ANNUAL FINANCIAL STATEMENTS

Transcription

1 ANNUAL FINANCIAL STATEMENTS as at December 31, 2010 DDJ HIGH YIELD FUND

2 TABLE OF CONTENTS Management s Responsibility for Financial Reporting 1 Independent Auditor s Report 2 Statement of Investment Portfolio 3 Statements of Net Assets 6 Statements of Operations and Retained Earnings (Deficit) 7 Statements of Changes in Net Assets 8 Statements of Cash Flows 8 Fund Specific Financial Instruments Risks 9 Notes to the Financial Statements 14

3 MANAGEMENT S RESPONSIBILITY FOR FINANCIAL REPORTING The accompanying financial statements have been prepared by CI Investment Inc. (the Manager ), the Manager of the DDJ High Yield Fund (the Fund ), and approved by the Board of Directors of the Manager. The Fund 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 Fund are described in Note 2 to the financial statements. PricewaterhouseCoopers LLP are the external auditors of the Fund. 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 on the following page. Derek J. Green Douglas J. Jamieson Toronto, Ontario President and Chief Executive Officer Chief Financial Officer March 16, 2011 CI Investments Inc. CI Investments Inc. 1

4 INDEPENDENT AUDITOR S REPORT To the Unitholders of DDJ High Yield Fund (the Fund) We have audited the accompanying financial statements of the Fund, which comprise the statement of investment portfolio as at December 31, 2010, the statements of net assets as at December 31, 2010 and December 31, 2009 and the statements of operations and retained earnings (deficit), changes in net assets and cash flows for the years then ended, and the related notes including a summary of significant accounting policies. Management s responsibility for the financial statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with Canadian generally accepted accounting principles, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform an audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund, 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. Chartered Accountants, Licensed Public Accountants Toronto, Ontario March 16,

5 STATEMENT OF INVESTMENT PORTFOLIO As at December 31, 2010 No. of Shares\ Average Fair Par Value Description Cost ($) Value ($) Long Positions U.S.A. (87.5%) USD 170,000 Alere Inc., 9% 05/15/ , ,627 USD 420,000 Altegrity Inc., 10.5% 11/01/ , ,838 USD 450,000 AMC Entertainment Holdings Inc., 9.75% 12/01/ , ,613 USD 530,000 Amer Resident Services 12% 04/15/ , ,710 USD 950,000 Amscan Holdings Inc., 8.75% 05/01/ , ,617 USD 685,000 Atlantic Broadband Finance LLC 9.375% 01/15/ , ,812 USD 50,000 Basic Energy Services Inc., 7.125% 04/15/ ,091 48,494 USD 1,000,000 Beverages & More Inc., 9.625% 10/01/2014 1,036,906 1,025,970 USD 210,000 Bevmo Intermediate Holdings Inc., 14% 04/01/ , ,432 USD 360,000 BioScrip Inc., 10.25% 10/01/ , ,491 USD 120,000 Brickman Group Holdings 9.125% 11/01/ , ,573 USD 392,000 Builders FirstSource Inc., 13% 02/15/ , ,481 USD 50,000 Bumble Bee Acquisition Corp., 9% 12/15/ ,260 49,865 USD 150,000 BWAY Holding Co., 10% 06/15/ , ,562 USD 210,000 CDW LLC 8% 12/15/ , ,621 USD 1,150,000 Cengage Learning Acquisitions Inc., 10.5% 01/15/2015 1,166,181 1,188,467 USD 484,800 Century Aluminum Co., 8% 05/15/ , ,907 USD 80,000 Cenveo Corp., 10.5% 08/15/ ,412 78,487 USD 1,180,000 Cenveo Corp., 7.875% 12/01/2013 1,270,869 1,129,738 39,324 Champion Equity Group, Private Placement^ 29, ,595 USD 520,000 Clear Channel Communications Inc., 10.75% 08/01/ , ,735 USD 195,000 Clear Channel Communications Inc., 4.9% 05/15/ , ,987 USD 1,000,000 Clear Channel Worldwide Holdings Inc., 9.25% 12/15/2017 1,108,356 1,087,054 USD 530,000 Cleaver-Brooks Inc., 12.25% 05/01/ , ,139 USD 50,000 Cleveland Unlimited Inc., Strip Coupon 01/15/ ,167 44,878 USD 50,000 Easton-Bell Sports Inc., 9.75% 12/01/ ,827 54,757 USD 600,000 Equinox Holdings Inc., 9.5% 02/01/ , ,289 USD 70,000 Ford Motor Co., 6.625% 10/01/ ,881 67,891 USD 960,000 Ford Motor Co., 7.45% 07/16/ ,343 1,027,296 USD 250,000 Foresight Energy LLC 9.625% 08/15/ , ,530 54,682 Frontera Resources Corp. 11,908 6,964 USD 124,819 Frontera Resources Corp., Convertible Notes, Private Placement 10% 07/03/2013^ 129,736 5,988 USD 60,000 Graham Packaging Co., LP 8.25% 01/01/ ,424 62,531 USD 520,000 Graham Packaging Co., LP 9.875% 10/15/ , ,042 No. of Shares\ Average Fair Par Value Description Cost ($) Value ($) Long Positions (cont d) U.S.A. (87.5%) (cont d) USD 30,000 GXS Worldwide Inc., 9.75% 06/15/ ,943 29,657 USD 75,000 Haights Cross 1st out notes 13% 03/15/2013^ 75,889 74,797 25,950 Haights Cross Communications Inc., Private Placement^ 10,100 - USD 250,720 Haights Cross Operating Co., FRN 16% 03/15/2014^ 256, ,539 USD 481,745 Haights Cross Operating Co., Private Placement 13% 03/15/2013^ 493, ,627 USD 220,000 Harbinger Group Inc., % 11/15/ , ,034 USD 146,936 Harrah's Co., Inc., B3 Term Loan, Private Placement % 01/28/2015^ 119, ,251 USD 677 Harrah's Co., Inc., Private Placement % 01/28/2015^ USD 830,000 Harrah's Co., Inc., Private Placement % 01/28/2015^ 761, ,085 USD 330,000 Harrah's Operating Co., Inc., 10% 12/15/ , ,817 USD 140,000 Harrah's Operating Co., Inc., 11.25% 06/01/ , ,074 USD 110,000 MedAssets Inc., 8% 11/15/ , ,703 USD 100,000 Mercer International Inc., 9.5% 12/01/ , ,226 USD 120,000 Merrill Corp., Private Placement 8.5% 12/22/2012^ 117, ,778 USD 1,005,056 Merrill Lynch & Co., 2nd Term Loan, Private Placement 12.75% 11/15/2013^ 995, ,752 USD 23,581 Merrill Lynch & Co., Inc., 2nd Term Loan, Private Placement 15% 11/15/2013^ 24,755 22,635 USD 50,000 Midwest Gaming Corp., % 04/15/ ,237 51,423 USD 1,000,000 National Mentor Holdings Inc., 11.25% 07/01/2014 1,033,637 1,019,737 USD 150,000 National Vision Inc., Private Placement 12.25% 11/23/2016^ 151, ,603 USD 480,282 NCO Group Inc., 7.5% 05/13/ , ,267 USD 773,479 Newark DIP Funding, Private Placement 12.5% 03/31/2014^ 784, ,388 USD 288,765 NMH Holdings Inc., FRN % 06/15/ , ,027 USD 680,000 Pinnacle Foods Finance LLC 9.25% 04/01/ , ,136 USD 630,000 Ply Gem Industries Inc., 11.75% 06/15/ , ,278 USD 50,000 Ply Gem Industries Inc., % 07/15/ ,551 52,919 USD 510,000 Radnet Inc., % 04/01/ , ,833 USD 30,000 Revlon Consumer Products Corp., 9.75% 11/15/ ,167 31,639 USD 60,000 Roofing Supply Group LLC 8.625% 12/01/ ,225 59,838 USD 60,000 Sabra Health Care REIT Inc., 8.125% 11/01/ ,620 61,708 USD 530,000 Servicemaster Co., 10.75% 07/15/ , ,567 ^Denotes illiquid securities. Percentages shown in brackets relate investments at fair value to net assets of the Fund. The accompanying notes are an integral part of these financial statements. 3

6 STATEMENT OF INVESTMENT PORTFOLIO (cont d) As at December 31, 2010 No. of Shares\ Average Fair Par Value Description Cost ($) Value ($) No. of Shares\ Average Fair Par Value Description Cost ($) Value ($) Long Positions (cont d) U.S.A. (87.5%) (cont d) USD 300,000 Severstal Columbus LLC 10.25% 02/15/ , , Simmons Bedding Co., Class B, Private Placement^ 333, ,182 USD 825,000 Simmons Bedding Co., Private Placement 11.25% 07/15/2015^ 843, , Simmons Co., Class A, Private Placement^ 58, ,659 USD 40,000 Stallion Oilfields Holdings Ltd., 10.5% 02/15/ ,426 41,787 USD 170,000 Star Gas Partners LP 8.875% 12/01/ , ,117 USD 140,000 Sterling Chemicals Inc., 10.25% 04/01/ , ,112 USD 310,000 Tekni-Plex Inc., 9% 09/29/ , ,416 USD 185,000 Terremark Worldwide Inc., 6.625% 06/15/ , ,411 USD 330,000 Thermadyne Holdings Corp., 9% 12/15/ , ,222 USD 975,000 Thermadyne Holdings Corp., Callable 10% 02/01/ , ,271 USD 180,000 Town Sports International Holdings Inc., 11% 02/01/ , ,514 USD 30,000 United Rentals North America Inc., 8.375% 09/15/ ,795 30,517 USD 30,000 United Surgical Partners International Inc., 8.875% 05/01/ ,207 31,003 USD 310,000 United Surgical Partners International Inc., 9.25% 05/01/ , ,596 USD 390,000 US Oncology Inc., 9.125% 08/15/ , ,376 4,523 Viren Corp., Private Placement^ 219, ,957 USD 60,000 VWR Funding Inc., 10.25% 07/15/ ,873 62,979 USD 30,000 Warner Music Group Corp., 7.375% 04/15/ ,673 28,573 USD 120,000 West Corp., 11% 10/15/ , ,549 USD 270,000 Willbros DB, Private Placement 9.5% 06/30/2014^ 268, ,270 USD 470,000 WMG Holdings Corp., 9.5% 12/15/ , ,293 USD 98,292 Wornik Co., Term Loan, Private Placement 10% 06/30/2011^ 113,107 98,026 28,657,597 29,111,969 CANADA (0.3%) 2,728 Masonite Worldwide Holdings, Warrants (20May14) - 3,945 2,046 Masonite Worldwide Holdings, Warrants (20May16) - 6,632 2,478 Masonite Worldwide Holdings^ 540,333 84, ,333 94,601 Total Long Positions 29,197,930 29,206,570 Commissions and other portfolio transaction costs - Total Bonds & Equities (87.8%) 29,197,930 29,206,570 DERIVATIVE INSTRUMENTS Foreign Currency Forward Contracts (2.2%) (see Schedule A) 710,850 Total Investments (90.0%) 29,197,930 29,917,420 Other Assets (net) (10.0%) 3,366,296 Net Assets (100.0%) 33,283,716 Principal amounts stated in: USD - U.S. Dollar 4 ^Denotes illiquid securities. Percentages shown in brackets relate investments at fair value to net assets of the Fund. The accompanying notes are an integral part of these financial statements.

7 STATEMENT OF INVESTMENT PORTFOLIO (cont d) As at December 31, 2010 Schedule A Foreign Currency Forward Contracts (2.2%) Credit Rating Contract Contracts Counterparty of the Counterparty* Settlement Date Rate ($) Pay Receive Unrealized Gain (Loss) ($) 1 Royal Bank of Canada A Mar (1,024,000) US $ 1,042,995 Canadian $ 20,207 1 Royal Bank of Canada A Jan (2,695,000) US $ 2,778,815 Canadian $ 90,078 1 Royal Bank of Canada A Mar (2,789,000) US $ 2,802,582 Canadian $ 16,187 1 Royal Bank of Canada A Feb (2,936,000) US $ 3,040,228 Canadian $ 109,098 1 Royal Bank of Canada A Apr (3,520,000) US $ 3,601,136 Canadian $ 82,210 1 Royal Bank of Canada A Apr (5,217,000) US $ 5,289,516 Canadian $ 73,021 1 Royal Bank of Canada A Jan (5,720,000) US $ 5,957,952 Canadian $ 252,275 1 Royal Bank of Canada A May (7,245,000) US $ 7,315,856 Canadian $ 67,774 Total Foreign Currency Forward Contracts Value 710,850 *Credit ratings are obtained from Standard & Poor s, where available, otherwise ratings are obtained from: Moody's Investors Service, Dominion Bond Rating Services or Canadian Bond Rating Services. Percentages shown in brackets relate investments at fair value to net assets of the Fund. The accompanying notes are an integral part of these financial statements. 5

8 STATEMENTS OF NET ASSETS (in $000 s except for per unit amounts and units outstanding) As at As at December 31, 2010 December 31, 2009 Assets Investments at fair value* 29,207 23,902 Cash 4,091 6,330 Unrealized gain on futures and forward currency contracts 711 1,486 Receivable for securities sold Dividends and accrued interest receivable ,710 33,033 Liabilities Investments sold short at fair value** Management and administration fees payable Accrued expenses 8 7 Payable for securities purchased Distributions payable Unrealized loss on futures and forward currency contracts 335 1,426 1,759 Net assets and unitholders' equity 33,284 31,274 Unitholders Equity Unit capital 53,635 54,386 Contributed surplus 32,160 31,935 Retained earnings (deficit) (52,511) (55,047) Net assets and unitholders equity 33,284 31,274 *Investments at cost 29,198 24,785 **Investments sold short at cost Net Assets per unit (Note 10) Number of units outstanding (Note 3) 3,173,529 3,202,029 6 The accompanying notes are an integral part of these financial statements.

9 STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT) For the years ended December 31 (in $000 s except for per unit amounts) Income Dividends 27 Interest 2,744 2,526 Securities lending (Note 6) Commitment fee income Management fee rebate Less: Foreign withholding taxes 2,771 2,526 Expenses Management fees (Note 4) Administrative fees (Note 4) Interest expense 1 1 Custody fees Dividend and interest expense on securities sold short Legal fees 1 Audit fees 4 15 Goods and services tax/harmonized sales tax Net investment income (loss) for the year 2,294 2,145 Realized and unrealized gain (loss) on investments and commissions and other portfolio transaction costs Realized gain (loss) on investments 2,260 (9,460) Foreign exchange gain (loss) (184) (71) Commissions and other portfolio transaction costs (10) (7) Change in unrealized appreciation (depreciation) of investments ,412 Net gain (loss) on investments 2,519 9,874 Increase (decrease) in net assets from operations 4,813 12,019 Increase (decrease) in net assets from operations per unit STATEMENTS OF RETAINED EARNINGS (DEFICIT) Retained Earnings (Deficit), beginning of year (55,047) (65,496) Increase (decrease) in net assets from operations 4,813 12,019 (Excess) deficiency on amounts paid on units redeemed Distribution from net income (2,277) (1,570) Distribution from realized gains Retained Earnings (Deficit), end of year (52,511) (55,047) Contributed surplus, beginning of year 31,935 31,847 (Excess) deficiency on amounts paid on units redeemed Contributed surplus, end of year 32,160 31,935 The accompanying notes are an integral part of these financial statements. 7

10 STATEMENTS OF CHANGES IN NET ASSETS For the years ended December 31 (in $000 s) Net assets, beginning of year 31,274 21,909 Capital Transactions Proceeds from units issued Reinvestment of distributions (Note 9) Cost of units redeemed (483) (174) (Excess) deficiency on amounts paid on units redeemed (258) (86) Distributions to unitholders From net income (2,277) (1,570) From realized gains Return of capital (268) (998) (2,545) (2,568) Increase (decrease) in net assets from operations 4,813 12,019 Net assets, end of year 33,284 31,274 STATEMENTS OF CASH FLOWS Cash Provided by (used in) Operating activities Net investment income (loss) 2,294 2,145 Proceeds of disposition of investments 19,493 15,271 Purchase of investments (21,081) (8,879) Net change in non-cash balances related to operations (137) ,035 Financing activities Distributions paid (2,550) (2,731) Cost of units redeemed (258) (86) (2,808) (2,817) Increase (decrease) in cash during the year (2,239) 6,218 Cash (Bank overdraft), beginning of year 6, Cash (Bank overdraft), end of year 4,091 6,330 8 The accompanying notes are an integral part of these financial statements.

11 FUND SPECIFIC FINANCIAL INSTRUMENTS RISKS (Note 14) The Fund s investments were concentrated in the following segments as at December 31, Categories Net Assets (%) U.S.A Other Assets Foreign Currency Forward Contracts Canada Other Price Risk As at December 31, 2010 and 2009, the other price risk of this Fund was not significant as the Fund was mainly invested in global fixed income securities and their market risk exposure will be discussed in the following sections. Currency Risk The tables below summarize the Fund's exposure to currency risk. As at December 31, 2010 Financial Instruments Derivatives Total Currency Net Exposure Exposure Exposure Assets Currency (in $000 s) (in $000 s) (in $000 s) (%) US Dollar 31,942 (31,062) British Pound Total 31,949 (31,062) As at December 31, 2009 Financial Instruments Derivatives Total Currency Net Exposure Exposure Exposure Assets Currency (in $000 s) (in $000 s) (in $000 s) (%) US Dollar 28,483 (28,329) Total 28,483 (28,329) As at December 31, 2010, had the Canadian dollar strengthened or weakened by 10% (December 31, %) in relation to all other foreign currencies held in the Fund, with all other variables held constant, net assets of the Fund would have decreased or increased, respectively, by approximately $89,000 (December 31, $15,000). In practice, the actual results may differ from this analysis and the difference may be material. The accompanying notes are an integral part of these financial statements. 9

12 FUND SPECIFIC FINANCIAL INSTRUMENTS RISKS (Note 14) (cont d) Credit Risk As at December 31, 2010 and 2009, the Fund was exposed to credit risk as substantially all of its assets were invested in fixed income securities that have below investment grade credit ratings or similar risk characteristics. All fixed income securities rated BB/Ba/B+ or lower are considered below investment grade and have a higher credit risk than investment grade bonds. The Fund was invested in fixed income securities, preferred securities and derivative instruments, as applicable, with the following credit ratings: As at December 31, 2010* Net Assets Credit Rating^ (%) AAA/Aaa/A B 40.8 CCC/Caa/C Not Rated 16.6 Total 85.9 As at December 31, 2009* Net Assets Credit Rating^ (%) AAA/Aaa/A B 22.7 CCC/Caa/C CC/Ca/C+ 0.6 C and Lower 1.5 Not Rated 17.7 Total 80.0 *Credit ratings are obtained from: Standard & Poor s, where available, otherwise ratings are obtained from: Moody's Investors Service, Dominion Bond Rating Services or Canadian Bond Rating Services, respectively. ^Refer to Note 13 for Credit Rating cross reference. 10 The accompanying notes are an integral part of these financial statements.

13 FUND SPECIFIC FINANCIAL INSTRUMENTS RISKS (Note 14) (cont d) Interest Rate Risk As at December 31, 2010 and 2009, the Fund was exposed to interest rate risk, as substantially all of the Fund s assets were invested in below investment grade fixed income securities, which have lower sensitivity to fluctuations in the movement of market interest rates. The tables below summarize the Fund's exposure to interest rate risk, categorized by the contractual maturity date. As at December 31, 2010 Interest Rate Exposure Less than Greater 1 Year Years Years than 5 Years Total (in $000 s) (in $000 s) (in $000 s) (in $000 s) (in $000 s) 4,236 3,696 14,920 9,128 31,980 As at December 31, 2009 Interest Rate Exposure Less than Greater 1 Year Years Years than 5 Years Total (in $000 s) (in $000 s) (in $000 s) (in $000 s) (in $000 s) 6,380 4,850 14,188 4,432 29,850 As at December 31, 2010, had the prevailing interest rates increased or decreased by 0.25% (December 31, %), with all other variables held constant, net assets of the Fund would have decreased or increased, respectively, by approximately $226,000 (December 31, $202,000). In practice, the actual results may differ from this analysis and the difference may be material. The accompanying notes are an integral part of these financial statements. 11

14 FUND SPECIFIC FINANCIAL INSTRUMENTS RISKS (Note 14) (cont d) Fair Value Hierarchy The tables below summarize the inputs used by the Fund in valuing the Fund s investments and derivatives carried at fair value. Long Positions at fair value as at December 31, 2010 Level 1 Level 2 Level 3 Total (in $000's) (in $000's) (in $000's) (in $000's) Equities ,061 Bonds - 27, ,135 Warrants Foreign currency forward contracts, net Total 6 28,888 1,024 29,918 Long Positions at fair value as at December 31, 2009 Level 1 Level 2 Level 3 Total (in $000's) (in $000's) (in $000's) (in $000's) Equities Bonds - 22,373 1,147 23,520 Foreign currency forward contracts, net - 1,151-1,151 Total 14 23,524 1,514 25, The accompanying notes are an integral part of these financial statements.

15 FUND SPECIFIC FINANCIAL INSTRUMENTS RISKS (Note 14) (cont d) The tables below summarize the movement in Level 3 financial instruments at fair value using unobservable inputs. For the year ended December 31, 2010 Fair value measurements using level 3 inputs Change in Balance at Balance at Net transfers Realized gain unrealized gain December 31, December 31, 2009 Net purchases Net sales in (out) (loss) (loss)* 2010 (in $000's) (in $000's) (in $000's) (in $000's) (in $000's) (in $000's) (in $000's) Long Positions: Equities Bonds 1, (2,314) 1,205 (895) Total 1, (2,314) 1,205 (895) 945 1,024 *Change in unrealized gain (loss) related to investments held at December 31, 2010 was $138,551. During 2010, fixed income investments with a net fair value of $1,205,000 were transferred into Level 3 from Level 2 as observable market inputs were no longer available for these investments. For the year ended December 31, 2009 Fair value measurements using level 3 inputs Change in Balance at Balance at Net transfers Realized gain unrealized gain December 31, December 31, 2008 Net purchases Net sales in (out) (loss) (loss)* 2009 (in $000's) (in $000's) (in $000's) (in $000's) (in $000's) (in $000's) (in $000's) Long Positions: Equities (479) 367 Bonds (200) 402 (9) (159) 1,147 Total 1, (200) 402 (9) (638) 1,514 *Change in unrealized gain (loss) related to investments held at December 31, 2009 was $(724,000). During 2009, fixed income investments with a net fair value of $402,000 were transferred into Level 3 from Level 2 as observable inputs were no longer available for these investments. 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 Fund in 2010 and The accompanying notes are an integral part of these financial statements. 13

16 DDJ CANADIAN HIGH YIELD FUND NOTES TO THE FINANCIAL STATEMENTS As at December 31, THE FUND DDJ High Yield Fund (the Fund ) is a closed-end investment trust established under the laws of the Province of Ontario pursuant to a Trust Agreement dated August 15, The Fund commenced operations on August 28, The Fund is listed on The Toronto Stock Exchange, under the symbol HYB.UN for the trust units. CI Investments Inc. is the Manager of the Fund. The Manager has retained DDJ Capital Management, LLC (the Investment Advisor ) to provide investment advisory and portfolio management services to the Fund. A unitholders meeting was held on October 11, 2005, at which the unitholders of the Fund approved the following changes: (a) Change the investment strategy of the Fund Under the revised investment strategy, the Fund is permitted to invest in high-yield debt securities on a global basis. As a result of this change the Fund s name was changed to DDJ High Yield Fund. (b) Extend the term of the Fund The term of the Fund was extended by 10 years to August 15, 2017, from August 15, 2007, and all net assets will be distributed to unitholders on that date. (c) Ability to terminate the Fund after August 15, 2007 The Manager, at any time after August 15, 2007, may terminate the Fund if the net asset value of the Fund falls to a level that the Manager believes is not beneficial to unitholders. Following these approvals, the Fund entered into an amended and restated trust agreement dated as of October 11, SUMMARY OF SIGNIFICANT ACCOUNTING POLICES 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 Fund: (a) Valuation of Investments Canadian GAAP requires the fair value of financial instruments traded in an active market to be measured based on an investment s bid/ask price depending on the investment position (long/short). For the purpose of processing unitholder transactions, net asset value is calculated based on the closing market price of investments (referred to as Net Asset Value ), while for financial statement purposes net assets are calculated based on bid/ask price of investments (referred to as Net Assets ). In accordance with National Instrument , a comparison between the Net Asset Value per unit and the Net Assets per unit is disclosed in Note 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 including short-term investments, are valued at the evaluated 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. The fair value of private placements is determined by using valuation models that may be based, in part, on assumptions that are not supported by observable market inputs. These methods and procedures may include, but are not limited to, performing comparisons with prices of comparable or similar securities, obtaining valuation related information from issuers and/or other analytical data relating to the investment and using other available indications of value. These values are independently assessed internally to ensure that they are reasonable. However, because of the inherent uncertainty of valuation, the estimated fair values for the aforementioned securities and interests may be materially different from the values that would have been used had a ready market for the investment existed. The fair values of private placements are affected by the perceived credit risks of the issuer, predictability of cash flows and the length of time to maturity. (b) 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. (c) 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. (d) 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. (e) Foreign Exchange Foreign currency amounts are translated into Canadian dollars the functional currency of the Fund 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. (f) Forward Contracts The Fund 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 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. (g) 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. 14

17 DDJ CANADIAN HIGH YIELD FUND NOTES TO THE FINANCIAL STATEMENTS (cont d) As at December 31, 2010 (h) 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. (i) (j) Net Asset Value per Unit Net asset value per unit 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 by outstanding units. Income Taxes The Fund 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. Income tax paid by the Fund on any net realized capital gains not paid or payable to unitholders is recoverable by the Fund. The Fund intends to distribute all of its net income and net realized capital gains so that the Fund will not generally be liable for income tax thereon. Distributions commenced December 31, 1997, and are expected to be quarterly thereafter until termination of the Fund. (k) 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 Fund. The relevant changes pertaining to subscription and redemption of the Fund 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 Fund 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 Fund is authorized to issue an unlimited number of transferable units of the Fund of a single class and series, each of which represents an equal, undivided interest in the net assets of the Fund. The Fund s trust agreement was amended in August 2007 to allow unitholders to exercise their redemption rights on a monthly basis. The monthly redemption entitles unitholders to receive a price per unit equal to the lesser of (i) 90% of the market price per unit on the applicable monthly valuation date (10 day average trading price); and (ii) the closing market price per unit on the applicable monthly valuation date. On February 2, 2009, the Fund announced its distribution policy. The Fund will now pay $0.20 per quarter for an annual total of $0.80 for Capital transactions of the Fund for the years ended December 31 consisted of the following: Unit Transactions Balance, beginning of year 3,202,029 3,212,129 Reinvestments Redemptions (28,500) (10,100) Balance, end of year 3,173,529 3,202, MANAGEMENT AND OTHER FEES (a) Management Fees The Fund pays to the Manager an annual fee (the Management fees ) equal to 1.10% of the net asset value of the Fund calculated and paid monthly in arrears. (b) Administrative Fees The Fund is also responsible for all 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) Performance Fees In addition, the Manager will receive an annual performance fee (the Performance fees ) equal to 20% of the amount by which the percentage increase in net asset value of the Fund exceeds an annualized threshold increase of 8%. To the extent that the increase in net asset value of the Fund does not exceed the threshold, then the amount by which such increase falls below the threshold will be carried forward on a cumulative basis and deducted from the amount of any increase in net asset value of the Fund on which the performance fee is calculated in subsequent years. The performance fee will be accrued weekly and payable within ten days after the last day of each fiscal year of the Fund. No performance fee has been paid since inception of the Fund. (d) Advisory Fees A portion of the management fees and all of the performance fees payable to the Manager will be paid to the Investment Advisor by the Manager. (e) Harmonized Sales Tax 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%. 5. MARKET REPURCHASE PROGRAM In accordance with the Fund s prospectus, and to enhance liquidity and to provide support to the units, the Fund has a mandatory market purchase program under which the Fund, subject to exceptions contained in the Trust Agreement and in compliance with any regulatory requirements provides that if at any time the market price at which unitholders are then offering their units for sale is less than 90% of the net asset value per unit most recently determined. The Fund may purchase any such units offered in the market at the then prevailing market price up to a maximum amount in any year of 5% of the number of units outstanding at the beginning of the calendar year. Units that have been purchased by the Fund will be cancelled. The Fund filed a notice of intention to make a normal course issuer bid on December 3, The issuer bid commenced on December 7, 2010 and will terminate on the earliest of the date on which the maximum number of units have been purchased, the date the Fund provides notice of termination, or December 6, The maximum number of units that may be acquired is 317,353 units. Under its previous normal course issuer bid commencing December 7, 2009 and terminating December 6, 2010, the Fund purchased 10,100 units. Unitholders may obtain a copy of the notice of intention to make a normal course issuer bid by contacting the Manager. At December 31, 2010, 38,600 units have been purchased under the current normal course issuer bid at a total cost of $343,540 (10,100 units at cost of $86,419 for 2009). 6. SECURITIES LENDING The Fund has entered into a securities lending program with its custodian, RBC Dexia Investor Services Trust ("RBC Dexia"). The aggregate market value of all securities loaned by the Fund cannot exceed 50% of the assets of the Fund. The Fund will receive collateral of at least 102% of the value of securities on loan. Collateral will generally be comprised of cash and obligations of or guaranteed by the Government of Canada or a province thereof, or by the United States government or its agencies, but may include obligations of other governments with appropriate credit ratings. As at December 31, 2010 and 2009 the Fund was not engaged in any securities lending. 15

18 NOTES TO THE FINANCIAL STATEMENTS (cont d) As at December 31, BROKERAGE AND OTHER COMMISSIONS Brokerage commissions paid for security transactions during the years ended December 31 were as follows: (in $000 s) Brokerage Commission 10 7 Soft Dollar commission 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. No soft dollar commissions were paid in 2010 and INCOME TAX LOSSES CARRY FORWARD Net capital losses may be carried forward indefinitely to reduce future net realized capital gains. Non-capital losses arising in taxation years 2004 and 2005 may be carried forward ten years. Non-capital losses arising in taxation years after 2005 may be carried forward twenty years. Non-capital losses carried forward may reduce future net investment income. Loss carry forwards (in $000 s) Net capital loss carried forward ,209 Year of expiry Non-capital loss carried forward Total 9. REINVESTMENT OF DISTRIBUTIONS When the Fund pays a distribution to a unitholder, it will be paid in the same currency in which the units are held. Distributions due to those unitholders (the Plan Participants ) who participate in the Reinvestment Plan will be applied to the purchase of trust units on behalf of Plan Participants. The Manager may change the distribution policy at its sole discretion. Further information regarding reinvestment of distributions can be found in the Prospectus or by writing to the Manager, or by contacting your dealer. 10. NET ASSETS COMPARISON In accordance with National Instrument , a comparison of net assets per unit and net asset value per unit as at December 31, is as follows: Net Assets per unit Net Asset Value per unit RELATED PARTY TRANSACTIONS The Bank of Nova Scotia has a significant interest in CI Financial Corp., the parent company of the Manager. The Fund may have direct or indirect holdings in The Bank of Nova Scotia and/or CI Financial Corp. as identified in the Statement of Investment Portfolio of the Fund, if applicable. 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 for all publicly accountable profit-oriented enterprises for interim and annual financial statements relating to fiscal years beginning on or after January 1, On January 12, 2011, the AcSB confirmed further deferral of the IFRS changeover date by 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, 2013 instead of 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. 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 and dividends and accrued interest receivable are designated as loans and receivables. They are recorded at amortized cost which approximates their fair value due to their short-term nature. Similarly payable for securities purchased, management and administration fees payable, accrued expenses and distributions 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. 14. FINANCIAL INSTRUMENTS RISK Risk Management The Fund 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 Fund is exposed to depends on the investment objective and the type of investments the Fund holds. The value of investments within a 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 Fund. The Manager of the Fund may minimize potential adverse effects of these risks on the Fund s performance by, but not limited to, regular monitoring of the Fund 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 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 other price risk. Interest Rate Risk Interest rate risk is the risk that the fair value of interest-bearing investments will fluctuate due to changes in prevailing levels of market interest rates. As a result, the value of the Fund that invests in debt securities and/or income trusts will be affected by changes in applicable interest rates. If interest rates fall, the fair value of existing debt securities may increase due to the increase in yield. Alternatively, if interest rates rise, the yield of existing debt securities decrease which may then lead to a decrease in their fair value. The magnitude of the decline will generally be greater for long-term debt securities than for short-term debt securities. Interest rate risk also applies to the Fund that 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 16

19 DDJ CANADIAN HIGH YIELD FUND NOTES TO THE FINANCIAL STATEMENTS (cont d) As at December 31, 2010 Currency risk arises from financial instruments that are denominated in a currency other than the Canadian dollar, the functional currency of the Fund. As a result, the Fund 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 Fund 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 a debt instrument includes consideration for the credit worthiness of the debt issuer. The fair value of debt instrument as shown on the Statement of Investment Portfolio represents credit risk exposure of the Fund. Credit risk exposure for derivative instruments is based on the Fund s unrealized gain on the contractual obligations with the counterparty as at the reporting date. The credit risk exposure of the Fund 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 or Canadian Bond Rating Services. Credit ratings can be either long-term or short-term. Short-term credit ratings are generally assigned to those obligations and derivative instruments considered short-term in nature. The table below provides a cross-reference between the long-term credit ratings disclosed in the Credit Rating table inclusive of the short-term credit ratings disclosed in the derivative schedule in the Statement of Investment Portfolio. Credit Rating as per Credit Rating as per Credit Risk table derivatives schedule AAA/Aaa/A++ A-1+ AA/Aa/A+ A-1, A-2, A-3 A B, B-1 BBB/Baa/B++ B-2 BB/Ba/B+ B-3 B C CCC/Caa/C++ - CC/Ca/C+ - C and Lower D Not Rated WR private investments such as term loans, which are not traded in an organized market and may experience periods of low liquidity. Similarly, there may be circumstances where the supply or demand for a particular bond issue may be limited as well. However, the Fund is closed-ended and does not require high levels of liquidity to meet potential redemption requests. DDJ believes that the Fund s liquidity is sufficient to meet quarterly distributions and redemptions either from income or asset disposition. Illiquid securities are identified in the Statement of Investment Portfolio. Fair Value Hierarchy The Fund is required to classify financial instruments measured at fair value using a fair value hierarchy. Investments whose values are based on quoted market prices in active markets are classified as Level 1. This level may include publicly traded equities, exchange traded and retail mutual funds, exchange traded warrants, futures contracts, traded options, American depositary receipts ( ADRs ) and Global depositary receipts ( GDRs ). Financial instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified as Level 2. These may include fixed income securities, mortgage backed securities ( MBS ), short-term instruments, non-traded warrants, over-the-counter options, structured notes of indexed securities, foreign currency forward contracts and swap instruments. Investments classified as Level 3 have significant unobservable inputs. Level 3 instruments may include private equities, private term loans, private equity funds and certain derivatives. As observable prices are not available for these securities, the Fund may use a variety of valuation techniques to derive the fair value. Details of the Fund s exposure to financial instruments risks including the fair value hierarchy classifications are available in the Fund Specific Financial Instruments Risks section of the financial statements. 15. OTHER At December 31, 2010, the Fund had approximately $65,528 USD of unfunded commitments related to investments. 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 Fund 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 Fund may not be able to settle or meet its obligations, on time or at a reasonable price. The Fund s exposure to liquidity risk is moderate, as some of the Fund s assets are in 17