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Press release from Marketwire

Deans Knight Income Corporation Releases Annual Management Report of Fund Performance and Financial Statements for the year ended December 31, 2011

Friday, March 09, 2012

Deans Knight Income Corporation Releases Annual Management Report of Fund Performance and Financial Statements for the year ended December 31, 201121:49 EST Friday, March 09, 2012VANCOUVER, BRITISH COLUMBIA--(Marketwire - March 9, 2012) - Deans Knight Income Corporation (the "Company") (TSX:DNC) is pleased to release its annual Management Report of Fund Performance and Financial Statements for the year ended December 31, 2011. These documents can be found on SEDAR at www.sedar.com or the Company's website: www.dkincomecorp.com. Forward-Looking Statements This press release contains forward-looking statements. More particularly, this press release contains forward-looking statements concerning the Company's corporate objectives, the investment of the Company's proceeds from the sale of investments previously made, availability of tax losses and deductions, the anticipated total return to the Company's shareholders and the Company's intention to pay out earned income in the form of monthly dividends. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, undue reliance should not be placed on them because the Company can give no assurance that they will prove to be correct since forward-looking statements address future events and conditions and by their very nature, involve inherent risks and uncertainties. The forward-looking statements contained in this press release are made as of the date hereof and the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, unless so required by applicable securities laws. Deans Knight Income CorporationAnnual Management Report of Fund Performance For 2011This annual management report of fund performance (the "Report") contains financial highlights of Deans Knight Income Corporation (the "Company"). This Report should be read in conjunction with the annual financial statements of the Company for the year ended December 31, 2011 (the "Financial Statements"), which, if not included with this Report, can be obtained at your request, at no cost by emailing info@dkincomecorp.com, visiting our website at www.dkincomecorp.com for contact details or on SEDAR at www.sedar.com. Readers may also contact us to request a free copy of the Company's proxy voting policies and procedures, proxy voting disclosure record or quarterly portfolio disclosure.A NOTE ON FORWARD-LOOKING STATEMENTSThis Report contains certain forward-looking statements. In particular, this Report contains forward-looking statements in respect of the Company's targeted dividend payout, investment strategy, behaviour of financial markets and reflects the Company's expectations regarding the growth, results of operations, performance and business prospects and opportunities of the Company and its investments. In some cases, forward-looking statements can be identified by terminology such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential", "continue" or the negative of these terms or other comparable terminology. Such forward-looking statements reflect the Company's current beliefs and are based on information currently available to the Company. With respect to such forward-looking statements, the Company has made assumptions regarding, among other things, what type of debt securities will be included in its investment portfolio, currency, exchange and interest rates. A number of factors could cause actual events or results to differ materially from the results discussed in the forward-looking statements. In evaluating these statements, prospective investors should specifically consider various factors, including global equity and capital markets, business competition, technological change, changes in government regulations, unexpected judicial or regulatory proceedings, and catastrophic events and the risks outlined under "Risk Factors" in the AIF (as defined herein), which may cause actual results to differ materially from any forward-looking statement. Although the forward-looking statements contained in this Report are based upon what the Company believes to be reasonable assumptions, the Company cannot assure investors that actual results will be consistent with these forward-looking statements. Forward-looking statements are made as of the date of this Report and, other than as required by applicable law, the Company assumes no obligation to update or revise them to reflect new events or circumstances. This Report also contains certain financial and operational information obtained from public sources in respect of certain companies included in the Company's investment portfolio. While management believes this data to be reliable, such information is subject to variations and may not be able to be verified due to limits on the availability and reliability of data inputs, the nature of the data gathering process and other limitations and uncertainties inherent in such information. Accordingly, the accuracy, currency and completeness of this information cannot be guaranteed. The Company has not independently verified any of the data from third party sources referred to in this Report or ascertained the underlying assumptions relied upon by such sources.Investment Objectives and StrategiesThe Company is a closed-end, non-redeemable investment company focused on investing in corporate debt securities. The Company's assets are actively managed by Deans Knight Capital Management Ltd. ("Deans Knight"), a respected British Columbia-based investment firm focused on managing high income and growth mandates for high net worth individuals. Deans Knight, formed in 1992, has an experienced management team and a long history of successful investing in corporate debt securities.The Company's investment objectives are to: (i) maximize the total return for shareholders, consisting of dividend income and capital appreciation; and (ii) provide shareholders with monthly dividends, which to date have been set at $0.0583 per share per month. The Company intends to achieve these objectives by investing primarily in corporate debt securities rated BBB or below by Standard & Poor's Rating Services ("S&P") or an equivalent rating by another nationally recognized statistical rating organization. The Company may also invest in investment grade debt securities rated above BBB and non-rated debt securities from time to time. Examples of investments made during the period are detailed below in the Results from Operations. The Company believes there are attractive investment opportunities today in owning corporate debt of businesses with tangible assets, strong cash flows and reasonable leverage. When evaluating securities to purchase for the Company, Deans Knight focuses on the following:amount of security or collateral within a business to support the value of the securities; the position of the debt in the capital structure; covenants; liquidity; the business' ability to reduce or refinance the debt; and the overall term of the debt and yield to bondholders. Deans Knight intends to employ the above credit-based analysis to identify corporate debt for inclusion in the Company's investment portfolio with attractive valuations in order to maintain its targeted dividend payment. RiskThe overall risks of the Company are as described in its annual information form of the Company dated March 9, 2012 (the "AIF"). Prior to the reorganization and change in business as discussed in Note 1 of the Financial Statements, the Company generated significant tax losses and other tax attributes as a result of its prior businesses and research activities. The Company has recorded, as a tax asset, the full amount of the potential tax benefit of such items to the extent of its projected taxable income. There is uncertainty as to whether the tax authorities will allow the Company to deduct some or all of the tax losses and other attributes. Should the Company be denied the deductions in full, the recorded amount of the tax assets as well as such amounts claimed to date would be recorded as a charge to income. The total tax assets recognized and tax losses and other attributes claimed to date, which are subject to uncertainty, amount to $21,024,806 (2010 - $20,747,249), representing $2.00 per common share at December 31, 2011 (2010 - $1.97).There were no significant changes during the year ending December 31, 2011 that affected the overall risk of investing in the Company. Given the type of investments made by the Company, an investment in the Company may be considered to be speculative. An investment in the Company is generally suitable for investors who are looking to receive income, yet are willing to tolerate volatility in the value of their investment. Results of OperationsThe net assets of the Company at December 31, 2011 were $141,539,920 or $13.43 per common share (2010 - $143,343,361 or $13.60 per common share). The net assets of the Company consisted of the following components:December 31, 2011$Per common share(1)%Investments(2)129,918,54312.3391.8Cash and short-term deposits4,997,7150.473.5Accrued income2,339,7510.221.7Prepaid expenses73,1510.010.0Future income tax asset(3)4,920,0000.473.5Accounts payable and accrued liabilities(709,240)(0.07)(0.5)141,539,92013.43100.0(1)Based on 10,537,263 common shares, including 10,191,592 voting common shares and 345,671 non-voting common shares, as outlined in the notes to the Financial Statements. (2)The details of the investments are outlined in the Summary of Investment Portfolio below. (3)Refer to the Taxation note to the Financial Statements for more detail. December 31, 2010$Per common share(1)%Investments(2)128,449,45012.1989.6Cash and short-term deposits7,137,9670.685.0Accrued income1,808,7560.171.2Prepaid expenses89,6620.010.1Future income tax asset(3)6,550,0000.624.6Accounts payable and accrued liabilities(692,474)(0.07)(0.5)143,343,36113.60100.0(1)Based on 10,537,263 common shares, including 10,191,592 voting common shares and 345,671 non-voting common shares, as outlined in the notes to the Financial Statements. (2)The details of the investments are outlined in the Summary of Investment Portfolio below. (3)Refer to the Taxation note to the Financial Statements for more detail. The majority of the decline in net assets of the Company, from $13.60 per share to $13.43 was the result of the $1,630,000, or $0.15 per share, decrease in the value of the future income tax asset recorded by the Company. This asset decreased as the Company realized the benefits of the assets sheltering the current year's taxable income.Net investment income for the year ended December 31, 2011 was $8,837,650 or $0.84 per share (2010- $7,376,571, or $0.70 per share). The increase in net investment income of $1,461,079 was predominantly from the Company's investment portfolio having more capital invested in 2011 than 2010, and from redeploying capital into higher yielding income generating securities upon the sale of a portion of Whitecap Resource Inc. common shares held by the Company. At December 31, 2011, the Company still owned 1,254,167 shares of Whitecap (7.3% of the Net Asset Value at December 31, 2011). During 2011, the Company made monthly dividend payments totalling $7,371,869, or $0.70 per share (2010 - $7,371,869, or $0.70 per share). This represented approximately 83.4% of Net investment income (2010 - 99.9%). On January 9, 2012, the Company announced it will maintain monthly cash dividends at $0.0583 per share for each of the first three months of 2012.As we outlined in our Q3-2011 press release, high yield bond prices were volatile for the first 9 months of the year with spreads peaking around September 30, 2011. High yield bond prices improved in the fourth quarter and, despite the volatility, the net assets of the Company remained relatively flat in 2011, excluding the decrease in the future income tax asset. As you will see from the graph below, although spreads have declined since September 30th, they are still above the long term average, and as such the Company is still seeing attractive investment opportunities.A graph of the Credit Spread History is available at the following address: http://media3.marketwire.com/docs/creditspreadhistory.pdfWill the volatility in high yield bond prices continue in 2012? The honest answer is we don't know. What we do know is as a bondholder, the most important consideration is the borrowers' ability to meet their coupon payments and pay us back our principal at maturity. A secondary consideration is whether or not we are being compensated for the risk that they fail to meet these obligations. We own corporate debt of businesses with tangible assets as collateral, strong cash flows and reasonable leverage. There are currently no defaults in our portfolio and all of our holdings are servicing their debt while, in most cases, continuing to reduce leverage. Although bonds could get cheaper, the Company believes current prices offer investors attractive returns; especially given their position in the capital structure.At December 31, 2011, the Company is paying a monthly dividend equal to $0.70 per share per annum, or 5.2% of the net asset value at December 31, 2011. Further, the investment portfolio provides a yield to maturity of 8.4%. We believe this offers a strong incentive for investors to move out of treasury securities and investment grade bonds and into higher yielding corporate bonds.A graph of bond ratings is available at the following address: http://media3.marketwire.com/docs/5yearcanadian.pdfIn addition to corporate bonds, we will also opportunistically invest in private debt financings with equity incentives that provide equity-like returns.During the fourth quarter, Deans Knight Capital Management designed and the Company participated in a $12 million Secured Note with Conifex Timber Inc. ($3.0 million or 2.1% of the Net Asset Value at December 31, 2011). The proceeds from the note will be used for general corporate purposes. Conifex is a lumber producer with sawmills in the northern interior of BC. It owns sawmills in two British Columbia locations, Fort St. James and Mackenzie, with a combined capacity of approximately 745 million foot board measure. Conifex holds forest licences with average allowable cut of 1.573 million m3 of timber in the Prince George and Mackenzie Timber Supply Areas, providing them with ample supply of sawlogs.In the last three years, Conifex has invested $80 million into its sawmills and current operations are generating positive EBITDA despite depressed lumber prices. A recent sale of assets in British Columbia, by Tembec, for $60 million provides further evidence that the debt of Conifex is secured by the assets. They have almost double the capacity and 50% more allowable cut which would value the assets at approximately $100 million. Including our facility, Conifex can have up to $24.5 million in debt.The notes mature on December 31, 2012 and bear interest at 10% for the first six months and 12% for the remaining term of the loan. In addition to the coupon, the Company received a commitment fee of 2% and warrants to purchase 81,250 common shares at a price of $9.50 per share, which mature on December 31, 2014. At year end, the common stock closed at $7.25.As reported in our Q3-2011 operational update, the Company participated in an $18 million Secured Subordinated Revenue Note with RapidEye Canada Ltd. The proceeds from the financing were used to acquire the assets of RapidEye AG, a global provider of high-resolution imagery and geospatial solutions, out of bankruptcy. On December 7, 2011, RapidEye Canada repaid $5 million of the Notes, at Par, leaving $13 million outstanding. At December 31, 2011, the Company held $5,281,250 of these Notes, equaling 4.1% of the Net Asset Value.Recent DevelopmentsComparison of net asset value and net assetsNational Instrument 81-106 ("NI 81-106") permits investment companies to have two different net asset values: (i) one for financial statements, which will be prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP") including Section 3855 (and referred to as "net assets") and (ii) another for all other purposes, including unit pricing for investor transactions (referred to as "net asset value"). The main difference in calculating net assets and net asset value is that GAAP requires bid price to be used in valuing securities traded in an active market where quoted prices are readily and regularly available, rather than the use of a price between the bid and the ask price currently used for determining net asset value. This difference results in an insignificant difference of approximately $0.06 per common share at December 31, 2011 (2010 - $0.05 per common share), as outlined in the notes to the Financial Statements.International Financial Reporting StandardsThe Company will be required to adopt international financial reporting standards ("IFRS"). The Canadian Accounting Standards Board (AcSB) previously announced January 1, 2011 as the date international financial reporting standards (IFRS) would replace current Canadian standards and interpretations as GAAP for publicly accountable enterprises, which include investment companies. In December 2011, the AcSB issued a decision to defer adoption of IFRS for investment companies currently applying Accounting Guideline 18 - Investment Companies until years beginning on or after January 1, 2014.Under the above noted decision, the Company's first set of financial statements to be reported on under IFRS would be for the semi-annual period ending June 30, 2014. These statements would include corresponding comparative financial information for 2013, including an opening statement of net assets as at January 1, 2013. However, the Company has a termination date of April 30, 2014, and as such will not be required to issue statements reported on under IFRS. The Company will continue to monitor any further AcSB decisions that may affect the Company's requirement to adopt IFRS.Harmonized Sales TaxThe Corporation is subject to non-recoverable Harmonized Sales Tax on its expenses. The BC Government has announced that the Harmonized Sales Tax will be replaced by the Federal Goods and Services Tax and a Provincial Sales Tax in 2013; however, the legislation has not yet been announced. Accordingly, until further information becomes available the impact cannot be quantifiedRelated Party TransactionsThe officers, and certain directors, of the Company are also employees of Deans Knight, the Company's investment advisor. These officers, and directors, are not paid by the Company. Deans Knight provides investment management services to the Company, as well as administration, financial reporting and other ancillary services required by a publicly listed company. Management fees, for the services outlined above, are computed and paid quarterly, at an annual rate of 1.5% of the net asset value plus applicable taxes, and adjusted for certain non-investment related assets. For the year ended December 31, 2011, management fees totaled $2,283,158 (2010 - $2,110,657). At December 31, 2011, $575,224 (December 2010- $599,474) was owed to Deans Knight, which was included in accounts payable and accrued liabilities in the statement of net assets, and is payable immediately. In calculating the management fee, the net asset value was reduced by the value of the future income tax asset included in the statement of net assets.A director of the Company is a partner at a law firm that provides legal services to the Company. During the year ended December 31, 2011, the Company incurred $42,750 (2010 - $30,195) in legal services and disbursements received from this related party. At December 31, 2011, accounts payable and accrued liabilities include $4,185 (2010 - $1,355) due to the law firm for legal fees and disbursements.Financial HighlightsThe following tables show selected key financial information about the Company and are intended to help you understand the Company's financial performance since it began operating its new business of investing in corporate debt in March 2009. The Company's Net Assets per Common Share (1)2011 $2010 $Net assets, beginning of year (2)13.6012.21Increase from operationsTotal revenue1.100.94Total expenses(0.26)(0.24)Realized gains0.361.82Unrealized losses(0.52)(0.27)Future income taxes(0.15)(0.16)Total increase from operations (2)0.532.09Dividends (2)(3)From income(0.70)(0.70)Net assets at end of year (4)13.4313.60(1)The information is derived from the Company's audited annual financial statements. Common shares outstanding are 10,537,263, including 10,191,592 voting common shares and 345,671 non-voting common shares. (2)Net assets and dividends are based on the actual number of shares outstanding at the relevant time. The increase/decrease from operations is based on the weighted average number of shares outstanding over the year. (3)Dividends were paid in cash. (4)The net assets per share presented in the financial statements differs from the net asset value per share calculated for fund pricing purposes due to the provisions of CICA Handbook Section 3855. An explanation of the differences can be found in the notes to the financial statements. Ratios and Supplemental Data (1)20112010Net asset value (000's)$142,178$143,880Number of common shares outstanding (000's)10,53710,537Management expense ratio (2)1.90%1.91%Portfolio turnover rate (3)79.90%86.60%Trading expense ratio (4)0.00%0.01%Net asset value per common share$13.49$13.65Closing market price - common share$11.84$12.54(1)This information is provided as at December 31 of the years shown. (2)Management expense ratio is based on total expenses for the period and is expressed as an percentage of weekly average net asset values over the year. (3)The Company's portfolio turnover rate indicates how actively the Company manages its portfolio investments. A portfolio turnover rate of 100% is equivalent to the Company buying and selling all of the securities in its portfolio once in the course of the year. The higher a portfolio turnover-rate in a year, the greater the trading costs payable by the Company in the year. There is not necessarily a relationship between a high turnover rate and the performance of the investment portfolio. (4)The trading expense ratio represents total commissions and other portfolio transaction costs expressed as an annualized percentage of daily average net asset value during the period. This expense is $nil for 2011 (2010- $13,500), as the purchasing and selling of bonds do not attract a commission from the buying or selling party. Management FeesDeans Knight provides investment management services to the Company, as well as administration, financial reporting and other ancillary services required by a publicly listed company. Management fees are computed and paid quarterly, at an annual rate of 1.5% of the net asset value plus applicable taxes, and adjusted for certain non-investment related assets. Past PerformanceThis section shows the Company's past performance, since it began operating its business as an investment fund. The past performance information includes changes in net asset value and assumes the reinvestment of all dividends paid to common shareholders. It is important to note that the past performance will not necessarily indicate what performance in the future will be.Year-by-year ReturnsThe accompanying bar chart shows the Company's performance for the years shown and illustrates how the Company's performance has changed from year to year. The bar chart shows, in percentage terms, how much an investment made from when the Company began its operation as an investment fund on March 17, 2009 to December 31, 2009, and how much an investment made for the years ending December 31, 2010 and 2011. A bar chart is available at the following address: http://media3.marketwire.com/docs/inception.pdfAnnual Compound ReturnsThe table below summarizes the Company's annual compound total returns for the periods ended December 31 as indicated. As a basis for comparison, we have provided the performance of the Merrill Lynch Canada High Yield Bond Index ("Index"). The Index is a broad based index that tracks the performance of the Canadian high-yield bond market. As the criteria for determining the constituents of the Company's investment portfolio and the Index differ, it is not expected that the Company's performance will mirror that of the Index. Further, the return of the Index is calculated without the deduction of management fees and fund expenses whereas the performance of the Company is calculated after deducting fees and expenses.Annual Compound ReturnsCompanyIndex1 Year4.4%3.1%2 Years10.3%8.2%Since Inception16.7%24.4%Summary of Investment PortfolioThe following is a summary of the Company's investment portfolio as at December 31, 2011. This is a summary only and will change due to ongoing portfolio transactions of the Company. A quarterly update is available at www.dkincomecorp.com.A table of the investment portfolio is available at the following address: http://media3.marketwire.com/docs/summaryofinvestment.pdfDeans Knight Income CorporationFinancial Statements December 31, 2011 Deans Knight Income CorporationStatement of Net Assets As at December 31, 20112011 $2010 $AssetsCurrentInvestments - at fair value (cost - $125,475,983; 2010 - $118,563,957)129,918,543 128,449,450Cash and cash equivalents4,997,7157,137,967Accrued interest receivable2,339,7511,808,756Prepaid expenses73,15189,662Future income tax benefits (note 7)2,180,0002,150,000139,509,160139,635,835Non-currentFuture income tax benefits (note 7)2,740,0004,400,000142,249,160144,035,835LiabilitiesAccounts payable and accrued liabilities (note 5)709,240692,474Net assets141,539,920143,343,361Shareholders' equityCommon shares (note 3)99,366,42999,366,429Contributed surplus (note 3)9,904,5049,904,504Retained earnings (note 4)32,268,98734,072,428141,539,920143,343,361Number of common shares outstanding (note 3)10,537,26310,537,263Net assets per common share (notes 7 and 10)13.4313.60Contingencies (notes 1 and 7)Commitment (note 9)Subsequent events (note 11)Approved by the Board of Directors(signed) Craig Langdon, Director(signed) Wayne Deans, DirectorThe accompanying notes are an integral part of these financial statements.Deans Knight Income CorporationStatement of OperationsFor the year ended December 31, 20112011 $2010 $Investment incomeInterest and other11,607,2939,985,529ExpensesManagement fees (note 5)2,283,1582,110,657Directors' fees and expenses157,681136,347Public company reporting costs141,111127,949Audit, accounting and tax fees87,003142,515Custodial fees51,35435,795Legal fees (note 5)37,33630,195Independent Review Committee fees12,00012,000Transaction costs-13,5002,769,6432,608,958Net investment income8,837,6507,376,571Realized and unrealized gains (losses) on investmentsNet realized gain on investments sold (note 6)4,695,88915,928,417Net realized (loss) gain on settlement of foreign currency contracts (note 6)(892,178)3,227,698Change in unrealized appreciation on investments(5,832,280)(3,674,974)Unrealized appreciation on foreign currency contracts389,347825,824Net (loss) gain on investments(1,639,222)16,306,965Increase in net assets from operations before tax7,198,42823,683,536Provision for future income tax (note 7)(1,630,000)(1,650,000)Increase in net assets from operations5,568,42822,033,536Increase in net assets from operations per weighted average common share (note 2)0.532.09The accompanying notes are an integral part of these financial statements.Deans Knight Income CorporationStatement of Changes in Net AssetsYear ended December 312011 $2010 $Increase in net assets from operations5,568,42822,033,536Dividends to common shareholders (notes 4 and 9)(7,371,869)(7,371,869)(Decrease) increase in net assets during the year(1,803,441)14,661,667Net assets - Beginning of year143,343,361128,681,694Net assets - End of year141,539,920143,343,361The accompanying notes are an integral part of these financial statements.Deans Knight Income CorporationStatement of Cash FlowsFor the year ended December 31, 20112011 $2010 $Cash flows from operating activitiesIncrease in net assets from operations5,568,42822,033,536Items not affecting cashNet realized gain on investments sold(4,695,889)(15,928,417)Net realized loss (gain) on settlement of foreign currency contracts892,178(3,227,698)Change in unrealized appreciation on investments5,832,2803,674,974Unrealized appreciation on foreign currency contracts(389,347)(825,824)Future income tax provision1,630,0001,650,0008,837,6507,376,571Cost of investments purchased (note 6)(62,743,948)(106,283,479)Proceeds from investments sold (note 6)59,635,633107,386,034Net change in non-cash balances related to operationsAccrued interest receivable(530,995)(138,508)Prepaid expenses16,511178Accounts payable and accrued liabilities16,766126,2845,231,6178,467,080Cash flows from financing activitiesDividends paid to common shareholders (note 4 and 9)(7,371,869)(7,371,869)Net (decrease) increase in cash and cash equivalents during the year(2,140,252)1,095,211Cash and cash equivalents - Beginning of year7,137,9676,042,756Cash and cash equivalents - End of year4,997,7157,137,967Cash and cash equivalents compriseCash2,402,6315,340,955Short-term deposits2,595,0841,797,0124,997,7157,137,967The accompanying notes are an integral part of these financial statements.Deans Knight Income CorporationStatement of Investments As at December 31, 2011Par value 1$Average cost ² $Fair value ² $Percentage of total fair value3%Fixed income - CanadianDenominated in Canadian dollarsAir Canada 10.13% 08-01-20151,500,0001,485,6901,342,5001.0Black Press Group 10.00% 02-04-20142,7502,750,0002,701,8752.1Cara Operations Ltd. 9.13% 12-01-20153,500,0003,500,0003,473,7502.7Conifex Timber Inc. 10.00% 12-31-2012 53,000,0003,000,0003,000,0002.3Flint Energy Services 7.50% 06-15-20191,250,0001,237,5001,225,0000.9Garda World Security 9.75% 03-15-20172,500,0002,472,1052,525,0001.9Gateway Casinos 8.88% 11-15-20172,750,0002,816,8752,791,2502.1Mercator Minerals 6.50% 01-03-2013 54,500,0004,500,0004,500,0003.5North American Energy Partners Inc. 9.13%8,750,0008,793,1258,487,5006.504-07-2017 4Paramount Resources 8.25% 12-13-20179,250,0009,250,0009,562,1887.4Perpetual Energy Inc. 8.75% 03-15-20185,000,0005,000,0004,625,0003.6RapidEye Canada 5.00% 08-31-2014 55,281,2505,281,2505,281,2504.1Sherritt International Corp. 7.75% 10-15-2015196,000152,233203,8400.2Sherritt International Corp. 8.00% 11-15-20183,750,0003,750,0003,834,3753.0Skylink Aviation Inc. 12.25% 03-15-20165,350,0005,277,2504,333,5003.3Sure Energy 6.25% 01-21-2014 52,500,0002,500,0002,500,0001.9Trident Exploration 8.25% 04-13-20181,650,0001,650,0001,468,5001.163,416,02861,855,52847.6Denominated in United States dollarsCCS Inc. 11.00% 11-15-20157,750,0003,879,4237,684,7065.9CHC Helicopter 9.25% 10-15-2020250,000253,623228,8250.2Mirabela Nickel Ltd. 8.75% 04-15-20187,850,0007,512,8977,145,1885.5National Money Mart 10.38% 12-15-20163,750,0004,091,1144,071,1783.2Pacific Rubiales Energy Corp. 7.25%2,300,0002,365,7802,339,1001.812-12-2021Southern Pacific Resources Libor+8.5% 07-01-20165,940,0005,868,0316,010,7754.6Tembec Industries 11.25% 12-15-20185,000,0005,287,9755,237,5504.029,258,84332,717,32225.2Total Canadian fixed income92,674,87194,572,85072.81 Par values are presented in their source currency 2 All amounts are shown in Canadian dollars 3 Percentages are shown as a percentage of total investments 4These investments share a common director with the Company 5 These investments represent loans receivable The accompanying notes are an integral part of these financial statements.Par value 1$Average cost 2 $Fair value 2$Percentage of total fair value3%Fixed income - United StatesDenominated in United States dollarsABI Escrow Corp. 10.25% 10-15-20181,390,0001,433,0901,551,4591.2Beazer Homes USA, Inc. 9.13% 06-15-20183,250,0003,327,0562,264,0961.7Calfrac Holdings LP 7.5% 12-01-20206,000,0006,130,3295,949,4504.6McMoRan Exploration Co. 11.88% 11-15-20142,000,0002,114,4712,156,0401.7Number Merger Sub 11.00% 12-15-20191,850,0001,926,5841,890,8571.5Stone Energy Corp. 8.63% 2-01-20178,750,0008,821,6388,987,7386.9Total United States fixed income23,753,16822,799,64017.5Total fixed income116,428,039117,372,49090.3Convertible debentures - AustralianDenominated Australian dollarsWestern Areas NL 8.0% 07-02-20121,500,0001,322,2761,554,2181.21,322,2761,554,2181.2EquitiesConifex Timber Inc.- purchase warrants81,250-32,1290.0Sure Energy Inc.- purchase warrants625,000-173,3150.1Whitecap Resources Inc.- common shares1,254,1677,725,66810,397,0448.17,725,66810,602,4888.2Investments subtotal125,475,983129,529,19699.7HedgesDenominated in United States andAustralian dollarsForeign currency exchange contracts (note 8)55,500,000-389,3470.3125,475,983129,918,543100.01 Par values are presented in their source currency2 All amounts are shown in Canadian dollars3 Percentages are shown as a percentage of total investments4These investments share a common director with the Company5 These investments represent loans receivableThe accompanying notes are an integral part of these financial statements.Deans Knight Income CorporationNotes to Financial StatementsDecember 31, 20111 Nature of operations and basis of presentationDeans Knight Income Corporation (the "Company") is a corporation continued under the laws of Canada on April 11, 2001. The Company is a closed-end, non-redeemable investment company. It invests, primarily, in corporate debt rated BBB or below by recognized credit rating organizations. Prior to its reorganization in May 2008, the Company was a life sciences company involved in the research, development and commercialization of innovative products for the prevention and treatment of life-threatening diseases. Forbes Medi-Tech Inc ("Forbes"), who now carries on the prior business of the Company, has provided an indemnity to the Company with respect to liabilities relating to the Company's assets transferred to Forbes and the Company's prior business. In addition, Forbes obtained, on behalf of the Company, product liability insurance for certain claims that may arise in the future in connection with the Company's prior business. To date, no such claims or potential claims have arisen. There can be no assurance that the above noted guarantee will be sufficient to cover any future claims. In March 2009, the Company completed an initial public offering, whereby it raised gross proceeds of $100,368,900 and began operating its new business of investing in corporate debt. The common shares of the Company will be redeemed on, or around, April 30, 2014, for a cash amount equal to 100% of the net asset value per share. The accompanying financial statements are prepared in accordance with Part V of the Canadian Institute of Chartered Accountants Handbook, Pre-Changeover Accounting Standards (GAAP). All amounts are presented in Canadian dollars, unless otherwise noted.2 Summary of significant accounting policiesThe following is a summary of significant accounting policies followed by the Company:Financial instrumentsInvestments Investments are held for trading and are recorded at fair values determined as follows:Fixed income investments Fixed income investments traded on a public securities exchange or traded on an over-the-counter market are valued at the closing bid price. Where no closing bid price is available, the last sale or close price is used where, in management's opinion, this provides the best estimate of fair value. Unlisted or non-exchange traded investments, or investments where a last bid, sale or close price is unavailable, or investments for which market quotations are, in the Company's opinion, inaccurate, unreliable, or not reflective of all available material information, are valued at their fair value as determined by the Company using appropriate and accepted industry valuation techniques including valuation models. The fair value determined using valuation models requires the use of inputs and assumptions based on observable market data including volatility and other applicable rates or prices. In certain circumstances, the fair value may be determined using valuation techniques that are not supported by observable market data. The resulting values for investments not traded in an active market may differ from values that would be determined had a ready market existed, and the difference could be significant.Forward currency contracts Forward currency contracts are recorded at fair value. The proceeds (payments) on contracts settled during the year are included in the net realized gain on settlement of foreign currency contracts (note 6). The Company's policy is to hedge 95% - 105% of the fair value of foreign denominated investments with foreign exchange forward sell contracts.Public company equities Publicly traded equities are recorded at bid prices as quoted on recognized stock exchanges. The amounts at which the Company's publicly-traded investments could be disposed of currently may differ from the carrying value based on market quotes, as the value at which significant ownership positions are sold is often different than the quoted market price due to a variety of factors such as premiums paid for large blocks or discounts due to illiquidity.Warrants Warrants are recorded at their estimated fair value using appropriate and accepted industry valuation techniques. The impact of changes in fair value on net income of the Company arising from changes in estimated fair value of investments is recorded in the statement of operations.Cash and cash equivalents Cash and cash equivalents are accounted for at amortized cost. They consist of cash and deposits with maturities, at the time of purchase, of three months or less and are held with a Canadian chartered bank.Accrued interest receivable Accrued interest is designated as loans and receivables and is accounted for at amortized cost. Due to the immediate and short-term nature, the carrying value approximates fair value.Financial liabilities Financial liabilities, consisting of accounts payable and accrued liabilities, are designated as other financial liabilities and are accounted for at amortized cost. Due to the immediate and short-term nature, the carrying value approximates fair value.Investment transactions Investment transactions are recorded on the trade date. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of an investment, which include fees and commissions paid to agents, advisors, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. These costs are expensed and are included in the statement of operations.Income recognition Income from investments is recognized on an accrual basis. Interest income is accrued based on the number of days the investment is held during the year. Royalty income is recognized on an accrual basis as earned. Gains or losses on the sale of investments, including foreign exchange gain or loss on such investments, are calculated on an average cost basis.Forward foreign currency contracts Forward foreign currency contracts (note 8) entered into by the Company are valued at an amount that is equal to the gain or loss that would be realized if the position were to be closed out, which is equivalent to the difference between the deliverable asset and the value of the asset to be received. Changes in the value of a forward contract or the assets deliverable under such a contract are included as unrealized appreciation/depreciation of foreign currency contracts in the statement of operations.Foreign exchange Assets and liabilities denominated in foreign currencies are translated into Canadian dollars at the exchange rate applicable on the valuation date. Purchases and sales of investments, investment income and expenses are calculated at the exchange rates prevailing on the dates of the transactions.Fair value measurement Financial instruments are classified in a hierarchy that prioritizes the inputs to fair value measurement. Each level is based on the transparency of the inputs used to measure the fair values of assets and liabilities. The three levels of the fair value hierarchy are: Level 1 - inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities; Level 2 - inputs that reflect other than quoted prices that are observable for the assets or liabilities either directly or indirectly; Level 3 - inputs that are not based on observable market data.Income taxes The Company follows the asset and liability method of accounting for income taxes. Future income tax assets and liabilities are measured using rates expected to apply to the taxable income in the years in which the temporary differences are expected to be settled. The Company accounts for uncertain tax positions using the contingent liability model, whereby a provision is established only where it is likely that a payment will be required to be made. A valuation allowance is recognized to the extent it is more likely than not that future income tax assets will not be realized. Management has estimated the income tax provision and future income tax balances taking into account its expectation of future income and an interpretation of the various income tax laws and regulations. It is possible, due to the complexity inherent in estimating income taxes, that the tax provision and future tax balances could change (note 7), and the change could be significant.Use of estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses. Actual results could differ from those reported and such differences could be material. Significant areas involving the use of estimates include determining the estimated fair value of investments and future income tax assets. Comparative figures Certain of the comparative figures have been reclassified to conform with the current year presentation.Net assets per common share The net assets per common share is computed by dividing the net assets of the Company by the total number of common shares outstanding on the Statement of net assets date.Increase in net assets from operations per weighted average common share The increase in net assets from operations per common share represents the increase in net assets from operations divided by the weighted average number of common shares outstanding during the period. The weighted average number of shares outstanding during the year ended December 31, 2011 was 10,537,263 (December 31, 2010 - 10,537,263). This weighted average includes both the voting common shares and non-voting common shares of the Company. 3 Capital stockThe Company is authorized to issue an unlimited number of voting common shares without par value, and an unlimited number of non-voting common shares without par value. There have been no changes in the number of voting and non-voting common shares for the periods ended December 31, 2010 and December 31, 2011. The total shares outstanding at December 31 are summarized as follows:December 31, 2011December 31, 2010Number of SharesAmount $Number of SharesAmount $Voting common shares10,191,59296,273,34310,191,59296,273,343Non-voting common shares345,6713,093,086345,6713,093,086Total common shares outstanding10,537,26399,366,42910,537,26399,366,429Contributed surplus The contributed surplus balance did not change during the year, and consists of: December 31, 2011 $December 31, 2010 $Surplus related to stock compensation, warrants and options associated with common shares8,030,2958,030,295Surplus relating to warrants associated with previously issued preferred shares1,874,2091,874,2099,904,5049,904,5044 Retained earningsThe changes in retained earnings for the year were as follows:2011 $2010 $Retained earnings - Opening balance34,072,42819,410,761Increase in net assets from operations5,568,42822,033,536Dividends paid from net investment income(7,371,869)(7,371,869)Retained earnings - closing balance32,268,98734,072,4285 Related party transactions and balancesManagement fees are paid quarterly to Deans Knight Capital Management Ltd. (the Investment Advisor), a corporation with certain common directors and officers of the Company, for services received in connection with the management of the investment portfolio and financial accounts, among other services provided. Management fees are computed quarterly at an annual rate of 1.5% of net asset value, adjusted for certain non-investment related assets. For the year ended December 31, 2011, management fees totalled $2,283,158 (December 31, 2010 - $2,110,657). At December 31, 2011, $575,224 (December 31, 2010 - $599,474) was owed to the Investment Advisor, which was included in accounts payable and accrued liabilities in the statement of net assets at December 31, 2011, and is payable immediately. A director of the Company is a partner at a law firm that provides legal services to the Company. During the year ended December 31, 2011, the Company incurred $42,750 (December 31, 2010 - $ 30,195) in legal services and disbursements received from this related party. At December 31, 2011, accounts payable and accrued liabilities include $4,185 (December 31, 2010 - $1,355) due to the law firm for legal fees and disbursements.6 Net realized gains on investments sold and foreign currency contractsThe net realized gain on sale of investments for the year ended December 31 was as follows:2011 $2010 $Proceeds from investments sold59,635,633107,386,034Investments at cost - Beginning of year118,563,957100,510,397Add: Cost of investments purchased62,743,948106,283,479181,307,905206,793,876Less: Investments at cost - End of year(125,475,983)(118,563,957)Cost of investments sold55,831,92288,229,919Net realized gain on investments sold3,803,71119,156,115Net realized gains on investments sold consist of: 2011 $2010 $Realized gain on securities sold4,695,88915,928,417Realized (loss) gain on settlement of foreign currency contracts(892,178)3,227,6983,803,71119,156,1157 TaxationUncertainty of deductibility of tax losses Prior to the reorganization and change in business as discussed in note 1, the Company had generated significant tax losses and other tax attributes as a result of its prior businesses and research activities. The Company has recorded, as a tax asset, the full amount of the potential tax benefit of such items to the extent of its projected taxable income. There is no guarantee that the tax authorities will allow the Company to deduct some, or all, of the tax losses and other attributes. Should the Company be denied the deductions, the recognized amount of the tax assets, as well as such amounts claimed to date, would be recorded as a charge to income. The total tax assets recognized and tax losses and other attributes claimed to date, which are subject to uncertainty, amount to $21,024,806 (December 31, 2010 - $20,747,249), representing $2.00 per common share at December 31, 2011 (December 31, 2010 - $1.97 per common share). Future tax asset Canadian GAAP requires a valuation allowance to be recognized against any future tax asset to the extent that it is more likely than not that the future income tax asset will not be realized. This is also the Company's stated accounting policy. As the Company's investments in debt securities are generating interest income, but are not expected to generate sufficient taxable income in order to fully utilize the available tax credits during the years of operations through to April 30, 2014, the Company has recorded a valuation allowance. The difference between the total value of these tax benefits less the valuation allowance, being $4,920,000 (December 31, 2010 - $6,550,000), is the amount of the future income tax asset that has been recorded by the Company in the statement of net assets. The valuation allowance is reviewed periodically, based on updated projections of taxable income, and adjusted accordingly by a credit or charge to the statement of operations in that period. The tax effects of temporary differences and tax credits that give rise to significant components of the future income tax assets at the statutory enacted rates, when such benefits are expected to be realized are as follows:December 31, 2011 $December 31, 2010 $Future tax assetsResearch and development expenditures6,879,2508,467,000Investment tax credits6,032,4506,032,450Share issuance costs626,880959,100Total gross future tax assets13,538,58015,458,550Valuation allowance(8,618,580)(8,908,550)Net future tax asset4,920,0006,550,000Less: current portion(2,180,000)(2,150,000)2,740,0004,400,000The tax balances and income tax expense recognized by the Company are based on management's interpretation of the tax laws. Due to the complexity inherent in tax interpretations, regulations and legislation, there are significant estimates required to compute income tax balances. It is possible that some or all of the Company's significant components of the future income tax assets may not be deductible for tax purposes and, accordingly, the amount of future income taxes and provision for income taxes recorded in the financial statements could change by a material amount. In determining the amount of future income tax assets recognized, management assessed the projected taxable income of the Company. Inherent in all forward looking information is uncertainty and actual amounts could differ from these estimates and the difference could be material. In developing the projection, management has assumed full payment of all contractual interest, that investments maturing prior to April 30, 2014 will be redeemed for par value, that reinvested funds will achieve an 8% yield, and that investments maturing after April 30, 2014 will be sold at their current value.Tax pools available to offset future tax expense and payable The operations of the Company and related tax interpretations, regulations and legislation are continually changing. As a result, significant estimates are required to compute income tax balances. As at December 31, 2011, the Company has accumulated scientific research and experimental development expenditures in the amount of $27,500,000 available for carry-forward indefinitely. The Company also has accumulated approximately $7,097,000 of unclaimed federal investment tax credits, which expire as follows:Investment tax credits $Year of expiry2018265,0002019990,00020201,872,00020212,483,0002022298,0002023187,0002024496,0002025506,0007,097,000Reconciliation of income tax expense The reconciliation of income tax computed at the statutory tax rate to income tax expense, using a 26.5% statutory tax rate (2010 - 28.5%), is:December 31, 2011 $December 31, 2010 $Increase in net assets from operations before taxes7,198,42823,683,536Statutory tax rate26.5%28.5%Income tax expense at statutory rates1,907,5836,749,808Use of prior year losses-(6,124,935)Use of scientific research and experimental development expenditures(1,575,337)(267,551)Recognition of future tax asset1,630,0001,650,000Current tax deductions for offering costs(332,246)(357,322)Provision for future income tax1,630,0001,650,0008 Financial instrumentsThe following tables illustrate the classification of the Company's financial instruments within the fair value hierarchy:Financial assets at fair value - December 31, 2011Level 1 $Level 2 $Level 3 $Total $Corporate debt-94,406,53422,965,956117,372,490Convertible debentures--1,554,2181,554,218Equities10,397,044-205,44410,602,488Foreign currency forward contracts-389,347-389,34710,397,04494,795,88124,725,618129,918,543Financial assets at fair value - December 31, 2010Level 1 $Level 2 $Level 3 $Total $Corporate debt-91,969,70314,475,875106,445,578Convertible debentures-9,334,3693,617,67712,952,046Equities7,826,002-400,0008,226,002Foreign currency forward contracts- 825,824- 825,8247,826,002102,129,89618,493,552128,449,450All investments remained at their respective levels within the fair value hierarchy during the year. The following table reconciles the Company's Level 3 fair value measurements:Fair value measurements of Level 3 inputsCorporate debt$Convertible debentures $Equities $Total $Balance - December 31, 200911,616,41810,561,008-22,177,426Purchases7,500,0001,879,862-9,379,862Sales(6,061,608)(17,921,531)-(23,983,139)Unrealized appreciation included in net gain on investments 1,421,065 9,098,338 400,000 10,919,403Balance - December 31, 201014,475,8753,617,677400,00018,493,552Purchases14,812,500--14,812,500Sales(7,031,250)(2,148,120)-(9,179,370)Unrealized appreciation (depreciation) included in net gain on investments708,83184,661(194,556)598,936Balance - December 31, 201122,965,9561,554,218205,44424,725,618Level 3 fair value measurements have predominantly been valued by considering data inputs such as the last price the security was traded at, most recent bid/ask information, prices of similar securities with available prices, and comparison of yields of comparable investments. Accordingly it is not practicable to provide a sensitivity analysis.Management of financial risks In the normal course of business, the Company is exposed to various financial risks, including credit risk, liquidity risk and market risk (consisting of interest rate risk, currency risk and other price risk). The Company's overall risk management program seeks to minimize potentially adverse effects of these risks on the Company's financial performance by employing a professional, experienced portfolio adviser, monitoring daily the Company's positions and market events, diversifying the investment portfolio within the constraints of the investment guidelines and periodically using derivatives to hedge certain risk exposures. Further, the Company monitors the portfolio to ensure compliance with its investment strategy, investment guidelines and securities regulations. Fair value risk The Company's investments are exposed to market price risk and this risk affects the fair value of the investments. All fixed income investments have an inherent risk of loss of capital. Except for foreign currency forward contracts, the maximum risk resulting from investments is determined by their fair value. The Company seeks to manage valuation risks by careful selection of fixed income investments prior to making an investment and by regular ongoing monitoring of the investment performance of the individual investee companies. Credit risk Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. All transactions executed by the Company in listed securities are settled/paid for upon delivery using approved brokers. The risk of this settlement not occurring 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. Since the Company invests in high-yield debt instruments and derivatives, this represents the main concentration of credit risk. The fair value of debt securities includes consideration of the creditworthiness of the debt issuer. The maximum credit exposure of these assets is represented by their carrying amounts. This maximum exposure may be offset to varying degrees in each investment, based on the collateral held, if any. Collateral may include such things as a general security agreement over all assets, or specific security over specific assets. It may also entitle the debt holder to take over the overall business through restructuring of the investment.The Company's credit risk exposure by credit ratings on its investments is listed as follows:As a % of net assetsDecember 31, 2011December 31, 2010Credit ratingBB1.710.7B37.336.0CCC23.021.3CC-1.0Not rated*29.320.091.389.0* Unrated securities consist primarily of equity securities, convertible debentures and promissory notes in publicly traded companies Credit ratings are obtained from various credit rating agencies and sources. Where one or more rating is obtained for a security, the lowest rating has been used. The Company's credit risk exposure by sector on its investments is as follows:As a % of net assetsDecember 31, 2011December 31, 2010SectorEnergy50.457.1Materials and metals12.26.0Consumer goods7.59.4Services4.23.6Chemicals-3.4Financial services2.93.0Industrial/manufacturing3.52.2Forestry6.94.3Technology3.7-91.389.0Interest rate risk Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or fair values of financial instruments. The Company invests primarily in interest-bearing financial instruments. As such, the Company is exposed to the risk that the value of such financial instruments will fluctuate due to changes in the prevailing levels of market interest rates. The table below summarizes the Company's exposure to interest rate risk by term to maturity:Fair valueDecember 31, 2011 $December 31, 2010 $MaturityLess than 1 year1,943,5655,825,8241 - 3 years20,139,16516,154,6453 - 5 years27,120,25027,443,442Greater than 5 years70,113,07570,799,537119,316,055120,223,448As at December 31, 2011, if the prevailing interest rates had been raised or lowered by 1%, assuming a parallel shift in the yield curve, with all other factors remaining constant, net assets could possibly have decreased or increased, respectively, by approximately $5,000,000, or approximately 3.5% of net assets (December 31, 2010 - $4,900,000, or approximately 3.4% of net assets).Liquidity risk As the Company is a publicly traded, closed-end investment company with a fixed number of common shares outstanding, unlike an open-ended mutual fund, it is not exposed to the liquidity risk associated with daily cash redemptions of securities. Investments in fixed income investments may not be able to be liquidated quickly at an amount close to their fair value to respond to specific events such as deterioration in the creditworthiness of any particular issuer. Fixed income investments purchased by the Company may be subject to resale restrictions such as hold periods. The resulting values for fixed income investments may differ from values that would be realized had a ready market existed. The Company actively reviews its investment portfolio, and the fixed income market, to assess liquidity risk on its holdings.Currency risk Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The Company invests a portion of its assets in securities that are denominated in a currency other than the Canadian dollar, which represents the functional currency of the Company. Consequently, the Company is exposed to currency risk as the value of the portfolio securities denominated in currencies other than the Canadian dollar will vary due to changes in foreign currency exchange rates. The Company enters into foreign currency contracts with financial institutions to hedge the value of foreign currency denominated investments. The fair value of these contracts is reflected in investments. Gains or losses arising from these contracts offset the gains or losses from the underlying investments. The unrealized gains or losses are reflected in unrealized appreciation/depreciation on foreign currency contracts on the statement of operations. The potential impact to net assets of a 5% change in foreign currency rates against the Canadian dollar, assuming all other variables remain constant, would be $160,000 (2010 - $180,000). At December 31, 2011, the Company had outstanding foreign exchange contracts to sell US$54,000,000 and AUS$1,500,000 against future commitments at exchange rates ranging between 1.01745 and 1.03175 for US dollar foreign exchange contracts and 1.03000 for the AUS dollar foreign exchange contract. Those contracts had maturities ranging up to January 25, 2012 and are with AAA rated Canadian banks and counterparties.9 Capital managementThe capital of the Company is divided into voting and non-voting common shares, each having an unlimited authorized amount. The number of voting and non-voting shares outstanding, and changes thereto, are outlined in note 3. The Company manages its capital in accordance with the Company's investment objectives. The Company's investment objectives are to: (i) maximize the total return for common shareholders, consisting of dividend income and capital appreciation; and (ii) provide shareholders with monthly dividends targeted to payout a minimum of 75% of net investment income annually. Net investment income, in reference to the Company's dividend payments to shareholders, excludes any realized and unrealized capital gains and losses from debt securities in the portfolio and any income or loss not derived from debt securities in the portfolio. The Company commenced its dividend payments on June 30, 2009, making monthly payments of $0.0583 per voting and non-voting common share, or $614,322. During the year ended December 31, 2011, the Company made dividend payments of $7,371,869 (December 31, 2010 - $7,371,869). The Company intends to continue paying a monthly dividend of $0.0583 per voting and non-voting common share for the three months ending March 31, 2012, totalling $1,842,966 (note 11).10 Comparison of net asset value per share and net assets per shareIn accordance with Section 3.6(1) of National Instrument 81-106, the Company's net asset value per share, the net assets per share calculated in accordance with Canadian GAAP for financial reporting purposes, and an explanation of the differences between such amounts, are required disclosures in the notes to the financial statements. For investments that are traded in an active market, Canadian GAAP requires that bid prices be used in the fair value of instruments, rather than the use of the last traded price, as currently used for the purpose of determining net asset value. This change accounts for the difference between the net asset value and the net assets.December 31, 2011$December 31, 2010$Net asset value per share13.4913.65Canadian GAAP adjustments(0.06)(0.05)Net assets per common share13.4313.6011 Subsequent eventsOn January 9, 2012, the Company announced a monthly dividend of $614,322, or $0.0583 per common share, payable on each of January 31, 2012, February 29, 2012 and March 30, 2012.FOR FURTHER INFORMATION PLEASE CONTACT: Craig LangdonDeans Knight Income CorporationChief Executive Officer and Director(604) 669-0212ORMark MylesDeans Knight Income CorporationChief Financial Officer(604) 669-0212www.dkincomecorp.com