FS Q410 ConvYield 6964 · 2011-03-25 · The accompanying financial statements have been prepared by CI Investments Inc., the Manager of the Convertible ... USD 1,000,000 Atlas Energy

Convertible & Yield Advantage Trust

2010AnnualFinancial Statements for the year ended December 31, 2010

Table of Contents

Management’s Responsibility

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

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

CONVERTIBLE & YIELD ADVANTAGE TRUST

Financial Statements

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

Statements of Net Assets . . . . . . . . . . . . . . . . . . 6

Statements of Operations and

Retained Earnings (Deficit) . . . . . . . . . . . . . . 7

Statements of Changes in Net Assets . . . . . . . . . 8

Statements of Cash Flows . . . . . . . . . . . . . . . . 8

Trust Specific Financial

Instruments Risks . . . . . . . . . . . . . . . . . . . . . 9

Notes to the Financial Statements . . . . . . . . . . . 14

Trust Information . . . . . . . . . . . . . . . . . . . . . . . 21

1Annual Financial Statements as at December 31, 2010

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING

The accompanying financial statements have been prepared by CI Investments Inc., the Manager of the Convertible & YieldAdvantage Trust (the “Trust”), and approved by the Board of Directors of the Manager. The Trust’s Manager is responsible for theinformation 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 statementshave been prepared in accordance with Canadian generally accepted accounting principles and include certain amounts that arebased on estimates and judgments. The significant accounting policies which management believes are appropriate for the Trustare described in Note 2 to the financial statements.

PricewaterhouseCoopers LLP are the external auditors of the Trust. They have audited the financial statements in accordance withCanadian generally accepted auditing standards to enable them to express to the unitholders their opinion on the financial statements.Their report is set out on the following page.

Derek. J. Green Douglas J. JamiesonToronto, Ontario President and Chief Executive Officer Chief Financial OfficerMarch 16, 2011 CI Investments Inc. CI Investments Inc.

Management and Auditors’ Reports

2 Annual Financial Statements as at December 31, 2010

INDEPENDENT AUDITOR’S REPORT

To the Unitholders of Convertible & Yield Advantage Trust (the Trust)

We have audited the accompanying financial statements of the Trust, which comprise the statement of investment portfolio as at December 31, 2010, the statements of net assets as at December 31, 2010 and December 31, 2009 and the statements ofoperations and retained earnings (deficit), changes in net assets and cash flows for the years then ended, and the related notesincluding a summary of significant accounting policies.

Management’s responsibility for the financial statementsManagement is responsible for the preparation and fair presentation of the financial statements in accordance with Canadiangenerally accepted accounting principles, and for such internal control as management determines is necessary to enable thepreparation of financial statements 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 based on our audits. We conducted our audits in accordancewith 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 thefinancial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal controlrelevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internalcontrol. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accountingestimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our auditopinion.

OpinionIn our opinion, the financial statements present fairly, in all material respects, the financial position of the Trust, the results of its operations, the changes in its net assets and its cash flows for the years then ended in accordance with Canadian generallyaccepted accounting principles.

Toronto, Ontario Chartered Accountants,March 16, 2011 Licensed Public Accountants


Number of Shares/ Average Fair

Par Value Description Cost ($) Value ($)

CONSUMER DISCRETIONARY (15.9%)

15,429 Canadian Tire Corp., Ltd., Class A, Non-Voting Shares 844,589 1,051,949

103 Cogeco Inc. 3,692 3,813

18,634 Dorel Industries Inc., Class B 633,409 642,873

10,000 Emmis Communications Corp., 6.25% Preferred, Convertible/Callable 620,416 151,888

USD 625,000 Foot Locker Inc., 8.5% 01/15/2022 908,706 598,378

USD 400,000 Hertz Corp., 10.5% 01/01/2016 400,073 420,859

USD 180,000 Lamar Media Corp., 6.625% 08/15/2015 190,199 184,001

USD 500,000 Mandalay Resort Group 7.625% 07/15/2013 691,839 472,784

USD 125,000 MGM Mirage Inc., 7.625% 01/15/2017 144,606 116,559

76,772 Whistler Blackcomb Holdings Inc. 923,323 922,032

77,139 Yellow Media Inc. 813,545 478,262

6,174,397 5,043,398

FINANCIALS (12.6%)

23,501 Davis & Henderson Income Fund 322,138 466,025

18,157 Dundee REIT 327,407 548,341

45,000 Fairfax Financial Holdings Ltd., 7.5% 08/19/2019 44,838 48,910

25,287 IGM Financial Inc. 1,012,426 1,096,697

10,000 iStar Financial Inc., 8% Preferred, Series D 336,579 177,619

59,394 Power Corp. of Canada 1,650,469 1,641,056

3,693,857 3,978,648

ENERGY (11.9%)

USD 1,000,000 Atlas Energy Operating Co. LLC, Callable, 12.125% 08/01/2017 1,176,278 1,261,581

USD 1,000,000 Cal Dive International Inc., 3.25% 12/15/2025 937,991 957,336

48,079 Freehold Royalty Trust 731,896 985,139

50,135 Galleon Energy Inc., Class A 194,606 205,554

29,633 NuVista Energy Ltd. 274,212 274,105

4,109 Peyto Energy Trust 40,389 75,975

3,355,372 3,759,690

TELECOMMUNICATION SERVICES (11.9%)

47,226 BCE Inc. 1,202,670 1,668,967

15,000 Crown Castle International Corp., 6.25% Preferred 862,084 916,267

25,766 TELUS Corp. 806,497 1,171,838

2,871,251 3,757,072

UTILITIES (9.7%)

31,088 Atco Ltd., Class I 1,250,720 1,838,855

124,675 Innergex Renewable Energy Inc. 916,857 1,231,789

2,167,577 3,070,644

INDUSTRIALS (7.8%)

USD 1,000,000 Alliant Techsystems Inc., 2.75% 09/15/2011 1,030,727 1,015,997

46,216 Celestica Inc. 407,775 445,984

500,000 Livingston International Inc., 10.125% 11/09/2015 500,000 527,500

21,445 Westshore Terminals Inc. 265,190 492,806

2,203,692 2,482,287

Statement of Investment Portfolio (as at December 31, 2010)

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.


Financial Statements


CONSUMER STAPLES (7.5%)

4,241 Empire Co., Ltd., Class A 235,179 235,206

USD 500,000 Millar Western Forest Products Ltd., 7.75% 11/15/2013 552,419 472,470

41,832 Shoppers Drug Mart Corp. 1,526,291 1,652,364

2,313,889 2,360,040

HEALTH CARE (7.1%)

USD 500,000 Fisher Scientific International Inc., 3.25% 03/01/2024 648,997 696,238

USD 700,000 Valeant Pharmaceuticals International Inc., 4% 11/15/2013 710,520 1,563,762

1,359,517 2,260,000

INFORMATION TECHNOLOGY (6.2%)

USD 1,000,000 Advanced Micro Devices Inc., 6% 05/01/2015 936,715 1,004,777

USD 1,000,000 SanDisk Corp., 1% 05/15/2013 836,447 959,899

1,773,162 1,964,676

MATERIALS (5.6%)

82,001 Canexus Income Fund 605,154 574,827

USD 650,000 Century Aluminum Co., 7.5% 08/15/2014 792,647 639,330

65,000 Richards Packaging Income Fund 558,345 553,150

1,956,146 1,767,307

Commissions and other portfolio transaction costs (24,344)

Total Bonds & Equities (96.2%) 27,844,516 30,443,762

Short Term Notes (13.9%) 4,416,997 4,400,505

DERIVATIVE INSTRUMENTS

Foreign Currency Forward Contracts (1.1%)

(see Schedule A) 341,338

Total Investments (111.2%) 32,261,513 35,185,605

Other Assets (net) (-11.2%) (3,532,237)

Net Assets (100.0%) 31,653,368

Principal amounts stated in:

USD - U.S. Dollar

Statement of Investment Portfolio (as at December 31, 2010) (cont’d)


Number of Shares/ Average FairPar Value Description Cost ($) Value ($)


Financial Statements (cont’d)


Schedule A

Foreign Currency Forward Contracts (1.1%)

Credit Rating of Settlement Contract Unrealized

Contracts Counterparty the Counterparty* Date Rate ($) Pay Receive Gain (Loss) ($)

1 Royal Bank of Canada A-1+ 31-Jan-11 1.02 (13,613,000) US $ 13,925,418 Canadian $ 341,338

Total Foreign Currency Forward Contracts Value 341,338

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


Statement of Investment Portfolio (as at December 31, 2010) (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 Short term notesUnrealized gain on futures and forward currency contractsReceivable for securities soldDividends and accrued interest receivable

LIABILITIESService fees payableUnrealized loss on futures and forward currency contractsPayable for securities purchased Payable for unit redemptionsDistributions payableManagement fees 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 (Note 9)

Number of units outstanding (Note 3)

As at December 31, As at December 31, 2010 2009

30,444 32,04272 596

4,401 2,197341 24

2 –298 452

35,558 35,311

75 66– –

60 7703,497 3,197

229 25336 338 7

3,905 4,326

31,653 30,985

27,489 32,283 3,261 3,550

903 (4,848)31,653 30,985

27,845 32,824

22.35 19.71

1,416,075 1,572,315




INVESTMENT INCOMEDividendsInterest Management fee rebateLess: Foreign withholding taxes

EXPENSES Management fees (Note 4)Administrative expenses (Note 4)Commitment feesInterest expenseService fees (Note 4)LegalAuditGoods and services tax/Harmonized sales tax (Note 4)

Net investment income (loss) for the year

Realized and unrealized gain (loss) on investmentsand commissions and other portfolio transaction costs

Realized 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

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 redeemedContributed surplus, end of year

For the years ended December 31 2010 2009

449 2111,332 2,110

– –(7) (11)

1,774 2,310

362 31955 42

– –– –

132 1162 6

19 1944 25

614 527

1,160 1,783

2,106 520 126(54) (45)

3,683 10,406 5,755 10,492

6,915 12,275

4.40 7.08

(4,848) (15,323)6,915 12,275

– –(1,164) (1,800)

– –903 (4,848)

3,550 3,286(289) 264

3,261 3,550


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




Net assets, beginning of year

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

DISTRIBUTIONS TO UNITHOLDERSFrom net incomeFrom realized gainsFrom return of capital

Increase (decrease) in net assets from operations

Net assets, end of year

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


30,985 24,942

(3,207) (3,461)(289) 264

(3,496) (3,197)

(1,164) (1,800)– –

(1,587) (1,235)(2,751) (3,035)

6,915 12,275

31,653 30,985




Statements of Cash Flows (in $000’s)

CASH PROVIDED BY (USED IN)OPERATING ACTIVITIES

Net 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


1,160 1,78322,344 23,117(18,224) (15,665)

167 915,447 9,326

(2,775) (3,094)(3,196) (5,774)(5,971) (8,868)

(524) 458

596 138

72 596




Trust Specific Financial Instruments Risks (Note 13)

Other Price Risk

As at December 31, 2010 and 2009, the Trust was exposed to other price risk as the Trust’s holdings were sensitive to changes in general economic

conditions in Canada and the U.S. The Trust’s portfolio consisted of fixed income and convertible securities and equities, thus an overall downturn in

Canadian and U.S. economic conditions could have led to a widening in credit spreads and a decrease in convertible securities prices which could

have then led to a decrease in the value of the Trust’s holdings.

As at December 31, 2010, had the Canadian and U.S. markets increased or decreased by 10% (December 31, 2009 - 10%), with all other variables

held constant, net assets of the Trust would have increased or decreased, respectively, by approximately $1,950,000 (December 31, 2009 - $1,828,000).

In practice, actual results may differ from this analysis and the difference may be material.

The Trust’s investments were concentrated in the following segments as at December 31, 2009

Category Net Assets (%)

Financials 20.1Telecommunication Services 14.4Energy 14.3Consumer Discretionary 11.4Utilities 11.3Industrials 8.6Health Care 7.9Short Term Notes 7.1Information Technology 5.9Materials 4.8Consumer Staples 4.8Foreign Currency Forward Contracts 0.1Other Assets -10.7


Interest Rate Risk

As at December 31, 2010 and 2009, the Trust was exposed to interest rate risk as some of its assets were invested in fixed-income securities.

Generally, fixed-income securities will increase in value when interest rates decline and decrease in value when interest rates rise.

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


Trust Specific Financial Instruments Risks (Note 13) (cont’d)

as at December 31, 2010

Interest Rate Exposure


Interest Rate Exposure

As at December 31, 2010, had the prevailing interest rates increased or decreased by 0.25% (December 31, 2009 - 0.25%), with all other variables held

constant, net assets of the Trust would have indirectly decreased or increased, respectively, by approximately $101,000 (December 31, 2009 - $124,000).

In practice, the actual results may differ from this analysis and the difference may be material.

Less than 1 - 3 3 - 5 Greater1 Year Years Years than 5 Years Total

(in $000’s) (in $000’s) (in $000’s) (in $000’s) (in $000’s)

5,488 3,469 2,356 4,100 15,413


Less than 1 - 3 3 - 5 Greater1 Year Years Years than 5 Years Total

(in $000’s) (in $000’s) (in $000’s) (in $000’s) (in $000’s)

4,831 1,018 4,742 5,948 16,539





Currency Risk

As at December 31, 2010 and 2009, the Trust was exposed to currency risk as it was invested in fixed-income investments denominated in U.S.

dollars, although the Canadian dollar is the functional currency of the Trust. To mitigate currency risk exposure the Trust’s Manager used forward

contracts to hedge the Trust’s holdings denominated in U.S. dollars against fluctuations in U.S. currency.

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


CURRENCY

US Dollar 14,081 (13,576) 505 1.6 Total 14,081 (13,576) 505 1.6

Financial Instruments Derivatives Total Currency NetExposure Exposure Exposure Assets

(in $000’s) (in $000’s) (in $000’s) (%)

CURRENCY

US Dollar 14,421 (14,454) (33) (0.1)Total 14,421 (14,454) (33) (0.1)

As at December 31, 2010, had the Canadian dollar strengthened or weakened by 10% (December 31, 2009 - 10%) in relation to all other foreign

currencies held in the Trust, with all other variables held constant, net assets of the Trust would have decreased or increased, respectively, by

approximately $51,000 (December 31, 2009 - $3,000). In practice, the actual results may differ from this analysis and the difference may be material.

Financial Instruments Derivatives Total Currency NetExposure Exposure Exposure Assets

(in $000’s) (in $000’s) (in $000’s) (%)





Credit Risk

CREDIT RATING^

AAA/Aaa/A++ 5.4 BBB/Baa/B++ 2.4 BB/Ba/B+ 3.8 B 25.7 CCC/Caa/C++ 9.6 CC/Ca/C+ 0.5 Not Rated 8.0 Total 55.4

*Credit ratings are obtained from Standard & Poor’s, where available, otherwise ratings are obtained from: Moody’s Investors Service, Dominion Bond Rating Services orCanadian Bond Rating Services, respectively.

^Refer to Note 13 for Credit Rating cross reference.

As at December 31, 2010 and 2009, the Trust was exposed to credit risk as some of its assets were invested in derivatives and some assets were

invested in high-yield bonds that may bear a below investment grade rating.

as at December 31, 2009*

Net Assets(%)

CREDIT RATING^

AAA/Aaa/A++ 7.9 BBB/Baa/B++ 2.4 BB/Ba/B+ 6.2 B 18.1 CCC/Caa/C++ 3.2 CC/Ca/C+ 1.0 Not Rated 14.7 Total 53.5

Net Assets(%)

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

as at December 31, 2010*





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, 2010

Equities 19,504 – – 19,504 Bonds – 10,940 – 10,940 Short-term notes – 4,401 – 4,401 Foreign currency forward contracts, net – 341 – 341 Total 19,504 15,682 – 35,186

Level 1 Level 2 Level 3 Total(in $000’s) (in $000’s) (in $000’s) (in $000’s)


Fair Value Hierarchy

Long Positions at fair value as at December 31, 2009

Equities 18,296 – – 18,296 Bonds – 13,746 – 13,746 Short-term notes – 2,197 – 2,197 Foreign currency forward contracts, net – 24 – 24 Total 18,296 15,967 – 34,263

Level 1 Level 2 Level 3 Total(in $000’s) (in $000’s) (in $000’s) (in $000’s)


1. THE TRUSTConvertible & Yield Advantage Trust (the “Trust”) is a closed-end investment trust established under the laws of the Province of

Ontario on September 24, 2003. On October 17, 2003, the Trust completed an initial public offering of 3,700,000 units at $25

per unit. The Trust’s units are listed on the Toronto Stock Exchange, under the symbol CNV.UN. On November 14, 2003, an

over-allotment option granted to agents was exercised for 230,000 units at $25 per unit. The Trust will terminate operations on

October 31, 2013 (the “Termination Date”), and the net assets will be distributed pro rata to unitholders unless an alternative later

termination date is approved by the unitholders.

The manager of the Trust is CI Investments Inc. (the “Manager” and the “Trustee”).

The Manager has retained MFC Global Investment Management (Canada), a division of Elliott & Page Limited (the “Investment

Advisor”) as investment advisor to the Trust to actively manage the Trust’s investment portfolio, including the allocation of assets

amongst convertible securities, high yield securities and income trust securities pursuant to an investment advisory agreement

between the Manager and Investment Advisor.

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

(“Canadian GAAP”). Certain prior period balances have been reclassified to conform with the current period presentation.

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

(a) Valuation of Investments

Canadian GAAP requires the fair value of financial instruments traded in an active market to be measured based on an

investment’s bid/ask price depending on the investment position (long/short).

For the purpose of processing unitholder transactions, net asset value is calculated based on the closing market price of

investments (referred to as “Net Asset Value”), while for financial statement purposes net assets are calculated based on

bid/ask price of investments (referred to as “Net Assets”).

In accordance with National Instrument 81-106, a comparison 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 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 bid

quotation from recognized investment dealers. Underlying funds are valued on each business day at their net asset value as

reported by the underlying funds’ manager.

(b) Commissions and Other Portfolio Transaction Costs

Transaction costs, such as brokerage commissions, incurred in the purchase and sale of securities, are included in

“Commissions and other portfolio transaction costs” in the Statements of Operations.

(c) Cost of Investments

Cost of investments represents the amount paid for each security and is determined on an average cost basis excluding

commissions and transaction costs.

Notes to the Financial Statements


(d) Investment Transactions and Income Recognition

Investment transactions are accounted for on the trade date for financial reporting purposes and any unrealized and realized

gains and losses on such transactions are calculated on an average cost basis.

Dividend income and distributions from investments are recognized on the ex-dividend/ex-distribution date and interest

income is accounted for on the accrual basis.

Distributions received from income trust holdings are recorded as income, capital gains or a return of capital, based on

the best information available to the Manager. Due to the nature of these investments, actual allocations could vary from

this information. Distributions from income trusts that are treated as a return of capital for income tax purposes reduce the

average cost of the underlying investment trust.

(e) Foreign Exchange

Foreign currency amounts are translated into Canadian dollars the functional currency of the Trust as follows: fair value of

investments, forward currency contracts, other assets and liabilities at the closing rate of exchange on each business day;

income and expenses, purchases, sales and settlements of investments at the rate of exchange prevailing on the respective

dates of such transactions. Foreign exchange gains (losses) on completed transactions are included in “Foreign exchange

gain (loss)” as reflected in the Statements of Operations.

(f) Increase (Decrease) in Net Assets from Operations per Unit

Increase (decrease) in net assets from operations per unit in the Statements of Operations is calculated by dividing the

increase (decrease) in net assets from operations by the weighted average number of units outstanding during the period.

(g) Forward Contracts

The Trust may enter into forward contracts. Forward foreign currency contracts are valued on each valuation day based on the

difference between the value of the contract on the date the contract originated and the value of the contract on the valuation day.

All unrealized gains (losses) arising from forward foreign currency contracts are recorded as part of “Change in unrealized

appreciation (depreciation) of investments and derivatives” in the Statements of Operations and “Unrealized gain (loss) on

futures and forward currency contracts” in the Statements of Net Assets until the contracts are closed out or expire, at which

time the gains (losses) are realized and reported as “Realized gain (loss) on investments” in the Statements of Operations.

(h) Cash and Short-Term Investments

Cash is comprised of cash on deposit. Short-term investments are comprised of short-term debt instruments with terms to

maturity of less than one year at acquisition.

(i) Net Asset Value per Unit

Net asset value per unit is calculated at the end of each day on which the Toronto Stock Exchange is open for business by

dividing the total net asset value by outstanding units.

(j) Income Taxes

The Trust complies with the Income Tax Act (Canada) to qualify as a mutual fund trust. A mutual fund trust is subject to tax in

each taxation year under Part 1 of the Income Tax Act (Canada) on the amount of its income for the year, including net realized

taxable capital gains, less the portion thereof that it claims in respect of the amounts paid or payable to the unitholders for the

year. 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.

Notes to the Financial Statements (cont’d)


(k) Use of Estimates

The preparation of financial statements in accordance with Canadian GAAP requires management to make estimates and

assumptions that affect the reported amounts of assets and liabilities at the reporting date and the reported amounts of income

and expenses during the reporting year. 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 disposal of investments when necessary.

The Trust is authorized to issue an unlimited number of redeemable, transferable units of one class, each of which represents

an equal, undivided interest in the net assets of the Trust. Unitholders are entitled to redeem their units outstanding monthly

(the “Monthly Redemption”) or at the end of each year (the “Annual Redemption”). Monthly redemption price per unit is

equal to the lesser of: (a) 90% of the 10 day average trading price on the applicable monthly valuation date; and (b) the

“closing market price” per unit on the applicable monthly valuation date. Annual redemption price per unit is equal to net

asset value per unit determined on the annual valuation date.

Unless the transfer agent and registrar is directed that units are being surrendered for redemption pursuant to a monthly

redemption, units surrendered for redemption within the period commencing 45 days and ending ten business days prior

to the second last day of December in any year will be deemed to have been surrendered for the Annual Redemption.

The Trust endeavours to provide unitholders with monthly distributions of $0.1458 per unit ($1.75 per annum to yield

7.0% on the subscription price of $25.00 per unit). Distributions commenced on November 28, 2003 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 2010 2009

Balance, beginning of year 1,572,315 1,734,677Units redeemed (156,240) (162,362)Balance, end of year 1,416,075 1,572,315

When units of the Trust are redeemed at a price per unit which is lower than the average cost per unit of capital, the difference

is included in “Contributed surplus” on the Statements of Net Assets. If the redemption price is greater than the average cost of

capital, the difference is first charged to “Contributed surplus” until the entire account is eliminated, and the remaining amount

is charged to “Retained Earnings (Deficit)” in the Statements of Net Assets.

4. FEES AND OTHER EXPENSES(a) Management fees The Trust pays to the Manager an annual fee (“Management fees”) equal to 1.10% of the net asset value of the Trustcalculated and paid monthly in arrears.

(b) Service FeesThe Manager will pay to registered dealers of the Trust an annual fee of 0.40% of the net asset value for units held by clientsof the sales representatives of the registered dealers, calculated and payable semi-annually in arrears.



(c) Administrative ExpensesThe Trust is also responsible for all its expenses incurred in connection with its operations and administration, includingtrustee fees, audit and legal fees, transfer agency, custody, accounting fees and independent review committee fees.

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

(d) Harmonized Sales TaxAs of July 1, 2010, Ontario combined the federal goods and services tax (“GST” - 5%) with the provincial retail sales tax(“PST” - 8%). The combination resulted in a Harmonized sales tax (“HST”) rate of 13%.

5. MARKET REPURCHASE PROGRAMIn accordance with the Trust’s prospectus, and to enhance liquidity and to provide support to the units, the Trust has amandatory market purchase program under which the Trust, subject to exceptions contained in the Trust Agreement and incompliance with any regulatory requirements, is obligated to purchase its own units for cancellation. If, on any business day,the price at which units are offered for sale is less than 90% of the net asset value per unit determined as of the most recentvaluation date, the Trust will offer to purchase for cancellation any units offered in the market at the then prevailing marketprice. The maximum number of units to be purchased in any three month period will not be over 1.25% of the number ofunits outstanding at the beginning of such period. During the years ended December, 2010 and 2009, the Trust made nopurchase of units for cancellation.

6. BROKERAGE AND OTHER COMMISSIONSCommissions paid for security transactions during the years ended December 31, were as follows:

(in $000’s) 2010 2009

Brokerage CommissionsConvertible & Yield Advantage Trust 53 44

Soft Dollar Commissions†

Convertible & Yield Advantage Trust 1 2

†A portion of brokerage commissions paid was used to cover research and market data services, termed soft dollar commissions. These amountshave 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. The minimum level of collateralization in respect of a

loan of securities will be 102%. The Trust may also receive a fee or interest on the collateral and may pay lending fees to a party

arranging the loan. As at December 31, 2010 and 2009 the Trust was not engaged in securities lending.

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 net investment income.



Losses carry forwards (in $000’s)

2010

Net capital losses carry forward 7,101

Year of expiry 2014 2015 2026 2027 2028 2029 2030 Total

Non-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:

2010 2009

Net assets per unit 22.35 19.71

Net asset value per unit 22.39 19.76

10. RELATED PARTY TRANSACTIONSThe Bank of Nova Scotia has a significant interest in CI Financial Corp., the parent company of the Manager. The Trust 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, if applicable.

The Trust paid $6,896 in brokerage commissions to The Bank of Nova Scotia during the year ended December 31, 2010.

11. INTERNATIONAL FINANCIAL REPORTING STANDARDSOn February 13, 2008, the Canadian Accounting Standards Board (“AcSB”) confirmed that the use of International Financial

Reporting Standards (“IFRS”) will be required for all publicly accountable profit-oriented enterprises for interim and annual financial

statements relating to fiscal years beginning on or after January 1, 2011. On January 12, 2011, the AcSB confirmed further deferral

of the IFRS changeover date for investment funds. Based on the AcSB decision IFRS will become effective for interim and annual

financial statements relating to fiscal years beginning on or after January 1, 2013 instead of January 1, 2011.

Based on the Manager’s current evaluation of the differences between IFRS and Canadian GAAP, the Manager currently does not

expect any impact to net asset value or net asset value per unit, at this time, as a result of the transition to IFRS, and expects that

the main impact will be on the financial statements, where additional disclosures or changes in presentation will be required.

Further updates on the progress in the implementation of the IFRS transition plan and any changes to reporting will be provided

during the implementation period leading up to the transition date.

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 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.



13. FINANCIAL INSTRUMENTS RISK Risk Management

The Trust is exposed to a variety of financial instruments risks: credit risk, liquidity risk and market risk (including interest rate risk,

currency risk and other price risk). The level of risk to which the Trust is exposed to depends on the investment objective and the

type of investments held by the Trust. The value of the investments within the portfolio can fluctuate daily as a result of changes

in prevailing interest rates, economic and market conditions and company specific news related to investments held by the Trust.

The Manager of the Trust may minimize potential adverse effects of these risks on the Trust’s performance by, but not limited to,

regular monitoring of the Trust’s positions and market events, diversification of the investment portfolio by asset type, issuer, sector,

term to maturity within the constraints of the stated objectives, and through the usage of derivatives to hedge certain risk exposures.

Other Price Risk

Other price risk is the risk that the value of financial instruments will fluctuate as a result of changes in market prices (other than

those arising from interest rate risk or currency risk). The value of each investment is influenced by the outlook of the issuer and

by general economic and political conditions, as well as industry and market trends. All securities present a risk of loss of capital.

Except for options written, future contracts sold short and investments sold short, the maximum risk resulting from financial

instruments is equivalent to their fair value.

Other assets and liabilities are monetary items that are short-term in nature and therefore are not subject to significant other price risk.

Interest Rate Risk

Interest rate risk is the risk that the fair value of interest-bearing investments and interest rate derivative instruments will fluctuate

due to changes in prevailing levels of market interest rates. As a result, the value of the Trust will be affected by changes in applicable

interest rates as it invests in debt securities and income trusts. If interest rates fall, the fair value of existing debt securities may

increase due to the increase in yield. Alternatively, if interest rates rise, the yield of existing debt securities decrease which may then

lead to a decrease in their fair value. The magnitude of the decline will generally be greater for long-term debt securities than for

short-term debt securities.

Interest rate risk also applies if the Trust invests in convertible securities. The fair value of these securities varies inversely with interest

rates, similar to other debt securities. However, since they may be converted into common shares, convertible securities are generally

less affected by interest rate fluctuations than other debt securities.

Currency Risk

Currency risk arises from financial instruments that are denominated in a currency other than the Canadian dollar, the functional

currency of the Trust. As a result, the Trust may be exposed to the risk that the value of securities denominated in other currencies

will fluctuate due to changes in exchange rates. The Statement of Investment Portfolio identifies all bonds and derivative instruments

denominated in foreign currencies. Equities traded in foreign markets are exposed to currency risk as the prices denominated in

foreign currencies are converted to the Trust’s functional currency to determine their fair value.

Credit Risk

Credit risk is the risk that a security issuer or counterparty to a financial instrument will fail to meet its financial obligations. The

fair value of debt instruments includes consideration of the credit worthiness of the debt issuer. Credit risk exposure for derivative

instruments, if applicable, is based on the Trust’s unrealized gain of the contractual obligations with the counterparty as at the

reporting date. The credit risk exposure of the Trust’s other assets are represented by their carrying amount as disclosed in the

Statements of Net Assets.

Credit ratings for 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 schedule in the

Statement of Investment Portfolio.

Credit Rating as per Credit Risk table Credit Rating as per derivatives schedules

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

Significant cash balances as disclosed in the Statements of Net Assets are maintained by the Custodian, RBC Dexia. The Manager

monitors the credit worthiness of the custodian on a regular basis.

All transactions executed by the Trust in listed securities are settled / paid for upon delivery using approved brokers. The risk of

default is considered minimal, as delivery of securities sold is only made once the broker has received payment. Payment is made

on a purchase once the securities have been received by the broker. The trade will fail if either party fails to meet its obligation.

Liquidity Risk

Liquidity risk is the risk that the Trust may not be able to settle or meet its obligations, on time or at a reasonable price. The Trust is

exposed to monthly and annual cash redemptions of redeemable units. Therefore, the Trust aims to invest the majority of its assets in

investments that are traded in active markets and can be readily disposed of. In addition, the Trust aims to retain sufficient cash and

cash equivalent positions to maintain liquidity. From time to time, the Trust may enter into derivative contracts or invest in unlisted

securities that may not trade in an organized market and may be illiquid. Illiquid securities are identified in the Statement of

Investment Portfolio of the Trust, if applicable.

Fair Value Hierarchy

The Trust is required to classify financial instruments measured at fair value using a fair value hierarchy. Investments whose values

are based on quoted market prices in active markets are classified as Level 1. This level may include publicly traded equities,

exchange traded and retail mutual funds, exchange traded warrants, futures contracts, traded options, American depositary

receipts (“ADRs”) and Global depositary receipts (“GDRs”).

Financial instruments that trade in markets that are not considered to be active but are valued based on quoted market prices,

dealer quotations or alternative pricing sources supported by observable inputs are classified as Level 2. These may include fixed

income securities, mortgage backed securities (“MBS”), short-term instruments, non-traded warrants, over-the-counter options,

structured notes of indexed securities, foreign currency forward contracts and swap instruments.

Investments classified as Level 3 have significant unobservable inputs. Level 3 instruments may include private equities,

private term loans, private equity funds and certain derivatives. As observable prices are not available for these securities,

the Trust may use a variety of valuation techniques to derive the fair value.

Details of the Trust’s exposure to financial instruments risks including fair value hierarchy classifications are available in the

“Trust Specific Financial Instruments Risks” section of the financial statements.



Manager and TrusteeCI Investments Inc.2 Queen Street East, 20th FloorToronto, OntarioM5C 3G7Phone: (416) 364-1145Fax: (416) 364-6299Toll Free: [email protected]

CustodianRBC Dexia Investor Services Trust155 Wellington Street West5th FloorToronto, OntarioM5V 3L3

AuditorPricewaterhouseCoopers LLPSuite 3000, Box 82Royal Trust Tower, TD CentreToronto, OntarioM5K 1G8

Registrar & Transfer AgentComputershare Investor Services Inc.100 University Avenue8th FloorToronto, OntarioM5J 2Y1

ListedThe Toronto Stock Exchange

Ticker SymbolCNV.UN

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

Trust Information

SKYCNV-AR-03/11

Documents

FS Q410 ConvYield 6964 · 2011-03-25 · The accompanying financial statements have been prepared by CI Investments Inc., the Manager of the Convertible ... USD 1,000,000 Atlas Energy