Management Report of Fund Performance and Audited Financial Statements

Transcription

1 Management Report of Fund Performance and Audited Financial Statements IMPRESSION Plan Years ended December 31, 2014 and 2013

2 2 Management Report of Fund Performance Management Report of Fund Performance This annual Management Report of Fund Performance contains financial highlights but does not contain the complete annual financial statements of the investment fund. You may receive a copy of the annual financial statements at your request and at no cost by visiting our website at HeritageRESP.com or SEDAR at Sedar.com or by calling our Customer Service Department at or by writing to us at 2005 Sheppard Ave. E., Suite 700 Toronto, Ontario M2J 5B4. The investment policies of the (the Plan ) limit its investments to specified government bonds, guaranteed investment certificates and corporate debt securities with an approved rating. The investment income earned in the Plan may be invested in exchange-traded equity securities listed on a stock exchange in Canada, such as the TSX. None of these securities require the issuer thereof to call meetings of holders or otherwise carry a right to vote. Accordingly, the Plan s policies and procedures on how to vote on any matter for which the Plan receives, in their capacity as security holders, proxy materials for a meeting of security holders, are limited to exceptional circumstances where creditors of an issuer are given a right to vote in accordance with applicable laws. Topics Covered in this Report Management Discussion of Fund Performance Investment Objective and Strategy Risk Result of Operations Recent Developments International Financial Reporting Standards Future Accounting Changes Related Party Transactions Financial Highlights Management Fees Administrative Fees Portfolio Management Fees Past Performance Year-by-Year Returns Annual Compound Returns Summary of Investment Portfolio Portfolio by Category Summary of Top Holdings

3 IMPRESSION PLAN 3 Management Discussion of Fund Performance Investment Objective and Strategy The investment objective of this Plan is to preserve capital while maximizing the long-term rate of return for investors, within guidelines set out in the Investment Policy Statement. The Plan consists of investments in federal, provincial and corporate securities with an approved credit rating under National Instrument At a special meeting of subscribers, held on May 29, 2014, unit-holders in the Plan voted in favour of changing the investment policy parameters. This change will allow for income earned in the Plan to be invested in exchange-traded equity securities listed on a stock exchange in Canada. As of the date of this report, the Foundation is in the process of selecting appropriate portfolio advisers to manage equity securities. Scotia Institutional Asset Management, a division of 1832 Asset Management LP (a wholly owned subsidiary of Scotiabank, SIAM ) manages the Plan on a discretionary basis within set parameters established under the prospectus and the investment policy. The investment strategy focuses on achieving a superior rate of return by strategically positioning the portfolio in the yield curve and selecting optimal credit securities. Risk The Prospectus outlines the investment risks associated with actively managed portions of the portfolio as well as the portfolio s suitability for investors. The key risks are interest rate risk, liquidity risk, credit risk and market risk. Please refer to the audited financial statements for the year 2014 for an explanation of these risks. Result of Operations* For 2014, the returned 8.74% for the year, 55 basis points ( bps ) lower than that of the FTSE TMX Canada Universe All Government Bond Index of 9.29%. The rate of return of the Plan is influenced by the selection of maturity dates of investments that match the timeline of pay-out of subscribers contributions and educational assistance payments. Please refer to note 3 on investments in the audited financial statements for the year ended The asset mix of the Plan did not change materially from the previous period. At December 31, 2014, 100% of the Plan was invested in fixed income securities compared to 95.4% at December 31, Fixed Income markets performed surprisingly well in The Government of Canada yield curve flattened over the course of the year, with each quarter experiencing falling yields in all areas of the curve longer than 3 years. The 10 year yields fell by 90 bps year over year, while the difference in the 2 year yield is largely unchanged. As the yield curve flattens, the differential between short and long term yield decreases. In a decreasing rate environment, longer term bonds will typically outperform shorter term bonds due to their longer duration, which is a measure of interest rate sensitivity. The portfolio was neutral to longer duration relative to the benchmark for the first half of the year which contributed to performance as rates fell. The portfolio was also concentrated in mid to longer term bonds which also contributed to performance as the curve flattened. Rates fell very quickly during the last quarter of the year due to geopolitical tensions, equity market volatility and the strong demand for fixed income products from foreign investors. This action was contrary to fundamental analysis which saw improving economic data and end of qualitative easing in the United States that point to upward pressure on yields. The portfolio was shorter in duration than the benchmark in the fourth quarter which detracted from performance. Focus on the timing of the first rate increase by The US Federal Reserve may put upward pressure on short term interest rates in both the U.S. and Canada. The front and mid sections of the yield curve are likely to shift upwards while the long-end may remain well supported by demand from global investors seeking higher yields and appreciating currencies. The portfolio duration is positioned in anticipation of higher yields and an expected flattening of the curve as we move into Rising rates will provide the opportunity to re-invest coupons and maturing issues at higher yields. * This commentary was prepared in consultation with Scotia Institutional Asset Management, a division of 1832 Asset Management L.P.

4 4 Management Report of Fund Performance Recent Developments* From disparate central bank policies to contrasting global economic prospects, 2014 can be summarized by the word divergence. The US equity markets led the world with a sustained bull market that pushed major indices to all-time highs during the year. The US economy was also a beacon for the rest of the world. Sustained job growth, continued housing gains, increase business investment and consumer confidence were envied by sluggish economies in Europe. The US Federal Reserve made good on its well-telegraphed commitment by announcing an end to its longrunning stimulus program that funneled over $2 trillion into the US economy since Of the markets impacted by the move, currencies and commodities were front and center. The US dollar strengthened against a basket of global peers. Commodity prices, including oil, fell to multi-year lows. The effects of falling commodity prices on the Canadian economy will be felt well into Contrary to the US, Europe spent most of 2014 facing economic headwinds as manufacturing, job growth and business investment declines were recorded in most leading Eurozone nations, notably German, France and Italy. This was compounded by heighted deflationary pressures. In response to the growing risks and as an effort to reignite its sputtering economy, the European Central Bank introduced its own version of quantitative easing. The question of the effectiveness of quantitative easing was raised this year as Japan slipped into recession in the third quarter. Japan s Abenomics the policy of unprecedented monetary easing, stimulus spending and structural reforms garnered criticism and many have suggested that some of the economic revitalization program s measures were ill-conceived. We expect a continuance of the divergent paths of global economies and central bank policies into International Financial Reporting Standards International Financial Reporting Standards ( IFRS ) replaced Canadian generally accepted accounting principles, as defined in Part V of the Chartered Professional Accountants of Canada Handbook ( Canadian GAAP ) for investment funds effective January 1, 2014, which was when the Plan adopted IFRS. Previously the Plan prepared its financial statements in accordance with Canadian GAAP. The notes to the audited financial statements disclose the impact of the transition from Canadian GAAP to IFRS on the Plan s reported financial position. Future Accounting Changes In July 2014, the International Accounting Standards Board issued IFRS 9, Financial Instruments, to replace International Accounting Standard 39, Financial Instruments Recognition and Measurement ( IAS 39 ). IFRS 9 is effective for fiscal years beginning on or after January 1, Please refer to note 1(g) of the audited financials of the Plan for more information on IFRS 9. The Foundation is currently assessing the impact of this new standard on the Plan s financial statements. Related Party Transactions The Plan is distributed by Heritage Education Funds Inc. (the Distributor ), a subsidiary controlled by Heritage Financial Group Limited ( Heritage Financial ). The Plan is sponsored by the Heritage Educational Foundation (the Foundation ), which is under common management with the Distributor and the beneficial shareholders of the Distributor constitute the Board members of the Foundation. Management fees, which have been waived for the year ended December 31, 2014, are intended to be paid to the Foundation and in turn paid to the Distributor. * This commentary was prepared in consultation with Scotia Institutional Asset Management, division of 1832 Asset Management L.P.

5 IMPRESSION PLAN 5 In 2011, the Foundation entered into an Investment Management Agreement (the Agreement ) with Yorkville Asset Management Inc. ( Yorkville ), whereby Yorkville has been appointed as a Portfolio Adviser for the Plan. Yorkville is 50% controlled by Heritage Financial and is an affiliate of the Distributor. The decision to enter into this Agreement with Yorkville was referred to the Independent Review Committee (the IRC ) of the Plan for its review in accordance with National Instrument , Independent Review Committee for Investment Funds ( NI ) and the IRC approved the Agreement subject to certain conditions. This arrangement is periodically reviewed by the IRC under the provisions of NI As at December 31, 2014 (a) none of the Plan s assets had been allocated to Yorkville; and (b) there were no amounts paid or payable to Yorkville. Financial Highlights The following table shows selected key financial information of the Plan and its financial performance for up to the past five years. This information is derived from the Plan s audited financial statements for the fiscal years ended December 31. Statement of Net Assets Total Assets Net Assets % Change in Net Assets Statement of Changes in Net Assets Educational Assistance Payments Redemptions $ 891, , % $ 18,823 74,465 $ 786, , % $ 13,416 44,884 $ 674, , % $ 17,926 30,798 $ 553, , % $ 46,239 15,231 $ 491, , % $ 48, ,094 Statement of Operations Net Investment Income (loss) $ 72,243 $ (11,208) $ 22,530 $ 47,221 $ 35,300 Other Total number of units in Plan % Change in total number of units 83, % 76, % 63, % 50, % 46, % Operations Commenced from June 30, Based on IFRS financial statements 2 Based on Canadian GAAP financial statements Fees Management Fees An annualized management fee of 1.95% is charged against the aggregate market value of each Account. The fee is inclusive of all administrative, trustee and portfolio management fees. The fee is collected monthly in arrears by the Trustee and paid to the Foundation. This fee may be waived or reduced at the discretion of the Foundation. The management fee has been waived for the year ended December 31, 2014 and only the portfolio management fee has been charged. Portfolio Management Fee An annual advisory fee of $504 for portfolio advisory services was paid to SIAM for the year ended December 31, SIAM provides advisory and discretionary managed account services with respect to purchasing, selling and otherwise dealing in securities and other investments of the Plan. The advisory fee is calculated on the market value of portfolio holdings at the end of each quarter based on a graduated fee schedule and is paid on a quarterly basis.

6 6 Management Report of Fund Performance Past Performance Past performance of the Plan is set out in the following charts and the compound returns table. Investment returns have been calculated using market values and time-weighted cash flows during the periods. The performance information shown: Assumes that all of the income, interest earned and capital gains distributions are reinvested in the Plan Is adjusted for the cash flows for advisory fees payments Past returns of the Plan do not necessarily indicate how it will perform in the future. Year-by-Year Returns The following bar chart illustrates the Plan s annual performance in each of the past ten years to December 31, The commenced operations June 30, % 10.00% 9.54% 8.74% 8.00% 6.58% 7.16% 6.62% 6.00% 4.00% 3.42% 4.69% 5.39% 3.81% 2.00% 0.00% % -1.49% -4.00% Annual Compound Returns The following table illustrates the Plan s annual compounded returns for the periods shown ended December 31, Year 3 Years 5 Years 10 Years 8.74% 3.60% 5.37% 5.40% FTSE TMX Canada Universe All Government Bond Index* 9.29% 3.21% 5.23% 5.16% * The FTSE TMX Canada Universe All Government Bond Index is designed to be a broad measure of the Canadian government fixed income market. It represents three main borrower categories: bonds issued by the Government of Canada (including Crown Corporations), Provincial bonds (including provincially guaranteed securities) and Municipal bonds. The Plans returns are net of fees whereas the FTSE index does not include any fees.

7 IMPRESSION PLAN 7 Summary of Investment Portfolio Portfolio by Category: Sectors % of Market Value Federal Bonds 72.9% Provincial Bonds 21.3% Corporate Bonds 4.1% Bank Deposits-GIC 1.7% 21.3% 4.1% 1.7% 72.9% The holdings of the Plan at the end of the period are indicated below. This summary of investment portfolio may change due to ongoing portfolio rebalancing. Investment Canada Government Series A %, 1-Feb-16 Canada Government Series WL %, 1-Jun-29 Canada Government Series XG %, 1-Jun-33 Ontario Province 6.50%, 8-Mar-29 Canada Housing Trust Series %, 15-Jun-21 Canada Housing Trust Series %, 15-Dec-22 Hydro Quebec Debentures 11.00%, 15-Aug-20 Municipal Finance Authority Debentures 4.60%, 23-Apr-18 Alberta Capital Finance Authority Debentures 4.65%, 15-Jun-17 Canada Housing Trust No 1 Series %, 15-Sep-23 Toronto Dominion Bank Notes 2.56%, 24-Jun-20 Royal Bank of Canada Seriea 2.26%, 12-Mar-18 British Columbia Province 5.70%, 18-Jun-29 Bank of Montreal 3.21%, 13-Sep-18 Royal Bank of Canada 2.99%, 6-Dec-24 Manitoba Province Debentures 4.25%, 5-Mar-18 % of Plan s Portfolio Assets 28.07% 20.76% 13.11% 12.05% 5.10% 4.09% 3.38% 1.88% 1.85% 1.74% 1.74% 1.73% 1.52% 1.19% 1.17% 0.62% Holdings as % of Plan s Portfolio Assets %

8 8 Audited Financial Statements Management s Responsibility For Financial Reporting The accompanying financial statements of the (the Plan ) have been prepared by the management and approved by the Board of Directors of the Heritage Educational Foundation. Management is responsible for the information and representations contained in these financial statements. The Board of Directors is responsible for reviewing and approving the financial statements and overseeing management s performance of its financial reporting responsibilities. The Heritage Educational Foundation, through Heritage Education Funds Inc. (the Distributor ), a subsidary controlled by Heritage Financial Group Limited owned by the senior management team of the Distributor, administers the Plan. The Distributor maintains appropriate processes to ensure that relevant and reliable financial information is produced. The financial statements have been prepared in accordance with International Financial Reporting Standards and include certain amounts that are based on estimates and judgements. The significant accounting policies, which management believes are appropriate for the Plan, are described in Note 1 to the financial statements. KMPG LLP are the external auditors of the Plan. They have audited the financial statements in accordance with International Financial Reporting Standards to enable them to express to the planholders their opinion on the financial statements. Their report is set out below. Toronto, Canada March 2, 2015 Scott McIndless Director Onofrio Loduca Director

9 IMPRESSION PLAN 9 Independent Auditor s Report To the Board of Directors of Heritage Educational Foundation We have audited the accompanying financial statements of, which comprise the statements of financial position as at December 31, 2014, December 31, 2013 and January 1, 2013, the statements of comprehensive income, changes in net assets attributable to subscribers and beneficiaries and cash flows for the years ended December 31, 2014 and December 31, 2013, and notes, comprising a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility 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. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Impression Plan as at December 31, 2014, December 31, 2013 and January 1, 2013, and its financial performance and its cash flows for the years ended December 31, 2014 and December 31, 2013 in accordance with International Financial Reporting Standards. Chartered Professional Accountants, Licensed Public Accountants March 2, 2015 Toronto, Canada

10 10 Audited Financial Statements Statements of Net Assets December 31, 2014, December 31, 2013 and January 1, 2013 Assets December 31, December 31, January 1, Cash and cash equivalents $ 6,169 $ 19,988 $ 52,857 Investments, at fair value (note 3) 874, , ,023 Accrued interest 5,259 4,664 3,569 Due from Foundation (note 5) 5,000 Net assets attributable to subscribers and beneficiaries $ 891,421 $ 786,051 $ 674,449 Number of units outstanding 83,340 76,813 63,249 Net asset per unit $ $ $ See accompanying notes to financial statements. On behalf of the Board of the Heritage Educational Foundation Scott McIndless Director Onofrio Loduca Director

11 IMPRESSION PLAN 11 Statements of Comprehensive Income Years ended December 31, 2014 and Income: Interest $ 20,803 $ 18,093 Realized gains 15, Change in unrealized gains (losses) 36,777 (29,142) 72,747 (10,810) Expenses: Portfolio management fees (504) (398) Increase (decrease) in net assets attributable to subscribers and beneficiaries from operations $ 72,243 $ (11,208) Increase (decrease) in net assets attributable to subscribers and beneficiaries from operations per unit $ 0.87 $ (0.14) See accompanying notes to financial statements.

12 12 Audited Financial Statements Statements of Changes in Net Assets Attributable to Subscribers and Beneficiaries Years ended December 31, 2014 and Net assets attributable to subscribers and beneficiaries, beginning of year $ 786,051 $ 674,449 Increase in net assets attributable to subscribers and beneficiaries: Subscribers contributions 101, ,870 Government grants 24,988 27, , ,110 Decrease in net assets attributable to subscribers and beneficiaries: Educational Assistance Payments (18,823) (13,416) Redemptions (74,665) (44,884) (93,488) (58,300) Increase in net assets attributable to subscribers and beneficiaries from the above items 33, ,810 Increase (decrease) in net assets attributable to subscribers and beneficiaries from operations 72,243 (11,208) Net assets attributable to subscribers and beneficiaries, end of year $ 891,421 $ 786,051 See accompanying notes to financial statements.

13 IMPRESSION PLAN 13 Statements of Cash Flows Years ended December 31, 2014 and 2013 Cash provided by (used in): Operating activities: Increase (decrease) in net assets attributable to subscribers and beneficiaries from operations $ 72,243 $ (11,208) Items not involving cash: Change in unrealized losses (gains) (36,777) 29,142 Realized gains (15,167) (239) Change in non-cash operating items: Increase in accrued interest (595) (1,095) Increase in due from Foundation (5,000) Purchase of investments (1,953,330) (1,621,866) Proceeds from sale of investments 1,891,680 1,449,587 (46,946) (155,679) Financing activities: Subscribers contributions 101, ,870 Government grants received, including transfer-ins 24,988 27,240 Payment of Educational Assistance Payments and redemptions (93,488) (58,300) 33, ,810 Decrease in cash and cash equivalents (13,819) (32,869) Cash and cash equivalents, beginning of year 19,988 52,857 Cash and cash equivalents, end of year $ 6,169 $ 19,988 Supplemental cash flow information: Interest received $ 20,209 $ 17,034 See accompanying notes to financial statements.

14 14 Audited Financial Statements Schedule of Investment Portfolio December 31, 2014 Coupon Maturity Face Amortized Fair Description rate date value cost value Government - federal: Canada Government Bond 1.25% 02/01/2016 $ 245,000 $ 245,638 $ 245,640 Canada Housing Trust Bond 3.80% 06/15/ ,000 43,317 44,601 Canada Housing Trust Bond 2.40% 12/15/ ,000 34,942 35,792 Canada Housing Trust Bond 2.35% 09/15/ ,000 14,322 15,207 Canada Government Bond 5.75% 06/01/ , , ,669 Canada Government Bond 5.75% 06/01/ , , ,687 Government - provincial: Alberta Capital Finance Authority 4.65% 06/15/ ,000 15,089 16,200 Manitoba Province Debentures 4.25% 03/05/2018 5,000 4,989 5,437 Municipal Finance Authority 4.60% 04/23/ ,000 14,981 16,483 Hydro Québec Debentures 11.00% 08/15/ ,000 25,169 29,590 Ontario Province CDA 6.50% 03/08/ ,000 99, ,408 British Columbia Province Debentures 5.70% 06/18/ ,000 11,396 13,334 Bank deposit notes/guaranteed investment certificates: Royal Bank of Canada Senior Notes 2.26% 03/12/ ,000 15,135 15,130 Corporate bonds: Bank of Montreal 3.21% 09/13/ ,000 10,000 10,420 Toronto Dominion Bank 2.56% 06/24/ ,000 15,000 15,180 Royal Bank of Canada Sub Notes 2.99% 12/06/ ,000 10,000 10,215 $ 725,000 $ 844,608 $ 874,993 See accompanying notes to financial statements.

15 IMPRESSION PLAN 15 Notes to Financial Statements Years ended December 31, 2014 and 2013 The (the Plan ) was established on June 20, 2003 by the Heritage Educational Foundation (the Foundation ), a not-for-profit corporation incorporated under the laws of Canada without share capital. The Foundation was incorporated and organized on December 1, The Plan provides a savings vehicle for parents, grandparents and others ( subscriber or subscribers ) to save for a designated child s (the beneficiary ) postsecondary education. The Plan is distributed by Heritage Education Funds Inc. (the Distributor ), a subsidiary controlled by Heritage Financial Group Limited ( Heritage Financial ). The subscribers contributions and the government grants are invested in government securities, guaranteed mortgages, mortgage-backed securities where all of the underlying mortgages are guaranteed mortgages, cash equivalents, guaranteed investment certificates ( GICs ) and other evidences of indebtedness of Canadian financial institutions, where such securities or the financial institution have an approved credit rating. The income of the Plan is invested in fixed income securities as described above, corporate bonds, provided those corporate bonds have a minimum credit rating of BBB or equivalent, as rated by a designated rating organization; and may be invested in exchange-traded equity securities listed on a stock exchange in Canada such as the TSX. The Foundation and the Distributor are under common management, and the beneficial shareholders of the Distributor constitute the Board members of the Foundation. The subscriber enters into an Education Savings Plan contract (the Contract ) with the Foundation in accordance with the prospectus, pursuant to which the subscriber subscribes for units in the Plan. Unless otherwise defined herein, all capitalized terms have the meanings given to them in the Contract and the Prospectus dated July 31, 2014 (the Prospectus ). The address of the Plan s registered office is Sheppard Avenue East, Toronto, M2J 5B4, Ontario, Canada. The Board of Directors of Heritage Educational Foundation authorized the issue of the financial statements on March 2, Significant accounting policies: These financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ). These are the Plan s first annual financial statements prepared in accordance with IFRS, and accordingly IFRS 1, First-time Adoption of International Financial Reporting Standards ( IFRS 1 ), has been applied. Previously, the Plan prepared its financial statements in accordance with Canadian generally accepted accounting principles as defined in Part V of the Chartered Professional Accountants of Canada Handbook ( Canadian GAAP ). The Plan has consistently applied the accounting policies used in the preparation of its opening IFRS statement of financial position at January 1, 2013 and throughout all periods presented, as if these policies had always been in effect. Note 7 discloses the impact of the transition to IFRS on the Plan s reported financial position, financial performance and cash flows, including the nature and effect of significant changes in accounting policies from those used in the Plan s financial statements for the year ended December 31, 2013 prepared under Canadian GAAP. These financial statements have been prepared on a historical cost basis, except for financial assets and financial liabilities at fair value through profit or loss which are presented at fair value. These financial statements are presented in Canadian dollars, which is the Plan s functional currency.

16 16 Audited Financial Statements Notes to Financial Statements (continued) Years ended December 31, 2014 and Significant accounting policies (continued): (a) Financial instruments: (i) Recognition, initial measurement and classification: Financial assets and financial liabilities at fair value through profit or loss are initially recognized at fair value, with transaction costs recognized in profit or loss. Financial assets or financial liabilities not at fair value through profit or loss are initially recognized at fair value plus transaction costs that are directly attributable to their acquisition or issue. The Plan has designated its investments, including debt securities at fair value through profit or loss. Net assets attributable to subscribers and beneficiaries are classified as financial liabilities given the Plan s obligation to pay out. All other financial assets and financial liabilities are measured at amortized cost, and are classified as loans and receivables and other financial liabilities, respectively. (ii) Fair value measurement: Fair value is the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants at the measurement date. The fair values of bonds, bank deposit notes and GICs are based on closing market prices. The fair values of cash, short-term investments and accrued interest approximate their carrying values due to the short-term nature of these financial instruments. Net assets attributable to subscribers and beneficiaries is measured at the redemption amount and is considered to be a residual interest in the assets of the Plan after deducting all of its liabilities. (ii) Offsetting: Financial assets and liabilities are offset and the net amount presented in the statements of financial position when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. Income and expenses are presented on a net basis for gains and losses from financial instruments at fair value through profit or loss. (b) Investment transactions and income recognition: Investment transactions are recorded on a settlement date basis. Realized gains or losses and changes in unrealized gains or losses are recognized in the statements of comprehensive income in the year when such gains or losses occur. Interest income is recorded on an accrual basis and includes amortization of any premiums or discounts on the purchase of the investments using the effective interest method.

17 IMPRESSION PLAN 17 Notes to Financial Statements (continued) Years ended December 31, 2014 and Significant accounting policies (continued): (c) Subscribers contributions and deferred sales charge: Subscribers contributions reflect all amounts received from the subscribers net of deductions if any. Subscribers may redeem their plan units at any time. There is an early withdrawal fee applicable should the subscribers discontinue or terminate their agreements within the first six years of enrolment, unless the withdrawal is an Education Assistance Payment ( EAP ) to a qualified student. The deferred sales charge is applied to the market value of the account based upon length of time the contributions are held in the plan and is paid to the Foundation. The deferred sales charge is calculated on a prescribed schedule outlined in the Plan s prospectus dated July 31, Contributions to the Plan are made over a maximum period of 18 years. (d) Government contributions: Canada Education Savings Grant ( CESG ) contributions represent the amount of federal government grants received by the Plan pursuant to the CESG program. The amount of grant received under the program is 20% of annual contributions made into a Registered Education Savings Plan ( RESP ) and has an annual maximum of $500 per eligible beneficiary who is under 18 years of age. An additional CESG amount may be available based on the net family income of the beneficiary and provides for an additional grant of 40% of annual contributions for beneficiaries whose annual family net income does not exceed $43,953* and 30% of annual contributions for beneficiaries whose annual family net income is between $43,954* and $87,907*. The cumulative lifetime maximum of all CESG is $7,200 per eligible beneficiary. The Government of Canada will provide a Canada Learning Bond ( CLB ) in the amount of $500 for any child born on or after January 1, 2004 who also qualifies for the National Child Benefit Supplement ( NCBS ), together with $25 to help cover the cost of opening an RESP. In each subsequent year that the child remains eligible for the NCBS until the year the child turns 15 years of age, the Government of Canada will contribute an additional $100 towards CLB, on an annual basis. The total CLB available for a beneficiary can amount to $2,000. For residents of Alberta, the provincial government has established the Alberta Centennial Education Savings Plan Grant of $500, which is paid into an RESP for every child born in Alberta on or after January 1, Additional grants of $100 will be paid into the RESPs of eligible beneficiaries when they turn 8, 11 and 14 in the year 2005 or later and (i) are attending school at that time; (ii) they have a parent or guardian who is a resident of Alberta at the time of the application or at the time of the child s particular birthday; and (iii) have met minimum contribution levels required by the Government of Alberta. For residents of Quebec, the provincial government provides the Quebec Education Savings Incentive ( QESI ), which applies to contributions made on or after February 21, 2007 into the RESP, where a child named as a beneficiary is a resident of Quebec. The basic credit is 10% of the net annual contribution to a maximum of $250 per eligible beneficiary. Families with income of $82,985* or less may qualify up to 10% of the first $500 in RESP contributions to a maximum of $50 in QESI. The total lifetime maximum is $3,600 per eligible beneficiary. The Saskatchewan Advantage Grant for Education Savings ( SAGES ) is a grant from the government of Saskatchewan offered to each resident beneficiary who is 17 years of age or under. The SAGES amount is 10% of annual contributions made into an RESP on or after January 1, 2013 and has an annual maximum of $250 per eligible beneficiary. The cumulative lifetime maximum for the SAGES is $4,500 per eligible beneficiary. *This amount is indexed each year based on the rate of inflation.

18 18 Audited Financial Statements Notes to Financial Statements (continued) Years ended December 31, 2014 and Significant accounting policies (continued): (d) Government contributions (continued): The government of British Columbia has introduced the new British Columbia Training and Education Savings Grant ( BCTESG ) offered to each resident beneficiary born on or after January 1, After the beneficiary turns six years of age, the Province of British Columbia will deposit $1,200 into the beneficiary s RESP. To qualify for the BCTESG, a subscriber must open the RESP prior to the beneficiary s ninth birthday or by August 15, 2018 for children born in 2007 and For children born in 2009, a subscriber must open the RESP prior to August 15, 2018 or before the child s ninth birthday, whichever is later. The beneficiary must be a resident of British Columbia when applying for the BCTESG and between his or her sixth and ninth birthday. No matching or additional contributions are required. All grants received by the Plan with respect to a beneficiary are invested by the Plan and will ultimately be paid out to the beneficiary in increments if the beneficiary becomes entitled to receive EAP. Under various circumstances, including the case where a beneficiary does not become eligible for receipt of an EAP, the government grants must be repaid. After maturity, under the Self-Determined Option, if a beneficiary does not enroll in eligible studies, the Plan is required to repay the grant, which is referable to that beneficiary. Earnings on such grants may be withdrawn in cash or rolled over into a registered retirement savings plan in accordance with the provisions of the Income Tax Act (Canada). Government grants and accumulated income, therefore, are included in the net assets attributable to subscribers and beneficiaries. (e) Income taxes: The Plan is exempt from income taxes under Section of the Income Tax Act (Canada). (f) Cash and cash equivalents: Cash and cash equivalents consist of cash on deposit with RBC Investor Services. (g) Future accounting changes: In July 2014, the IASB issued IFRS 9, Financial Instruments ( IFRS 9 ), to replace International Accounting Standard ( IAS ) 39, Financial Instruments - Recognition and Measurement. IFRS 9 addresses classification and measurement, impairment and hedge accounting. The new standard requires assets to be classified based on the Plan s business model for managing the financial assets and contractual cash flow characteristics of the financial assets. Financial assets will be measured at fair value through profit and loss unless certain conditions are met which permit measurement at amortized cost or value through other comprehensive income. The classification and measurement of liabilities remain generally unchanged, with the exception of liabilities recorded at fair value through profit and loss. For financial liabilities designated at fair value through profit and loss, IFRS 9 requires the presentation of the effects of changes in the Plan s own credit risk in other comprehensive income instead of net income. IFRS 9 is effective for fiscal years beginning on January 1, 2018, though early adoption is permitted. The Foundation is currently assessing the impact of this new standard on the Plan s financial statements.

19 IMPRESSION PLAN 19 Notes to Financial Statements (continued) Years ended December 31, 2014 and Critical accounting estimates and judgments: In preparing these financial statements, management of the Foundation has made judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognized prospectively. 3. Investments The face value, cost/amortized cost and fair value of investments by contractual maturity are as follows: December 31, 2014: Term to maturity Face Amortized Fair value cost value Yield Level 2 Government of Canada and federally guaranteed bonds: Due in one to five years $ 245,000 $ 245,637 $ 245, % Due after five years 290, , , % 535, , ,596 Provincial and provincially guaranteed bonds: Due in one to five years 35,000 35,058 38, % Due after five years 105, , , % 140, , ,452 Bank deposit notes/gics: Due in one to five years 15,000 15,135 15, % Corporate bonds: Due in one to five years 10,000 10,000 10, % Due after five years 25,000 25,000 25, % 35,000 35,000 35,815 Portfolio total $ 725,000 $ 844,608 $ 874,993

20 20 Audited Financial Statements Notes to Financial Statements (continued) Years ended December 31, 2014 and Investments (continued): December 31, 2013: Term to maturity Face Amortized Fair value cost value Yield Level 2 Government of Canada and federally guaranteed bonds: Due in one to five years $ 80,000 $ 80,004 $ 80, % Due after five years 405, , , % 485, , ,895 Provincial and provincially guaranteed bonds: Due in one to five years 35,000 35,085 38, % Due after five years 105, , , % 140, , ,919 Bank deposit notes/gics: Due in one to five years 25,000 24,998 25, % Corporate bonds: Due in one to five years 15,000 15,000 14, % Due after five years 10,000 10,000 9, % 25,000 25,000 24,649 Short-term investments 35,000 34,986 34, % Portfolio total $ 710,000 $ 767,791 $ 761,399

21 IMPRESSION PLAN 21 Notes to Financial Statements (continued) Years ended December 31, 2014 and Investments (continued): January 1, 2013: Term to maturity Face Amortized Fair value cost value Yield Level 2 Government of Canada and federally guaranteed bonds: Due in one to five years $ 20,000 $ 20,219 $ 20, % Due after five years 260, , , % 280, , ,369 Provincial and provincially guaranteed bonds: Due in one to five years 15,000 15,162 16, % Due after five years 185, , , % 200, , ,462 Bank deposit notes/gics: Due after five years 15,000 14,999 16, % Corporate bonds: Due after five years 10,000 10,000 10, % Short-term investments 35,000 34,948 34, % Portfolio total $ 540,000 $ 595,272 $ 618,023 A copy of the schedule of portfolio transactions of the Plan is available to subscribers upon request.

22 22 Audited Financial Statements Notes to Financial Statements (continued) Years ended December 31, 2014 and Investments (continued): The Plan s accounting policy on fair value measurements is discussed in note 1. The Plan uses a three-tier hierarchy for disclosing fair value based on inputs used to value the Plan s investments. The hierarchy of inputs is summarized below: (i) Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. An active market is one in which transactions for the assets occur with sufficient frequency and volume to provide pricing information on an ongoing basis. (ii) Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices). (iii) Level 3: Input for the assets that are based on unobservable market data. The Plan s investments are all classified as Level 2 and there were no transfers between levels during the years ended December 31, 2014 and All other financial assets and financial liabilities are carried at amortized cost, which due to their short-term nature approximates fair value. 4. Capital management: The capital of the Plan is represented by units with no par value. The units of the Plan are entitled to subscribers contributions, government contributions and accumulated income, if any. At maturity or forfeiture, subscribers will be entitled to a payout as outlined in the Plan s Prospectus. Restrictions on subscribers contributions are outlined in the Plan s Prospectus and defined by the Income Tax Act (Canada). Restrictions on payment from the Plan is also outlined in the Plan s Prospectus and are dependent on whether the beneficiary qualifies for the payments under the Plan. The relevant movements in net assets attributable to subscribers and beneficiaries are shown on the statements of changes in net assets attributable to subscribers and beneficiaries. The Plan endeavours to invest subscribers contributions and government grants received in appropriate investments while maintaining sufficient liquidity to meet subscribers obligation. The Plan s units are valued monthly to establish a monthly net asset per unit. The monthly net asset value per unit is calculated by dividing the net assets attributable to subscribers and beneficiaries by the number of units in the Plan at the last business day of the preceding month, reflected as the closing net asset per unit. The net asset value per unit is used to determine the number of units purchased by subscribers contributions and government grants. The number of units held in the subscribers account and the net asset value per unit are subsequently used to determine the value of subscribers accounts which can be paid to the subscriber and/or to the beneficiary, subject to the rules outlined in the Plan s prospectus dated July 31, 2014.

23 IMPRESSION PLAN 23 Notes to Financial Statements (continued) Years ended December 31, 2014 and Capital management (continued): The cancellation of units also valued at the net asset per unit price at the end of the preceding month. The cancellation of the Plan could be done within or after the 60-day period. If the cancellation of the Plan is done within 60-day period, the subscriber will receive a refund of all contributions, including all fees paid to-date. The total value of the Plan at any given time is calculated at number of units in the Plan multiplied by the net asset value per unit at the last business day of the preceding month. If the cancellation is requested after the 60-day period, the subscriber will receive all contributions less fees. When the Plan is cancelled or terminated any accumulated government grant will be returned to the applicable government. The subscriber is eligible to request for the income as an accumulated income payment and this will be the total value of the plan less the applicable government grant. At maturity from the total value of the Plan, the contributions are returned to the subscriber and the government grant and income earned are paid to the beneficiary. 5. Related party transactions: The Foundation has entered into an investment management agreement (the Agreement ) with Yorkville Asset Management Inc. ( Yorkville ), whereby Yorkville has been appointed as a portfolio adviser ( Portfolio Adviser ) for the Plan. The decision to enter into this Agreement with Yorkville was referred to the Independent Review Committee (the IRC ) of the Plan for its review in accordance with National Instrument , Independent Review Committee for Investment Funds ( NI ) and the IRC approved the Agreement subject to certain conditions. This arrangement is periodically reviewed by the IRC under the provisions of NI As at December 31, 2014, December 31, 2013 and January 1, 2013: (a) none of the Plan s assets had been deposited with Yorkville; and (b) there were no amounts paid or payable to Yorkville. An annualized management fee of 1.95% is paid to the Foundation based on the aggregate market value of the Plan. The management fee is inclusive of administrative, trustee and portfolio management fees and is accrued monthly in arrears. At its discretion, the Foundation may waive any fees for any period. For the years ended December 31, 2014 and December 31, 2013, the Foundation has waived the administrative and the trustee fees. At December 31, 2014, the amount receivable from the Foundation was $5,000 (December 31, nil; January 1, nil). 6. Risk management: The investment objectives of the Plan is to preserve capital while maximizing the long-term rate of return for subscribers. The Plan is affected by changes in economic environments and capital markets and, as a result, the Plan faces various risk factors in the course of its normal investment activities. These risk factors are primarily credit risk, liquidity risk and market risk. In order to proactively address these risks, management has engaged a third party portfolio advisor to assist in investing the subscribers contributions and the investment income earned thereon. Management and the Portfolio Adviser perform periodic reviews of the investment portfolio to comply with the stated investment objectives.

24 24 Audited Financial Statements Notes to Financial Statements (continued) Years ended December 31, 2014 and Risk management (continued): (a) Credit risk: Credit risk is the risk of financial loss to the Plan if the issuer of a debt fails to meet its contractual obligations. This risk is mitigated by the Plan s investment strategy of investing in those debt securities with an approved credit rating, as defined in Section 1.1 of NI and is further detailed in the Risk Factors section of the amended and restated Prospectus dated July 31, The Plan s credit risk exposure is as follows: Percentage of total portfolio December 31, December 31, January 1, Credit rating AAA AA AA A A Total The Plan s maximum credit risk exposure as at the reporting dates is represented by the respective carrying amounts of the financial assets in the statements of financial position. The Plan s activities may give rise to settlement risk. Settlement risk is the risk of loss due to the failure of an entity to honor its obligations to deliver cash, securities or other assets as contractually agreed. For the majority of transactions, the Plan mitigates this risk by conducting settlements through a broker to ensure that a trade is settled only when both parties have fulfilled their contractual settlement obligations. The Plan s cash and cash equivalents are held mainly with RBC Investor Services, which is rated AA- (December 31, AA-; January 1, AA-) based on the rating agency ratings. The Foundation monitors the financial position of RBC Investor Services on a quarterly basis. (b) Liquidity risk: Liquidity risk is the risk that the Plan will encounter difficulty in meeting the obligations associated with its financial liabilities. The Plan minimizes this risk by (i) maintaining sufficient cash, (ii) selecting investments for the portfolio that are active in the market and can be readily sold, and (iii) ensuring cash will be available by the anticipated payout dates applicable to the subscribers.