6-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13A-16
OR 15D-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of May, 2010 Commission File Number: 001-33838

HARRY WINSTON DIAMOND CORPORATION

(Translation of registrant's name into English)

P.O. Box 4569, Station A

Toronto, ON, Canada M5W 4T9

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F [  ] Form 40-F [X]

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): [  ]

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): [  ]

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes [  ] No [X]

If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): N/A

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

DATED the 5th day of May, 2010.

HARRY WINSTON DIAMOND CORPORATION
(Registrant)

By: /s/ LYLE R. HEPBURN                                             
      Name: Lyle R. Hepburn
      Title: Corporate Secretary

EXHIBIT INDEX

EXHIBIT	DESCRIPTION OF EXHIBIT
99.1	Notice of Annual Meeting and Management Proxy Circular of Harry Winston Diamond Corporation dated April 19, 2010.
99.2	Proxy solicited by Management and the Board of Directors of Harry Winston Diamond Corporation.
99.3	Annual Request Form in accordance with National Instrument 51-102 regarding Supplemental Mailing List for Harry Winston Diamond Corporation.
99.4	2009-2010 Annual Report of Harry Winston Diamond Corporation to its Shareholders.

EX-99.1

HARRY WINSTON DIAMOND CORPORATION

MANAGEMENT PROXY CIRCULAR

For the
Annual Meeting of Shareholders
June 3, 2010

________________________________________________

April 19, 2010

TABLE OF CONTENTS

DESCRIPTION	PAGE
INVITATION TO SHAREHOLDERS	2
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS	3
MANAGEMENT PROXY CIRCULAR	4
Q&A ON PROXY VOTING	4
REPORTING CURRENCY	6
BUSINESS OF THE MEETING	7
Financial Statements	7
Election of Directors	7
Appointment of Auditors	8
Other Matters	9
BOARD OF DIRECTORS	9
Nominees for Election to the Board of Directors	9
Compensation of Directors	11
Director Summary Compensation Table	12
Incentive Plan Awards	14
Meetings Held and Attendance of Directors	14
Directors’ and Officer’s Liability Insurance	15
CORPORATE GOVERNANCE DISCLOSURE	15
REPORT OF THE AUDIT COMMITTEE	16
REPORT OF THE HUMAN RESOURCES & COMPENSATION COMMITTEE	17
REPORT OF THE NOMINATING & CORPORATE GOVERNANCE COMMITTEE	18
STATEMENT OF EXECUTIVE COMPENSATION	19
Compensation Discussion and Analysis	19
Performance Graph	25
Option-Based Awards	26
Summary Compensation Table	26
Incentive Plan Awards	28
Pension Plan Benefits	29
Deferred Profit Sharing Plan	29
Termination and Change in Control Benefits	29
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS	31
INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS	33
INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS	33
ADDITIONAL INFORMATION	33
BOARD APPROVAL	33
SCHEDULE 1 - STATEMENT OF CORPORATE GOVERNANCE PRACTICES	34
Board of Directors	34
Majority Voting Policy	35
Board Mandate	35
Position Descriptions	36
Orientation and Continuing Education	36
Ethical Business Conduct	36
Nomination of Directors	37
Compensation	38
Board Committees	38
Assessments	39

1

HARRY WINSTON DIAMOND CORPORATION

INVITATION TO SHAREHOLDERS

Dear Shareholder:

            On behalf of the Board of Directors, management and employees, we invite you to attend Harry Winston Diamond Corporation's Annual Meeting of Shareholders on Thursday, June 3, 2010.

           The items of business to be considered at this Meeting are described in the Notice of Annual Meeting and Management Proxy Circular. No matter how many shares you hold, your participation at shareholders' meetings is very important. If you are unable to attend the Meeting in person, we encourage you to vote by following the voting instructions included on the proxy form.

           There will be an opportunity to ask questions and meet with management, the Board of Directors and your fellow shareholders.

           We look forward to seeing you at the Meeting.

Sincerely,

Robert A. Gannicott
Chairman & Chief Executive Officer

2

HARRY WINSTON DIAMOND CORPORATION
P.O. Box 4569, Station A
Toronto, Ontario M5W 4T9

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

NOTICE IS HEREBY GIVEN that an Annual Meeting of Shareholders (the “Meeting”) of HARRY WINSTON DIAMOND CORPORATION (the “Corporation”) will be held at the Fairmont Royal York Hotel, 100 Front Street West, Toronto, Ontario at 10:00 a.m. (Toronto time) on Thursday, June 3, 2010, for the following purposes:

1.	to receive the audited consolidated financial statements of the Corporation for the fiscal year ended January 31, 2010, together with the report of the auditors thereon;
2.	to elect directors;
3.	to appoint auditors and authorize the directors to fix their remuneration; and
4.	to transact such other business as may properly be brought before the Meeting or any adjournment thereof.

The accompanying Management Proxy Circular of the Corporation provides additional information relating to the matters to be dealt with at the Meeting and forms part of this notice.

Shareholders who cannot attend the Meeting in person may vote by proxy. Instructions on how to complete and return the proxy are provided with the proxy form and are described in the Management Proxy Circular. To be valid, proxies must be received by CIBC Mellon Trust Company by mail at P.O. Box 721, Agincourt, Ontario, Canada, M1S 0A1 or by fax to 1-866-781-3111 (toll free) or 416-368-2502, no later than 5:00 p.m. (Toronto time) on June 1, 2010, or if the Meeting is adjourned, no later than 10:00 a.m. (Toronto time) on the last business day preceding the day to which the Meeting is adjourned.  

BY ORDER OF THE BOARD

Lyle R. Hepburn

Corporate Secretary

April 19, 2010

3

HARRY WINSTON DIAMOND CORPORATION
MANAGEMENT PROXY CIRCULAR

All information is as of April 19, 2010 and all dollar figures are in United States dollars, unless otherwise indicated.

Q&A ON PROXY VOTING

Q:	What am I voting on?
A:	Shareholders are voting on the election of directors to the Board of the Corporation, the appointment of auditors for the Corporation and authorizing the directors to fix the remuneration of the auditors.
Q:	Who is entitled to vote?
A:	If you owned your shares as at the close of business on April 19, 2010, you are entitled to vote. Each Common Share is entitled to one vote on those items of business identified in the Notice of Annual Meeting of Shareholders.
Q:	How do I vote?
A:	There are two ways you can vote. You may vote in person at the Meeting, in which case please read the instructions set out after the following question. If you do not plan to attend the Meeting and you are a registered shareholder you may sign the enclosed form of proxy appointing the named persons or some other person you choose, who need not be a shareholder, to represent you as proxyholder and vote your shares at the Meeting. If your shares are held in the name of a nominee (a bank, trust company, securities broker, trustee or other), you will have received from your nominee either a request for voting instructions or a form of proxy for the number of shares you hold. For your shares to be voted, please follow the voting instructions provided by your nominee.
Q:	What if I plan to attend the Meeting and vote in person?
A:	If you are a registered shareholder and plan to attend the Meeting and wish to vote your shares in person at the Meeting, do not complete or return the form of proxy. Your vote will be taken and counted at the Meeting. Please register with the transfer agent, CIBC Mellon Trust Company, upon arrival at the Meeting.
	If your shares are held in the name of a nominee, the Corporation may have no record of your shareholdings or of your entitlement to vote unless your nominee has appointed you as proxyholder. Therefore, if you wish to vote in person at the Meeting, insert your own name in the space provided on the request for voting instructions or form of proxy and return it by following the instructions provided to you by your nominee. Do not complete the voting instructions on the form, as you will be voting at the Meeting. Please register with the transfer agent, CIBC Mellon Trust Company, upon arrival at the Meeting.
Q:	Who is soliciting my proxy?
A:	The enclosed form of proxy is being solicited by the management of the Corporation and the associated costs will be borne by the Corporation. The solicitation will be made primarily by mail but may also be solicited personally, by telephone, e-mail, internet, facsimile, or other means of communication by employees of the Corporation.

4

Q:	What if I sign the form of proxy enclosed with this Management Proxy Circular?
A:	Signing the enclosed form of proxy gives authority to Robert A. Gannicott or Matthew W. Barrett, each of whom is a director of the Corporation, or to another person you have appointed, to vote your shares at the Meeting.
Q:	Can I appoint someone other than these directors to vote my shares?
A:	Yes. Write the name of this person, who need not be a shareholder, in the blank space provided in the form of proxy.
	It is important to ensure that any other person you appoint is attending the Meeting and is aware that he or she has been appointed to vote your shares. Proxyholders should, upon arrival at the Meeting, present themselves to a representative of CIBC Mellon Trust Company.
Q:	What do I do with my completed proxy?
A:	If you are a registered shareholder, return the proxy to the Corporation’s transfer agent, CIBC Mellon Trust Company, in the envelope provided, or by fax to (416) 368-2502, so that it arrives no later than 5:00 p.m. (Eastern Standard Time) on Tuesday, June 1, 2010 to record your vote. If your shares are held in the name of a nominee, please follow the voting instructions provided by your nominee.
Q:	If I change my mind, can I take back my proxy once I have given it?
A:	Yes. If you change your mind and wish to revoke your proxy, prepare a written statement to this effect. The statement must be signed by you or your attorney as authorized in writing or, if the shareholder is a corporation, under its corporate seal or by an officer or attorney of the corporation duly authorized. This statement must be delivered to the Corporate Secretary of the Corporation at the following address no later than 5:00 p.m. (Eastern Standard Time) on Tuesday, June 1, 2010 or to the Chairman on the day of the Meeting, June 3, 2010, or any adjournment of the Meeting.

Harry Winston Diamond Corporation
c/o 36 Toronto Street, Suite 1000, Toronto, ON, M5C 2C5
Attention:             Lyle R. Hepburn
Fax No.:                 416-362-2230

Q:	How will my shares be voted if I give my proxy?
A:	The persons named on the form of proxy must vote for or against or withhold from voting your shares in accordance with your directions, or you can let your proxyholder decide for you. In the absence of such directions, proxies received by management will be voted in favour of the election of directors to the Board and the appointment of auditors.
Q:	What if amendments are made to these matters or if other matters are brought before the Meeting?
A:	The persons named in the form of proxy will have discretionary authority with respect to amendments or variations to matters identified in the Notice of Annual Meeting of Shareholders and with respect to other matters which may properly come before the Meeting. As of the time of printing of this Management Proxy Circular, management of the Corporation knows of no such amendment, variation or other matter expected to come before the Meeting. If any other matters properly come before the Meeting, the persons named in the form of proxy will vote on them in accordance with their best judgment.

5

Q:	How many shares are entitled to vote?
A:	As of April 19, 2010 (the “Record Date”), there were outstanding 76,633,092 Common Shares of the Corporation. Each registered shareholder has one vote for each Common Share held at the close of business on the Record Date.
	To the knowledge of the directors and senior officers of the Corporation, as of date hereof, the following table sets forth the parties who beneficially own, directly or indirectly, or exercise control or direction over voting securities of the Corporation:

Name of Shareholder and Municipality of Residence	Number of Common Shares Owned, Controlled or Directed	% of Outstanding Common Shares
Kinross Gold Corporation Toronto, Ontario, Canada	15,200,000	19.8%
Vanguard Precious Metals and Mining Fund Malvern, PA, USA	8,850,000	11.5%

Q:	How will the votes be counted?
A:	Each question brought before the Meeting is determined by a majority of votes cast on the question. In the case of equal votes, the Chairman of the Meeting is entitled to a second or casting vote.
Q:	Who counts the votes?
A:	The Corporation’s transfer agent, CIBC Mellon Trust Company, counts and tabulates the proxies. This is done independently of the Corporation to preserve the confidentiality of individual shareholder votes. Proxies are referred to the Corporation only in cases where a shareholder clearly intends to communicate with management or when it is necessary to do so to meet the requirements of applicable law.
Q:	If I need to contact the transfer agent, how do I reach them?
A:	You can contact the transfer agent by mail at:

Transfer Agent and Registrar, CIBC Mellon Trust Company
P.O. Box 7010, Adelaide Street Postal Station, Toronto, Ontario M5C 2W9

or by telephone:	416-643-5500 or 1-800-387-0825	Fax:	416-643-5501
E-mail:	inquiries@cibcmellon.com	Website:	www.cibcmellon.com

REPORTING CURRENCY

The reporting currency of the Corporation is the United States dollar. Dollar amounts reported in the various tables in this Management Proxy Circular have been converted from the Canadian dollar as follows:

1.	The Canadian currency exchange rate was obtained from the Bank of Canada closing rates for the applicable date (the “Exchange Rate”). The Exchange Rates applied were as follows:
	(a)	the Exchange Rate for February 1, 2009 (the “Year-Beginning Exchange Rate”) was 0.8153;
	(b)	the Exchange Rate for January 31 , 2010 (the “Year-End Exchange Rate”) was 0.9352;
	(c)	the Exchange Rate for March 31, 2010 (the “March Exchange Rate”) was 0.9844;

6

(d)	the average Exchange Rate for the fiscal period February 1, 2009 to January 31, 2010 (the “Average Exchange Rate”) was 0.8871; and
(e)	the Exchange Rate for February 1, May 1, August 1, and November 1, 2009 (the “Quarterly Exchange Rate” was 0.8153, 0.8432, 0.9281 and 0.9243, respectively.

2.	The dollar amounts shown for DSUs granted to directors represent the Canadian dollar amount credited to their respective accounts on a quarterly basis converted using the Quarterly Exchange Rate.
3.	The cash retainers paid to directors represent the Canadian dollar amount paid to them on a quarterly basis converted using the Quarterly Exchange Rate.
4.	The value of shares and options held by directors was converted using the March Exchange Rate.
5.	The value of RSUs granted to Named Executive Officers was converted using the Exchange Rate at the date of the grant.
6.	The value of outstanding RSUs of Named Executive Officers was converted using the Year-End Exchange Rate
7.	Cash compensation paid to Named Executive Officers, and in respective consulting services referred to herein, was converted using the Average Exchange Rate.

BUSINESS OF THE MEETING

Financial Statements

The Consolidated Financial Statements for the year ended January 31, 2010 are included in the Annual Report, which has been mailed to shareholders with this Management Proxy Circular.

Election of Directors

The Articles of the Corporation provide that the minimum number of directors shall be three and the maximum number shall be 12. There are currently eight directors. The directors of the Corporation are elected annually and hold office until the next annual meeting of shareholders or until their successors in office are duly elected or appointed, unless a director’s office is earlier vacated in accordance with the by-laws of the Corporation or the Canada Business Corporations Act, or he or she becomes disqualified to act as a director.

The Board of Directors of the Corporation (the “Board”) has fixed the number of directors to be elected at the Meeting at eight. It is proposed that the persons set out herein be nominated for election as directors of the Corporation for the ensuing year. On January 14, 2009, the Board adopted a majority voting policy. A full description of the majority voting policy is included in Schedule 1 of this Management Proxy Circular.

Management does not contemplate that any of the persons proposed to be nominated will be unable to serve as a director. If prior to the Meeting any of such nominees is unable or unwilling to serve, the persons named in the accompanying form of proxy will vote for another nominee or nominees in their discretion if additional nominations are made at the Meeting.

Unless a proxy specifies that the Common Shares it represents should be withheld from voting in respect of the election of directors or voted in accordance with the specification in the proxy, the persons named in the enclosed form of proxy intend to vote FOR the election of the nominees whose names are set out in this Management Proxy Circular.

7

The list of directors and their biographies can be found in this Management Proxy Circular on pages 9 to 11 (see “Nominees for Election to Board of Directors”). Information regarding Director Compensation can be found in this Management Proxy Circular on pages 11 to 14 (See “Compensation of Directors”, “Director Summary Compensation Table” and “Incentive Plan Awards). Each director's attendance at Board and Committee meetings can be found in this Management Proxy Circular on pages 14 and 15 (see “Board of Directors Meetings Held and Attendance of Directors”).

To the knowledge of the Corporation, no director of the Corporation is, or has been in the last 10 years, (a) a director, chief executive officer or chief financial officer of a company that (i) while that person was acting in that capacity, was the subject of a cease trade order or similar order (including a management cease trade order) or an order that denied the issuer access to any exemptions under Canadian securities legislation, for a period of more than 30 consecutive days, or (ii) after that person ceased to act in that capacity, was subject of a cease trade or similar order or an order that denied the issuer access to any exemption under Canadian securities legislation, for a period of more than 30 consecutive days which resulted from an event that occurred while that person acted in such capacity, or (b) a director or executive officer of a company that, while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets; or (c) become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold its assets.

Appointment of Auditors

Shareholders will be asked to vote for the reappointment of KPMG LLP, as auditors of the Corporation for the ensuing year, and to authorize the directors of the Corporation to fix their remuneration. A simple majority of the votes cast at the Meeting must be voted in favour thereof.

Fees paid to KPMG LLP during the years ended January 31, 2010 and 2009 were as follows:

	2010 (US$)	2009 (US$)
Audit Fees(1)	1,589,378	1,744,037
Audit Related Fees(2)	20,102	66,367
Tax Fees(3)	195,602	188,049
All other Fees(4)	60,456	83,779

(1)	Includes audit and review services.
(2)	Includes SOX 404 work and various audit services required as per legal obligations.
(3)	Primarily tax advisory services.
(4)	Includes IFRS consultation and review of annual meeting materials.

In the past the directors have negotiated with the auditors of the Corporation on an arm’s length basis to determine the fees to be paid to the auditors. Such fees have been based on the nature and complexity of the matters in question, and the time incurred by the auditors.

The Audit Committee has adopted a policy that requires pre-approval by the Audit Committee of audit services and other services within permissible categories of non-audit services greater than Cdn$100,000.

The Audit Committee has considered whether the magnitude and nature of these services is compatible with maintaining the independence of the external auditors, and has determined that the independence of the external auditors is maintained.

8

Other Matters

Management does not know of any other matters to be presented to the Meeting. If other matters should be properly presented at the Meeting, the persons named in the accompanying form of proxy will vote the Common Shares represented by such proxy with respect to such matters in accordance with their best judgment.

BOARD OF DIRECTORS

Nominees for Election to the Board of Directors

The following are the nominees for election to the Board of the Corporation:

Name of Director	Biography
Matthew W. Barrett(2)(4) Director since January 15, 2008 Common Shares(1): Nil Stock Options: Nil Deferred Share Units: 29,216 Value of Shares(6): US$287,616	Matthew W. Barrett, age 65, of Oakville, Ontario, is the former Chairman and CEO of Barclays PLC. He began his career at the Bank of Montreal in 1962 and built a career at the bank where he held a variety of management positions in international banking and treasury during his 37 year tenure. He was appointed President and Chief Operating Officer in 1987. In 1989, he was appointed Chief Executive Officer and was named Chairman and Chief Executive Officer in 1990. In 1999, Mr. Barrett accepted the position of Group Chief Executive of Barclays Bank PLC and was appointed Chairman in 2004. Mr. Barrett was previously a member of the Federal Reserve Bank of New York International Advisory Committee and previously served on the board of directors of Molson, Inc., and Seagram Corporation. He currently serves on the board of directors of Goldman Sachs Bank USA, Samuel, Son & Co. Ltd., and Samuel Manu-Tech Inc. He also serves on the Advisory Board of National Bank of Kuwait. He is an officer of the Order of Canada.
Thomas M. Boehlert Director since April 2, 2009 Common Shares(1): Nil Stock Options: Nil Deferred Share Units: 13,471(5) Value of Shares(6): US$132,615	Thomas M. Boehlert, age 50, of Toronto, Ontario, Canada, is currently Executive Vice President and Chief Financial Officer of Kinross Gold Corporation and has held such positions since April of 2006. In February of 2005, Mr. Boehlert was appointed the Executive Vice President and Chief Financial Officer of Texas Genco of Houston, an independent electric power company. From January of 2004 until February of 2005, Mr. Boehlert was the Executive Vice President and Chief Financial Officer of Direct Energy of Toronto, a North American energy services company. Prior to that he was Senior Vice President and Chief Financial Officer of Sithe Energies of New York, an international independent electric power company. Mr. Boehlert spent 14 years as a banker at Credit Suisse in New York and London where he was responsible for covering energy companies and project finance activities. He began his career as an auditor at KPMG in New York. Mr. Boehlert holds a Bachelor of Arts in Accounting from Indiana University, an MBA, Finance from New York University and is a certified public accountant.

9

Name of Director	Biography
Micheline Bouchard(3)(4) Director since January 15, 2008 Common Shares(1): Nil Stock Options: Nil Deferred Share Units: 29,458 Value of Shares(6): US$289,998	Micheline Bouchard, age 62, of Montreal, Quebec, Canada, is the former President and Chief Executive Officer of ART Advanced Research Technologies, a biomedical company based in Montreal. Prior to that, Ms. Bouchard was Global Corporate Vice-President of Motorola Inc. in the US after serving as President and Chief Executive Officer of Motorola Canada in Toronto. In addition, Ms. Bouchard served as a Vice President of business development Canada and Vice President of Quebec operations during her tenure at Hewlett-Packard Canada, Ltd. She holds a Bachelor's degree in Engineering Physics and a Master's Degree in Electrical Engineering, both from Polytechnique, Montreal. She currently serves on the board of directors of Home Capital/Home Trust (until May 18, 2010) and Telus Corporation. She is a member of the Order of Canada.
Robert A. Gannicott Chairman and Chief Executive Officer Director since June 19, 1992 Common Shares(1): 759,720 Stock Options: 1,380,330 Value of Shares(6): US$7,478,684 Value of Options(7): US$1,498,154	Robert A. Gannicott, age 62, of Toronto, Ontario, Canada, was appointed the President and Chief Executive Officer of the Corporation in September 1999. Upon the appointment of Mr. O'Neill as President on April 15, 2004, Mr. Gannicott continued his duties as Chief Executive Officer and was appointed Chairman of the Board on June 22, 2004. A geologist, Mr. Gannicott has worked extensively in the Northwest Territories and in Greenland.
Noel Harwerth(2)(4) Director since June 4, 2008 Common Shares(1): Nil Stock Options: Nil Deferred Share Units: 10,705 Value of Shares(6): US$105,385	Noel Harwerth, age 62, of London, England, served as Chief Operating Officer of Citibank International PLC from 1998 to 2003. Prior to that, she served as Chief Tax Officer of Citigroup, Dun & Bradstreet Corporation and Kennecott Copper Corporation. She holds a Jurisdoctor degree from the University of Texas Law School. She currently serves on the board of directors of Royal & Sun Alliance Insurance, Logica Group, Impellam Group plc and is Deputy Chairman of Sumitomo Mitsubishi Banking Europe. Mrs. Harwerth was appointed by the U.K. Government to the Horserace Totalisator Board.
Daniel Jarvis(2)(3) Director since June 4, 2008 Common Shares(1): 1,000 Stock Options: Nil Deferred Share Units: 18,375 Value of Shares(6): US$190,736	Daniel Jarvis, age 59, of Vancouver, British Columbia, Canada, currently is the Vice-Chair and Chief Financial Officer of Concert Properties Ltd., a real estate development and investment firm. From 1989 to 2007 Mr. Jarvis held a number of senior executive positions with Intrawest Corporation; including Executive Vice President and Chief Financial Officer. Mr. Jarvis was instrumental in taking Intrawest public in 1990 and guided the financial strategy of the company as it grew from a regional multi-family real estate developer to become North America's largest resort developer and a leading operator of year-round resorts. Previously, Mr. Jarvis had been Chief Financial Officer of BCE Development Corporation and Treasurer of BCE, Canada's largest telecommunications company. Mr. Jarvis has served on the boards of Intrawest Corporation, BCE Development Corporation, New Brunswick Telephone Limited, the Canada Tourism Commission and BC Pavilion Corporation. He holds a Bachelor's degree in Economics from Queen’s University and an MBA from Harvard University.

10

Name of Director	Biography
Laurent E. Mommeja(3) Director since June 22, 2004 Common Shares: (1) Nil Stock Options: Nil Deferred Share Units: 8,989 Value of Shares(6): US$88,492	Laurent E. Mommeja, age 53, of Paris, France, has extensive marketing experience in the luxury goods industry. He currently sits on the Management Board of Emile Hermes SARL the Active Partner of Hermes International SCA. He was the Managing Director of Hermès Maison and President of La Compagnie des Arts de la Table, a subsidiary of Hermès International. Previously, he was the Europe and Middle East Director of Hermès International. Prior to that, Mr. Mommeja lived in the United States for 14 years where his last assignment for 8 years was President and CEO of Hermès Paris Inc., the US subsidiary of Hermès International. Mr. Mommeja has had assignments in various different countries during his 29 years with Hermès. He also sits on the boards of Emile Hermès SARL, Hermès Sellier SA and Alain Ducasse Group.
J. Roger B. Phillimore Director since November 17, 1994 Common Shares: 25,000 Stock Options: 90,000 Deferred Share Units: 49,261 Value of Shares(6): US$977,148 Value of Options(7): US$0	J. Roger B. Phillimore, age 60, of London, England, is a corporate director and advisor to companies primarily in the natural resource industry. He is the Chairman of Lonmin plc, a mining corporation based in Britain. Prior to 1993, he was Joint Managing Director of Minorco S.A.

(1)	“Common Shares” refers to the number of Common Shares of the Corporation owned by each nominee for election as director and includes all Common Shares beneficially owned, directly or indirectly, or over which such nominee exercised control or direction. Such information, not being within the knowledge of the Corporation, has been furnished by the respective directors individually.
(2)	Member of the Audit Committee.
(3)	Member of the Human Resources & Compensation Committee.
(4)	Member of the Nominating & Corporate Governance Committee.
(5)	In accordance with instructions from Mr. Boehlert, his employer Kinross Gold Corporation is granted the DSUs that would have otherwise been granted to Mr. Boehlert personally in accordance with the current director compensation package (see “Director Compensation Table” below).
(6)	“Value of Shares” represents the total market value of the Common Shares and deferred share units (“DSUs”) held by each nominee. Value is determined by multiplying the number of Common Shares and DSUs held by each nominee as of March 31, 2010 by the closing price of the Corporation’s Common Shares on the TSX on such date (Cdn$0.9844) (in this section the “Closing Price”), converted at the March Exchange Rate.
(7)	“Value of Options” represents the total market value of the unexercised stock options held by each nominee. The value is determined by multiplying the number of unexercised options held by each nominee as of March 31, 2010 by the difference between the Closing Price on the TSX and the exercise price of such options, converted at the March Exchange Rate.

Compensation of Directors

The Board, on the recommendation of the Nominating & Corporate Governance Committee, reviews and approves changes to the Corporation’s director compensation arrangements from time to time to ensure they remain competitive in light of the time commitments required from directors and aligned directors’ interests with those of the Shareholders. Directors who are not officers or employees of the Corporation or any of its subsidiaries are compensated for their services as directors through a combination of retainer and meeting fees and DSUs.

The Corporation's policy with respect to directors' compensation was developed by the Nominating & Corporate Governance Committee with reference to comparative data and guidance from the Corporation's compensation consultants, Hewitt Associates LLC. The directors’ compensation, currently payable in four equal quarterly installments, for the fiscal year ended January 31, 2010 (“Fiscal 2010”) was as follows:

11

• Cash retainer of Cdn$60,000, all or portions of 25%, 50% or 75% of which, at the election of a director, may be taken in the form of DSUs (see “Deferred Share Unit Plan” on page 13)
• Annual Chairman's retainer for Audit Committee of Cdn$15,000, and annual Chairman's retainer for other committees of Cdn$5,000
• Initial grant of 2,500 DSUs
• Annual grant of 1,500 DSUs
• Meeting fees of Cdn$1,500 for Board and Committee meetings, with an additional Cdn$1,500 for directors traveling from outside the province, in the case of meetings in Ontario, or directors required to travel to meetings outside Ontario and outside their place of residence
• Reimbursement of meeting expenses

The directors’ compensation was thoroughly reviewed on April 5, 2004 and was, at that time, instituted essentially in the same form as it exists today, with the exception of the initial and annual DSU grants which were increased by 500 on January 16, 2007. At the time of the review of directors’ compensation, the value of a DSU was approximately Cdn$41.20 and at the time of the quarterly grants in Fiscal 2010 averaged approximately Cdn$6.29. Accordingly, the directors’ compensation has declined since its institution in 2004.

Director Summary Compensation Table

The following table sets forth the compensation awarded, paid to or earned by the directors of the Corporation during Fiscal 2010. Directors of the Corporation who are also officers or employees of the Corporation are not compensated for service on the Board.

Name	Fees Earned (US$)(3)	Share- Based Awards (US$)	Option- Based Awards (US$)	Non-Equity Incentive Plan Compensation (US$)	Pension Value (US$)	All Other Compensation (US$)	Total (US$)
Matthew W. Barrett	82,942	8,375	Nil	Nil	Nil	Nil	91,317
Thomas M. Boehlert(1)	61,209	21,243	Nil	Nil	Nil	Nil	82,452
Micheline Bouchard	86,934	8,375	Nil	Nil	Nil	Nil	95,309
Noel Harwerth	83,829	8,375	Nil	Nil	Nil	Nil	92,204
Daniel Jarvis	101,127	8,375	Nil	Nil	Nil	Nil	109,502
Laurent E. Mommeja	75,845	8,375	Nil	Nil	Nil	Nil	84,220
J. Roger B. Phillimore(2)	69,192	8,375	Nil	Nil	Nil	243,946	321,513

(1)	Elected to the Board on April 2, 2009. All director compensation payable to Mr. Boehlert is paid to his employer, Kinross Gold Corporation.
(2)	In addition to his regular director's compensation, J. Roger B. Phillimore was paid Cdn$275,000 (converted at the Average Exchange Rate) during the fiscal year in respect of consulting services related to mining, marketing, financing and new business ventures in accordance with a consulting agreement dated September 1, 1999. The consulting agreement was terminated on January 31, 2010 by agreement between both parties.
(3)	Fees Earned are converted at the Average Exchange Rate.

12

The breakdown of the Fees Earned and the Share-Based Awards for the non-executive directors is as follows (all amounts converted to US dollars using the Average Exchange Rate):

Directors	Board Retainer (US$)	Committee Chair Retainer (US$)	Board Meeting Fees (US$)	Committee Meeting Fees (US$)	Travel Fees (US$)	% and Value of Retainer & Meeting Fees Taken in DSUs		Total Fees Earned (US$)
						%	(US$)
Matthew W. Barrett	53,225	4,435	14,637	9,314	1,331	100%	82,942	82,942
Thomas M. Boehlert(1)	53,225	-	6,653	-	1,331	100%	61,209	61,209
Micheline Bouchard	53,225	4,435	11,976	11,976	5,322	100%	86,934	86,934
Noel Harwerth	53,225	-	14,637	9,314	6,653	25%	20,957	83,829
Daniel Jarvis	53,225	13,306	14,637	13,306	6,653	50%	50,564	101,127
Laurent E. Mommeja	53,225	-	14,637	5,322	2,661	0%	-	75,845
J. Roger B. Phillimore	53,225	-	13,306	-	2,661	100%	69,192	69,192

(1) Elected to the Board on April 2, 2009. All director compensation payable to Mr. Boehlert is paid to his employer, Kinross Gold Corporation.

Deferred Share Unit Plan

Effective as of February 1, 2004, the Corporation adopted a Deferred Share Unit Plan (the “DSU Plan”) for its directors. During Fiscal 2010, non-executive directors received an annual grant of 1,500 DSUs under the DSU Plan. Non-executive directors receive an initial grant of 2,500 DSUs when they are first appointed to the Board, and an annual grant of 1,500 DSUs, both payable quarterly. DSUs granted under the DSU Plan vest immediately, but are only redeemable upon retirement from the Board, or upon death. Directors may also elect to take all or a portion of their annual retainer and meeting fees in the form of DSUs. When a dividend is paid on the Corporation’s Common Shares, each director’s DSU account is allocated additional DSUs equal in value to the dividend paid on an equivalent number of the Corporation’s Common Shares. The value of the DSUs credited to a director is payable after he or she ceases to serve as a director of the Corporation. The value is calculated by multiplying the number of DSUs in the director’s account by the market value of a Common Share of the Corporation at the time of payment. With the introduction of the DSU Plan, a decision was made to discontinue stock option grants to the non-executive directors.

Share Ownership Guidelines

The Corporation has adopted share ownership guidelines for directors, which require each director to own Common Shares of the Corporation, or hold awarded DSUs, having an aggregate cost basis of Cdn$200,000 within five years of joining the Board. All of the directors have complied, or are in the process of complying, with the share ownership guidelines.

13

Incentive Plan Awards

Outstanding Share-Based Awards and Option-Based Awards

Name	Option-Based Awards				Share-Based Awards
	Number of Securities Underlying Unexercised Options (#)	Option Exercise Price (Cdn$)	Option Expiration Date (M/D/Y)	Value of Unexercised In- the-Money Options (US$)(1)	Number of Shares or Units of Shares that Have Not Vested (#)	Market or Payout Value of Share- Based Awards that Have Not Vested (US$)
Matthew W. Barrett	Nil	N/A	N/A	N/A	Nil	Nil
Thomas M. Boehlert	Nil	N/A	N/A	N/A	Nil	Nil
Micheline Bouchard	Nil	N/A	N/A	N/A	Nil	Nil
Noel Harwerth	Nil	N/A	N/A	N/A	Nil	Nil
Daniel Jarvis	Nil	N/A	N/A	N/A	Nil	Nil
Laurent E. Mommeja	Nil	N/A	N/A	N/A	Nil	Nil
J. Roger B. Phillimore	65,000 25,000	23.35 26.45	02/05/2012 04/17/2013	Nil Nil	Nil	Nil

(1) Based on the last trade of the Common Shares on the TSX prior to the close of business on January 29, 2010, of Cdn$9.83.

Incentive Plan Awards – Value Vested or Earned During the Year

Name	Option-Based Awards – Value Vested During the Year (US$)	Share-Based Awards – Value Vested During the Year (US$)(1)	Non-Equity Incentive Plan Compensation – Value Earned During the Year (US$)
Matthew W. Barrett	Nil	8,375	Nil
Thomas M. Boehlert	Nil	21,243	Nil
Micheline Bouchard	Nil	8,375	Nil
Noel Harwerth	Nil	8,375	Nil
Daniel Jarvis	Nil	8,375	Nil
Laurent E. Mommeja	Nil	8,375	Nil
J. Roger B. Phillimore	Nil	8,375	Nil

(1) These amounts represent the annual grants of DSUs converted at the Quarterly Exchange Rate, and do not include director compensation the directors have elected to take in the form of DSUs.

Meetings Held and Attendance of Directors

The information presented below reflects meetings of the Board and Committees held and attendance of the directors proposed for election for Fiscal 2010. Robert A. Gannicott, Thomas M. Boehlert and J. Roger B. Phillimore, were not members of any of the Corporation's Committees during the year.

14

Summary of Board and Committee Meetings Held

	Scheduled Meetings	Unscheduled Meetings (called on short notice)	Total
Board of Directors	6	5	11
Audit Committee	5	0	5
Nominating & Corporate Governance Committee	2	0	2
Human Resources & Compensation Committee	3	2	5

Summary of Attendance of Directors

	Board Meetings Attended	Committee Meetings Attended
		Audit	Nominating & Corporate Governance	Human Resources & Compensation
Matthew W. Barrett	11 of 11	5 of 5	2 of 2	N/A
Thomas M. Boehlert(1)	5 of 6	N/A	N/A	N/A
Micheline Bouchard	11 of 11	N/A	2 of 2	5 of 5
Robert A. Gannicott	11 of 11	N/A	N/A	N/A
Noel Harwerth	11 of 11	5 of 5	2 of 2	N/A
Daniel Jarvis	11 of 11	5 of 5	N/A	5 of 5
Laurent E. Mommeja(2)	11 of 11	N/A	N/A	4 of 5
J. Roger B. Phillimore	10 of 11	N/A	N/A	N/A

(1)	Appointed to the Board on April 2, 2009.
(2)	The Human Resources & Compensation Committee meeting missed by Mr. Mommeja was an unscheduled meeting.

Directors’ and Officer’s Liability Insurance

The Corporation maintains a directors' and officers' liability insurance program with a total limit of US$60,000,000 that is subject to deductibles between US$100,000 and US$250,000. The policy is renewed annually. The current policy has an annual premium of US$675,990 and expires September 30, 2010.

The policy provides protection to directors and officers against liability incurred by them in their capacities as directors and officers of the Corporation and its subsidiaries. The policy also provides protection to the Corporation for claims made against directors and officers for whom the Corporation has granted directors and officers indemnity, as is required or permitted under applicable statutory or by-law provisions.

CORPORATE GOVERNANCE DISCLOSURE

The Corporation is listed on the TSX and on the New York Stock Exchange (the “NYSE”). The Corporation is required to comply with the Sarbanes-Oxley Act of 2002, the rules adopted by the United States Securities and Exchange Commission (“SEC”) pursuant to that Act, and the NYSE corporate governance rules as they apply to foreign private issuers. The Canadian Securities Administrators (“CSA”) has also adopted rules relating to audit committees and disclosure of corporate governance practices under National Instrument 52-110 – Audit Committees (“NI52-110”) and National Instrument 58-101 –Disclosure of Corporate Governance Practices (“NI58-101”).

The Corporation has complied with Section 5.1 of NI52-110, and the disclosure required by Form 52-110F1 is included in the Corporation’s Annual Information Form under Item 8 – Audit Committee.

The Corporation has amended its governance practice as regulatory changes have come into effect in recent years and will continue to follow regulatory changes and consider amendments to its governance practices as appropriate. The disclosure required pursuant to Form 58-101F1 of NI58-101 is set out in Schedule 1 of this Management Proxy Circular.

15

REPORT OF THE AUDIT COMMITTEE

The Audit Committee is appointed by the Board to assist the Board in fulfilling its oversight responsibilities with respect to the integrity of financial statements, compliance with legal and regulatory requirements, the qualifications of the independent auditors and the performance of the internal audit function and independent auditors.

In December of 2009, both the Audit Committee and the Nominating & Corporate Governance Committee reviewed the Audit Committee Charter and made recommendations to update it in accordance with best practices and with applicable laws and rules of the stock exchanges on which the Corporation's securities are listed. These recommendations were approved by the Audit Committee on December 9, 2009, and by the Nominating & Corporate Governance Committee on January 13, 2010. The Charter is attached as Appendix 1 to the Corporation’s Annual Information Form, and is available on the Corporation's website.

To assist in the timely fulfillment of its Charter, the Audit Committee approved a detailed Work Plan for the fiscal year. The Work Plan prescribed actions to be taken at each of the scheduled meetings of the Committee. In the course of following the Work Plan, the Committee:

• reviewed with management and the independent auditors the Corporation’s Quarterly and Annual Financial Statements and Management’s Discussion and Analysis. The Committee approved the Corporation’s Quarterly Financial Statements and accompanying Management’s Discussion and Analysis, and approved and recommended for approval by the Board the Annual Financial Statement and Annual Management’s Discussion and Analysis. The Committee concluded that these documents were complete, and fairly presented in accordance with generally accepted accounting principals that were consistently applied;
• arranged for and reviewed the reports provided to the Committee by management and the independent auditors on the Corporation’s internal control environment as it pertains to the Corporation’s financial reporting process and controls;
• reviewed and discussed significant financial risks or exposures and assessed the steps management had taken to monitor, control, report and mitigate such risks to the Corporation;
• reviewed the effectiveness of the overall process for identifying the principal risks affecting the achievement of business plans, and provided the Committee’s view to the Board;
• reviewed legal and regulatory matters that could have a material impact on the interim or annual financial statements, related corporation compliance policies, and programs and reports received from regulators or governmental agencies;
• reviewed policies and practices with respect to hedging activities;
• met on a regular basis with the independent auditors without management present, and arranged for the independent auditors to be available to attend Committee meetings;
• reviewed and discussed with the independent auditors all significant relationships that the independent auditors and their affiliates had with the Corporation and its affiliates in order to determine independence;
• reviewed and evaluated the performance of the independent auditors and the lead partner of the independent auditors’ team, made a recommendation to the Board regarding the reappointment of the independent auditors at the annual meeting of the Corporation’s shareholders, the terms of engagement of the independent auditors, together with their proposed fees, independent audit plans and results, and the engagement of the independent auditors to perform non-audit services, together with the fees therefor, and the impact thereof, on the independence of the independent auditors;
• reviewed the Internal Audit Department Charter and submitted it to the Nominating & Corporate Governance Committee for approval;
• approved its report for disclosure in this Management Proxy Circular; and

The Committee is satisfied that it has appropriately fulfilled its mandate for Fiscal 2010.

This report has been approved by the members of the Audit Committee: Daniel Jarvis (Chair), Matthew W. Barrett and Noel Harwerth.

16

REPORT OF THE HUMAN RESOURCES & COMPENSATION COMMITTEE

The primary functions of the Human Resources & Compensation Committee are to assist the Board in carrying out its responsibilities by reviewing compensation and human resources issues and to make recommendations to the Board as appropriate.

In 2010, both the Human Resources & Compensation Committee and the Nominating & Corporate Governance Committee reviewed the Human Resources & Compensation Committee Charter and made recommendations to update it in accordance with best practices and with applicable laws and rules of the stock exchanges on which the Corporation's securities are listed. These recommendations were approved by the Human Resources & Compensation Committee and the Nominating & Corporate Governance Committee on January 13, 2010. The Charter is available on the Corporation's website.

To assist in the timely fulfillment of its Charter, the Human Resources & Compensation Committee approved a detailed Work Plan for Fiscal 2010. The Work Plan prescribed actions to be taken at each of the scheduled meetings of the Committee. In the course of following the Work Plan, the Committee:

• reviewed and submitted to the Board:

• the Corporation’s overall executive compensation strategy;

• the corporate compensation plan and benefit plans including proposed salary ranges, merit increases, annual incentive bonuses, stock options, Restricted Share Units, long term incentive plan and any other form of compensation;

• the Chief Executive Officer’s recommendation for salaries, annual incentive bonuses, budgets, organization and manpower plans, and succession planning for the Chief Executive Officer, the President and their direct reports;

• performance appraisals and overall compensation as recommended by the Chief Executive Officer and the President for senior officers earning in excess of Cdn$250,000;

• after consultation with the Chief Executive Officer, the appointment of new officers;

• the objectives, performance appraisal and compensation of the Chief Executive Officer;

• the consultant’s performance and re-appointment;

• the framework for the balanced scorecard for fiscal 2010 for determining the short term incentive program for the Chief Executive Office, the President and their direct reports;

• approved and reported to the Board the terms of new employment contracts with senior management, including termination benefits;

• reviewed and assessed management development programs to enhance individual effectiveness and preparedness for greater responsibilities;

• reviewed its performance, and reported to the Board thereon;

• reviewed, and recommended to the Board, the “Compensation Discussion and Analysis” included in this Management Proxy Circular; and

• approved its report for disclosure in this Management Proxy Circular;

The Committee is satisfied that it has appropriately fulfilled its mandate for Fiscal 2010.

This report has been approved by the members of Human Resources & Compensation Committee: Micheline Bouchard (Chair), Daniel Jarvis and Laurent E. Mommeja.

17

REPORT OF THE NOMINATING & CORPORATE GOVERNANCE COMMITTEE

The mandate of the Nominating & Corporate Governance Committee is to manage the corporate governance system for the Board, to assist the Board in fulfilling its duty to meet the applicable legal, regulatory and self-regulatory business principles and codes of best practice of corporate behaviour and conduct and to recommend to the Board the director nominees to be put before the shareholders at each annual meeting.

In 2010, the members of the Nominating & Corporate Governance Committee reviewed its Charter and made recommendations to update it in accordance with best practices and with applicable laws and rules of the stock exchanges on which the Corporation's securities are listed. These recommendations were approved by the Board on January 14, 2010. The Charter is available on the Corporation's website.

To assist in the timely fulfillment of its Charter, the Nominating & Corporate Governance Committee approved a detailed Work Plan for the fiscal year. The Work Plan prescribed actions to be taken at each of the scheduled meetings of the Committee. In the course of following the Work Plan, the Committee:

• developed and recommended to the Board a corporate governance system and monitored the effectiveness of the corporate governance system regularly and recommended changes to the Board;

• reviewed the relationship between management and the Board and recommended changes to the Board;

• reviewed polices governing Board size, composition, selection criteria, nominating process, succession planning and retirement age;

• reviewed director compensation and made recommendations to the Board;

• developed, reviewed and approved:

• Charter for the Audit Committee;

• Charter for the Human Resources & Compensation Committee;

• Internal Audit Department Charter;

• Guidelines and responsibilities for the Board of Directors;

• Guidelines and responsibilities for the Lead Director of the Board;

• Guidelines and responsibilities for the Chairman of the Board and Chief Executive Officer;

• Corporate Governance Guidelines;

• Mandate/Position description for the Committee Chairs;

• Policy on Corporate Disclosure, Confidentiality and Employee Trading;

• Insider Trading Policy;

• Corporate Security Policy;

• Whistleblower Protection Policy; and

• Code of Ethics and Business Conduct;

• reviewed the DSU policy and awarded DSUs;

• oversaw evaluation of management, including the Chief Executive Officer;

• prepared for disclosure to shareholders a report which describes the Corporation’s governance practices;

• identified individuals qualified to become new directors and recommended to the Board new nominees for election by shareholders based on selection criteria and individual characteristics;

• recommended to the Board the allocation and removal of Board members to the various Committees of the Board;

• reviewed, approved and reported to the Board on directors and officers insurance;

• oversaw the evaluation of the Board by considering the effectiveness of the Board as a whole, the Committees of the Board and the contribution of individual members;

• reviewed any significant ethics related contraventions of regulation or policies;

• determined orientation and education programs for new Board members and continued development of all members of the Board;

• reviewed its performance, and reported to the Board thereon; and

• approved its report for disclosure in this Management Proxy Circular.

18

The Committee is satisfied that it has appropriately fulfilled its mandate for Fiscal 2010.

This report has been approved by the members of the Nominating & Corporate Governance Committee: Matthew W. Barrett (Chair), Micheline Bouchard and Noel Harwerth.

STATEMENT OF EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

The following Compensation Discussion and Analysis describes and explains the significant elements of the Corporation’s compensation programs, with particular emphasis on the process for determining compensation payable to the Chief Executive Officer, Chief Financial Officer, and the three most highly compensated executive officers (other than the Chief Executive Officer and Chief Financial Officer), at the end of the most recently completed financial year (collectively, the “Named Executive Officers”).

Objectives of Compensation Programs

The objectives of the Corporation’s compensation programs are to attract, retain and motivate highly qualified executive officers who will drive the success of the Corporation, while at the same time promoting a greater alignment of interests between such executive officers and the Corporation’s shareholders. The Corporation’s compensation programs are designed to recruit and retain key individuals and reward individual and company performance with compensation that has mid and long-term growth potential, while recognizing that the executives work as a team to achieve corporate results.

Elements of Compensation

The current compensation program is comprised of the following main components:

• base salary
• annual incentive
• mid term incentive
• long term incentive
• benefits

The Human Resources & Compensation Committee annually reviews each component and relevant competitive factors and makes its determinations based on corporate and individual performance, taking into account leadership abilities, retention risk and succession plans.

1.             Base Salaries - The primary element of the Corporation’s compensation program is base salary. The Corporation’s view is that a competitive base salary is a necessary element for retaining qualified executive officers. The amount payable to an executive officer as base salary is determined primarily by survey data and internal position comparisons, and, if available, comparisons to the base salaries offered by other companies in the same geographic location or in similar businesses and for comparable positions at other companies where the Corporation competes for talent based on available market data and on the number of years of experience (see “Determination of Compensation” on page 22).

19

2.             Annual Incentives - One of the objectives of the executive compensation strategy is to encourage and recognize strong levels of performance by linking achievement of specific goals with variable cash compensation in the form of annual incentive awards. Target annual incentive awards range from 30% to 100% of base salary for the executive group. Actual annual incentive or bonus compensation for the Chief Executive Officer is determined on the basis of an overall assessment based on achieving specified mining segment and consolidated financial targets for up to approximately 90% of the award, and 10% of bonus compensation is based on his individual performance. Actual bonus compensation for the other executive officers, other than Thomas J. O’Neill, is determined on the basis of an overall assessment based on achieving specified mining or retail segment or consolidated financial targets depending on the responsibilities of the executive for up to approximately 80% of the award calculated on audited financial statements or other objective measures relating to their specific areas of responsibility, and 20% of the award is based on individual performance. More detail is set out in this Management Proxy Circular on pages 24 and 25 (see “Performance Goals of Named Executive Officers”).

Thomas J. O’Neill, the former President of the Corporation, was contractually entitled to an annual bonus of 50% of his base salary, provided he was employed on the last day of the fiscal year in question. Mr. O’Neill was not employed by the Corporation on January 31, 2010 and, accordingly, was not entitled to a bonus in respect of FY2010.

3.             Mid term Incentives – RSUs - On April 5, 2004, the Corporation adopted the RSU Plan for employees under which executive officers and other employees of the Corporation and its subsidiaries may be granted restricted share units (“RSUs”) by the Human Resources & Compensation Committee. The objective of the RSU Plan is to provide compensation opportunities that facilitate recruitment and retention and promote alignment of interest between employees and shareholders of the Corporation. Under the RSU Plan, selected employees may receive an award of RSUs. RSUs have been awarded to employees as a result of recommendations from management based on company performance, the individual employee’s position within the Corporation, and the goal to have a compensation package competitive with market data. When a dividend is paid on the Corporation’s Common Shares, each RSU account is allocated additional RSUs equal in value to the dividend paid on an equivalent number of the Corporation’s Common Shares. The RSUs are time vested and redeemable on the settlement date determined by the Human Resources & Compensation Committee (generally three years from the date of grant) which may not end later than December 31^st of the third calendar year following the award date. The vesting of RSUs can also occur in the case of death, retirement or Change of Control. The redemption value for a RSU is the five day average closing price of a Common Share of the Corporation prior to the redemption date. In addition to the mid term incentive grants of RSUs, the RSU Plan provides that selected employees may elect to receive up to 100% of the employee’s annual incentive compensation in the form of RSUs. These RSUs are vested at the time they are granted to the employee. In Fiscal 2010, the Corporation moved towards implementing a long term incentive plan utilizing stock options, and decided to discontinue the use of RSUs. Accordingly, no RSUs were awarded in Fiscal 2010, except for awards made to Mr. Mayne in accordance with his employment contract (see Footnote No. 1 under “Summary Compensation Table” on page 27).

On March 16, 2006 the Corporation adopted a Linked Restricted Share Unit Plan which provided for the granting of Linked Restricted Share Units (“Linked RSUs”). All Linked RSU’s granted in calendar 2006 vested during Fiscal 2010, and have been paid. Linked RSUs are RSUs with the number of RSUs ultimately paid out calculated by applying a multiple, representing the increase or decrease in the fair market value of Harry Winston, Inc., the Corporation’s wholly owned subsidiary, to the original number of Linked RSUs granted (adjusted for dividends paid). No Linked RSUs were awarded in Fiscal 2010.

4.             Long Term Incentives

(a)           Stock Options - The Corporation implemented a Long Term Incentive Plan (“LTIP”) at the beginning of Fiscal 2010, which sets out guidelines for granting stock options, based on the Corporation’s performance and economic conditions. Under the plan, grants to selected officers (including Named Executive Officers) are in two parts: a fixed part and a performance based part. The size of the performance based part of the grant is derived from historical performance of the Corporation measured against target. The options have a ten-year term and an exercise price equal to market price at the time of grant. The granting of stock options under the LTIP commenced in Fiscal 2010. The overall size of option

20

grants ordinarily would be made with reference to a targeted value for each position and based on a value of the grant using the Black Scholes valuation model. However, the application of this method for options granted on April 9, 2009, at the then-current share price would have been resulted in potential option grants that were in excess of shares available under the stock option plan. As a result, the Board granted stock options which were significantly less in number than the targeted value under the LTIP. The exercise price of US$3.00, or Cdn$3.78, was higher than the market price at the time of the grant. The price equaled the price paid by Kinross Gold Corporation on March 31, 2009 when it purchased 15,200,000 treasury common shares from the Corporation. The stock options granted on April 9, 2009 were 50% vested on the date of the grant with 25% vesting on the first anniversary of the date of the grant and 25% on the second anniversary of the grant. Additional information regarding the Corporation’s LTIP can be found in this Management Proxy Circular on pages 31 to 33 (see “Securities Authorized for Issuance under Equity Compensation Plans”).

(b)           Harry Winston, Inc. Long Term Incentive Executive Plan – On January 4, 2010, Mr. Frederic de Narp commenced employment as President and Chief Executive Officer of Harry Winston, Inc. Mr. de Narp’s employment contract does not provide that he is entitled to grants of stock options of the Corporation, but rather provides for a specific long term incentive program (the “Harry Winston, Inc. Executive Plan”). Under the Harry Winston, Inc. Executive Plan, Harry Winston, Inc. agrees to establish a long term incentive plan account (“LTIP Account”) for Mr. de Narp. For Harry Winston, Inc.’s fiscal year ending January 31, 2011, and for subsequent fiscal years, the LTIP Account will be debited or credited with an amount equal to 5% of the Profit Results, provided that if the Profit Results result in a negative amount for fiscal years ended January 31, 2011 or 2012, this negative amount shall not be applied to reduce any balance in the LTIP Account. A negative balance in the LTIP Account will not represent an indebtedness of Mr. de Narp to Harry Winston, Inc. For the purposes of the Harry Winston, Inc. Executive Plan, “Profit Results” means the gross profit, minus selling, general and administrative (“SG&A”) expenses of Harry Winston, Inc. and its subsidiaries on a consolidated basis for a fiscal year for which the LTIP Account is being debited or credited, less the cost of capital for that fiscal year. This calculation may produce a positive or negative number. The amount debited or credited to the LTIP Account shall be determined within 90 days of the end of each fiscal year if Mr. de Narp is then employed by Harry Winston, Inc. Commencing April 30, 2012, and on each subsequent April 30th, Harry Winston, Inc. shall pay Mr. de Narp one-third of the balance of the LTIP Account, provided he is then employed by Harry Winston, Inc. The Harry Winston, Inc. Executive Plan shall be in effect until the fiscal year ending January 31, 2015, at which time it shall be subject to review by either Mr. de Narp or Harry Winston, Inc., and failing any resolution of the matter within 30 days of either party requesting a review, the Harry Winston, Inc. Executive Plan shall, at the request of the party requesting a review, terminate. Mr. de Narp shall then be entitled to participate in any bonus system implemented from time to time by Harry Winston, Inc. for its senior executives. If the Harry Winston, Inc. Executive Plan terminates after January 31, 2015, the balance remaining in the LTIP Account shall be paid in three equal tranches on April 30, 2015, 2016 and 2017, provided Mr. de Narp is then employed by Harry Winston, Inc. on such dates.

(c)           Phantom Equity - No Phantom Stock Awards have been made since 2006. Harry Winston, Inc. implemented a Phantom Stock Award Plan for certain key executives in 2004, prior to becoming a wholly owned subsidiary of the Corporation in 2006. Mr. O’Neill was the only Named Executive Officer participating in the Phantom Stock Award Plan. The Phantom Stock Award is comprised of two parts, both payable in cash: 40% of the Award is a time vested portion (the “Time Vested Portion”) which vests on each of the third, fourth, fifth and sixth anniversaries of the executive’s first day of active employment with Harry Winston, Inc. or entry into the program, and 60% of the Award (the “Cliff Vested Portion”) vested on September 29, 2006, the date the Corporation acquired 100% of Harry Winston, Inc. The value of the Award for each executive is calculated as a percentage of return on investment, as defined in the agreements as the excess of the fair value of Harry Winston, Inc. at the date of calculation, over the fair value of Harry Winston, Inc. at April 2, 2004, adjusted for certain items as defined in the agreements. With the exception of Thomas J. O’Neill, the Cliff Vested Portion has been paid to the executives. Mr. O’Neill’s employment with Harry Winston, Inc. terminated on December 31, 2009 and the Time Vested Portion of the Phantom Stock Award to which he was entitled had no value on that date. The Corporation has not made any accruals in respect of the Time Vested Portion of the Phantom Stock Award Plan for any of the executives who have not yet vested fully.

21

5.             Benefits – Benefits for the Named Executive Officers, including life insurance, health and dental plans, and short and long term disability plans, in Canada a deferred profit sharing plan and 401 K plans in the US are maintained at a level that is considered competitive and similar to what all employees receive.

Determination of Compensation

The Corporation’s policy for determining executive compensation is based on the following fundamental principles:

• Management’s fundamental objective is to maximize long term shareholder value;

• Equitable balance among internal peers;

• Performance is an important determinant of pay for executive officers; and

• Recruitment and retention of key employees.

Compensation Elements

To support a strong pay-for-performance orientation, linking each executive to achievement of business results, the Corporation’s compensation strategy provides a balance of fixed and variable (at-risk) compensation with cash and non-cash (equity) rewards, and short and, for some executives, long term incentives. The overall weighting of total compensation elements reflects the degree to which executives at each different level should assume greater compensation risk and reward, reflected by increasing levels of variable compensation. Executives at all levels would have a mix, and weighting, of fixed and variable compensation. However, the executives at the higher levels would have more compensation at risk and, therefore, receive higher resulting rewards when Company performance exceeds targets.

For each executive, the compensation elements are as follows: base salary will generally be market based, short term or annual incentive will be a specific percentage of base salary depending on executive level, and long term incentive will be a multiple of base salary granted either in cash or stock options depending on executive level. The multiple of base salary is derived from market data as confirmed by Hewitt Associates LLC.

Competitive Industry Positioning

The Corporation’s executive compensation strategy is both market-based and performance-based to: (a) support the Corporation’s business priorities, growth and profitability and (b) to allow the Corporation to attract and retain key talent for the business. The Corporation’s strategy is to compensate its senior executive group, i.e., Vice President and above, at a total compensation level that is at median levels (or exceeds median if performance warrants) of external total compensation practice, as measured by compensation surveys for comparable executive positions.

External compensation surveys are used to measure total compensation competitiveness. General industry survey data is used to measure compensation competitiveness for both groups, and retail/wholesale and luxury goods company data is used to measure compensation competitiveness for the retail group. Combined data for both groups is further reviewed by the compensation consulting company retained by the Human Resources & Compensation Committee of the Board, who will validate and add to the data in order to determine overall external competitive compensation practice.

Competitive information is provided by external consultants retained by the Corporation and by external survey data provided by the 2009 Towers Perrin General Industry Executive Database, the 2009 Towers Perrin Retail/Wholesale Executive Database, and the 2008 Salary.com/ICR Luxury Goods Compensation Survey updated to 2009. While the external compensation survey data covers many of the Corporation’s executive positions, it is not possible to secure matches for every position. Where specific data is not available for a specific position, its external competitiveness will be determined through comparison to existing data for a comparable internal position, inference or regression analysis, as assisted by the compensation consultants. The overall intent of the Corporation is to provide appropriate external total compensation data that is competitive in the industries in which the Corporation must compete for talent.

22

Subject to the discretion of the Human Resources & Compensation Committee and the Board, the Corporation seeks to position total compensation for its executives, including base salary and annual, midterm and long term incentives, approximating the median market data for positions with equivalent responsibilities and scope.

Independent Consultant

The Human Resources & Compensation Committee engaged Hewitt Associates LLC as an independent consultant to provide the Committee with support on determining levels of executive compensation. Hewitt Associates LLC provided such services for the fiscal periods of the Corporation commencing February 1, 2006 to February 1, 2010, including:

• Compensation philosophy development;

• Market data and other market intelligence, including benchmarking of executive salaries;

• Compensation plan design support;

• Governance and regulatory practices/requirements input; and

• Assistance in facilitating the management of executive compensation and the execution of the Committee’s mandate.

The decisions made by the Human Resources & Compensation Committee are the responsibility of the Committee, and may reflect factors and considerations other than the information and recommendations of Hewitt Associates LLC.

The Corporation paid Hewitt Associates LLC fees in the amount of US$74,420 (inclusive of GST and disbursements) for Fiscal 2010 in connection with the above-noted services. Hewitt Associates LLC did not perform any other services for the Corporation during the foregoing fiscal periods.

Annual Base Salary Review

Each year management recommends a base salary budget increase based on a percent increase over the prior year’s base compensation. The percent increase is derived from generally available public data on average base salary increases and confirmed with Hewitt Associates LLC. The Board considers this base salary budget when it reviews and approves the annual budget for the Corporation. The actual percent increase for each employee may be more or less than the average budgetary percent increase, and is based on such factors as the employee’s performance, seniority level, equitable balance among internal peers, market comparisons and promotions. The Board determines whether any increases to the base salary of the Chief Executive Officer is appropriate, based on recommendations from the Human Resources & Compensation Committee. The Human Resources & Compensation Committee determines whether any increases to the base salary of the other Named Executive Officers is appropriate.

For Fiscal 2010, management recommended, and the Human Resources & Compensation Committee agreed, that there should not be increases to base salary throughout the Corporation, other than for minor exceptions for subsidiaries outside North America. In addition, the Chief Executive Officer, the Chief Financial Officer and the other Named Executive Officers were required to take two weeks of unpaid leave in Fiscal 2010, resulting in an approximate 4% reduction of base salary over Fiscal 2009.

For Fiscal 2011, management recommended, and the Human Resources & Compensation Committee agreed that there should not be increases to base salary for the Named Executive Officers nor throughout the Corporation, other than for exceptions for subsidiaries outside North America and a few special promotions and salary adjustments.

23

Performance Goals of Named Executive Officers

Performance goals of the Named Executive Officers apply in determining base salary increases, annual incentive awards, and the quantum of stock option awards.

The annual incentive award would range from no bonus if 80% or less of the targets were achieved, to a cap of 150% if at least 110% of the targets were achieved. In September 2009, management proposed, and the Human Resources & Compensation Committee accepted, that in recognition of the fact that executives had been focused on preservation of assets of the Corporation in the first two quarters of Fiscal 2010, their annual incentive for the year would be based upon the metrics for the second half year based on 50% of the executive’s target bonus. In other words, the starting basis for each executive’s target bonus was reduced by 50% of the original target bonus. In January 2010, the Human Resources & Compensation Committee determined that, notwithstanding that the metrics established for determining the bonuses for the fiscal year ending January 31, 2010 be used to calculate the annual bonus an allocation of a pool of funds equal to one half of the aggregate target bonuses for executives, be authorized. This would enable the Chief Executive Officer and Mr. de Narp (the President and Chief Executive Officer of Harry Winston, Inc.) to make recommendations at the March meeting of the Human Resources & Compensation Committee for bonuses for certain executives who had made valuable contributions to the Corporation but might not be adequately rewarded because the metrics applied to them were less relevant in light of the changes in the business and the global economic climate.

1.             Chief Executive Officer - The Chief Executive Officer's target bonus opportunity is 100% of his base salary. The individual performance of the Chief Executive Officer is measured against the goals, objectives and standards set annually between the Chief Executive Officer and the Human Resources & Compensation Committee, which are used as metrics in establishing the amount of the bonus to be awarded. The metrics used for the Chief Executive Officer are based on the results of the mining and retail parts of the business separately, combined company metrics and personal targets, each with different weighting. Metrics are based on actual rough diamond prices, retail sales and earnings in excess of plan, cost management and funding corporate operations and capital requirement costs effectively. The bonus for the Chief Executive Officer may be adjusted up or down from his target bonus, based on achievement of the metrics. The minimum bonus award would be zero and the maximum would be 150% of target for the full year, reduced by 50% for Fiscal 2010.

	Sales of Rough Diamonds	Consolidated Sales	Consolidated SG&A	Personal Goals
Robert A Gannicott	40%	20%	30%	10%

In light of the economic financial crisis and its impact on the Corporation as a whole and its shareholders, the Chief Executive Officer recommended to the Human Resources & Compensation Committee that the starting basis for his and each executive’s target bonus be reduced by 50% of the original target bonus. The initial determination of the bonus award for these executives would be arrived at by applying the metrics for the second half year targets with the same weighting as for the full year. The bonus awarded to Mr. Gannicott, the Chief Executive Officer, in respect of Fiscal 2010 was 50% of his target bonus.

The Chief Executive Officer received 416,000 stock options on April 9, 2009. He did not receive grants of RSUs in Fiscal 2010.

No pension is currently payable to the Chief Executive Officer upon retirement.

2.             Other NEOs - Target bonus awards range from 30% to 50% of base salary for the executive group. Actual bonus compensation is based on the degree to which the Corporation performed on certain metrics. The metrics were selected based on those parts of the business over which the executive had influence.

24

Target bonus opportunities for each NEO are: Mr. Mayne 50% of his base salary; Mr. Pounds 40% of his base salary; Mr. Simpson 40% of his base salary; and Mrs. Bandler 35% of her base salary. Business objectives for these NEOs reflected their respective areas of responsibilities. The following charts set out the metrics and respective weightings for each NEO. However, the bonus award for these executives was arrived at by applying the metrics for the second half year targets with the same weighting as for the full year but with a 50% reduction in the starting basis. Bonus awards for Fiscal 2010 were Mr. Mayne 50% of target bonus; Mr. Pounds 60% of target bonus; Mr. Simpson 45% of target bonus; and Mrs. Bandler 45% of target bonus.

	Retail SG&A	Consolidated Sales	Mining SG&A	Personal Goals
Alan S. Mayne	30%	10%	40%	20%

	Sales of Rough Diamonds	Retail SG&A	Retail Sales	Operating Budget Management	Personal Goals
James R.W. Pounds	50%	5%	5%	20%	20%

	Consolidated SG&A	Audit Plan and M&A Performance	Implementation of IT Systems	Personal Goals
Raymond N. Simpson	10%	40%	30%	20%

	Consolidated SG&A	Average Attainment of CEO Reports	Personal Goals
Beth Bandler	10%	70%	20%

Change of Control

The selection of the events that trigger payment to a Named Executive Officer in the event of a Change of Control are negotiated and documented in each employment contract, with the attempt to balance the protection of the employee upon a Change of Control with the preservation of the executive base in the event such a Change of Control occurs. As noted on pages 29 to 31 under the heading “Termination and Change in Control Benefits”, there are certain circumstances that trigger payment, vesting of stock options or RSUs, or the provision of other benefits to a Named Executive Officer upon termination and Change of Control.

Performance Graph

The following graph compares the yearly percentage change in the Corporation's cumulative total shareholder return on its Common Shares with the cumulative total return of the S&P/TSX Composite Index (assuming reinvestment of dividends and considering a $100 investment in Common Shares on January 31, 2005). For this purpose, the yearly change in the Corporation's cumulative total shareholder return is calculated by dividing the difference between the price for the Common Shares at the end and the beginning of the "measurement period" by the price for the Common Shares at the beginning of the measurement period. "Measurement period" means the period beginning at the market close on the last trading day before the beginning of the Corporation's fifth preceding fiscal year, through and including the end of the Corporation's most recently completed fiscal year.

25

Fiscal Years ended January 31st	2005	2006	2007	2008	2009	2010
Harry Winston Diamond Corporation	$40.72	$46.52	$45.35	$24.75	$4.88	$9.83
Value of $100 Investment	$100.00	$114.24	$111.37	$60.78	$11.98	$24.14
S&P/TSX Composite	21,359.53	28,232.24	31,573.54	32,665.06	22,287.88	29,360.52
Value of $100 Investment	$100.00	$132.18	$147.82	$152.93	$104.35	$137.46

(1) All Dollars Amounts referenced in the performance graph are in Canadian Dollars.

Compensation includes base compensation, bonus, value of RSUs and dividend in kind on the RSUs, stock options and other compensation. Compensation increased in 2004 with the addition of the retail executives following acquisition of the interest in Harry Winston, Inc. From 2006, the increases in compensation were fairly flat with increases in base compensation reflective of market data including no base salary increases in Fiscal 2010. The base salary in Fiscal 2010 of the Chief Executive Officer and the other Named Executive Officers effectively declined approximately 4% as a result of each person taking two weeks of unpaid leave. Until Fiscal 2009, the annual bonus was derived to a large extent on operating results which were not necessarily reflected in the share price. The strong decline in share price through Fiscal 2009 was due in part to the reduction in dividend payment amounts and a change in global economic circumstances. Long term and mid term incentives were severely impacted by the decrease in share price, with improvements being seen in Fiscal 2010 as the share price showed strong improvement.

Option-Based Awards

Information on option-based awards is discussed in this Management Proxy Circular on page 20 (see “Elements of Compensation – Long-term Incentives”).

Summary Compensation Table

The following table sets forth the compensation awarded, paid to or earned by the Named Executive Officers, during Fiscal 2010 and Fiscal 2009.

26

Name and Principal Position	Year Ended January 31	Salary (US$)	Share- Based Awards (US$)(1)	Option- Based Awards (US$)(2)	Non-Equity Incentive Plan Compensation (US$)		Pension Value (US$)	All Other Compensation (US$)(3)	Total Compensation (US$)
					Annual Incentive Plans	Long- Term Incentive Plans
Robert A. Gannicott Chief Executive Officer	2010 2009	853,615(4) 922,339	- -	487,316 -	467,596(5) 407,664	- -	- -	- 1,116	1,808,527 1,331,119
Alan S. Mayne Chief Financial Officer	2010 2009	448,148(4) 484,228	52,121(6) 19,386	242,487	122,744(5) 107,012	- -	- -	- 828	865,499 611,454
James R.W. Pounds Executive Vice-President, Buying and Sourcing	2010 2009	494,243(4) 534,034	- -	242,487 -	129,954(5) 94,415	- -	- -	- 558	866,684
Raymond N. Simpson Executive Vice-President	2010 2009	315,933 328,570	- -	173,372 -	59,220 65,714	- -	- -	- -	548.525 394,284
Beth Bandler Senior Vice-President & General Counsel, Legal and HR	2010 2009	341,446(4) 368,956	- -	104,258 -	58,917(5) 57,073	- -	- -	9,321(7) 10,131	513.942 436,160
Thomas J. O’Neill(8) Former President of the Corporation and Chief Executive Officer of Harry Winston, Inc.	2010 2009	999,173 1,035,000	45,756(5) 306,034	- -	- 517,500	- -	- -	49,808 8,611	1,094,737 1,867,145

(1)

The amounts shown for Mr. O’Neill represent 10,000 RSUs granted to him each year pursuant to his employment agreement in his capacity as an executive (the “O’Neill Executive RSUs”) plus an annual award of RSUs equal to the number of DSUs granted to non-employee directors of the Corporation (the “O’Neill Director RSUs”). The value of these RSUs was determined based on a share price of Cdn$4.88 on February 1, 2009, the closing price of the Corporation’s common shares on the date of grant converted at the Year-Beginning Exchange Rate. The amounts shown for Mr. Mayne represent 5,000 RSUs granted to him each year pursuant to his employment agreement. The value of these RSUs was determined based on a share price of Cdn$10.96 on January 21, 2010, the closing price of the Corporation’s common shares on the date of grant converted at the January 21, 2010 Exchange Rate of 0.9511. These RSUs vest and are paid out at the end of three years.

The table below shows the number of RSUs outstanding for each Named Executive Officer, and their value at January 31, 2010 at the Year-End Exchange Rate. Details of the RSU Plan can be found in this Management Proxy Circular on page 20 (see “Elements of Compensation – Mid-term Incentives - RSUs”).

RESTRICTED SHARE UNITS OUTSTANDING AS OF JANUARY 31, 2010

Name	Number of Units	Value (US$)
Robert A. Gannicott	-	-
Alan S. Mayne	15,195	139,687
James R. W. Pounds	-	-
Raymond N. Simpson	-	-
Beth Bandler	-	-
Thomas J. O’Neill(9)	30,685	289,546

The table below shows the number of RSUs granted in the fiscal year. The payout value will be based upon the 5 day average closing price of the Corporation’s Common Shares prior to the payout date, and will include accumulated dividend equivalents automatically credited.

RESTRICTED SHARE UNIT AWARDS GRANTED

Name	Units Granted	Period until Payout
Alan S. Mayne	5,000	3 years

(2)	For the options granted on April 7, 2009, the Company used a Black-Scholes option pricing model in accordance with Section 3870 of the CICA Handbook. The Corporation used the following assumptions: risk-free rate of 1%, dividend yield of 0%, volatility factor of 51%, and expected life of the options of 5.5 years converted at the April 7, 2009 Exchange Rate. The options were granted at an exercise price of US$3.00 which was higher than the closing price of the Corporation’s shares on the TSX on the date immediately preceding the date of grant. Each option expires ten years after the date of its grant.
(3)	The amounts shown represent the value of additional RSUs awarded based on nominal equivalents of dividends on the Corporation’s Common Shares. The amounts shown for Mr. O’Neill also include vacation pay in the amount $39,808 and the cost of preparing Mr. O’Neill’s personal tax return of $10,000.
(4)	Converted at the Average Exchange Rate.
(5)	Converted at the Year-End Exchange Rate.
(6)	The Share-based awards represent RSUs granted.

27

(7)	Deferred profit share plan converted at the Average Exchange Rate.
(8)	Employment with the Corporation was terminated effective December 31, 2009.
(9)	The amount shown for Mr. O’Neill’s RSUs outstanding at January 31, 2010 represents RSUs that have vested upon the termination of Mr. O’Neill’s employment at share price of Cdn$10.09 (December 31, 2009) converted at the Year-End Exchange Rate.

Incentive Plan Awards

Outstanding Share-Based Awards and Option-Based Awards

Name	Option-Based Awards				Share-Based Awards(1)
	Number of Securities Underlying Unexercised Options (#)	Option Exercise Price (Cdn$)	Option Expiration Date (M/D/Y)	Value of Unexercised In-the-Money Options (US$)(2)	Number of Shares or Units of Shares that Have Not Vested (#)	Market or Payout Value of Share-Based Awards that Have Not Vested (US$)
Robert A. Gannicott	256,400 11,250 286,680 200,000 100,000 110,000 416,000	9.15 9.10 12.45 23.35 26.45 41.45 3.78	11/24/2009 03/14/2010 02/12/2011 02/05/2012 04/17/2013 04/07/2014 04/07/2019	163,054 7,680 0 0 0 0 1,176,856	-	-
Alan S. Mayne	100,000 207,000	25.52 3.78	01/21/2018 04/07/2019	0 585,599	15,195	139,687
James R.W. Pounds	50,000 10,000 207,000	27.60 26.45 3.78	06/27/2012 04/17/2013 04/07/2019	0 0 585,599	-	-
Raymond N. Simpson	100,000 148,000	26.45 3.78	04/17/2013 04/07/2019	0 418,689	-	-
Beth Bandler	89,000	3.78	04/07/2019	251,779	-	-
Thomas J. O’Neill	30,000 5,000 100,000	25.51 26.45 41.95	07/22/2012 04/17/2013 09/08/2014	0 0 0	-	-

(1)	Share-based awards represent outstanding RSUs. The payment value is based on the last trade of the Common Shares on the TSX prior to the close of business on January 29, 2010, of Cdn$9.83 converted at the Year End Exchange Rate.
(2)	Based pm the last trade of the Common Shares on the TSX prior to the close of business on January 29, 2010, of Cdn$9.83 converted at the Year End Exchange Rate.

Incentive Plan Awards – Value Vested or Earned During the Year

Name	Option-Based Awards – Value Vested During the Year (US$)(1)	Share-Based Awards – Value Vested During the Year (US$)	Non-Equity Incentive Plan Compensation – Value Earned During the Year (US$)
Robert A. Gannicott	-	21,672	467,596
Alan S. Mayne	-	-	122,744
James R.W. Pounds	-	10,836	129,954
Raymond N. Simpson	-	-	59,220
Beth Bandler	-	28,599	58,917
Thomas J. O’Neill	-	46,092	-

(1) Represents the dollar value that would have been realized if the options that vested during the year had been exercised on the vesting date. This is calculated by multiplying the number of options that vested during the year by the difference between the closing price of the Common Shares on the TSX on the date of vesting and the exercise price of the options. In fiscal 2010, the value of options which vested is “nil”, as the exercise price of each applicable vested option was greater than the market price of the Common Shares on the TSX on the applicable vesting date.

28

Pension Plan Benefits

No Named Executive Officer is a member of a Defined Pension Plan or a Defined Contribution Plan. Mr. O’Neill was a member of the Deferred Compensation Plan (see “Summary Compensation Table” on page 27).

Deferred Profit Sharing Plan

The Corporation offers its Canadian employees a deferred profit sharing plan whereby the Corporation matches the employee’s contribution to a maximum of 6% of the employee’s salary to the maximum contribution limit under Canada’s Income Tax Act.

Termination and Change in Control Benefits

The Corporation has executive employment agreements with Robert A. Gannicott, Thomas J. O’Neill, Alan S. Mayne, James R.W. Pounds and Beth Bandler. The compensation set out in the Summary Compensation Table reflects the compensation levels contained in the various agreements, subject to periodic review by the Human Resources & Compensation Committee. The Corporation’s executive employment agreements generally provide, and it is the Corporation’s policy, that upon the executive’s termination of employment for any reason, the executive shall be entitled to receive his or her accrued salary and benefits, unpaid bonus, unpaid vacation pay, and, except as otherwise provided herein, vested portions of stock options, and any amounts credited to the vested phantom stock award and RSU accounts (collectively the “Basic Executives’ Termination Amounts”). In addition, the executive employment agreements for each of Messrs. Gannicott, O’Neill, Mayne and Pounds and Mrs. Bandler obligate the Corporation to pay for existing benefit plan coverage for certain period of time: Mr. Gannicott, 3 years; Messrs. Mayne, Pounds and Simpson and Mrs. Bandler, 2 years and Mr. O’Neill, 1 year.

Robert A. Gannicott’s executive employment agreement provides that if his employment is terminated without just cause, or if he elects to terminate the agreement within six months of a Change in Control, he will be entitled to receive: (a) a payment equal to three times his then current annual salary; and (b) an amount equal to three times the greater of: (i) his last year’s bonus; or (ii) the average of his bonuses for the last two fiscal periods.

The executive employment agreements for Alan Mayne, James Pounds, Beth Bandler and Ray Simpson, provide that if their employment is terminated without just cause, or if they elect to terminate the agreement within six months of a Change in Control for Good Reason, they will be entitled to receive: (a) a payment equal to two times their then current annual salary; and (b) an amount equal to two times the greater of: (i) their last year’s bonus; or (ii) the average of their bonuses for the last two fiscal periods.

Thomas J. O’Neill’s employment with the Corporation was terminated effective December 31, 2009. His executive employment agreement provided that if his employment was terminated without just cause, he would be entitled to receive a payment equal to three times his annual salary at the rate in effect immediately prior to the date of termination, and the balance of his deferred compensation. In addition his Executive RSUs vest and the amount credited to his RSU account shall be paid to him (the “Termination Payments”). Payments made, or payable to Thomas J. O’Neill are set out in the Summary Compensation Table under “All Other Compensation” on page 27 of this Circular. Mr. O’Neill’s executive employment has non-competition and non-solicitation provisions for a twelve month period following termination and contains non-disclosure provisions in perpetuity.

The Human Resources & Compensation Committee determined that in the light of capping the bonuses at 50% of target bonus for Fiscal 2009 and the current economic conditions, the employment agreements for Messrs. Gannicott, Mayne, Pounds and Simpson and Mrs. Bandler would be amended to provide that the bonuses for Fiscal 2009 would not be included in the calculation of termination without just cause and Change in Control benefits.

29

Mr. Gannicott’s executive employment agreement contains a non-disclosure provision. Mr. Pounds’ executive employment agreement contains a non-disclosure provision and a 12 month non-solicitation provision following termination of employment. The executive employment agreements for Messrs. Mayne, and Simpson and Mrs. Bandler each have non-disclosure, non-solicitation and non-competition provisions. The non-disclosure obligations continue so long as the information is confidential to the Corporation, the non-solicitation provision is for 12 months and the non-compete provision is for 6 months following termination of employment. The termination payments are lump sum payments, generally paid within 5 business days of termination, and the foregoing obligations are not conditions that apply to receiving the termination payments or benefits.

Grants of RSUs typically vest on the third anniversary of the date of the grant. One third of the RSUs vest if the Change in Control occurs prior to the first anniversary of the date of the grant, two thirds of the RSUs vest if the Change in Control occurs after the first anniversary and before the second anniversary of the date of the grant, and all the RSUs vest if the Change in Control occurs after the second anniversary of the date of the grant.

On the date of a Change in Control of the Corporation, stock options, cash long term incentive payments and any unvested portion of the Phantom Stock Award become fully vested.

There are no payments to the Named Executive Officers in the event of retirement, resignation or disability other than the Basic Executives’ Termination Amounts. The estimated additional payment to the Named Executive Officers in the case of termination without cause, or upon a Change in Control, assuming that the triggering event took place on the last business day of the Corporation’s most recently completed financial year, are set out in the following table:

Name	Lump Sum Severance (US$)
Robert A. Gannicott	5,844,945
Alan S. Mayne	1,227,439
James R.W. Pounds	1,547,742
Raymond N. Simpson	910,962
Beth Bandler	991,334

(1) Converted at the Year-End Exchange Rate.

“Change in Control” means the occurrence at any time hereafter of any of the following events:

(a)	any change in the holding, direct or indirect, of Voting Shares as a result of which a Person, or group of Persons acting jointly or in concert, together with any associate or affiliate of any such Person or Persons, who were not previously in a position to exercise control of the Corporation are in a position to exercise effective control of the Corporation and for the purposes of this Agreement a Person, or group of Persons acting jointly or in concert, together with any associate or affiliate of any such Person or Persons, will be deemed to be in a position to exercise effective control of the Corporation if either:
	(i)	such Person, or group of Persons acting jointly or in concert, together with any associate or affiliate of any such Person or Persons, holds Voting Shares and/or other securities in excess of the number which, directly or following conversion thereof, would entitle the holders thereof to cast 20% of the votes attaching to all Voting Shares and such voting power is exercised so as to cause or result in the election of two or more of the nominees of such Person or Persons as members of the Board if such nominees (1) were not members of the Board immediately prior to the exercise of such voting power and (2) were not recommended to be elected to the Board by a majority vote of the Board prior to the exercise of such voting power; or
	(ii)	such Person, or group of Persons acting jointly or in concert, together with any associate or affiliate of any such Person or Persons, holds Voting Shares and/or other securities in excess of the number which, directly or following conversion thereof, would entitle the holders thereof to cast 30% of the votes attaching to all Voting Shares;

30

(b)	the members of the Board as of the date hereof (or their respective successors whose elections were acceptable to the then remaining members of the Board) cease to constitute a majority of the Board or of the board of directors of any successor to the Corporation, except as a result of the death, disability or normal retirement from such board; or
(c)	a transaction or series of transactions (other than any such transaction or series of transactions to which the Executive has consented in writing) in which, directly or indirectly, the Corporation sells or otherwise transfers to any Person, other than an affiliate or affiliates of the Corporation, assets:
	(i)	having an aggregate fair market value of more than 50% of the aggregate fair market value of all of the assets of the Corporation, or
	(ii)	that generated during the Corporation's last completed fiscal year or are expected to generate in the Corporation's then current fiscal year more than 50% of its operating income or cash flow,
		where "Corporation" means the Corporation and its subsidiaries taken as a whole;

but excluding any amalgamation, merger, financing or other business combination or transaction which is initiated by the Corporation.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

The following table provides information as of January 31, 2010, concerning options outstanding pursuant to the Corporation’s existing stock option plan, which has been approved by the shareholders of the Corporation and which is the only compensation plan of the Corporation under which equity securities of the Corporation are authorized for issuance:

Plan Category	Number of Common Shares to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of Common Shares remaining available for future issuance under the stock option plan
Stock Option Plan	3,233,779	Cdn$12.89	2,749,721

The Corporation currently has in place a stock option plan, which was adopted by the directors of the Corporation on June 12, 2000 and approved by the shareholders of the Corporation on July 27, 2000, as amended (the “Stock Option Plan”). An increase in the maximum number of Common Shares issuable pursuant to the Stock Option Plan to 6,000,000 from 4,500,000 was approved by the directors of the Corporation on March 31, 2008 and approved by the shareholders of the Corporation at the shareholders’ meeting held on June 4, 2008.

The material provisions of the Stock Option Plan are as follows:

(a)	the persons who are eligible to be granted options under the Stock Option Plan are “service providers”, which means (i) any director, officer or employee or insider of the Corporation or any of its affiliates, and (ii) any other person or company engaged to provide ongoing consulting, technical, management or other services to the Corporation or any affiliated entity of the Corporation;
(b)	as of the date hereof, there are stock options outstanding in respect of an aggregate of 2,960,479 Common Shares, representing approximately 3.9% of the currently outstanding Common Shares;

31

(c)	the Corporation has adopted policies which impose trading restrictions preventing officers, directors and employees from trading in securities of the Corporation (including exercising stock options) during certain periods (“Black-Out Periods”), the Stock Option Plan provides that if the expiry date of an option granted under the Stock Option Plan would otherwise occur during or within ten days following a Black-Out Period, the expiry date of such option shall be extended to the first business day which is at least ten days after the end of the Black- Out Period;
(d)	the number of Common Shares reserved for issuance to any one person, shall not exceed 2% of the number of Common Shares issued and outstanding on a non-diluted basis (the “Outstanding Issue”), at the time of such grant;
(e)	the number of Common Shares reserved for issuance to Optionees who are, at the time of the particular grant, Related Persons, shall not exceed 10% of the Outstanding Issue, at the time of such grant;
(f)	the number of Common Shares issued within any one year period pursuant to the exercise of options to Optionees who are, at the time of issuance, Related Persons, shall not exceed 10% of the Outstanding Issue at that time, less the number of Common Shares which have been issued pursuant to the Stock Option Plan in the twelve month period immediately preceding such time (the “Adjusted Outstanding Issue”);
(g)	the number of Common Shares issued within any one year period pursuant to the exercise of Options and Existing Options to any one Related Person and his or her associates shall not exceed 2% of the Adjusted Outstanding Issue.
(h)	the exercise price for the Common Shares under each option granted under the Stock Option Plan is be determined by the Board, or by a committee appointed for this purpose by the board, on the basis of the market price at the time of granting of each option. If at the time of grant of an Option the shares of the Corporation are listed on the TSX, the exercise price may not be less than the market price on the TSX, where “market price” means the prior trading day closing price of the shares of the Corporation, or where there is no such closing price, the average of the most recent bid and ask of the shares of the Corporation on the TSX;
(i)	options granted under the Stock Option Plan may, at the discretion of the Board or committee, provide that the number of shares which may be acquired pursuant to the option shall not exceed a specified number or percentage each year (or other specified period) during the term of the option (a "vesting restriction"); however, all options become immediately exercisable upon the occurrence of an “Acceleration Event” as defined in the Stock Option Plan, which includes a take-over of the Corporation, a merger of the Corporation where the Corporation is not the continuing or surviving corporation, the sale of all or substantially all of the assets of the Corporation, or the liquidation or dissolution of the Corporation;
(j)	options may be granted under the Stock Option Plan for a term not exceeding ten years;
(k)	if a holder of an option ceases to be a service provider to the Corporation (other than as a result of the death of such holder), such holder’s options terminate on the earlier of (i) 60 days after the holder ceases to be a service provider, and (ii) the original expiry date of the option;
(l)	if a holder of an option dies while he or she is a service provider, such holder’s options terminate on the earlier of (i) one year after the date of death of the holder, and (ii) the original expiry date of the option;
(m)	the Stock Option Plan provides for a “cashless” settlement alternative whereby, at the election of the option holder, the value of the options at the time of exercise is settled by the surrendering of the options for “Substituted Rights” and the immediate conversion of those rights into Common Shares.
(n)	options may not be assigned or transferred, except (i) by will or by the laws of descent and distribution, or (ii) transfers to (A) personal holding companies controlled by a service provider, the shares of which are held directly or indirectly by the service provider, his or her spouse, minor children and/or minor grandchildren, or (B) a registered retirement savings plan established by and for the sole benefit of a service provider, or (C) an inter vivos trust if the service provider is the trustee, and the beneficiaries of which trust include only the service provider, his or her spouse, minor children and minor grandchildren;

32

(o)

the Board may from time to time amend the Stock Option Plan without approval from shareholders of the Corporation, other than with respect to the following matters: (i) the maximum number of Common Shares reserved for issuance under the Stock Option Plan; (ii) a reduction in the exercise price for options held by insiders of the Corporation; (iii) an extension to the term of any option held by insiders of the Corporation; and (iv) an increase in any limit on grants of options to insiders set out in the Stock Option Plan; and

(p)

the Corporation has not provided, and does not provide, any financial assistance to optionees to facilitate the exercise of options granted pursuant to the Stock Option Plan.

INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS

As of the date hereof, no director or executive officer of the Corporation, or proposed nominee for election as director, or any of their respective associates, is indebted to the Corporation or any of its subsidiaries or has indebtedness to another entity which has been the subject of a guarantee, support agreement, letter of credit or other similar arrangement or understanding provided by the Corporation or any of its subsidiaries.

INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS

No informed person of the Corporation, proposed director of the Corporation and no associate or affiliate of such informed person or proposed director has any material interest, direct or indirect, in any transaction since the commencement of the Corporation’s last completed fiscal year or in any proposed transaction, which, in either case, has materially affected or would materially affect the Corporation or any of its subsidiaries.

ADDITIONAL INFORMATION

Copies of the Management Information Circular, the Annual Report which contains the comparative audited financial statements of the Corporation, any interim financial statements subsequent to those statements contained in the Annual Report and Management’s Discussion and Analysis, the Annual Information Form, copies of charters of the committees of the Board and the Corporate Governance Guidelines may be obtained from SEDAR at www.sedar.com or free of charge upon request from Investor Relations of the Corporation at P. O. Box 4569, Station “A”, Toronto, Ontario M5W 4T9, (416) 362-2237 ext. 290 or by emailing investor@harrywinston.com or by viewing the Corporation’s web site. Throughout this Management Proxy Circular, references to document and information available on the Corporation’s website can be found at http://investor.harrywinston.com.

BOARD APPROVAL

The directors of the Corporation have approved the contents and sending of this Management Proxy Circular to the shareholders.

Lyle R. Hepburn

Corporate Secretary

April 19, 2010

33

SCHEDULE 1 - STATEMENT OF CORPORATE GOVERNANCE PRACTICES

Board of Directors

(a)	The Board is currently comprised of eight directors, of which five are considered to be unrelated and independent directors within the meaning of Canadian and US securities laws and the NYSE Rules. A director is considered to be unrelated and independent by the Board if the Board determines that the director has no direct or indirect material relationship with the Corporation. A material relationship is a relationship that could, in the view of the Board, be reasonably expected to interfere with the exercise of the director’s judgment independent of management. The independent directors of the Corporation are currently Matthew W. Barrett, Micheline Bouchard, Noel Harwerth, Daniel Jarvis and Laurent E. Mommeja.
(b)	The Board has determined that the related and non-independent directors of the Corporation are: Robert A. Gannicott, the Chief Executive Officer of the Corporation; J. Roger B. Phillimore, because of his previous consulting arrangement with the Corporation which terminated on January 31, 2010, and Thomas M. Boehlert, because of his employment with Kinross Gold Corporation.
(c)	A majority of the directors of the Corporation are independent as defined in Section 1.2(1) of NI58-101.
(d)	Some of the directors of the Corporation are also directors of other reporting issuers, or the equivalent of a reporting issuer in a foreign jurisdiction. The following table outlines such directorships held by the members of the Board as of March 31, 2010:

Name of Director	Other Directorships Held
Matthew W. Barrett	Goldman Sachs Bank USA
Thomas M. Boehlert	None
Micheline Bouchard	Telus Corporation and Home Capital/Home Trust(1)
Robert A. Gannicott	None
Noel Harwerth	Royal & Sun Alliance Insurance, Logica Group, Impellam Group plc and Sumitomo Mitsubishi Banking Europe
Daniel Jarvis	None
Laurent E. Mommeja	None
J. Roger B. Phillimore	Lonmin plc

(1) Micheline Bouchard will not be standing for re-election on the board of Home Capital/Home Trust at the annual meeting to be held on May 18, 2010.

(e) Each scheduled meeting of the Board includes an executive session with only non-management directors present. At least once per year the executive session consists only of the independent directors. The Lead Director or in his absence, another independent director, presides over all executive sessions. The Board held six scheduled meetings and five unscheduled meetings during the last completed fiscal year. At four of such meetings, the independent directors held private sessions.

34

(f)

The Chairman of the Corporation, Robert A. Gannicott, is a non-independent director. Matthew W. Barrett, who is not a member of management and who is unrelated and independent, is the Lead Director for the Corporation. He was appointed as the Lead Director on June 4, 2008. The principal responsibilities of the Lead Director include overseeing the Board processes so that it operates efficiently and effectively in carrying out its duties, acting as a liaison between the Board and management, and presiding over all executive sessions of the Board. The Corporation has written guidelines for the Lead Director. These guidelines are available on the Corporation's website. Interested parties may contact the Lead Director by mail addressed to Mr. Barrett c/o Harry Winston Diamond Corporation, P.O. Box 4569, Station A, Toronto ON Canada M5W 4T9 or in accordance with the procedure set out in the Corporation’s Whistleblower Protection Policy which is available on the Corporation’s website.

(g)

The attendance at Board and Committee meetings for each of the directors proposed for election at the Meeting can be found in this Management Proxy Circular on page 15 (see “Meetings Held and Attendance of Directors”).

Majority Voting Policy

Board policy requires that, in an uncontested election, any nominee for director with respect to whom a majority of the votes represented by proxies validly deposited prior to the annual meeting of the shareholders (the ‘‘Meeting’’) are ‘‘withheld’’ from his or her election (a ‘‘Majority Withheld Vote’’), shall submit his or her resignation to the Nominating & Corporate Governance Committee for consideration promptly following the Meeting.

The Nominating & Corporate Governance Committee shall consider the resignation and shall recommend to the Board whether or not to accept it. The Board shall consider the recommendation of the Nominating & Corporate Governance Committee and determine whether or not to accept the recommendation. A press release disclosing the Board’s determination (and the reasons for rejecting the resignation, if applicable) shall be issued within 90 days following the date of the Meeting.

Any director who tenders his or her resignation shall not participate in any meeting of the Nominating & Corporate Governance Committee, if he or she is a member of that Committee, or of the Board to consider whether his or her resignation shall be accepted. However, if the number of members of the Nominating & Corporate Governance Committee who received a Majority Withheld Vote at the Meeting is such that the remaining members of this committee do not constitute a quorum, then the directors who did not receive a Majority Withheld Vote shall appoint a committee to consider the resignations and recommend to the Board whether to accept them.

In a contested election, where the number of director nominees exceeds the number of directors to be elected, a plurality vote standard will continue to apply.

The majority voting policy, together with the change to give shareholders the option of voting for or withholding their votes in respect of individual director nominees, provides enhanced director accountability. These measures combined encourage individual board members to be diligent in the performance of their duties by providing shareholders with the right to vote for individual directors based on their individual performance as a director or withhold their votes for a director who fails to meet the standards required by the shareholders.

Board Mandate

The Board has the responsibility to manage, or supervise, the management of the business and affairs of the Corporation. The Board selects and appoints the Corporation’s Chief Executive Officer and, through him, other officers and senior management to whom the Board delegates certain of its power of management. The Board approves strategy, sets targets, performance standards and policies to guide management, monitors and advises management, sets their compensation and, if necessary, replaces them.

35

To assist the Board in the implementation of key policies, it delegates some of its responsibility to committees. As part of its duties, the Board reviews, through reports from the Nominating & Corporate Governance Committee, and approves the structure, Charters and composition of its committees. It also receives and reviews regular and timely reports of the activities and findings of those committees.

The fundamental responsibility of the Board is to appoint a competent executive team and to oversee the management of the business, with a view to maximizing shareholder value and ensuring corporate conduct in an ethical and legal manner via an appropriate system of corporate governance and internal control. The Board has adopted specific corporate governance guidelines which are posted on the Corporation’s website under the name Corporate Governance Guidelines.

Position Descriptions

The Corporation has written guidelines for the Chairman and Chief Executive Officer, and for the Chairs of the Committees. These guidelines are available on the Corporation's website.

The Chief Executive Officer’s position description is reviewed by the Board on an on-going basis. Annual objectives for the Corporation and the Chief Executive Officer are developed jointly by the Board and the Chief Executive Officer. The attainment of these objectives is reviewed by the Board. The Chief Executive Officer is also responsible and accountable for pursuing the strategic goals which are considered and adopted by the Board at its annual strategy meetings.

Orientation and Continuing Education

(a)	New directors are provided with a comprehensive information package on the Corporation and its management, and are fully briefed by senior management on the corporate organization and key current issues. Visits to key operations are also arranged for new directors.
(b)	Ongoing training and development of directors consists of similar components, i.e., updated written corporate information, site visits and presentations by experts in numerous fields that are important to the Corporation’s interests. Individual directors may engage outside advisors, with the authorization of the Nominating & Corporate Governance Committee.

Ethical Business Conduct

The Nominating & Corporate Governance Committee is responsible for developing and reviewing, with recommendations to the Board where appropriate, the Corporation’s approach to all matters of corporate governance, and reporting thereon to the Board. The Corporation has adopted a Code of Ethics and Business Conduct, a Policy on Corporate Disclosure, Confidentiality and Employee Trading, an Insider Trading Policy and a Whistleblower Protection Policy. All of these policies are available on the Corporation's website, and will be provided to any Shareholder who requests them. The foregoing Code of Ethics and Business Conduct of the Corporation, as amended, has been filed on SEDAR at www.sedar.com.

The SEC and National Instrument 52-110 – Audit Committees require a corporation to disclose if it has adopted a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller. The Corporation is in compliance. The Corporation has adopted a code of ethics entitled Code of Ethics and Business Conduct which is applicable to all directors, officers and employees of the Corporation and its subsidiaries. The Code of Ethics and Business Conduct provides a framework for directors, officers and employees on the conduct and ethical decision making integral to their work. Management of the Corporation is committed to fostering and maintaining a culture of high ethical standards and compliance, and ensuring a work environment that encourages employees to raise concerns to the attention of management and promptly addressing any employee compliance concerns.

36

The Code of Ethics and Business Conduct provides that management is responsible for monitoring compliance with the Code and for communicating the Code to employees. Employees are advised that they have a duty to report any known or suspected violation of the Code, including any violation of the laws, rules, regulations or policies that apply to the Corporation. Employees are to report such violations to their supervisor, the Corporate Secretary, or by following the procedures set out in the Corporation’s Whistleblower Protection Policy. It is ultimately the Board’s responsibility for monitoring compliance with the Code. The Board, through its Nominating & Corporate Governance Committee, reviews the Code annually to ensure that it complies with legal requirements and is in alignment with best practices.

The Board has not granted any waiver of the Code of Ethics and Business Conduct. Accordingly, no material change report has been required or filed.

Individual directors are expected to indicate a material interest in any transaction or agreement that the Corporation is considering. Directors who have a material interest in a transaction or agreement would not be present for discussions on such transaction or agreement, and would not participate in any vote on the matter.

Nomination of Directors

The Nominating & Corporate Governance Committee, composed entirely of unrelated and independent directors, considers all proposed nominees for the Board and recommends nominees to the Board, with the exception of the nominee selected by Kinross Gold Corporation, who is a senior executive of Kinross Gold Corporation. The Committee periodically assesses the skill sets of current directors and recommends desired background and qualifications for director nominees, taking into account the needs of the Board at the time. Breadth of perspective, experience and judgment are critical qualities of a director, and strongly influence the selection criteria for Board membership. All directors, except one, serve, or have served, on a number of corporate boards, and all bring a broad base of international experience and expertise to Board deliberations.

The Board assessment is done periodically, and consists of an interview and discussion by the Lead Director with each director on an informal basis. The Committee addresses issues such as director representation in terms of expertise and experience, Board size, director succession planning, meeting quality and efficiency, director contribution and interaction, management effectiveness and the Board’s relationship with management. In addition, the Committee retained the services of Norman Anderson & Associates Ltd. to undertake a Board assessment in 2005. In fiscal 2008, 2009 and 2010, each director completed an evaluation form which contained questions concerning the effectiveness of the Board and its committees, operation of the Board, Board size, number of meetings held per annum, meeting quality and efficiency, director contribution and interaction, strategic planning opportunities, management effectiveness and the Board’s relationship with management. The responses were reviewed by the Lead Director and presented to the Board.

The Board and the Nominating & Corporate Governance Committee, monitor the size of the Board to ensure effective decision-making. The Nominating & Corporate Governance Committee also develops, reviews and monitors criteria for selecting directors by assessing their qualification, personal qualities, geographical representation, business background and diversified experience. The directors have proposed eight nominees for the position of director in the upcoming year.

The Board has implemented a policy that if, during a director’s service on the Board, he or she: (a) joins or resigns from another public company’s board of directors; or (b) significantly changes his or her primary employment or occupation (any such event shall be referred to as a “Status Change”), that director shall immediately notify the Nominating & Corporate Governance Committee. The Nominating & Corporate Governance Committee should re-evaluate the appropriateness of the continuing membership of the director on the Board in light of the Status Change and recommend to the Board the appropriate action, if any, to be taken with respect to the director. If the Board concludes that the Status Change is significant and requires a resignation of the director, the director shall immediately tender his or her resignation from the Board.

37

Compensation

Directors’ Compensation

The Nominating & Corporate Governance Committee reviews the adequacy and form of compensation for non-executive directors at the Corporation on an annual basis. In addition to directors’ responsibilities and time commitment, this review also takes into account director remuneration of other Canadian companies. These reviews are conducted with the assistance of compensation consultants, but the decisions made by the Nominating & Corporate Governance Committee are the responsibility of the Nominating & Corporate Governance Committee and may reflect factors and considerations other than the information and recommendations provided by its consultants. The Nominating & Corporate Governance Committee recommends the directors’ compensation to the Board, for approval. Details regarding directors’ compensation can be found on pages 11 to 14 of this Management Proxy Circular (See “Compensation of Directors”, “Director Summary Compensation Table” and “Incentive Plan Awards).

No changes in the amount of director compensation (annual cash retainers and annual DSU grants) have been made since 2007. In January 2010, Hewitt Associates LLC reviewed the director’s compensation and concluded that the current total compensation opportunity (including the value of the equity) for directors is within the competitive range of current market levels and practices in Canada, and did not recommend an adjustment to director’s compensation. The Nominating & Corporate Governance Committee again recommended that no changes be made to director compensation.

The Nominating & Corporate Governance Committee is composed entirely of unrelated and independent directors. The Nominating & Corporate Governance Committee’s responsibilities are set out in its Charter. A summary of these responsibilities can be found on pages 18 and 19 of the Management Proxy Circular (see “Report of the Nominating & Corporate Governance Committee”). The Charter of the Nominating & Corporate Governance Committee is available on the Corporation’s website.

Senior Officers’ Compensation

The Human Resources & Compensation Committee recommends the senior officers’ compensation to the Board, for approval.

The Corporation retained the services of Hewitt Associates LLC in 2007, 2008, 2009 and again for Fiscal 2010 to compile corporate information and industry comparative data in order to prepare a foundation for ongoing management of executive compensation. A brief description of the services performed by Hewitt Associates LLC can be found on page 23 of this Management Proxy Circular (see “Independent Consultant”).

The Human Resources & Compensation Committee is composed entirely of unrelated and independent directors. The Human Resources & Compensation Committee’s responsibilities are set out in the Work Plan of the Committee. A list of these responsibilities can be found on page 17 of the Management Proxy Circular (see “Report of the Human Resources & Compensation Committee”). The Charter of the Human Resources & Compensation Committee is available on the Corporation’s website.

Board Committees

The Board has three Committees: Audit, Nominating & Corporate Governance and Human Resources & Compensation. The Committees are composed entirely of independent directors. The roles and responsibilities of the Committees are set out in Charters which are available on the Corporation’s website. These Charters are reviewed annually to ensure that they comply with legal requirements and are in alignment with best practices. To assist the Committee in fulfilling their respective responsibilities, such responsibilities are set out in Work Plans which are approved at the beginning of each year. The Charter of each Committee requires that each member of the Committee be an independent director.

38

Assessments

Strategic planning is at the forefront of deliberations at meetings of the Board. Management is responsible for the development of overall corporate strategies. These strategies are under constant review by the Board and senior management.

The Board conducts an annual evaluation of the effectiveness of the Board and its Committees.

Throughout the year, the Board reviews the performance of management and the Corporation against approved business plans and policies. The Board also reviews and approves specific proposals for all major capital expenditures, checking for consistency with budgets and strategic plans, and deals with a large number of individual issues and situations requiring decision by the Corporation, such as acquisitions, investments and divestitures.

The Board ensures that an appropriate risk assessment process is in place to identify, assess and manage the principal risks of the Corporation's business. Management reports regularly to the Board in relation to principal risks which potentially affect the Corporation's business activities.

The Board regularly reviews management succession plans and, where necessary, initiates and supervises searches for replacement candidates. It also sets objectives for, and reviews the performance of, the senior officers of the Corporation, and approves their appointments and compensation.

The Board ensures that mechanisms are in place to guide the organization in its activities. The Board reviews and approves a broad range of internal control and management systems covering, for example, expenditure approvals, financial controls, environmental and health and safety matters. Such systems are designed to inform the Board of the integrity of the financial and other data of the Corporation, and are subject to audit reviews. Management is required to comply with legal and regulatory requirements with respect to all of the Corporation’s activities.

The Corporation has a sound governance structure in place at both management and Board levels, and a comprehensive system of internal control relating to financial record reliability. These structures and systems are continually assessed, reviewed and enhanced in light of ongoing Canadian and U.S. regulatory developments affecting corporate governance, accountability and disclosure.

39

EX-99.2

Exhibit 99.2

HARRY WINSTON DIAMOND CORPORATION
PROXY SOLICITED BY MANAGEMENT
AND THE BOARD OF DIRECTORS

Annual Meeting of Shareholders on June 3, 2010

The undersigned shareholder of Harry Winston Diamond Corporation (the “Corporation”) hereby nominates, constitutes and appoints Robert A. Gannicott, or failing him, Matthew W. Barrett, both directors of the Corporation, or instead of either of them____________________, as nominee of the undersigned to attend and vote for and on behalf of the undersigned at the annual meeting of shareholders of the Corporation to be held on the 3^rd day of June, 2010 (the "Meeting") to be held at the Fairmont Royal York Hotel, 100 Front Street West, Toronto, Ontario, and at any adjournment or adjournments thereof, to the same extent and with the same power as if the undersigned were personally present at the Meeting or such adjournment or adjournments thereof, and without limiting the generality of the power hereby conferred, the nominees are specifically directed to vote the shares represented by this proxy as indicated below.

1.	For the election of the following nominees as directors of the Corporation, as named in the accompanying Management Proxy Circular, to hold office until the next annual meeting of shareholders or until their successors are elected:
		VOTE FOR	WITHHOLD VOTE
	Matthew W. Barrett	[    ]	[    ]
	Thomas M. Boehlert	[    ]	[    ]
	Micheline Bouchard	[    ]	[    ]
	Robert A. Gannicott	[    ]	[    ]
	Noel Harwerth	[    ]	[    ]
	Daniel Jarvis	[    ]	[    ]
	Laurent E. Mommeja,	[    ]	[    ]
	J. Roger B. Phillimore	[    ]	[    ]

2. For the re-appointment of KPMG LLP, Chartered Accountants, as auditors of the Corporation and the authorization of the directors to fix their remuneration.

VOTE FOR  [    ] WITHHOLD VOTE   [    ]

This proxy revokes and supersedes all proxies of earlier date.

DATED this ________________  day of  _____________, 2010.

Signature of Shareholder

Name of Shareholder (print)

-2-

The shares represented by this proxy will be voted in accordance with the instructions given on any vote or ballot called at the Meeting. Unless a specific instruction is indicated, said shares will be voted for confirmation and/or approval of the matters referred to on the reverse side hereon.

This proxy confers discretionary authority to vote in respect of any amendments or variations to the matters identified in the notice of meeting or any other matter which may properly come before the Meeting and in such manner as such nominee in his judgment may determine.

A shareholder has the right to appoint a person to attend and act for him and on his behalf at the Meeting other than the persons designated in this form of proxy. Such right may be exercised by filling the name of such person in the blank space provided and striking out the names of management's nominees, or by completing another proper form of proxy and, in either case, depositing the proxy as instructed below.

To be valid, this proxy must be deposited at the office of CIBC Mellon Trust Company by mail at P.O. Box 721, Agincourt, Ontario, Canada, M1S 0A1 or by fax to 1-866-781-3111 (toll free) or 416-368-2502, no later than 5:00 p.m. (Toronto time) on June 1, 2010 or if the Meeting is adjourned, no later than 10:00 a.m. (Toronto time) on the last business day preceding the day on which the Meeting is adjourned.

If not dated, this proxy is deemed to bear the date on which it was mailed on behalf of management of the Corporation.

THIS PROXY IS SOLICITED BY THE MANAGEMENT OF THE CORPORATION FOR USE AT THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 3, 2010. THE ATTENTION OF SHAREHOLDERS IS DIRECTED TO THE MANAGEMENT PROXY CIRCULAR WHICH ACCOMPANIES THIS FORM OF PROXY.

EX-99.2

Exhibit 99.3

HARRY WINSTON DIAMOND CORPORATION

ANNUAL REQUEST FORM
TO REGISTERED SHAREHOLDERS

Annual Financial Statements

In accordance with securities regulations, Harry Winston Diamond Corporation (the “Corporation”) is required to deliver its Annual Report containing annual financial statements and accompanying management’s discussion and analysis (“MD&A”) to each registered shareholder unless such shareholder informs the Corporation that he or she does not want a copy of these documents.

If you do not wish to receive the Annual Report with your proxy package in the future, please complete, sign and date this form and return as set out below. Please note, your decision not to receive the Corporation’s Annual Report can be revoked at any time by contacting CIBC Mellon, by mail or fax as noted below. If we do not hear from you an Annual Report will continue to be included in your proxy package.

[  ] I do not wish to receive Harry Winston Diamond Corporation’s Annual Report and related year-end financial documents by mail. I understand that my consent may be revoked or changed at any time by notifying CIBC Mellon Trust Company by mail or fax.

Interim Financial Statements

In accordance with National Instrument 51-102, shareholders may elect annually to have their names added to the Supplemental Mailing List of the Corporation. If you wish to receive the interim financial statements and MD&A for the interim financial statements of the Corporation, you must complete, sign and date this form and return as set out below.

[  ] I do wish to receive Harry Winston Diamond Corporation’s interim financial statements and MD&A Please put my name on your Supplemental Mailing List for the Corporation and send me the Interim Financial Statements and Interim MD&A of the Corporation,

[  ]	by mail; or
[  ]	by electronic delivery. I have read the terms of this consent and I consent to the electronic delivery of documents on the foregoing terms.

Completion of Form

Completed forms should be returned to our transfer agent, CIBC Mellon Trust Company, in the enclosed business reply envelope or by mail or fax to: CIBC Mellon Trust Company, P.O. Box 7010, Adelaide Street Postal Station, Toronto, ON M5C 2W9. Fax: 416- 643-5501.

Alternatively, if you wish to receive an e-mail containing a link to these and other reports when they are available to view on-line, please enroll on-line at www.cibcmellon.com/electronicdelivery or complete and return the Consent to Electronic Delivery of Documents form on the reverse side.

If you have any questions, please contact CIBC Mellon toll-free at 1-800-387-0825 in North America or at 416-643-5500 in Toronto and outside North America.

DATED the              day of               , 2010.

(First Name and Surname)	(Signature
(Address)	CUSIP: 41587B100

Consent to Electronic Delivery of Documents

1)

I consent, until my consent is revoked by me, to receiving all future shareholder communications of Harry Winston Diamond Corporation, ("Harry Winston") to which I am entitled as a shareholder electronically rather than by mail. These documents may include: (a) Annual Report; (b) Interim Financial Statements; (c) Other shareholder communications

2)

I understand and agree that, after my consent has been given and Harry Winston has filed the documents with applicable securities regulatory bodies, Harry Winston or its agent will notify me that a document which I am entitled to receive electronically is available at Harry Winston website with a link to that specific page of the website containing the document. I agree that such notification will be sent to me at the e-mail address I have provided below.

3)

I acknowledge that access to the Internet, e-mail and the worldwide web are required for me to access a document electronically and I confirm that I have such access.

4)

I understand and agree that: (a) any e-mail notice or other notification will not contain a paper document; (b) any e-mail notice or other notification will contain Harry Winston web address (or a hyperlink) identifying where the documents to be delivered electronically are located; (c) by accessing Harry Winston website information which I will be provided under paragraph 2, I can access, view, download and print a paper document from my computer; (d) a document distributed electronically will be in Portable Document Format (PDF); and (e) Adobe® Acrobat® Reader® software is required to view a document in PDF format and a link to that software will be available at that page of the Harry Winston website containing the documents to be delivered electronically. (Adobe® Acrobat® Reader® is the registered trademark of Adobe Systems Incorporated.)

5)

I understand that I may request a paper copy of a document for which I have consented to electronic delivery to CIBC Mellon Trust Company at the telephone number, fax number, e-mail address or mailing address set forth in the left side of the page.

6)

I understand and agree that: (a) at any time and without giving me advance notice, Harry Winston may elect not to send me a document electronically, in which case a paper copy of the document will be mailed to me; and (b) if a document intended to be sent to me electronically is not available electronically, a paper copy of the document will be mailed to me.

7)

I understand that Harry Winston will maintain on its website any document sent to me electronically for not less than six months from the date of its posting on the website.

8)

If you consent to electronic delivery, please return this form by fax or mail to the address noted at the bottom of the page. You can also submit your request online by visiting the CIBC Mellon Trust Company's website www.cibcmellon.com/electronicdelivery.

9)

I understand that I may revoke or modify my consent and that I may change my e-mail address to which notices are to be delivered to me any time by notifying CIBC Mellon Trust Company by telephone: 1-800-387-0825, fax: 416-643-5501, email: www.cibcmellon.com/InvestorInquiry or mail: CIBC Mellon Trust Company, P.O. Box 7010, Adelaide Street Postal Station, Toronto, Ontario, Canada, M5C 2W9. I understand that if I change my e-mail address or revoke or modify my consent, I must notify CIBC Mellon Trust Company. Such change, revocation or modification must actually be received and acknowledged by CIBC Mellon Trust Company in order for it to be effective.

10)

I understand that I am not required to consent to electronic delivery. I am a registered shareholder of Harry Winston, I have read and understand the terms of this "Consent to Electronic Delivery of Documents" form and, on those terms, I consent to the electronic delivery of the documents I am entitled to receive as a registered owner of Harry Winston.

DATED the                 day of ,                   2010.

(First Name and Surname)	(Signature
(Address)	(Email Address)

Please return this form by mail or fax to: CIBC Mellon Trust Company, P.O. Box 7010, Adelaide Street Postal Station, Toronto, ON M5C 2W9. Fax: 416-643-5501.

EX-99.3

2010 Annual Report

HARRY WINSTON DIAMOND CORPORATION

Harry Winston Diamond Corporation

Harry Winston Diamond Corporation is a specialist diamond enterprise with premium assets in the mining and retail segments of the diamond industry. The Company supplies rough diamonds to the global market from its 40% ownership interest in the Diavik Diamond Mine (economic ownership of 31%), located in Canada's Northwest Territories. The Company's retail division, Harry Winston Inc., is a premier diamond jeweler and luxury timepiece retailer with salons in key locations including New York, Paris, London, Beijing, Tokyo and Beverly Hills.

The Company focuses on the two most profitable segments of the diamond industry, mining and retail, in which its expertise creates shareholder value. This unique business model provides key competitive advantages; rough diamond sales and polished diamond purchases provide market intelligence that enhances the Company's overall performance. Moreover, being one of the world's leading rough diamond suppliers enables the Company to use its strong client relationships to secure the highest-quality polished diamonds for its retail division. By linking the production and retailing of diamonds, Harry Winston Diamond Corporation benefits from the market synergy created between rough diamond producer, polished diamond buyer and retailer of fine diamond jewelry.

1    2010 ANNUAL REPORT

HARRY WINSTON DIAMOND CORPORATION

Fellow Shareholders,

My letter for last year's annual report was written in the depths of the gloom of last March, when rough diamond prices had halved and the only buyers, even at those depressed levels, were traders who had the courage to act as stockpilers in anticipation of price recovery. Although there is continuous debate within the industry about the nature of the connection between rough diamond and polished diamond pricing, the demand within the supply chain has no elasticity whatsoever. When retail demand abruptly ceased, the rough diamond market demand simply evaporated overnight. The intervening period between the rough diamond price crash of October 2008 and the recovery that began in March 2009 has seen a large number of independent jewelers in the US permanently close their doors.

Although the price of polished diamonds wobbled for a while, it never fell to the same extent that rough diamond pricing did. In general, retailers and polishers were strong enough to hold stock rather than drop prices. The consignment or "loaned" inventory that was supporting US jewelers was reassigned to Asian markets, where demand never faltered and, in fact, continued to expand. It was only about three years ago that China was viewed as a very small part of the retail diamond market, albeit with strong growth potential. But, recently, China has now passed Japan as the second-largest diamond jewelry consumer in the world - an amazing change.

With the appointment of Frédéric de Narp as Chief Executive Officer of Harry Winston Inc., our jewelry and watch division, we are well positioned for expansion of retail sales and sound profitability on this side of our business. Although the jewelry business has served us well as a real-time pricing tool for our rough diamond sales, it has not had the opportunity to establish a profitable operating platform. Frédéric comes from a strong background with Cartier International, one of the most successful luxury Brands in both jewelry and watches. At Cartier, Frédéric has demonstrated his ability to develop and execute winning marketing strategies. He feels extremely excited by the opportunity that a Brand of the stature of Harry Winston offers and we are delighted to have his energy and experience working to build the future of our Company.

Artist rendering of the Hope Diamond
in the new setting called Embracing Hope

2     2010 ANNUAL REPORT

HARRY WINSTON DIAMOND CORPORATION

This year we will celebrate a special moment in our renowned history. It was fifty years ago that Harry Winston donated the world's most famous diamond to the Smithsonian Institution in Washington D.C. Given as a gift to the public, this historic act of generosity helped to found the National Gem Collection and, today, the Hope Diamond remains one of the world's most visited artifacts. To commemorate the occasion, a fabulous necklace setting, called Embracing Hope, has been specially designed and handcrafted at the Harry Winston workshop on Fifth Avenue in New York. The new setting will be unveiled to the public at the Smithsonian Institution National Museum of Natural History in the fall of this year.

The Diavik Mine has now returned to full production levels with a forecast of around 8 million carats for the coming year. The majority of this will be from the two open pits, although we will also start to feed underground development ore into the mix as the year progresses. With the capital spend for the underground mining operation complete, the operator's focus has shifted to the control of operating costs for the rest of the operating life of the mine. The list of cost saving opportunities that have been identified is long and detailed but it does include reviewing underground mining methods with the objective of reducing consumables, such as cement and fuel.

We ended last year with a retail division result for the final quarter that demonstrates recovery compared to the previous year. This division also begins the new financial year with an exceptionally strong book of orders for the hand-crafted, high-value jewelry creations that are the hallmark of Harry Winston. The rough diamond market has recovered to pre-crash levels and the market-place has an optimism fuelled by Asian consumers and tentative recovery elsewhere. The demise of US independents has opened opportunities for online retailers and for luxury Brands that have geographic diversity on their side.

Our mining business is now back to full capacity. The focus on productivity and cost savings is an ongoing one. Although it will deliver tangible results this year, its full effect will be felt more next year when cost saving programmes have been fully implemented. Although exploration work on the Diavik property continues, in the absence of a discovery, mining must always gradually deplete ore reserves. It is our objective to more than replace value depleted from the mine ore reserve base with the addition of value from a robust retail jewelry and watch business.

Robert A. Gannicott
Chairman & Chief Executive Officer

2010 ANNUAL REPORT     3

HARRY WINSTON DIAMOND CORPORATION

Highlights(All figures are in United States dollars unless otherwise indicated)

The Company recorded a consolidated net loss of $73.2 million or $0.99 per share for the year, compared to net earnings of $70.1 million or $1.15 per share in the prior year. The current year consolidated net loss includes a non-cash dilution loss of $34.8 million or $0.47 per share as a result of the investment by Kinross Gold Corporation in Harry Winston Diamond Limited Partnership, which holds the Company's 40% interest in the Diavik Diamond Mine. Also included in the consolidated net loss for the year was a net foreign exchange loss of $31.5 million or $0.43 per share primarily on future income tax liabilities compared to a net foreign exchange gain of $59.1 million or $0.96 per share in the prior year. In addition, the Company recognized a subsequent after-tax gain on insurance settlement of $2.1 million or $0.03 per share that resulted from the December 2008 robbery at the Harry Winston Paris salon, versus an after-tax gain on insurance settlement of $9.9 million or $0.16 per share recorded in the prior year. The prior year consolidated net earnings also included a non-cash write-down of goodwill relating to the retail operations of $93.8 million or $1.54 per share.

Consolidated sales were $412.9 million for the year compared to $609.2 million for the prior year, resulting in a 62% decrease in gross margin and a loss from operations of $22.0 million.

The mining segment recorded sales of $187.9 million, a 43% decrease from $328.2 million in the prior year. The decrease in sales resulted from a combination of a 34% decrease in the Company's achieved rough diamond prices and a 14% decrease in volume of carats sold during the year. The Company's share of rough diamond production for the calendar year was 2.2 million carats compared to 3.7 million carats in the prior year. As a response to the softness in the rough diamond market, production was reduced through a planned six-week summer shutdown from July 14, 2009 to August 24, 2009 (the "Summer Shutdown") and a general reduction in mining activity throughout the rest of the year. The significant reduction in sales resulted in a loss from operations for the year of $6.3 million.

The retail segment recorded sales of $225.0 million and a loss from operations of $15.7 million for the year, compared to $281.0 million and $2.5 million, respectively, in the prior year. Selling, general and administrative expenses decreased $12.3 million to $123.6 million for the year primarily as a result of the continued focus on cost reduction initiatives.

SALES	EARNINGS PER SHARE	DIAMONDS RECOVERED
(in millions of United States dollars)	(in United States dollars)	(000s carats) (Production from the
(fiscal 2010)	(fiscal 2010)	Diavik Mine, the Company's ownership
		interest of 40%)

2010 ANNUAL REPORT     5

HARRY WINSTON DIAMOND CORPORATION

Management’s Discussion and Analysis Prepared as of March 31, 2010 (All figures are in United States dollars unless otherwise indicated)

The following is management’s discussion and analysis (“MD&A”) of the results of operations for Harry Winston Diamond Corporation (“Harry Winston Diamond Corporation”, or the “Company”) for the fiscal year ended January 31, 2010, and its financial position as at January 31, 2010. This MD&A is based on the Company’s consolidated financial statements prepared in accordance with generally accepted accounting principles in Canada (“Canadian GAAP”) and should be read in conjunction with the consolidated financial statements and notes. Unless otherwise specified, all financial information is presented in United States dollars. Unless otherwise indicated, all references to “year” refer to the fiscal year ended January 31. Unless otherwise indicated, references to “international” for the retail segment refer to Europe and Asia.

Certain comparative figures have been reclassified to conform to the current year’s presentation.

Caution Regarding Forward-Looking Information
Certain information included in this MD&A may constitute forward-looking information within the meaning of Canadian and United States securities laws. In some cases, forward-looking information can be identified by the use of terms such as “may”, “will”, “should”, “expect”, “plan”, “anticipate”, “appears”, “believe”, “intend”, “estimate”, “predict”, “potential”, “continue”, “objective” or other similar expressions concerning matters that are not historical facts. Forward-looking information may relate to management’s future outlook and anticipated events or results, and may include statements or information regarding plans, timelines and targets for construction, mining, development, production and exploration activities at the Diavik Diamond Mine, future mining and processing at the Diavik Diamond Mine, projected capital expenditure requirements and the funding thereof, liquidity and working capital requirements and sources, estimated reserves and resources at, and production from, the Diavik Diamond Mine, the number and timing of expected rough diamond sales, expected diamond prices and expectations concerning the diamond industry and the demand for luxury goods, expected cost of sales and gross margin trends in the mining segment, and expected sales trends and market conditions in the retail segment. Actual results may vary from the forward-looking information. See “Risks and Uncertainties” on page 21 for material risk factors that could cause actual results to differ materially from the forward-looking information.

Forward-looking information is based on certain factors and assumptions regarding, among other things, mining, production, construction and exploration activities at the Diavik Diamond Mine, world and US economic conditions and the worldwide demand for luxury goods. Specifically, in making statements regarding expected diamond prices and expectations concerning the diamond industry and expected sales trends and market conditions in the retail segment, the Company has made assumptions regarding, among other things, continuing recovery of world and US economic conditions and demand for luxury goods. While the Company considers these assumptions to be reasonable based on the information currently available to it, they may prove to be incorrect. See “Risks and Uncertainties” on page 21.

Forward-looking information is subject to certain factors, including risks and uncertainties, which could cause actual results to differ materially from what we currently expect. These factors include, among other things, the uncertain nature of mining activities, including risks associated with underground construction and mining operations, risks associated with joint venture operations, risks associated with the remote location of and harsh climate at the Diavik Diamond Mine site, risks associated with regulatory requirements, fluctuations in diamond prices and changes in US and world economic conditions, the risk of fluctuations in the Canadian/US dollar exchange rate, cash flow and liquidity risks and the risks of competition in the luxury jewelry segment as well as changes in demand for high end luxury goods. Please see page 21 of this Annual Report, as well as the Company’s current Annual Information Form, available at www.sedar.com, for a discussion of these and other risks and uncertainties involved in the Company’s operations.

Readers are cautioned not to place undue importance on forward-looking information, which speaks only as of the date of this MD&A, and should not rely upon this information as of any other date. Due to assumptions, risks and uncertainties, including the assumptions, risks and uncertainties identified above and elsewhere in this MD&A, actual events may differ materially from current expectations. The Company uses forward-looking statements because it believes such statements provide useful information with respect to the expected future operations and financial performance of the Company, and cautions readers that the information may not be appropriate for other purposes. While the Company may elect to, it is under no obligation and does not undertake to update or revise any forward-looking information, whether as a result of new information, future events or otherwise at any particular time, except as required by law. Additional information concerning factors that may cause actual results to materially differ from those in such forward-looking statements is contained in the Company’s filings with Canadian and United States securities regulatory authorities and can be found at www.sedar.com and www.sec.gov, respectively.

2010 ANNUAL REPORT     6

HARRY WINSTON DIAMOND CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS

Summary Discussion
Harry Winston Diamond Corporation is a specialist diamond company focusing on the mining and retail segments of the diamond industry. The Company supplies rough diamonds to the global market from production received from its 40% ownership interest in the Diavik Diamond Mine (economic interest of 31%), located off Lac de Gras in Canada’s Northwest Territories. The Company also owns Harry Winston Inc., the premier fine jewelry and watch retailer operating under the Harry Winston® brand.

The Company’s most significant asset is an ownership interest in the Diavik group of mineral claims. The Diavik Joint Venture (the “Joint Venture”) is an unincorporated joint arrangement between Diavik Diamond Mines Inc. (“DDMI”) (60%) and Harry Winston Diamond Limited Partnership (“HWDLP”) (40%) where HWDLP holds an undivided 40% ownership interest in the assets, liabilities and expenses of the Diavik Diamond Mine. DDMI is the operator of the Diavik Diamond Mine. DDMI and HWDLP are headquartered in Yellowknife, Canada. DDMI is a wholly owned subsidiary of Rio Tinto plc of London, England. As a result of the strategic investment by Kinross Gold Corporation (“Kinross”) of Toronto, Canada, described below, HWDLP is 77.5% owned by the Company and 22.5% owned by Kinross. Kinross’s 22.5% ownership is reported in the consolidated financial statements as part of non-controlling interest.

On March 31, 2009, Kinross made a net investment of $150.0 million to acquire an indirect interest in the Diavik Diamond Mine and a direct equity stake in the Company. Kinross subscribed for 15.2 million of the Company’s treasury shares at a price of $3.00 per share, being approximately 19.9% of the Company’s issued equity post the transaction. Kinross also subscribed for new partnership units representing a 22.5% interest in HWDLP, for a net effective subscription value of $103.7 million. With the closing of the Kinross transaction, the Company’s economic interest in the Diavik Diamond Mine is 31%.

Market Commentary
The Diamond Market
During the first half of fiscal 2010, the rough diamond market experienced substantial price weakness as the industry was significantly impacted by the global financial crisis and the resulting economic slowdown. Stability returned to the rough diamond market during the third quarter of the year and prices strengthened considerably. This recovery continued in the fourth quarter, with rough diamond prices closing the year only slightly below the market highs achieved in fiscal 2009. Sustained demand from the Far East and India was coupled with a cautious renewal of interest from US retailers. The availability of credit improved as banks responded to the positive diamond market by reducing the tight credit restrictions imposed during the global financial crisis.

The price of polished diamonds, which experienced a less significant decline than rough diamond prices, has almost returned to previous levels and even surpassed these in certain popular ranges.

The outlook for the diamond market for fiscal 2011 is positive, with evidence of increased consumer demand in the Far East and India, coupled with the reawakening of the US retail sector, providing the basis for continued expected price growth in rough diamonds.

The Retail Jewelry Market
The luxury diamond jewelry market was also negatively affected by the depth and duration of the global economic recession. During the third quarter of the year, signs of recovery began to appear, particularly in Asia. In the US, many retailers reported a stronger holiday season than in the previous year as overall consumer sentiment appears to be more positive. The global economy continues to recover from the recession at varying rates depending on the region. During fiscal 2011, consumer demand for luxury diamond jewelry is expected to be strong in Asia, but the US and European markets are expected to experience a more modest recovery.

® Harry Winston is a registered trademark of Harry Winston Inc.

2010 ANNUAL REPORT     7

HARRY WINSTON DIAMOND CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS

Consolidated Financial Results
The following is a summary of the Company’s consolidated quarterly results for the eight quarters ended January 31, 2010 following the basis of presentation utilized in its Canadian GAAP financial statements:

(expressed in thousands of United States dollars except per share amounts and where otherwise noted)
(quarterly results are unaudited)

		2010			2010			2010			2010			2009			2009			2009			2009			2010			2009			2008
		Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1			Total			Total			Total
Sales	$	133,654		$	74,828		$	94,776		$	109,643		$	118,399		$	148,623		$	186,119		$	156,079		$	412,901		$	609,220		$	679,307
Cost of sales		96,257			45,227			66,294			83,944			68,908			71,679			73,542			73,149			291,722			287,278			311,187
Gross margin		37,397			29,601			28,482			25,699			49,491			76,944			112,577			82,930			121,179			321,942			368,120
Gross margin (%)		28.0%			39.6%			30.1%			23.4%			41.8%			51.8%			60.5%			53.1%			29.3%			52.8%			54.2%
Selling, general and administrative expenses		40,479			34,542			32,380			35,749			39,399			33,998			39,194			43,285			143,150			155,876			150,445
Earnings (loss) from operations		(3,082	)		(4,941	)		(3,898	)		(10,050	)		10,092			42,946			73,383			39,645			(21,971	)		166,066			217,675
Interest and financing expenses		(2,396	)		(2,448	)		(2,998	)		(3,699	)		(4,960	)		(4,678	)		(5,366	)		(5,453	)		(11,541	)		(20,457	)		(27,858	)
Other income		129			99			83			281			778			407			815			246			592			2,246			2,758
Insurance settlement		–			100			–			3,250			17,240			–			–			–			3,350			17,240			13,488
Dilution loss		–			–			(539	)		(34,222	)		–			–			–			–			(34,761	)		–			–
Impairment charge		–			–			–			–			(93,780	)		–			–			–			–			(93,780	)		–
Foreign exchange gain (loss)		(1,978	)		1,598			(25,274	)		(5,839	)		4,649			48,982			5,301			155			(31,493	)		59,087			(43,391	)
Earnings (loss) before income taxes		(7,327	)		(5,592	)		(32,626	)		(50,279	)		(65,981	)		87,657			74,133			34,593			(95,824	)		130,402			162,672
Income taxes (recovery)		(5,800	)		(4,221	)		(5,662	)		(3,120	)		7,052			15,685			24,185			13,336			(18,803	)		60,256			56,094
Earnings (loss) before non-controlling interest		(1,527	)		(1,371	)		(26,964	)		(47,159	)		(73,033	)		71,972			49,948			21,257			(77,021	)		70,146			106,578
Non-controlling interest		1,831			(1,157	)		(2,443	)		(2,075	)		(58	)		81			1			1			(3,845	)		25			170
Net earnings (loss)	$	(3,358	)	$	(214	)	$	(24,521	)	$	(45,084	)	$	(72,975	)	$	71,891		$	49,947		$	21,256		$	(73,176	)	$	70,121		$	106,408
Basic earnings (loss) per share	$	(0.04	)	$	0.00		$	(0.32	)	$	(0.68	)	$	(1.19	)	$	1.17		$	0.81		$	0.35		$	(0.99	)	$	1.15		$	1.82
Diluted earnings (loss) per share	$	(0.04	)	$	0.00		$	(0.32	)	$	(0.68	)	$	(1.19	)	$	1.17		$	0.81		$	0.35		$	(0.99	)	$	1.15		$	1.81
Cash dividends declared per share	$	0.00		$	0.00		$	0.00		$	0.00		$	0.05		$	0.05		$	0.05		$	0.05		$	0.00		$	0.20		$	0.80
Total assets(i)	$	1,495		$	1,535		$	1,533		$	1,592		$	1,567		$	1,645		$	1,637		$	1,591		$	1,495		$	1,567		$	1,494
Total long-term liabilities(i)	$	477		$	506		$	507		$	496		$	550		$	562		$	617		$	634		$	477		$	550		$	660

(i)

Total assets and total long-term liabilities are expressed in millions of United States dollars.

The comparability of quarter-over-quarter results is impacted by seasonality for both the mining and retail segments. Harry Winston Diamond Corporation expects that the quarterly results for its mining segment will continue to fluctuate depending on the seasonality of production at the Diavik Diamond Mine, the number of sales events conducted during the quarter, and the volume, size and quality distribution of rough diamonds delivered from the Diavik Diamond Mine in each quarter. The quarterly results for the retail segment are also seasonal, with generally higher sales during the fourth quarter due to the holiday season. See “Segmented Analysis” on page 13 for additional information.

2010 ANNUAL REPORT     8

HARRY WINSTON DIAMOND CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS

Year Ended January 31, 2010 Compared to Year Ended January 31, 2009
Consolidated Net Earnings
The Company recorded a consolidated net loss for the fiscal year ended January 31, 2010 of $73.2 million or $0.99 per share compared to net earnings of $70.1 million or $1.15 per share for the prior year. The current year consolidated net loss includes a non-cash dilution loss of $34.8 million or $0.47 per share as a result of the investment by Kinross in HWDLP, which holds the Company’s 40% interest in the Diavik Diamond Mine. Also included in the consolidated net loss for the year was a net foreign exchange loss of $31.5 million or $0.43 per share primarily on future income tax liabilities compared to a net foreign exchange gain of $59.1 million or $0.96 per share in the prior year. In addition, the Company recognized a subsequent after-tax gain on insurance settlement of $2.1 million or $0.03 per share that resulted from the December 2008 robbery at the Harry Winston Paris salon, versus an after-tax gain on insurance settlement of $9.9 million or $0.16 per share recorded in the prior year. The prior year consolidated net earnings also included a non-cash write-down of goodwill relating to the retail operations of $93.8 million or $1.54 per share.

Consolidated Sales
The Company recorded sales for the fiscal year ended January 31, 2010 of $412.9 million compared to sales of $609.2 million for the prior year. On a segment basis, rough diamond sales accounted for $187.9 million of these sales compared to $328.2 million for the prior year. The Company completed eight rough diamond sales during the fiscal year compared to nine rough diamond sales in the prior year. Harry Winston’s retail segment sales were $225.0 million, compared to $281.0 million for the prior year. See “Segmented Analysis” on page 13 for additional information.

Consolidated Cost of Sales and Gross Margin
The Company recorded cost of sales of $291.7 million for a gross margin of 29.3% during the fiscal year compared to $287.3 million and a gross margin of 52.8% during the prior year. The Company’s cost of sales includes costs associated with mining, rough diamond sorting and retail sales activities. See “Segmented Analysis” on page 13 for additional information.

Consolidated Selling, General and Administrative Expenses
The principal components of selling, general and administrative (“SG&A”) expenses include expenses for salaries and benefits, advertising, professional fees, rent and building related costs. The Company incurred SG&A expenses of $143.2 million for the fiscal year compared to $155.9 million in the prior year.

Included in SG&A expenses for the year are $19.5 million for the mining segment compared to $19.9 million for the prior year and $123.6 million for the retail segment compared to $136.0 million for the prior year. In the fourth quarter, SG&A expenses included executive severance of $4.2 million, $1.5 million of which was related to the mining segment and $2.7 million of which was related to the retail segment. For the retail segment, the decrease was due to an adjustment to incentive-based compensation, reduced advertising and selling expenses, savings from staff reductions and reductions in discretionary spending. See “Segmented Analysis” on page 13  for additional information.

Consolidated Income Taxes
The Company recorded a tax recovery of $18.8 million during the fiscal year, compared to a tax expense of $60.3 million in the prior year. The Company’s effective income tax rate for the year, excluding Harry Winston’s retail segment, is 15%, which is based on a statutory income tax rate of 30% adjusted for various items including Northwest Territories mining royalty, impact of foreign exchange, and earnings subject to tax different than the statutory rate.

The Company’s functional and reporting currency is US dollars; however, the calculation of income tax expense is based on income in the currency of the country of origin. As such, the Company is continually subject to foreign exchange fluctuations, particularly as the Canadian dollar moves against the US dollar. During the twelve months ended January 31, 2010, the Company recorded an unrealized foreign exchange loss of $24.4 million on the revaluation of the Canadian denominated future income tax liability, as compared to an unrealized foreign exchange gain of $48.6 million recorded in the prior year. The unrealized foreign exchange loss is not deductible for Canadian income tax purposes.

During the twelve months ended January 31, 2010, the Company recorded a non-cash dilution loss of $34.8 million as a result of the investment by Kinross in HWDLP, which holds the Company’s 40% interest in the Diavik Diamond Mine. The dilution loss is not deductible for Canadian tax purposes and hence no tax recovery was recorded against the dilution loss. In addition, a certain portion of the Company’s loss before income taxes is allocated to Kinross as a result of its investment of an indirect interest in the Diavik Diamond Mine. As a result, the tax impact of the loss allocated to non-controlling interest is recorded as a reconciling item in the tax rate reconciliation.

The rate of income tax payable by Harry Winston Inc. varies by jurisdiction. Net operating losses are available in certain jurisdictions to offset future income taxes payable in such jurisdictions. The net operating losses are scheduled to expire through 2030.

2010 ANNUAL REPORT 9

HARRY WINSTON DIAMOND CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS

The Company has provided a table below summarizing the movement from the statutory to the effective income tax rate as a percentage of earnings before taxes:

	Year ended	Year ended
	January 31, 2010	January 31, 2009
Statutory income tax rate	30 %	31%
Northwest Territories mining royalty (net of income tax relief)	–%	12%
Impact of foreign exchange	(3)%	(16)%
Earnings subject to tax different than statutory rate	5%	(5)%
Changes in valuation allowance	(2)%	2%
Assessments and adjustments	3%	–%
Impact of impairment charge on goodwill	–%	22%
Tax effect on income allocated to non-controlling interest	(2)%	–%
Tax effect on dilution loss	(11)%	–%
Effective income tax rate	20%	46%

Consolidated Interest and Financing Expenses
Interest and financing expenses of $11.5 million were incurred during the fiscal year compared to $20.5 million for the prior year. The Company repaid the full amount of $74.2 million of the mining segment’s senior secured term and revolving credit facilities with the March 31, 2009 closing of the Kinross transaction. Interest and financing expenses were also impacted by a reduction in debt levels at the retail segment during the year.

Consolidated Other Income
Other income, which includes interest income on the Company’s various bank balances, was $0.6 million during the year compared to $2.2 million in the prior year.

Consolidated Insurance Settlement
During the fiscal year, the Company received the remaining insurance settlement of $3.4 million pre-tax related to the December 2008 robbery at the Harry Winston Paris salon. In the prior year, the Company recognized a pre-tax gain of $16.7 million in the fourth quarter on settlement of the insurance claim relating to the December 2008 robbery. Also included in the prior year was a gain on insurance settlement of $0.5 million resulting from an excavator fire that occurred at the Diavik Diamond Mine in the fourth quarter of fiscal 2006.

Consolidated Dilution Loss
The Company recorded a non-cash dilution loss of $34.8 million as a result of the investment by Kinross in HWDLP, which holds the Company’s 40% interest in the Diavik Diamond Mine.

Consolidated Impairment Charge
In the prior year, the Company determined that the fair value of its retail segment was below the carrying value and recorded a non-cash goodwill impairment charge of $93.8 million.

Consolidated Foreign Exchange
A net foreign exchange loss of $31.5 million was recognized during the fiscal year compared to a net foreign exchange gain of $59.1 million in the prior year. The current year loss relates principally to the revaluation of the Company’s Canadian dollar denominated long-term future income tax liability as a result of the strengthening of the Canadian dollar against the US dollar at January 31, 2010. The Company’s ongoing currency exposure relates primarily to expenses and obligations incurred in Canadian dollars, as well as the revaluation of certain Canadian monetary balance sheet amounts. The Company does not currently have any significant foreign exchange derivative instruments outstanding.

2010 ANNUAL REPORT     10

HARRY WINSTON DIAMOND CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS

Three Months Ended January 31, 2010 Compared to Three Months Ended January 31, 2009
Consolidated Net Earnings
The Company recorded a fourth quarter consolidated net loss of $3.4 million or $0.04 per share compared to a net loss of $73.0 million or $1.19 per share in the fourth quarter of the prior year. Included in consolidated net loss for the quarter was a net foreign exchange loss of $2.0 million or $0.03 per share primarily on future income tax liabilities compared to a net foreign exchange gain of $4.6 million or $0.08 per share in the comparable quarter of the prior year. The comparable quarter of the prior year also included a non-cash write-down of goodwill relating to the retail operations of $93.8 million or $1.53 per share and an after-tax gain on insurance settlement of $9.9 million or $0.16 per share that resulted from the December 2008 robbery at the Harry Winston Paris salon.

Consolidated Sales
Sales for the fourth quarter totalled $133.7 million, consisting of rough diamond sales of $63.5 million and retail segment sales of $70.2 million. This compares to sales of $118.4 million in the comparable quarter of the prior year (rough diamond sales of $51.1 million and retail segment sales of $67.3 million). The Company held three rough diamond sales in the fourth quarter, compared to two in the comparable quarter of the prior year. See “Segmented Analysis” on page 13 for additional information.

Consolidated Cost of Sales and Gross Margin
The Company’s fourth quarter cost of sales was $96.3 million for a gross margin of 28.0% compared to a cost of sales of $68.9 million and a gross margin of 41.8% for the comparable quarter of the prior year. The Company’s cost of sales includes costs associated with mining, rough diamond sorting and retail sales activities. See “Segmented Analysis” on page 13 for additional information.

Consolidated Selling, General and Administrative Expenses
The principal components of SG&A expenses include expenses for salaries and benefits, advertising, professional fees, rent and building related costs. The Company incurred SG&A expenses of $40.5 million for the fourth quarter, compared to $39.4 million in the comparable quarter of the prior year.

Included in SG&A expenses for the fourth quarter are $4.9 million for the mining segment compared to $4.4 million for the comparable quarter of the prior year and $35.6 million for the retail segment compared to $35.0 million for the comparable quarter of the prior year. For the mining and retail segments, the higher SG&A expenses were due to executive severance. See “Segmented Analysis” on page 13 for additional information.

Consolidated Income Taxes
The Company recorded a tax recovery of $5.8 million during the fourth quarter, compared to a tax expense of $7.1 million in the comparable quarter of the prior year. The Company’s effective income tax rate for the quarter, excluding Harry Winston’s retail segment, is 262%, which is based on a statutory income tax rate of 30% adjusted for various items including Northwest Territories mining royalty, impact of foreign exchange, and earnings subject to tax different than the statutory rate.

The Company’s functional and reporting currency is US dollars; however, the calculation of income tax expense is based on income in the currency of the country of origin. As such, the Company is continually subject to foreign exchange fluctuations, particularly as the Canadian dollar moves against the US dollar. During the fourth quarter, the Canadian dollar strengthened against the US dollar. As a result, the Company recorded a foreign exchange loss of $2.2 million on the revaluation of the Company’s Canadian dollar denominated future income tax liability. This compares to a foreign exchange gain of $3.9 million in the comparable quarter of the prior year. The unrealized foreign exchange loss is not deductible for Canadian income tax purposes.

During the fourth quarter, the Company also recorded a $3.8 million recovery in future Northwest Territories mining royalty as a result of an adjustment to the effective future royalty tax rate applicable to the Company as at the end of fiscal 2010. This adjustment is the primary cause of the unusual effective tax rate for the current quarter.

The rate of income tax payable by Harry Winston Inc. varies by jurisdiction. Net operating losses are available in certain jurisdictions to offset future income taxes payable in such jurisdictions. The net operating losses are scheduled to expire through 2030.

2010 ANNUAL REPORT     11

HARRY WINSTON DIAMOND CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS

The Company has provided a table below summarizing the movement from the statutory to the effective income tax rate as a percentage of earnings before taxes:

	Three months	Three months
	ended	ended
	January 31, 2010	January 31, 2009
Statutory income tax rate	30 %	31%
Northwest Territories mining royalty (net of income tax relief)	3%	(1)%
Impact of foreign exchange	8%	–%
Earnings subject to tax different than statutory rate	(3)%	4%
Changes in valuation allowance	(12)%	(2)%
Assessments and adjustments	53%	2%
Impact of impairment charge on goodwill	–%	(44)%
Other items	–%	(1)%
Effective income tax rate	79%	(11)%

Consolidated Interest and Financing Expenses
Interest and financing expenses of $2.4 million were incurred during the fourth quarter compared to $5.0 million during the comparable quarter of the prior year. The Company repaid the full amount of $74.2 million of the mining segment’s senior secured term and revolving credit facilities with the March 31, 2009 closing of the Kinross transaction. Interest and financing expenses were also impacted by a reduction in debt levels at the retail segment during the quarter.

Consolidated Other Income
Other income of $0.1 million was recorded during the quarter compared to $0.8 million in the comparable quarter of the prior year.

Consolidated Insurance Settlement
In the comparable quarter of the prior year, the Company recognized a pre-tax gain of $16.7 million on settlement of the insurance claim relating to the December 2008 robbery at the Harry Winston Paris salon. Also included the prior year was a gain on insurance settlement of $0.5 million resulting from an excavator fire that occurred at the Diavik Diamond Mine in the fourth quarter of fiscal 2006.

Consolidated Impairment Charge
In the prior year, the Company determined that the fair value of its retail segment was below the carrying value and recorded a non-cash goodwill impairment charge of $93.8 million.

Consolidated Foreign Exchange
A net foreign exchange loss of $2.0 million was recognized during the quarter compared to a net foreign exchange gain of $4.6 million in the comparable quarter of the prior year. The loss relates principally to the revaluation of the Company’s Canadian dollar denominated long-term future income tax liability as a result of the strengthening of the Canadian dollar against the US dollar at January 31, 2010. The Company’s ongoing currency exposure relates primarily to expenses and obligations incurred in Canadian dollars, as well as the revaluation of certain Canadian monetary balance sheet amounts. The Company does not currently have any significant foreign exchange derivative instruments outstanding.

2010 ANNUAL REPORT     12

HARRY WINSTON DIAMOND CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS

Segmented Analysis
The operating segments of the Company include mining and retail segments.

Mining
The mining segment includes the production and sale of rough diamonds.

(expressed in thousands of United States dollars)
(quarterly results are unaudited)

		2010		2010			2010		2010			2009		2009		2009		2009		2010			2009		2008
		Q4		Q3			Q2		Q1			Q4		Q3		Q2		Q1		Total			Total		Total
Sales	$	63,489	$	20,765		$	45,941	$	57,690		$	51,100	$	90,716	$	105,014	$	81,393	$	187,885		$	328,223	$	413,772
Cost of sales		57,027		20,319			40,049		57,256			34,612		40,617		32,390		32,150		174,651			139,769		169,680
Gross margin		6,462		446			5,892		434			16,488		50,099		72,624		49,243		13,234			188,454		244,092
Gross margin (%)		10.2%		2.1%			12.8%		0.8%			32.3%		55.2%		69.2%		60.5%		7.0%			57.4%		59.0%
Selling, general and administrative expenses		4,885		4,932			4,182		5,503			4,430		3,114		5,151		7,208		19,502			19,903		23,359
Earnings (loss) from operations	$	1,577	$	(4,486	)	$	1,710	$	(5,069	)	$	12,058	$	46,985	$	67,473	$	42,035	$	(6,268	)	$	168,551	$	220,733

Year Ended January 31, 2010 Compared to Year Ended January 31, 2009
Mining Sales
Rough diamond sales for the year totalled $187.9 million compared to $328.2 million in the prior year resulting from a combination of a 34% decrease in the Company’s achieved rough diamond prices and a 14% decrease in volume of carats sold. The Company held eight rough diamond sales during the fiscal year, compared to nine in the prior year and ten in normal years. Rough diamond prices have increased significantly over the market lows seen in the first quarter of this year but the average price for the year remains lower than the average price achieved in the prior year. In addition, the Company’s achieved prices were particularly low in the first quarter as the sales mix contained a significant proportion of lower value goods carried in inventory from January 31, 2009. Rough diamond production during the year was significantly lower than the prior year due to the Summer Shutdown and a general reduction in mining activity to reflect the softness in the rough diamond market.

Mining Cost of Sales and Gross Margin
For the fiscal year ended January 31, 2010, cost of sales was $174.7 million resulting in a gross margin of 7.0%, compared to a cost of sales of $139.8 million and a gross margin of 57.4% in the prior year. The gross margin rate was significantly impacted by lower carat production spread across a largely fixed operating cost platform. The increase in cost of sales, attributable to mining costs, resulted primarily from the costs associated with preparing the A-418 kimberlite pipe for commercial production being capitalized in the first half of the prior year. These same activities have been recorded as direct operating costs in the current year. Also included in cost of sales is $9.8 million related to goods carried in inventory at January 31, 2009, which were sold subsequent to year end.

A substantial portion of cost of sales is mining operating costs, which are incurred at the Diavik Diamond Mine. Cost of sales also includes sorting costs, which consist of the Company’s cost of handling and sorting product in preparation for sales to third parties, and amortization and depreciation, the majority of which is recorded using the unit-of-production method over estimated proven and probable reserves.

Mining Selling, General and Administrative Expenses
SG&A expenses for the mining segment decreased by $0.4 million from the prior year.

Three Months Ended January 31, 2010 Compared to Three Months Ended January 31, 2009
Mining Sales
Rough diamond sales for the quarter totalled $63.5 million compared to $51.1 million in the comparable quarter of the prior year resulting from a combination of a 12% increase in the Company’s achieved rough diamond prices and an 11% increase in volume of carats sold. The Company held three rough diamond sales in the fourth quarter compared to two in the comparable quarter of the prior year. Rough diamond production during the quarter was significantly lower than the comparable quarter of the prior year due to a planned reduction in mining activity to reflect the softness in the rough diamond market earlier in the year. Rough diamond prices continued to increase over the third quarter of the current year but remain lower than the highs achieved during fiscal 2009.

The Company expects that results for its mining segment will continue to fluctuate depending on the seasonality of production at the Diavik Diamond Mine, the number of sales events conducted at each sales location during the quarter, rough diamond prices and the volume, size and quality distribution of rough diamonds delivered from the Diavik Diamond Mine in each quarter.

2010 ANNUAL REPORT     13

HARRY WINSTON DIAMOND CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS

Mining Cost of Sales and Gross Margin
The Company’s fourth quarter cost of sales was $57.0 million resulting in a gross margin of 10.2% compared to a cost of sales of $34.6 million and a gross margin of 32.3% in the comparable quarter of the prior year. The decrease in gross margin resulted primarily from lower carat production. The mining gross margin is anticipated to fluctuate between quarters, resulting from variations in the specific mix of product sold during each quarter and rough diamond prices.

A substantial portion of cost of sales is mining operating costs, which are incurred at the Diavik Diamond Mine. Cost of sales also includes sorting costs, which consist of the Company’s cost of handling and sorting product in preparation for sales to third parties, and amortization and depreciation, the majority of which is recorded using the unit-of-production method over estimated proven and probable reserves.

Mining Selling, General and Administrative Expenses
SG&A expenses for the mining segment increased by $0.5 million from the comparable period of the prior year due to executive severance.

Mining Segment Operational Update
Annual production at the Diavik Diamond Mine was 5.5 million carats, consisting of 3.4 million carats produced from 0.58 million tonnes of ore from the A-154 South kimberlite pipe and 2.1 million carats produced from 0.78 million tonnes of ore from the A-418 kimberlite pipe. Annual production was 9.2 million carats during calendar 2008. The lower production in the current calendar year resulted from the Summer Shutdown and a planned reduction in mining activity to reflect the softness in the rough diamond market.

Ore production for the fourth calendar quarter consisted of 1.0 million carats produced from 0.16 million tonnes of ore from the A-154 South kimberlite pipe and 0.6 million carats produced from 0.21 million tonnes of ore from the A-418 kimberlite pipe. Rough diamond production was significantly lower than the comparable calendar quarter of the prior year due to a planned reduction in mining activity to reflect the softness in the rough diamond market earlier in the year. Average grade decreased to 4.2 carats per tonne in the fourth calendar quarter from 4.6 carats per tonne in the comparable quarter of the prior year. The decrease in average grade was primarily driven by a decrease in the proportion of ore sourced from the A-154 South kimberlite pipe.

Harry Winston Diamond Limited Partnership's 40% Share of Diavik Diamond Mine Production
(reported on a one-month lag)

	Three months	Three months	Twelve months	Twelve months
	ended	ended	ended	ended
	December 31, 2009	December 31 2008	December 31 2009	December 31 2008
Diamonds recovered (000s carats)	612	1,039	2,226	3,690
Grade (carats/tonne)	4.19	4.56	4.09	3.82

Mining Segment Outlook
A mine plan and budget for calendar 2010 has been approved by Rio Tinto plc, the operator of the Diavik Diamond Mine, and the Company. The plan for calendar 2010 foresees Diavik Diamond Mine production of approximately 7.8 million carats from the processing of 2.1 million tonnes of ore.

Pricing
The rough diamond market continues to experience a robust recovery from the extreme market lows seen in the first quarter of the year and pricing has improved significantly. Future sustained price growth is anticipated in the rough diamond market during a period of diminishing rough diamond supply.

Production
In calendar 2010, open pit mining from the A-418 kimberlite pipe supplemented by the A-154 South kimberlite pipe is expected to be the primary source of ore. Underground mining is scheduled to commence in the first calendar quarter, with ore sourced mainly from the A-154 South kimberlite pipe. Total open pit ore mined is expected to be 1.4 million tonnes, and total underground ore mined is expected to be 0.7 million tonnes.

Looking beyond calendar 2010, the objective is to utilize as much of the processing capability as possible with a combination of underground and open pit production. As underground capacity ramps up, open pit production from the A-418 kimberlite pipe will synchronously decline. A new mining technique is under consideration for the potential mining of the A-21 resource. The feasibility of this resource is now under review with the objective that it becomes the supplemental ore source to underground production beyond 2012. In addition, exploration work has identified extensions at depth to the A-418 and A-154 North kimberlite pipes. Extension of production beyond 2022 will be dependent on bringing resources and exploratory tonnages into reserves.

2010 ANNUAL REPORT     14

HARRY WINSTON DIAMOND CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS

Cost of Sales
The Company expects cost of sales in fiscal 2011 to increase to approximately $265 million at an assumed average Canadian/US dollar exchange rate of $1.00. The increase over fiscal 2010 is due primarily to the cost of mining open pit synchronously with the high-cost start-up phase of underground mining. Of this increase, approximately half is related to an increase in non-cash costs. The Company expects that the cost of sales will decline as the velocity of underground mining increases and open pit waste stripping ends.

Capital Expenditures
For fiscal 2010, HWDLP’s share of capital expenditures was $51 million, of which underground capital expenditures were $41 million. During fiscal 2011, HWDLP’s 40% share of the planned capital expenditures is expected to be approximately $56 million at an assumed average Canadian/US dollar exchange rate of $1.00, of which $26 million relates to substantially completing underground development.

Retail
The retail segment includes sales from Harry Winston salons, which are located in prime markets around the world, including eight salons in the United States: New York, Beverly Hills, Bal Harbour, Honolulu, Las Vegas, Dallas, Chicago and Costa Mesa; five salons in Japan: Ginza, Roppongi Hills, Osaka, Omotesando and Nagoya; two salons in Europe: Paris and London; and four salons in Asia outside of Japan: Beijing, Taipei, Hong Kong and Singapore.

(expressed in thousands of United States dollars)
(quarterly results are unaudited)

		2010			2010			2010			2010			2009			2009			2009		2009			2010			2009			2008
		Q4			Q3			Q2			Q1			Q4			Q3			Q2		Q1			Total			Total			Total
Sales	$	70,165		$	54,063		$	48,835		$	51,953		$	67,299		$	57,907		$	81,105	$	74,686		$	225,016		$	280,997		$	265,535
Cost of sales		39,230			24,908			26,245			26,688			34,296			31,062			41,152		40,999			117,071			147,509			141,507
Gross margin		30,935			29,155			22,590			25,265			33,003			26,845			39,953		33,687			107,945			133,488			124,028
Gross margin (%)		44.1%			53.9%			46.3%			48.6%			49.0%			46.4%			49.3%		45.1%			48.0%			47.5%			46.7%
Selling, general and administrative expenses		35,594			29,610			28,198			30,246			34,969			30,884			34,043		36,077			123,648			135,973			127,086
Earnings (loss) from operations	$	(4,659	)	$	(455	)	$	(5,608	)	$	(4,981	)	$	(1,966	)	$	(4,039	)	$	5,910	$	(2,390	)	$	(15,703	)	$	(2,485	)	$	(3,058	)

Year Ended January 31, 2010 Compared to Year Ended January 31, 2009
Retail Sales
Sales for the fiscal year ended January 31, 2010 were $225.0 million compared to $281.0 million for the prior year, a decrease of 20%. Sales in Asia increased 11% to $77.0 million, US sales decreased 22% to $72.9 million and European sales decreased 36% to $75.1 million.

Retail Cost of Sales and Gross Margin
Cost of sales for the retail segment for the fiscal year was $117.1 million compared to $147.5 million for the prior year. Gross margin for the fiscal year was $107.9 million or 48.0% compared to $133.5 million or 47.5% for the prior year. Excluding the impact of sales of Harry Winston Inc. pre-acquisition inventory, gross margin for the fiscal year and the prior year would have been 48.5% and 49.4%, respectively.

Retail Selling, General and Administrative Expenses
SG&A expenses decreased to $123.6 million from $136.0 million in the prior year. The decrease was due to an adjustment to incentive-based compensation, reduced advertising and selling expenses, savings from staff reductions and reductions in discretionary spending. SG&A expenses include depreciation and amortization expense of $13.0 million, compared to $12.6 million in the prior year.

2010 ANNUAL REPORT     15

HARRY WINSTON DIAMOND CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS

Three Months Ended January 31, 2010 Compared to Three Months Ended January 31, 2009
Retail Sales
Sales for the fourth quarter were $70.2 million compared to $67.3 million for the comparable quarter of the prior year, an increase of 4%. Sales in Asia increased 52% to $26.9 million, US sales increased 40% to $26.2 million and European sales decreased 45% to $17.1 million.

Retail Cost of Sales and Gross Margin
Cost of sales for the retail segment for the fourth quarter was $39.2 million compared to $34.3 million for the comparable quarter of the prior year. Gross margin for the quarter was $30.9 million or 44.1% compared to $33.0 million or 49.0% for the fourth quarter of the prior year. Excluding the impact of sales of Harry Winston Inc. pre-acquisition inventory, gross margin for the fourth quarter and the comparable quarter of the prior year would have been 44.2% and 50.1%, respectively. The decrease in gross margin resulted primarily from a product mix comprising a higher proportion of lower margin sales.

Retail Selling, General and Administrative Expenses
SG&A expenses increased to $35.6 million from $35.0 million in the comparable quarter of the prior year. SG&A expenses include depreciation and amortization expense of $3.3 million, compared to $3.2 million in the comparable quarter of the prior year.

Retail Segment Operational Update
For the fiscal year, the retail segment recorded a sales decrease of 20%. Strong sales in Asia, including Japan, partially compensated for weak sales in the US and Europe. The retail segment successfully introduced the Harry Winston New York Collection, a series of jewelry and timepieces inspired by the glamour and architecture of some of New York’s most famous landmarks. The retail segment implemented a series of measures during the year to significantly lower the cost structure and maximize liquidity, including reductions in discretionary expenses, inventory levels and capital expenditures. Harry Winston Inc. currently operates a network of 19 retail salons, including a new salon that opened in Singapore in July 2009.

Consumer demand for luxury goods increased in the fourth quarter, reversing the dramatic slowdown experienced during the first half of this fiscal year. During the fourth quarter, the retail segment recorded a 4% increase in sales versus the comparable quarter of the prior year. This continues a positive trend of improving sales as the global economy recovers from the economic downturn. The increase in sales was driven by positive consumer response to the introduction of the Harry Winston New York Collection, strong Asian sales and an improved holiday season in the US.

Retail Segment Outlook
Harry Winston Inc. expects sales in the luxury jewelry market to continue to strengthen. For fiscal 2011, the retail segment anticipates strong sales growth and underlying gross margins, resulting in an improvement in earnings from operations. The positive momentum from the holiday season is expected to continue as the global economic recovery gains traction. The emerging markets and Asia are expected to remain strong while the US and European markets continue to recover. The retail segment will continue to offer the highest quality products and services to its customers. The Company believes that the strength of the Harry Winston brand, supported by a global distribution network in prime locations and the introduction of new products, has positioned the retail segment for a higher level of sustained profitability over the next several years.

2010 ANNUAL REPORT     16

HARRY WINSTON DIAMOND CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS

Liquidity and Capital Resources
Working Capital
As at January 31, 2010, the Company had unrestricted cash and cash equivalents of $63.0 million and contingency cash collateral and cash reserves of $nil, compared to $16.7 million and $30.1 million, respectively, at January 31, 2009. The Company had cash on hand and balances with banks of $61.5 million and short-term investments of $1.5 million at January 31, 2010. Total cash resources were impacted by the $150.0 million net investment by Kinross and the subsequent repayment by the Company of the mining segment’s $74.2 million senior secured term and revolving credit facilities on March 31, 2009. With the repayment of these facilities, the Company is no longer required to maintain a cash collateral and cash reserve account.

During the year ended January 31, 2010, the Company generated $44.2 million in cash from operations compared to $144.1 million in the prior year. The reduction in cash from operations resulted primarily from significantly lower net earnings compared to the prior year.

Working capital increased to $284.5 million at January 31, 2010 from $195.1 million at January 31, 2009. With the cash received from the closing of the Kinross transaction, the Company repaid in full the mining segment’s senior secured credit facilities. This transaction increased the Company’s working capital from that of January 31, 2009. Also during the fiscal year, the Company decreased accounts receivable by $43.7 million, decreased prepaid expenses and other current assets by $1.8 million, decreased inventory by $39.0 million, decreased accounts payable and accrued liabilities by $33.3 million, and decreased income taxes payable by $38.9 million.

The Company’s liquidity requirements fluctuate from quarter to quarter depending on, among other factors, the seasonality of production at the Diavik Diamond Mine, seasonality of mine operating expenses, capital expenditure programs, the number of rough diamond sales events conducted during the quarter and the volume, size and quality distribution of rough diamonds delivered from the Diavik Diamond Mine in each quarter, along with the seasonality of sales and salon expansion in the retail segment. The Company’s principal working capital needs include investments in inventory, prepaid expenses and other current assets, and accounts payable and income taxes payable.

With the closing of the Kinross transaction and the repayment in full of the mining segment’s senior secured credit facilities, the Company assesses liquidity and capital resources on a consolidated basis. The Company’s requirements are for cash operating expenses, working capital, contractual debt requirements and capital expenditures. The Company believes that it will generate sufficient liquidity to meet its anticipated requirements for the next twelve months.

Financing Activities
On March 31, 2009, the Company issued 15.2 million of treasury shares at a price of $3.00 per share to Kinross, being approximately 19.9% of the Company’s issued equity post the transaction. This transaction generated net proceeds of $44.7 million, net of transaction costs.

During the year, the Company repaid $74.2 million of the mining segment’s senior secured term and revolving credit facilities with the closing of the Kinross transaction.

As at January 31, 2010, the Company’s main retail subsidiary, Harry Winston Inc., had $140.0 million outstanding on its $250.0 million secured five-year revolving credit facility, which is used to fund salon inventory and capital expenditure requirements. This represents a decrease of $39.6 million from the amount outstanding at January 31, 2009.

Also included in long-term debt of the Company’s retail operations is a 25-year loan agreement for CHF 17.5 million ($16.4 million) used to finance the construction of the Company’s watch factory in Geneva, Switzerland. At January 31, 2010, $15.5 million was outstanding compared to $14.7 million at January 31, 2009. The bank has a secured interest in the factory building. In addition, the Company has a demand credit facility of CHF 2.0 million ($1.9 million), supported by a $2.0 million standby letter of credit, which is classified as bank advances. At January 31, 2010, $nil was outstanding, compared to $0.5 million at January 31, 2009.

Harry Winston Japan, K.K. maintains secured and unsecured credit agreements with three banks amounting to ¥2,030 million ($22.5 million). At January 31, 2010, $22.5 million had been drawn against these facilities and classified as bank advances compared to $23.1 million at January 31, 2009, $5.5 million of which was long term.

2010 ANNUAL REPORT     17

HARRY WINSTON DIAMOND CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS

At January 31, 2010, no amounts were outstanding under the Company’s revolving financing facility relating to its Belgian subsidiary, Harry Winston Diamond International N.V., or its Indian subsidiary, Harry Winston Diamond (India) Private Limited. At January 31, 2009, $18.4 million, $4.7 million and $1.5 million were drawn under the Company’s revolving financing facilities relating to Harry Winston Diamond International N.V., Harry Winston Diamond (Israel) Limited and Harry Winston Diamond (India) Private Limited, respectively.

During the year, the Company distributed $9.7 million to Kinross in relation to its investment in HWDLP.

Investing Activities
As part of the Kinross transaction, Kinross also subscribed for new partnership units representing a 22.5% interest in HWDLP, for a subscription value of $125.1 million.

During the fiscal year, the Company purchased capital assets of $53.9 million, of which $50.9 million were purchased for the mining segment and $3.0 million for the retail segment.

Contractual Obligations
The Company has contractual payment obligations with respect to long-term debt and, through its participation in the Joint Venture, future site restoration costs at the Diavik Diamond Mine level. Additionally, at the Joint Venture level, contractual obligations exist with respect to operating purchase obligations, as administered by DDMI, the operator of the mine. In order to maintain its 40% ownership interest in the Diavik Diamond Mine, HWDLP is obligated to fund 40% of the Joint Venture’s total expenditures on a monthly basis. HWDLP’s current projected share of the planned capital expenditures at the Diavik Diamond Mine, which are not reflected in the table below, including capital expenditures for the calendar years 2010 to 2014, is approximately $170 million assuming a Canadian/US average exchange rate of $1.00 for the five years. The most significant contractual obligations for the ensuing five-year period can be summarized as follows:

Contractual Obligations

				Less than		Year		Year		After
(expressed in thousands of United States dollars)		Total		1 year		2–3		4–5		5 years
Long-term debt (a)(b)	$	188,595	$	7,982	$	15,612	$	148,376	$	16,625
Environmental and participation agreements incremental commitments (c)		89,695		75,662		1,870		4,540		7,623
Operating lease obligations (d)		106,250		19,518		28,655		18,734		39,343
Capital lease obligations (e)		367		289		78		–		–
Total contractual obligations	$	384,907	$	103,451	$	46,215	$	171,650	$	63,591

(a)	Long-term debt presented in the foregoing table includes current and long-term portions. Harry Winston Inc. maintains a credit agreement with a syndicate of banks for a $250.0 million five-year revolving credit facility. There are no scheduled repayments required before maturity. At January 31, 2010, $140.0 million had been drawn against this secured credit facility, which expires on March 31, 2013.
	Also included in long-term debt of Harry Winston Inc. is a 25-year loan agreement for CHF 17.5 million ($16.4 million) used to finance the construction of the Company’s watch factory in Geneva, Switzerland. The loan agreement is comprised of a CHF 3.5 million ($3.3 million) loan and a CHF 14.0 million ($13.2 million) loan. The CHF 3.5 million loan bears interest at a rate of 3.9% and matures on April 22, 2013. The CHF 14.0 million loan bears interest at a rate of 3.55% and matures on January 31, 2033. At January 31, 2010, $15.5 million was outstanding on the loan agreement compared to $14.7 million at January 31, 2009. The bank has a secured interest in the factory building.
	The Company’s first mortgage on real property has scheduled principal payments of approximately $0.2 million quarterly, and may be prepaid at any time. On January 31, 2010, $7.2 million was outstanding on the mortgage payable.
(b)	Interest on long-term debt is calculated at various fixed and floating rates. Projected interest payments on the current debt outstanding were based on interest rates in effect at January 31, 2010, and have been included under long-term debt in the table above. Interest payments for the next twelve months are approximated to be $6.8 million.

2010 ANNUAL REPORT     18

HARRY WINSTON DIAMOND CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS

(c)	The Joint Venture, under environmental and other agreements, must provide funding for the Environmental Monitoring Advisory Board. These agreements also state that the Joint Venture must provide security deposits for the performance by the Joint Venture of its reclamation and abandonment obligations under all environmental laws and regulations. The operator of the Joint Venture has fulfilled such obligations for the security deposits by posting letters of credit of which HWDLP’s share as at January 31, 2010 was $74.2 million based on its 40% ownership interest in the Diavik Diamond Mine. There can be no assurance that the operator will continue its practice of posting letters of credit in fulfillment of this obligation, in which event HWDLP would be required to post its proportionate share of such security directly, which would result in additional constraints on liquidity. The requirement to post security for the reclamation and abandonment obligations may be reduced to the extent of amounts spent by the Joint Venture on those activities. The Joint Venture has also signed participation agreements with various native groups. These agreements are expected to contribute to the social, economic and cultural well-being of area Aboriginal bands. The actual cash outlay for the Joint Venture’s obligations under these agreements is not anticipated to occur until later in the life of the Diavik Diamond Mine.
(d)	Operating lease obligations represent future minimum annual rentals under non-cancellable operating leases for Harry Winston salons and office space, and long-term leases for property, land, office premises and a fuel tank farm for the Diavik Diamond Mine. Harry Winston Inc.’s New York salon lease expires on December 17, 2010 with an option to renew.
(e)	Capital lease obligations represent future minimum annual rentals under non-cancellable capital leases for Harry Winston Inc. retail exhibit space.

Dividend
On March 19, 2009, the Company announced that it had suspended its dividend for the time being.

Disclosure Controls and Procedures
The Company has designed a system of disclosure controls and procedures to provide reasonable assurance that material information relating to Harry Winston Diamond Corporation, including its consolidated subsidiaries, is made known to them by others within those entities, particularly during the period in which the Company’s annual filings are being prepared. In designing and evaluating the disclosure controls and procedures, the management of the Company recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. The management of Harry Winston Diamond Corporation was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The result of the inherent limitations in all control systems means no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

The management of Harry Winston Diamond Corporation has evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by the Annual Report. Based on that evaluation, management has concluded that these disclosure controls and procedures, as defined in Canada by Multilateral Instrument 52-109, Certification of Disclosure in Issuers’ Annual and Interim Filings, and in the United States by Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), are effective as of January 31, 2010, to ensure that information required to be disclosed in reports that the Company will file or submit under Canadian securities legislation and the Exchange Act is recorded, processed, summarized and reported within the time periods specified in those rules and forms.

Internal Control over Financial Reporting
The certifying officers of Harry Winston Diamond Corporation have designed a system of internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with Canadian GAAP and the requirements of the Securities and Exchange Commission in the United States, as applicable. Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, including its consolidated subsidiaries.

Management has evaluated the effectiveness of internal control over financial reporting using the framework and criteria established in the Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management has concluded that internal control over financial reporting was effective as of January 31, 2010.

2010 ANNUAL REPORT     19

HARRY WINSTON DIAMOND CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS

Changes in Internal Control over Financial Reporting
During the fourth quarter of fiscal 2010, there were no changes in the Company’s internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Critical Accounting Estimates
Management is often required to make judgments, assumptions and estimates in the application of Canadian GAAP that have a significant impact on the financial results of the Company. Certain policies are more significant than others and are, therefore, considered critical accounting policies. Accounting policies are considered critical if they rely on a substantial amount of judgment (use of estimates) in their application or if they result from a choice between accounting alternatives and that choice has a material impact on the Company’s reported results or financial position. The following discussion outlines the accounting policies and practices that are critical to determining Harry Winston Diamond Corporation’s financial results.

Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of earnings, revenues and expenses during the reporting year. Significant areas requiring the use of management estimates relate to the determination of impairment of capital assets, intangible assets, goodwill and deferred mineral property costs, estimation of future site restoration costs and future income taxes. Financial results as determined by actual events could differ from those estimated.

The most significant estimates relate to the valuation of deferred mineral property costs and future site restoration costs. Management makes significant estimates related to the measurement of reclamation obligations and the timing of the related cash flows and future income tax liabilities. Such timing and measurement uncertainty could have a material effect on the reported results of operations and the financial position of the Company.

Actual results could differ materially from those estimates in the near term.

Deferred Mineral Property Costs and Mineral Reserves
Harry Winston Diamond Corporation capitalizes all direct development and pre-production costs relating to mineral properties and amortizes such costs on a unit-of-production basis upon commencement of commercial production relating to the underlying property. Deferred mineral property costs are amortized based on estimated proven and probable reserves at the property.

On an ongoing basis, the Company evaluates deferred costs relating to each property to ensure that the estimated recoverable amount exceeds the carrying value. Based on the Diavik Diamond Mine’s latest projected open pit and underground life from the mine plan and diamond prices from the Diavik Project feasibility study, there is no requirement to write down deferred mineral property costs.

The estimation of reserves is a subjective process. Forecasts are based on engineering data, projected future rates of production and the timing of future expenditures, all of which are subject to numerous uncertainties and various interpretations. The Company expects that its estimates of reserves will change to reflect updated information. Reserve estimates can be revised upward or downward based on the results of future drilling, testing or production levels, and diamond prices. Changes in reserve estimates can impact the evaluation of net recoverable deferred costs.

Future Site Restoration Costs
The Company has obligations for future site restoration costs. The Company records the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or normal use of the assets. The fair value of the liability is added to the carrying amount of the associated asset and this additional carrying amount is depreciated over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation is adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. If the obligation is settled for other than the carrying amount of the liability, the Company will recognize a gain or loss on settlement. As at January 31, 2010, estimates of all legal obligations at the joint venture level have been included in the consolidated financial statements of the Company. Processes to track and monitor these obligations are carried out at the joint venture level.

2010 ANNUAL REPORT     20

HARRY WINSTON DIAMOND CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS

Intangible Assets
Certain of the Company’s intangible assets are recorded at fair value upon acquisition and have an indefinite useful life. The Company assesses impairment of such intangible assets by determining whether the carrying value exceeds the fair value. If the fair value is determined to be less than the net book value, the excess of the net book value over the fair value is charged to earnings in the year in which such impairment is determined by management. These approaches involve significant management judgment and, as a result, are subject to change.

Risks and Uncertainties
Harry Winston Diamond Corporation is subject to a number of risks and uncertainties as a result of its operations. In addition to the other information contained in this MD&A and the Company’s other publicly filed disclosure documents, readers should give careful consideration to the following risks, each of which could have a material adverse effect on the Company’s business prospects or financial condition.

Nature of Mining
The operation of the Diavik Diamond Mine is subject to risks inherent in the mining industry, including variations in grade and other geological differences, unexpected problems associated with required water retention dikes, water quality, surface and underground conditions, processing problems, equipment performance, accidents, labour disputes, risks relating to the physical security of the diamonds, force majeure risks and natural disasters. Particularly with underground mining operations, inherent risks include variations in rock structure and strength as it impacts on mining method selection and performance, de-watering and water handling requirements, achieving the required paste backfill strengths, and unexpected local ground conditions. Hazards, such as unusual or unexpected rock formations, rock bursts, pressures, collapses, flooding or other conditions, may be encountered during mining. Such risks could result in personal injury or fatality; damage to or destruction of mining properties, processing facilities or equipment; environmental damage; delays, suspensions or permanent reductions in mining production; monetary losses; and possible legal liability.

The Diavik Diamond Mine, because of its remote northern location and access only by winter road or by air, is subject to special climate and transportation risks. These risks include the inability to operate or to operate efficiently during periods of extreme cold, the unavailability of materials and equipment, and increased transportation costs due to the late opening and/or early closure of the winter road. Such factors can add to the cost of mine development, production and operation and/or impair production and mining activities, thereby affecting the Company’s profitability.

Nature of Joint Arrangement with DDMI
HWDLP holds an undivided 40% interest in the assets, liabilities and expenses of the Diavik Diamond Mine and the Diavik group of mineral claims. HWDLP is owned 77.5% by the Company and 22.5% by Kinross. The Diavik Diamond Mine and the exploration and development of the Diavik group of mineral claims is a joint arrangement between DDMI (60%) and HWDLP (40%), and is subject to the risks normally associated with the conduct of joint ventures and similar joint arrangements. These risks include the inability to exert influence over strategic decisions made in respect of the Diavik Diamond Mine and the Diavik group of mineral claims. By virtue of DDMI’s 60% interest in the Diavik Diamond Mine, it has a controlling vote in virtually all Joint Venture management decisions respecting the development and operation of the Diavik Diamond Mine and the development of the Diavik group of mineral claims. Accordingly, DDMI is able to determine the timing and scope of future project capital expenditures, and therefore is able to impose capital expenditure requirements on HWDLP that the Company may not have sufficient cash to meet. A failure to meet capital expenditure requirements imposed by DDMI could result in HWDLP’s interest in the Diavik Diamond Mine and the Diavik group of mineral claims being diluted.

Agreement with Kinross
Under the amended partnership agreement of HWDLP, the general partner is entitled to request that the partners in the partnership advance funds to the partnership pro rata based on their holdings of partnership units for the purpose of satisfying the partnership’s obligations under various contractual commitments, including those deriving from the joint arrangement between DDMI and the partnership. The partners may unanimously determine to fund any cash call by way of a loan rather than equity contribution. If a partner fails to contribute its proportion of funds with respect to a cash call, the non-defaulting partner or partners will have the option, but not the obligation, to fund the defaulting partner’s portion of the cash call by way of equity contribution or loan or a combination of the two, provided that if any equity contribution is made, the non-defaulting partner’s interest in the partnership will be increased proportionately through the issuance of additional partnership units.

2010 ANNUAL REPORT     21

HARRY WINSTON DIAMOND CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS

As DDMI, under the joint arrangement between DDMI and the partnership, is able to determine the timing and scope of future project capital expenditures and to impose capital expenditure requirements on the Company that the Company may not have sufficient cash to meet, the Company’s interest in HWDLP could be diluted under the amended partnership agreement as a result of a failure by the Company to meet cash call requirements imposed by the amended partnership agreement.

Diamond Prices and Demand for Diamonds
The profitability of the Company is dependent upon production from the Diavik Diamond Mine and on the results of the operations of its retail operations. Each, in turn, is dependent in significant part upon the worldwide demand for and price of diamonds. Diamond prices fluctuate and are affected by numerous factors beyond the control of the Company, including worldwide economic trends, particularly in the US, Japan, China and India, worldwide levels of diamond discovery and production, and the level of demand for, and discretionary spending on, luxury goods such as diamonds and jewelry. Low or negative growth in the worldwide economy, prolonged credit market disruptions or the occurrence of further terrorist or similar activities creating disruptions in economic growth could result in decreased demand for luxury goods such as diamonds and jewelry, thereby negatively affecting the price of diamonds and jewelry. Similarly, a substantial increase in the worldwide level of diamond production or in diamonds available for sale could also negatively affect the price of diamonds. In each case, such developments could have a material adverse effect on the Company’s results of operations.

Cash Flow and Liquidity
The Company’s liquidity requirements fluctuate from quarter to quarter depending on, among other factors, the seasonality of production at the Diavik Diamond Mine, seasonality of mine operating expenses, capital expenditure programs, the number of rough diamond sales events conducted during the quarter and the volume, size and quality distribution of rough diamonds delivered from the Diavik Diamond Mine in each quarter, along with the seasonality of sales and salon expansion in the retail segment. The Company’s principal working capital needs include investments in inventory, prepaid expenses and other current assets, and accounts payable and income taxes payable. There can be no assurance that the Company will be able to meet each or all of its liquidity requirements. A failure by the Company to meet its liquidity requirements could result in the Company failing to meet its planned development objectives, or in the Company being in default of a contractual obligation, each of which could have a material adverse effect on the Company’s business prospects or financial condition.

Economic Environment
The Company’s financial results are tied to the global economic environment. The global markets have experienced the impact of a significant US and international economic downturn since the fall of 2008. This has restricted the Company’s growth opportunities both domestically and internationally, and a return to a recession or weak recovery could cause the Company to experience further revenue declines across both of its business segments, and a decrease in the availability of credit, which could have a material adverse effect on the Company’s business prospects or financial condition.

Currency Risk
Currency fluctuations may affect the Company’s financial performance. Diamonds are sold throughout the world based principally on the US dollar price, and although the Company reports its financial results in US dollars, a majority of the costs and expenses of the Diavik Diamond Mine are incurred in Canadian dollars. Further, the Company has a significant future income tax liability that has been incurred and will be payable in Canadian dollars. The Company’s currency exposure relates primarily to expenses and obligations incurred by it in Canadian dollars and, secondarily, to revenues of Harry Winston Inc. in currencies other than the US dollar. The appreciation of the Canadian dollar against the US dollar, and the depreciation of such other currencies against the US dollar, therefore, will increase the expenses of the Diavik Diamond Mine and the amount of the Company’s Canadian dollar liabilities relative to the revenue the Company will receive from diamond sales, and will decrease the US dollar revenues received by Harry Winston Inc. From time to time, the Company may use a limited number of derivative financial instruments to manage its foreign currency exposure.

2010 ANNUAL REPORT     22

HARRY WINSTON DIAMOND CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS

Licences and Permits
The operation of the Diavik Diamond Mine and exploration on the Diavik property requires licences and permits from the Canadian government. The Diavik Diamond Mine Type “A” Water Licence was renewed by the regional Wek’eezhii Land and Water Board to October 31, 2015. While the Company anticipates that DDMI, the operator of the Diavik Diamond Mine, will be able to renew this licence and other necessary permits in the future, there can be no guarantee that DDMI will be able to do so or obtain or maintain all other necessary licences and permits that may be required to maintain the operation of the Diavik Diamond Mine or to further explore and develop the Diavik property.

Regulatory and Environmental Risks
The operation of the Diavik Diamond Mine, exploration activities at the Diavik Project and the manufacturing of jewelry and watches are subject to various laws and regulations governing the protection of the environment, exploration, development, production, taxes, labour standards, occupational health, waste disposal, mine safety, manufacturing safety and other matters. New laws and regulations, amendments to existing laws and regulations, or more stringent implementation or changes in enforcement policies under existing laws and regulations could have a material adverse effect on the Company by increasing costs and/or causing a reduction in levels of production from the Diavik Diamond Mine and in the manufacture of jewelry and watches. As well, as the Company’s international operations expand, it or its subsidiaries become subject to laws and regulatory regimes which differ materially from those under which they operate in Canada and the US.

Mining and manufacturing are subject to potential risks and liabilities associated with pollution of the environment and the disposal of waste products occurring as a result of mining and manufacturing operations. To the extent that the Company’s operations are subject to uninsured environmental liabilities, the payment of such liabilities could have a material adverse effect on the Company.

Climate Change
Canada ratified the Kyoto Protocol to the United Nations Framework Convention on Climate Change in late 2002 and the Kyoto Protocol came into effect in Canada in February 2005. The Canadian government has established a number of policy measures in order to meet its emission reduction guidelines. While the impact of these measures cannot be quantified at this time, the likely effect will be to increase costs for fossil fuels, electricity and transportation; restrict industrial emission levels; impose added costs for emissions in excess of permitted levels; and increase costs for monitoring and reporting. Compliance with these initiatives could have a material adverse effect on the Company’s results of operations.

Resource and Reserve Estimates
The Company’s figures for mineral resources and ore reserves on the Diavik group of mineral claims are estimates, and no assurance can be given that the anticipated carats will be recovered. The estimation of reserves is a subjective process. Forecasts are based on engineering data, projected future rates of production and the timing of future expenditures, all of which are subject to numerous uncertainties and various interpretations. The Company expects that its estimates of reserves will change to reflect updated information. Reserve estimates may be revised upward or downward based on the results of current and future drilling, testing or production levels, and on changes in mine design. In addition, market fluctuations in the price of diamonds or increases in the costs to recover diamonds from the Diavik Diamond Mine may render the mining of ore reserves uneconomical.

Mineral resources that are not mineral reserves do not have demonstrated economic viability. Due to the uncertainty that may attach to inferred mineral resources, there is no assurance that mineral resources at the Diavik property will be upgraded to proven and probable ore reserves.

Insurance
The Company’s business is subject to a number of risks and hazards, including adverse environmental conditions, industrial accidents, labour disputes, unusual or unexpected geological conditions, risks relating to the physical security of diamonds and jewelry held as inventory or in transit, changes in the regulatory environment and natural phenomena such as inclement weather conditions. Such occurrences could result in damage to the Diavik Diamond Mine, personal injury or death, environmental damage to the Diavik property, delays in mining, closing of Harry Winston Inc.’s manufacturing facilities or salons, monetary losses and possible legal liability. Although insurance is maintained to protect against certain risks in connection with the Diavik Diamond Mine and the Company’s operations, the insurance in place will not cover all potential risks. It may not be possible to maintain insurance to cover insurable risks at economically feasible premiums.

2010 ANNUAL REPORT     23

HARRY WINSTON DIAMOND CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS

Fuel Costs
The Diavik Diamond Mine’s expected fuel needs are purchased periodically during the year for storage, and transported to the mine site by way of the winter road. These costs will increase if transportation by air freight is required due to a shortened “winter road season” or unexpectedly high fuel usage.

The cost of the fuel purchased is based on the then prevailing price and expensed into operating costs on a usage basis. The Diavik Diamond Mine currently has no hedges for its future anticipated fuel consumption.

Reliance on Skilled Employees
Production at the Diavik Diamond Mine is dependent upon the efforts of certain skilled employees of DDMI. The loss of these employees or the inability of DDMI to attract and retain additional skilled employees may adversely affect the level of diamond production from the Diavik Diamond Mine.

The Company’s success in marketing rough diamonds and operating the business of Harry Winston Inc. is dependent on the services of key executives and skilled employees, as well as the continuance of key relationships with certain third parties, such as diamantaires. The loss of these persons or the Company’s inability to attract and retain additional skilled employees or to establish and maintain relationships with required third parties may adversely affect its business and future operations in marketing diamonds and operating its retail segment.

Expansion of the Existing Salon Network
A key component of the Company’s retail strategy in recent years has been the expansion of its salon network. This strategy requires the Company to make ongoing capital expenditures to build and open new salons, to refurbish existing salons from time to time, and to incur additional operating expenses in order to operate the new salons. To date, much of this expansion has been financed by Harry Winston Inc. through borrowings. There can be no assurance that the expansion of the salon network will continue or that the current expansion will prove successful in increasing annual sales or earnings from the retail segment, and the increased debt levels resulting from this expansion could negatively impact the Company’s liquidity and its results from operations in the absence of increased sales and earnings.

Competition in the Luxury Jewelry Segment
The Company is exposed to competition in the retail diamond market from other luxury goods, diamond, jewelry and watch retailers. The ability of Harry Winston Inc. to successfully compete with such luxury goods, diamond, jewelry and watch retailers is dependent upon a number of factors, including the ability to source high-end polished diamonds and protect and promote its distinctive brand name and reputation. If Harry Winston Inc. is unable to successfully compete in the luxury jewelry segment, then the Company’s results of operations will be adversely affected.

Changes in Accounting Policies
Goodwill and Intangibles Assets
On February 1, 2008, the Canadian Institute of Chartered Accountants (“CICA”) issued Handbook Section 3064, “Goodwill and Intangible Assets”. This section establishes revised standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets. The Company adopted the new standard effective February 1, 2009. This standard has had no material impact on the consolidated financial statements.

Credit Risk and the Fair Value of Financial Assets and Liabilities
In January 2009, the CICA issued EIC-173, “Credit Risk and the Fair Value of Financial Assets and Liabilities”. This abstract requires companies to take each counterparty’s credit risk into account when measuring the fair value of financial assets and liabilities, including derivatives. The Company applied this EIC abstract commencing the quarter ended April 30, 2009. This abstract has had no material impact on the consolidated financial statements.

Mining Exploration Costs
In March 2009, the CICA issued EIC-174, “Mining Exploration Costs”, which provides guidance on the capitalization of exploration costs related to mining properties and the subsequent impairment review of capitalized exploration costs. The Company applied this EIC abstract commencing the quarter ended April 30, 2009. This abstract has had no material impact on the consolidated financial statements.

2010 ANNUAL REPORT     24

HARRY WINSTON DIAMOND CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS

Financial Instruments - Disclosures
In June 2009, the CICA amended Handbook Section 3862, “Financial Instruments - Disclosures”, to enhance disclosure requirements for fair value measurement of financial instruments and liquidity risk. These amendments require fair value measurements to be classified using a fair value hierarchy that reflects the significance of the inputs used in making the fair value measurements as follows:

• Level 1 – valuation techniques based on quoted prices (unadjusted) in active markets for identical assets or liabilities;

• Level 2 – valuation techniques based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); and

• Level 3 – valuation techniques based on unobservable market inputs (involves assumptions and estimates by management of how market participants would price the assets or liabilities).

The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. Section 3862 also requires an entity to disclose for each class of financial instrument, any significant transfers between Level 1 and Level 2 of the fair value hierarchy and the reasons for those transfers. For fair value measurements in Level 3 of the fair value hierarchy, a reconciliation from the beginning balances to the ending balances is required, disclosing transfers into or out of Level 3 (attributable to changes in the observability of market data) and the reasons for those transfers. This amendment has resulted in additional disclosures in note 18 of the Company’s consolidated financial statements.

Financial Instruments - Recognition and Measurement
In August 2009, the CICA issued amendments to Section 3855, “Financial Instruments - Recognition and Measurement”. Under the amendments, reclassification of financial assets out of assets held for trading and assets held for sale categories into the loans and receivables category is now permitted under certain circumstances; the definition of loans and receivables category has been updated so that debt securities that are not quoted in an active market are permitted to be classified in the loans and receivables category; impairment losses relating to available for sale debt instruments must be reversed if the fair value of the instrument increases due to an event occurring after the loss was recognized. These amendments have had no material impact on the consolidated financial statements.

Recently Issued Accounting Standards
Equity
In August 2009, the CICA amended Section 3251, “Equity”. The amendments apply only to entities that have adopted Section 1602, “Non-Controlling Interests”. The amendments require separate presentation on the consolidated statements of earnings and comprehensive income of earnings attributable to owners of the Company and those attributable to non-controlling interests. The amendments require that non-controlling interests be presented separately as a component of equity. As the Company has not adopted section 1602, which is mandatory for fiscal years beginning on or after January 1, 2011, the amendments are not applicable to the Company in the current fiscal year.

Business Combinations
In December 2008, the CICA issued Handbook Section 1582, “Business Combinations”, which applies prospectively to business combinations with an acquisition date on or after January 1, 2011. The section provides the Canadian equivalent to IFRS 3, “Business Combinations”, and is expected to have a material impact on how prospective business combinations are accounted for by requiring additional use of fair value measurements, recognition of additional assets and liabilities and increased disclosure.

International Financial Reporting Standards
In February 2008, the Canadian Accounting Standards Board confirmed that publicly accountable enterprises will be required to adopt International Financial Reporting Standards (“IFRS”) in place of Canadian GAAP for financial periods beginning on or after January 1, 2011. Accordingly, commencing February 1, 2011, the Company will convert to IFRS and prepare its first financial statements in accordance with IFRS for the three-month period ended April 30, 2011, with comparative information also prepared under IFRS.

2010 ANNUAL REPORT     25

HARRY WINSTON DIAMOND CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS

IFRS 1, “First Time Adoption of International Financial Reporting Standards”, provides mandatory guidance that generally requires full retrospective application of IFRS and interpretations from the date of transition, February 1, 2010. All material accounting differences between Canadian GAAP and IFRS will be eliminated generally through opening retained earnings at the date of transition. However, IFRS 1 allows certain optional exemptions in the application of particular standards to prior periods in order to assist companies with the transition process. For the transition year, which commenced February 1, 2010, the Company will continue to report under Canadian GAAP and will be required to capture comparable IFRS financial information.

The conversion project from Canadian GAAP to IFRS is led by finance management, and includes representatives from various areas of the Company as necessary to plan for and achieve a smooth transition. The Company has engaged the services of a third party expert advisor to assist. Regular progress reporting to senior management and to the Audit Committee on the status of the IFRS conversion project is in place. The conversion project consists of three phases:

• Assessment Phase – This phase involves a review of accounting differences between Canadian GAAP and IFRS; an evaluation of IFRS 1 exemptions for first time IFRS adopters; and a high-level impact assessment on systems and business processes. This phase was completed during the third quarter of fiscal 2010.

• Design Phase – This phase involves prioritizing and resolving accounting treatment issues; quantifying the impact of converting to IFRS; reviewing and approving accounting policy choices; performing a detailed impact assessment on systems and processes; designing system and business process changes; developing IFRS training material; and drafting IFRS financial statement content. The Company is currently progressing through its design phase activities.

• Implementation Phase – This phase involves changes to systems and business processes; determining the opening IFRS transition balance sheet; dual accounting under both Canadian GAAP and IFRS; and preparing detailed reconciliations of Canadian GAAP to IFRS financial statements. The Company commenced the implementation phase of its conversion project towards the end of fiscal 2010.

EXPECTED ACCOUNTING DIFFERENCES BETWEEN CANADIAN GAAP AND IFRS
The Company has identified the following major areas where the accounting differences between Canadian GAAP and existing IFRS may have an impact on the Company’s consolidated financial statements. The accounting differences described below should not be regarded as a complete list of areas that may be impacted by the transition to IFRS.

• Property, plant and equipment – Separate accounting for components of property, plant and equipment is broader and more vigorously applied under IFRS. Costs are allocated to significant parts of an asset if the useful lives differ, and each part is then separately depreciated.

• Exploration and evaluation – IFRS 6, “Exploration for and Evaluation of Mineral Resources”, allows an entity to either develop a new accounting policy for exploration and evaluation expenditures consistent with IFRS requirements or continue to follow the Company’s existing policy.

• Income taxes – Existing IFRS requires the recognition of deferred taxes in situations not required under Canadian GAAP. Specifically, a deferred tax liability (asset) is recognized for exchange gains and losses relating to foreign non-monetary assets and liabilities that are remeasured into the functional currency using historical exchange rates. Similar timing differences are also recognized for the differences in tax bases between jurisdictions as a result of intra-group transfer of assets.

• Asset impairment – Under IFRS, assets are tested for impairment either individually or within cash generating units. This approach reflects the smallest group of assets capable of generating largely independent cash inflows, which may differ from asset groups under Canadian GAAP. Impairment charges relating to long-lived assets may be more frequent under IFRS as the cash flow test for recoverability is based on a one-step discounted cash flow approach. Impairment under IFRS is recognized if the carrying amount exceeds the higher of fair value less cost to sell, or value in use. Reversal of impairment charges is required under IFRS if the circumstances leading to the impairment have changed.

The Company also anticipates a significant increase in disclosure within its consolidated financial statements resulting from the adoption of IFRS.

2010 ANNUAL REPORT     26

HARRY WINSTON DIAMOND CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS

In a recent announcement, the International Accounting Standards Board updated its estimated publication dates for new or amended IFRS to late 2010 and 2011. It now seems likely that there will be a relatively stable platform of IFRS during the Company’s transition year ending January 31, 2011. The Company will continue to monitor these international accounting developments.

At this time, the impact of the IFRS conversion project on the Company’s financial position and results of operations is not reasonably determinable or estimable.

Outstanding Share Information
As at January 31, 2010

Authorized	Unlimited
Issued and outstanding shares	76,588,593
Options outstanding	3,233,779
Fully diluted	79,822,372

Additional Information
Additional information relating to the Company, including the Company’s most recently filed annual information form, can be found on SEDAR at www.sedar.com, and is also available on the Company’s website at http://investor.harrywinston.com.

2010 ANNUAL REPORT     27

HARRY WINSTON DIAMOND CORPORATION

Management’s Responsibility for Financial Information

The consolidated financial statements and the information contained in the Annual Report have been prepared by the management of the Company. The financial statements have been prepared in accordance with accounting principles generally accepted in Canada.

The consolidated financial statements and information in the MD&A necessarily include amounts based on informed judgments and estimates of the expected effects of current events and transactions with appropriate consideration to materiality. The MD&A also includes information regarding the impact of current transactions and events, sources of liquidity and capital resources, operating trends, risks and uncertainties. Actual results in the future may differ materially from the present assessment of this information because future events and circumstances may not occur as expected.

In meeting management’s responsibility for the reliability and timeliness of financial information, management maintains and relies on a comprehensive system of internal control and internal audit, including organizational and procedural controls, disclosure controls and procedures and internal control over financial reporting. The system of internal control includes written communication of policies and procedures governing corporate conduct and risk management; comprehensive business planning; effective segregation of duties; delegation of authority and personal accountability; escalation of relevant information for decisions regarding public disclosure; careful selection and training of personnel; and regular updating of accounting policies. These controls and audits are designed to provide reasonable assurance that the financial records are reliable for preparing financial statements and other financial information, assets are safeguarded against unauthorized use or disposition, liabilities are recognized, and Harry Winston Diamond Corporation is in compliance with all regulatory requirements.

The Company’s independent auditors, who are appointed by the shareholders, conduct an audit in accordance with generally accepted auditing standards to allow them to express an opinion on the financial statements.

The Board of Directors’ Audit Committee meets at least quarterly with management to review the internal controls, financial statements and related reporting matters, and with the independent auditors to review the scope and results of the annual audit prior to approval of the financial statements by the entire Board.

Robert A. Gannicott	Alan S. Mayne
Chief Executive Officer	Chief Financial Officer

2010 ANNUAL REPORT     28

HARRY WINSTON DIAMOND CORPORATION

Shareholders’ Auditors’ Report

Report on Consolidated Financial Statements
To the Shareholders of Harry Winston Diamond Corporation
We have audited the consolidated balance sheets of Harry Winston Diamond Corporation (the “Company”) as at January 31, 2010 and 2009 and the consolidated statements of earnings, comprehensive income, changes in shareholders’ equity and cash flows for each of the years in the two-year period ended January 31, 2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards. We also conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at January 31, 2010 and 2009 and the results of its operations and its cash flows for each of the years in the two-year period ended January 31, 2010 in accordance with Canadian generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of January 31, 2010, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated April 19, 2010 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

KPMG LLP

Chartered Accountants, Licensed Public Accountants

TORONTO, CANADA

APRIL 19, 2010

2010 ANNUAL REPORT     29

HARRY WINSTON DIAMOND CORPORATION

Report on Internal Control over Financial Reporting

To the Shareholders and Board of Directors of Harry Winston Diamond Corporation
We have audited Harry Winston Diamond Corporation’s (the “Company”) internal control over financial reporting as of January 31, 2010, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management’s Discussion and Analysis”. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 31, 2010, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with Canadian generally acceptable accounting standards and the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as at January 31, 2010 and 2009 and the consolidated statements of earnings, comprehensive income, changes in shareholders’ equity and cash flows for each of the years in the two-year period ended January 31, 2010, and our report dated April 19, 2010 expressed an unqualified opinion on those consolidated financial statements.

KPMG LLP

Chartered Accountants, Licensed Public Accountants

TORONTO, CANADA

APRIL 19, 2010

2010 ANNUAL REPORT     30

HARRY WINSTON DIAMOND CORPORATION

Consolidated Balance Sheets (expressed in thousands of United States dollars)

As at January 31,		2010		2009
Assets
Current assets
Cash and cash equivalents (note 3)	$	62,969	$	16,735
Cash collateral and cash reserves (note 3)		–		30,145
Accounts receivable (note 20)		23,520		66,980
Inventory and supplies (note 4)		311,188		346,235
Prepaid expenses and other current assets		44,220		48,130
		441,897		508,225
Mining capital assets (note 5)		802,984		800,358
Retail capital assets (note 5)		62,277		68,258
Intangible assets, net (note 7)		129,213		130,752
Other assets (note 8)		15,629		15,644
Future income tax asset (note 11)		42,805		43,338
	$	1,494,805	$	1,566,575
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable and accrued liabilities (note 9)	$	87,448	$	118,390
Income taxes payable		46,297		76,987
Bank advances (note 10(d))		22,485		42,621
Current portion of long-term debt (note 10)		1,154		75,097
		157,384		313,095
Long-term debt (note 10)		161,538		205,625
Future income tax liability (note 11)		271,822		303,284
Other long-term liability		2,201		1,946
Future site restoration costs (note 12)		41,275		39,506
Non-controlling interest (note 1)		177,816		280
Shareholders’ Equity
Share capital (note 13)		426,593		381,541
Contributed surplus		17,730		16,079
Retained earnings		210,001		283,177
Accumulated other comprehensive income (note 9)		28,445		22,042
		682,769		702,839
Commitments and guarantees (note 15)
	$	1,494,805	$	1,566,575

See accompanying notes to consolidated financial statements.

ON BEHALF OF THE BOARD:

Robert A. Gannicott Director	Daniel Jarvis Director

2010 ANNUAL REPORT     31

HARRY WINSTON DIAMOND CORPORATION

Consolidated Statements of Earnings (expressed in thousands of United States dollars, except per share amounts)

Years ended January 31,		2010			2009
Sales	$	412,901		$	609,220
Cost of sales		291,722			287,278
Gross margin		121,179			321,942
Selling, general and administrative expenses		143,150			155,876
Earnings (loss) from operations		(21,971	)		166,066
Interest and financing expenses		(11,541	)		(20,457	)
Other income		592			2,246
Insurance settlement (note 20)		3,350			17,240
Dilution loss (note 21)		(34,761	)		–
Impairment charge (note 22)		–			(93,780	)
Foreign exchange gain (loss)		(31,493	)		59,087
Earnings (loss) before income taxes		(95,824	)		130,402
Income tax expense – Current (note 11)		4,586			81,787
Income tax recovery – Future (note 11)		(23,389	)		(21,531	)
Earnings (loss) before non-controlling interest		(77,021	)		70,146
Non-controlling interest (note 1)		(3,845	)		25
Net earnings (loss)	$	(73,176	)	$	70,121
Earnings (loss) per share
Basic	$	(0.99	)	$	1.15
Fully diluted	$	(0.99	)	$	1.15
Weighted average number of shares outstanding		74,048,981			61,013,758

See accompanying notes to consolidated financial statements.

Consolidated Statements of Comprehensive Income (expressed in thousands of United States dollars)

Years ended January 31,		2010			2009
Net earnings (loss)	$	(73,176	)	$	70,121
Other comprehensive income (loss)
Net gain (loss) on translation of net foreign operations (net of tax of nil)		6,757			(3,170	)
Change in fair value of derivative financial instruments designated as cash flow hedges (net of tax of $0.2 million)		(354	)		–
Total comprehensive income (loss)	$	(66,773	)	$	66,951

See accompanying notes to consolidated financial statements.

2010 ANNUAL REPORT     32

HARRY WINSTON DIAMOND CORPORATION

Consolidated Statements
of Changes in Shareholders’ Equity (expressed in thousands of United States dollars)

Years ended January 31,		2010			2009
COMMON SHARES
Balance at beginning of year	$	381,541		$	305,502
Issued during the year		45,052			76,039
Balance at end of year		426,593			381,541
CONTRIBUTED SURPLUS
Balance at beginning of year		16,079			15,614
Stock option expense		1,651			465
Balance at end of year		17,730			16,079
RETAINED EARNINGS
Balance at beginning of year		283,177			225,334
Net earnings (loss)		(73,176	)		70,121
Dividends paid		–			(12,278	)
Balance at end of year		210,001			283,177
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance at beginning of year		22,042			25,212
Other comprehensive income
Net gain (loss) on translation of net foreign operations (net of tax of nil)		6,757			(3,170	)
Change in fair value of derivative financial instruments designated as cash flow hedges (net of tax of $0.2 million)		(354	)		–
Balance at end of year		28,445			22,042
Total shareholders’ equity	$	682,769		$	702,839

See accompanying notes to consolidated financial statements.

2010 ANNUAL REPORT     33

HARRY WINSTON DIAMOND CORPORATION

Consolidated Statements of Cash Flows
(expressed in thousands of United States dollars)

Years ended January 31,		2010			2009
Cash provided by (used in)
Operating
Net earnings (loss)	$	(73,176	)	$	70,121
Items not involving cash
Amortization and accretion		64,112			76,970
Future income tax recovery		(23,389	)		(21,531	)
Stock-based compensation and pension expense		1,906			683
Foreign exchange loss (gain)		31,454			(60,996	)
Loss on disposal of assets		–			494
Non-controlling interest		(3,845	)		25
Dilution loss		34,761			–
Impairment charge		–			93,780
Change in non-cash operating working capital		12,386			(15,470	)
		44,209			144,076
Financing
Decrease in long-term debt		(404	)		(52,194	)
Increase (decrease) in revolving credit		(64,497	)		191,799
Repayment of mining segment senior secured term and revolving credit facilities		(74,160	)		–
Repayment of Harry Winston Inc. 2008 revolving credit facility		–			(159,109	)
Distribution to Kinross		(9,675	)		–
Dividends paid		–			(12,278	)
Issue of common shares, net of issue costs		44,740			76,039
		(103,996	)		44,257
Investing
Subscription of partnership units		125,095			–
Cash collateral and cash reserve		30,145			(4,530	)
Mining capital assets		(50,856	)		(200,289	)
Retail capital assets		(3,033	)		(9,574	)
Other assets		(992	)		(3,035	)
		100,359			(217,428	)
Foreign exchange effect on cash balances		5,662			(3,798	)
Increase (decrease) in cash and cash equivalents		46,234			(32,893	)
Cash and cash equivalents, beginning of year (note 3)		16,735			49,628
Cash and cash equivalents, end of year (note 3)	$	62,969		$	16,735
Change in non-cash operating working capital
Accounts receivable		43,720			(43,311	)
Prepaid expenses and other current assets		1,823			8,230
Inventory and supplies		38,974			(24,007	)
Accounts payable and accrued liabilities		(33,277	)		4,470
Income taxes payable		(38,854	)		39,148
	$	12,386		$	(15,470	)
Supplemental cash flow information
Cash taxes paid	$	43,925		$	35,986
Cash interest paid	$	10,827		$	17,570

See accompanying notes to consolidated financial statements.

2010 ANNUAL REPORT     34

HARRY WINSTON DIAMOND CORPORATION

Notes to Consolidated Financial Statements Years ended January 31, 2010 and 2009
(tabular amounts in thousands of United States dollars, except as otherwise noted)

NOTE 1: Nature of Operations
Harry Winston Diamond Corporation (the “Company”) is a specialist diamond company focusing on the mining and retail segments of the diamond industry.

The Company’s most significant asset is an ownership interest in the Diavik group of mineral claims. The Diavik Joint Venture (the “Joint Venture”) is an unincorporated joint arrangement between Diavik Diamond Mines Inc. (“DDMI”) (60%) and Harry Winston Diamond Limited Partnership (“HWDLP”) (40%), where HWDLP holds an undivided 40% ownership interest in the assets, liabilities and expenses of the Diavik Diamond Mine. DDMI is the operator of the Diavik Diamond Mine. DDMI and HWDLP are headquartered in Yellowknife, Canada. DDMI is a wholly owned subsidiary of Rio Tinto plc of London, England. As a result of the strategic investment by Kinross Gold Corporation (“Kinross”) of Toronto, Canada, described below, HWDLP is 77.5% owned by the Company and 22.5% owned by Kinross. Kinross’s 22.5% ownership is reported in the consolidated financial statements as part of non-controlling interest.

On March 31, 2009, Kinross made a net investment of $150.0 million to acquire an indirect interest in the Diavik Diamond Mine and a direct equity stake in the Company. Kinross subscribed for 15.2 million of the Company’s treasury shares at a price of $3.00 per share, being approximately 19.9% of the Company’s issued equity post the transaction. Kinross also subscribed for new partnership units representing a 22.5% interest in HWDLP, for a net effective subscription value of $103.7 million. With the closing of the Kinross transaction, the Company’s economic interest in the Diavik Diamond Mine is 31%.

The Company also owns Harry Winston Inc., the premier fine jewelry and watch retailer. The results of Harry Winston Inc., located in New York City, US, are consolidated in the financial statements of the Company.

Certain comparative figures have been reclassified to conform with the current year’s presentation.

NOTE 2: Significant Accounting Policies
The consolidated financial statements are prepared by management in accordance with accounting principles generally accepted in Canada. The principal accounting policies presently followed by the Company are summarized as follows:

(a)	Principles of Consolidation
	The consolidated financial statements include the accounts of the Company and all of its subsidiaries as well as its proportionate share of unincorporated joint arrangements.

Subsidiaries

A subsidiary is an entity that is controlled by the Company. The consolidated financial statements include all the assets, liabilities, revenues, expenses and cash flows of the Company and its subsidiaries after eliminating intercompany balances and transactions. For partly owned subsidiaries, the net assets and net earnings attributable to minority shareholders are presented as minority interests on the consolidated balance sheets and consolidated statements of earnings.

Joint Arrangements that Are Not Entities ("Joint Arrangements")

The Diavik Joint Venture is an unincorporated joint arrangement. HWDLP owns an undivided 40% ownership interest in the assets, liabilities and expenses of the Joint Venture. The Company records its proportionate interest in the assets, liabilities and expenses of the Joint Venture in its consolidated financial statements with a one-month lag. The accounting policies described below include those of the Joint Venture. With the closing of the Kinross transaction, the Company’s economic interest in the Diavik Diamond Mine is 31%.

(b)

Measurement Uncertainty

The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of earnings, revenues and expenses during the reporting year. Significant areas requiring the use of management estimates relate to the determination of impairment of capital assets, intangible assets, goodwill and deferred mineral property costs, estimation of future site restoration costs and future income taxes. Financial results as determined by actual events could differ from those estimated.

2010 ANNUAL REPORT     35

HARRY WINSTON DIAMOND CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(c)	Revenue Recognition
	Revenue from rough diamond sales is recognized upon delivery of merchandise when the customer takes ownership and assumes risk of loss, persuasive evidence of an arrangement exists, the Company’s price to the customer is fixed or determinable and collection of the resulting receivable is reasonably assured.
	Revenue from fine jewelry and watch sales is recognized upon delivery of merchandise when the customer takes ownership and assumes risk of loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists and the sales price is fixed or determinable. Sales are reported net of returns.
(d)	Cash Resources
	Cash and cash equivalents, and cash collateral and cash reserves, consist of cash on hand, balances with banks and short-term money market instruments (with a maturity on acquisition of less than 90 days), and are carried at fair value.
	Funds in cash collateral and cash reserves are maintained as prescribed under the Company’s debt financing arrangements and will become available to Harry Winston Diamond Corporation for general corporate purposes and for debt servicing as prescribed by the terms of credit facility agreements.
(e)	Trade Accounts Receivable
	Trade accounts receivable are recorded at the invoiced amount and generally do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the existing accounts receivable. The Company reviews its allowance for doubtful accounts monthly. Account balances are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
(f)	Inventory
	Rough diamond inventory is recorded at the lower of cost or net realizable value. Cost is determined on an average cost basis, including production costs and value-added processing activity.
	Merchandise inventory is recorded at the lower of cost or net realizable value and includes fine jewelry and watches. Included in merchandise inventory are production costs such as material, labour and overhead costs.
	Supplies inventory is recorded at the lower of cost or net realizable value. Supplies inventory includes consumables and spare parts to be maintained at the Diavik Diamond Mine site and at the Company’s sorting and distribution facility locations, and raw materials used in the manufacturing of retail merchandise inventory.
(g)	Deferred Mineral Property Costs
	All direct costs relating to mineral properties, including mineral claim acquisition costs, exploration and development expenditures in the pre- production stage, ongoing property exploration expenditures, pre-production operating costs net of any recoveries, interest, and amortization, are capitalized and accumulated on a property-by-property basis.
	The costs of deferred mineral properties from which there is production are amortized using the unit-of-production method based on carats of diamonds recovered during the period relative to estimated proven and probable ore reserves. The Company does not include estimates of indicated or inferred resources in its calculation of ore reserves.
	General exploration expenditures which do not relate to specific resource properties are expensed in the period incurred.

On an ongoing basis, the Company evaluates each property based on results to date to determine the nature of exploration and development activities that are warranted in the future. If there is little prospect of the Joint Venture continuing to explore or develop a property, the deferred costs related to that property are written down to the estimated fair value.

2010 ANNUAL REPORT     36

HARRY WINSTON DIAMOND CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(h)

Capital Assets

Capital assets are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are provided using the unit- of-production method or straight-line method as appropriate. The unit-of-production method is applied to a substantial portion of Diavik Diamond Mine capital assets and, depending on the asset, is based on carats of diamonds recovered during the period relative to the estimated proven and probable ore reserves of the ore deposit being mined, or to the total ore deposit. The Company does not include estimates of indicated or inferred resources in its calculation of ore reserves. Other capital assets are depreciated using the straight-line method over the estimated useful lives of the related assets, which are as follows:

Asset	Estimated useful life (years)
Buildings	10–40
Machinery and mobile equipment	3–10
Computer equipment and software	3
Furniture and equipment	2–10
Leasehold and building improvements	Up to 20

	Amortization for mine related assets was charged to deferred mineral property costs during the pre-commercial production stage.
	Maintenance and repair costs are charged to earnings while expenditures for major renewals and improvements are capitalized.
	The recoverability of the amounts shown for the Diavik Diamond Mine capital assets is dependent upon the continued existence of economically recoverable reserves, upon maintaining title and beneficial interest in the property, and upon future profitable production or proceeds from disposition of the diamond properties. The amounts representing Diavik Diamond Mine capital assets do not necessarily represent present or future values.
	Upon the disposition of capital assets, the accumulated amortization is deducted from the original cost and any gain or loss is reflected in current earnings.
(i)	Intangible Assets
	Intangible assets acquired individually or as part of a group of other assets are initially recognized and measured at cost. The cost of a group of intangible assets acquired in a transaction, including those acquired in a business combination that meet the specified criteria for recognition apart from goodwill, is allocated to the individual assets acquired based on their fair values at acquisition.
	Intangible assets with finite useful lives are amortized on a straight-line basis over their useful lives as follows:

Asset	Estimated useful life (years)
Wholesale distribution network	10
Store leases	Up to 9

	The amortization methods and estimated useful lives of intangible assets are reviewed annually.
	Intangible assets with indefinite useful lives are not amortized and are tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test compares the carrying amount of the intangible asset with its fair value, and an impairment loss is recognized in income for the excess, if any.
(j)	Other Assets
	Other assets include depreciable assets amortized over a period not exceeding ten years.

(k)

Future Site Restoration Costs

The Company records the fair value of any asset retirement obligation as a long-term liability in the year in which the related environmental disturbance occurs, based on the net present value of the estimated future costs. The fair value of the liability is added to the carrying amount of the deferred mineral property and this additional carrying amount is amortized over the life of the asset based on units of production. The obligation is adjusted periodically to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. If the obligation is settled for other than the carrying amount of the liability, the Company will recognize a gain or loss on settlement.

2010 ANNUAL REPORT     37

HARRY WINSTON DIAMOND CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(l)	Foreign Currency Translation
	The functional currency of the Company is the US dollar. At year end, monetary assets and liabilities denominated in foreign currencies are translated to US dollars at exchange rates in effect at the balance sheet date and non-monetary assets and liabilities are translated at rates of exchange in effect when the assets were acquired or obligations were incurred. Revenues and expenses are translated at rates in effect at the time of the transactions. Foreign exchange gains and losses are included in earnings.
	For certain subsidiaries of the Company where the functional currency is not the US dollar, the assets and liabilities of these subsidiaries are translated at the rate of exchange in effect at the balance sheet date. Revenues and expenses are translated at the rate of exchange in effect at the time of the transactions. Foreign exchange gains and losses are accumulated in other comprehensive income under shareholders’ equity.
(m)	Income and Mining Taxes
	The Company accounts for income taxes under the asset and liability method. Under this method, future tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying value and the tax basis of assets and liabilities.
	Future tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A reduction in respect of the benefit of a future tax asset (a valuation allowance) is recorded against any future tax asset if it is not likely to be realized. The effect on future tax assets and liabilities of a change in tax rates is recognized in earnings in the year during which the change in tax rates is considered to be substantively enacted.
(n)	Stock-Based Compensation
	The Company applies the fair value method to all grants of stock options.
	The fair value of options granted is estimated at the date of grant using a Black-Scholes option pricing model incorporating assumptions regarding risk-free interest rates, dividend yield, volatility factor of the expected market price of the Company’s stock, and a weighted average expected life of the options. The estimated fair value of the options is recorded as an expense on a straight-line basis over the vesting period, with an offsetting credit to shareholders’ equity. Any consideration received on amounts attributable to stock options is credited to share capital.
(o)	Restricted and Deferred Share Unit Plans
	The Restricted and Deferred Share Unit (“RSU” and “DSU”) Plans are full value phantom shares that mirror the value of Harry Winston Diamond Corporation’s publicly traded common shares. Grants under the RSU Plan are on a discretionary basis to employees of the Company subject to Board of Director approval. Each RSU grant vests on the third anniversary of the grant date, subject to special rules for death and disability. Grants under the DSU Plan are awarded to non-executive directors of the Company. Each DSU grant vests immediately on the grant date.
(p)	Post Retirement Benefits
	The expected costs of post retirement benefits under defined benefit arrangements are charged to earnings over the service lives of employees entitled to those benefits. Variations from the regular cost are spread on a straight-line basis over the expected average remaining service lives of relevant current employees. The plan assets and liabilities are valued annually by qualified actuaries.

(q)

Financial Instruments

From time to time, the Company may use a limited number of derivative financial instruments to manage its foreign currency and interest rate exposure. For a derivative to qualify as a hedge at inception and throughout the hedged period, the Company formally documents the nature and relationships between the hedging instruments and hedged items, as well as its risk-management objectives, strategies for undertaking the various hedge transactions and method of assessing hedge effectiveness. Financial instruments qualifying for hedge accounting must maintain a specified level of effectiveness between the hedge instrument and the item being hedged, both at inception and throughout the hedged period. Gains and losses resulting from any ineffectiveness in a hedging relationship must be recognized immediately in net income. The Company may also have a limited number of embedded derivatives relating to the Diavik Diamond Mine. Derivatives embedded in non- derivative host contracts are recognized separately unless closely related to the host contract. The Company does not use derivatives for trading or speculative purposes.

2010 ANNUAL REPORT     38

HARRY WINSTON DIAMOND CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(r)	Basic and Diluted Earnings per Share
	Basic earnings per share are computed by dividing net earnings (loss) by the weighted average number of shares outstanding during the year.
	Diluted earnings per share are prepared using the treasury stock method to compute the dilutive effect of options and warrants. The treasury stock method assumes that the exercise of any “in-the-money” options with the option proceeds would be used to purchase common shares at the average market value for the year. Options with an average market value for the year higher than the exercise price are not included in the calculation of diluted earnings per share as such options are not dilutive.
(s)	Impairment of Long-Lived Assets
	Long-lived assets, including property, plant and equipment and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of by sale would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet.
(t)	Adoption of New Accounting Standards and Developments
	Goodwill and Intangible Assets
	On February 1, 2008, the Canadian Institute of Chartered Accountants (“CICA”) issued Handbook Section 3064, “Goodwill and Intangible Assets”. This Section establishes revised standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets. The Company adopted the new standard effective February 1, 2009. This standard has had no material impact on the consolidated financial statements.
	Credit Risk and the Fair Value of Financial Assets and Liabilities
	In January 2009, the CICA issued EIC-173, “Credit Risk and the Fair Value of Financial Assets and Liabilities”. This abstract requires companies to take each counterparty’s credit risk into account when measuring the fair value of financial assets and liabilities, including derivatives. The Company applied this EIC abstract commencing the quarter ended April 30, 2009. This abstract has had no material impact on the consolidated financial statements.
	Mining Exploration Costs
	In March 2009, the CICA issued EIC-174, “Mining Exploration Costs”, which provides guidance on the capitalization of exploration costs related to mining properties and the subsequent impairment review of capitalized exploration costs. The Company applied this EIC abstract commencing the quarter ended April 30, 2009. This abstract has had no material impact on the consolidated financial statements.

Financial Instruments - Disclosures
In June 2009, the CICA amended Section 3862, “Financial Instruments - Disclosures”, to enhance disclosure requirements for fair value measurement of financial instruments and liquidity risk. These amendments require fair value measurements to be classified using a fair value hierarchy that reflects the significance of the inputs used in making the fair value measurements as follows:

• Level 1 – valuation techniques based on quoted prices (unadjusted) in active markets for identical assets or liabilities;

• Level 2 – valuation techniques based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); and

• Level 3 – valuation techniques based on unobservable market inputs (involves assumptions and estimates by management of how market participants would price the assets or liabilities).

The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. Section 3862 also requires an entity to disclose for each class of financial instrument, any significant transfers between Level 1 and Level 2 of the fair value hierarchy and the reasons for those transfers. For fair value measurements in Level 3 of the fair value hierarchy, a reconciliation from the beginning balances to the ending balances is required, disclosing transfers into or out of Level 3 (attributable to changes in the observability of market data) and the reasons for those transfers. This amendment has resulted in additional disclosures in note 18 of the Company’s consolidated financial statements.

2010 ANNUAL REPORT     39

HARRY WINSTON DIAMOND CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Financial Instruments - Recognition and Measurement
In August 2009, the CICA issued amendments to Section 3855, “Financial Instruments - Recognition and Measurement”. Under the amendments, reclassification of financial assets out of assets held for trading and assets held for sale categories into the loans and receivables category is now permitted under certain circumstances; the definition of loans and receivables category has been updated so that debt securities that are not quoted in an active market are permitted to be classified in the loans and receivables category; impairment losses relating to available for sale debt instruments must be reversed if the fair value of the instrument increases due to an event occurring after the loss was recognized. These amendments have had no material impact on the consolidated financial statements.

(u)	Recently Issued Accounting Standards
	Equity
	In August 2009, the CICA amended Section 3251, “Equity”. The amendments apply only to entities that have adopted Section 1602, “Non-Controlling Interests”. The amendments require separate presentation on the consolidated statements of earnings and comprehensive income of earnings attributable to owners of the Company and those attributable to non-controlling interests. The amendments require that non-controlling interests be presented separately as a component of equity. As the Company has not adopted section 1602, which is mandatory for fiscal years beginning on or after January 1, 2011, the amendments are not applicable to the Company in the interim.
	Business Combinations
	In December 2008, the CICA issued Handbook Section 1582, “Business Combinations”, which applies prospectively to business combinations with an acquisition date on or after January 1, 2011. The section provides the Canadian equivalent to IFRS 3, “Business Combinations”, and is expected to have a material impact on how prospective business combinations are accounted for by requiring additional use of fair value measurements, recognition of additional assets and liabilities and increased disclosure.

NOTE 3: Cash Resources

		2010		2009
Cash on hand and balances with banks	$	61,449	$	14,118
Short-term investments (a)		1,520		2,617
Total cash and cash equivalents		62,969		16,735
Cash collateral and cash reserves		–		30,145
Total cash resources	$	62,969	$	46,880

^(a)     Short-term investments are held in overnight deposits.

Total cash resources were impacted by the $150.0 million net investment by Kinross and the subsequent repayment of the mining segment’s senior secured term and revolving credit facilities on March 31, 2009.

NOTE 4: Inventory and Supplies

		2010		2009
Merchandise inventory	$	176,114	$	192,461
Rough diamond inventory		23,365		31,872
Supplies inventory		111,709		121,902
Total inventory and supplies	$	311,188	$	346,235

2010 ANNUAL REPORT     40

HARRY WINSTON DIAMOND CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5: Capital Assets

						2010						2009
				Accumulated		Net				Accumulated		Net
		Cost		amortization		book value		Cost		amortization		book value
MINING
Deferred mineral property costs (a)	$	284,321	$	128,574	$	155,747	$	283,049	$	113,679	$	169,370
Diavik equipment and leaseholds (b)		815,858		196,816		619,042		776,638		171,571		605,067
Furniture, equipment and other (c)		7,742		5,319		2,423		7,912		4,814		3,098
Real property – land and building (d)		32,468		6,696		25,772		27,758		4,935		22,823
	$	1,140,389	$	337,405	$	802,984	$	1,095,357	$	294,999	$	800,358
RETAIL
Furniture, equipment and other (c)	$	29,278	$	18,139	$	11,139	$	27,265	$	13,586	$	13,679
Real property – land and building (d)		77,485		26,347		51,138		72,686		18,107		54,579
	$	106,763	$	44,486	$	62,277	$	99,951	$	31,693	$	68,258

(a)	The Company holds a 40% ownership interest (31% economic interest) in the Diavik group of mineral claims, which contains commercially mineable diamond reserves. DDMI, a subsidiary of Rio Tinto plc, is the operator of the Joint Venture and holds the remaining 60% interest. The claims are subject to private royalties which are in the aggregate 2% of the value of production.
(b)	Diavik equipment and leaseholds are project related assets at the Joint Venture level.
(c)	Furniture, equipment and other includes equipment located at the Company’s diamond sorting facility and at Harry Winston Inc. salons.
(d)	Real property is comprised of land and a building that houses the corporate activities of the Company and various leasehold improvements to Harry Winston Inc. salons and corporate offices.

Amortization expense for 2010 was $60.9 million (2009 – $71.8 million).

NOTE 6: Diavik Joint Venture
The following represents HWDLP’s 40% proportionate interest in the Joint Venture as at December 31, 2009 and 2008:

		2010			2009
Current assets	$	97,660		$	105,612
Long-term assets		760,680			754,886
Current liabilities		27,422			38,808
Long-term liabilities and participant’s account		830,918			821,690
Years ended
Expenses net of interest income of $0.3 million (2009 – interest
income of $0.3 million and insurance settlement of $0.5 million) (a)		171,159			187,839
Cash flows resulting from (used in) operating activities		(104,394	)		(121,955	)
Cash flows resulting from financing activities		167,629			292,208
Cash flows resulting from (used in) investing activities		(64,180	)		(183,552	)

^(a) The Joint Venture only earns interest income.

HWDLP is contingently liable for DDMI’s portion of the liabilities of the Joint Venture, and to the extent HWDLP’s participating interest has increased because of the failure of DDMI to make a cash contribution when required, HWDLP would have access to an increased portion of the assets of the Joint Venture to settle these liabilities.

NOTE 7: Intangible Assets

	Amortization				Accumulated
	period		Cost		amortization			2010 net		2009 net
Trademark	indefinite life	$	112,995	$	–		$	112,995	$	112,995
Drawings	indefinite life		12,365		–			12,365		12,365
Wholesale distribution network	120 months		5,575		(2,483	)		3,092		3,649
Store leases	65 to 105 months		5,639		(4,878	)		761		1,743
Intangible assets		$	136,574	$	(7,361	)	$	129,213	$	130,752

Amortization expense for 2010 was $1.5 million (2009 – $1.9 million). The Company completed a valuation of its trademark and drawings as of January 31, 2010 and concluded that there was no impairment of these assets.

2010 ANNUAL REPORT     41

HARRY WINSTON DIAMOND CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8: Other Assets

		2010		2009
Prepaid pricing discount (a), net of accumulated amortization of $7.4 million (2009 – $6.0 million)	$	4,560	$	6,000
Other assets		1,328		2,391
Refundable security deposits		9,741		7,253
	$	15,629	$	15,644

_(a) Prepaid pricing discount represents funds paid to Tiffany & Co. (“Tiffany”) by the Company to amend its rough diamond supply agreement. The amendment eliminated all pricing discounts on future sales. The payment has been deferred and is being amortized on a straight-line basis over the remaining life of the contract.

NOTE 9: Derivative Financial Instruments
On October 1, 2009, the Company executed an interest rate cash flow hedge on Harry Winston Inc.’s five-year revolving credit facility in the form of a swap to mitigate the Company’s exposure to variability in cash flows for the future interest payments on a designated portion of borrowings on the facility. The interest rate swap qualifies as a hedge for accounting purposes. Accordingly, the fair value of the derivative is recorded as an asset or liability on the consolidated balance sheets and the effective portion of the change in the derivative’s fair value at the end of each period is recorded in other comprehensive income. Any gain or loss in fair value relating to the ineffective portion of the hedging relationship is recorded in current earnings. For the year ended January 31, 2010, the Company recorded an other comprehensive loss of $0.4 million (net of income taxes of $0.2 million). No gain or loss was recorded in earnings as a result of hedge ineffectiveness.

				January 31, 2010
				Interest rates
		Notional principal	Receive	Pay
Interest rate swap	1 year: receive variable – pay fixed	$ 140,000	1-month  LIBOR	3.19%

In addition, the Company has recorded an embedded derivative at the Diavik Diamond Mine. The notional amount of the contract is $0.9 million and the contract matures in 2012. The fair value of the derivative is recorded as an asset or liability on the consolidated balance sheets and the change in the derivative’s fair value at the end of each period is recorded in earnings. For the year ended January 31, 2010, the Company recorded an asset of $0.4 million (2009 - $0.3 million) relating to the embedded derivative and recorded a gain of $0.1 million (2009 - $0.3 million).

NOTE 10: Long-Term Debt

		2010			2009
Mining segment credit facilities (a)(i)	$	–		$	74,107
Harry Winston Inc. credit facilities (b)		155,486			199,846
First mortgage on real property (a)(ii)		7,206			6,769
Total long-term debt		162,692			280,722
Less current portion		(1,154	)		(75,097	)
	$	161,538		$	205,625

		Nominal		Carrying Amount at
	Currency	interest rate	Date of maturity	January 31, 2010	Borrower
Secured bank loan (b)(i)	US	5.60%	March 31, 2013	$140.0 million	Harry Winston Inc.
Secured bank loan (b)(ii)	CHF	3.90%	April 22, 2013	$3.3 million	Harry Winston S.A.
Secured bank loan (b)(ii)	CHF	3.55%	January 31, 2033	$12.2 million	Harry Winston S.A.
Unsecured bank advance (b)(ii)	CHF	N/A	N/A	nil	Harry Winston S.A.
First mortgage on real property (a)(ii)	CDN	7.98%	September 1, 2018	$7.2 million	6019838 Canada Inc.
Secured bank advance (d)	US	N/A	Due on demand	nil	Harry Winston Diamond International N.V.
					Harry Winston Diamond (India) Private Limited
Unsecured bank advance (d)	YEN	1.98%	March 31, 2010	$7.9 million	Harry Winston Japan, K.K.
Unsecured bank advance (d)	YEN	2.48%	April 28, 2010	$2.7 million	Harry Winston Japan, K.K.
Unsecured bank advance (d)	YEN	2.38%	June 28, 2010	$5.5 million	Harry Winston Japan, K.K.
Secured bank advance (d)	YEN	2.30%	June 18, 2010	$6.4 million	Harry Winston Japan, K.K.

(a) Mining Segment Credit Facilities

(i)	On March 31, 2009, with the closing of the Kinross transaction, the Company repaid all amounts outstanding on the mining segment’s senior secured term and revolving credit facilities.
(ii)	The Company’s first mortgage on real property has scheduled principal payments of approximately $0.2 million quarterly, and may be prepaid at any time.

2010 ANNUAL REPORT     42

HARRY WINSTON DIAMOND CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(b) Retail Segment Credit Facilities

(i)	Harry Winston Inc. maintains a credit agreement with a syndicate of banks for a $250.0 million five-year revolving credit facility. In addition, Harry Winston Inc. may increase the credit facility by an additional $50.0 million to $300.0 million during the term of the facility. There are no scheduled repayments required before maturity. The credit facility is supported by a $20.0 million limited guarantee provided by Harry Winston Diamond Corporation. The amount available under this facility is subject to a borrowing base formula based on certain assets of Harry Winston Inc.
	The credit agreement contains affirmative and negative non-financial and financial covenants, which apply to the retail segment. These provisions include consolidated minimum tangible net worth, minimum coverage of fixed charges, leverage ratio and limitations on capital expenditures and certain investments. The credit agreement also includes a change of control provision, which would result in the entire unpaid principal and all accrued interest of the facility becoming due immediately upon change of control, as defined. Any material adverse change, as defined, in the retail segment’s business, assets, liabilities, consolidated financial position or consolidated results of operations constitutes default under the agreement.
	The retail segment has pledged 100% of Harry Winston Inc.’s common stock and 66 2/3% of the common stock of its foreign subsidiaries to the bank to secure the loan. Inventory and accounts receivable of Harry Winston Inc. are pledged as collateral to secure the borrowings of Harry Winston Inc. In addition, an assignment of proceeds on insurance covering security collateral was made.
	Loans under the credit facility can be either fixed rate loans or revolving line of credit loans. The fixed rate loans will bear interest within a range of 1.50% to 2.25% above LIBOR, based upon a pricing grid determined by the fixed charge coverage ratio. Interest under this option will be determined for periods of either one, two, three or six months. The revolving line of credit loans will bear interest within a range of 0.50% to 0.75% above the bank’s prime rate based upon a pricing grid determined by the fixed charge coverage ratio as well.
(ii)	Harry Winston S.A. maintains a 25-year loan agreement for 17.5 million CHF ($16.4 million) used to finance the construction of the Company’s watch factory in Geneva, Switzerland. The loan agreement is comprised of a CHF 3.5 million ($3.3 million) loan and a CHF 14.0 million ($13.2 million) loan. The bank has a secured interest in the factory building. In addition, the Company has a demand credit facility of CHF 2.0 million ($1.9 million), supported by a $2.0 million standby letter of credit, which is classified as bank advances. At January 31, 2010, $nil was outstanding, compared to $0.5 million at January 31, 2009.

(c) Required Principal Repayments

2011	$	1,154
2012		1,204
2013		1,257
2014		144,604
2015		1,376
Thereafter		13,097

(d)

Bank Advances

The Company has available a $45.0 million (utilization in either US dollars or Euros) revolving financing facility for inventory and receivables funding in connection with marketing activities through its Belgian subsidiary, Harry Winston Diamond International N.V., and its Indian subsidiary, Harry Winston Diamond (India) Private Limited. Borrowings under the Belgium facility bear interest at the bank’s base rate plus 1.5%. At January 31, 2010, $nil was drawn under the Company’s revolving financing facilities relating to its Belgian subsidiary, Harry Winston Diamond International N.V., or its Indian subsidiary, Harry Winston Diamond (India) Private Limited. The facility is guaranteed by Harry Winston Diamond Corporation.

Harry Winston Japan, K.K. maintains unsecured credit agreements with two banks, each amounting to ¥1,455 million ($16.1 million). Harry Winston Japan, K.K. also maintains a secured credit agreement amounting to ¥575 million ($6.4 million) classified as bank advances. This facility is secured by inventory owned by Harry Winston Japan, K.K.

2010 ANNUAL REPORT     43

HARRY WINSTON DIAMOND CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11: Income Tax
The future income tax asset of the Company is $42.8 million, of which $27.8 million relates to the retail segment. Included in the future tax asset is $21.9 million that has been recorded to recognize the benefit of $74.3 million of net operating losses that Harry Winston Inc. and its subsidiaries have available for carry forward to shelter income taxes for future years. The net operating losses are scheduled to expire between 2014 and 2030.

The future income tax liability of the Company is $271.8 million of which $74.6 million relates to the retail segment. Harry Winston Inc.’s future income tax liabilities include $55.5 million from the purchase price allocation. The Company’s future income tax asset and liability accounts are revalued to take into consideration the change in the Canadian dollar compared to the US dollar and the unrealized foreign exchange gain or loss is recorded in net earnings for each year.

(a) The income tax provision consists of the following:

		2010			2009
Current expense	$	4,586		$	81,787
Future recovery		(23,389	)		(21,531	)
	$	(18,803	)	$	60,256

(b) The tax effects of temporary differences that give rise to significant portions of the future tax assets and liabilities at January 31, 2010 and 2009 are as follows:

		2010			2009
FUTURE INCOME TAX ASSETS
Net operating loss carryforwards	$	27,466		$	27,199
Capital assets		2,499			1,267
Future site restoration costs		12,471			12,691
Retail inventory		1,525			2,635
Other future income tax assets		5,468			4,959
Gross future income tax assets		49,429			48,751
Valuation allowance		(6,624	)		(5,413	)
Future income tax assets		42,805			43,338
FUTURE INCOME TAX LIABILITIES
Deferred mineral property costs		(47,398	)		(38,813	)
Capital assets		(140,118	)		(143,659	)
Future site restoration costs		(6,894	)		(7,920	)
Retail inventory		(15,995	)		(25,735	)
Intangible assets		(55,542	)		(56,748	)
Unrealized foreign exchange gains		(24	)		(580	)
Other future income tax liabilities		(5,851	)		(29,829	)
Future income tax liabilities		(271,822	)		(303,284	)
Future income tax liability, net	$	(229,017	)	$	(259,946	)

(c) The difference between the amount of the reported consolidated income tax provision and the amount computed by multiplying the earnings (loss) before income taxes by the statutory tax rate of 30% (2009 – 31%) is a result of the following:

		2010			2009
Expected income tax expense	$	(28,747	)	$	40,424
Non-deductible (non-taxable) items		14,990			(20,884	)
Northwest Territories mining royalty (net of income tax relief)		(137	)		15,686
Earnings subject to tax different than statutory rate		(4,767	)		(6,032	)
Impact of impairment charge on goodwill		–			29,034
Assessments and adjustments		(2,743	)		(64	)
Change in valuation allowance		1,666			2,603
Other		935			(511	)
Recorded income tax (recovery) expense	$	(18,803	)	$	60,256

(d) The Company has net operating loss carryforwards for Canadian income tax purposes of approximately $1.1 million. Harry Winston Inc. has net operating loss carryforwards for US income tax purposes of $55.0 million and $19.3 million for other foreign jurisdiction tax purposes.

2010 ANNUAL REPORT     44

HARRY WINSTON DIAMOND CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12: Future Site Restoration Costs

		2010		2009
At February 1, 2009 and 2008	$	39,506	$	32,980
Revision of previous estimates		–		4,880
Accretion of provision		1,769		1,646
At January 31, 2010 and 2009	$	41,275	$	39,506

The Joint Venture has an obligation under various agreements (note 15) to reclaim and restore the lands disturbed by its mining operations.

The Company’s share of the total undiscounted amount of the future cash flows that will be required to settle the obligation incurred at January 31, 2010 is estimated to be $80.5 million, of which approximately $72.5 million is expected to occur at the end of the mine life. The revision of previous estimates in fiscal 2008 reflects anticipated higher costs for fuel, labour and equipment based on a significant escalation in these key operating costs in recent years. The anticipated cash flows relating to the obligation at the time of the obligation have been discounted at a credit adjusted risk-free interest rate of 4.96% .

NOTE 13: Share Capital

(a)	Authorized
	Unlimited common shares without par value.
(b)	Issued

	Number of shares	Amount
Balance, January 31, 2008	58,372,091	$        305,502
SHARES ISSUED FOR:
Cash	3,000,001	76,039
Balance, January 31, 2009	61,372,092	$        381,541
SHARES ISSUED FOR:
Cash	15,200,000	44,997
Exercise of options	16,501	55
Balance, January 31, 2010	76,588,593	$        426,593

(c)	Stock Options
	Under the Employee Stock Option Plan, amended and approved by the shareholders on June 4, 2008, the Company may grant options for up to 6,000,000 shares of common stock. Options may be granted to any director, officer, employee or consultant of the Company or any of its affiliates. Options granted to directors vest immediately and options granted to officers, employees or consultants vest over three to four years. The maximum term of an option is ten years. The number of shares reserved for issuance to any one optionee pursuant to options cannot exceed 2% of the issued and outstanding common shares of the Company at the date of grant of such options.
	The exercise price of each option cannot be less than the fair market value of the shares on the last trading day preceding the date of grant.
	The Company’s shares are primarily traded on a Canadian dollar based exchange, and accordingly stock option information is presented in Canadian dollars, with conversion to US dollars at the average exchange rate for the year.
	Compensation expense for stock options was $1.7 million for fiscal 2010 (2009 – $0.5 million) and is presented as a component of both cost of sales and selling, general and administrative expenses. The amount credited to share capital for the exercise of the options is the sum of (a) the cash proceeds received and (b) the amount debited to contributed surplus upon exercise of stock options by optionees (2010 – $nil; 2009 – $nil).

2010 ANNUAL REPORT     45

HARRY WINSTON DIAMOND CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Changes in share options outstanding are as follows:

						2010						2009
						Weighted average						Weighted average
	Options					exercise price	Options					exercise price
	000s			CDN$		US$	000s			CDN$		US$
Outstanding, beginning of year	1,604		$	22.45	$	18.30	1,719		$	23.52	$	22.19
Granted	1,674			3.78		3.05	–			–		–
Exercised	(17	)		3.78		3.34	–			–		–
Expired	(27	)		21.61		17.73	(115	)		38.49		31.38
	3,234		$	12.89	$	7.61	1,604		$	22.45	$	18.30

The following summarizes information about stock options outstanding at January 31, 2010:

			Options outstanding		Options exercisable
		Weighted
		average	Weighted		Weighted
	Number	remaining	average	Number	average
Range of exercise prices	outstanding	contractual	exercise price	exercisable	exercise price
CDN$	000s	life in years	CDN$	000s	CDN$
$3.78–$3.78	1,657	9.2	$        3.78	821	$        3.78
9.10–9.15	268	0.2	9.15	268	9.15
10.60–12.45	287	1.0	12.45	287	12.45
17.50–17.50	39	1.8	17.50	39	17.50
23.35–29.25	747	3.3	25.29	697	25.27
41.45–41.95	236	4.4	41.66	236	41.66
	3,234		$      12.89	2,348	$      15.87

(d)	Stock-Based Compensation
	The Company applies the fair value method to all grants of stock options.
	The fair value of options granted during the year ended January 31, 2010 was estimated using a Black-Scholes option pricing model with the following weighted average assumptions. The Company did not grant any options during fiscal 2009.

		2010	2009
Risk-free interest rate		1.00%	–
Dividend yield		0.00%	–
Volatility factor		51.00%	–
Expected life of the options		5.5 years	–
Average fair value per option, CDN	$	1.45	–
Average fair value per option, US	$	1.17	–

(e) RSU and DSU Plans

RSU	Number of units
Balance, January 31, 2008	143,715
AWARDS AND PAYOUTS DURING THE YEAR (NET)
RSU awards	(2,500	)
RSU payouts	(32,616	)
Balance, January 31, 2009	108,599
AWARDS AND PAYOUTS DURING THE YEAR (NET)
RSU awards	11,895
RSU payouts	(74,614	)
Balance, January 31, 2010	45,880

DSU	Number of units
Balance, January 31, 2008	72,198
AWARDS AND PAYOUTS DURING THE YEAR (NET)
DSU awards	56,790
DSU payouts	–
Balance, January 31, 2009	128,988
AWARDS AND PAYOUTS DURING THE YEAR (NET)
DSU awards	73,521
DSU payouts	(43,034	)
Balance, January 31, 2010	159,475

2010 ANNUAL REPORT     46

HARRY WINSTON DIAMOND CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During the fiscal year, the Company granted 11,895 RSUs (net of forfeitures) and 73,521 DSUs under an employee and director incentive compensation program, respectively. The RSU and DSU Plans are full value phantom shares that mirror the value of Harry Winston Diamond Corporation’s publicly traded common shares.

Grants under the RSU Plan are on a discretionary basis to employees of the Company subject to Board of Director approval. Each RSU grant vests on the third anniversary of the grant date, subject to special rules for death and disability. The Company anticipates paying out cash on maturity of RSUs and DSUs.

Only non-executive directors of the Company are eligible for grants under the DSU Plan. Each DSU grant vests immediately on the grant date.

The expenses related to the RSUs and DSUs are accrued based on the price of Harry Winston Diamond Corporation’s common shares at the end of the period and on the probability of vesting. This expense is recognized on a straight-line basis over the term of the grant. The Company recognized an expense of $1.5 million (2009 – recovery of $1.9 million) for the twelve months ended January 31, 2010.

NOTE 14: Earnings per Share
The following table sets forth the computation of diluted earnings per share:

		2010			2009
NUMERATOR
Net earnings for the year	$	(73,176	)	$	70,121
DENOMINATOR (THOUSANDS OF SHARES)
Weighted average number of shares outstanding		74,049			61,014
Dilutive effect of employee stock options		662			193
		74,711			61,207

NOTE 15: Commitments and Guarantees

(a)

Environmental Agreement

Through negotiations of environmental and other agreements, the Joint Venture must provide funding for the Environmental Monitoring Advisory Board. HWDLP’s share of this funding requirement was $0.2 million for calendar 2009. Further funding will be required in future years; however, specific amounts have not yet been determined. These agreements also state that the Joint Venture must provide security deposits for the performance by the Joint Venture of its reclamation and abandonment obligations under all environmental laws and regulations. HWDLP’s share of the letters of credit outstanding posted by the operator of the Joint Venture with respect to the environmental agreements as at January 31, 2010, was $74.2 million. The agreement specifically provides that these funding requirements will be reduced by amounts incurred by the Joint Venture on reclamation and abandonment activities.

(b)	Participation Agreements
	The Joint Venture has signed participation agreements with various native groups. These agreements are expected to contribute to the social, economic and cultural well-being of the Aboriginal bands. The agreements are each for an initial term of twelve years and shall be automatically renewed on terms to be agreed for successive periods of six years thereafter until termination. The agreements terminate in the event that the mine permanently ceases to operate.
(c)	Commitments
	Commitments include the cumulative maximum funding commitments secured by letters of credit of the Joint Venture’s environmental and participation agreements at HWDLP’s 40% ownership interest, before any reduction of future reclamation activities, and future minimum annual rentals under non-cancellable operating and capital leases for retail salons, corporate office space, and long-term leases for property, land, office premises and a fuel tank farm at the Diavik Diamond Mine, and are as follows:

2011	$	95,469
2012		92,426
2013		90,622
2014		86,967
2015		91,422
Thereafter		129,037

2010 ANNUAL REPORT     47

HARRY WINSTON DIAMOND CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16: Employee Benefit Plans

		Year ended		Year ended
		January 31,		January 31,
Expenses for the period		2010		2009
Defined benefit pension plan – Harry Winston retail segment (a)	$	2,184	$	1,527
Defined contribution plan – Harry Winston retail segment (b)		727		866
Defined contribution plan – Harry Winston mining segment (b)		200		223
Defined contribution plan – Diavik Diamond Mine (b)		794		916
	$	3,905	$	3,532

(a)

Defined Benefit Pension Plan

The Harry Winston retail segment sponsors three separate defined benefit pension plans covering substantially all of its employees in the United States, Japan and Switzerland. The principal pension plan is the Harry Winston Employee Retirement Plan for Harry Winston Inc. US employees. The benefits for the Harry Winston Inc. plan are based on years of service and the employee’s compensation. In April 2001, Harry Winston Inc. amended its defined benefit pension plan. The amendment froze plan participation effective April 30, 2001. Harry Winston Inc.’s funding policy for the US plan is to contribute amounts to the plan sufficient to meet the minimum funding requirements set forth in the Employee Retirement Income Security Act of 1974. Plan assets consist primarily of fixed income, equity and other short-term investments. The other two defined benefit pension plans are sponsored by retail segment subsidiaries Harry Winston Japan, K.K. and Harry Winston S.A., which converted their previous pension plan arrangements into defined benefit plans effective February 1, 2007. Pension liabilities for these two non-US plans are funded in accordance with local laws and regulations.

(i) INFORMATION ABOUT HARRY WINSTON INC.’S US DEFINED BENEFIT PLAN IS AS FOLLOWS:

	2010			2009
ACCRUED BENEFIT OBLIGATION:
Balance, beginning of year	8,043		$	11,296
Interest cost	672			656
Actuarial gain	1,075			(3,171	)
Effects of changes in assumptions	–			–
Benefits paid	(830	)		(738	)
Balance, end of year	8,960			8,043
PLAN ASSETS:
Fair value, beginning of year	7,220			10,384
Actual return on plan assets	1,462			(2,426	)
Employer contributions	–			–
Benefits paid	(830	)		(738	)
Fair value, end of year	7,852			7,220
Funded status – plan deficit (included in accrued liabilities)	(1,108	)	$	(823	)

US plan assets represented approximately 57% of total Harry Winston retail segment plan assets at January 31, 2010. The unfunded status of the retail segment plans are comprised of $1.1 million attributed to the US-based Harry Winston Inc. plan, as reported in the table above, and $1.6 million attributed to the Harry Winston Japan, K.K. plan. The Harry Winston Japan, K.K. plan is non-funded with a benefit obligation of $1.6 million. The Harry Winston S.A. plan was fully funded at January 31, 2010 with a benefit obligation of $5.4 million offset by plan assets of $5.9 million.

The following table provides the components of the net periodic pension costs for the three plans for the years ended January 31.

	2010			2009
Service cost	(1,560	)	$	(1,408	)
Interest cost	(865	)		(863	)
Expected return on plan assets	692			923
Amortization of net actuarial gain (loss)	(189	)		–
Amortization of prior service cost	(62	)		–
Total	(1,984	)	$	(1,348	)

2010 ANNUAL REPORT     48

HARRY WINSTON DIAMOND CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(ii)	PLAN ASSETS
	The asset allocation of Harry Winston Inc.’s US pension benefits at January 31, 2010 was as follows:

	2010	2009
ASSET CATEGORY
Cash equivalents	2%	10%
Equity securities	67%	54%
Fixed income securities	29%	36%
Other	2%	0%
Total	100%	100%

(iii) THE SIGNIFICANT ASSUMPTIONS USED FOR HARRY WINSTON INC.’S US PLAN ARE AS FOLLOWS:

	2010	2009
ACCRUED BENEFIT OBLIGATION
Discount rate	5.56%	6.53%
Expected long-term rate of return	7.50%	7.50%
BENEFIT COSTS FOR THE YEAR
Discount rate	6.53%	6.24%
Expected long-term rate of return on plan assets	7.50%	7.50%
Rate of compensation increase	0.00%	0.00%

	Harry Winston Inc’s overall expected long-term rate of return on assets is 7.50%. The expected long-term rate of return is based on the portfolio as a whole and not on the sum of the returns on individual asset categories. The return is based exclusively on historical returns, without adjustments. Harry Winston S.A.’s overall expected long-term rate of return on assets is 3.75%. Long-term rate of return for Harry Winston Japan, K.K. plan assets is not applicable due to the unfunded status of the plan.
	The weighted average assumptions used to determine the benefit obligations for Harry Winston Japan, K.K. and Harry Winston S.A. at January 31, 2010 are a discount rate and expected long-term rate of return of 1.84% and 0.00% and 3.00% and 3.75%, respectively.
	The weighted average assumptions used to determine the benefit costs for Harry Winston Japan, K.K. and Harry Winston S.A. at January 31, 2010 are a discount rate, expected long-term rate of return and a rate of compensation increase of 1.84%, 0.00% and 4.36%, and 3.00%, 3.75% and 2.00%, respectively.
(iv)	Harry Winston retail segment expects to contribute $1.0 million to its pension plan in fiscal 2011
	Benefits of approximately $1.4 million are expected to be paid by the retail segment in each fiscal year from 2011 to 2015. The aggregate benefits expected to be paid in the five fiscal years from 2016 to 2020 are $6.3 million. The expected benefits are based on the same assumptions used to measure the retail segment’s benefit obligation at January 31, 2010.

(b)	Defined Contribution Plan
	Harry Winston Inc. has a defined contribution 401(k) plan covering substantially all employees in the United States. For the fiscal years ended January 31, 2010 and 2009, Harry Winston Inc. elected to increase the employer-matching contribution to 100% of the first 6% of the employee’s salary from 50% in fiscal 2007 and prior. Employees must meet minimum service requirements and be employed on December 31 of each year in order to receive this matching contribution.
	The Joint Venture sponsors a defined contribution plan whereby the employer contributes 6% of the employee’s salary.
	Harry Winston Diamond Corporation introduced a defined contribution plan in fiscal 2009 whereby the employer contributes to a maximum of 6% of the employee’s salary to the maximum contribution limit under Canada’s Income Tax Act.

2010 ANNUAL REPORT     49

HARRY WINSTON DIAMOND CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(c)

Deferred Compensation Plan

On January 28, 2005, the Board of Directors of Harry Winston Inc. approved an Equity Participation Plan (the “Plan”) for certain executives of Harry Winston Inc. The Plan involves “Phantom Stock” awards, as defined in the executives’ employment agreements, which are payable in cash. These awards are split into a 40% time-vested award and a 60% cliff-vested award. The value of the award for each executive is calculated as a percentage of return on investment, as defined in the agreements as the excess of the fair value of Harry Winston Inc. at the date of calculation, over the fair value of Harry Winston Inc. at April 2, 2004, adjusted for certain items as defined in the agreements. The 40% time-vested award vests on the six annual anniversaries of each executive’s designated start date and over the six-year period, the vesting percentages are 0%, 0%, 10%, 10%, 10% and 10%, respectively. The 60% cliff-vested award vests in full on the date that Harry Winston Diamond Corporation becomes the acquirer of 100% of the common stock of Harry Winston Inc. The executives must remain employed by Harry Winston Inc. through the vesting dates in order for the awards to vest. Both awards would vest immediately upon the date of any future change in control as defined in the employment agreements. On September 29, 2006, Harry Winston Diamond Corporation acquired 100% of the common stock of Harry Winston Inc. As a result, the cliff-vested award has vested. At January 31, 2010 and 2009, Harry Winston Inc. has recorded a liability of $3.2 million and $3.1 million, respectively, relating to the Plan.

At January 31, 2010 and 2009, Harry Winston Inc. has recorded a liability of $6.0 million and $6.0 million, respectively, in connection with a deferred compensation plan for a key executive. According to the terms of this plan, the executive is entitled to deferred compensation of $5.0 million, which vests in equal installments on the first through the third anniversaries of the executive’s first day of employment with Harry Winston Inc. On each vesting date, the vested portion of the deferred compensation will be paid to the executive unless the executive provides Harry Winston Inc. with prior written notice to defer receipt of all or a portion of the vested portion of the deferred compensation. All such vested amounts deferred at the request of the executive will be distributed to the executive upon the executive’s termination of employment with Harry Winston Inc. The deferred compensation bears interest at LIBOR. This executive’s employment with Harry Winston, Inc. terminated on December 31, 2009 and hence, the amount of $6.0 million in connection of deferred compensation plan will be distributed on July 1, 2010 as per this plan.

NOTE 17: Capital Management
As part of the Kinross investment, the Company and Kinross have agreed to certain provisions regarding capital management for a period of two years following the closing, subject to earlier termination in specified circumstances. During this period, without Kinross’ consent not to be unreasonably withheld, the Company has agreed not to incur indebtedness in excess of a specified amount, subject to an exception for indebtedness incurred to finance an acquisition by the Company. In addition, the Company has agreed not to pay dividends and to limit the amount of funding it will provide to the retail segment. The Company believes that the funding limit for the retail segment will not be exceeded during the next twelve months. The capital management provisions do not in any way limit the Company’s ability to issue equity or equity-linked securities, subject to compliance with Kinross’ pro rata participation right in such equity issuances.

The Company's capital includes cash and cash equivalents, short-term debt, long-term debt and equity, which includes issued common shares, contributed surplus and retained earnings.

The Company's primary objective with respect to its capital management is to ensure that it has sufficient cash resources to maintain its ongoing operations, to provide returns to shareholders and benefits for other stakeholders, and to pursue growth opportunities. To meet these needs, the Company may from time to time raise additional funds through borrowing and/or the issuance of equity or debt or by securing strategic partners, upon approval by the Board of Directors. The Board of Directors reviews and approves any material transactions out of the ordinary course of business, including proposals on acquisitions or other major investments or divestitures, as well as annual capital and operating budgets.

With the closing of the Kinross transaction and the repayment in full of the mining segment’s senior secured credit facilities, the Company assesses liquidity and capital resources on a consolidated basis. The Company’s requirements are for cash operating expenses, working capital, contractual debt requirements and capital expenditures. The Company believes that it will generate sufficient liquidity to meet its anticipated requirements for the next twelve months.

2010 ANNUAL REPORT 50

HARRY WINSTON DIAMOND CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18: Financial Instruments
The Company has various financial instruments comprising cash and cash equivalents, cash collateral and cash reserves, accounts receivable, accounts payable and accrued liabilities, bank advances and long-term debt.

Cash and cash equivalents consist of cash on hand and balances with banks and short-term investments held in overnight deposits with a maturity on acquisition of less than 90 days. Cash and cash equivalents, which are designated as held-for-trading, are carried at fair value based on quoted market prices and are classified within Level 1 of the fair value hierarchy established by CICA Handbook Section 3862.

The fair value of accounts receivable is determined by the amount of cash anticipated to be received in the normal course of business from the financial asset.

The Company’s long-term debt is fully secured; hence the fair value of this instrument at January 31, 2010 is considered to approximate its carrying value.

The fair value of derivative financial instruments included in accounts payable and accrued liabilities is determined using standard valuation techniques with observable market information and is classified within Level 2 of the fair value hierarchy established by CICA Handbook Section 3862.

The carrying values of these financial instruments are as follows:

				January 31, 2010				January 31, 2009
		Estimated		Carrying		Estimated		Carrying
		fair value		value		fair value		value
FINANCIAL ASSETS
Cash and cash equivalents	$	62,969	$	62,969	$	16,735	$	16,735
Cash collateral and cash reserves		–		–		30,145		30,145
Accounts receivable		23,520		23,520		66,980		66,980
	$	86,489	$	86,489	$	113,860	$	113,860
FINANCIAL LIABILITIES
Accounts payable and accrued liabilities	$	87,448	$	87,448	$	118,390	$	118,390
Bank advances		22,485		22,485		42,621		42,621
Long-term debt		162,692		162,692		280,722		280,722
	$	272,625	$	272,625	$	441,733	$	441,733

NOTE 19: Financial Risk Exposure and Risk Management
The Company is exposed, in varying degrees, to a variety of financial-instrument-related risks by virtue of its activities. The Company’s overall financial risk management program focuses on the preservation of capital and protecting current and future Company assets and cash flows by minimizing exposure to risks posed by the uncertainties and volatilities of financial markets.

The Company’s Audit Committee has responsibility to review and discuss significant financial risks or exposures and to assess the steps management has taken to monitor, control, report and mitigate such risks to the Company.

Financial risk management is carried out by the Finance department, which identifies and evaluates financial risks and establishes controls and procedures to ensure financial risks are mitigated.

2010 ANNUAL REPORT 51

HARRY WINSTON DIAMOND CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The types of risk exposure and the way in which such exposures are managed are as follows:

i)	Currency Risk
	The Company’s sales are predominately denominated in US dollars. As the Company operates in an international environment, some of the Company's financial instruments and transactions are denominated in currencies other than the US dollar. The results of the Company's operations are subject to currency transaction risk and currency translation risk. The operating results and financial position of the Company are reported in US dollars in the Company’s consolidated financial statements.
	The Company’s primary foreign exchange exposure impacting pre-tax earnings arises from the following sources:

• Net Canadian dollar denominated monetary assets and liabilities. The most significant exposure relates to its Canadian dollar future income tax liability. The Company’s functional and reporting currency is US dollars; however, the calculation of income tax expense is based on income in the currency of the country of origin. As such, the Company is continually subject to foreign exchange fluctuations, particularly as the Canadian dollar moves against the US dollar. The weakening/strengthening of the Canadian dollar versus the US dollar results in an unrealized foreign exchange gain/loss on the revaluation of the Canadian dollar denominated future income tax liability.

• Committed or anticipated foreign currency denominated transactions, primarily Canadian dollar costs at the Diavik Diamond Mine.

Based on the Company’s net exposure to Canadian dollar monetary assets and liabilities at January 31, 2010, a one-cent change in the exchange rate would have impacted pre-tax net earnings for the year by $2.2 million.

ii)	Interest Rate Risk
	Interest rate risk is the risk borne by an interest-bearing asset or liability as a result of fluctuations in interest rates. Financial assets and financial liabilities with variable interest rates expose the Company to cash flow interest rate risk. The Company’s most significant interest rate risk arises from its various credit facilities which bear variable interest based on LIBOR. Based on the Company’s LIBOR based credit facilities at January 31, 2010, a 100 basis point change in the LIBOR rate would have impacted pre-tax net earnings for the year by $1.4 million.
iii)	Concentration of Credit Risk
	Credit risk is the risk of a financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligation.
	Financial instruments that potentially subject the Company to credit risk consist of trade receivables from retail segment clients. While economic factors can affect credit risk, the Company manages risk by providing credit terms on a case-by-case basis only after a review of the client’s financial position and past credit history. The Company has not experienced significant losses in the past from its customers.
	The Company’s exposure to credit risk in the mining segment is minimized by its sales policy, which requires receipt of cash prior to the delivery of rough diamonds to its customers.
	The Company manages credit risk, in respect of short-term investments, by maintaining bank accounts with Tier 1 banks and investing only in term deposits or banker’s acceptances with highly rated financial institutions that are capable of prompt liquidation. The Company monitors and manages its concentration of counterparty credit risk on an ongoing basis.
	At January 31, 2010, the Company’s maximum counterparty credit exposure consists of the carrying amount of cash and cash equivalents and accounts receivable, which approximates fair value.

2010 ANNUAL REPORT 52

HARRY WINSTON DIAMOND CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

iv)	Liquidity Risk
	Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due.
	The Company manages its liquidity by ensuring that there is sufficient capital to meet short and long-term business requirements, after taking into account cash flows from operations and the Company’s holdings of cash and cash equivalents. The Company also strives to maintain sufficient financial liquidity at all times in order to participate in investment opportunities as they arise, as well as to withstand sudden adverse changes in economic circumstances. The Company assesses liquidity and capital resources on a consolidated basis. Management forecasts cash flows for its current and subsequent fiscal years to predict future financing requirements. Future requirements are met through a combination of committed credit facilities and access to capital markets.
	At January 31, 2010, the Company had $63.0 million of cash and cash equivalents and $40.2 million available under credit facilities.
	The following table summarizes the aggregate amount of contractual future cash outflows for the Company’s financial liabilities:

				Less than		Year		Year		After
		Total		1 year		2–3		4–5		5 years
Accounts payable and accrued liabilities	$	87,448	$	87,448	$	–	$	–	$	–
Income taxes payable		46,297		46,297		–		–		–
Bank advances		22,485		22,485		–		–		–
Long-term debt (a)		188,595	$	7,982	$	15,612	$	148,376	$	16,625
Environmental and participation agreements incremental commitments		89,695		75,662		1,870		4,540		7,623
Operating lease obligations		106,250		19,518		28,655		18,734		39,343
Capital lease obligations		367		289		78		–		–

^(a) Includes projected interest payments on the current debt outstanding based on interest rates in effect at January 31, 2010.

NOTE 20: Insurance Settlement
In December 2008, approximately $31.7 million in Company-owned and consigned retail inventory at cost was stolen during a second robbery at the Harry Winston Paris salon. Included in accounts receivable at January 31, 2009 is a $48.4 million receivable relating to the insurance settlement that was received in February 2009. The $3.4 million balance of the insurance claim was received during the first quarter of the current year. In the prior year, the Company recognized a pre-tax gain of $16.7 million in the fourth quarter on settlement of the insurance claim. Also included in the prior year was a gain on insurance settlement of $0.5 million, resulting from an excavator fire that occurred in the fourth quarter of fiscal 2006 at the Diavik Diamond Mine.

NOTE 21: Dilution Loss
The Company recorded a non-cash dilution loss of $34.8 million with respect to the investment by Kinross of an indirect interest in the Diavik Diamond Mine.

NOTE 22: Impairment Charge
As at January 31, 2009, the Company determined that the fair value of its retail segment was below the carrying value and recorded a non-cash goodwill impairment charge of $93.8 million.

Note 23: Segmented Information
The Company operates in two segments within the diamond industry, mining and retail, for the twelve months ended January 31, 2010.

The mining segment consists of the Company’s rough diamond business. This business includes the 40% ownership interest in the Diavik group of mineral claims and the sale of rough diamonds in the market-place.

2010 ANNUAL REPORT 53

HARRY WINSTON DIAMOND CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The retail segment consists of the Company’s ownership in Harry Winston Inc. This segment consists of the marketing of fine jewelry and watches on a worldwide basis.

For the twelve months ended January 31, 2010		Mining			Retail			Total
Sales
Canada	$	187,885		$	–		$	187,885
United States		–			72,897			72,897
Europe		–			75,078			75,078
Asia		–			77,041			77,041
Cost of sales		174,651			117,071			291,722
Gross margin		13,234			107,945			121,179
Gross margin (%)		7.0%			48.0%			29.3%
Selling, general and administrative expenses		19,502			123,648			143,150
Loss from operations		(6,268	)		(15,703	)		(21,971	)
Interest and financing expenses		(3,853	)		(7,688	)		(11,541	)
Other income		546			46			592
Insurance proceeds		–			3,350			3,350
Dilution loss		(34,761	)		–			(34,761	)
Foreign exchange gain (loss)		(34,020	)		2,527			(31,493	)
Segmented loss before income taxes	$	(78,356	)	$	(17,468	)	$	(95,824	)
Segmented assets as at January 31, 2010
Canada	$	952,663		$	–		$	952,663
United States		–			361,598			361,598
Other foreign countries		19,894			160,650			180,544
	$	972,557		$	522,248		$	1,494,805
Capital expenditures	$	50,856		$	3,033		$	53,889
OTHER SIGNIFICANT NON-CASH ITEMS
Income tax recovery	$	(15,774	)	$	(7,615	)	$	(23,389	)
Amortization and accretion	$	51,154		$	12,958		$	64,112

Sales to three significant customers in the mining segment totalled $64.0 million (2009 – $57.2 million) for the twelve months ended January 31, 2010.

For the twelve months ended January 31, 2009		Mining			Retail			Total
Sales
Canada	$	328,223		$	–		$	328,223
United States		–			93,978			93,978
Europe		–			117,588			117,588
Asia		–			69,431			69,431
Cost of sales		139,769			147,509			287,278
Gross margin		188,454			133,488			321,942
Gross margin (%)		57.4%			47.5%			52.8%
Selling, general and administrative expenses		19,903			135,973			155,876
Earnings (loss) from operations		168,551			(2,485	)		166,066
Interest and financing expenses		(9,183	)		(11,274	)		(20,457	)
Other income (expense)		2,595			(349	)		2,246
Insurance settlement		558			16,682			17,240
Impairment charge		–			(93,780	)		(93,780	)
Foreign exchange gain (loss)		60,879			(1,792	)		59,087
Segmented earnings (loss) before income taxes	$	223,400		$	(92,998	)	$	130,402
Segmented assets as at January 31, 2009
Canada	$	980,500		$	–		$	980,500
United States		–			404,952			404,952
Other foreign countries		27,243			153,880			181,123
	$	1,007,743		$	558,832		$	1,566,575
Capital expenditures	$	200,289		$	9,574		$	209,863
OTHER SIGNIFICANT NON-CASH ITEMS
Income tax recovery	$	(17,789	)	$	(3,742	)	$	(21,531	)
Amortization and accretion	$	64,374		$	12,596		$	76,970

2010 ANNUAL REPORT 54

HARRY WINSTON DIAMOND CORPORATION
 

Diavik Diamond Mine Mineral Reserve
and Mineral Resource Statement
As of December 31, 2009

Proven and Probable Reserves

			Proven			Probable		Proven and Probable
	Millions	Carats	Millions	Millions	Carats	Millions	Millions	Carats	Millions
Open pit and underground mining	of tonnes	per tonne	of carats	of tonnes	per tonne	of carats	of tonnes	per tonne	of carats
A-154 South
Open Pit	0.2	5.1	0.8	–	–	–	0.2	5.1	0.8
Underground	2.3	4.0	9.1	1.4	3.3	4.7	3.7	3.8	13.9
Total A-154 South	2.4	4.1	10.0	1.4	3.3	4.7	3.8	3.8	14.7
A-154 North
Open Pit	–	–	–	–	–	–	–	–	–
Underground	2.9	2.2	6.3	5.8	2.2	12.6	8.7	2.2	18.9
Total A-154 North	2.9	2.2	6.3	5.8	2.2	12.6	8.7	2.2	18.9
A-418
Open Pit	3.1	3.2	10.2	–	–	–	3.1	3.2	10.2
Underground	0.3	4.0	1.1	3.7	4.0	14.9	4.0	4.0	15.9
Total A-418	3.4	3.3	11.2	3.7	4.0	14.9	7.1	3.7	26.1
Total
Open Pit	3.3	3.3	11.0	–	–	–	3.3	3.3	11.0
Underground	5.5	3.0	16.5	10.9	2.9	32.2	16.4	3.0	48.7
Total Reserves	8.8	3.1	27.5	10.9	2.9	32.2	19.7	3.0	59.7

Note: Totals may not add up due to rounding.

Additional Indicated and Inferred Resources

		Measured Resources			Indicated Resources			Inferred Resources
	Millions	Carats	Millions	Millions	Carats	Millions	Millions	Carats	Millions
Kimberlite pipe	of tonnes	per tonne	of carats	of tonnes	per tonne	of carats	of tonnes	per tonne	of carats
A-154 South	–	–	–	–	–	–	0.04	3.5	0.1
A-154 North	–	–	–	–	–	–	2.1	2.7	5.6
A-418	–	–	–	–	–	–	0.7	4.5	3.0
A-21	3.6	2.8	10.0	0.4	2.6	1.0	0.8	3.0	2.3
Total	3.6	2.8	10.0	0.4	2.6	1.0	3.5	3.1	11.1

Note: Totals may not add up due to rounding.

The above mineral reserve and mineral resource statement was prepared by Diavik Diamond Mines Inc., operator of the Diavik Diamond Mine, under the supervision of Calvin Yip, P.Eng., Principal Advisor, Strategic Planning of Diavik Diamond Mines Inc., a Qualified Person within the meaning of National Instrument 43-101 of the Canadian Securities Administrators.

For further details and information concerning Harry Winston Diamond Corporation’s Mineral Reserves and Resources, readers should reference Harry Winston Diamond Corporation’s Annual Information Form available through www.sedar.com and http://investor.harrywinston.com.

2010 ANNUAL REPORT 55

HARRY WINSTON DIAMOND CORPORATION
 

Harry Winston Retail Salons
United States	Europe	Japan
Bal Harbour	London	Nagoya
Bal Harbour Shops	171 New Bond Street	1-1-6 Higashisakura
9700 Collins Avenue, Suite 151	London, England WIS-4RD	Higashi-Ku
Bal Harbour, Florida 33154	Tel: 44.207.907.8800	Nagoya, Japan 461-0005
Tel: 786.206.6657		Tel: 81.5.2950.5100
	Paris
Beverly Hills	29 Avenue Montaigne	Osaka
310 North Rodeo Drive	75008 Paris, France	Shinsaibashi District
Beverly Hills, California 90210	Tel: 33.1.4720.0309	3-10-25, Minamisemba
Tel: 310.271.8554		Chuo-Ku
	Asia	Osaka, Japan 542-0081
Chicago	Beijing	Tel: 81.6.6281.8855
55 East Oak Street	Peninsula Beijing Palace Hotel
Chicago, Illinois 60611	8 Goldfish Lane, Wangfujing	Tokyo – Ginza
Tel: 312.705.1820	Beijing, 100006	1-8-14 Ginza, Chuo-Ku
	The People's Republic of China	Tokyo, Japan 104-0061
Costa Mesa	Tel: 861.0.8511.5595	Tel: 81.3.3535.6441
3333 Bristol Street, Suite 2660
Costa Mesa, California 92626	Hong Kong	Tokyo – Midtown
Tel: 714.371.1910	The Peninsula Hotel	Roppongi District
	Shop E8, G/F	9-7-3, Akasaka, Minato-Ku
Dallas	Salisbury Road	Tokyo, Japan 107-0052
19 Highland Park Village	Tsimshatsui, Kowloon	Tel: 81.3.5413.3400
Dallas, Texas 75205	Hong Kong
Tel: 214.647.5830	Tel: 852.2301.2131	Tokyo – Omotesando
		Omotesando Hills
Honolulu	Taipei	4-12-10, Jingumae Shibuya-ku
Ala Moana Center	Regent Hotel	Tokyo, Japan 150-0001
1450 Ala Moana Blvd, Suite 2094	2nd Fl., No 41, Sec 2,	Tel: 81.3.5785.0440
Honolulu, Hawaii 96814	Chung Shan N Road
Tel: 808.791.4000	104 Taipei, Taiwan
	Tel: 886.2.2521.7808
Las Vegas
The Forum Shops at Caesars	Singapore
3500 Las Vegas Blvd South, Suite R25	ION Orchard
Las Vegas, Nevada 89109	2 Orchard Turn
Tel: 702.933.7370	Singapore 238801
	Tel: 6883.9509
New York
718 Fifth Avenue
New York, New York 10019
Tel: 212.245.2000
Toll free number for United States:
1.800.988.4110

Harry Winston Diamond Sales Offices
Belgium Sales Office	India Sales Office
Harry Winston Diamond	Harry Winston Diamond (India)
International N.V.	Private Limited
Diamantclub Van Antwerpen Suite760,	606 C Wing, Dharam Palace
62 Pelikaanstraat	101–103, N.S. Patkar Marg
Antwerp 2018, Belgium	Mumbai 400 007, India
Tel: +32.3.225.5315	Tel: +91.22.236.99004
Fax:+32.3.233.2165	Fax:+91.22.236.92299

2010 ANNUAL REPORT 56

HARRY WINSTON DIAMOND CORPORATION
 

Board of Directors and Senior Management
Board of Directors		Senior Management
Robert A. Gannicott	Daniel Jarvis(1*)(2)	Robert A. Gannicott
Chairman & Chief Executive Officer,	Vice Chair & Chief Financial Officer,	Chairman & Chief Executive Officer
Harry Winston Diamond Corporation	Concert Properties Ltd.
Director since June 1992	Director since June 2008	Frédéric de Narp
		President & Chief Executive Officer,
Matthew W. Barrett(1)(3*)	Laurent E. Momméja(2)	Harry Winston Inc.
Lead Director of the Board	Corporate Director
Director since January 2008	Director since June 2004	Alan S. Mayne
		Chief Financial Officer
Thomas M. Boehlert	J. Roger B. Phillimore
Executive Vice President &	Chairman of Lonmin plc	James R.W. Pounds
Chief Financial Officer,	Director since November 1994	Executive Vice President
Kinross Gold Corporation		Buying/Sourcing
Director since April 2009	Corporate Secretary
	Lyle R. Hepburn	Raymond N. Simpson
Micheline Bouchard(2*)(3)		Executive Vice President
Corporate Director
Director since January 2008		Beth Bandler
		Senior Vice President &
Noel Harwerth(1)(3)		General Counsel, Legal and
Corporate Director		Human Resources
Director since June 2008
		Wendy Kei
		Vice President &
MEMBER OF:		Corporate Controller
(1)Audit Committee
(2)Human Resources & Compensation Committee		Robert A. Scott
(3)Nominating & Corporate Governance Committee		Chief Financial Officer,
*Indicates Committee Chair		Harry Winston Inc.

2010 ANNUAL REPORT 57

HARRY WINSTON DIAMOND CORPORATION
 

Shareholder Information
Transfer Agents & Registrars					Annual Meeting of Shareholders
Please direct inquiries concerning		Registrar and Transfer Company			The Fairmont Royal York Hotel
shares, share transfers, dividend		10 Commerce Drive			100 Front Street West
payments and change of address		Cranford, New Jersey, 07016			Toronto, Ontario, Canada
to the Transfer Agent:		Toll free 1.800.368.5948			Thursday, June 3, 2010
		Tel: 908.497.2300			10:00 AM
CIBC Mellon Trust Company		Fax: 908.497.2318
P.O. Box 7010		e-mail: info@rtco.com			Corporate Offices
Adelaide Street Postal Station		www.rtco.com			Harry Winston
Toronto, Ontario, Canada					Diamond Corporation
M5C 2W9		Auditors			P.O.Box 4569, Station A
Toll free within Canada and		KPMG LLP			Toronto, Ontario, Canada
United States:		Chartered Accountants			M5W 4T9
1.800.387.0825		Suite 4600			Tel: 416.362.2237
Tel: 416.643.5500		Bay Adelaide Centre			Fax:416.362.2230
Fax:416.643.5501		333 Bay Street			http://investor.harrywinston.com
e-mail: inquiries@cibcmellon.com		Toronto, Ontario, Canada
www.cibcmellon.com		M5H 2S5			Harry Winston Inc.
					Corporate Office
					1330 Avenue of the Americas
Harry Winston Diamond Corporation Stock Trading History					New York, New York 10019
Toronto Stock Exchange: HW					Tel: 212.315.7900
New York Stock Exchange: HWD					Fax: 212.581.2612
					www.harrywinston.com
	Feb. 1, 2009 to Jan. 31, 2010		Feb. 1, 2008 to Jan. 31, 2009
	TSX CDN$	NYSE US$	TSX CDN$	NYSE US$
High	13.28	12.87	32.15	31.68
Low	2.19	1.69	3.90	2.62
Close	9.83	9.16	4.88	3.92
Average daily volume	308,440	301,214	244,327	99,515
New York Stock Exchange Disclosure Differences
As a foreign private issuer, Harry Winston Diamond Corporation is required to
disclose the significant ways in which its corporate governance practices differ
from those followed by US domestic companies under NYSE listing standards.
This disclosure can be obtained from the governance section of our website
at http://investor.harrywinston.com

2010 ANNUAL REPORT 58