annual financial statements · annual financial statements as at december 31, 2013 – 1 –...

Annual Financial Statements – as at December 31 , 2013

Yield Advantage Income Trust

Yield Advantage Income Fund

Table of Contents

Management’s Responsibility for

Financial Reporting .......................................................... 1

Independent Auditor’s Report ............................................ 2

YIELD ADVANTAGE INCOME TRUST Financial Statements

Statement of Investment Portfolio .................................... 3

Statements of Net Assets ................................................. 5

Statements of Operations and

Retained Earnings (Deficit) .............................................. 6

Statements of Changes in Net Assets .............................. 7

Statements of Cash Flows ................................................. 7

Trust Specific Financial

Instruments Risks ............................................................ 8

YIELD ADVANTAGE INCOME FUNDFinancial Statements

Statement of Investment Portfolio .................................... 9

Statements of Net Assets ................................................. 18

Statements of Operations and

Retained Earnings (Deficit) .............................................. 19

Statements of Changes in Net Assets .............................. 20

Statements of Cash Flows ................................................. 20

Fund Specific Financial

Instruments Risks ............................................................ 21

Notes to the Financial Statements .................................... 27

Trust and Fund Information ............................................... 36

– 1 –Annual Financial Statements as at December 31, 2013

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING

The accompanying financial statements have been prepared by CI Investments Inc., the Manager of the Yield Advantage Income Trust (the “Trust”) and the Yield Advantage Income Fund (the “Fund”), and approved by the Board of Directors of the Manager. The 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 and the Fund are described in Note 2 to the financial statements.

PricewaterhouseCoopers LLP is the external auditor of the Trust and 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 onthe financial statements. Their report is set out on the following page.

Derek J. Green Douglas J. JamiesonToronto, Ontario President and Chief Executive Officer Chief Financial OfficerMarch 21, 2014 CI Investments Inc. CI Investments Inc.


INDEPENDENT AUDITOR’S REPORT

To the Unitholders of Yield Advantage Income Trust (the Trust)Yield Advantage Income Fund (the Fund)

We have audited the accompanying financial statements of the Trust and the Fund, which comprise the statements of investment portfolio as at December 31, 2013, the statements of net assets as at December 31, 2013 and December 31, 2012, the statements of operations and retained earnings (deficit), changes in net assets and cash flows for the years then ended, and the related notes, which comprise a summary of significant accounting policies, and other explanatory information.

Management’s responsibility for the financial statementsManagement is responsible for the preparation and fair presentation of the financial statements of the Trust and the Fund in accordance with Canadian generally accepted accounting principles, and for such internal control as management determines is necessary to enable the preparation of financial state-ments that are free from material misstatement, whether due to fraud or error.

Auditor’s responsibilityOur responsibility is to express an opinion on the financial statements of the Trust and the Fund 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 each of our audits is sufficient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion, the financial statements of the Trust and the Fund present fairly, in all material respects, the financial position of the Trust and the Fund as at December 31, 2013 and December 31, 2012, the results of each of their operations, the changes in each of their net assets and each of their cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.

Toronto, Ontario Chartered Professional Accountants,March 21, 2014 Licensed Public Accountants


*Securities sold forward as part of the Forward Agreement. Percentages shown in brackets relate investments at fair value to net assets of the Trust. The accompanying notes are an integral part of these financial statements.

Yield Advantage Income TrustFinancial Statements

EQUITIES SUBJECT TO FORWARD AGREEMENT (52.9%) 21,649 Athabasca Oil Corp.* 220,387 140,069 44,243 ATS Automation Tooling Systems Inc.* 307,489 601,705 60,138 CGI Group Inc.* 478,097 2,136,102 10,736 Detour Gold Corp.* 343,552 43,910 37,643 Great Canadian Gaming Corp.* 294,745 550,717 69,071 Lundin Mining Corp.* 283,882 317,036 8,431 Brookfield Residential Properties Inc.* 193,913 216,171 4,780 Osisko Mining Corp.* 44,884 22,466 64,831 Canfor Corp.* 1,227,899 1,725,153 16,281 Silver Standard Resources Inc.* 229,236 119,991 3,304 Gran Tierra Energy Inc.* 24,747 25,606

Commissions and other portfolio transaction costs –

Total Equities Subject to Forward Agreement (52.9%) 3,648,831 5,898,926 DERIVATIVE INSTRUMENTS Forward Agreement (51.9%) (see Schedule A) 5,795,788 Total Investments (104.8%) 3,648,831 11,694,714 Other Net Assets (Liabilities) (-4.8%) (533,001) Net Assets (100.0%) 11,161,713

Average Fair Number of Shares Description Cost ($) Value ($)

Statement of Investment Portfolio as at December 31, 2013


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

Yield Advantage Income TrustFinancial Statements (cont’d)

Schedule AForward Agreement (51.9%) Investments sold forward Fair Value ($) Bankers Petroleum Ltd. (234,468) Athabasca Oil Corp. (140,286) ATS Automation Tooling Systems Inc. (601,705) CGI Group Inc. (2,137,305) Detour Gold Corp. (44,018) Great Canadian Gaming Corp. (551,094) Lundin Mining Corp. (317,727) Brookfield Residential Properties Inc. (216,845) Osisko Mining Corp. (22,514) Canfor Corp. (1,728,394) Silver Standard Resources Inc. (119,991) Gran Tierra Energy Inc. (25,606) (5,905,485)

Notional Units Underlying Fund Fair Value ($)1,429,767 Yield Advantage Income Fund 11,701,273 Total Forward Agreement Value 5,795,788

Settlement Date 31-Dec-15 Credit Rating of Counterparty‡ A-1

Statements of Investment Portfolio as at December 31, 2013 (cont’d)


Statements of Net Assets (in $000’s except for per unit amounts and number of units outstanding)

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

ASSETSInvestments at fair value* Cash Unrealized gain on forward agreementReceivable for securities soldDividends and accrued interest receivable

LIABILITIESPayable for securities purchasedPayable for unit redemptionsUnrealized loss on forward agreementManagement fees payableService fees payableDistributions payableSpread fee payableBorrowing fee payableAccrued expenses

Net assets and unitholders’ equity

UNITHOLDERS’ EQUITYUnit capitalContributed surplus Retained earnings (deficit)Net assets and unitholders’ equity

*Investments at cost

Net assets per unit (Note 9)

Number of units outstanding (Note 3)


As at As at December 31, 2013 December 31, 2012

5,89939

5,796––

11,734

–469

–2

1083

314

572

11,162

2,927–

8,23511,162

3,649

8.14

1,371,997

5,279

397,305

––

12,623

–932

–2

1190414

1,044

11,579

4,092–

7,48711,579

4,403

8.10

1,429,767


Statements of Operations and Retained Earnings (Deficit) (in $000’s except for per unit amounts)


INVESTMENT INCOMEDividendsInterest Fees rebateLess: Foreign withholding taxes

EXPENSES Management fees (Note 4)Administrative expenses (Note 4)Service fees (Note 4)Interest expenseDividend expense on securities sold short Legal feesAudit feesIndependent review committee feesHarmonized sales tax

Net investment income (loss) for the year

Realized and unrealized gain (loss) on investments and commissions and other portfolio transaction costsRealized gain (loss) on investmentsForeign exchange gain (loss)Commissions and other portfolio transaction costsForward fees (Note 4)Change in unrealized appreciation (depreciation) of investments and derivativesNet gain (loss) on investments

Increase (decrease) in net assets from operations

Increase (decrease) in net assets from o perations per unit

STATEMENTS OF RETAINED EARNINGS (DEFICIT)Retained earnings (deficit), beginning of yearIncrease (decrease) in net assets from operations(Excess) deficiency on amounts paid on units redeemedDistribution from net incomeDistribution from realized gainsRetained earnings (deficit), end of year

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


For the years ended December 312013

–––––

233635–––31

11109

(109)

1,350––

(55)(135)1,160

1,051

0.74

7,4871,051(303)

––

8,235

–––

2012

– – ––

–

25 3937– ––31

12117

(117)

1,199––

(58)401

1,542

1,425

0.92

6,5781,425 (516)

––

7,487

– ––


Net assets, beginning of year

CAPITAL TRANSACTIONSCost of units redeemed(Excess) deficiency on amounts paid on units redeemed

DISTRIBUTIONS TO UNITHOLDERS From net incomeFrom realized gainsFrom return of capital


Net assets, end of year

Statements of Changes in Net Assets (in $000’s)


Statements of Cash Flows (in $000’s)

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIESNet investment income (loss)Proceeds from sale of investmentsPurchase of investmentsNet change in non-cash balances related to operations

FINANCING ACTIVITIESDistributions paidCost of units redeemed

Increase (decrease) in cash during the year

Cash (Bank overdraft), beginning of year

Cash (Bank overdraft), end of year



11,579

(165)(303)(468)

––

(1,000)(1,000)

1,051

11,162

2012

12,168

(417) (516) (933)

– –

(1,081) (1,081)

1,425

11,579


(109)3,558

(1,510)(1)

1,938

(1,007)(931)

(1,938)

–

39

39

2012

(117) 3,115 (788)

– 2,210

(1,089) (1,112) (2,201)

9

30

39



The Yield Advantage Income Trust (the “Trust”) is exposed to the financial instrument risks of the Yield Advantage Income Fund (the “Fund”). The Trust was created to obtain exposure to a portfolio (the “Yield Advantage Portfolio”) consisting primarily of securities of income trusts, high yield debt and other securities by virtue of the Forward Agreement. By entering into the Forward Agreement, the Trust eliminated the direct risk exposure to its common share portfolio, and assumed the risk exposure of the Fund, as well as credit risk to the Counterparty of the Forward Agreement in respect of any positive amount of the value of the Forward Agreement. As at December 31, 2013 and 2012, the Fund’s financial instruments risks exposure can be found in the Fund Specific Financial Instruments Risks in the Fund’s financial statements. As at December 31, 2013, the credit rating of the Counterparty to the Forward Agreement was A-1 (2012 - A-1).

Other Price RiskThe Trust bears the other price risk exposure of the Fund. As at December 31, 2013 and 2012, the Fund was invested in global fixed income securities and equities.

As at December 31, 2013, had the global markets increased or decreased by 10% (December 31, 2012 - 10%), with all other variables held constant, net assets of the Trust would have increased or decreased, respectively, by approximately $539,000 (December 31, 2012 - $680,000). In practice, actual results may differ from this analysis and the difference may be material.

Fair Value Hierarchy

The tables below summarize 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, 2013

Level 1 Level 2 Level 3 Total (in $000’s) (in $000’s) (in $000’s) (in $000’s)Equities 5,899 – – 5,899 Forward agreement – 5,796 – 5,796Total 5,899 5,796 – 11,695


Level 1 Level 2 Level 3 Total (in $000’s) (in $000’s) (in $000’s) (in $000’s)Equities 5,279 – – 5,279 Forward agreement – 7,305 – 7,305 Total 5,279 7,305 – 12,584

There were no transfers between Level 1, 2 and 3 during the years ended December 31, 2013 and 2012.

Yield Advantage Income TrustTrust Specific Financial Instruments Risks (Note 13)


Number of Shares/ Average Fair Par Value Description Cost ($) Value ($)

CANADA (37.1%) 2,460 Agellan Commercial REIT 24,002 21,304 5,100 Aimia Inc. 59,141 99,501 USD 24,000 Air Canada 6.75% 10/01/2019 24,663 26,894 8,120 Algonquin Power & Utilities Corp.* 47,270 59,520 4,890 Allied Properties REIT* 74,779 160,050 2,382 AltaGas Ltd. 61,637 97,114 4,500 ARC Resources Ltd.* 89,798 132,840 2,300 Artis REIT 31,399 34,132 40,000 Athabasca Oil Corp., Ristricted, 7.5% 11/19/2017 40,000 37,714 USD 25,000 Atlantic Power Corp., 9% 11/15/2018 24,485 27,682 400 Baytex Energy Corp.* 16,514 16,644 25,000 Baytex Energy Corp., 6.625% 07/19/2022 25,000 26,078 USD 25,000 Baytex Energy Corp., 6.75% 02/17/2021 24,673 27,620 500 BCE Inc. 14,313 22,980 2,535 Brookfield Asset Management Inc., Class A 63,068 104,493 6,040 Brookfield Office Properties Inc. (USD) 87,679 123,432 USD 5,000 Brookfield Residential Properties Inc., 6.125% 07/01/2022 5,105 5,337 USD 25,000 Brookfield Residential Properties Inc., 6.5% 12/15/2020 24,899 27,549 1,000 Calloway REIT 28,661 25,120 22,000 Canadian Energy Services & Technology Corp., 7.375% 04/17/2020 22,073 22,807 10,150 Canadian International Oil Corp., 11% 05/02/2016^ 10,008 9,947 800 Canadian International Oil Corp., Warrants (31Dec49)^ - - 1,660 Canadian National Railway Co. 57,477 100,496 4,570 Canadian REIT* 95,465 197,424 20,000 Canadian Satellite Radio Holdings Inc., 9.75% 06/21/2018 19,558 22,075 20,000 Cascades Inc., 7.75% 12/15/2016 19,734 20,815 USD 29,000 Cascades Inc., 7.75% 12/15/2017 30,043 32,111 1,900 Cenovus Energy Inc. 60,969 57,760 9,220 Cominar REIT 123,468 169,648 4,200 Crescent Point Energy Corp.* 145,611 173,166 5,440 Crombie REIT 74,450 73,658 9,000 DirectCash Payments Inc., 8.125% 08/08/2019 9,045 9,094 USD 5,000 Eldorado Gold Corp., 6.125% 12/15/2020 4,934 5,112 1,300 Enbridge Inc. 54,441 60,307 3,700 Enbridge Income Fund Holdings Inc. 77,549 87,431 5,406 First Capital Realty Inc. 71,281 95,632 3,990 Gibson Energy Inc.* 72,308 109,326 USD 17,000 Gibson Energy Inc., 6.75% 07/15/2021 17,593 19,095 16,000 Gibson Energy Inc., 7% 07/15/2020 15,781 16,827 17,000 Golf Town Canada Inc./Golfsmith International Holdings Inc., 10.5% 07/24/2018 17,012 17,552 25,000 Great Canadian Gaming Corp., 6.625% 07/25/2022 25,000 26,188 USD 29,000 Harvest Operations Corp., 6.875% 10/01/2017 29,975 33,728 USD 37,000 HudBay Minerals Inc., 9.5% 10/01/2020 36,674 40,380 USD 12,000 IAMGOLD Corp., 6.75% 10/01/2020 11,667 10,961 USD 14,000 Inmet Mining Corp., 7.5% 06/01/2021 14,678 15,539 USD 41,000 Inmet Mining Corp., 8.75% 06/01/2020 41,612 47,141 11,280 Inter Pipeline Ltd. 90,196 291,362 USD 3,000 Kodiak Oil & Gas Corp., 5.5% 02/01/2022 3,086 3,171 1,020 Labrador Iron Ore Royalty Corp. 28,063 35,047 4,975 Livingston International Inc., Term Loan, Private Placement, variable rate, 04/18/2019 4,925 4,975 USD 4,887 Livingston International Inc., Term Loan, Private Placement, variable rate, 04/18/2020 4,811 5,320 USD 20,000 Mattamy Group Corp., 6.5% 11/15/2020 19,923 21,030

*Denotes all or part of securities on loan.^ 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.

Yield Advantage Income FundFinancial Statements

Statement of Investment Portfolio as at December 31, 2013


*Denotes all or part of securities on loan.^ Denotes illiquid securities.



CANADA (37.1%) (cont’d) 15,000 Mattamy Group Corp., 6.875% 11/15/2020 15,000 14,869 USD 5,000 MEG Energy Corp., 6.375% 01/30/2023 5,073 5,351 USD 35,000 MEG Energy Corp., 6.5% 03/15/2021 34,036 39,127 USD 5,000 MEG Energy Corp., 7% 03/31/2024 5,292 5,377 2,880 Milestone Apartments Real Estate Investment Trust 28,800 27,158 USD 5,000 National Money Mart Co., 10.375% 12/15/2016 5,504 5,390 USD 16,000 New Gold Inc., 6.25% 11/15/2022 16,213 16,442 USD 15,000 New Gold Inc., 7% 04/15/2020 15,121 16,370 5,835 Noranda Operating Trust 6.875% 12/28/2016 5,835 5,981 USD 68,000 Nortel Networks Ltd., 10.75% 07/15/2016 67,118 84,504 1,700 Northern Property Real Estate Investment Trust 51,090 47,124 3,720 Northland Power Inc.* 45,295 57,511 USD 13,000 NOVA Chemicals Corp., 8.625% 11/01/2019 13,464 15,206 USD 3,000 Pacific Rubiales Energy Corp., 5.125% 03/28/2023 3,069 2,924 USD 26,750 Pacific Rubiales Energy Corp., 7.25% 12/12/2021 24,827 30,117 7,000 Paramount Resources Ltd., 7.625% 12/04/2019 7,059 7,102 3,000 Paramount Resources Ltd., 8.25% 12/13/2017 3,098 3,095 USD 19,800 Patheon Inc., Term Loan, Private Placement, variable rate, 12/06/2018 19,037 21,276 USD 20,000 PetroBakken Energy Ltd., 8.625% 02/01/2020 20,222 21,402 10,390 PlazaCorp Retail Properties Ltd. 44,811 45,093 15,000 Precision Drilling Corp., 6.5% 03/15/2019 15,000 15,575 USD 10,000 Precision Drilling Corp., 6.625% 11/15/2020 10,178 11,338 14,960 Pure Industrial Real Estate Trust 71,675 70,910 23,000 Q9 Networks Inc., Term Loan 2nd Lien, Private Placement, variable rate, 06/30/2019^ 22,817 23,000 USD 26,000 Quadra FNX Mining Ltd., 7.75% 06/15/2019 25,614 29,135 700 RioCan Real Estate Investment Trust* 16,885 17,325 14,000 Savanna Energy Services Corp., 7% 05/25/2018 13,995 14,097 USD 19,000 Seven Generations Energy Ltd., 8.25% 05/15/2020 19,968 21,795 60,000 Sherritt International Corp., 7.5% 09/24/2020 60,000 56,100 2,868 Summit Industrial Income REIT 17,782 16,262 5,300 Suncor Energy Inc. 150,658 197,266 USD 2,000 Taseko Mines Ltd., 7.75% 04/15/2019 1,979 2,146 USD 17,000 Tembec Industries Inc., 11.25% 12/15/2018 17,323 19,772 USD 3,000 Thompson Creek Metals Co., Inc., 12.5% 05/01/2019 3,088 3,107 USD 16,000 Thompson Creek Metals Co., Inc., 7.375% 06/01/2018 15,285 14,488 USD 1,000 Thompson Creek Metals Co., Inc., 9.75% 12/01/2017 992 1,168 1,000 TransCanada Corp. 43,952 48,490 USD 10,000 Trinidad Drilling Ltd., 7.875% 01/15/2019 10,072 11,285 5,940 Veresen Inc.* 59,004 84,586 2,188 Vermilion Energy Inc.* 56,352 136,400 14,000 Vermilion Energy Inc., 6.5% 02/10/2016 14,000 14,416 16,065 WESCO International Inc., Term Loan, Private Placement, variable rate, 12/12/2019 15,744 16,185 3,835 Whistler Blackcomb Holdings Inc. 42,892 63,584 32,004 Xplornet Communications Inc., 144A 13% 05/15/2017 31,640 33,284 29 Xplornet Communications Inc., Warrants (15May17)^ - - 3,243,355 4,304,262 U.S.A. (25.9%) USD 23,000 Academy Ltd., 9.25% 08/01/2019 24,194 26,994 USD 5,000 ACE Cash Express Inc., 11% 02/01/2019 4,950 4,262 USD 6,000 Aktore International Inc., 9.875% 01/01/2018 6,048 6,851 USD 11,000 Alliance One International Inc., 9.875% 07/15/2021 10,989 10,953 27 Ally Financial Inc., Preferred 7% 26,786 27,452

Yield Advantage Income FundFinancial Statements (cont’d)

Statement of Investment Portfolio as at December 31, 2013 (cont’d)



U.S.A. (25.9%) (cont’d) USD 14,747 Alvogen Pharma US Inc., Term Loan, Private Placement, variable rate, 05/15/2018 14,851 15,898 USD 1,000 Ashtead Capital Inc., 6.5% 07/15/2022 1,123 1,133 USD 17,000 Baker & Taylor Acquisitions Corp., 15% 04/01/2017 16,602 15,348 USD 1,000 Biomet Inc., 6.5% 08/01/2020 1,094 1,115 USD 11,000 Biomet Inc., 6.5% 10/01/2020 10,817 12,034 USD 12,000 Brightstar Corp., 7.25% 08/01/2018 12,213 13,829 USD 22,000 BrightStar Corp., 9.5% 12/01/2016 22,508 25,704 USD 5,000 Bristow Group Inc., 6.25% 10/15/2022 4,905 5,607 USD 44,000 Calfrac Holdings L.P., 7.5% 12/01/2020 44,949 47,669 USD 70,000 Calpine Corp., 7.5% 02/15/2021 71,038 81,135 USD 3,000 Carrizo Oil & Gas Inc., 7.5% 09/15/2020 2,972 3,489 USD 38,000 Case New Holland Inc., 7.875% 12/01/2017 38,838 47,627 USD 5,000 CBRE Services Inc., 5% 03/15/2023 5,132 5,105 USD 32,000 CBRE Services Inc., 6.625% 10/15/2020 32,555 36,368 USD 35,000 Chrysler Group LLC 8% 06/15/2019 30,468 41,078 USD 8,000 Chrysler Group LLC 8.25% 06/15/2021 8,520 9,666 USD 4,000 CHS/Community Health Systems Inc., 5.125% 08/15/2018 3,979 4,387 USD 6,000 CIT Group Inc., 4.25% 08/15/2017 6,018 6,636 USD 2,000 CIT Group Inc., 5% 08/15/2022 2,006 2,071 700 Citigroup Inc., Preferred 6.875%, Series K 18,254 18,825 USD 15,000 CityCenter Holdings LLC 5% 10/16/2020 15,433 16,197 3,000 Cliffs Natural Resources Inc., Preferred 76,125 73,097 USD 16,000 Clubcorp Club Operations Inc., 10% 12/01/2018 15,429 18,821 800 CMS Energy Corp. 18,002 22,738 USD 5,000 CNH Capital LLC 3.875% 11/01/2015 4,933 5,483 USD 5,000 Community Choice Financial Inc., 10.75% 05/01/2019 4,766 4,448 USD 14,000 Consol Energy Inc., 8% 04/01/2017 14,435 15,669 USD 10,000 Continental Resources Inc., 7.125% 04/01/2021 10,275 12,042 USD 5,000 Continental Resources Inc., 7.375% 10/01/2020 5,053 5,975 92 Countrywide Capital V, Preferred 7% 2,394 2,472 USD 10,000 Curtis Palmer Inc., 5.9% 07/15/2014 10,421 10,672 USD 6,000 Darling Escrow Corp., 5.375% 01/15/2022 6,414 6,421 USD 5,000 DaVita Inc., 6.375% 11/01/2018 5,087 5,576 USD 13,000 DaVita Inc., 6.625% 11/01/2020 14,054 14,809 USD 38,791 Denbury Resources Inc., Callable 8.25% 02/15/2020 42,785 45,373 USD 6,000 DigitalGlobe Inc., 5.25% 02/01/2021 6,059 6,214 USD 6,000 DISH DBS Corp., 5.875% 07/15/2022 5,996 6,373 470 Edison International 21,648 23,118 USD 8,000 Emergency Medical Services Corp., 8.125% 06/01/2019 7,716 9,209 USD 6,000 Endo Finance Co., 5.75% 01/15/2022 6,356 6,405 USD 17,000 Epicor Software Corp., 8.625% 05/01/2019 16,599 19,591 USD 27,000 EV Energy Partners L.P., 8% 04/15/2019 26,643 28,821 USD 34,000 Florida East Coast Railway Corp., 8.125% 02/01/2017 34,810 37,693 USD 32,000 Foot Locker Inc., 8.5% 01/15/2022 36,157 40,616 USD 11,000 Forest City Enterprises Inc., 3.625% 08/15/2020 12,096 11,946 USD 3,000 Forest City Entreprises Inc., 4.25% 08/15/2018 3,550 3,545 USD 10,000 Forest Laboratories Inc., 5% 12/15/2021 10,641 10,661 USD 9,000 Fresenius Medical Care US Finance II Inc., 5.625% 07/31/2019 9,138 10,324 USD 6,000 Fresenius Medical Care US Finance II Inc., 5.875% 01/31/2022 6,092 6,723 26,600 Frontier Communications Corp.* 114,582 131,377 USD 13,000 Getty Images Inc., 7% 10/15/2020 10,366 10,943 USD 22,000 Glen Meadow Pass-Through Trust 6.505% 02/12/2067 17,773 22,549

* Denotes all or part of securities on loan.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.




^ 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.



U.S.A. (25.9%) (cont’d) 1,500 GMAC Capital Trust, Preferred 8.125%, Series 2 31,337 42,380 USD 4,000 Grifols Inc., 8.25% 02/01/2018 4,519 4,530 USD 20,000 H&E Equipment Services Inc., 7% 09/01/2022 20,265 23,155 USD 5,000 Halcon Resources Corp., 9.25% 02/15/2022 5,162 5,404 USD 5,000 HCA Holdings Inc., 6.25% 02/15/2021 4,975 5,556 USD 35,000 HCA Holdings Inc., 7.75% 05/15/2021 35,589 40,614 USD 20,000 HCA Inc., 4.75% 05/01/2023 19,731 19,968 USD 20,000 HCA Inc., 5.875% 05/01/2023 19,731 20,977 USD 10,000 HCA Inc., 6.5% 02/15/2020 9,429 11,670 USD 12,000 HCA Inc., 7.875% 02/15/2020 12,908 13,686 USD 20,000 HD Supply Inc., 7.5% 07/15/2020 20,048 22,889 USD 14,000 HD Supply Inc., 8.125% 04/15/2019 14,294 16,562 USD 5,000 HDTFS Inc., 6.25% 10/15/2022 4,913 5,483 USD 5,000 HealthSouth Corp., 5.75% 11/01/2024 4,953 5,244 USD 18,000 Hockey Merger Sub 2 Inc., 7.875% 10/01/2021 18,581 19,644 USD 23,000 Howard Hughes Corp., 6.875% 10/01/2021 23,713 25,407 USD 5,000 Hughes Satellite Systems Corp., 6.5% 06/15/2019 4,863 5,749 USD 39,000 Hughes Satellite Systems Corp., 7.625% 06/15/2021 38,240 46,187 USD 22,000 Huntington Ingalls Industries Inc., 6.875% 03/15/2018 21,920 25,237 USD 7,000 Huntington Ingalls Industries Inc., 7.125% 03/15/2021 6,886 8,160 USD 3,000 iGATE Corp., 9% 05/01/2016 2,798 3,386 USD 28,000 Innovation Ventures LLC/Innovation Ventures Finance Corp., 9.5% 08/15/2019 28,580 28,699 USD 5,000 Interline Brands Inc., 10% 11/15/2018 5,064 5,802 USD 3,000 Interline Brands Inc., 7.5% 11/15/2018 3,279 3,378 USD 5,000 International Lease Finance Corp., 5.875% 04/01/2019 4,863 5,656 USD 15,000 International Lease Finance Corp., 5.875% 08/15/2022 14,796 15,892 USD 46,000 International Lease Finance Corp., 8.75% 03/15/2017 45,309 57,531 USD 11,000 Intrawest Resorts Holdings Inc., Term Loan, Private Placement, variable rate, 11/27/2020 11,468 11,830 USD 4,000 Ironwood Pharmaceuticals Inc., 11% 06/15/2024^ 4,298 4,461 USD 7,000 Jabil Circuit Inc., 8.25% 03/15/2018 7,283 8,727 USD 12,000 JBS USA LLC/JBS USA Finance Inc., 7.25% 06/01/2021 12,541 13,287 USD 5,000 JPMorgan Chase & Co., FRN 6% 12/29/2049 4,931 5,078 USD 4,975 KIK Custom Products Inc., Term Loan, Private Placement, variable rate, 04/29/2019 5,042 5,217 USD 2,500 KIK Custom Products Inc., Term Loan, Private Placement, variable rate, 10/29/2019 2,508 2,682 USD 67,000 Kinetic Concepts Inc./KCI USA Inc., 10.5% 11/01/2018 66,846 81,838 USD 20,000 Kinetic Concepts Inc./KCI USA Inc., 12.5% 11/01/2019 19,313 23,898 USD 14,000 Land O’Lakes Inc., 6% 11/15/2022 13,946 15,316 USD 15,000 Lender Processing Services Inc., 5.75% 04/15/2023 14,750 16,490 USD 7,000 Liberty Mutual Group Inc., FRN, 7% 03/15/2037 6,675 7,658 USD 4,000 LifePoint Hospitals Inc., 5.5% 12/01/2021 4,209 4,265 USD 11,000 Limited Brands Inc., 6.625% 04/01/2021 10,777 12,823 USD 43,000 Lincoln National Corp., Callable 7% 05/17/2066 31,837 46,529 USD 6,000 Lincoln National Corp., Preferred 6.05% 04/20/2067 2,141 6,325 USD 17,000 Linn Energy LLC 8.625% 04/15/2020 16,841 19,501 USD 6,000 Lynx I Corp., 5.375% 04/15/2021 5,986 6,373 USD 4,000 Lynx II Corp., 6.375% 04/15/2023 3,991 4,323 USD 12,500 MetroPCS Wireless Inc., 6.25% 04/01/2021 12,864 13,775 USD 23,500 MetroPCS Wireless Inc., 6.625% 04/01/2023 24,203 25,772 USD 32,000 MGM Resorts International 6.625% 12/15/2021 31,868 35,943 USD 3,000 MGM Resorts International 6.75% 10/01/2020 2,913 3,409 USD 14,000 MGM Resorts International 7.5% 06/01/2016 14,923 16,654 USD 4,000 MGM Resorts International 7.75% 03/15/2022 4,465 4,748




U.S.A. (25.9%) (cont’d) USD 8,000 Michaels Stores Inc., 11.375% 11/01/2016 8,373 8,699 800 Morgan Stanley, Preferred 6.875% 21,283 21,243 700 Morgan Stanley, Preferred 7.125% 18,028 19,398 USD 17,000 Multiplan Inc., 9.875% 09/01/2018 17,732 19,862 USD 4,000 Neiman Marcus Group LTD Inc., 8% 10/15/2021 4,134 4,440 USD 4,000 Neiman Marcus Group LTD Inc., 8.75% 10/15/2021 4,134 4,450 USD 6,000 Neovia Logistics Intermediate Holdings LLC 10% 02/15/2018 6,028 6,437 USD 5,000 Neuberger Berman Group LLC/Neuberger Berman Finance Corp., 5.625% 03/15/2020 4,964 5,576 USD 12,000 Neuberger Berman Group LLC/Neuberger Berman Finance Corp., 5.875% 03/15/2022 12,124 13,128 USD 14,000 NGL Energy Partners L.P./NGL Energy Finance Corp., 6.875% 10/15/2021 14,660 15,242 USD 7,000 NII Capital Corp., 7.625% 04/01/2021 7,011 3,048 USD 12,000 NuStar Logistics L.P., 4.8% 09/01/2020 11,275 12,011 USD 12,000 NuStar Logistics L.P., 6.75% 02/01/2021 12,394 13,153 USD 4,000 Peabody Energy Corp., 6% 11/15/2018 4,051 4,525 USD 5,000 Peabody Energy Corp., 6.25% 11/15/2021 5,063 5,364 USD 8,000 Penn Virginia Corp., 8.5% 05/01/2020 8,146 9,134 USD 26,000 Pilgrim’s Pride Corp., 7.875% 12/15/2018 25,254 30,101 USD 10,000 ProQuest LLC/ProQuest Notes Co., 9% 10/15/2018 10,492 10,993 USD 5,000 QEP Resources Inc., 5.25% 05/01/2023 4,953 4,979 USD 90,000 Rathgibson Inc., 11.25% 02/15/2014^ 103,777 - USD 8,000 RBS Capital Trust B 6.8% 12/29/2049 7,867 8,156 USD 18,000 Regal Entertainment Group 9.125% 08/15/2018 18,548 20,744 USD 4,000 Reynolds Group Issuer Inc., 9% 04/15/2019 4,044 4,557 USD 17,000 Reynolds Group Issuer Inc., 9.875% 08/15/2019 16,035 20,088 USD 3,000 Roundy’s Supermarkets Inc., 10.25% 12/15/2020 3,173 3,250 USD 3,000 Sabine Pass Liquefaction LLC 5.625% 02/01/2021 3,007 3,115 USD 60,000 Sabine Pass LNG L.P., 7.5% 11/30/2016 59,616 71,641 USD 20,000 Sabre Inc., 8.5% 05/15/2019 20,154 23,580 USD 30,000 Samson Investment Co., 10.5% 02/15/2020 29,807 34,732 USD 5,000 SBA Telecommunications Inc., 5.75% 07/15/2020 5,113 5,536 USD 2,000 SBA Telecommunications Inc., 8.25% 08/15/2019 2,278 2,278 USD 19,000 Scientific Games International Inc., 6.25% 09/01/2020 18,791 20,685 USD 10,000 Scientific Games International Inc., 9.25% 06/15/2019 10,672 11,392 USD 8,000 Severstal Columbus LLC 10.25% 02/15/2018 8,374 9,007 USD 33,000 SLM Corp., 8.45% 06/15/2018 34,319 40,834 25 Sovereign REIT, Preferred 12%, Series 144A 31,209 35,117 USD 17,000 SPL Logistics Escrow LLC/SPL Logistics Finance Corp., 8.875% 08/01/2020 18,075 19,185 USD 23,000 Starwood Hotels & Resorts Worldwide Inc., 7.15% 12/01/2019 23,916 29,172 1,367 Starwood Property Trust Inc. 28,881 40,205 USD 10,000 Starwood Property Trust Inc., 4% 01/15/2019 11,752 11,750 USD 13,000 Starwood Property Trust Inc., 4.55% 03/01/2018 13,298 15,249 USD 15,000 Steel Dynamics Inc., 5.25% 04/15/2023 15,436 15,932 USD 5,000 Steel Dynamics Inc., 6.375% 08/15/2022 5,037 5,736 USD 25,000 STHI Holding Corp., 8% 03/15/2018 24,786 28,412 USD 36,000 SunGard Data Systems Inc., 6.625% 11/01/2019 35,460 40,149 USD 1,290 Tenaska Alabama Partners L.P., 7% 06/30/2021 1,405 1,467 USD 5,000 The Goodyear Tire & Rubber Co., 6.5% 03/01/2021 5,087 5,629 USD 10,000 The Goodyear Tire & Rubber Co., 7% 05/15/2022 9,975 11,431 USD 5,000 The Hertz Corp., 5.875% 10/15/2020 4,913 5,503 USD 5,000 T-Mobile USA Inc., 6.125% 01/15/2022 5,259 5,404 USD 3,000 United Rentals North America Inc., 5.75% 07/15/2018 2,999 3,406 USD 2,000 United Rentals North America Inc., 6.125% 06/15/2023 1,988 2,156

^ 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.







U.S.A. (25.9%) (cont’d) USD 3,000 United Rentals North America Inc., 7.375% 05/15/2020 2,999 3,533 USD 5,000 United Rentals North America Inc., 7.625% 04/15/2022 4,998 5,902 USD 39,000 United States Steel Corp., 7.375% 04/01/2020 39,198 44,634 USD 23,000 United Surgical Partners International Inc., 9% 04/01/2020 23,764 27,361 USD 5,000 US Foods Inc., 8.5% 06/30/2019 5,028 5,815 USD 2,000 ViaSat Inc., 6.875% 06/15/2020 2,000 2,246 USD 1,000 Visant Corp., 10% 10/01/2017 1,063 1,030 USD 13,000 WellCare Health Plans Inc., 5.75% 11/15/2020 13,702 14,119 USD 90,000 Wells Fargo & Co., 7.98% 03/29/2049 81,593 106,586 500 West Corp. 10,230 13,633 USD 3,000 WMG Acquisition Corp., 6% 01/15/2021 2,980 3,310 USD 9,000 Wynn Las Vegas LLC 5.375% 03/15/2022 8,947 9,655 2,758,654 3,008,010 AUSTRALIA (5.2%) USD 2,000 Boart Longyear Management Pty Ltd., 10% 10/01/2018 2,060 2,209 USD 6,000 FMG Resources Pty, Ltd., 6.875% 04/01/2022 6,074 6,946 USD 39,000 FMG Resources Pty, Ltd., 7% 11/01/2015 40,948 42,977 USD 49,000 FMG Resources Pty, Ltd., 8.25% 11/01/2019 51,742 58,421 873 Sydney Airport Holdings Limited, Private Placement 2,966 3,138 22,140 Syndey Airport 47,728 79,589 19,500 Telstra Corp., Ltd. 55,003 96,917 26,536 Transurban Group 131,610 171,906 AUD 32,923 Western Areas NL 6.375% 07/02/2014 25,876 31,305 11,750 Westfield Group 105,790 112,451 469,797 605,859 U.K. (3.6%) USD 5,000 Bank of Scotland PLC, FRN, 0.6875% 11/29/2049 3,024 3,465 GBP 70,000 Barclays Bank PLC 14% 06/15/2019 131,248 163,635 GBP 9,000 BrightHouse Group Ltd., 7.875% 05/15/2018 14,270 16,307 USD 7,000 Lloyds Bank PLC, FRN, 0.493% 08/29/2049 4,234 4,833 USD 7,000 National Westminster Bank PLC, FRN, 0.4375% 02/28/2014 4,540 4,703 USD 5,000 National Westminster Bank PLC, FRN, 0.53269% 02/14/2014 3,243 3,359 5,100 Royal Dutch Shell PLC, Class A 169,772 193,690 USD 20,000 The Royal Bank of Scotland Group PLC 6.99% 10/04/2049 20,247 22,624 350,578 412,616 LUXEMBOURG (3.5%) USD 6,000 Aguila 3 S.A., 7.875% 01/31/2018 6,351 6,755 USD 6,000 Altice Financing S.A., 6.5% 01/15/2022 6,385 6,437 USD 21,000 ArcelorMittal 6% 03/01/2021 20,562 23,305 USD 15,000 ArcelorMittal 6.75% 02/25/2022 15,332 17,326 USD 46,000 CHC Helicopter S.A., 9.25% 10/15/2020 46,608 52,645 USD 29,000 Intelsat (Luxembourg) S.A.,, 7.75% 06/01/2021 29,777 33,035 USD 4,000 Intelsat Jackson Holdings S.A., 5.5% 08/01/2023 4,107 4,041 USD 10,000 Intelsat Jackson Holdings S.A., 7.25% 04/01/2019 9,797 11,471 USD 32,000 Intelsat Jackson Holdings S.A., 7.25% 10/15/2020 32,592 37,175 USD 11,000 Intelsat Jackson Holdings S.A., 7.5% 04/01/2021 10,809 12,881 USD 4,000 NII International Telecom S.A., 11.375% 08/15/2019 3,885 3,548 USD 18,000 NII International Telecom S.A., 7.875% 08/15/2019 15,141 14,435 800 RTL Group S.A. 58,813 109,368 USD 34,000 Wind Acquisition Finance S.A., 11.75% 07/15/2017 39,413 38,415 USD 28,000 Wind Acquisition Finance S.A., 7.25% 02/15/2018 28,162 31,301 327,734 402,138




BERMUDA (2.9%) USD 25,000 Aircastle Ltd., 6.25% 12/01/2019 24,867 28,446 USD 5,000 Aircastle Ltd., 6.75% 04/15/2017 4,988 5,921 USD 8,000 Aircastle Ltd., 7.625% 04/15/2020 8,505 9,538 USD 7,000 Aircastle Ltd., 9.75% 08/01/2018 7,456 8,123 2,403 Brookfield Infrastructure Partners L.P. (USD) 46,178 100,103 5,720 Brookfield Renewable Energy Partners L.P. 147,405 159,130 USD 18,000 Digicel Group Ltd., 10.5% 04/15/2018 18,251 20,457 USD 3,000 Digicel Ltd., 7% 02/15/2020 3,226 3,218 USD 2,000 Digicel Ltd., 8.25% 09/01/2017 2,146 2,209 263,022 337,145 SINGAPORE (2.6%) 25,140 Ascendas Real Estate Investment Trust 40,428 46,551 6,290 CapitaCommercial Trust 6,964 7,650 79,900 Singapore Telecommunications Ltd. 204,676 245,461 252,068 299,662 FRANCE (1.6%) USD 13,000 Compagnie Générale de Géophysique 9.5% 05/15/2016 14,105 14,533 1,900 GDF Suez* 42,209 47,394 800 Total S.A., ADR 42,130 52,105 945 Vinci S.A.* 52,703 65,898 151,147 179,930 SPAIN (1.2%) USD 10,000 Abengoa Finance S.A.U., 7.75% 02/01/2020 10,656 10,940 USD 29,000 Abengoa Finance S.A.U., 8.875% 11/01/2017 29,346 33,112 4,206 Abertis Infraestructuras S.A. 76,673 99,078 116,675 143,130 GERMANY (1.0%) USD 3,000 Commerzbank AG 8.125% 09/19/2023 3,098 3,513 870 ProSiebenSat.1 Media AG 28,751 45,754 6,150 Telefonica Deutschland Holding AG 45,858 53,922 USD 15,000 Unitymedia Hessen GmbH & Co., KG/Unitymedia NRW GmbH 5.5% 01/15/2023 14,900 15,454 92,607 118,643 CAYMAN ISLANDS (0.8%) USD 25,000 JBS Finance II Ltd., 8.25% 01/29/2018 25,629 27,881 USD 24,000 MCE Finance Ltd., 5% 02/15/2021 24,087 24,854 USD 26,000 UPCB Finance III Ltd., 6.625% 07/01/2020 25,831 29,342 USD 10,000 UPCB Finance VI Ltd., 6.875% 01/15/2022 10,274 11,285 85,821 93,362 NETHERLANDS (0.8%) USD 20,000 LBC Tank Terminals Holding Netherlands B.V., 6.875% 05/15/2023 20,969 21,960 USD 7,000 Schaeffler Finance B.V., 7.75% 02/15/2017 7,156 8,439 USD 23,000 Schaeffler Finance B.V., 8.5% 02/15/2019 24,190 27,483 USD 29,000 Schaeffler Holding Finance B.V., 6.875% 08/15/2018 30,986 32,650 83,301 90,532 MARSHALL ISLANDS (0.4%) USD 8,000 Drill Rigs Holdings Inc., 6.5% 10/01/2017 7,778 9,177 USD 3,000 Navios Maritime Acquisition Corp./Navios Acquisition Finance US Inc., 8.125% 11/15/2021 3,141 3,250 USD 22,000 Navios Maritime Holdings Inc./Navios Maritime Finance II US Inc., 7.375% 01/15/2022 23,030 23,484 USD 8,500 Navios South American Logistics Inc., 9.25% 04/15/2019 9,116 9,739 43,065 45,650








BRITISH VIRGIN ISLANDS (0.4%) USD 38,000 Studio City Finance Ltd., 8.5% 12/01/2020 39,245 44,700 JERSEY ISLAND (0.4%) USD 7,000 HBOS Capital Funding L.P., 6.85% 03/29/2049 6,723 7,343 GBP 6,000 HBOS Capital Funding L.P., FRN, 6.461% 11/30/2018 8,867 10,806 USD 23,000 HBOS Capital Funding L.P., No. 2, 6.071% 06/29/2049 20,796 24,338 36,386 42,487 IRELAND (0.4%) USD 23,000 Nara Cable Funding Ltd., 8.875% 12/01/2018 22,570 26,262 USD 15,000 XL Group PLC, FRN, 6.5% 12/29/2049 14,043 15,673 36,613 41,935 SWITZERLAND (0.4%) USD 37,000 Credit Suisse Group AG, FRN, 7.5% 12/11/2023 40,332 41,510 TAIWAN (0.2%) 44,000 Asian Pay Television Trust 35,081 27,035 ITALY (0.2%) 4,300 Snam Rete Gas SpA* 22,846 25,511 HONG KONG (0.1%) 2,000 Power Assets Holdings Ltd. 17,107 16,889 AUSTRIA (0.0%) USD 4,000 JBS Investments GmbH 7.75% 10/28/2020 4,153 4,291

Commissions and other portfolio transaction costs (4,261)

Total Bonds & Equities (88.7%) 8,465,326 10,285,297 DERIVATIVE INSTRUMENTS Foreign Currency Forward Contracts (-0.2%) (see Schedule A) (21,685) Total Investments (88.5%) 8,465,326 10,263,612 Other Net Assets (Liabilities) (11.5%) 1,330,702 Net Assets (100.0%) 11,594,314

Principal amounts stated in: AUD Australian Dollar GBP British Pound USD U.S. Dollar



Schedule AForeign Currency Forward Contracts (-0.2%) Credit Rating of Settlement Contract UnrealizedContracts Counterparty the Counterparty‡ Date Rate ($) Pay Receive Gain (Loss) ($)

1 Barclays PLC A-2 16-Jan-14 0.98 (141,000) Australian $ 138,745 Canadian $ 5,096 1 Credit Suisse Group AG A-1 16-Jan-14 0.98 (200,000) Australian $ 196,570 Canadian $ 6,997 1 UBS AG A-1 16-Jan-14 0.98 (93,000) Australian $ 91,428 Canadian $ 3,277 1 UBS AG A-1 16-Jan-14 0.61 (138,000) British Pound 227,820 Canadian $ (14,994)1 Barclays PLC A-2 16-Jan-14 0.61 (3,000) British Pound 4,952 Canadian $ (327)1 Royal Bank of Canada A-1+ 16-Jan-14 0.61 (31,000) British Pound 51,125 Canadian $ (3,420)1 Royal Bank of Canada A-1+ 16-Jan-14 0.71 (25,338) Canadian $ 18,000 Euro 975 1 Barclays PLC A-2 16-Jan-14 1.06 (19,895) Canadian $ 21,000 Australian $ 10 1 Morgan Stanley A-2 14-Mar-14 0.94 (37,097) Canadian $ 35,000 US $ 144 1 Royal Bank of Canada A-1+ 14-Mar-14 0.94 (46,650) Canadian $ 44,000 US $ 166 1 Royal Bank of Canada A-1+ 14-Mar-14 0.94 (527,300) Canadian $ 496,000 US $ 454 1 UBS AG A-1 16-Jan-14 0.58 (13,856) Canadian $ 8,000 British Pound 220 1 Morgan Stanley A-2 16-Jan-14 0.71 (103,000) Euro 144,422 Canadian $ (6,147)1 Royal Bank of Canada A-1+ 16-Jan-14 0.71 (12,000) Euro 16,940 Canadian $ (602)1 The Bank of Nova Scotia†† A-1 16-Jan-14 0.71 (60,000) Euro 84,103 Canadian $ (3,607)1 Royal Bank of Canada A-1+ 16-Jan-14 0.71 (80,000) Euro 112,062 Canadian $ (4,885)1 The Bank of Nova Scotia†† A-1 16-Jan-14 1.20 (200,000) Singaporean $ 166,459 Canadian $ (1,944)1 State Street Corp. A-1 14-Mar-14 0.94 (220,000) US $ 233,853 Canadian $ (231)1 Barclays PLC A-2 14-Mar-14 0.94 (371,000) US $ 394,549 Canadian $ (203)1 HSBC Holdings PLC A-1 14-Mar-14 0.94 (383,000) US $ 407,255 Canadian $ (265)1 Morgan Stanley A-2 14-Mar-14 0.94 (592,000) US $ 629,497 Canadian $ (403)1 The Bank of Nova Scotia†† A-1 14-Mar-14 0.94 (715,000) US $ 760,167 Canadian $ (608)1 UBS AG A-1 14-Mar-14 0.94 (795,000) US $ 845,347 Canadian $ (549)1 Credit Suisse Group AG A-1 14-Mar-14 0.94 (855,785) US $ 909,734 Canadian $ (839)

Total Foreign Currency Forward Contracts Value (21,685)

†† CI Investments Inc., the Manager, is a corporation controlled by CI Financial Corp. The Bank of Nova Scotia has a significant interest in CI Financial Corp. Transactions with The Bank of Nova Scotia are identified above.

‡ 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.




ASSETSInvestments at fair value* Cash Short-term investmentsUnrealized gain on futures and foreign currency forward contractsReceivable for securities soldDividends and accrued interest receivable

LIABILITIESPayable for securities purchasedPayable for unit redemptionsUnrealized loss on futures and foreign currency forward contractsManagement fees payableDistributions payableSpread fee payableService fees payableBorrowing fee payableAccrued expenses

Net assets and unitholders’ equity

UNITHOLDERS’ EQUITYUnit capitalContributed surplusRetained earnings (deficit)Net assets and unitholders’ equity

*Investments at cost

Net assets per unit (Notes 9)

Number of units outstanding (Note 3)

Statements of Net Assets (in $000’s except for per unit amounts and number of units outstanding)


As at December 31, 2013

10,2851,338

–17–

11011,750

6–

399

100–––2

156

11,594

10,7271,695(828)

11,594

8,465

8.11

1,429,767

As at December 31, 2012

12,270260

– 51

12612,662

1–

639

100–––2

175

12,487

11,5931,774(880)

12,487

10,637

8.08

1,545,092



Statements of Operations and Retained Earnings (Deficit) (in $000’s except for per unit amounts)


INVESTMENT INCOMEDividendsInterest Securities lending Income distribution from investmentsFees rebateLess: Foreign withholding taxes

EXPENSES Management fees (Note 4)Administrative expenses (Note 4)Interest expenseLegal feesAudit feesService feesIndependent review committee feesHarmonized sales tax

Net investment income (loss) for the year

Realized and unrealized gain (loss) on investments and commissions and other portfolio transaction costsRealized gain (loss) on investmentsForeign exchange gain (loss)Commissions and other portfolio transaction costsChange in unrealized appreciation (depreciation) of investments and derivativesNet gain (loss) on investments


Increase (decrease) in net assets from operations per unit

STATEMENTS OF RETAINED EARNINGS (DEFICIT)Retained earnings (deficit), beginning of yearIncrease (decrease) in net assets from operations(Excess) deficiency on amounts paid on units redeemedDistribution from net incomeDistribution from realized gainsRetained earnings (deficit), end of year

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

2013

243432

1––

(16)660

8714––3–1

12117

543

43122(7)

223669

1,212

0.85

(880)1,212

–(1,160)

–(828)

1,774(79)

1,695

2012

295 414

– – –

(17) 692

94 15 – – 3 – 1

13 126

566

379 3

(7) 665

1,040

1,606

1.04

(1,231) 1,606

– (1,255)

– (880)

1,844 (70)

1,774




Statements of Cash Flows (in $000’s)

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIESNet investment income (loss)Proceeds from sale of investmentsPurchase of investmentsNet change in non-cash balances related to operations

FINANCING ACTIVITIESDistributions paidAmounts paid for units redeemed

Increase (decrease) in cash during the year

Cash (Bank overdraft), beginning of year

Cash (Bank overdraft), end of year


Net assets, beginning of year

CAPITAL TRANSACTIONSCost of units redeemed(Excess) deficiency on amounts paid on units redeemed

DISTRIBUTIONS TO UNITHOLDERS From net incomeFrom realized gainsFrom return of capital


Net assets, end of year

2013

12,487

(866)(79)

(945)

(1,160)––

(1,160)

1,212

11,594

2012

13,264

(1,058) (70)

(1,128)

(1,255) – –

(1,255)

1,606

12,487


2013

543

5,587(2,963)

163,183

(1,160)(945)

(2,105)

1,078

260

1,338

2012

566

6,948 (4,936)

17 2,595

(1,255) (1,128) (2,383)

212

48

260



Statements of Changes in Net Assets (in $000’s)


The Fund’s investments were concentrated in the following segments:

as at December 31, 2012

Category Net Assets (%)

Canada 47.9U.S.A. 26.2Australia 6.1Bermuda 3.4Singapore 2.8Netherlands 2.2Other Net Assets (Liabilities) 2.2U.K. 2.0Luxembourg 1.6France 1.2Spain 1.0Germany 1.0Cayman Islands 0.8Italy 0.6Mexico 0.5Brazil 0.5Marshall Islands 0.2Ireland 0.2Netherlands Antilles 0.1Foreign Currency Forward Contracts (0.5)


Other Price RiskAs at December 31, 2013 and 2012, the Fund was exposed to other price risk as the Fund invested in high-yield bonds, income trusts and stocks, 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 Fund’s holdings.

As at December 31, 2013, had the global markets increased or decreased by 10% (December 31, 2012 - 10%), with all other variables held constant, net assets of the Fund would have increased or decreased, respectively, by approximately $539,000 (December 31, 2012 - $677,000). In practice, actual results may differ from this analysis and the difference may be material.

Yield Advantage Income FundFund Specific Financial Instruments Risks (Note 13)


Interest Rate Risk As at December 31, 2013 and 2012, the Fund was exposed to interest rate risk as it was invested in high-yield bonds that bear below investment grade rating. Generally, debt securities will increase in value when interest rates decline and decrease in value when interest rates rise. However, investments that bear a below investment grade rating are less sensitive to changes in prevailing interest rates. As a result, the interest rate risk associated with these types of bonds is considerably lower when compared to investment grade bonds. The rest of the Fund’s assets were invested in income trusts and stocks that possess no interest rate risk.

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


Less than 1 - 3 3 - 5 Greater 1 Year Years Years than 5 Years Total (in $000’s) (in $000’s) (in $000’s) (in $000’s) (in $000’s)Interest Rate Exposure 1,387 330 1,128 3,388 6,233


Less than 1 - 3 3 - 5 Greater 1 Year Years Years than 5 Years Total (in $000’s) (in $000’s) (in $000’s) (in $000’s) (in $000’s)Interest Rate Exposure 259 381 1,241 3,878 5,759

As at December 31, 2013, had the prevailing interest rates increased or decreased by 0.25% (December 31, 2012 - 0.25%), with all other variables held constant, net assets of the Fund would have decreased or increased, respectively, by approximately $46,000 (December 31, 2012 - $54,000). In practice, the actual results may differ from this analysis and the difference may be material.


Yield Advantage Income FundFund Specific Financial Instruments Risks (Note 13) (cont’d)


Currency Risk As at December 31, 2013 and 2012, the Fund was exposed to currency risk as a portion of its investments were denominated in currencies other than the Canadian dollar, the functional currency of the Fund. As a result, the Fund could have been affected by fluctuations in the value of such currencies relative to the Canadian dollar. To mitigate the Fund currency risk exposure the Manager used foreign exchange forward contracts to hedge the Fund’s currency exposure.

The tables below summarize the Fund’s exposure to currency risk.


Financial Instruments Derivatives Total Currency Net Exposure Exposure Exposure AssetsCurrency (in $000’s) (in $000’s) (in $000’s) (%)US Dollar 5,309 (3,565) 1,744 15.0Singapore Dollar 332 (168) 164 1.4 Australian Dollar 499 (392) 107 0.9 British Pound 394 (288) 106 0.9 Euro 449 (346) 103 0.9 Hong Kong Dollar 17 – 17 0.1Total 7,000 (4,759) 2,241 19.2


Financial Instruments Derivatives Total Currency Net Exposure Exposure Exposure AssetsCurrency (in $000’s) (in $000’s) (in $000’s) (%)US Dollar 5,366 (3,868) 1,498 12.0 Singapore Dollar 353 – 353 2.8 Australian Dollar 631 (441) 190 1.5 Euro 291 (173) 118 0.9 British Pound 474 (389) 85 0.7 Brazilian Real 1 – 1 0.0 Total 7,116 (4,871) 2,245 17.9

As at December 31, 2013, had the Canadian dollar strengthened or weakened by 10% (December 31, 2012 - 10%) 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 $224,000 (December 31, 2012 - $225,000). In practice, the actual results may differ from this analysis and the difference may be material.




Credit Risk As at December 31, 2013 and 2012, the Fund was exposed to credit risk as it was invested in high-yield bonds. The rest of the Fund assets were invested in income trusts and equities that possess no credit risk. This diversification between different asset types helps to mitigate the credit risk exposure of the Fund. The Fund was also exposed to counter-party credit risk through its investment in derivative instruments.

The Fund was invested in fixed income securities, preferred securities and derivative instruments, as applicable, with the following credit ratings:

as at December 31, 2013*

Credit Rating^ Net Assets (%)AA/Aa/A+ 0.1 BBB/Baa/B++ 4.7 BB/Ba/B+ 16.7 B 16.2 CCC/Caa/C++ 4.2 Not Rated 2.6 Total 44.5

as at December 31, 2012*

Credit Rating^ Net Assets (%)A 0.2 BBB/Baa/B++ 4.7 BB/Ba/B+ 18.0 B 16.1 CCC/Caa/C++ 2.9 Not Rated 2.7 Total 44.6

* 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.




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.


Level 1 Level 2 Level 3 Total (in $000’s) (in $000’s) (in $000’s) (in $000’s)Equities 5,363 27 – 5,390 Bonds – 4,858 37 4,895 Foreign currency forward contracts, net – (22) – (22)Total 5,363 4,863 37 10,263

During the year ended December 31, 2013, equity investments with a net fair value of $27,000 were transferred out of Level 1 into Level 2 as quoted market prices were no longer available for these investments.

There were no transfers between Level 1 and Level 3 during the year ended December 31, 2013.


Level 1 Level 2 Level 3 Total (in $000’s) (in $000’s) (in $000’s) (in $000’s)Equities 6,771 – – 6,771 Bonds – 5,426 73 5,499 Foreign currency forward contracts, net – (58) – (58)Total 6,771 5,368 73 12,212

There were no transfers between Level 1, 2 and 3 during the year ended December 31, 2012.




Fair Value Hierarchy (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, 2013 Balance at Net transfers Realized gain Unrealized gain Balance at Dec. 31, 2012 Purchases Sales in (out) (loss) (loss)* Dec. 31, 2013 (in $000’s) (in $000’s) (in $000’s) (in $000’s) (in $000’s) (in $000’s) (in $000’s) Long PositionsBonds 73 15 (17) (34) 2 (2) 37 Total 73 15 (17) (34) 2 (2) 37

*Change in unrealized gain (loss) related to investments held at December 31, 2013 was $332.

During the year ended December 31, 2013, fixed income investments with a net fair value of $34,000 were transferred out of Level 3 into Level 2 as observable market inputs become available for these investments.

For the year ended December 31, 2012

Balance at Net transfers Realized gain Unrealized gain Balance at Dec. 31, 2011 Purchases Sales in (out) (loss) (loss)** Dec. 31, 2012 (in $000’s) (in $000’s) (in $000’s) (in $000’s) (in $000’s) (in $000’s) (in $000’s) Long PositionsBonds 30 24 (209) 226 (3) 5 73 Total 30 24 (209) 226 (3) 5 73

**Change in unrealized gain (loss) related to investments held at December 31, 2012 was $3,807.

During the year ended December 31, 2012, fixed income investments with a net fair value of $226,000 were transferred from Level 2 into Level 3 as observable market 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 as at December 31, 2013 and 2012.




1. THE TRUST AND THE FUNDYield Advantage 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 December 23, 2004. On March 1, 2005, the Trust completed its initial public offering of 6,567,740 units at $10 per unit. The Trust is listed on the Toronto Stock Exchange, under the symbol YOU.UN. The Trust is managed by CI Investments Inc. (the “Manager” and the “Trustee”).

The Trust will terminate operations on or about December 31, 2015 (the “Termination Date”) and the net assets will be distributed pro rata to unitholders unless an alternative earlier or later termination date is approved by the unitholders.

Through a forward agreement (the “Forward Agreement”) with The Bank of Nova Scotia, a related party (see Note 10), the Trust provides unitholders with exposure to the performance of Yield Advantage Income Fund (the “Fund”). The Fund will, under normal market conditions, hold a portfolio (the “Yield Advantage Portfolio”) consisting primarily of securities of income trusts, high yield debt and other securities. The Trust may partially settle the Forward Agreement prior to the Termination Date in order to fund monthly distributions, redemptions of units, payment for purchases of units in the market and expenses of the Trust.

Yield Advantage Income Fund (the “Fund”) is an investment trust established under the laws of the Province of Ontario pursuant to a Declaration of Trust dated December 23, 2004. The Fund is managed by CI Investments Inc. (the “Manager” and the “Trustee”).

The Signature Advisors group of CI Investments Inc. (the “Investment Advisor”) provides investment advisory and portfolio management services to the Fund and actively manages the Yield Advantage Portfolio.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESThese financial statements have been prepared in accordance with Canadian Generally Accepted Accounting Principles (“Canadian GAAP”).

The following is a summary of the significant accounting policies of the Trust and the Fund:

(a) Valuation of InvestmentsCanadian 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 81-106, a comparison between the Net Asset Value per unit and the Net Assets per unit is disclosed in Note 9.

At the financial reporting date, listed securities are valued based on the bid price for securities held long and the ask price for securities sold 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 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.

(b) Commissions and Other Portfolio Transaction CostsTransaction 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.

Notes to the Financial Statements


(c) Cost of InvestmentsCost 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 RecognitionInvestment 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 ExchangeForeign currency amounts are translated into Canadian dollars, the functional currency of the Trust and 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) Increase (Decrease) in Net Assets from Operations per UnitIncrease (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.

(g) Forward ContractsThe 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 and derivatives” 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.

The value of the forward contract as part of the Forward Agreement held by the Trust on the valuation date is equal to the gain or loss that would be realized if the contract was closed out or expired. Investments sold forward as part of the Forward Agreement are valued at the market close price, and the underlying fund is valued at its net asset value as reported by the underlying fund’s manager on the valuation date for purposes of determining the value of the forward contract. All gains (losses) arising from the forward agreement are recorded as part of “Change in unrealized appreciation (depreciation) of investments and derivatives” in the Statements of Operations and “Unrealized gain (loss) on forward contract” in the Statements of Net Assets until the contract is 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) Private PlacementsThe 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.

Notes to the Financial Statements (cont’d)


(i) Cash and Short-Term InvestmentsCash 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.

(j) Net Asset Value per UnitNet 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 units outstanding.

(k) Income TaxesThe 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. 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 redemptions 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.

The Trust’s investment strategy utilizes a forward sale agreement “forward agreement” in order to gain exposure to the returns of an underlying fund. The government refers to these as character conversion transactions. On March 21, 2013, the Minister of Finance announced proposals in a federal budget that would treat the gain realized by a mutual fund under such forward agreements as ordinary income rather than a capital gain, if the forward agreement was entered into or extended on or after March 21, 2013. On July 11, 2013, the Department of Finance announced proposed technical changes to the transitional rules related to character conversion transactions announced in the federal budget. One of the announced changes includes the extension of the transition period for short-term agreements. The extended grandfathered period allows investment funds, whose forward agreements were entered into prior to March 21, 2013 and the terms of which provide for settlement or are a part of series of agreements that provide for settlement prior to 2015, to extend their forward agreements until end of 2014. For longer-dated forward agreements, the grandfathering transitional period will not extend beyond March 21, 2018. Grandfathering is subject to certain growth rules with which the Trust intend to comply. The federal budget, part of Bill C-4, was enacted into law on December 12, 2013.

The Manager is currently assessing the impact and implications of these changes to the Trust.

The Fund is a unit trust and deemed a financial institution for purposes of the ‘specific debt obligation’ and ‘mark-to-market’ rules contained in the Income Tax Act (Canada) at any time if more than 50% of the fair market value of all interest in the Fund are held at that time by one or more such financial institutions. The Fund will be subject to tax in each taxation year under Part I of the Income Tax Act (Canada) on the amount of its income for the year, including net realized and unrealized gains, if any, less the portion thereof that it deducts in respect of the amount paid or payable to unitholders in the year. The Fund intends to distribute all of its net income and net realized and unrealized gains so that the Fund will not generally be liable for income tax thereon.

To comply with the mark-to-market rules, during the year, the Fund declared a distribution which was automatically reinvested without charge, into the Fund. These units were immediately consolidated so that the number of units outstanding equalled the number of units outstanding immediately prior to the distribution.

(l) 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’ EQUITYUnits 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 13, 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 partial settlement of the Forward Agreement.

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 December 2007, unitholders are entitled to redeem their units outstanding at the end of each year (“Annual Redemption”). Annual redemption price per unit is equal to net asset value per unit determined on the annual valuation date.

The Trust endeavours to provide the unitholder with tax efficient monthly distributions initially targeted to be $0.0583 per unit ($0.70 per annum to yield 7.0% on the subscription price of $10.00 per unit). Distributions commenced March 31, 2005, 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 2013 2012Balance, beginning of year 1,429,767 1,545,092 Units redeemed (57,770) (115,325)Balance, end of year 1,371,997 1,429,767

The Trust did not renew its notice of intention to make a Normal Course Issuer Bid. Instead it has decided to purchase units for cancellation, if any, under its Mandatory Market Purchase Program (Note 5).

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 13, 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 redeemable transferable trust units of one class, each of which represents an equal, undivided interest in the net asset value of the Fund. The counterparty is entitled to redeem their units daily. Units will be redeemed at the net asset value per unit on such date.

For the years ended December 31, net capital transactions of the Fund consisted of the following:

Unit Transactions 2013 2012Balance, beginning of year 1,545,092 1,686,256 Units redeemed (115,325) (141,164)Balance, end of year 1,429,767 1,545,092

When units of the Trust and the Fund 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 their 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 their Statements of Net Assets.

4. FEES AND OTHER EXPENSES(a) Management FeesThe Trust pays to the Manager an annual fee equal to 0.20% of the Net Asset Value of the Trust calculated and paid monthly in arrears, plus an amount equal to the service fees payable by the Manager to registered dealers.



The Fund pays to the Manager an annual fee equal to 0.75% of the Net Asset Value of the Fund calculated and paid monthly in arrears.

(b) Administrative ExpensesThe Trust and the Fund are also responsible for all expenses incurred in connection with their operations and administration, (fees shown as administration fees include: trustee fees, transfer agency, custody and accounting fees). Audit fees, legal fees and independent review committee fees are disclosed separately.

(c) Service FeesThe Manager pays to registered dealers an annual service fee equal to 0.30% of the Net Asset Value per Trust unit for units held by clients of the sales representatives of the registered dealers calculated and payable quarterly in arrears.

(d) Advisory FeesA portion of the management fee received by the Manager will be paid to the Investment Advisor by the Manager.

(e) Forward Agreement FeesThe Trust will pay to the counterparties under the Forward Agreement a fee of approximately 0.40% per annum of the market value of notional exposure to the Fund under the Forward Agreement (“spread fee”), plus an ongoing fee (“borrowing fee”) which may vary based upon hedging costs associated with the Forward Agreement, calculated and paid monthly (see Note 10).

5. MARKET REPURCHASE PROGRAMIn 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 price of the units (the “Reference Closing Price”) is less than 95% of the Net Asset Value per unit on that date, the Trust will offer to purchase for cancellation any units offered in the market at or below the Reference 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 years ended December 31, 2013 and 2012 the Trust purchased no units for cancellation.

6. BROKERAGE AND OTHER COMMISSIONSCommissions paid for security transactions during the years ended December 31, were as follows: 2013 2012 (in $000’s) (in $000’s)

Brokerage CommissionsYield Advantage Income Trust – –Yield Advantage Income Fund 5 5

Soft Dollar Commissions†

Yield Advantage Income Trust – –Yield Advantage Income Fund 1 1

† 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.



7. SECURITIES LENDINGThe 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 loans must qualify as “securities lending arrangements” for the purposes of the Tax Act; and (iii) the Trust will receive prescribed collateral security which it may pledge as security under the Forward Agreement. The minimum level of collateralization in respect of a loan of Common Share Portfolio securities will be 102%. As at December 31, 2013 and 2012 the Trust was not engaged in any securities lending.

The Fund may engage in securities lending. Under the securities lending agreement: (i) the borrower will pay to the Fund a negotiated securities lending fee and will make compensation payments to the Fund equal to any distributions received by the borrower on the securities borrowed, (ii) the securities loans must qualify as “securities lending arrangements” for the purposes of the Tax Act; and (iii) the loan will be fully collateralized. The minimum level of collateralization in respect of a loan of Yield Advantage Portfolio securities will be 102%. The Fund may also receive a fee or interest on the collateral, and may pay lending fees to a party arranging the loan.

The value of securities lent and collateral received at December 31, 2013 and 2012 were as follows: 2013 2012 (in $000’s) (in $000’s)Loaned 984 –Collateral (non cash) 1,033 –

8. INCOME TAX LOSSES CARRY FORWARDNet 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.

Yield Advantage Income Trust

Losses carry forwards (in $000’s) 2013Net capital losses carry forward 8,557

Year of expiry 2015 2026 2027 2028 2029 2030 2031 2032 2033 TotalNon-capital losses carry forward – – – – – – – – – –

Yield Advantage Income Fund

Losses carry forwards (in $000’s) 2013Net capital losses carry forward –

Year of expiry 2015 2026 2027 2028 2029 2030 2031 2032 2033 TotalNon-capital losses carry forward – – – – – – – – – –



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

Yield Advantage Income Trust 2013 (in $) 2012 (in $)Net assets per unit 8.14 8.10Net asset value per unit 8.14 8.11

Yield Advantage Income Fund 2013 (in $) 2012 (in $)Net assets per unit 8.11 8.08Net asset value per unit 8.18 8.09

10. RELATED PARTY TRANSACTIONSThe Bank of Nova Scotia has a significant interest in CI Financial Corp., the parent company of the Manager. The Trust and 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 Trust and the Fund, if applicable. The Bank of Nova Scotia is also the Counterparty to the Forward Agreement (see Note 1) with the Trust and the only unitholder in the Fund.

The Fund paid $189 in brokerage commissions to The Bank of Nova Scotia during the year ended December 31, 2013 (2012 - $140).

The Trust paid $54,653 in forward fees to The Bank of Nova Scotia during the year ended December 31, 2013 (2012- $58,480).

11. INTERNATIONAL FINANCIAL REPORTING STANDARDSOn December 12, 2011 the Canadian Accounting Standards Board (“AcSB”) allowed investment funds to defer mandatory adoption of International Financial Reporting Standards (“IFRS”) as issued by the International Accounting standards Board (“IASB”) until the fiscal year beginning on or after January 1, 2014. Accordingly, the Trust and the Fund will adopt IFRS for its fiscal year beginning January 1, 2014, and will issue financial statements in accordance with IFRS, including comparative information, for the semi-annual period ending June 30, 2014. The June 30, 2014 semi-annual and December 31, 2014 annual financial statements will include an opening Statement of Net Assets as at January 1, 2013 and comparative financial information prepared in accordance with IFRS.

The Manager has evaluated the differences between Canadian GAAP and IFRS and implemented a transition plan to meet the AcSB implementation timeline. Based on the Manager’s analysis to date, the adoption of IFRS may impact the Trust’s and the Fund’s Net Assets with the potential elimination of the difference between the Net Assets per Unit and the Net Asset Value per Unit at the financial statement reporting date, as disclosed in Note 9 – Net Assets Comparison. The changeover to IFRS will also result in additional note disclosures and may result in the presentation of Net Assets representing unitholders’ equity as a liability instead of the current presentation as equity depending on Trust and Fund meeting certain criteria. The Manager’s current evaluation may be subject to changes due to issuance of new standards or new interpretations of existing standards.

12. 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 unit redemptions, payable for securities purchased, management fees payable, accrued expenses, service fees payable, distributions payable, spread fee payable and borrowing fee 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.



13. FINANCIAL INSTRUMENTS RISK Risk ManagementThe Trust and the Fund are 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 and the Fund are exposed to depends on the investment objective and the type of investments held by the Trust and the Fund. 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 and the Fund. The Manager of the Trust and the Fund may minimize potential adverse effects of these risks on the Trust’s and the Fund’s performance by, but not limited to, regular monitoring of the Trust’s and the Fund’s positions and market events, diversification of the investment portfolio by asset type, company, sector, industry within the constraints of the stated objectives, and through the usage of derivatives to hedge certain risk exposures.

Other Price RiskOther 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 RiskInterest rate risk is the risk that the fair value of interest-bearing investments and interest rate derivative instruments will fluctuate due to changes in prevailing levels of market interest rates. As a result, the value of the Trust and the Fund will be affected by changes in applicable interest rates as they invest 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 they invest 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 RiskCurrency risk arises from financial instruments that are denominated in a currency other than the Canadian dollar, the functional currency of the Trust and the Fund. As a result, the Trust and 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 Trust’s and the Fund’s functional currency to determine their fair value.

Credit RiskCredit 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 for the credit worthiness of the debt issuer. Credit risk exposure for derivative instruments, if applicable, is based on the Trust’s and the Fund’s unrealized gain of the contractual obligations with the counterparty as at the reporting date. The credit risk exposure of the Trust’s and the Fund’s other assets are represented by their carrying amount as disclosed in the Statements of Net Assets.

Credit ratings for fixed income 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 derivatives schedules in the Statement of Investment Portfolio.

Credit Rating as per Credit Risk table Credit Rating as per derivatives schedulesAAA/Aaa/A++ A-1+AA/Aa/A+ A-1, A-2, A-3A B, B-1BBB/Baa/B++ B-2BB/Ba/B+ B-3B CCCC/Caa/C++ -CC/Ca/C+ -C and Lower DNot Rated WR

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 Trust/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 RiskLiquidity risk is the risk that the Trust and the Fund may not be able to settle or meet their obligations, on time or at a reasonable price. The Fund is exposed to daily cash redemptions of redeemable units. Therefore, the Fund invests the majority of its assets in investments that are traded in active markets and can be readily disposed of. In addition, the Fund retains sufficient cash and cash equivalent positions to maintain liquidity. From time to time, the Fund 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 Fund. The Trust is exposed to annual cash redemption of redeemable units that will be financed by partial settlements of the Forward Agreement.

Fair Value HierarchyThe Trust and the Fund are 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 Trust and the Fund may use a variety of valuation techniques to derive the fair value.

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



Manager and TrusteeCI 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 Investor Services Trust155 Wellington Street West

5th Floor

Toronto, Ontario

M5V 3L3

AuditorPricewaterhouseCoopers LLP18 York Street

Suite 2600

Toronto, Ontario

M5J 0B2

Registrar & Transfer AgentComputershare Investor Services Inc.100 University Avenue

8th Floor

Toronto, Ontario

M5J 2Y1

ListedThe Toronto Stock Exchange

Ticker SymbolYOU.UN

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

Trust and Fund Information

SKYLON_6974_AR_03/14E

2 Queen Street East, Twentieth Floor, Toronto, Ontario M5C 3G7 I www.ci.comHead Office / Toronto416-364-1145 1-800-268-9374

Client ServicesEnglish: 1-800-563-5181 French: 1-800-668-3528

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