&R REIT

88,615

79,464

20,970

Hosted Data Transaction Solutions Inc.

53,740

9,856

15,450

HSBC Holdings PLC

135,168

186,041

18,100

ING Groep NV

178,354

187,949

11,112

Intact Financial Corp.

299,832

409,811

810

Invesco Mortgage Capital Inc.

18,841

19,346

140,521

167,653 146,359

11,991

JPMorgan Chase & Co

10,290

Kimco Realty Corp.

143,025

KKR Private Equity Investors LP

246,529

79,059

23,414

25,720

8,900 USD

23,000

Lender Processing Services Inc. 8.125% 07/01/2016

10,890

Lincoln National Corp.

356,275

284,829

USD

500,000

Lincoln National Corp., Callable 7% 05/17/2066

394,253

436,268

Livingston International Income Fund

107,294

66,479

1,732,885

1,715,384

7,020 88,880

2

Brookfield Properties Corp. (USD) Calloway REIT 10.25% 04/14/2014

60,602 225,736

Canadian Imperial Bank of Commerce

220,000 USD

Boston Properties REIT Brookfield Asset Management Inc., Class A

10,250

3,600 USD

Ace Cash Express Inc. 10.25% 10/01/2014

24,100

6,680

USD

Aberdeen Asset Management PLC

Manulife Financial Corp.

††CI Investments Inc., the Manager, is a corporation controlled by CI Financial Corp. Bank of Nova Scotia has a significant interest in CI Financial Corp. Investments in Bank of Nova Scotia are identified above. Percentages shown in brackets relate investments at fair value to total net assets of the Trust. The accompanying notes are an integral part of these financial statements.

Annual Financial Statements as at December 31, 2009

SKYLON GROWTH & INCOME TRUST Financial Statements (cont’d) Statement of Investment Portfolio (as at December 31, 2009) cont’d Number of Shares/ Face Amount

Average Cost ($)

Fair Value ($)

Morgan Stanley, FRN 0.65143% 02/23/2012

165,180

207,587

National Bank of Greece SA, ADR

193,768

159,381

Description Financials (20.5%) cont’d

215,000 29,100 USD

300,000

National Money Mart Co. 10.375% 12/15/2016

313,298

322,470

USD

100,000

NII Capital Corp. 10% 08/15/2016

106,266

110,118

USD

74,000 3,400

Nuveen Investments Inc., Senior Notes 5% 09/15/2010

66,455

77,014

Power Corp. of Canada

89,497

99,008

2,520

Primaris Retail REIT

9,680

Principal Financial Group Inc.

16,910

Prudential PLC

12,481

RioCan REIT

1,000,000 15,700

18,072

40,648

195,331

244,633

92,366

182,277

213,545

247,623

RioCan REIT 4.7% 06/15/2012

997,700

1,015,749

Royal Bank of Canada

876,575

884,852

SLM Corp. 4.5% 07/26/2010

274,895

260,824 81,041

USD

249,000

USD

87,000

SLM Corp. 4.625% 06/15/2011

74,678

USD

65,000

SLM Corp. 5.125% 08/27/2012

50,077

64,058

18,800

Sun Life Financial Inc.

540,709

567,196

USD

50,000 4,400 25,610 1,326

USD

USD

Terra Capital Inc. 7.75% 11/01/2019 TMX Group Inc. Toronto-Dominion Bank Unibail

67,000

Virgin Media Finance PLC 9.5% 08/15/2016

21,690

50,604

56,242

129,400

145,684

1,532,182

1,688,723

247,783

306,511

71,698

75,628

Wells Fargo & Co.

572,635

614,274

32,945

Westfield Group

364,571

388,869

20,000

Wind Acquisition Holdings Finance SpA 12.25% 07/15/2017

20,661

20,710

17,654,704

18,705,511

Energy (18.5%) 1,866

AltaGas Income Trust

5,100

Apache Corp.

11,520 556,000 50,000 6,480 USD

ARC Energy Trust

216,214

229,709

559,752

589,360

Baytex Energy Trust 9.15% 08/26/2016 Bonavista Energy Trust

80,000

Calfrac Holdings LP 7.75% 02/15/2015 Canadian Natural Resources Ltd.

14,580

Canadian Oil Sands Trust

USD

40,000

Comstock Resources Inc. 8.375% 10/15/2017

USD

350,000 47,000

USD

342,091

Connacher Oil and Gas Ltd. 10.25% 12/15/2015 Continental Resources Inc. 8.25% 10/01/2019 Corral Finans AB, FRN 144A 1.78438% 04/15/2010

50,000

53,045

152,528

144,310

81,589

81,577

1,624,340

1,928,072

450,974

434,338

41,780

42,996

340,772

336,662

50,811

51,879

382,064

310,257 152,672

3,870

Crescent Point Energy Corp.

57,968

1,545

Enbridge Energy Partners LP

61,998

87,105

15,710

Cenovus Energy Inc.

466,443

415,844

22,410

EnCana Corp.

733,942

763,060

Enerplus Resources Fund

138,428

87,483

Fort Chicago Energy Partners LP

168,954

158,523

Gibson Energy ULC 11.75% 05/27/2014

259,081

266,901

3,630 15,900 USD

35,025 553,132

Athabasca Oil Sands Corp. 13% 07/30/2011^

25,480

USD

36,171 533,325

234,000

^Denotes illiquid securities. Percentages shown in brackets relate investments at fair value to total net assets of the Trust. The accompanying notes are an integral part of these financial statements.

Annual Financial Statements as at December 31, 2009

3

SKYLON GROWTH & INCOME TRUST Financial Statements (cont’d) Statement of Investment Portfolio (as at December 31, 2009) cont’d Number of Shares/ Face Amount

Average Cost ($)

Fair Value ($)

Halliburton Co

506,459

507,842

Imperial Oil Ltd.

275,385

296,047

Inter Pipeline Fund LP

297,521

365,616

Description Energy (18.5%) cont’d

16,060 7,290 33,822 6 19,026 5,590 USD

604,000

USD

88,000 9,450 23,800 2,570

USD

339,000 8,280

146

465,403

478,314

Occidental Petroleum Corp.

415,660

477,581

OPTI Canada Inc., Callable (USD) 8.25% 12/15/2014

677,183

523,043

Pacific Rubiales Energy Corp. 8.75% 11/10/2016

92,941

97,135

Pembina Pipeline Income Fund

147,739

165,092

Petrohawk Energy Corp.

605,573

600,223

Progress Energy Resources Corp. Sabine Pass LNG LP 7.5% 11/30/2016

36,237

334,570

296,681

193,493

178,526 2,724,319

103,680

Talisman Energy Inc.

1,707,624

2,026,944

384,000

Targa Resources Inc. 8.5% 11/01/2013

441,438

419,827

TransCanada Corp.

390,979

455,490

243,513

Spectra Energy Corp.

39,982

2,422,484

12,600 USD

142

Nexen Inc.

Suncor Energy Inc.

73,412 USD

Keyera Facilities Income Fund

Transmeridian Exploration Inc., Callable 12% 12/15/2010

237,060

12,800

2,790

Transocean Ltd.

186,957

242,675

7,441

Vermilion Energy Trust

162,504

241,088

16,008,231

16,867,576

Telecommunication Services (8.8%) 15,480

AT&T Inc.

54,090

BCE Inc.

5,850

435,602

456,141

1,543,254

1,565,906

Bell Aliant Regional Communications Income Fund

158,974

163,508

USD

86,000

Digicel Group Ltd. 12% 04/01/2014

101,103

100,352

USD

34,000

Digicel Group Ltd. 8.25% 09/01/2017

24,791

France Telecom SA

USD USD

Inmarsat Finance PLC 7.375% 12/01/2017

10,480

10,749

Intelsat Bermuda Ltd. 11.25% 06/15/2016

650,087

590,610

1,293,034

1,192,670

252,177

245,874

35,698 USD

39,000

USD

167,000 15,000 1,120,000 100,000 37,400

USD

650,097

10,000

231,000

USD

34,849

667,292

519,000

USD

USD

35,405

200,000

Manitoba Telecom Services Inc. MetroPCS Wireless Inc. 9.25% 11/01/2014 NII Holdings Inc. 3.125% 06/15/2012 Qwest Capital Funding Inc. 7.25% 02/15/2011 Qwest Corp. 8.375% 05/01/2016 Rogers Wireless Inc. 7.625% 12/15/2011 Sprint Nextel Corp. 8.375% 08/15/2017 TELUS Corp., Non-Voting Shares Wind Acquisition Finance SA 11.75% 07/15/2017

35,501

37,616

168,520

178,192

17,172

16,912

1,127,500

1,225,516

107,314

107,227

1,411,597

1,221,110

236,210

229,698

8,251,222

8,027,027

Industrials (8.6%) 21,155

Abertis Infraestructuras SA

460,427

500,469

11,970

Atlantia SpA

300,556

328,752

BAE Systems PLC

136,238

99,281

BE Aerospace Inc.

12,967

12,729

320,311

381,284

16,356 517 79,600

4

Bombardier Inc., Class B, Sub-Voting Shares

Percentages shown in brackets relate investments at fair value to total net assets of the Trust. The accompanying notes are an integral part of these financial statements.

Annual Financial Statements as at December 31, 2009

SKYLON GROWTH & INCOME TRUST Financial Statements (cont’d) Statement of Investment Portfolio (as at December 31, 2009) cont’d Number of Shares/ Face Amount

Description

Average Cost ($)

Fair Value ($)

Industrials (8.6%) cont’d

USD

7,200

BR Malls Participacoes SA

91,336

93,190

4,950

Canadian National Railway Co.

253,663

282,892

12,600

Ferrovial SA

158,433

155,772

13,860

Finning International Inc.

244,098

229,937

Flextronics International Ltd. 6.5% 05/15/2013

253,469

249,769

FTI Consulting Inc.

352,674

323,241

237,000 6,520

USD

25,000

USD

120,000

General Maritime Corp. 12% 11/15/2017 Geokinetics Holdings Inc. 9.75% 12/15/2014

26,210

27,365

125,469

123,942

4,698

IESI-BFC Ltd.

110,257

78,785

7,200

Ingersoll-Rand PLC

166,319

270,516

124,000

Iron Mountain Inc. 7.5% 03/15/2017

122,583

121,541

283,000

Jabil Circuit Inc. 8.25% 03/15/2018

289,388

318,329

196,000

K Hovnanian Enterprises 10.625% 10/15/2016

205,582

215,317

USD

390,000

Kansas City Southern de Mexico 9.375% 05/01/2012

413,111

425,361

USD

45,000

USD USD

USD

Kansas City Southern de Mexico SA de CV 12.5% 04/01/2016

52,372

54,402

175,658

Macquarie Airports

472,302

481,028

117,900

Macquarie Infrastructure Group

228,859

148,071

100,000

Navios Maritime Holdings/Finance US Inc. 8.875% 11/01/2017

103,321

109,198

2,615

Schneider Electric SA

221,704

320,652

5,310

SNC-Lavalin Group Inc.

72,000 500 9,540

225,028

286,315

Superior Plus Corp. 8.25% 10/27/2016

72,000

73,642

TransDigm Group Inc.

25,282

24,962

519,390

640,246

Union Pacific Corp.

USD

271,000

United Rentals North America Inc. 6.5% 02/15/2012

303,042

284,176

USD

575,417

US Oncology Holdings Inc., FRN 6.4275% 03/15/2012

605,374

565,587

12,960

Weir Group PLC

112,617

157,974

10,260

WestJet Airlines Ltd.

114,912

126,608

WW Grainger Inc.

240,827

293,162

7,340,121

7,804,495

384,629

182,934

2,880

Consumer Discretionary (8.4%) USD

323,000

USD

20,000

Baker & Taylor Inc. 11.5% 07/01/2013 Belo Corp. 8% 11/15/2016

20,588

21,603

USD

60,000

Blockbuster Inc. 11.75% 10/01/2014

61,056

59,921

USD

50,000

32,164

29,961

4,320

BorgWarner Inc.

Blockbuster Inc. 9% 09/01/2012

138,757

150,865

8,550

Bridgestone Corp.

147,617

157,013

1,890

Cineplex Galaxy Income Fund

3,870

30,873

34,436

DaimlerChrysler AG, Registered Shares

189,199

216,071 150,762

USD

154,000

Dollar General Corp. 2.875% 06/30/2027

100,707

USD

196,000

Dollarama Group LP, FRN 6.70575% 08/15/2012

224,563

237,918

USD

222,000

Foot Locker Inc. 8.5% 01/15/2022

251,694

220,541

USD

67,000

Goodyear Tire & Rubber Co. 10.5% 05/15/2016

76,747

77,829

USD

67,000

Great Canadian Gaming Corp. 7.25% 02/15/2015

76,584

67,704

USD

228,000

H&E Equipment Services Inc. 8.375% 07/15/2016

283,646

239,984

USD

10,000 6,390

USD

106,000

Hanesbrands Inc. 8% 12/15/2016

10,409

10,710

Honda Motor Co., Ltd.

216,149

224,445

Host Hotels & Resorts Inc. 2.625% 04/15/2027

102,214

104,468

Percentages shown in brackets relate investments at fair value to total net assets of the Trust. The accompanying notes are an integral part of these financial statements.

Annual Financial Statements as at December 31, 2009

5

SKYLON GROWTH & INCOME TRUST Financial Statements (cont’d) Statement of Investment Portfolio (as at December 31, 2009) cont’d Number of Shares/ Face Amount

Description

Average Cost ($)

Fair Value ($)

131,504

144,272

Consumer Discretionary (8.4%) cont’d 5,040

Johnson Controls Inc.

USD

100,000

Lions Gate Entertainment Inc., Senior Secured Notes 10.25% 11/01/2016

98,864

USD

452,000

104,205

MGM Mirage Inc. 5.875% 02/27/2014

413,557

380,725

USD USD

171,000

MGM Mirage Inc. 7.5% 06/01/2016

188,485

140,216

206,000

MGM Mirage Inc. 8.5% 09/15/2010

249,507

USD

40,000

215,474

USD

225,000

Mohegan Tribal Gaming Authority 6.125% 02/15/2013

USD

393,000

Neiman Marcus Group Inc. 10.375% 10/15/2015

460,341

404,878

USD

129,000

Newell Rubbermaid Inc. 10.6% 04/15/2019

160,653

170,591

Rogers Communications Inc., Class B

876,365

1,005,127

RONA Inc.

176,601

139,827

30,870 9,062 USD

30,000

USD

161,000

USD

20,000 679,000

USD

Mohegan Tribal Gaming Authority 11.5% 11/01/2017

Salem Communications Corp 9.625% 12/15/2016 Scientific Games Corp. 7.875% 06/15/2016 Scientific Games International Inc. 9.25% 06/15/2019 Shaw Communications Inc. 7.5% 11/20/2013

75,000

Starwood Hotels & Resort Worldwide Inc. 7.15% 12/01/2019

37,377

Tesco PLC

40,235

42,891

204,237

189,520

31,474

33,035

163,048

170,097

21,666

22,076

720,525

767,369

77,987

78,548

273,846

271,138

USD

110,000

UPC Germany GmbH 8.125% 12/01/2017

114,852

116,938

USD

268,000

Wynn Las Vegas LLC 6.625% 12/01/2014

248,958

272,226

155,700

Yellow Pages Income Fund

898,103

834,552

7,898,404

7,690,870

Agrium Inc.

201,345

273,723

97,000

Ashland Inc. 9.125% 06/01/2017

109,781

111,913

20,520

Barrick Gold Corp.

784,639

849,528

Materials (8.4%) 4,230 USD

BHP Billiton PLC

189,052

253,175

10,062

7,470

Cameco Corp.

337,818

340,196 79,667

80,000

Cascades Inc. 7.75% 12/15/2016

78,936

USD

80,000

Cascades Inc. 7.75% 12/15/2017

83,805

84,941

USD

279,000

FMG Finance Pty. Ltd. 10.625% 09/01/2016

355,427

324,461

USD

330,000

FMG Finance Pty. Ltd. 10% 09/01/2013

418,626

360,788

USD

110,000

FMG Finance Pty. Ltd. 4.25563% 09/01/2011

122,736

112,168

USD

520,000

Freeport-McMoRan Copper & Gold Inc. 8.25% 04/01/2015

576,981

595,848

Goldcorp Inc.

567,753

609,736

USD

238,000

Huntsman International LLC 5.5% 06/30/2016

212,242

222,050

Inmet Mining Corp.

125,134

205,934

14,760 3,240 USD

105,000

Innophos Inc. 8.875% 08/15/2014

119,142

112,037

USD

153,000

James River Coal Co. 9.375% 06/01/2012

155,788

164,862

1,350

Labrador Iron Ore Royalty Income Fund

24,511

58,779

USD

50,000

NOVA Chemicals Ltd. 6.5% 01/15/2012

51,824

52,825

USD

92,000

NOVA Chemicals Ltd. 8.625% 11/01/2019

95,281

98,407

61,830

Paladin Resources Ltd.

309,692

241,755

Potash Corp. of Saskatchewan Inc.

507,267

510,072

Rathgibson Inc. 11.25% 02/15/2014

157,488

12,678

Rio Tinto PLC

339,837

450,940

4,470 USD

134,000 7,830

6

Percentages shown in brackets relate investments at fair value to total net assets of the Trust. The accompanying notes are an integral part of these financial statements.

Annual Financial Statements as at December 31, 2009

SKYLON GROWTH & INCOME TRUST Financial Statements (cont’d) Statement of Investment Portfolio (as at December 31, 2009) cont’d Number of Shares/ Face Amount

Description

Average Cost ($)

Fair Value ($)

Materials (8.4%) cont’d 45,000

Sherritt International Corp. 7.875% 11/26/2012

47,362

46,519

661,000

Sherritt International Corp. 8.25% 10/24/2014

661,000

681,656

USD

211,000

Steel Dynamics Inc., Senior Notes 6.75% 04/01/2015

164,340

219,873

USD

201,000

Teck Resources Ltd. 10.75% 05/15/2019

233,809

252,505

AUD

322,000

Western Areas Ltd. 8% 07/02/2012

269,834

305,125

7,301,450

7,632,161

Health Care (6.9%) USD

150,000

Amylin Pharmaceuticals Inc. 3% 06/15/2014

124,919

122,996

USD

134,000

Apria Healthcare Group Inc. 11.25% 11/01/2014

148,026

154,602

USD

200,000

Apria Healthcare Group Inc. 12.375% 11/01/2014

215,794

231,275

USD

151,000

Axcan Intermediate Holdings Inc. 9.25% 03/01/2015

148,638

171,239

USD

368,000

Biomet Inc. 10% 10/15/2017

368,946

420,226

USD

130,000

Boston Scientific Corp. 6.25% 11/15/2015

120,712

146,229

USD

74,000

Boston Scientific Corp., Senior Notes 6.4% 06/15/2016

10,800

70,152

83,627

CML Healthcare Income Fund

137,724

149,148

997,408

868,829

23,170

Eli Lilly and Co.

USD

70,000

HCA Inc. 8.5% 04/15/2019

USD

134,000

USD

100,000

USD

50,000

USD USD

142,599

148,615

HealthSouth Corp. 10.75% 06/15/2016

114,827

114,323

Inverness Medical Innovations Inc. 9% 05/15/2016

53,876

653,501

632,987

15,400

Merck & Co., Ltd.

590,959

590,907

41,340

Patheon Inc.

323,074

104,590

502,000

Province Healthcare Co. 7.5% 06/01/2013

742,452

507,145

50,000

QHP Royalty Sub LLC 10.25% 03/15/2015

53,303

52,787

478,387

511,954

165,683 9,720 60,000

Roche Holding AG Skilled Healthcare Group Inc. 11% 01/15/2014

203,899

184,189

Smith & Nephew PLC

348,189

440,510

Talecris Biotherapeutics Holdiings

199,045

226,740

Talecris Biotherapeutics Holdings Corp., Senior Unsecured Notes 7.75% 11/15/2016

USD

56,794

Johnson & Johnson

40,770 USD

79,290

HCA Inc., Callable 9.125% 11/15/2014

9,360

2,870 USD

82,451

181,000

United Surgical Partners International Inc. 8.875% 05/01/2017

61,872

64,021

191,570

195,984

6,575,241

6,256,089

Consumer Staples (6.4%) 2,970

Alimentation Couche-Tard Inc., Class B

67,129

61,628

54,924

55,191

USD

50,000

Alliance One International Inc. 10% 07/15/2016

USD

50,000

Alliance One International Inc., 144A 10% 07/15/2016

53,052

55,191

3,578

British American Tobacco PLC

123,910

122,543

5,490

Bunge Ltd.

393,159

368,385

USD

19,000

Constellation Brands Inc. 7.25% 05/15/2017

19,450

20,248

USD

49,000

Cott Beverages Inc. 8.375% 11/15/2017

51,591

53,185

13,924

CVS Corp.

492,212

471,330

10,999

Diageo PLC

210,631

202,367

4,210

Fomento Economico Mexicano SA de CV, ADR

130,361

211,684

2,897

Groupe Danone

238,625

186,706

Ingles Markets Inc. 8.875% 05/15/2017

168,223

169,461

USD

155,000

Percentages shown in brackets relate investments at fair value to total net assets of the Trust. The accompanying notes are an integral part of these financial statements.

Annual Financial Statements as at December 31, 2009

7

SKYLON GROWTH & INCOME TRUST Financial Statements (cont’d) Statement of Investment Portfolio (as at December 31, 2009) cont’d Number of Shares/ Face Amount

Description

Average Cost ($)

Fair Value ($)

Consumer Staples (6.4%) cont’d 10,710

USD

Nestle SA, Registered Shares

440,184

545,302

3,780

PepsiCo Inc.

237,760

241,483

5,288

Procter & Gamble Co.

379,865

336,875

9,896

Saputo Inc.

220,202

304,302

6,477

Shoppers Drug Mart Corp.

290,642

293,991

The Mosaic Co. 7.375% 12/01/2014

148,676

142,929

10,890

Unilever NV

346,917

372,675

17,520

Viterra Inc.

161,895

172,747

616,000

Viterra Inc. 8% 04/08/2013

616,000

640,640

396,000

Viterra Inc. 8.5% 08/01/2017

395,673

414,345

127,000

20,070 5,110

Wal-Mart de Mexico SA de CV Wal-Mart Stores Inc.

70,003

93,960

294,604

287,020

5,605,688

5,824,188

Information Technology (5.4%)

USD

14,580

Activision Inc.

186,273

170,285

67,140

Advanced Micro Devices Inc.

401,687

682,516

346,000 19,270

USD

177,000 7,740 450

USD

308,000 21,746 6,480

USD

CEVA Group PLC 10% 09/01/2014

354,618

345,545

EMC Corp.

306,418

353,494

First Data Corp. 9.875% 09/24/2015

162,882

173,511

FormFactor Inc.

190,694

176,728

Google Inc., Class A

189,844

293,289

Hughes Network Systems LLC 9.5% 04/15/2014

348,964

334,307

Intel Corp.

447,538

466,125

Maxim Integrated Products Inc.

125,840

138,354

38,160

Micron Technology Inc.

278,264

424,022

17,190

Microsoft Corp.

433,742

550,803

Nortel Networks Corp. 10.75% 07/15/2016

250,184

191,669

NVIDIA Corp.

147,963

236,573

255,000 12,060 5,900

Research In Motion Ltd. (USD)

403,705

418,722

4,228,616

4,955,943

Private Placements (3.0%) USD

257,016

Aramark Corp., Term Loan, Private Placement 7.47% 01/27/2014^

304,040

256,303

635,375

Bragg Communication Inc., Loan, Private Placement 7.53% 08/31/2014^

635,375

618,696

USD

67,000

CCS Inc., Private Placement 11% 11/15/2015^

60,812

50,712

USD

45,000

Cie Gen Geophysique, Private Placement 9.5% 05/15/2016^

47,156

50,618

USD

517,817

Clarketerm, Private Placement 7.84% 06/30/2014^

590,888

457,257

USD

100,000

Connacher Oil and Gas Ltd., Private Placement 11.75% 07/15/2014^

114,733

116,024

USD

404,444

Dow Jones CDX HY, 144A Private Placement 6.75% 06/29/2012^

445,824

437,927

USD

67,000

USD

238,713

USD

25,000

JBS USA LLC, 144A Private Placement 11.625% 05/01/2014^

29,079

29,763

USD

35,000

Maple Leaf Foods Inc., Private Placement 5.21% 12/08/2011^

33,652

35,860

3,700

8

Goldcorp Inc., Private Placement 2% 08/01/2014^ HealthSouth Corp., Private Placement 8.15% 03/10/2013^

Volkswagen AG, Private Placement^

^Denotes illiquid securities. Percentages shown in brackets relate investments at fair value to total net assets of the Trust. The accompanying notes are an integral part of these financial statements.

Annual Financial Statements as at December 31, 2009

72,643

82,055

310,308

239,905

349,712

362,489

2,994,222

2,737,609

SKYLON GROWTH & INCOME TRUST Financial Statements (cont’d) Statement of Investment Portfolio (as at December 31, 2009) cont’d Number of Shares/ Face Amount

Average Cost ($)

Fair Value ($)

AES Corp., Callable 8.75% 05/15/2013

99,826

103,443

Brookfield Renewable Power Fund

91,285

119,184

45,000

Intergen NV 9% 06/30/2017

48,986

49,317

10,631

Northland Power Income Fund

128,526

126,296

Description Utilities (1.4%)

USD

96,000 6,240

USD

97,547

Prime Infrastructure Group

449,249

379,503

2,340

Sempra Energy

159,787

137,706

16,470

TransAlta Corp.

564,240

386,222

1,541,899

1,301,671

1,197,842

1,190,615

-

1,505

Government Bonds (1.3%) 1,145,000

Canadian Government Bond 3.75% 09/01/2011 Warrants (0.1%)

409

First Capital Realty Inc., Warrants (29Oct10)

Commissions and other Portfolio Transaction Costs

Total Bonds & Equities (97.7%) Short Term Notes (2.2%)

(69,550)

86,528,090

88,995,260

2,000,000

2,000,000

DERIVATIVE INSTRUMENTS Foreign Currency Forward Contracts (0.2%) (see Schedule A) Total Investments (100.1%) Other Assets (net) (-0.1%) Total Net Assets (100.0%)

225,354 88,528,090

91,220,614 (40,548) 91,180,066

Currency Codes AUD

Australian Dollar

USD

U.S. Dollar

Percentages shown in brackets relate investments at fair value to total net assets of the Trust. The accompanying notes are an integral part of these financial statements.

Annual Financial Statements as at December 31, 2009

9

SKYLON GROWTH & INCOME TRUST Financial Statements (cont’d) Statement of Investment Portfolio (as at December 31, 2009) cont’d Schedule A Foreign Currency Forward Contracts (0.2%)

Contracts 1 1 1 1 1 1 1 1 1

Counterparty

Credit Rating of the Counterparty*

UBS New York UBS New York UBS New York Royal Bank of Canada Morgan Stanley State Street Corporation UBS New York Bank of Nova Scotia†† Credit Suisse Group AG

Price ($)

A-1 A-1 A-1 A-1+ A-1 A-1 A-1 A-1+ A-1

Total Foreign Currency Forward Contracts Value

0.96 1.74 1.04 1.06 1.06 1.06 1.06 1.06 1.06

Due Date 08-Mar-10 08-Jun-10 08-Jun-10 27-Jan-10 27-Jan-10 27-Jan-10 27-Jan-10 27-Jan-10 27-Jan-10

Pay (647,000) (784,000) (331,000) (3,610,000) (4,100,000) (4,152,000) (4,183,000) (4,305,000) (4,432,000)

Australian $ British Pound Swiss Franc US $ US $ US $ US $ US $ US $

Receive 620,395 1,363,956 345,101 3,819,236 4,341,757 4,392,754 4,430,006 4,553,226 4,684,225

Canadian $ Canadian $ Canadian $ Canadian $ Canadian $ Canadian $ Canadian $ Canadian $ Canadian $

Unrealized Gain (Loss) ($) 13,650 33,281 8,578 24,328 31,749 28,084 32,747 27,721 25,216

225,354

*Credit ratings are obtained from Standard & Poor’s, otherwise ratings are obtained from: Moody's Investors Service, Dominion Bond Rating Services and Canadian Bond Rating Services.

10

††CI Investments Inc., the Manager, is a corporation controlled by CI Financial Corp. Bank of Nova Scotia has a significant interest in CI Financial Corp. Transactions with Bank of Nova Scotia are identified above. Percentages shown in brackets relate investments at fair value to total net assets of the Fund. The accompanying notes are an integral part of these financial statements.

Annual Financial Statements as at December 31, 2009

SKYLON GROWTH & INCOME TRUST Financial Statements (cont’d) Statements of Net Assets (in $000’s except for per unit amounts and number of units outstanding)

As at December 31, 2009

As at December 31, 2008

88,995 281 2,000 225 7 636 92,144

101,074 676 19,000 1,739 141 1,237 123,867

52 95 614 89 21 93 964

– 132 965 124 28 106 1,355

Net assets and unitholders’ equity

91,180

122,512

UNITHOLDERS’ EQUITY Unit capital Contributed surplus Retained earnings (deficit) Net assets and unitholders’ equity

85,858 5,985 (663) 91,180

145,314 652 (23,454) 122,512

*Investments at cost

86,528

126,493

8.66

7.41

10,525,715

16,542,328

ASSETS Investments at fair value* Cash Short term notes Unrealized gain on futures and forward currency contracts Receivable for securities sold Dividends and accrued interest receivable

LIABILITIES Payable for unit redemptions Service fees payable Distributions payable Management fees payable Accrued expenses Payable for securities purchased

Net assets per unit (Note 10) Number of units outstanding (Note 3)

The accompanying notes are an integral part of these financial statements.

Annual Financial Statements as at December 31, 2009

11

SKYLON GROWTH & INCOME TRUST Financial Statements (cont’d) Statements of Operations and Retained Earnings (Deficit) (in $000’s except for per unit amounts)

For the years ended December 31 2009 2008 INVESTMENT INCOME Dividends Interest Derivative income (loss) Management fee rebate Less: Foreign withholding taxes

1,795 3,087 (24) – (150) 4,708

2,351 5,812 72 – (182) 8,053

1,166 158 – – 2 – 424 17 91 93 1,951

1,675 263 – 4 1 – 609 17 91 133 2,793

2,757

5,260

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

(3,024) (219) (196) 26,372 22,933

(10,372) (280) (259) (23,447) (34,358)

Increase (decrease) in net assets from operations

25,690

(29,098)

1.89

(1.73)

STATEMENTS OF RETAINED EARNINGS (DEFICIT) Retained earnings (deficit), beginning of year 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 year

(23,454) 25,690 – (2,899) – (663)

8,717 (29,098) – (3,073) – (23,454)

Contributed surplus, beginning of year (Excess) deficiency on amounts paid on units redeemed Contributed surplus, end of year

652 5,333 5,985

– 652 652

EXPENSES Management fees (Note 4) Administrative expenses (Note 4) Commitment fees Interest expense Dividend expense on securities sold short Derivative Loss Service fees (Note 4) Legal Audit Goods and services tax

Net investment income (loss) for the year

Increase (decrease) in net assets from operations per unit

12

The accompanying notes are an integral part of these financial statements.

Annual Financial Statements as at December 31, 2009

SKYLON GROWTH & INCOME TRUST Financial Statements (cont’d) Statements of Changes in Net Assets (in $000’s)

For the years ended December 31 2009 2008 Net assets, beginning of year

122,512

168,434

288 (53,180) 5,333 (47,559)

649 (6,315) 652 (5,014)

(2,899) – (6,564) (9,463)

(3,073) – (8,737) (11,810)

Increase (decrease) in net assets from operations

25,690

(29,098)

Net assets, end of year

91,180

122,512

CAPITAL TRANSACTIONS Reinvested distributions 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

Statements of Cash Flows (in $000’s)

For the years ended December 31 2009 2008 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

2,757 146,762 (93,115) 522 56,926

5,260 155,218 (135,276) (48) 25,154

(9,526) (47,795) (57,321)

(19,601) (5,712) (25,313)

Increase (decrease) in cash during the year

(395)

(159)

Cash (Bank overdraft), beginning of year

676

835

Cash (Bank overdraft), end of year

281

676

FINANCING ACTIVITIES Distributions paid Cost of units redeemed and repurchased

The accompanying notes are an integral part of these financial statements.

Annual Financial Statements as at December 31, 2009

13

SKYLON GROWTH & INCOME TRUST Trust Specific Financial Instruments Risks (Note 14) The Trust’s investments were concentrated in the following segments as at December 31, 2008 Category Financials Short Term Investments Materials Energy Industrials Consumer Staples Consumer Discretionary Telecommunication Services Information Technology Utilities Health Care Private Placements Foreign Currency Forward Contracts Government Bonds Other Assets Warrants

Percentage of Net Assets (%) 20.1 15.5 11.3 10.9 8.2 6.9 6.0 5.6 4.3 2.9 2.7 2.6 1.4 1.1 0.4 0.1

Other Price Risk As at December 31, 2009 and 2008, the Trust was exposed to other price risk as most of its holdings were sensitive to changes in general economic conditions across the world. The Trust’s portfolio consisted of international stocks and fixed income securities, thus an overall downturn in economic conditions across the world could have led to a widening in credit spreads and a decrease in equity prices which could have then led to a decrease in the value of the Trust's holdings. As at December 31, 2009, had the global markets increased or decreased by 10% (December 31, 2008 - 10%), with all other variables held constant, net assets of the Trust would have increased or decreased, respectively, by approximately $5,954,000 (December 31, 2008 - $6,136,000). In practice, the actual results may differ from this analysis and the difference may be material.

14

The accompanying notes are an integral part of these financial statements.

Annual Financial Statements as at December 31, 2009

SKYLON GROWTH & INCOME TRUST Trust Specific Financial Instruments Risks (Note 14) (cont’d) Interest Rate Risk As at December 31, 2009 and 2008, the Trust’s assets were mainly invested in bonds. Generally, debt securities will increase in value when interest rates decline and decrease in value when interest rates rise. How sensitive the Trust was to changes in prevailing interest rates depends also on other factors, like the credit rating of the issuers and the term to maturity of the Trust's investments. The higher the credit rating of the issuers and the longer the term to maturity, the more sensitive the Trust was to changes in prevailing interest rates.

The tables below summarize the Trust’s exposure to interest rate risk, categorized by the contractual maturity date.

as at December 31, 2009

Less than 1 Year (in $000’s)

1-3 Years (in $000’s)

3-5 Years (in $000’s)

2,876

7,288

10,198

Less than 1 Year (in $000’s)

1-3 Years (in $000’s)

3-5 Years (in $000’s)

20,481

7,907

12,440

Interest Rate Exposure

as at December 31, 2008

Interest Rate Exposure

Greater than 5 Years (in $000’s)

11,121

Greater than 5 Years (in $000’s)

19,626

Total (in $000’s)

31,483

Total (in $000’s)

60,454

As at December 31, 2009, had the prevailing interest rates increased or decreased by 0.25% (December 31, 2008 - 0.25%), with all other variables held constant, net assets of the Trust would have decreased or increased, respectively, by approximately $233,000 (December 31, 2008 - $548,000). In practice, the actual results may differ. The difference may be material.

The accompanying notes are an integral part of these financial statements.

Annual Financial Statements as at December 31, 2009

15

SKYLON GROWTH & INCOME TRUST Trust Specific Financial Instruments Risks (Note 14) (cont’d) Currency Risk As at December 31, 2009 and 2008, the Trust was exposed to currency risk as its investments were denominated in currencies other than Canadian dollars, the functional currency of the Trust. As a result, the Trust could have been affected by fluctuations in the value of such currencies relative to the Canadian dollar.

The tables below summarize the Trust’s exposure to currency risk, net of derivative instruments, as applicable. as at December 31, 2009

CURRENCY

Financial Instruments Exposure (in $000’s)

Derivatives Exposure (in $000’s)

Total Currency Exposure (in $000’s)

Net Assets (%)

38,239 3,783 2,798 1,671 1,057 442 382 94 48,466

(26,052) – (1,332) (611) (336) – – – (28,331)

12,187 3,783 1,466 1,060 721 442 382 94 20,135

13.4 4.1 1.6 1.2 0.8 0.5 0.4 0.1 22.1

Total Currency Exposure (in $000’s)

Net Assets (%)

11,403 1,066 887 820 319 318 311 203 120 74 28 15,549

9.3 0.9 0.7 0.7 0.3 0.3 0.3 0.2 0.1 0.1 0.1 13.0

US Dollar Euro British Pound Australian Dollar Swiss Franc Brazilian Real Japanese Yen Mexican Peso Total

as at December 31, 2008

CURRENCY US Dollar Australian Dollar British Pound Swiss Franc Israeli Shekel Norwegian Krone Japanese Yen Hong Kong Dollar Mexican Peso Euro Brazilian Real Total

As at December 31, 2009, had the Canadian dollar strengthened or weakened by 10% (December 31, 2008 - 10%) in relation to all other foreign currencies held in the Trust, with all other variables held constant, net assets of the Trust would have decreased or increased, respectively, by approximately $2,014,000 (December 31, 2008 - $1,593,000). In practice, the actual results may differ from this analysis and the difference may be material.

16

The accompanying notes are an integral part of these financial statements.

Annual Financial Statements as at December 31, 2009

SKYLON GROWTH & INCOME TRUST Trust Specific Financial Instruments Risks (Note 14) (cont’d) Credit Risk As at December 31, 2009 and 2008, the Trust was exposed to credit risk as it was invested in fixed income securities.

The Trust was invested in debt securities, preferred securities and derivative instruments, as applicable, with the following credit ratings: as at December 31, 2009*

CREDIT RATING^ AAA/Aaa/A++ AA/Aa/A+ A BBB/Baa/B++ BB/Ba/B+ B CCC/Caa/C++ Not Rated Total

Net Assets (%) 1.4 2.4 0.2 6.2 7.0 8.8 4.5 5.3 35.8

as at December 31, 2008*

CREDIT RATING^ AAA/Aaa/A++ AA/Aa/A+ A BBB/Baa/B++ BB/Ba/B+ B CCC/Caa/C++ Not Rated Total

Net Assets (%) 2.4 1.4 0.3 6.2 10.0 8.3 2.7 19.9 51.2

*Credit ratings are obtained from Standard & Poor’s, otherwise ratings are obtained from: Moody’s Investors Service, Dominion Bond Rating Services and Canadian Bond Rating Services, respectively. ^Refer to Note 14 for Credit Rating cross reference.

The accompanying notes are an integral part of these financial statements.

Annual Financial Statements as at December 31, 2009

17

SKYLON GROWTH & INCOME TRUST Trust Specific Financial Instruments Risks (Note 14) (cont’d) Fair Value Hierarchy The table below summarizes the inputs used by the Trust in valuing the Trust’s investments and derivatives carried at fair value. Long Positions at fair value as at December 31, 2009

Equities - long Bonds Short term notes Foreign currency forward contracts Total

Level 1 (in $000’s)

Level 2 (in $000’s)

Level 3 (in $000’s)

Total (in $000’s)

59,513 – – – 59,513

– 28,893 2,000 225 31,118

– 589 – – 589

59,513 29,482 2,000 225 91,220

The table below summarizes the movement in Level 3 financial instruments at fair value using unobservable inputs. For the year ended December 31, 2009

Fair value measurements using level 3 inputs

Long Positions Bonds Total

Balance at Dec. 31, 2008 (in $000’s)

Net purchases (in $000’s)

Net sales (in $000’s)

Net transfers in (out) (in $000’s)

745 745

– –

(311) (311)

– –

Realized gain Unrealized gain Balance at (loss) (loss) Dec. 31, 2009 (in $000’s) (in $000’s) (in $000’s)

(22) (22)

178 178

589 589

Investments classified as Level 3 are valued at fair value based on unobservable inputs and assumptions, which may include credit spreads, industry multipliers, and discount rates. Management has assessed that the effect of changing these inputs to reasonably possible alternatives would not have a significant impact on the net assets of the Trust.

18

The accompanying notes are an integral part of these financial statements.

Annual Financial Statements as at December 31, 2009

Notes to the Financial Statements 1. THE TRUST Skylon Growth & Income Trust (the “Trust”) is a closed-end investment trust established under the laws of the Province of Ontario pursuant to a Declaration of Trust dated as of January 30, 2004. On February 18, 2004, the Trust completed an initial public offering of 19,500,000 units at $10 per unit. The Trust is listed on The Toronto Stock Exchange, under the symbol SKG.UN. On March 3, 2004, an over-allotment option granted to agents was exercised for further issuance of 1,030,000 units at $10 per unit. The Trust is managed by CI Investments Inc. (the “Manager” and the “Trustee”). CI Investments Inc. is also the investment advisor (the “Investment Advisor”) to the Trust.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These financial statements have been prepared in accordance with Canadian Generally Accepted Accounting Principles (“Canadian GAAP”). Certain prior period balances have been reclassified to conform with the current period presentation. The following is a summary of the significant accounting policies of the Trust: (a) Adoption of Accounting Amendments The Canadian Institute of Chartered Accountants (“CICA”) amended Section 3862 “Financial Instruments – Disclosures” to require disclosures about the inputs to fair value measurements. Amended Section 3862 became effective for annual financial statements relating to fiscal years ending after September 30, 2009. Section 3862 establishes a three-tier hierarchy as a framework for disclosing fair value based on inputs used to value the Trust’s investments. The hierarchy of inputs is summarized as follows: • Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities; • Level 2 – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly; and • Level 3 – Inputs for the asset or liability that are not based on observable market data (unobservable inputs). The adoption of the new accounting amendment has no impact on the valuation policies of the Trust. The Trust adopted the amendments to Section 3862 in the December 31, 2009 annual financial statements. The adoption of the amendments are described in Note 14. (b) 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 81-106, a comparison Net Asset Value per unit and the Net Assets per unit is disclosed in Note 10. 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 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. (c) Commissions and Other Portfolio Transaction Costs Transaction costs, such as brokerage commissions, incurred in the purchase and sale of securities, are included in “Commissions and other portfolio transaction costs” in the Statements of Operations. (d) Cost of Investments Cost of investments represents the amount paid for each security and is determined on an average cost basis excluding commissions and transaction costs.

Annual Financial Statements as at December 31, 2009

19

Notes to the Financial Statements (cont’d) (e) Investment Transactions and Income Recognition Investment transactions are accounted for on the trade date for financial reporting purposes and any unrealized and realized gains and losses on such transactions are calculated on an average cost basis. Dividend income and distributions from investments are recognized on the ex-dividend/ex-distribution date and interest income is accounted for on the accrual basis. Distributions received from income trust holdings are recorded as income, capital gains or a return of capital, based on the best information available to the Manager. Due to the nature of these investments, actual allocations could vary from this information. Distributions from income trusts that are treated as a return of capital for income tax purposes reduce the average cost of the underlying investment trust. Distributions received from investment fund holdings are recognized by the Trust in the same form in which they were received from the underlying funds. (f) Foreign Exchange Foreign currency amounts are translated into Canadian dollars the functional currency of the Trust as follows: fair value of investments, forward currency contracts, other assets and liabilities at the closing rate of exchange on each business day; income and expenses, purchases, sales and settlements of investments at the rate of exchange prevailing on the respective dates of such transactions. Foreign exchange gains (losses) on completed transactions are included in “Foreign exchange gain (loss)” as reflected in the Statements of Operations. (g) Forward Contracts The Trust 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 forward currency 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. (h) Increase (Decrease) in Net Assets from Operations per Unit Increase (decrease) in net assets from operations per unit in the Statements of Operations is calculated by dividing the increase (decrease) in net assets from operations by the weighted average number of units outstanding during the period. (i) Private Placements The fair value of private placements is determined using indicative bid values obtained from third-party broker-dealers. The broker-dealers determine the fair value using valuation models that are based, in part, on assumptions that are not supported by observable market inputs. The indicative bid values are independently assessed by the Manager to ensure that they are reasonable. The fair values of private placements are affected by the perceived credit risk of the issuers, predictability of cash flows and the length of time to maturity. (j) Cash and Short-Term Investments Cash is comprised of cash on deposit. Short-term investments are comprised of short-term debt instruments with terms to maturity of less than one year at acquisition. (k) Net Asset Value per Unit Net asset value per unit for the Trust is calculated at the end of each day on which the Toronto Stock Exchange is open for business by dividing the total net asset value of the Trust by outstanding units. (l) Income Taxes The Trust complies with the Income Tax Act (Canada) to qualify as a mutual fund trust. A mutual fund trust is subject to tax in each taxation year under Part 1 of the Income Tax Act (Canada) on the amount of its income for the year, including net realized taxable capital gains, less the portion thereof that it claims in respect of the amounts paid or payable to the Unitholders for the year.

20

Annual Financial Statements as at December 31, 2009

Notes to the Financial Statements (cont’d) Income tax paid by the Trust on any net realized capital gains not paid or payable to unitholders is recoverable by virtue of refunding provisions contained in the Income Tax Act (Canada) and provincial legislation, as redemption occur. The Trust intends to distribute all of its net income and net realized capital gains so that the Trust will not generally be liable for income tax thereon. (m) Use of Estimates The preparation of financial statements in accordance with Canadian GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the reporting date and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

3. UNITHOLDERS’ EQUITY Units issued and outstanding represent the capital of the Trust. The relevant changes pertaining to subscription and redemption of the Trust units are disclosed in the Statements of Changes in Net Assets. In accordance with the objectives and risk management polices outlined in Note 14, the 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. The Trust is authorized to issue an unlimited number of redeemable, transferable units of one class, each of which represents an equal, undivided interest in the net assets of the Trust. Commencing April 30, 2008, unitholders are entitled to redeem their units outstanding monthly (the “Monthly Redemption”). Monthly redemption price per unit is equal to the lesser of: (a) 94% 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. On April 14, 2009, the Trust received approval of the unitholders to add an annual right of unitholders to redeem their units. As a result of these changes, commencing December 31, 2010, the unitholders will have the right to redeem some or all of their units on December 31 each year (the “Annual Redemption”) at the net asset value. The Trust endeavours to provide unitholders with monthly distributions which were initially targeted to total $0.70 per unit per annum representing a yield of 7.0% based on the $10.00 per unit issue price. Distributions commenced on March 31, 2004, and are expected to continue until termination of the Trust. For the years ended December 31, net capital transactions of the Trust consisted of the following: Unit Transactions Balance, beginning of year Units issued on reinvested distributions Units redeemed Units purchased for cancellation (Note 5) Balance, end of year

2009

2008

16,542,328

17,146,595

39,007

73,733

(5,986,220)

–

(65,200)

(678,000)

10,529,915

16,542,328

The Trust did not file a notice of intention to make a normal course issuer bid for 2009. When units of the Trust 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 The Trust pays to the Manager an annual fee equal to 1.10% of the net asset value for the Trust calculated and payable monthly plus any applicable taxes and an amount equal to the service fees payable by the Manager to registered dealers.

Annual Financial Statements as at December 31, 2009

21

Notes to the Financial Statements (cont’d) (b) Administrative Expenses The Trust is also responsible for all of its expenses incurred in connection with its operations and administration, including trustee fees, audit and legal fees, transfer agency, custody, accounting fees, and independent review committee fees. (c) Service Fees The Manager will pay to registered dealers of the Trust an annual service fee of 0.40% of the net asset value for units held by clients of the sales representatives of the registered dealers, calculated and payable quarterly 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 closing market price of the Trust’s units (the “Reference Closing Price”) is less than 95% of the net asset value per unit determined on that date, the Trust will offer to purchase for cancellation any units offered in the market at or below the Reference Closing Price on the following business day. 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 year ended December 31, 2009 the Trust purchased 65,200 units for cancellation at a cost of $456,000 (678,000 units at a cost of $5,668,000 for 2008).

6. REINVESTMENT OF DISTRIBUTIONS The Trust has adopted a Distribution Reinvestment Plan (“DRIP”) therefore at the election of each unitholder distributions are automatically reinvested in additional units of the Trust, without charge, at a price equal to the average trading price of the units on the TSX for the five trading days immediately preceding the relevant Distribution Date. The Manager may terminate the DRIP in its sole discretion, upon not less than thirty days’ written notice to the DRIP participants.

7. BROKERAGE AND OTHER COMMISSIONS Commissions paid for security transactions for the years ended December 31, were as follows: (in $000’s)

2009

2008

193

253

17

23

Brokerage Commissions Skylon Growth & Income Trust Soft Dollar Commissions† Skylon Growth & Income 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.

8. 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 loan must qualify as “securities lending arrangements” for the purposes of the Tax Act; and (iii) the securities loan must be fully collateralized. The minimum level of collateralization will be 102%. As at December 31, 2009 and 2008 the Trust was not engaged in securities lending.

9. 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 up to 2003 may be carried forward seven years. 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.

22

Annual Financial Statements as at December 31, 2009

Notes to the Financial Statements (cont’d) Losses carry forwards (in $000’s) 2009 Net capital losses carry forward Year of expiry Non-capital losses carry forward

11,615 2010

2014

2015

2026

2027

2028

2029

Total

–

–

–

–

–

–

–

–

10. NET ASSETS COMPARISON In accordance with National Instrument 81-106, a comparison of net assets per unit and net asset value per unit, as at December 31, 2009 and 2008, is as follows: 2009

2008

Net assets per unit

8.66

7.41

Net asset value per unit

8.68

7.42

11. RELATED PARTY TRANSACTIONS The Bank of Nova Scotia has a significant interest in CI Financial Corp. The Trust may have direct or indirect holdings in Bank of Nova Scotia and/or CI Financial Corp. The Trust paid $5,038 in brokerage commissions to Bank of Nova Scotia during the period ended December 31, 2009. During the year ended December 31, 2009, Blackmont Capital Inc. was a subsidiary of CI Financial Corp. As CI Financial Corp. is the parent company of CI Investments Inc., the Manager of the Trust, Blackmont Capital Inc. was considered a related party to the Trust. On December 31, 2009, CI Financial Corp. sold its interest in Blackmont Capital Inc. to unrelated parties. The Trust paid $1,047 and $2,000 to Blackmont Capital Inc. during the years ended December 31, 2009 and 2008.

12. 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 in 2011 for all publicly accountable profit-oriented enterprises. IFRS will replace Canadian Generally Accepted Accounting Principles (“Canadian GAAP”). IFRS becomes effective for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. 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 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 January 1, 2011.

13. 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, dividends and accrued interest receivable, cash and derivatives 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, distribution payable and service fees 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 of issuance. All income, dividends, net realized and unrealized gains (losses) are attributable to investments and derivatives which are deemed held for trading.

Annual Financial Statements as at December 31, 2009

23

Notes to the Financial Statements (cont’d) 14. FINANCIAL INSTRUMENTS RISK Risk Management The Trust is exposed to a variety of financial instruments risks: credit risk, liquidity risk and market risk (including interest rate risk, currency risk and other price risk). The level of risk to which the Trust is exposed to depends on the investment objective and the type of investments held by the Trust. 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 Trust. The Manager of the Trust may minimize potential adverse effects of these risks on the Trust’s performance by, but not limited to, regular monitoring of the Trust’s 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 instrument will fluctuate due to changes in prevailing levels of market interest rates. As a result, the value of the Trust will be affected by changes in applicable interest rates as it invests 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 if the Trust invests 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 Trust. As a result, the Trust may be exposed to the risk that the value of securities denominated in other currencies will fluctuate due to changes in exchange rates. The Statement of Investment Portfolio identifies all bonds and derivative instruments denominated in foreign currencies. Equities traded in foreign markets are exposed to currency risk as the prices denominated in foreign currencies are converted to the Trust’s functional currency to determine their fair value. 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 the Trust’s unrealized gain of the contractual obligations with the counterparty as at the reporting date. The credit risk exposure of the Trust’s other assets are represented by their carrying amount as disclosed in the Statements of Net Assets. Credit ratings for debt 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 and 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 schedule in the Statement of Investment Portfolio.

24

Annual Financial Statements as at December 31, 2009

Notes to the Financial Statements (cont’d) Credit Rating as per Credit Risk table AAA/Aaa/A++ AA/Aa/A+ A BBB/Baa/B++ BB/Ba/B+ B CCC/Caa/C++ CC/Ca/C+ C and Lower Not Rated

Credit Rating as per derivatives schedules A-1+ A-1, A-2, A-3 B, B-1 B-2 B-3 C D WR

Significant cash balances as disclosed in the Statements of Net Assets are maintained by the custodian, RBC Dexia. The Manager monitors the credit worthiness of the custodian on a regular basis. All transactions executed by the Trust 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 Trust may not be able to settle or meet its obligations, on time or at a reasonable price. The Trust is exposed to monthly cash redemptions of redeemable units. Therefore, the Trust 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 Trust aims to retain sufficient cash and cash equivalent positions to maintain liquidity. From time to time, the Trust may enter into derivative contracts or invest 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 Trust. Fair Value Hierarchy The adoption of the amended Section 3862 requires the Trust 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 includes 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”). 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 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 include private equities, private term loans and private equity funds and certain derivatives. As observable prices are not available for these securities, the Trust may use a variety of valuation techniques to derive the fair value.

Details of the Trust’s exposure to financial instruments risks including the fair value hierarchy classification are available in the “Trust Specific Financial Instruments Risks” section of the financial statements.

Annual Financial Statements as at December 31, 2009

25

Trust Information Manager and Trustee

CI Investments Inc. 2 Queen Street East, 20th Floor Toronto, Ontario M5C 3G7 Phone: (416) 364-1145 Fax: (416) 364-6299 Toll Free: 1-800-268-9374 www.ci.com [email protected]

Custodian

RBC Dexia Investor Services Trust 77 King Street West, 10th Floor Toronto, Ontario M5W 1P9

Auditors

PricewaterhouseCoopers LLP Suite 3000, Box 82 Royal Trust Tower, TD Centre Toronto, Ontario M5K 1G8

Registrar & Transfer Agent

Computershare Investor Services Inc. 100 University Avenue 8th Floor Toronto, Ontario M5J 2Y1

Listed

The Toronto Stock Exchange Ticker Symbol

SKG.UN

For more information on the Trust, visit us online at www.ci.com.

26

Annual Financial Statements as at December 31, 2009

SKYGIT-AR-03/10