UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS. For the six-month periods ended June 30, 2016 and 2015 REFLEX PLAN

Transcription

1 UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS For the six-month periods ended June 30, 2016 and 2015 REFLEX PLAN

2 The REFLEX Plan Table of content Unaudited interim condensed financial statements Statements of financial position 1 Statements of net income and comprehensive income 2 Statements of changes in net assets attributable to contracts 3-4 Statements of cash flows 5 Schedule of investment portfolio 6-12 Notes 13-21

3 Statements of financial position Notes June 30, 2016 December 31, 2015 Assets Cash Sales pending settlement Other accounts receivable Dividends receivable Interest receivable Canada Education Savings Grant (CESG) receivable Quebec Education Savings Incentive (QESI) receivable Insurance experience refunds receivable Investments , , ,078 1,898 1,891 1,779 4,777 8, , , , ,154 Liabilities Purchases pending settlement Accounts payable and other liabilities Quebec Education Savings Incentive (QESI) refundable 2, ,938 1, ,511 2,344 Net assets attributable to contracts 543, ,810 The notes are an integral part of these interim condensed financial statements. 1

4 Statements of net income and comprehensive income for the six month periods ended June 30 Revenues from ordinary activities Interest income for educational assistance payments Dividends Insurance experience refunds Realized gain on disposal of investments Change in unrealized gain on investments Operating expenses Notes ,937 4,728 1,743 1, ,996 10,365 (4,140) 19,191 7,573 Brokerage fee Portfolio management fees Trustee fee Custodian fee Administration fee Independent Review Committee fee ,450 2, ,884 3,304 Net income and comprehensive income attributable to contracts 15,307 4,269 2

5 Statements of changes in net assets attributable to contracts for the six month periods ended June 30 Subscribers' savings SCROM EAP account CESG Accumulated income CESG QESI Accumulated income QESI Total Net assets as at December 31, ,842 37,165 (645) 122,478 16,193 38,634 3, ,810 Net income and comprehensive income Increase - - 9,175-4,916-1,216 15,307 Subscribers' savings Change in the SCROM Grants received from the government Other 32, ,335-2, , ,439-4,560-15, ,335 2,329-11, ,599-50,974 Decrease Refund of savings at maturity Pre-Maturity withdrawal of savings Refund of unclaimed savings Refund of sales charges at maturity Change in the SCROM Outflow of accumulated income on savings Transfers between plans Grants returned to the government Transfers to other promoters Grants and income on grants Outflow of accumulated income on grants for payments to a designated educational institution Educational assistance payments (EAPs) (2,844) (2,844) (1,896) (1,896) - - (1) (1) - (99) (99) - - (2,329) (2,329) - - (13) (13) (320) - - (337) (43) (56) (5) (761) (460) - (460) (293) (34) (61) (6) (394) (156) (40) (65) (8) (269) (103) - (17) (120) - - (157) (157) (5,060) (99) (2,500) (786) (220) (642) (36) (9,343) Net assets as at June 30, ,117 39,395 6, ,359 20,933 42,591 4, ,748 3

6 Statements of changes in net assets attributable to contracts for the six month periods ended June 30 Subscribers' savings SCROM EAP account CESG Accumulated income CESG QESI Accumulated income QESI Total Net assets as at December 31, ,872 30, ,136 19,730 30,774 4, ,385 Net income (net loss) and comprehensive income - - 4,816 - (382) - (165) 4,269 Increase Subscribers' savings Change in the SCROM Transfers between plans Grants received from the government Transfers received from other promoters 28, ,109-3, , ,310-4,480-14, ,181 3,148-10, , ,399 Decrease Refund of savings at maturity Pre-Maturity withdrawal of savings Refund of sales charges at maturity Outflow of accumulated income on savings Transfers between plans Grants returned to the government Transfers to other promoters Grants and income on grants Outflow of accumulated income on grants for payments to a designated educational institution Educational assistance payments (EAPs) (1,540) (1,540) (1,818) (1,818) - (50) (50) - - (3,148) (3,148) (7) (7) (373) - (373) (214) (40) (55) (7) (316) (54) (16) (22) (3) (95) (179) - (30) (209) - - (97) (97) (3,358) (50) (3,245) (275) (235) (450) (40) (7,653) Net assets as at June 30, ,695 33,806 1, ,368 19,158 34,841 3, ,400 4

7 Statements of cash flows for the six month periods ended June Cash flows from operational activities Income received Interest Dividends Insurance experience refunds 5,744 4,699 1,656 1, ,755 6,856 Operating expenses paid Brokerage fee Portfolio management fees Trustee fee Custodian fee Administration fee Independent Review Committee fee (70) (76) (315) (257) (6) (5) (70) (61) (3,378) (2,840) (11) (10) (3,850) (3,249) Other operational activities Disposal of investments Acquisition of investments 251, ,488 (304,099) (395,643) (52,905) (46,155) Net cash flows from operational activities (49,000) (42,548) Cash flows from financing activities Savings received Savings paid to other promoters Refund of savings to subscribers CESG and income on CESG received CESG and income on CESG paid QESI and income on QESI received QESI and income on QESI paid Transfers between plans Refund of sales charges Educational assistance payments (EAPs) Net cash flows from financing activities Net increase (decrease) in cash Cash, beginning of period 35,770 30,113 (429) (299) (4,729) (3,362) 11,502 10,424 (230) (380) 7,926 7,385 (256) (559) (761) 69 (98) (50) (422) (192) 48,273 43,149 (727) Cash, end of period 191 1,013 5

8 Schedule of investment portfolio as at June 30, 2016 Par value Security Maturity Rate (%) Cost Carrying amount Treasury bills and short-term investments 4,065 Government of Canada 25 Aug ,061 4,061 3,104 Cash - 3,104 3, Government of Canada 5 Jul The Bank of Nova Scotia 26 Aug Government of Canada 28 Jul Government of Canada 8 Sep City of Laval 27 Jun Transit in Quebec City 9 Nov Cash sweep City of Gatineau 29 Nov Total - Treasury bills and short-term investments 10,793 10,788 Bonds Bonds issued or guaranteed by the Government of Canada 13,300 Canada Housing Trust 15 Sep ,346 13,348 2,950 Government of Canada 1 Mar ,946 2,974 1,625 Government of Canada 1 Mar ,671 1, Government of Canada 1 Dec Government of Canada 1 Jun Government of Canada 1 Jun Government of Canada 1 Sep Government of Canada 1 Mar Bonds issued or guaranteed by a Canadian province 21,017 21,124 27,664 Province of Quebec 1 Sep ,187 30,284 23,149 Province of Ontario 2 Jun ,119 25,124 21,925 Province of Ontario 2 Jun ,206 23,304 20,100 Province of Quebec 1 Dec ,133 22,969 17,360 Province of Quebec 1 Sep ,909 20,015 16,385 Province of Ontario 2 Jun ,835 18,575 14,068 Province of Ontario 2 Jun ,673 15,724 13,612 Province of Quebec 1 Sep ,070 14,611 12,571 Province of Quebec 1 Dec ,277 14,485 10,641 Province of Quebec 1 Dec ,391 11,943 10,272 Province of Quebec 1 Dec ,400 11,155 9,828 Province of Ontario 2 Jun ,469 10,810 8,428 Province of Ontario 2 Jun ,403 9,538 8,874 Province of Quebec 1 Dec ,667 9,344 8,331 Province of Ontario 2 Jun ,290 9,146 8,019 Province of Ontario 8 Sep ,184 8,132 7,127 Cadillac Fairview Corporation Ltd. 25 Jan ,928 7,992 7,101 Province of Ontario 8 Sep ,225 7,290 6,199 Province of Quebec 1 Dec ,005 6,913 4,843 Province of Ontario 8 Sep ,939 5,007 6

9 Schedule of investment portfolio as at June 30, 2016 Par value Security Maturity Rate (%) Cost Carrying amount Bonds (continued) Bonds issued or guaranteed by a Canadian province (continued) 3,300 Province of Quebec 1 Sep ,379 3,449 3,051 OPB Finance Trust 24 May ,134 3,239 2,825 Province of Nova Scotia 1 Jun ,793 2,865 2,560 Province of New Brunswick 2 Jun ,571 2,742 2,320 Province of Ontario 2 Jun ,371 2,411 1,660 Hydro Quebec 15 Aug ,448 2,314 2,000 Province of Prince Edward Island 24 Sep ,209 2,191 1,831 Province of New Brunswick 3 Dec ,898 2,010 1,184 Province of Quebec 1 Apr ,825 1,854 1,702 OPB Finance Trust 24 Feb ,699 1,715 1,400 Province of British Columbia 18 Dec ,494 1, Province of Quebec 16 Jan ,447 1,442 1,255 Province of Alberta 1 Dec ,306 1,400 1,163 Province of Ontario 8 Mar ,260 1,229 1,125 Province of Alberta 1 Jun ,150 1,161 1,025 Province of Manitoba 2 Jun ,104 1,137 1,048 Financement-Quebec 1 Dec ,112 1, Financement-Quebec 1 Dec ,039 1, Financement-Quebec 1 Dec ,025 1, Hydro Quebec 15 Jul Province of Ontario 8 Sep CDP Financial Inc. 15 Jul Province of Ontario 13 Jul Hydro Quebec 25 May Ontario Hydro 22 Jun Province of Quebec 1 Jun Province of Ontario 2 Dec Province of Ontario 7 Feb Province of Ontario 27 Jan Province of Ontario 2 Jun Ontario Hydro 18 Aug Cadillac Fairview Corporation Ltd. 9 May OPB Finance Trust 2 Feb , ,958 7

10 Schedule of investment portfolio as at June 30, 2016 Par value Security Maturity Rate (%) Cost Carrying amount Bonds (continued) Bonds issued or guaranteed by a municipality 3,560 City of Montreal 1 Dec ,924 4,069 2,990 City of Toronto 21 May ,056 3,298 2,345 City of Montreal 1 Sep ,432 2,578 2,460 City of Saint-Jean-sur-Richelieu 22 Jun ,419 2,394 2,000 Société de transport de Lévis 15 Oct ,971 2,029 2,000 City of Sherbrooke 29 Jun ,979 1,998 1,850 City of Laval 18 Jun ,830 1,985 1,755 Regional Municipality of York 30 Jun ,917 1,966 1,800 City of Chateauguay 7 Oct ,783 1,841 1,813 City of Brossard 21 Jul ,790 1,840 1,800 City of Saint-Lambert 29 Jul ,777 1,823 1,670 City of Montreal 1 Sep ,667 1,713 1,587 City of Lévis 2 Jun ,565 1,614 1,510 City of St-Bruno-de-Montarville 9 Sep ,489 1,527 1,500 City of Victoriaville 21 Oct ,479 1,522 1,500 City of Boucherville 22 Jul ,477 1,520 1,500 City of Drummondville 18 Dec ,481 1,507 1,427 City of Gatineau 23 Jun ,415 1,432 1,400 City of Chambly 16 Dec ,378 1,416 1,368 City of Magog 9 Sep ,347 1,386 1,350 City of Longueuil 12 May ,336 1,339 1,210 City of Montreal 1 Sep ,207 1,330 1,300 City of Joliette 1 Sep ,284 1,290 1,200 City of Rismouski 1 Dec ,182 1,229 1,200 City of Saguenay 22 Apr ,187 1,225 1,200 City of Saguenay 21 Oct ,183 1,219 1,200 City of Sainte-Thérèse 19 Aug ,183 1,214 1,200 City of Sherbrooke 10 Dec ,183 1,212 1,160 City of Sherbrooke 20 Feb ,150 1,181 1,160 Communauté Métropolitaine de Montréal 19 Dec ,166 1,171 1,160 City of Saint-Jean-sur-Richelieu 4 Jun ,144 1,168 1,072 City of Saint-Lambert 29 Jul ,064 1,076 1,046 City of Chambly 18 Aug ,034 1,056 1,000 Societe de transport de l'outaouais 2 Dec ,024 1,013 City of Kirkland 27 Jan ,002 1,021 1,000 City of Brossard 4 Nov ,015 1,000 Societe de Transport de Laval 15 Dec ,012 1,000 City of Saguenay 14 Oct ,007 1,007 1,009 Transit in Quebec City 30 Jun ,005 1,000 City of Gatineau 29 Jun ,000 City of Granby 6 Jul City of Quebec 26 Aug City of Victoriaville 15 Jun City of Rouyn-Noranda 12 May City of Sainte-Julie 28 Apr City of Sorel-Tracy 17 Jun City of Magog 2 Sep City of Longueuil 12 May

11 Schedule of investment portfolio as at June 30, 2016 Par value Security Maturity Rate (%) Cost Carrying amount Bonds (continued) Bonds issued or guaranteed by a municipality (continued) 619 Communauté Métropolitaine de Montréal 16 Jun City of Rouyn-Noranda 30 Mar City of Val-d'Or 1 Dec City of Saint-Constant 21 Jan City of Thetford Mines 18 Feb City of Sainte-Julie 28 Apr City of Sainte-Julie 21 May City of Lévis 5 Sep City of Victoriaville 15 Jun Municipality of La Prairie 10 Sep City of Saint-Jean-sur-Richelieu 18 Dec City of Saguenay 16 Oct City of Saguenay 8 May ,714 73,699 Total - Bonds 408, ,781 9

12 Schedule of investment portfolio as at June 30, 2016 Number of shares Security Cost Carrying amount Equities Energy Materials 50,760 Enbridge Inc. 2,364 2,776 65,700 Canadian Natural Resources Ltd. 2,380 2,616 67,500 Suncor Energy Inc. 2,441 2,415 85,600 Cenovus Energy Inc. 2,338 1,528 59,138 Parkland Fuel Corporation 1,323 1,330 55,542 Arc Resources Ltd. 1,413 1,225 25,470 Vermillon Energy Inc. 1,422 1,044 34,430 Crescent Point Energy Corp ,484 Inter Pipeline ,800 Altagas Ltd ,140 Whitecap Ressources Inc ,518 14,779 24,224 Agrium Inc. 2,793 2,828 43,061 Pembina Pipeline Corporation 1,673 1,686 55,610 Potash Corporation of Saskatchewan Inc. 1,604 1,167 4,200 CCL Industries Inc ,400 Winpak Ltd ,100 Cameco Corporation 1, ,240 West Fraser Timber Co. Ltd Communications Utilities 8,973 8,738 59,705 TELUS Corporation 2,433 2,482 62,788 Fortis Inc. 2,471 2, ,955 Enercare Inc. 2,239 2, ,001 Algonquin Power & Utilities Corp. 1,500 1,605 31,293 Keyera Corp. 1,279 1,234 34,550 Hydro One Limited ,222 9,001 10

13 Schedule of investment portfolio as at June 30, 2016 Number of shares Security Cost Carrying amount Equities (continued) Financials 134,434 Toronto-Dominion Bank 6,194 7,446 84,726 Royal Bank of Canada 5,694 6,468 88,376 The Bank of Nova Scotia 5,301 5,590 86,918 Great-West Lifeco Inc. 2,757 2, ,578 Manulife Financial Corporation 2,382 2,092 16,980 Intact Financial Corp. 1,152 1,566 35,055 Industrial Alliance, Insurance and Financial Services Inc. 1,453 1,420 53,698 H&R Real Estate Investment Trust 1,148 1,209 29,643 Allied Properties Real Estate Investment Trust 977 1,146 35,118 Home Capital Group Inc. 1,063 1,124 19,321 Boardwalk Real Estate Investment 1,108 1,111 25,093 Smart Real Estate Investment Trust ,490 Alaris Royalty Corp ,843 National Bank of Canada Currency Exchange International, Corp Consumer staples 31,136 34,262 35,730 Alimentation Couche-Tard Inc. 2,013 1,980 36,500 Metro Inc ,641 22,720 Loblaw Companies Ltd. 1,151 1,567 22,470 Premium Brands Holdings Corporation 1,006 1,222 28,800 Saputo Inc ,103 20,500 The Jean Coutu Group (PJC) Inc Consumer services 6,177 7,922 78,675 Thomson Reuters Corporation 3,696 4,107 45,850 New Flyer Industries Inc ,840 12,550 Canadian Tire Corporation Ltd. 1,149 1,761 41,800 Gildan Activewear Inc. 1,596 1,580 66,000 Aimia Inc. 1, ,479 Cineplex Inc ,150 Corus Entertainment Inc ,344 10,607 11

14 Schedule of investment portfolio as at June 30, 2016 Number of shares Security Cost Carrying amount Equities (continued) Industries 69,101 Groupe WSP Global Inc. 2,744 2,724 35,200 Canadian National Railway Company 1,842 2,683 73,453 DH Corporation 2,520 2,358 36,700 SNC-Lavalin Group Inc. 1,486 1,989 36,000 Stantec Inc. 1,083 1,126 48,000 CAE Inc Technology 10,318 11,628 29,200 Open Text Corporation 1,511 2,230 20,100 CGI Group Inc ,109 34,986 The Descartes Systems Group Inc ,859 4,203 Total - Equities 94, ,622 Brokerage fee (74) - Total - Schedule of investment portfolio 513, ,191 12

15 Unaudited interim condensed notes for the six month periods ended June 30, 2016 and General information about the Plan The REFLEX Plan (the Plan ) is a trust maintained by declaration of trust pursuant to the Civil Code of Quebec; it is governed by a trust agreement (the Agreement ) concluded on July 9, 2010, between the Universitas Foundation of Canada (the Foundation ), Eterna Trust Inc. and Universitas Management Inc. The latter acts as the investment fund manager of the REFLEX Plan promoted by the Foundation. The Plan s head office and principal place of business is located at 1035 Wilfrid- Pelletier Avenue, Suite 500, Quebec City (Quebec) G1W 0C5. The REFLEX Plan is a group scholarship plan under which the refund of contributions (savings) is guaranteed at all times, as well as the sales charges when the plan reaches maturity. The Plan is available to beneficiaries aged 0 to 15 years inclusive. Eligible studies that qualify for educational assistance payment (EAP) are full-time post-secondary programs of study offered in universities, community colleges, trade schools, vocational schools, technical schools, general and vocational colleges (CEGEPs), private colleges, pursued in Canada or abroad. A beneficiary may receive one to three EAPs depending on the eligibility criteria met and the academic path chosen. The Plan invests in equities of Canadian companies, debt securities issued or guaranteed by Canadian governments and Canadian treasury short-term debt securities. The release of these financial statements was authorized by the Audit Committee on August 25, Implementation of the new and revised standards Standards and interpretations in effect during the reporting period Amendments to IFRS 11 Joint Arrangements The standard was revised to integrate the amendments published by the IASB in The amendments add new guidance on how to account for the acquisition of an interest in a joint operation that constitutes a business. The amendments are effective for reporting periods beginning on or after January 1, 2016; their application had no effect on the Plan's results or financial position. Amendments to IAS 1 Presentation of Financial Statements The amendments to IAS 1 relate to (i) materiality; (ii) order of the notes; (iii) subtotals; (iv) accounting policies; and (v) disaggregation, and are designed to further encourage companies to apply professional judgment in determining what information to disclose in their financial statements. The amendments are effective for reporting periods beginning on or after January 1, 2016; their application had no effect on the Plan's results or financial position. Standards and interpretations published but not yet effective As at the date of approval of these financial statements, the following new standards, amendments to existing standards and subsequent interpretations have been published but are not yet in effect: Amendments to IAS 7 Statement of Cash Flows In January 2016, the IASB issued narrow-scope amendments to IAS 7 Statement of Cash Flows to require companies to disclose information about changes in their financing liabilities, including variations with no effect on cash flows. The amendments are effective for annual periods beginning on or after January 1, 2017, with earlier application permitted. Application of the amendments will not affect the Plan s statement of cash flows. 13

16 Unaudited interim condensed notes for the six month periods ended June 30, 2016 and Significant accounting policies Statement of compliance The statements of financial position, the statements of net and comprehensive income, the statements of changes in net assets attributable to contracts, the statements of cash flows and the accompanying notes were prepared in accordance with IAS 34: Interim Financial Reporting, except for the fact that comparative information has not been presented. These interim condensed financial statements should be read in conjunction with the financial statements for the year ended December 31, The significant accounting policies used in preparing these condensed interim financial statements are consistent with those found in the financial statements for the year ended December 31, Significant accounting judgements, estimates and assumptions In the application of the Plan's accounting policies, as described in Note 3, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The main sources of uncertainty regarding estimates and the main judgements made by management for the unaudited interim condensed financial statements are identical to those presented in the annual financial statements for the year ended December 31, Sales Charge Refund Obligation at Maturity (SCROM) The SCROM is an obligation to refund the subscribers, at plan maturity, an amount equal to the sales charges paid, regardless of the net income generated on the subscribers savings. The Plan retains the services of an independent actuary to determine the value of the SCROM. The assessment is based on cash flow projections made by the independent actuary. The assumptions used to determine the value of the SCROM illustrate the management s best estimate regarding the future payments to subscribers and includes economic and noneconomic assumptions. The non-economic assumptions include considerations such as the termination of plans before maturity. The main economic assumption is the discount rate. The latter corresponds to the weighting of the net rate of return on equities and bonds, in compliance with the investment policy regarding to the SCROM. The discount rate used for these financial statements is 5.40% (5.42% as at December 31, 2015). 14

17 Unaudited interim condensed notes for the six month periods ended June 30, 2016 and Investments June 30, 2016 December 31, 2015 Treasury bills and short-term investments Bonds Equities 10,788 25, , , ,622 94, , , Accounts payable and other liabilities Notes June 30, 2016 December 31, 2015 Amount payable to Universitas Management Inc. Accumulated income on grants to be paid to a designated educational institution Other ,193 1, ,938 1, Sales Charge Refund Obligation at Maturity (SCROM) June 30, 2016 December 31, 2015 Discounted value of the SCROM Non-discounted value of the SCROM 39,395 37,165 73,403 68,522 Given that the underlying conditions evolve over the years, especially the rate of return, these assumptions could also change and therefore cause a change in the discounted value of the SCROM. Impact of a change in the discount rate June 30, 2016 December 31, 2015 Discount rate applied 5,40 % 5.42 % Increase of 1.0% (4,029) (3,726) Decrease of 1.0% 4,589 4,235 15

18 Unaudited interim condensed notes for the six month periods ended June 30, 2016 and Related party transactions Universitas Management Inc. Universitas Management Inc., a wholly-owned subsidiary of the Foundation, is the exclusive distributor of the products promoted by the Foundation and serves as the investment fund manager and administrator of the Plan. Universitas Foundation of Canada The Foundation is the promoter of the REFLEX Plan. The Plan and the Foundation report to the same Board of Directors. Administration fee Universitas Management Inc. Universitas Foundation of Canada ,370 2, ,450 2,897 Amount receivable (payable) June 30, 2016 December 31, 2015 Universitas Management Inc. Universitas Foundation of Canada (596) (525) 49 3,056 These transactions, wich represent the administration fee, were carried out during the normal course of operations and are measured based on their exchange value. 9. Capital management The Plan's capital corresponds to the net assets attributable to contracts. Capital management objectives are as follows: Preserving the value of the subscribers' savings and government grants; Ensuring the refund of sales charges at maturity; Achieving a maximum net investment return while maintaining an appropriate degree of risk to reach satisfactory EAP levels. In order to meet these objectives, the portfolio managers have a mandate to optimize total returns through high-quality investments, diversification and strategic asset allocation, security selection, duration management and credit analysis. The Plan regularly assesses and analyzes its policies and procedures. For the period ended June 30, 2016, the following policies and procedures were applied: Subscribers savings: The Plan commits to refund subscribers savings and to invest the savings solely in fixed-income securities guaranteed by a Canadian government before plan maturity. After plan maturity, the Plan invests exclusively in money-market securities guaranteed by a Canadian government or held as cash or cash equivalents to ensure the liquidity of investments, as these sums may be withdrawn at any time; Government grants: The government grants received prior to April 20, 2012, are invested as follows: 85% in Canadian equities and 15% in fixed-income securities guaranteed by a Canadian government. The government grants received on or after April 20, 2012, are invested solely in government bonds guaranteed by a Canadian government; Accumulated income on government grants, the SCROM and EAP account: The Plan invests: 85% of these funds in Canadian equities and 15% in fixed-income securities. 16

19 Unaudited interim condensed notes for the six month periods ended June 30, 2016 and Capital management (continued) During the period ended June 30, 2016, the Plan maintained the same strategy of prudent portfolio management as that of previous reporting periods by maintaining the investment philosophy adopted by the Investment Committee and portfolio managers. These policies and procedures must comply with the provisions of the Securities Act (Quebec) and meet the requirements of Paragraph (1) of the Income Tax Act (Canada). The Plan is not subject to any other external requirement concerning its capital. 10. Financial instruments Fair value Establishing fair value The fair value of cash, sales pending settlement, dividends receivable, interest receivable, CESG receivable, QESI receivable, insurance experience refunds receivable, other accounts receivable, purchases pending settlement, CESG refundable, QESI refundable and accounts payable and other liabilities approximates their carrying amounts due to their short-term maturities. The fair value of the net assets attributable to contracts corresponds to its carrying amount, given that it is the residual amount allocated to contract holders and beneficiaries as at the reporting date. The fair value of equitiy investments is established from the bid price values. If quoted prices in active markets are unavailable, the fair value of investments in Treasury bills, short-term investments and bonds is determined through the use of current industry-specific valuation methods, such as a model whose application is based on discounting the expected future cash flows or similar techniques. These methods take into account current observable data on the market for financial instruments with a similar risk profile and comparable terms. The important data used in these models include, but are not limited to, yield curves and credit risks. Fair value hierarchy For financial reporting, fair value measurements are classified in accordance with a hierarchy (levels 1-2-3). This classification is based on the level at which input data concerning fair value measurements are observable, as well as on the significance of a particular input to the fair value measurement in its entirety. The fair value hierarchy consist of the following levels: Level 1 - Valuation based on quoted prices (unadjusted) in active markets for identical assets or liabilities (for example, prices observable on the TSX) and for which the entity can have access at the measurement date. Level 2 - Valuation based on 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). For example, inputs such as yield curves and indices. Level 3 - Valuation using inputs for assets or liabilities that are not based on observable market data (unobservable inputs). For example, private investment valuations by investment fund managers. The hierarchy that applies as part of the determination of fair value requires the use of observable market inputs whenever such inputs exist. Fair values are classified as Level 1 when the security is traded on an active market and a quoted price is available. If a financial instrument classified as Level 1 ceases to trade in an active market, it is transferred to the next level, i.e. Level 2. If valuation of its fair value requires significant use of unobservable market inputs, then it is classified as Level 3. 17

20 Unaudited interim condensed notes for the six month periods ended June 30, 2016 and Financial instruments (continued) Fair value (continued) Fair value hierarchy (continued) The following tables present the financial instruments recorded at fair value in the statements of financial position, classified using the fair value hierarchy: As at June 30, 2016 Treasury bills and short-term investments Bonds Equities Level 1 Level 2 Level 3 Total - 10,788-10, , , , , , , ,191 As at December 31, 2015 Treasury bills and short-term investments Bonds Equities Level 1 Level 2 Level 3 Total - 25,294-25, , ,182 94, ,331 Risk management related to financial instruments 94, , ,807 Over the course of the periods ended June 30, 2016 and December 31, 2015, there was no significant transfer of amounts between Levels 1 and 2. Due to the nature of its business activities, the Plan is exposed to a variety of financial risks arising from financial instruments, such as credit risk, liquidity risk and market risk, including other price risk, currency risk and interest rate risk. The Plan's overall risk management program seeks to maximize the returns achieved without exposing subscribers' savings to undue risks and by minimizing potential adverse impacts on financial performance. All investments present a risk of loss of capital. The main risks stemming from financial instruments to which the Plan is exposed and the main actions taken to manage these are the following: Credit risk The Plan is exposed to credit risk, which is the possibility of incurring financial losses resulting from the inability of a company, an issuer or counterparty to meet its financial commitments to the Plan. The Plan's exposure to credit risk arises from its investments in debt securities. The Plan has established qualitative selection criteria for investments to limit this risk. As for investments related to subscribers' savings and a portion of the government grants received prior to April 20, 2012, the Plan only selects securities issued by the Government of Canada, a provincial government, a municipality or a corporation guaranteed by a government. The other amounts making up the net assets attributable to contracts may also be invested in securities issued by corporations. Quantitative restrictions have also been established to reduce credit risk. Securities from all borrowers, except a government, are limited to 10% of the total fair value of the fixed-income securities entrusted to the portfolio manager. A minimum BBB rating is required when purchasing. 18

21 Unaudited interim condensed notes for the six month periods ended June 30, 2016 and Financial instruments (continued) Risk management related to financial instruments (continued) Credit risk (continued) As at June 30, 2016 and 2015, the Plan invested in fixed-income securities that are neither past due nor impaired, and presented the following credit rating: Credit rating AAA AA A BBB *Excludes short-term investments Percentage of total debt securities* June 30, December 31, % % The following chart presents the Plan's maximum exposure to credit risk: June 30, 2016 December 31, 2015 Cash Sales pending settlement Other accounts receivable Treasury bills and other short-term investments Bonds Dividends receivable Interest receivable Canada Education Savings Grant (CESG) receivable Quebec Education Savings Incentive (QESI) receivable Insurance experience refunds receivable Maximum exposure , ,056 10,788 25, , , ,078 1,898 1,891 1,779 4,777 8, , ,823 Liquidity risk This risk pertains to the Plan's ability to meet its commitments in terms of financial liabilities and, therefore, its capacity to carry out payments as required. The Plan is exposed to daily refunds to subscribers, who are entitled to request the refund of their savings at any time. However, the majority of subscribers hold their investment until the contract's maturity date. The liquidity risk is noticeably reduced by the fact that the subscribers' savings are invested only in fixed-income securities on highly-liquid markets. The Plan carefully manages, on a daily basis, its cash position and ensures the minimum cash level required to meet its liquidity needs is maintained. Market risk Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market prices. Market risk comprises three types of risk: currency risk, interest rate risk and other price risk. Certain parameter changes in financial market influence the Plan's statements of financial position and comprehensive income. The Plan considers these risks when deciding on the global distribution of its assets. More specifically, market risk is reduced through portfolio diversification, meaning the Plan holds a portfolio that includes several asset categories (money market, bond and stock exchange), diverse products with varying risk profiles (participative or fixed-income securities) and multiple industry segments (government, municipal energy, materials, communications, utilities, financials, consumer staples, consumer services, industries and technology). 19

22 Unaudited interim condensed notes for the six month periods ended June 30, 2016 and Financial instruments (continued) Risk management related to financial instruments (continued) Currency risk Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in foreign exchange rates. The Plan no longer carries out transactions denominated in foreign currencies and is therefore no longer exposed to currency risk. Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market interest rates. Changes in interest rates have a direct impact on the value of the investment portfolio's fixed-maturity securities. This risk is mitigated by a duration range for the active portion of the bond portfolio, and by developing a target duration correlated to the economic outlook for the passive portion of the bond portfolio. Maturity allocation of bonds is regularly adjusted based on the anticipated movement of interest rates, in compliance with the established maturities under the Plan's investment policy. The target duration of the bond portfolio is in line with the DEX Mid Term Provincial Bond Index and for the active portion of the portfolio, the mandates of the portfolio managers allow a duration which may deviate from the target by more than three years and less than four years. The target duration is based on an analysis of the economic situation, future prospects and risk based on the very nature of the RESP. As at June 30, 2016, a change of 100 basis points in the interest rates on the market, assuming a parallel shift in the yield curve with all other variables remaining constant, would cause the fair value of the bonds held in the Plan's investment portfolio, the net income, the comprehensive income and the net assets attributable to contracts to change by approximately $21.2M ($20.7M as at December 31, 2015). In practice, actual results may differ materially. The Plan's bond portfolio by maturity date is distributed as follows: Maturing in less than one year Maturing in one to five years Maturing after five years June 30, December 31, % % Price risk Price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market. The stock exchange market volatility mostly influences the value of the equities held by the Plan. It should be noted however, that this exposure is spread in various industry segments, especially in Canadian large-cap securities, which reduces risk. The market index reference related to equities is the S&P/TSX. A 10% variation in the market index, with all other variables held constant, would create a change of approximately $10.4M as at June 30, 2016 ($9.4M as at December 31, 2015), in the fair value of the Plan's equity holdings, net income, omprehensive income and net assets attributable to contracts. In practice, actual results may differ materially. Sensitivity analysis on the fair value of bonds and Treasury bills is described in the "Interest rate risk" section. 20

23 Unaudited interim condensed notes for the six month periods ended June 30, 2016 and Financial instruments (continued) Risk management related to financial instruments (continued) Concentration risk The concentration risk arises from the concentration of positions within a given category, whether a geographical location, a product type, an industry sector or a type of counterparty. The following table summarizes the Plan's concentration risk in relation to the total carrying amount of equity investments: Market sectors Energy Materials Communications Utilities Financials Consumer staples Consumer services Health Industries Technology June 30, December 31, % % Offsetting The following table outlines the financial instruments that have been offset in the Plan's financial statements: Canada Education Savings Grant (CESG) receivable June 30, 2016 December 31, 2015 Gross financial assets Financial liabilities offset 2,230 2,021 (339) (242) The Plan has no other financial instrument subject to an enforceable master netting agreement or similar agreement. The Plan does not hold assets that can be used as a guarantee for the CESG receivable. 1,891 1,779 21

24 Head Office Centre d affaires Henri-IV 1035 Wilfrid-Pelletier Ave., Suite 500 Quebec QC G1W 0C5 Phone: Customer Service: RESP (7377) Fax: info@universitas.ca