a s a t J u n e 3 0, DDJ HIGH YIELD FUND

Transcription

1 S E M I - A N N U A L F I N A N C I A L S T A T E M E N T S a s a t J u n e 3 0, DDJ HIGH YIELD FUND

2 TABLE OF CONTENTS Statement of Investment Portfolio 1 Statements of Net Assets 4 Statements of Operations and Retained Earnings ( Deficit) 5 Statements of Changes in Net Assets 6 Statements of Cash Flows 6 Fund Specific Financial Instruments Risks 7 Notes to the Financial Statements 10 CI Investments Inc., the Manager of the Fund, appoints independent auditors to audit the Fund s Annual Financial Statements. Under Canadian securities laws (National Instrument ), if an auditor has not reviewed the Semi-Annual Financial Statements, this must be disclosed in an accompanying notice. The Fund s independent auditors have not performed a review of these Semi-Annual Financial Statements in accordance with standards established by the Canadian Institute of Chartered Accountants.

3 STATEMENT OF INVESTMENT PORTFOLIO ( unaudited) As at June 30, 2013 No. of Shares\ Average Fair Par Value Description Cost ($) Value ($) No. of Shares\ Average Fair Par Value Description Cost ($) Value ($) U.S.A. (100.6%) USD 570,000 ABC Supply Co., Term Loan, variable rate, 04/05/2020^ 579, ,627 USD 50,000 Air Distribution Technologies Inc., Term Loan, variable rate, 11/09/2018^ 51,093 53,116 USD 290,000 Air Distribution Technologies Inc., Term Loan, variable rate, 05/09/2020^ 293, ,648 USD 460,000 Altegrity Inc., 10.5% 11/01/ , ,254 USD 530,000 American Residential Services LLC 12% 04/15/ , ,151 USD 457,022 ARS Intermediate Holdings LLC % 11/15/2015^ 436, ,824 USD 335,750 Berkshire Partners, Term Loan, Private Placement, variable rate, 08/10/ , ,142 USD 120,000 Berlin Packaging, Term Loan, variable rate, 03/28/2019^ 121, ,532 USD 90,000 Berlin Packaging, Term Loan, variable rate, 03/28/2020^ 90,757 95,135 USD 1,060,000 Beverages & More Inc., 9.625% 10/01/2014 1,099,702 1,127,452 USD 640,000 Biomet Inc, Term Loan, Private Placement, variable rate, 07/25/2017^ 662, ,409 USD 611,663 Bossier Casino Venture Holdco Inc., 14% 02/09/2018^ 531, ,348 39,099 Bossier Casino Venture Holdco Inc., Private Placement^ 77,823 - USD 222,000 Builders FirstSource Inc., 13% 02/15/ , ,500 USD 100,000 Caesar s Entertainment Operating Co., Inc., 11.25% 06/01/ , ,387 USD 440,000 CDW LLC/CDW Finance Corp., 8% 12/15/ , ,502 USD 740,000 Century Aluminum Co., 7.5% 06/01/ , ,907 USD 70,000 Claire s Stores Inc., 8.875% 03/15/ ,274 77,215 USD 180,000 Clear Channel Worldwide Holdings Inc., 7.625% 03/15/ , ,531 USD 120,000 Cleaver-Brooks Inc., 8.75% 12/15/ , ,158 USD 2,885 Cleveland Unlimited Inc., Term Loan A, Private Placement, variable rate, 01/25/2016^ 2,965 3,034 USD 1,438 Cleveland Unlimited Inc., Term Loan B, Private Placement, variable rate, 01/25/2016^ 1,463 1,513 USD 1,497 Cleveland Unlimited Inc., Term Loan, Private Placement, variable rate, 05/15/2016^ 1,476 1,575 USD 8,627 Cleveland Unlimited Inc., Term Loan, Private Placement, variable rate, 07/25/2016^ 8,647 9,073 USD 2,876 Cleveland Unlimited Inc., Term Loan, Private Placement, variable rate, 05/15/2016^ 2,810 3,024 USD 640,000 Connolly Holdings PLC, Term Loan, Private Placement, variable rate, 07/26/ , ,884 U.S.A. (100.6%) (cont d) - CUI Acquisition Corp, Warrants, Private Placement^ - 5,533 1 CUI Class A2, Warrants (31Dec49)^ 52,678 20, Dawn Holding Equity, Private Placement^ 240, ,382 USD 375,000 ELO Touch Solutions Inc., Term Loan, Private Placement, variable rate, 12/04/ , ,377 USD 423,569 Emergency Medical Services Corp., Term Loan, variable rate, 05/25/2018^ 437, ,954 USD 1,130,000 Energy Future Intermediate Holding Co., LLC 11% 10/01/2021 1,225,641 1,276,190 USD 300,000 Energy Future Intermediate Holding Co., LLC 12.25% 03/01/ , ,306 USD 750,000 Equinox Holdings Inc., Term Loan, Private Placement, variable rate, 05/06/ , ,544 USD 1,257,572 Expert Global Solutions Inc., Term Loan, Private Placement, variable rate, 04/03/2018 1,217,638 1,342,556 USD 230,000 First Data Corp., Term Loan, Private Placement, variable rate, 03/24/2018^ 233, ,402 USD 520,000 Foresight Energy LLC 9.625% 08/15/2017^ 533, ,120 USD 1,120,000 Foresight Energy LLC, (Restricted), 9.625% 08/15/2017 1,146,284 1,251,643 USD 400,000 FPC Holdings, Term Loan, Private Placement, variable rate, 05/27/ , ,892 USD 720,000 Global Generations Merger Sub Inc., 11% 12/15/ , ,813 USD 371,739 Grocery Outlet, Term Loan, Private Placement, variable rate, 05/26/ , ,041 25,950 Haights Cross Communications Inc., Private Placement^ 10,100 - USD 71,820 Haights Cross Operating Co., FRN, 13% 06/15/2015^ 72,692 75,540 USD 374,419 Haights Cross Operating Co., FRN, Private Placement 18% 06/15/2016^ 301,185 73,525 USD 507,731 Haights Cross Operating Co., Private Placement 13% 06/15/2015^ 520, ,341 USD 1,090,000 Harbinger Group Inc., 7.875% 07/15/2019^ 1,130,577 1,173, Harbinger Group Inc., Private Placement^ 238, ,701 USD 180,000 HCA Inc., Term Loan, variable rate, 03/30/2017^ 181, ,324 USD 280,000 Heartland Dental Care Inc., Term Loan, Private Placement, variable rate, 12/21/2018^ 288, ,290 USD 400,000 Heartland Dental Care Inc., Term Loan, Private Placement, variable rate, 06/20/ , ,342 USD 151,000 Hillman Group Inc., % 06/01/ , ,719 USD 220,000 IDQ Holdings Inc., 11.5% 04/01/ , ,247 USD 440,000 Intelligrated Inc., Term Loan, Private Placement, variable rate, 07/19/ , ,784 ^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. 1

4 STATEMENT OF INVESTMENT PORTFOLIO ( unaudited) ( cont d) As at June 30, 2013 No. of Shares\ Average Fair Par Value Description Cost ($) Value ($) No. of Shares\ Average Fair Par Value Description Cost ($) Value ($) U.S.A. (100.6%) (cont d) USD 130,000 Lightower Fiber, Term Loan, variable rate, 04/01/2020^ 131, ,931 USD 40,000 Lightower Fiber, Term Loan, variable rate, 04/01/2021^ 40,263 42,913 USD 40,000 Live Nation Entertainment Inc., Term Loan, Private Placement, variable rate, 11/06/2016^ 41,332 42,756 USD 349,575 MGM Resorts International, Term Loan, variable rate, 12/20/2019^ 357, ,996 USD 678,300 MGM Resorts International, Term Loan, Private Placement, variable rate, 12/20/2019^ 694, ,103 USD 300,000 Miami Valley Steel Services Inc., Term Loan, variable rate, 07/04/2018^ 315, ,540 6,391 Miami Valley Steel Services Inc., Warrants (25Jun18) - - USD 1,425,000 Newark Group Inc., Private Placement 8.5% 08/08/2018^ 1,421,149 1,498,817 USD 40,000 North Atlantic Trading Co., Inc., 11.5% 07/15/ ,306 43,597 USD 410,000 Optima Speciality Steel Inc., 12.5% 12/15/ , ,775 USD 1,083,818 Paperworks Inc., Term Loan, variable rate, 07/21/2016^ 1,009,964 1,100,062 USD 250,000 Paradigm Ltd., Term Loan, Private Placement, variable rate, 07/30/ , ,580 USD 180,000 Peabody Energy Corp., 6% 11/15/ , ,798 USD 165,000 Peabody Energy Corp., 6.25% 11/15/ , ,473 USD 100,000 Physio-Control International Inc., 9.875% 01/15/ , ,985 USD 231,448 Prepaid Legal Services, Term Loan, Private Placement, variable rate, 06/30/2017^ 218, ,959 USD 7,014 Prepaid Legal Services, Term Loan, Private Placement, variable rate, 12/30/2016 6,626 7,423 USD 415,000 Radiation Therapy Services Inc., 8.875% 01/15/ , ,855 USD 295,000 ResCare Inc., 10.75% 01/15/ , ,515 USD 310,000 Rite Aid Corp., 6.75% 06/15/2021^ 316, ,499 USD 170,000 Roc Finance LLC, Term Loan, Private Placement, variable rate, 03/27/2019^ 172, ,594 USD 510,000 Ryerson Inc./Joseph T Ryerson & Son Inc., 9% 10/15/ , ,465 USD 420,000 Shale Holdings LLC/Shale Finance Corp., 8.75% 11/15/ , ,053 USD 180,000 Sheridan Holdings Inc., Term Loan, Private Placement, variable rate, 06/29/ , ,640 USD 120,000 Sidewinder Drilling Inc., 9.75% 11/15/ , ,636 USD 540,000 Sitel LLC/Sitel Finance Corp., 11% 08/01/ , ,241 U.S.A. (100.6%) (cont d) USD 300,000 Sunstate Equipment Co., LLC 12% 06/15/ , ,939 USD 210,000 Symbion Inc., 8% 06/15/ , ,437 USD 1,430,000 Thermadyne Holdings Corp., 9% 12/15/2017 1,442,970 1,624,402 USD 290,000 United Surgical Partners International Inc., 9% 04/01/ , ,043 USD 390,000 US Oncology Inc., Private Placement, zero coupon, 08/15/2017^ - 6,153 USD 220,000 Utex Industires, Term Loan, Private Placement, variable rate, 04/10/2021^ 222, ,553 USD 100,000 Utex Industries, Term Loan, Private Placement, variable rate, 04/10/2020^ 100, ,180 USD 666,650 Van Wagner Communications Inc., Term Loan, Private Placement, variable rate, 08/03/ , ,207 4,523 Viren Corp., Private Placement^ 219, ,430 USD 160,000 VWR Funding Inc., 7.25% 09/15/ , ,387 USD 792,095 Wilton Brands Inc., Term Loan, Private Placement, variable rate, 08/07/ , ,126 USD 400,000 Wis Internation, Term Loan, Private Placement, variable rate, 05/30/ , ,135 USD 160,000 WMG Acquisition Corp., Term Loan, variable rate, 07/03/2020^ 160, ,288 33,011,792 34,868,177 CAYMAN ISLANDS (0.1%) 1,178,692 Frontera Resources Corp. - 18,881 Commissions and other portfolio transaction costs (540) Total Bonds & Equities (100.7%) 33,011,252 34,887,058 DERIVATIVE INSTRUMENTS Foreign Currency Forward Contracts (-3.1%) (see Schedule A) (1,090,369) Total Investments (97.6%) 33,011,252 33,796,689 Other Net Assets (Liabilities) (2.4%) 863,656 Net Assets (100.0%) 34,660,345 Principal amounts stated in: USD U.S. Dollar ^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. 2

5 STATEMENT OF INVESTMENT PORTFOLIO ( unaudited) ( cont d) As at June 30, 2013 Schedule A Foreign Currency Forward Contracts (-3.1%) Credit Rating Contract Contracts Counterparty of the Counterparty Settlement Date Rate ($) Pay Receive Unrealized Gain (Loss) ($) 1 Royal Bank of Canada A Oct (1,218,000) US $ 1,236,270 Canadian $ (48,208) 1 Royal Bank of Canada A Jul (2,063,000) US $ 2,042,989 Canadian $ (128,161) 1 Royal Bank of Canada A Aug (2,920,000) US $ 2,913,138 Canadian $ (162,011) 1 Royal Bank of Canada A-1+ 9-Dec (3,369,000) US $ 3,540,819 Canadian $ (16,668) 1 Royal Bank of Canada A-1+ 6-Sep (4,592,000) US $ 4,603,480 Canadian $ (234,095) 1 Royal Bank of Canada A Sep (5,815,000) US $ 5,949,908 Canadian $ (177,772) 1 Royal Bank of Canada A-1+ 4-Oct (6,358,000) US $ 6,562,092 Canadian $ (140,738) 1 Royal Bank of Canada A Jul (7,183,000) US $ 7,413,574 Canadian $ (143,736) 1 Royal Bank of Canada A-1+ 1-Nov (895,000) US $ 905,087 Canadian $ (38,980) Total Foreign Currency Forward Contracts Value (1,090,369) 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. 3

6 STATEMENTS OF NET ASSETS ( unaudited) (in $000 s except for per unit amounts and units outstanding) As at As at June 30, 2013 December 31, 2012 Assets Investments at fair value* 34,887 32,420 Cash 1,409 4,047 Unrealized gain on futures and foreign currency forward contracts 45 Receivable for securities sold 1, Fees rebate receivable 1 1 Dividends and accrued interest receivable ,951 37,156 Liabilities Investments sold short at fair value** Management and administration fees payable Accrued expenses 8 8 Payable for securities purchased 1,549 2,017 Payable for unit redemptions 10 Distributions payable Unrealized loss on futures and foreign currency forward contracts 1, ,291 2,867 Net assets and unitholders equity 34,660 34,289 Unitholders Equity Unit capital 51,587 52,026 Contributed surplus 33,017 32,852 Retained earnings (deficit) (49,944) (50,589) Net assets and unitholders equity 34,660 34,289 *Investments at cost 33,011 32,169 **Investments sold short at cost Net Assets per unit (Note 10) Number of units outstanding (Note 3) 3,052,229 3,078,229 The accompanying notes are an integral part of these financial statements. 4

7 STATEMENTS OF OPERATIONS AND RETAINED EARNINGS ( DEFICIT) ( unaudited) For the periods ended June 30 (in $000 s except for per unit amounts) Income Dividends Interest 1,621 1,441 Securities lending (Note 6) Commitment fee income Fees rebate Less: Foreign withholding taxes 1,631 1,451 Expenses Management fees (Note 4) Administrative fees (Note 4) Interest expense Custody fees Legal fees Audit fees 1 Independent review committee fees Harmonized sales tax Net investment income (loss) for the period 1,373 1,209 Realized and unrealized gain (loss) on investments and commissions and other portfolio transaction costs Realized gain (loss) on investments (222) (202) Foreign exchange gain (loss) 82 (66) Commissions and other portfolio transaction costs (2) (4) Change in unrealized appreciation (depreciation) of investments 638 1,774 Net gain (loss) on investments 496 1,502 Increase (decrease) in net assets from operations 1,869 2,711 Increase (decrease) in net assets from operations per unit STATEMENTS OF RETAINED EARNINGS (DEFICIT) Retained Earnings (Deficit), beginning of period (50,589) (53,962) Increase (decrease) in net assets from operations 1,869 2,711 (Excess) deficiency on amounts paid on units redeemed Distribution from net income (1,224) (1,242) Distribution from realized gains Retained Earnings (Deficit), end of period (49,944) (52,493) Contributed surplus, beginning of period 32,852 32,603 (Excess) deficiency on amounts paid on units redeemed Contributed surplus, end of period 33,017 32,692 The accompanying notes are an integral part of these financial statements. 5

8 STATEMENTS OF CHANGES IN NET ASSETS ( unaudited) For the periods ended June 30 (in $000 s) Net assets, beginning of period 34,289 31,265 Capital transactions Proceeds from units issued Reinvestment of distributions (Note 9) Cost of units redeemed (439) (211) (Excess) deficiency on amounts paid on units redeemed (274) (122) Distributions to unitholders From net income (1,224) (1,242) From realized gains Return of capital (1,224) (1,242) Increase (decrease) in net assets from operations 1,869 2,711 Net assets, end of period 34,660 32,612 STATEMENTS OF CASH FLOWS ( unaudited) For the periods ended June 30 (in $000 s) Cash Provided by (used in) Operating activities Net investment income (loss) 1,373 1,209 Proceeds of disposition of investments 11,118 11,837 Purchase of investments (13,582) (11,564) Net change in non-cash balances related to operations (2) 48 (1,093) 1,530 Financing activities Distributions paid (1,261) (1,276) Amounts paid for units redeemed (284) (141) (1,545) (1,417) Increase (decrease) in cash during the period (2,638) 113 Cash (bank overdraft), beginning of period 4,047 1,526 Cash (bank overdraft), end of period 1,409 1,639 The accompanying notes are an integral part of these financial statements. 6

9 FUND SPECIFIC FINANCIAL INSTRUMENTS RISKS ( Note 14) ( unaudited) The Fund s investments were concentrated in the following segments: as at December 31, 2012 Categories Net Assets (%) U.S.A Other Net Assets (Liabilities) Foreign Currency Forward Contracts (0.3) During the six-month period the Fund s credit risk and fair value hierarchy exposure changed significantly as disclosed in the section below. For details relating to other price risk, currency risk and interest rate risk, refer to the audited annual financial statements as at December 31, 2012, as the Fund s exposure to those risks remains unchanged. Credit Risk As at June 30, 2013 and December 31, 2012, 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 June 30, 2013* Credit Rating^ Net Assets (%) BB/Ba/B+ 2.0 B 34.5 CCC/Caa/C CC/Ca/C+ 0.7 Not Rated 44.5 Total 98.1 As at December 31, 2012* Credit Rating^ Net Assets (%) AAA/Aaa/A B 36.0 CCC/Caa/C CC/Ca/C+ 0.6 Not Rated 36.0 Total 92.1 *Credit ratings are obtained from: Standard & Poor s, where available, otherwise ratings are obtained from: Moody s Investors Service, Dominion Bond Rating Services or Canadian Bond Rating Services, respectively. ^Refer to Note 14 for Credit Rating cross reference. The accompanying notes are an integral part of these financial statements. 7

10 FUND SPECIFIC FINANCIAL INSTRUMENTS RISKS ( Note 14) ( cont d) ( unaudited) 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 June 30, 2013 Level 1 Level 2 Level 3 Total (in $000 s) (in $000 s) (in $000 s) (in $000 s) Equities Bonds - 22,000 12,026 34,026 Foreign currency forward contracts, net - (1,090) - (1,090) Total - 20,929 12,868 33,797 Long Positions at fair value as at December 31, 2012 Level 1 Level 2 Level 3 Total (in $000 s) (in $000 s) (in $000 s) (in $000 s) Equities Bonds - 28,175 3,377 31,552 Foreign currency forward contracts, net - (103) - (103) Total - 28,082 4,235 32,317 There were no transfers between Level 1 and 2 and Level 1 and 3 during the six-month period ended June 30, 2013 and year ended December 31, The accompanying notes are an integral part of these financial statements. 8

11 FUND SPECIFIC FINANCIAL INSTRUMENTS RISKS ( Note 14) ( cont d) ( unaudited) The tables below summarize the movement in Level 3 financial instruments at fair value using unobservable inputs. For the period ended June 30, 2013 Balanced at Change in Balance at December 31, Net transfers Realized gain unrealized gain June 30, 2012 Purchases Sales in (out) (loss) (loss)* 2013 (in $000 s) (in $000 s) (in $000 s) (in $000 s) (in $000 s) (in $000 s) (in $000 s) Long Positions: Equities (6) - (36) Bonds 3,377 7,093 (956) 1,976 (1) ,026 Total 4,235 7,093 (962) 1,976 (37) ,868 *Change in unrealized gain (loss) related to investments held at June 30, 2013 was $557,632. During the period ended June 30, 2013, fixed income investments with a net fair value of $1,976,000 were transferred out of Level 2 into Level 3 as observable market inputs were not longer available for these investments. For the year ended December 31, 2012 Balanced at Change in Balance at December 31, Net transfers Realized gain unrealized gain December 31, 2011 Purchases Sales in (out) (loss) (loss)** 2012 (in $000 s) (in $000 s) (in $000 s) (in $000 s) (in $000 s) (in $000 s) (in $000 s) Long Positions: Equities 1, (1,181) (249) 858 Bonds 5, (4,098) 2, (644) 3,377 Total 6, (5,279) 2, (893) 4,235 **Change in unrealized gain (loss) related to investments held at December 31, 2012 was ($350,227). During the year ended 2012, fixed income investments with a net fair value of $2,220,000 were transferred into Level 3 from Level 2 as observable market input were no longer available for these investments. Investments classified as Level 3 are valued as fair valued based on unobservable inputs and assumptions, which may include credit spreads, industry multipliers and discount rates. Management has assessed that the effect of changing the credit spreads to reasonably possible alternatives would increase their fair value by $119,433, or decrease their value by $63,957. The accompanying notes are an integral part of these financial statements. 9

12 NOTES TO THE FINANCIAL STATEMENTS ( unaudited) As at June 30, 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 ). Significant accounting policies used in preparing the semi-annual financial statements are consistent with those used in preparing the annual financial statements. The semi-annual financial statements should be read in conjunction with the Fund s December 31, 2012 annual financial statements. (a) Valuation of Investments Canadian GAAP requires the fair value of financial instruments traded in an active market to be measured based on an investment s bid/ask price depending on the investment position (long/short). For the purpose of processing unitholder transactions, net asset value is calculated based on the closing market price of exchange-traded investments (referred to as Net Asset Value ), while for financial statement purposes net assets are calculated based on bid/ask price of such 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 Fund s 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) 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 foreign currency forward contracts in the Statements of Net Assets until the contracts are closed out or expire, at which time the gains (losses) are realized and reported as Realized gain (loss) on investments in the Statements of Operations. 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 periods ended June 30 consisted of the following: Unit Transactions Balance, beginning of period 3,078,229 3,113,629 Reinvestments Redemptions (26,000) (12,500) Balance, end of period 3,052,229 3,101,129 10

13 DDJ CANADIAN HIGH YIELD FUND NOTES TO THE FINANCIAL STATEMENTS ( cont d) ( unaudited) As at June 30, 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 (fees shown as administration fee include: trustee fees, transfer agency, custody and accounting fees). Audit fees, legal fees and independent review committee fees, are disclosed separately. (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 earned or 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. 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. The Fund may purchase any units offered in the market at the then prevailing market price up to a maximum amount in any year of 10% 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 4, The issuer bid commenced on December 7, 2012 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 308,173 units. Under its previous normal course issuer bid commencing December 7, 2011 and terminating December 6, 2012, the Fund purchased 35,900 units. Unitholders may obtain a copy of the notice of intention to make a normal course issuer bid by contacting the Manager. At June 30, 2013, $29,500 units have been purchased under the current normal course issuer bid at a total cost of $310,101 (16,500 units at cost of $140,605 for 2012). 6. SECURITIES LENDING The Fund has entered into a securities lending program with its custodian, RBC Investor Services Trust. 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 June 30, 2013 and 2012 the Fund was not engaged in any securities lending. 7. BROKERAGE AND OTHER COMMISSIONS Brokerage commissions paid for security transactions during the periods ended June 30 were as follows: (in $000 s) Brokerage Commission 1 4 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 2013 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 taxable income. Loss carry forwards (in $000 s) as at December 31, 2012 Net capital loss carried forward , 603 Year of expiry Non-capital loss carried forward Total 9. REINVESTMENT OF DISTRIBUTIONS When the Fund pays a distribution to a unitholder, it will be paid in the same currency in which the units are held. Distributions due to those unitholders (the Plan Participants ) who participate in the Reinvestment Plan will be applied to the purchase of trust units on behalf of Plan Participants. The Manager may change the distribution policy at its sole discretion. Further information regarding reinvestment of distributions can be found in the Prospectus or by writing to the Manager, or by contacting your dealer. 10. NET ASSETS COMPARISON In accordance with National Instrument , a comparison of net assets per unit and net asset value per unit as at June 30, is as follows: ($) ($) Net Assets per unit Net Asset Value per unit

14 NOTES TO THE FINANCIAL STATEMENTS ( cont d) ( unaudited) As at June 30, 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 As previously confirmed by the Canadian Accounting Standards Board ( AcSB ), most Canadian publicly accountable entities adopted International Financial Reporting Standards ( IFRS ), as published by the International Accounting Standards Board, on January 1, However, the AcSB has allowed investment funds to defer adoption of IFRS until fiscal years beginning on or after January 1, Accordingly, the Fund will adopt IFRS for its fiscal period beginning January 1, 2014, and will issue its initial financial statements in accordance with IFRS, including comparative information, for the interim period ending June 30, 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 a 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 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 longterm 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 12

15 DDJ CANADIAN HIGH YIELD FUND NOTES TO THE FINANCIAL STATEMENTS ( cont d) ( unaudited) Significant cash balances as disclosed in the Statements of Net Assets are maintained by the Custodian, RBC Investor Services Trust. 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 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 ), shortterm 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. As at June 30,

16 Advisor of the Fund Manager of the Fund DDJ Capital Management, LLC 141 Linden St., Suite 4 Wellesley, MA USA Tel: CI Investments Inc. 2 Queen Street East, Twentieth Floor Toronto, Ontario M5C 3G7 Tel: Toll Free: CI Investments and the CI Investments design are registered trademarks of CI Investments Inc. For more information on the Fund, visit us online at DDJ-SA-08/13