C.S.T. Consultants Inc. Canadian Scholarship Trust Group Savings Plan. Semi-Annual Financial Statements Unaudited

Transcription

1 C.S.T. Consultants Inc. Canadian Scholarship Trust Group Savings Plan Semi-Annual Financial Statements Unaudited April 30, 2018

2 Contents Page Statements of Financial Position 1 Statements of Comprehensive Income 2 Statements of Changes in Net Assets Attributable to Subscribers and Beneficiaries 2 Statements of Cash Flows 3 Schedule I Statement of Investment Portfolio 4 Notes to the Financial Statements 7 Government Grants (Appendix I to Schedule I) 13 Sales Charge Refund Entitlements (Appendix II to Schedule I) 17 Unaudited semi-annual financial statements The accompanying semi-annual financial statements have not been reviewed by the external auditors of the Plan in accordance with assurance standards applicable to a review of interim financial statements.

3 Statements of Financial Position As at April 30, 2018 and October 31, 2017 (in thousands of Canadian dollars) Apr 30, 2018 Oct 31, 2017 (Audited) Assets Cash and cash equivalents $ 863 $ 2,965 Receivables for securities sold Investments, at fair value (Note 4 and Schedule I) 369, ,960 Accrued interest and other receivables 4,844 6,002 Government grants receivable , ,550 Liabilities Payables for securities purchased 65 1,176 Accounts payable, accrued liabilities and unclaimed subscribers funds 1,969 1,321 Net Assets Attributable to Subscribers and Beneficiaries 373,306 2,034 2, ,053 Represented by: Non-Discretionary Funds Accumulated income held for future education assistance payments 110, ,387 Subscribers deposits (Note 7) 117, ,568 Government grants 68,166 71,952 Income on Government grants 45,626 46,859 Sales charge refund entitlements (Note 9) 25,199 24,669 General Fund (Note 8) 3,874 3,785 Unrealized Gains 1,664 6,224 Discretionary Funds Donations from the Foundation (Note 8) $ 373,306 $ 406,053 Approved on behalf of the Board of Canadian Scholarship Trust Foundation. 18JUN Douglas P. McPhie, FCPA, FCA, CPA (Illinois) Director Sherry J. MacDonald, CPA, CA Director 18JUN Group Savings Plan

4 Statements of Comprehensive Income For the six months ended April 30, 2018 and 2017 (in thousands of Canadian dollars) Income Interest for allocation to subscriber accounts $ 3,903 $ 5,557 Realized gains (losses) on sale of investments (663) 1,601 Change in unrealized gains (losses) (4,560) 4,818 Dividends 2,464 3, ,144 15,427 Expenses Administration and account maintenance fees (Note 3(a)) 1,027 1,420 Portfolio management fees Custodian and trustee fees Independent Review Committee fees 3 4 1,286 1,710 Increase (decrease) in Net Assets from Operations Attributable to Subscribers and Beneficiaries $ (142) $ 13,717 Statements of Changes in Net Assets Attributable to Subscribers and Beneficiaries For the six months ended April 30, 2018 and 2017 (in thousands of Canadian dollars) Net Assets Attributable to Subscribers and Beneficiaries, Beginning of Period $ 406, $ 547,639 Increase (decrease) in Net Assets from Operations Attributable to Subscribers and Beneficiaries (142) 13,717 Transfers to internal and external plans (4,523) (4,665) (3,137) 10,580 Receipts Government grants received (net of repayments) Disbursements Net decrease in Subscribers deposits (Note 7) (14,947) (11,845) Payments to beneficiaries Education assistance payments (7,140) (6,491) Government grants (2,551) (2,210) Refund of Sales Charge (1,421) (1,224) Return of interest (2,038) (1,483) Total payments to beneficiaries (13,150) Receipts less Disbursements (28,082) Change in Net Assets Attributable to Subscribers and Beneficiaries (32,747) Net Assets Attributable to Subscribers and Beneficiaries, End of Period $ 373, (11,408) (23,121) (12,541) $ 535,098 Group Savings Plan 2

5 Statements of Cash Flows For the six months ended April 30, 2018 and 2017 (in thousands of Canadian dollars) Operating Activities Increase (decrease) in Net Assets from Operations Attributable to Subscribers and Beneficiaries $ (142) $ 13,717 Net disbursements from investment transactions 23,612 23,219 Items not affecting cash Realized (gains) losses on sale of investments 663 (1,601) Change in unrealized (gains) losses 4,560 (4,818) Change in non-cash operating working capital Decrease in Accrued interest and other receivables 1,158 6,036 Decrease in Government grants receivable 4 33 Increase (decrease) in Accounts payable, accrued liabilities and unclaimed subscribers funds 648 (11,380) Cash flow from Operating Activities 30,503 25,206 Financing Activities Transfers to internal and external plans (4,523) (3,137) Government grants received (net of repayments) Net decrease in Subscribers deposits (Note 7) (14,947) (11,845) Payments to beneficiaries (13,150) (11,408) Cash flow used in Financing Activities (32,605) (26,258) Net decrease in Cash and cash equivalents (2,102) (1,052) Cash and cash equivalents, Beginning of Period Cash 1,603 2,766 Cash equivalents 1, ,965 3,669 Cash and cash equivalents, End of Period Cash 508 1,234 Cash equivalents 355 1,383 $ 863 $ 2,617 Supplemental cash flow information: Withholding Taxes $ 70 $ 93 Interest Income Received 4,575 5,852 3 Group Savings Plan

6 Schedule I Statement of Investment Portfolio As at April 30, 2018 (in thousands of Canadian dollars) Interest Maturity Par Fair Average Interest Maturity Par Fair Average Security Rate (%) Date Value ($) Value ($) Cost ($) Security Rate (%) Date Value ($) Value ($) Cost ($) Bonds Federal 38.9% Canada Housing Trust Jun ,125 1,127 1,157 Canada Housing Trust Dec ,600 1,602 1,651 Canada Housing Trust Mar ,469 6,680 7,173 Canada Housing Trust Jun ,600 4,523 4,586 Canada Housing Trust Jun Canada Housing Trust Dec ,325 4,231 4,336 Canada Housing Trust Jun ,323 1,285 1,335 Canada Housing Trust Jun ,310 2,421 2,512 Canada Housing Trust Dec ,700 1,634 1,668 Canada Housing Trust Dec ,336 1,300 1,325 Canada Housing Trust Mar Canada Housing Trust Jun ,227 3,153 3,230 Government of Canada Dec ,644 3,645 3,711 Government of Canada May ,050 1,044 1,044 Government of Canada May ,100 1,094 1,094 Government of Canada May ,675 5,655 5,655 Government of Canada Jun ,290 3,278 3,278 Government of Canada Jun ,275 1,268 1,268 Government of Canada Jul ,950 2,937 2,937 Government of Canada Jul ,046 1,039 1,039 Bonds (continued) Provincial 10.3% (continued) Province of Manitoba Jun Province of Manitoba Sep Province of New Brunswick Jun Province of New Brunswick May Province of Newfoundland and Labrador Jun Province of Nova Scotia Nov Province of Nova Scotia Jun Province of Ontario Jun Province of Ontario Sep Province of Ontario Jun ,000 3,128 3,357 Province of Ontario Jun ,100 2,205 2,289 Province of Ontario Mar Province of Ontario Jun ,625 2,693 2,789 Province of Ontario Jan Province of Québec Dec Province of Québec Dec Province of Québec Dec ,850 1,969 2,049 Province of Québec Dec ,100 1,147 1,168 Province of Québec Sep ,444 1,534 1,595 Government of Canada Aug ,165 1,157 1,157 23,117 24,131 Government of Canada Aug Government of Canada Sep Municipal 1.1% Government of Canada Sep , City of Montreal Dec Government of Canada Oct ,175 1,167 1,167 City of Montreal Dec Government of Canada Oct ,150 1,142 1,142 City of Toronto Dec Government of Canada May ,425 1,412 1,421 City of Toronto Dec Government of Canada Jun ,850 1,891 2,016 Municipal Finance Authority of British Columbia Jun Government of Canada Aug ,570 1,551 1,553 Municipal Finance Authority Government of Canada Sep ,557 2,556 2,649 of British Columbia Jun Government of Canada Nov ,025 2,009 2,011 Municipal Finance Authority Government of Canada Feb of British Columbia Jun Government of Canada Mar ,300 2,285 2,339 Municipal Finance Authority Government of Canada Jun ,200 2,271 2,423 of British Columbia Dec Government of Canada Sep ,850 3,747 3,827 Municipal Finance Authority Government of Canada Mar ,527 1,475 1,514 of British Columbia Apr Government of Canada Jun ,925 3,032 3,257 Government of Canada Sep ,970 1,889 1,949 Government of Canada Mar ,692 1,594 1,635 Government of Canada Jun ,725 1,770 1,863 Government of Canada Sep ,585 1,513 1,528 Government of Canada Mar ,646 1,620 1,627 Provincial 10.3% 87,643 89,776 Province of Alberta Dec Province of Alberta Jun ,461 1,436 1,445 Province of Alberta Sep Province of Alberta Sep Province of British Columbia Dec Province of British Columbia Dec Province of British Columbia Dec Province of British Columbia Dec Province of Manitoba Nov Corporate 39.8% 2,524 2,623 Bank of Montreal Oct ,135 3,102 3,143 Bank of Montreal Mar Bank of Montreal Apr ,983 4,068 4,222 Bank of Montreal Oct Bank of Montreal Mar Bank of Montreal Jul Bank of Montreal Sep Bank of Montreal Mar Bank of Nova Scotia Jan ,210 2,206 2,215 Bank of Nova Scotia Sep ,241 4,196 4,215 Bank of Nova Scotia Jun ,200 4,222 4,303 Bank of Nova Scotia Dec Bank of Nova Scotia Apr ,028 2,918 2,941 Bank of Nova Scotia Nov Bank of Nova Scotia Apr Bank of Nova Scotia Feb Group Savings Plan 4

7 Schedule I Statement of Investment Portfolio (continued) As at April 30, 2018 (in thousands of Canadian dollars) Interest Maturity Par Fair Average Number of Fair Average Security Rate (%) Date Value ($) Value ($) Cost ($) Security Securities Value ($) Cost ($) Bonds (continued) Equities 1.7% Corporate 39.8% (continued) Alimentation Couche-Tard Inc Caisse Centrale Desjardins Jul ,187 1,190 1,190 ATCO Ltd Caisse Centrale Desjardins Mar ,375 4,322 4,324 AutoCanada Inc Canadian Imperial Bank of Bank of Nova Scotia Commerce Jan Birchcliff Energy Ltd Canadian Imperial Bank of Boardwalk Real Estate Investment Trust Commerce Jul ,321 2,274 2,306 Brookfield Asset Management Inc Canadian Imperial Bank of Brookfield Infrastructure Partners L.P Commerce Dec Great-West Lifeco Inc Feb Brookfield Renewable Partners L.P Great-West Lifeco Inc Mar ,201 1,226 CAE Inc HSBC Bank Canada Nov Canadian National Railway Company HSBC Bank Canada May Canadian Natural Resources Limited HSBC Bank Canada Sep ,690 2,698 2,736 Canadian Pacific Railway Company HSBC Bank Canada Jun Canadian Western Bank HSBC Bank Canada Jan ,374 4,288 4,339 Cara Operations Limited Hydro-Québec May CCL Industries Inc Hydro-Québec Aug ,000 1,196 1,394 CGI Group Inc Intact Financial Corporation Mar CI Financial Corp Manufacturers Life Insurance Computer Modeling Group Ltd Company Jan DREAM Unlimited Corporation Manufacturers Life Insurance Empire Company Limited Company Nov Enbridge Inc Manufacturers Life Insurance Enerflex Ltd Company Jan ,239 1,242 1,253 Fairfax Financial Holdings Limited Manufacturers Life Insurance Finning International Inc Company Jun FirstService Corporation Manufacturers Life Insurance Franco-Nevada Corporation Company Jan ,669 3,634 3,651 Freehold Royalties Ltd Manufacturers Life Insurance Company Nov Granite REIT Holdings Limited Partnership Royal Bank of Canada Mar Great Canadian Gaming Corporation Royal Bank of Canada Mar ,475 1,451 1,475 Great-West Lifeco Inc Royal Bank of Canada Jul ,131 4,000 4,063 IGM Financial Inc Royal Bank of Canada Sep Imperial Oil Limited Royal Bank of Canada Mar ,729 7,512 7,511 Industrial Alliance Insurance and Financial Services Inc Royal Bank of Canada Dec Intact Financial Corporation Royal Bank of Canada Jul ,430 3,840 3,930 Loblaw Companies Limited Sun Life Capital Trust Sep Magna International Inc Sun Life Capital Trust Jun ,004 1,002 Maxar Technologies Ltd Toronto Dominion Bank Apr ,765 2,775 2,812 Methanex Corporation Toronto Dominion Bank Mar METRO Inc Toronto Dominion Bank Jun ,133 2,079 2,105 Morguard Corporation Toronto Dominion Bank Dec ,410 4,400 4,488 Mullen Group Ltd Toronto Dominion Bank Mar ,170 4,060 4,078 Nutrien Ltd Toronto Dominion Bank Jul Onex Corporation Toronto Dominion Bank Jul Pason System Inc Wells Fargo Financial Corporation Canada Jan ,119 1,130 1,141 PrairieSky Royalty Ltd Wells Fargo Financial Restaurant Brands International Inc Corporation Canada Jan ,280 3,354 3,402 Ritchie Brothers Auctioneers ,810 90,998 Royal Bank of Canada Saputo Inc Total Fixed Income 90.1% 203, ,528 ShawCor Ltd Stella-Jones Inc Suncor Energy Inc TELUS Corporation Group Savings Plan

8 Schedule I Statement of Investment Portfolio (continued) As at April 30, 2018 (in thousands of Canadian dollars) Number of Fair Average Security Securities Value ($) Cost ($) Equities 1.7% (continued) Toromont Industries Ltd Toronto Dominion Bank Total Energy Services Inc Tucows Inc Wajax Corporation Westshore Terminals Investment Corporation Winpak Ltd Exchange-traded Funds 7.9% 3,773 3,496 ishares Core S&P U.S. Total Market Index ETF ,939 16,577 Total Equities and ETFs 9.6% Total Investments 99.7% Cash and cash equivalents 0.3% Total Portfolio Assets 100.0% Investments Allocation (Note 4) Government Grants (Appendix I) Sales Charge Refund Entitlements (Appendix II) Cash and cash equivalents (Appendices I, II) 21,712 20, , , , , , ,213 24,901 25, Total Investment Fund 370, ,777 Represented by: Cash and cash equivalents Investments, at fair value , ,441 Group Savings Plan 6

9 Notes to the Financial Statements Six months ended April 30, 2018 and 2017 (Unaudited, in thousands of Canadian dollars) Note 1. Nature of Operations Note 2. Significant Accounting Policies The Canadian Scholarship Trust Group Savings Plan (the Plan ) is a Pooled Education Savings Plan that was established on September 1, (a) Statement of Compliance These financial statements have been prepared in accordance Since June 2001, the Plan is no longer available for sale. The with International Financial Reporting Standards ( IFRS ). objective of the Plan is to assist parents and others to save for the These interim financial statements were prepared in accordance post-secondary education of children. The Plan is managed by with International Accounting Standard ( IAS ) 34, Interim C.S.T. Consultants Inc. ( C.S.T.C. ), a wholly-owned subsidiary of Financial Reporting. the Canadian Scholarship Trust Foundation (the Foundation ). The These financial statements were approved by the Board of Plan s registered place of business is Sheppard Avenue the Foundation on June 7, East, Toronto, Ontario, Canada. (b) Basis of measurement Payments are made by a subscriber to an account maintained by These financial statements have been prepared on the historical the Plan s trustee on behalf of a beneficiary. Deductions of sales cost basis except for financial instruments classified as at fair charges and account maintenance fees are made from the subscriber s value through profit or loss ( FVTPL ), which are measured at contributions. The principal accumulated over the term of the fair value. subscriber s education savings plan agreement (the Agreement ) is returned to the subscriber when: i. the Agreement matures and the beneficiary is a qualified (c) Future accounting standard The following new accounting standards have been issued by student eligible to receive the first education assistance the International Accounting Standards Board ( IASB ). These payment ( EAP ), new standards are not yet effective and the Plan has not ii. the Agreement matures and the beneficiary is not yet a completed its assessment of the impact on its financial qualified student, in which case the beneficiary will forfeit all statements. government grants (as described below), or IFRS 9 Financial Instruments ( IFRS 9 ) iii. the Agreement is terminated. In July 2014, the IASB finalized the reform of financial The investment income earned on the subscribers principal instruments accounting and issued IFRS 9 (as revised in 2014), balance is used to provide EAPs to qualified students. A beneficiary is which contains the requirements for the classification and deemed to be a qualified student upon receipt by the Foundation of measurement of financial assets and financial liabilities, evidence of enrolment in a qualifying educational program at an impairment methodology, and general hedge accounting. eligible institution. IFRS 9 (as revised in 2014) will supersede IAS 39 Financial There are a number of government grants that may be available Instruments: Recognition and Measurement ( IAS 39 ). IFRS 9 to beneficiaries including the Canada Education Savings Grant will be effective for the Plan s financial statements during its Program ( CESG ), the Quebec Education Savings Incentive fiscal 2019 year. ( QESI ) and the Saskatchewan Advantage Grant for Education Savings ( SAGES ) (collectively, Government Grants ). The IFRS 15 Revenue from Contracts with Customers ( IFRS 15 ) Government of Saskatchewan has announced a temporary IFRS 15 was issued in May 2014, replacing existing suspension of the SAGES program effective January 1, guidance related to revenue recognition and will be effective for The Plan collects Government Grants, which are credited the Plan s financial statements during its fiscal 2019 year. directly into subscribers Agreements ( Agreements ) and invests IFRS 15 includes a single revenue recognition model based on these funds in accordance with the Plan s investment policies. The the principal that revenue is recognized when control of a good Government Grants, along with investment income earned thereon, or service is transferred to the customer. When appropriate, are paid to qualified students with their EAPs. contracts with customers are divided into separate performance Agreements are registered with appropriate government obligations, each of which represent promises to deliver distinct authorities if all required information is provided, and once goods or services. IFRS 15 provides guidance for recognizing registered, are subject to the rules for Registered Education Savings revenue from performance obligations that are delivered at a Plans ( RESP ) under the Income Tax Act (Canada). The current tax point in time, or delivered over time and also includes legislation provides that income credited on subscribers principal is additional disclosure requirements. not taxable income of the subscriber unless withdrawn as an (d) Financial instruments Accumulated Income Payment subject to certain eligibility The Plan recognizes financial assets and financial liabilities when requirements. The deposits are not deductible for income tax it becomes a party to a contract. Financial assets and financial purposes and are not taxable when returned to the subscriber. liabilities, with the exception of those classified as FVTPL, are Payments made to a beneficiary, including EAPs, Government measured at fair value plus transaction costs on initial Grants and investment income earned on Government Grants will recognition. Financial assets and financial liabilities classified as constitute taxable income of that beneficiary in the year that the FVTPL are measured at fair value on initial recognition and payments are made. transaction costs are expensed when incurred. Investments, at fair value have been designated as FVTPL. 7 Group Savings Plan

10 Notes to the Financial Statements (continued) Six months ended April 30, 2018 and 2017 (Unaudited, in thousands of Canadian dollars) Note 2. Significant Accounting Policies (continued) (d) Financial instruments (continued) Measurement in subsequent periods depends on the classification of the financial instrument. The financial assets and financial liabilities of the Plan are classified as follows: (f) Investment transactions and income recognition Investment transactions are accounted for on a trade-date basis. Interest for allocation to subscriber accounts represents the coupon interest received by the Plan accounted for on an accrual basis. The Plan does not amortize premiums paid or discounts received on the purchase of fixed income securities. Dividends and distributions are accrued as of the ex-dividend date and ex-distribution date, respectively. Realized gains (losses) on the sale of investments and Change in unrealized Financial asset or financial liability Classification gains (losses) are calculated with reference to the average cost of the related investments and are recognized in the period that Investments, at fair value FVTPL (i) such gains (losses) occur. Cash and cash equivalents Loans and receivables (ii) (g) Subscribers deposits, sales charges and account maintenance Accrued interest and other receivables Loans and receivables (ii) fees Receivables for securities sold Loans and receivables (ii) Subscribers deposits reflect amounts received from subscribers Accounts payable, accrued liabilities and net of sales charges and account maintenance fees and do not unclaimed subscriber funds Other financial liabilities (iii) include future amounts receivable on outstanding Agreements. Payables for securities purchased Other financial liabilities (iii) Sales charges were deducted from subscribers deposits and collected over periods of up to 32 months from the date of (i) Financial assets are designated as FVTPL when acquired principally for the purpose of trading. Financial assets classified as FVTPL are measured at fair value, with changes in unrealized gains and losses recognized on the Statements of Comprehensive Income. (ii) Loans and receivables are non-derivative financial assets that have fixed or determinable payments and are not quoted in an active market. Subsequent to initial recognition, loans and receivables are carried at amortized cost using the effective interest method. Loans and receivables are considered for impairment when they are past due or when other objective evidence is received that a specific counterparty will default. (iii) Other financial liabilities are liabilities that are not derivative liabilities or classified as FVTPL. Subsequent to initial recognition, other financial liabilities are carried at amortized cost using the effective interest method. The effective interest method is a method of calculating the amortized cost of a financial instrument and allocating interest over the relevant period. The effective interest rate is the rate that discounts estimated future cash flows (including all transaction costs and other premiums or discounts) through the expected life of the financial instrument to the net carrying amount on initial recognition. (e) Investment valuation Investments, at fair value include the following types of securities: bonds, money market securities, exchange-traded funds ( ETF ) and pooled funds. The fair value of fixed income securities that are not publicly traded is measured by using either the average bid price from multiple dealers, or by the present value of contractual cash flows, discounted at current market rates. Interest accrued at the reporting date is included in Accrued interest and other receivables on the Statements of Financial Position. The fair value of securities that are publicly traded in an active market is measured using bid prices at the reporting date. Investments in pooled funds used to pay the Sales Charge Refund ( SCR ) Entitlements referred to in Note 9 (a) are valued at net asset values of the pooled funds at the valuation date, as these represent the value that would be received by the Plan from redeeming its units held in the pooled funds. Note 10 provides further guidance on fair value measurements. initial deposit. Account maintenance fees are paid annually to the Foundation from subscribers deposits and are accrued throughout the year. (h) Income taxes The Plan is exempt from income taxes under Section of the Income Tax Act (Canada). (i) (j) Cash and cash equivalents Cash and cash equivalents include deposit balances with banks and securities with a purchase date to maturity of 90 days or less and includes term deposits, treasury bills and bankers acceptances. Foreign currency The functional and presentation currency of the Plan is the Canadian Dollar. To the extent applicable in any period, foreign currency purchases and sales of investments and foreign currency dividend and interest income are translated into Canadian dollars at the rate of exchange prevailing at the time of the transactions. Realized and unrealized foreign currency gains or losses on investments are included in the Statements of Comprehensive Income in Realized gains (losses) on sale of investments and Change in unrealized gains (losses), respectively. (k) Critical accounting estimates and judgments When preparing the financial statements, C.S.T.C. management makes estimates and judgments that affect the reported amounts recognized and disclosed in the financial statements. These estimates and judgments have a direct effect on the measurement of transactions and balances recognized in the financial statements. By their nature, these estimates and judgments are subject to measurement uncertainty and actual results could differ. The estimates, assumptions and judgments that have a significant risk of causing a material adjustment to the carrying value of assets and liabilities are those involved with the Group Savings Plan 8

11 Notes to the Financial Statements (continued) Six months ended April 30, 2018 and 2017 (Unaudited, in thousands of Canadian dollars) Note 2. Significant Accounting Policies (continued) (k) Critical accounting estimates and judgments (continued) valuation of the SCR Entitlements. Further information on the SCR Entitlement valuation can be found in Note 9 (b). Note 3. Related Party Transactions Related party transactions are measured at the exchange amount, which is the amount agreed between the parties. (a) Administration of the Plan The Foundation, as the Plan sponsor, has entered into an agreement to appoint C.S.T.C. as the Investment Fund Manager to administer the Plan. The agreement is renewable annually on November 1. Administration and account maintenance fees are paid to the Foundation. Administration fees are annual fees of 1 2 of 1% of the total amount of principal, Government Grants and income earned thereon, as well as the investments used to pay the SCR Entitlements ( SCR Fund ). During the six months ended April 30, 2018, $1,027 was recognized as an expense for Administration and account maintenance fees (2017 $1,420). Administration and account maintenance fees included in Accounts payable, accrued liabilities and unclaimed subscribers funds at April 30, 2018 was $170 (October 31, 2017 $nil). Sales charges were paid by subscribers and deducted from their contributions. In accordance with the distribution agreement, the Foundation agreed to set aside a portion of the sales charges collected from subscribers to the SCR Fund each year in order to pay SCR Entitlements when they become due. The amount funded was equivalent to 50% of the estimated present value of the SCR Entitlements of $200 per unit as determined at the time of sale. The Foundation is responsible to pay to beneficiaries of the Plan the refunds of sales charges as promised. Any shortfall in the assets to meet the SCR Entitlements will be funded from the Foundation s surplus (see Note 9). (b) SCR Deficit Funding Payments from the Canadian Scholarship Trust Foundation During the six months ended April 30, 2018, the Foundation provided deficit funding payments of $nil (2017 $nil) to the SCR Fund (see Note 9(b)). (c) Fees paid for services of an Independent Review Committee The Independent Review Committee ( IRC ) provides independent review and oversight of conflicts of interest relating to the management of the Plans. For the six months ended April 30, 2018, the Plan recognized an expense of $3 (2017 $4) for the services of the IRC. IRC fees included in Accounts payable, accrued liabilities and unclaimed subscribers funds at April 30, 2018 was $1 (October 31, 2017 $nil). (d) Fees paid to monitor and manage the portfolio managers Included in Portfolio management fees on the Statements of Comprehensive Income is $44 (2017 $47) charged by C.S.T.C. for expenses incurred to monitor and manage the portfolio managers. Included in Accounts payable, accrued liabilities and unclaimed subscribers funds is $23 owing to C.S.T.C. at April 30, 2018 (October 31, 2017 $1) relating to these expenses. Note 4. Investment Holdings The investment holdings are disclosed in Schedule I Statement of Investment Portfolio and the related Appendices I II to the schedule, which are explained below. The Government Grants are invested collectively in a separate fund with Government Grants of other RESP plans administered by C.S.T.C. The Government Grant principal received and income earned thereon are separately tracked for each subscriber s Agreement. The portfolio holdings are allocated across all C.S.T.C. plans based on the proportion of principal and income attributable to Agreements within each plan (see Appendix I to Schedule I). Investments used to fund the SCR Entitlements of the Group Savings Plan and the Group Savings Plan 2001 of 100% of sales charges paid, are managed in a separate SCR Fund (see Appendix II to Schedule I). The SCR Fund s holdings and income are allocated to the Plan based on the Plan s proportionate share of the SCR Entitlements. The investment restrictions set out in National Policy 15 of the Canadian Securities Administrators do not apply to assets in the SCR Fund. Note 5. Capital Risk Management The Plan s capital consists of the components of the net assets attributable to subscribers and beneficiaries as per the Statements of Financial Position. The Plan has obligations to return subscriber contributions upon maturity or termination as well as pay EAPs of investment income, grants and income on grants. The Plan invests subscriber contributions and government grants received in appropriate investments in accordance with its stated investment objectives while maintaining sufficient liquidity to meet subscribers obligations. Note 6. Risks Associated with Financial Instruments In the normal course of business the Plan may be exposed to a variety of risks arising from financial instruments. The Plan s exposures to such risks are concentrated in its investment holdings and are related to market risk (which includes interest rate risk and other price risk), credit risk, liquidity risk and currency risk. The Plan s risk management process includes monitoring compliance with the Plan s investment policy. The Plan manages the effects of these financial risks to the Plan portfolio performance by retaining and overseeing professional external investment managers. The investment managers regularly monitor the Plan s positions, 9 Group Savings Plan

12 Notes to the Financial Statements (continued) Six months ended April 30, 2018 and 2017 (Unaudited, in thousands of Canadian dollars) Note 6. Risks Associated with Financial Instruments (continued) variables held constant, the fair value of the Total Investment Fund as per Schedule I Statement of Investment Portfolio would have increased or decreased by approximately $800 (October 31, 2017 $900). In practice, actual results may differ materially. (b) Credit risk Credit risk refers to the ability of the issuer of debt securities to make interest payments and repay principal. The Plan s portfolio is mainly comprised of bonds issued or guaranteed by federal or provincial governments along with corporate debt instruments with a minimum approved credit rating as set by Canadian Securities Administrators. The Plan has a concentration of investments in government and government guaranteed bonds, which are considered to be high credit quality investments thereby moderating credit risk. The Plan s credit risk exposure is summarized below: April 30, 2018 October 31, 2017 % of Total % of Total Investment Amount Investment Amount Fund (in thousands) market events and manage the investment portfolio within the constraints of the investment policy and mandate. (a) Market risk i. Interest rate risk Interest rate risk is the risk of a change in the fair value or cash flows of the Plan s investments in interest-bearing financial instruments as a result of fluctuations in market interest rates. There is an inverse relationship between changes in interest rates and changes in the fair value of bonds. This risk is actively managed using duration, yield curve analysis, sector and credit selection. There is reduced risk to interest rate changes for cash and cash equivalents due to their short-term nature. The Plan s holdings of debt instruments by maturity are as follows: Debt Instruments by Maturity Date % of Total Investment Fund Credit rating Fund (in thousands) Apr 30, 2018 Less than 1 year 7% 7% 1-3 years 22% 24% 3-5 years 30% 28% Greater than 5 years 20% 20% Total Debt instruments 79% 79% As at April 30, 2018, if prevailing interest rates had increased by 1%, the fair value of the Total Investment Fund of $370,441 (October 31, 2017 $401,925) as per Schedule I Statement of Investment Portfolio, would have decreased by $12,000 (October 31, 2017 $13,000). If prevailing interest rates had decreased by 1%, the fair value of the Total Investment Fund would have increased by $13,800 (October 31, 2017 $15,000). This 1% change assumes a parallel shift in the yield curve with all other variables held constant. In practice, actual results may differ materially. ii. Other price risk Other price risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices, other than those arising from interest rate risk. Factors specific to an individual investment, its issuer or other factors affecting all instruments traded in a market or market segment affect other price risk. The asset classes that are most impacted by other price risk are equities and ETFs of the Plan and Government Grants asset pool, and the SCR Funds, which represents 21% (October 31, %) of the Total Investment Fund amount as at April 30, The risk associated with the equity component of the SCR Fund is managed by security selection and active management by external managers within approved investment policies and mandates. As at April 30, 2018, if equity and underlying indices prices had increased or decreased by 1%, with all other Oct 31, AAA 22% $ 78,423 21% $ 85, AA/AAH/AAL 35% 128,442 36% 142,824 A/AH/AL 16% 58,915 15% 60,153 BBB 0% 1,712 0% 1,646 R-1 6% 23,334 7% 26,412 Short-term unrated 0% 1,018 0% 1,839 Total Debt Instruments 79% $ 291,844 79% $ 318,406 The Dominion Bond Rating Service ( DBRS ) was the primary source for obtaining credit ratings. Secondary sources used include Standard & Poor s Financial Services LLC and Moody s Investors Service, Inc. (c) Liquidity risk Liquidity risk is the risk that the Plan may not be able to meet its financial obligations as they come due. The Plan s exposure to liquidity risk is concentrated in principal repayments to subscribers and EAPs to beneficiaries including SCR Entitlements. The Plan primarily invests in securities that are traded in active markets and can be readily sold. The Plan retains sufficient cash and cash equivalents positions to meet liquidity requirements by utilizing cash forecasting models that reflect the maturity distribution of subscribers deposits and accumulated income. All other financial liabilities are short term and due within one year. The Foundation directed a portion of the sales charges collected from subscribers to the SCR Fund each year in order to pay SCR Entitlements when they become due. Any shortfall in the assets to meet the SCR Entitlements will be funded by the Foundation (see Note 9(b)). (d) Currency risk Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The Plan holds foreign equity funds as part of the SCR Fund, which represents 18% (October 31, %) of the Total Group Savings Plan 10

13 Notes to the Financial Statements (continued) Six months ended April 30, 2018 and 2017 (Unaudited, in thousands of Canadian dollars) Note 6. Risks Associated with Financial Instruments (continued) (October 31, 2017 $ 3,785) and $609 (October 31, 2017 $609), respectively. (d) Currency risk (continued) Investment Fund. The fair value of the Total Investment Fund (a) Sales Charge Refund Entitlements would increase or decrease by approximately $670 (October 31, The Plan refunds sales charges to the beneficiaries from the 2017 $720) in response to a 1% depreciation or appreciation SCR Fund, which amount to 100% of sales charges paid. This of the Canadian dollar currency exchange rate. In practice the SCR Entitlement is paid with the first instalment of the EAP actual change may differ materially. payouts to qualified beneficiaries. The total amount refunded for the six-month period ended April 30, 2018 was $1,421 Note 7. Subscribers Deposits (2017 $1,224). As at April 30, 2018, the SCR Entitlements amount of The changes in Subscribers deposits for the six-month period ended $25,199 (October 31, 2017 $24,669) presented in the April 30, 2018 and 2017 are as follows: Statements of Financial Position represents the average cost of the Plan s investments in the SCR Fund of $25,155 April 30, 2018 April 30, 2017 (October 31, 2017 $24,212), less funds to be transferred to Payments from subscribers $ 126 $ 828 the direct investment holdings of the plan of $6 (October 31, Inter-plan principal transfers (5,326) (3,684) 2017 $489) for SCR payments made to beneficiaries during Account maintenance fees (74) (114) the period, plus accrued interest of $50 (October 31, 2017 Return of principal (9,673) (8,875) $32). The fair value of the investments in the SCR Fund as at April 30, 2018, after adjusting for the above, amounted to Net decrease in Subscribers deposits (14,947) (11,845) $25,000 (October 31, 2017 $26,095), of which $24,901 and Balance, Beginning of Period 132, ,685 $55 are included in Investments, at fair value and Cash and cash equivalents, respectively, in the Statements of Financial Balance, End of Period $ 117,621 $ 199,840 Position. The difference between the present value of SCR Entitlements and the Fair Value of the SCR Fund is not Note 8. General Fund and Donations from recorded in the financial statements of the plan. (b) Sales Charge Refund Entitlements Valuation the Foundation Two separate valuations are performed for SCR Entitlements. First, on an annual basis, a valuation of SCR Entitlements is The Canadian Scholarship Group Savings Plan Trust (the Group prepared based on management s best estimates. This valuation Trust ) is a legal trust, which includes the Group Savings Plan and is used to estimate the current funded status for SCR the Group Savings Plan 2001 (the Plans ). The Plans are registered Entitlements. The present value of the SCR Entitlements is with the Canada Revenue Agency as Education Savings Plans. The determined using the expected long-term investment rates of General Fund is a separate account within the Group Trust and return based on the investment policy for the SCR Fund as derives its income from the following sources: explained in (i) below. i. interest earned on the subscribers accumulated income from Second, a funding valuation is performed at least every two the date of maturity of the subscribers agreements to the date years to assess the adequacy of the assets in the SCR Fund and the funds are paid to qualified students as EAPs; the Foundation s funding requirements to meet SCR ii. interest earned on the income forfeited when a subscriber s Entitlements in future years. This valuation uses expected agreement is terminated prior to maturity; long-term investment rates of return as determined by iii. income not collected by beneficiaries before the expiry of the management to calculate the present value of the SCR Agreements; and Entitlements and to project the asset growth of the SCR Fund iv. unclaimed principal and income payments. to ensure that future SCR Entitlements will be fully funded, as According to the trust indenture of the Group Trust, the General Fund may be used to subsidize EAPs for qualified students of either of the Plans within the Group Trust. Donations from the Foundation represent a discretionary pool of funds shared between the Plans. These funds are used to supplement EAPs when the General Fund is depleted. The amount is allocated annually between the Plans according to the payout forecast in each of the Plans. As at April 30, 2018 the balance of the general fund and the discretionary donation remaining to be paid to beneficiaries, included in the Statement of Financial Position, were $3,874 Note 9. Sales Charge Refund set out in (ii) below. (i) Management s Best Estimate Valuation The assumptions used in determining the valuation of SCR Entitlements reflect management s best estimate of future payments to beneficiaries and involve both economic and non-economic assumptions. The non-economic assumptions include considerations such as termination of Agreements prior to maturity and participation of eligible students in the collection of EAPs. The primary economic assumption is the discount rate, which is set at the expected long-term investment rates of return of the SCR Fund at October 31, 2017 of 5.4% 11 Group Savings Plan

14 Notes to the Financial Statements (continued) Six months ended April 30, 2018 and 2017 (Unaudited, in thousands of Canadian dollars) Note 9. Sales Charge Refund (continued) The following table presents the level in the fair value hierarchy into which the Plan s financial instruments that are carried at fair value in the Statements of Financial Position are categorized: (b) Sales Charge Refund Entitlements Valuation (continued) i. Level 1 financial instruments are valued using quoted market (i) Management s Best Estimate Valuation (continued) prices. ( %) based on the investment policy approved by the ii. Level 2 financial instruments are valued using directly or Board of the Foundation. As underlying conditions change over indirectly observable inputs. time, assumptions may also change, which could cause a material change in the present value of the SCR Entitlements. The funded status of the SCR Entitlements at October 31 was: Present value of SCR Entitlements $ 19,765 $ 30,478 Fair value of SCR Fund (Note 9 (a)) 25,638 33,819 Overfunded portion of SCR Entitlements $ (5,873) $ (3,341) iii. Level 3 financial instruments are valued using unobservable inputs (including the use of assumptions based on the best information available). Assets Measured at Fair Value as of April 30, 2018 Level 1 Level 2 Level 3 Total Fixed income securities $ $ 290,981 $ 290,981 Equity Securities, ETFs and Pooled equity funds 78,597 78,597 A 1% decrease or increase in the discount rate used will increase or decrease the present value of SCR Entitlements by Total Investment Fund $78,597 $ 290,981 $ $ 369,578 $280 or $260, respectively (2016 $620 or $600, respectively). (ii) Funding Valuation A valuation was completed based on assets and obligations as at Assets Measured at Fair Value as of October 31, 2017 December 31, This valuation included assumptions Level 1 Level 2 Level 3 Total regarding management s best estimate of termination of Fixed income securities $ $ 315,441 $ 315,441 Agreements prior to maturity and participation of eligible students in the collection of EAPs. The discount rate used to Equity Securities, ETFs and Pooled equity determine the present value of SCR Entitlements was based on funds 83,519 83,519 the expected long-term investment rates of return. The discount rate used for the Plan was 5.7%, which resulted in Total Investment Fund $83,519 $ 315,441 $ $ 398,960 liability being fully funded. The Foundation is responsible to pay beneficiaries of the Plan the refund of sales charges as promised. Funding requirements were established by the For the six-month period ended April 30, 2018 and year ended Foundation to ensure assets are sufficient to meet future SCR October 31, 2017, there were no transfers between Levels 1 or 2. Entitlements using expected long-term investment rates of return based on the investment policy approved by the Board of the Foundation to project the asset growth of the SCR Fund. Any shortfall in the assets to meet the SCR Entitlements will be funded by the Foundation. The next actuarial funding valuation will be performed in 2019 based on assets and obligations as at October 31, Note 10. Fair Value Measurements and Disclosures Estimates of fair value used for measurement and disclosure are designed to approximate amounts that would be received to sell an asset, or paid to discharge a liability, in an orderly transaction between market participants. The carrying values of other financial instruments such as Cash and cash equivalents, Accrued interest and other receivables, Receivables for securities sold, Government grants receivable, Accounts payable, accrued liabilities and unclaimed subscribers funds and Payables for securities purchased approximate their fair values as these financial instruments are short term in nature. Group Savings Plan 12

15 Government Grants Appendix I to Schedule I Statement of Investment Portfolio As at April 30, 2018 (in thousands of Canadian dollars) Interest Maturity Par Fair Average Interest Maturity Par Fair Average Security Rate (%) Date Value ($) Value ($) Cost ($) Security Rate (%) Date Value ($) Value ($) Cost ($) Bonds Bonds (continued) Federal 6.6% Provincial 33.6% Canada Housing Trust Jun ,050 2,054 2,105 Province of Alberta Dec Canada Housing Trust Mar ,685 3,805 4,090 Province of Alberta Jun ,902 1,869 1,883 Canada Housing Trust Jun Province of Alberta Sep Canada Housing Trust Dec ,500 1,467 1,516 Province of Alberta Sep Canada Housing Trust Jun ,477 1,435 1,491 Province of Alberta Dec Canada Housing Trust Jun Province of Alberta Jun Canada Housing Trust Dec Province of Alberta Dec ,785 1,964 2,052 Canada Housing Trust Dec Province of Alberta Jun ,597 1,518 1,594 Canada Housing Trust Jun ,243 1,214 1,249 Province of Alberta Jun ,110 1,074 1,094 Canada Housing Trust Dec ,110 8,112 8,433 Province of Alberta Sep Canada Housing Trust Jun Province of Alberta Jun ,025 1,068 1,081 Canada Housing Trust Jun ,685 1,721 1,809 Province of Alberta Dec ,522 3,838 3,819 Canada Housing Trust Mar ,500 1,499 1,598 Province of Alberta Dec ,000 3,603 3,639 Canada Housing Trust Sep Province of Alberta Dec ,545 4,713 4,712 Canada Housing Trust Jun Province of Alberta Dec ,026 5,083 5,145 Canada Housing Trust Mar Province of Alberta Dec ,476 3,356 3,399 Canada Housing Trust Mar Province of British Canada Post Corporation Jun Columbia Dec ,200 1,242 1,315 Government of Canada May Province of British Government of Canada Jun Columbia Dec ,300 1,351 1,409 Government of Canada Jun Province of British Government of Canada Jul Columbia Dec Government of Canada Jul Province of British Government of Canada Aug Columbia Jun Government of Canada Aug ,430 1,421 1,421 Province of British Columbia Jun ,511 1,476 1,504 Government of Canada Jun ,000 1,022 1,043 Province of British Government of Canada Aug Columbia Jun ,650 4,602 4,785 Government of Canada Sep ,054 3,053 3,093 Province of British Government of Canada Mar ,825 5,786 5,850 Columbia Jun ,975 4,063 4,234 Government of Canada Jun ,175 3,278 3,415 Province of British Government of Canada Sep ,075 1,046 1,067 Columbia Jun ,995 3,698 3,667 Government of Canada Mar ,798 2,703 2,760 Province of British Government of Canada Jun Columbia Jun ,000 6,485 6,480 Government of Canada Sep Province of British Government of Canada Mar ,182 1,114 1,126 Columbia Jun ,080 4,915 4,776 Government of Canada Jun ,599 1,641 1,686 Province of British Government of Canada Sep ,415 1,351 1,377 Columbia Jun ,750 1,784 1,741 Government of Canada Mar Province of British Government of Canada Jun ,308 2,237 2,299 Columbia Jun ,757 5,443 5,545 Government of Canada Jun ,925 1,958 2,060 Province of Manitoba Nov Government of Canada Jun ,494 1,495 1,520 Province of Manitoba Sep Government of Canada Jun Province of Manitoba Dec ,000 1,050 1,088 Government of Canada Jun Province of Manitoba Jun Government of Canada Jun ,148 1,117 1,115 Province of Manitoba Jun Government of Canada Jun ,025 1,367 1,410 Province of Manitoba Sep ,300 1,430 1,462 Government of Canada Jun ,215 1,299 Province of Manitoba Jun Government of Canada Jun ,297 1,814 1,823 Province of Manitoba Jun , Government of Canada Jun ,425 1,825 1,846 Province of Manitoba Jun Government of Canada Dec ,656 2,020 2,042 Province of Manitoba Sep Government of Canada Dec ,635 3,911 4,015 Province of Manitoba Mar ,300 7,117 7,136 Government of Canada Dec ,550 2,826 2,955 Province of Manitoba Mar ,300 3,900 3,894 Labrador-Island Link Province of Manitoba Mar ,300 1,312 1,298 Funding Trust Jun Province of Manitoba Sep ,050 2,326 2,438 Labrador-Island Link Province of Manitoba Sep Funding Trust Dec ,200 2,492 2,641 Province of Manitoba Sep ,101 1,125 1,115 Labrador-Island Link Province of New Brunswick Jun ,400 1,439 1,556 Funding Trust Dec Province of New Brunswick Jun Muskrat Falls Funding Trust Jun ,150 4,591 4,591 Province of New Brunswick Jun Muskrat Falls Funding Trust Dec Province of New Brunswick Aug ,224 85,643 Province of New Brunswick Aug Province of New Brunswick Aug Group Savings Plan