DALHOUSIE RETIREES' TRUST FUND

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1 Financial Statements of DALHOUSIE RETIREES' TRUST FUND

5 Statement of Changes in Net Assets Available for Benefits, with comparative figures for 2010 Additions: Capital transferred from the Dalhousie Pension Trust Fund for retirement benefits (note 2(d)) $ 16,503 $ 33,449 Additions from investments: Current period change in market value of investments 29,196 12,938 Income from investments (note 6) 9,449 9,966 38,645 22,904 Interest income (note 2(c)) Total additions 55,154 56,493 Deductions: Administrative expenses (note 7) 1,469 1,326 Pension benefits 25,495 24,534 Total deductions 26,964 25,860 Increase (decrease) in net assets for the year 28,190 30,633 Net assets available for benefits, beginning of year 279, ,314 Net assets available for benefits, end of year $ 308,137 $ 279,947 See accompanying notes to financial statements. 3

6 Notes to Financial Statements, page 1 1. Description of plan: The Dalhousie University Staff Pension Plan is a contributory defined benefit pension plan covering employees of Dalhousie University. Under the Plan, contributions are made by the employees and the University. The Dalhousie Retirees Trust Fund and the Dalhousie Pension Trust Fund together constitute the assets of the Plan. The Plan is registered under the Pension Benefits Act of Nova Scotia and is registered with the Canada Revenue Agency. Dalhousie University is the Administrator of the Plan. (a) Funding policy: The University is required to meet the cost of all benefits not met by required contributions of members. The determination of the value of these benefits is made on the basis of an actuarial valuation (notes 3 and 4). (b) Current service pension: The current service pension provides for pension of 2% of the average best three years of pensionable salary received by the member multiplied by the number of years of participation in the plan up to a maximum of 35 years. (c) Survivor's pension: The normal form of pension payable to members with spouses includes a 66 2/3 % survivor pension in respect of credited service up to June 30, 2004 with a minimum guarantee of 60 monthly payments. For credited service after June 30, 2004, the pension is paid for the member s life with a minimum guarantee of 84 monthly payments, which can be actuarially converted to provide for a survivor s pension. (d) Income taxes: The Retirees Trust Fund is a Registered Pension Trust as defined in the Income Tax Act and is not subject to income taxes. 2. Significant accounting policies: These financial statements are prepared in conformity with accounting principles generally accepted for pension plans in Canada. The significant policies are summarized below: (a) Basis of presentation: The accompanying financial statements have been prepared on an accrual basis and present the net assets available for benefits and changes in net assets available for benefits 4

7 Notes to Financial Statements, page 2 2. Significant accounting policies (continued): (b) Investments: (i) Valuation of investments: Pooled fund investments are valued at the unit values supplied by the pooled fund administrator, which represent the Fund s proportionate share of underlying net assets at fair values determined using closing market prices. Short-term notes and Treasury Bills maturing within a year are stated at cost, which together with accrued interest approximates fair value given the short-term nature of these investments. The market value of other investments is based on closing market quotations as at June 30. Where quoted prices are not available, estimated fair values are calculated using market comparable companies or securities and recent transaction multiples. (ii) Investment transactions: Investment transactions are recorded on the settlement date. (iii) Index linked mortgages: The interest rate is adjusted annually according to the change in Consumer Price Index. In 2011, mortgage payments reduced the principal on a book value basis by $1,061 ( $953). The cumulative decrease to date totals $10,513. (iv) Income from investments: Income from investments includes interest income and dividend income. Income from nonpooled fund investments is recorded on the accrual basis. In the case of pooled funds, the calendar year income distributions when declared are recorded as income. (v) Current period change in market value of investments: Current period change in market value of investments includes all net realized and unrealized capital gains. Gains or losses on sale or maturity of investments, based on the difference between average costs and proceeds, net of any selling expenses, are recorded at the time of disposition of the investment. (vi) Foreign currency exchange contracts: Future foreign currency exchange contracts are entered into to manage foreign currency exposures. These contracts are not designated and documented as hedging relationships in accordance with CICA HB Section 3865: Hedges, and, accordingly, are measured at fair value. (vii) Alternative investments: Alternative investments include real estate investments, infrastructure, and absolute return strategies that encompass exposure to fund of funds with situation specific strategies such as equity long/short, event driven and arbitrage opportunities. 5

8 Notes to Financial Statements, page 3 2. Significant accounting policies (continued): (c) Interfund accounts: The interfund balance between the Retirees' Trust Fund and Dalhousie University and/or the Pension Trust Fund attracts or pays interest at prime less 2%. (d) Transfers from Dalhousie Pension Trust Fund: When an employee retires, the actuarial value of retirement benefits is transferred from the Dalhousie Pension Trust Fund and is recorded on the effective date of retirement. (e) Foreign currency translation: The fair values of foreign currency denominated investments included in the statement of net assets available for benefits are translated into Canadian dollars at year-end rates of exchange. Gains and losses arising from translations are included in the current period change in market value of investments. Foreign currency denominated transactions are translated into Canadian dollars at the rates of exchange on the dates of the related transactions. (f) Use of estimates: The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the year. Actual results could differ from those estimates. (g) Changes in accounting policy: Recent accounting pronouncements that have been issued but are not yet effective and have a potential implication for the Plan are as follows: Pension Plans The CICA has issued new Handbook Section 4600, Pension Plans, which applies to fiscal years beginning on or after January 1, Adoption of the standard is not expected to have significant impact on the Fund s financial statements. 3. Actuarial valuation: An actuarial valuation as of March 31, 2010 was made by Eckler Ltd., a firm of consulting actuaries. This valuation showed a going concern surplus of $13,236 in the Retirees Trust Fund and a deficit of $86,644 in the Pension Trust Fund. On a solvency basis, the Retirees Trust Fund had an $8,606 surplus and the Pension Trust Fund had an $82,442 deficit. In the Actuary s opinion, these two Trust Funds together form the assets of the Pension Plan, and thus the overall Plan had a net going concern deficit position of $73,408 and a net solvency deficit of $73,836 as of March 31,

9 Notes to Financial Statements, page 4 3. Actuarial valuation (continued): An actuarial extrapolation to June 30, 2011 was made from the March 31, 2010 actuarial valuation; and the June 30, 2010 results were extrapolated from a February 28, 2009 draft actuarial valuation by the Plan s actuary. The June 30, 2011 extrapolation indicated a surplus of $2,193 in the Retirees Trust Fund and a deficit of $122,639 in the Pension Trust Fund for a net deficit position of $120,446 for the overall Plan. 4. Obligations for pension benefits: The actuarial present value of accrued pension benefits was determined using the projected benefits method prorated on service and the Administrator's best estimate assumptions. The actuary extrapolated the results of prior actuarial valuations to yield the June 30, 2011 and June 30, 2010 results. The assumed asset rates of return of 4.95% (for employees who retired prior to June 30, 1994), 4.65% (for employees who retired between June 30, 1994 and June 29, 1996) and 4.55% (for employees who retired June 30, 1996 or later) used in determining the actuarial value of accrued pension benefits were developed by reference to expected long-term market conditions, with further adjustments to reflect the method of indexation of pensions. The actuarial present value of benefits as at June 30 and the principal components of changes in actuarial present values during the year were as follows: Actuarial present value of accrued pension benefits, beginning of year $ 281,572 $ 260,446 Transfers from Dalhousie Pension Trust Fund and direct contributions 16,503 33,449 Pension benefits paid (25,495) (24,534) Cost of pension indexing - - Experience (gain) loss 4,134 (105) Interest accrued on benefits 12,748 12,316 Change in assumptions 2,847 - Actuarial present value of accrued pension benefits, end of year $ 292,309 $ 281,572 The value of actuarially determined assets available for benefits is different from that determined for accounting purposes. The actuarial value of net assets available for benefits has been determined at amounts that reflect long-term market trends (consistent with assumptions underlying the valuation of the accrued pension benefits). The actuarial value is based on current market value adjusted by the difference between actual investment earnings and expected investment earnings under the assumed rate of return. This difference is amortized on a straight line basis over the current year and the two subsequent years. 7

10 Notes to Financial Statements, page 5 4. Obligations for pension benefits (continued): The actuarial asset values used in the valuation and extrapolation were: Market value of net assets available for benefits $ 308,126 $ 279,947 Market value changes not reflected in actuarial value of net assets (13,624) 13,682 Actuarial value of net assets available for benefits $ 294,502 $ 293, Investments: Greystone Managed Investments Inc. (Canadian equities) $ 19,520 $ 22,087 Burgundy Asset Management Ltd. (Canadian equities) 16,319 13,161 CIBC Global Asset Management Inc. (Canadian equity pooled fund) 12,169 12,492 Ashford Capital Management Inc. (U.S. small cap equities) 11,352 9,031 Wedge Capital Management L.L.P. (U.S. large cap equities) 24,124 19,548 State Street Global Advisors, Ltd. (S&P midcap index pooled fund) 11,094 8,746 Sprucegrove Investment Management Ltd. (Non North American equity pooled fund) 36,981 38,184 First Eagle Investment Management, LLC (Non North American equity pooled fund) 7,237 6,395 CIBC Global Asset Management Inc. (Canadian bond index pooled fund) 74,348 90,843 Addenda Capital Inc.(Canadian bond pooled fund) 27,509 29,509 Canso Investment Counsel (Canadian corporate bonds) 17,469 - State Street Global Advisors, Ltd. (Currency hedging) 453 (556) CU Real Property (6) Limited Partnership (Canadian real estate) 4,197 3,136 GPM Real Property (11) & (12) Ltd. Partnerships (Canadian real estate) 4,655 2,051 ING Clarion Real Estate Securities (Global real estate) 8,670 7,199 Crestline Investors, Inc. (Fund of funds, absolute return) 5,291 5,491 Brevan Howard Multi-Strategy Fund Ltd. (Global macro) 3,521 - BlueCrest Capital International Ltd. (Global macro) 3,529 - Lazard Asset Management (Global infrastructure) 8,225 - First National Financial LP (index linked mortgages) 12,462 13,523 Staff mortgages - 8 Bank of Nova Scotia (bank account) Miscellaneous & cash at custodian 1,498 1,234 $ 311,150 $ 282,623 8

11 Notes to Financial Statements, page 6 6. Income from investments: Canadian equities $ 1,231 $ 1,113 U.S. equities Non-North American equities 1,026 1,365 Alternatives 1, Bonds 4,824 5,644 Mortgages Short-term and cash Total income from investments $ 9,449 $ 9, Administrative Expenses: Asset administration $ 1,197 $ 1,137 Benefits administration General administration Total administrative expenses $ 1,469 $ 1, Financial instruments and investment risks: Financial instruments are utilized to replicate certain market exposures or to assist in the management of investment risks. Investments are primarily exposed to foreign currency, interest rate, market and credit risks. The Fund has set formal policies and procedures that establish an asset mix among equity, fixed income and alternative investments, requires diversification of investments within categories, and limits exposure to individual investments, counterparties and foreign currencies. (a) Fair value of financial assets and financial liabilities: The fair values of investments are as described in note 2(b). The fair values of other financial assets and liabilities, being cash and short-term investments, accrued income receivable, due to Dalhousie University, and accrued expenses approximate their carrying values due to the short-term nature of these instruments. (b) All index linked mortgages have a maturity date later than ten years from June 30, No other investments have specific maturity dates. 9

12 Notes to Financial Statements, page 7 8. Financial instruments and investment risks (continued): (c) Interest rate risk: The Fund s fixed income risks are managed by diversifying exposures to the Canadian fixed income market, by investing in a pooled fund that utilizes broad holdings to replicate the overall Canadian fixed income market, by investing in another pooled fund that changes the duration of the portfolio to position itself for anticipated interest rate movements, and by investing in Canadian corporate fixed income securities that offer higher yield and with interest rate movements that differ from the broad market. (d) Credit Risk Credit risk is the risk of loss in the event the counterparty to a transaction fails to discharge an obligation and causes the other party to incur a loss. Credit risk is mitigated through the management of the Fund assets within generally accepted parameters of safety and prudence, using a diversified investment program. Investments must adhere to specific limitations as outlined in the Fund s Statement of Investment Policies and Guidelines. (e) Market risk: Market risk is the risk that the value of an investment will fluctuate as a result of changes in market prices, whether those changes are caused by factors specific to the individual investment, or factors affecting all securities traded in the market. The Fund's policy is to invest in a diversified portfolio of investments, based on criteria established in the Statement of Investment Policies and Guidelines, to mitigate the impact of market risk. (f) Derivative financial instruments: Derivatives are financial contracts, the value of which is derived from the value of underlying assets or interest rates or exchange rates. Foreign currency risk arises from the Fund s holding of foreign currency-denominated investments. Foreign currency risk is controlled by the Fund s currency hedging policy. The Fund utilizes derivative contracts directly for managing exposure to foreign currency volatility. Pooled funds or fund-of-funds that the Fund invests in may also use derivative contracts to replicate or to reduce the exposure to certain financial markets or specific securities. Derivative contracts, transacted either on a regulated exchange market or in the over-the-counter market directly between two counterparties, include: (i) Futures and forward contracts Futures and forwards are contractual obligations either to buy or sell a specified amount of money market securities, bonds, equity indices, commodities or foreign currencies at predetermined future dates and prices. Futures are transacted in standardized amounts on regulated exchanges and are subject to daily cash margining. Forwards are customized contracts transacted in the over-the-counter market. 10

13 Notes to Financial Statements, page 8 8. Financial instruments and investment risks (continued): (ii) Option contracts: Option contracts are agreements in which the right, but not the obligation, is acquired by the option purchaser from the option writer either to buy or sell, on or before a specified date, a predetermined amount of a financial instrument at a stated price. At June 30, the Fund directly had the following derivative contracts outstanding: Notional Amounts Fair Values Foreign exchange contracts: Forwards $ 51,021 $ 62,491 $ 453 $ (556) The foreign currency exposure at June 30 is summarized as follows ($ Canadian): Through direct investment: United States $ 39,205 $ 31,969 Europe, Asia, Far East 4,428 3,552 Through pooled funds: United States 23,434 14,237 Europe, Asia, Far East 44,218 44,579 Total $ 111,285 $ 94, Commitments: Certain of the alternative investments contain contractual capital commitments. At June 30, 2011, the Fund had outstanding future commitments of $3.8 million CAD in Canadian real estate and $7 million US in private infrastructure. 10. Related party transactions: During the year, Dalhousie University provided investment administration, benefit administration, payroll, and accounting services. These recoverable service costs for 2011 were $263 ( $203). The transactions were in the normal course of operations and were measured at the exchange amount. 11

DALHOUSIE RETIREES' TRUST FUND

Financial Statements of DALHOUSIE RETIREES' TRUST FUND AUDITORS' REPORT To the Trustees of the Dalhousie Retirees' Trust Fund We have audited the Statement of Net Assets Available for Benefits of the Dalhousie