MUSICIANS' PENSION FUND OF CANADA

Transcription

1 Fund Financial Statements of MUSICIANS' PENSION FUND OF CANADA

2 KPMG LLP Telephone (416) Yonge Corporate Centre Fax (416) Yonge Street Suite 200 Internet Toronto ON M2P 2H3 Canada INDEPENDENT AUDITORS' REPORT To the Board of Trustees of Musicians' Pension Fund of Canada We have audited the accompanying fund financial statements of the Musicians' Pension Fund of Canada, which comprise the statement of net assets as at December 31, 2012, the statement of changes in net assets for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. The fund financial statements have been prepared by management based on the financial reporting provisions of Section 76 of the Regulations to the Pension Benefits Act (Ontario). Management's Responsibility for the Fund Financial Statements Management is responsible for the preparation and fair presentation of these fund financial statements in accordance with the financial reporting provisions of Section 76 of the Regulations to the Pension Benefits Act (Ontario), and for such internal control as management determines is necessary to enable the preparation of fund financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on these fund financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the fund financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the fund financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the fund financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation and fair presentation of the fund financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the fund financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. KPMG Canada provides services to KPMG LLP.

3 Page 2 Opinion In our opinion, the fund financial statements present fairly, in all material respects, the net assets of Musicians' Pension Fund of Canada as at December 31, 2012, and the changes in its net assets for the year then ended in accordance with the financial reporting provisions of Section 76 of the Regulations to the Pension Benefits Act (Ontario). Basis of Accounting Without modifying our opinion, we draw attention to note 2(a) to the fund financial statements, which describes the basis of accounting. The fund financial statements are prepared to assist the Board of Trustees of Musicians' Pension Fund of Canada to meet the requirements of the Financial Services Commission of Ontario. As a result, the fund financial statements may not be suitable for another purpose. Restriction on Use Our report is intended solely for the Board of Trustees of Musicians' Pension Fund of Canada and the Financial Services Commission of Ontario and should not be used by parties other than the Board of Trustees of Musicians' Pension Fund of Canada or the Financial Services Commission of Ontario. Chartered Accountants, Licensed Public Accountants June 26, 2013 Toronto, Canada

4 Statement of Net Assets December 31, 2012, with comparative information for 2011 Assets Cash $ 12,506,425 $ 3,168,164 Accrued investment income 1,551,189 1,978,860 Contributions due from employers 1,309,928 1,294,285 GST rebate receivable 28,898 Prepaid expenses 2,006,472 1,822,270 Fixed assets (note 6) 489, ,728 17,863,312 8,412,205 Investments (notes 4 and 10): Short-term notes and treasury bills 6,509,689 10,078,886 Money market fund 1,702,254 Canadian bonds: Corporate 79,213,305 82,980,008 Government 43,980,758 65,209,300 Canadian equities 121,096, ,329,573 Canadian pooled funds 46,577,856 25,259,246 Foreign bonds: Corporate 18,319,142 20,608,105 Government 675,406 40,219 Foreign equities 51,102,858 42,977,230 Foreign pooled funds 176,566, ,748,625 Pooled real estate fund 43,294,623 38,477,673 Total investments 589,039, ,708,865 Foreign exchange contracts receivable (note 7) 10,902 Total assets 606,902, ,131,972 Liabilities Accounts payable and accrued liabilities 730, ,101 Foreign exchange contracts payable (note 7) 20,215 Commitments (note 8) Net assets $ 606,151,674 $ 574,557,871 See accompanying notes to fund financial statements. On behalf of the Board of Trustees: Trustee Trustee 1

5 Statement of Changes in Net Assets, with comparative information for Increase in net assets: Investment income (note 5) $ 25,875,233 $ 14,463,975 Net realized gain on sale of investments 4,178,278 16,309,387 Change in net unrealized gains on investments 27,420,605 Employer contributions 9,202,790 9,111,503 66,676,906 39,884,865 Decrease in net assets: Pension benefits 28,091,535 26,143,934 Death benefits 1,252, ,153 Old agreement and commuted value payments 533, ,716 Termination payments and portability transfers 1,080, ,232 Change in net unrealized gains on investment 52,139,677 Administrative expenditures (Schedule) 4,124,305 3,954,821 35,083,103 83,564,533 Increase (decrease) in net assets 31,593,803 (43,679,668) Net assets, beginning of year 574,557, ,237,539 Net assets, end of year $ 606,151,674 $ 574,557,871 See accompanying notes to fund financial statements. 2

6 Notes to Fund Financial Statements 1. Description of the Plan: The following description of the Musicians' Pension Fund of Canada (the "Plan") is provided for general information purposes only. Reference should be made to the Fund Agreement for more complete information: (a) General: The Plan, registration number , is a pension trust established under an Agreement and Declaration of Trust dated April 9, 1962, restated and amended on February 28, 2006, May 18, 2010, August 12, 2010, January 1, 2011, October 1, 2011 and January 1, 2013, for the purpose of providing pension benefits to eligible employees in the music industry. The Plan is a Specified Ontario Multi-Employer Pension Plan. The last actuarial valuation of the Plan filed with the Financial Services Commission of Ontario ("FSCO") was conducted by The Segal Company Ltd., as of January 1, (b) Employer contributions: The employers make required contributions for the members. (c) Retirement benefits: The Plan is a Specified Ontario Multi-Employer Pension Plan that is employer contribution only and provides a defined benefit. The Plan provides normal pension, early pension, disability pension and post-retirement death benefits for eligible members. (d) Termination benefits: The Plan provides lump sum and benefit provisions in the event of termination prior to retirement. (e) Death benefits: The Plan provides lump sum and benefit provisions in the event of death prior to or after retirement. 3

7 2. Basis of preparation: (a) Basis of presentation: As permitted by FSCO, the Plan may prepare plan financial statements in accordance with Canadian accounting standards for pension plans or prepare fund financial statements in accordance with Canadian accounting standards for pension plans, excluding pension obligations and any resulting surplus or deficit. The Plan has prepared fund financial statements in accordance with Canadian accounting standards for pension plans, excluding pension obligations and any resulting surplus or deficit. In selecting or changing accounting policies that do not relate to its investment portfolio or pension obligations, Canadian accounting standards for pension plans require the Plan to comply (on a consistent basis) with either International Financial Reporting Standards in Part I of The Canadian Institute of Chartered Accountants' ("CICA") Handbook - Accounting or Canadian accounting standards for private enterprises ("ASPE") in Part II of the CICA Handbook - Accounting. The Plan has chosen to comply on a consistent basis with ASPE. These fund financial statements have been prepared to assist the Trustees of the Plan to comply with the requirements of FSCO under Section 76 of the Regulations to the Pension Benefits Act (Ontario). As a result, the fund financial statements may not be suitable for another purpose. These fund financial statements of the Plan do not purport to show the adequacy of the Plan's assets to meet its pension obligation. Such an assessment requires additional information, such as the Plan's actuarial reports and information about the Plan's financial health. These fund financial statements have been prepared in accordance with the significant accounting policies set out below. (b) Basis of measurement: The fund financial statements have been prepared on the historical cost basis, except for investments and derivative financial instruments, which are measured at fair value through the statement of changes in net assets. 4

8 2. Basis of preparation (continued): (c) Use of estimates and judgements: The preparation of the fund financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities at the date of the statement of net assets and the reported amounts of changes in net assets during the year. Actual results may differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future years affected. 3. Significant accounting policies: (a) Fair value measurement: Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. If an asset or a liability measured at fair value has a bid price and an ask price, the price within the bid-ask spread that is the most representative of fair value in the circumstances shall be used to measure fair value. The Plan uses closing market price as a practical expedient for fair value measurement. When available, the Plan measures the fair value of an instrument using quoted prices in an active market for that instrument. A market is regarded as active if quoted prices are readily and regularly available and represent actual and regularly occurring market transactions on an arm's-length basis. If a market for a financial instrument is not active, then the Plan establishes fair value using a valuation technique. Valuation techniques include using recent arm's-length transactions between knowledgeable, willing parties (if available), reference to the current fair value of other instruments that are substantially the same, discounted cash flow analyses and option pricing models. 5

9 3. Significant accounting policies (continued): The best evidence of the fair value of a financial instrument at initial recognition is the transaction price, i.e., the fair value of the consideration given or received, unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable markets. When transaction price provides the best evidence of fair value at initial recognition, the financial instrument is initially measured at the transaction price and any difference between this price and the value initially obtained from a valuation model is subsequently recognized in profit or loss on an appropriate basis over the life of the instrument but not later than when the valuation is supported wholly by observable market data or the transaction is closed out. All changes in fair value, other than interest and dividend income and expense, are recognized in the statement of changes in net assets as part of the change in net unrealized gains on investments. Fair values of investments are determined as follows: Short-term notes, treasury bills and term deposits maturing within one year are stated at cost, which, together with accrued interest income, approximates fair value given the shortterm nature of these investments. Bonds and equities are valued at year-end quoted closing prices where available. Where quoted prices are not available, estimated fair values are calculated using comparable securities. Pooled fund investments are valued at the unit values supplied by the pooled fund administrator, which represent the Plan's proportionate share of underlying net assets at fair values determined using closing market prices. Investments in derivative financial instruments, including futures, forwards and option contracts, are valued at year-end quoted market prices where available. Where quoted prices are not available, values are determined using pricing models, which take into account current market and contractual prices of the underlying instruments, as well as time value and yield curve or volatility factors underlying the positions. Unrealized gains and losses on derivative financial instruments, net of premiums paid or received on option contracts, are included in derivative contracts investments. 6

10 3. Significant accounting policies (continued): (b) Financial assets and financial liabilities: (i) Non-derivative financial assets: Financial assets are recognized initially on the trade date, which is the date that the Plan becomes a party to the contractual provisions of the instrument. Upon initial recognition, attributable transaction costs are recognized in the statement of changes in net assets as incurred. The Plan measures all of its investments at fair value through the statement of changes in net assets. All other non-derivative financial assets, including contributions due from employers, are measured at amortized cost. The Plan derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred or in which the Plan neither transfers nor retains substantially all the risks and rewards of ownership and does not retain control of the financial asset. On derecognition of a financial asset, the difference between the carrying amount of the asset and consideration received is recognized in the statement of changes in net assets as a net realized gain on sale of investments. (ii) Non-derivative financial liabilities: The Plan considers its accounts payable and accrued liabilities to be a non-derivative financial liability. All financial liabilities are recognized initially on the trade date at which the Plan becomes a party to the contractual provisions of the instrument. The Plan derecognizes a financial liability when its contractual obligations are discharged, cancelled or expired. Financial assets and liabilities are offset and the net amount presented in the statement of net assets when, and only when, the Plan has a legal right to offset the amounts and it intends either to settle on a net basis or to realize the asset and settle the liability simultaneously. 7

11 3. Significant accounting policies (continued): (iii) Derivative financial instruments: Derivative financial instruments are recognized initially at fair value and attributable transaction costs are recognized in the statement of changes in net assets as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and all changes are recognized immediately in the statement of changes in net assets. (c) Net realized gain/loss on sale of investments: The net realized gain/loss on sale of investments is the difference between proceeds received and the average cost of investments sold. (d) Investment income: Investment income, which is recorded on the accrual basis, includes interest income and dividends. (e) Foreign currency: Transactions in foreign currency are translated into Canadian dollars at the exchange rate at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated into Canadian dollars at the exchange rate at that date. Foreign currency differences arising on retranslation are recognized in the statement of changes in net assets as a change in net unrealized gains on investments. (f) Contributions: Contributions are recorded upon the basis of reports received from the employers concerned. The accompanying financial statements reflect contributions due from employers in respect of engagements prior to December 31, 2012, as reported on April 5,

12 3. Significant accounting policies (continued): (g) Fixed assets: Fixed assets are recorded at cost less accumulated amortization. Amortization is provided on a straight-line basis so as to amortize the cost of the assets over their estimated useful lives as follows: Furniture, office and computer equipment and vehicles Computer software 5 years 3 years (h) Income taxes: The Plan is a registered pension plan, as defined by the Income Tax Act (Canada) and, accordingly, is not subject to income taxes. 4. Investments: The following table summarizes investments at cost: Short-term notes and treasury bills $ 6,509,689 $ 10,078,886 Money market fund 1,702,254 Canadian bonds: Corporate 73,994,694 77,650,979 Government 42,004,960 61,170,245 Canadian equities 107,722, ,348,255 Canadian pooled funds 47,948,024 24,000,000 Foreign bonds: Corporate 17,158,039 21,171,184 Government 674,138 38,051 Foreign equities 45,143,877 41,878,969 Foreign pooled funds 177,244, ,856,948 Pooled real estate fund 30,008,838 30,008,838 $ 550,112,054 $ 555,202,355 9

13 4. Investments (continued): As required by the Regulations to the Pension Benefits Act (Ontario), the following is provided in respect of individual investments where either the fair value or cost exceeds 1% of the total for the Plan: Book value Market value Canadian equities: Bank of Nova Scotia $ 5,522,062 $ 7,151,184 Toronto Dominion Bank 5,824,273 7,921,494 Canadian Pooled Funds: Mawer Cdn. Equity Pooled Fund (MAW112) (i) 21,448,024 23,663,700 Performance Diversified Fund Class A (ii) 24,000,000 20,403,060 WF Fund III Limited Partnership Units (iii) 14,713,077 15,167,318 Foreign Pooled Funds: Baillie Gifford Overseas Fund (BGO100) (iv) 28,658,012 26,550,127 Clairvest Equity Partners IV Ltd. Partnership (v) 6,893,251 8,326,501 Marathon Legacy Securities Public Private Investment Fund (vi) 15,460,950 17,350,484 MFS MB U.S. Equity Core Pension Fund (vii) 24,780,107 22,880,801 MFS MB U.S. Equity Core Pension Fund P84 (viii) 14,364,384 13,961,032 M-L International Investment Fund (ix) 26,499,108 26,601,351 Oxam Quant Fund (Intl) Ltd. - Lead Series A (x) 30,110,230 30,250,066 Protégé Partners QP Fund Class A Ser-1 (xi) 15,765,700 15,478,620 Pooled real estate funds: Greystone Real Estate Fund Inc. (xii) 30,008,838 43,294,623 10

14 4. Investments (continued): (i) (ii) (iii) (iv) (v) (vi) Mawer Canadian Equity Pooled Fund is operated by Mawer Investment Management Ltd, holding Canadian large cap equity. Performance Diversified Fund is operated by Performance Group Ltd., holding alternative funds. WF Fund III Limited Partnership Units is operated by Wellington Financial LP, holding venture debt, term and amortizing loans. The Baillie Gifford Overseas Fund is operated by Baillie Gifford Overseas Ltd., holding U.S. and foreign equities. Clairvest Equity Partners IV Ltd. Partnership is operated by Clairvest Group Inc., holding U.S. equities. Marathon Legacy Securities Public Private Investment Fund is operated by Marathon Asset Management, holding mortgage-backed securities, both residential and commercial. (vii) MFS MB U.S. Equity Core Pension Fund is operated by MFS McLean Budden; holding U.S. and foreign equities. (viii) MFS MB U.S. Equity Core Pension Fund P84 is operated by MFS McLean Budden; holding U.S. and foreign equities. (ix) (x) (xi) (xii) The M-L International Investment Fund is operated by Marathon Asset Management, holding U.S. and foreign equities. OXAM Quant Fund (Intl) Ltd. - Lead Series A is operated by Oxford Asset Management, holding hedge fund which holds U.S. and foreign equity. Protégé Partners QP Fund is operated by Protégé Partners LLC, holding hedge funds which hold U.S. and foreign equities and U.S. and foreign fixed income. The pooled real estate fund is operated by Greystone Managed Investments Inc., holding properties in Canada. 11

15 5. Investment income: Short-term notes and treasury bills $ 76,754 $ 80,627 Money market fund 262 2,233 Canadian corporate and government bonds 5,478,878 6,778,346 Canadian equities and pooled funds 3,381,629 3,526,705 Foreign corporate and government bonds 966,597 1,089,627 Foreign equities and pooled funds 15,858,113 3,352,003 Foreign exchange gains (losses) 110,407 (20,296) Unrealized loss on foreign exchange contracts (31,117) (389,598) Other 33,710 44,328 $ 25,875,233 $ 14,463, Fixed assets: Accumulated Net book Net book Cost amortization value value Furniture and office equipment $ 66,651 $ 57,847 $ 8,804 $ 12,864 Computer software and equipment 664, , ,072 88,168 Vehicles 44,029 6,607 37,422 18,696 $ 774,780 $ 285,482 $ 489,298 $ 119, Derivative financial instruments: Derivatives are financial contracts, the value of which is derived from the value of underlying assets or exchange rates. The Plan utilizes such contracts to enhance investment returns and for managing exposure to foreign currency volatility. The Plan holds forward foreign exchange contracts to sell foreign currencies in the future. Futures and forwards are contractual obligations either to buy or to sell a specified amount of equity indices 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. 12

16 7. Derivative financial instruments (continued): At December 31, 2012, the Plan has the following foreign exchange contracts outstanding: Currency forwards: Amount Currency Fair value Exchange rate Expiration 17,493,666 U.S. dollar $ (20,215) March 4, Commitments: At December 31, 2012, the Plan is committed under an operating lease for rental of office space until 2016, which requires minimum rental payments as follows (excluding taxes and operating costs): 2013 $ 48, , , ,720 $ 183, Capital risk management: The main objective of the Plan is to sustain a certain level of net assets in order to meet the pension obligations of the Plan, which are not presented or discussed in these specifiedpurpose fund financial statements. Under the Pension Benefits Act (Ontario) and its regulations, the Plan is required to prepare a Funding status of the Plan every three years. The Plan fulfils its primary objective by adhering to specific investment policies outlined in its Statement of Investment Policies and Procedures ("SIPP"), which is reviewed annually by the Plan. The Plan manages net assets by engaging knowledgeable investment managers who are charged with the responsibility of investing existing funds and new funds (current year's employer contributions) in accordance with the approved SIPP. Increases in net assets are a direct result of investment income generated by investments held by the Plan and contributions into the Plan by employers. Contributions are recorded upon the basis of reports received from the employers concerned. The main use of net assets is for benefit payments to eligible Plan members. The Fund is required to file financial statements with FSCO. 13

17 10. Financial instruments: (a) Fair values: The fair values of investments and derivatives are as described in notes 3(b) and 7, respectively. The fair values of other financial assets and liabilities, being cash, accrued investment income, contributions due from employers and accounts payable and accrued liabilities, approximate their carrying values due to the short-term nature of these financial instruments. Fair value measurements recognized in the statement of net assets are categorized using a fair value hierarchy that reflects the significance of inputs used in determining the fair values. Level 1 - unadjusted quoted prices in active markets for identical assets or liabilities; Level 2 - inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly; and Level 3 - inputs for assets and liabilities that are not based on observable market data. The following table illustrates the classification of the Plan's financial instruments using the fair value hierarchy as at December 31: Level 1 Level 2 Level 3 Total Total Short-term notes and treasury bills $ $ 6,509,689 $ $ 6,509,689 $ 10,078,886 Money market fund 1,702,254 1,702,254 Canadian bonds: Corporate 79,213,305 79,213,305 82,980,008 Government 43,980,758 43,980,758 65,209,300 Canadian equities 121,096, ,096, ,329,573 Canadian pooled funds 46,577,856 46,577,856 25,259,246 Foreign bonds: Corporate 690,869 17,628,273 18,319,142 20,608,105 Government 675, ,406 40,219 Foreign equities 51,102,858 51,102,858 42,977,230 Foreign pooled funds 90,006,966 86,559, ,566, ,748,625 Pooled real estate fund 43,294,623 43,294,623 38,477,673 Foreign exchange contracts (20,215) (20,215) 10,902 $ 354,472,404 $ 148,007,431 $ 86,539,119 $ 589,018,954 $ 566,719,767 Investment in foreign corporate bond with a fair value of $690,869 was transferred from Level 2 to Level 1 during 2012 as a result of change in price source. 14

18 10. Financial instruments (continued): The following table reconciles the Plan's Level 3 fair value measurements from December 31, 2011 to December 31, 2012: Foreign pooled funds Foreign exchange contract Balance, beginning of year $ 41,087,139 $ 10,902 Gain included in income 648,888 Purchases 44,823,307 (20,215) Settlements (10,902) Balance, end of year $ 86,559,334 $ (20,215) (b) Associated risks: Risk management relates to the understanding and active management of risks associated with all areas of the business and the associated operating environment. Investments are primarily exposed to market price, liquidity, foreign currency, interest rate, and credit risks. The Plan has formal policies and procedures that establish target asset mix. The Plan's policies also require diversification of investments within categories and set limits on exposure to individual investments. (i) Market price risk: Market price risk is the risk that the value of an instrument will fluctuate as a result of changes in market prices, whether those changes are caused by factors specific to an individual investment, its issuer or all factors affecting all instruments traded in the market. As all of the Plan's financial instruments are carried at fair value with fair value changes recognized in the statement of changes in net assets, all changes in market conditions will directly result in an increase (decrease) in net assets. Market price risk is managed by the Plan through construction of a diversified portfolio of instruments traded on various markets and across various industries. 15

19 10. Financial instruments (continued): (ii) Liquidity risk: Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. Although market events could lead to some investments becoming illiquid, the diversity of the Plan's portfolios should ensure that liquidity is available for benefit payments. The Plan also maintains cash on hand for liquidity purposes and to pay accounts payable and accrued liabilities. At December 31, 2012, the Plan had cash in the amount of $12,506,425 ( $3,168,164). (iii) Foreign currency risk: Foreign currency risk is the risk that the value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Plan invests in financial instruments and enters into transactions denominated in various foreign currencies, other than its measurement currency. Consequently, the Plan is exposed to risk that the exchange rates of the various currencies may change in a manner that has an adverse effect on the value of the portion of the Plan's assets or liabilities denominated in currencies other than the Canadian dollar. Foreign currency risk is hedged by using foreign exchange forward contracts. 16

20 10. Financial instruments (continued): (iv) Interest rate risk: The following table summarizes fair values of investments at December 31, by maturity dates, as well as average yields by class of investment: Maturity Fair value Average yield Short-term notes and treasury bills January 1, April 24, 2013 $ 8,211, % Canadian bonds: Federal June 1, June 1, 2037 $ 22,720, % % Provincial March 8, June 18, ,049, % % Municipal May 31, June 2, ,210, % % Corporate January 14, December 12, ,213, % % $ 123,194,063 Foreign bonds: Government February 2025 $ 675, % Corporate May 29, October 4, ,319, % % $ 18,994,548 Interest rate risk is the risk that the market value of the Plan's investments will fluctuate due to changes in market interest rates. To properly manage the Plan's interest rate risk, appropriate guidelines on the weighting and duration for the bonds and other fixed investments are set and monitored. The Plan's investments in fixed income are sensitive to interest rate movements. 17

21 10. Financial instruments (continued): (v) Credit risk: Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Plan. The Plan's fixed income investments are primarily in Canadian-issued instruments and are diversified among federal, provincial, corporate and other issuers. In order to minimize the exposure to credit risk, a comprehensive investment policy has been developed. There were no significant concentrations of credit risk in the portfolio in either 2012 or The breakdown of the total fixed income securities portfolio by credit rating as at December 31 is: Percentage Percentage Credit rating Fair value of portfolio Fair value of portfolio AAA $ 32,452, $ 46,808, AA 24,393, ,907, A 53,622, ,974, BBB 28,527, ,814, BB 3,191, ,332,674 1 $ 142,188, $ 168,837, The Plan engages in securities lending to enhance portfolio returns. Credit risk associated with securities lending is mitigated by requiring the borrower to provide daily collateral in the form of cash and readily marketable investments of greater market value than the securities loaned. As at December 31, 2012, the Plan's investments included loaned securities with a fair value of $51,024,090 ( $70,630,018). The fair value of collateral received in respect of these loans was $52,201,568 ( $72,311,793). Net income earned from securities lending for the year was $22,884 ( $47,653). 18

22 Schedule of Administrative Expenditures, with comparative information for Professional services: Investment manager fees $ 1,844,471 $ 1,781,076 Custodial fees 209, ,869 Legal fees 172, ,626 Actuarial services 190, ,217 Investment advisory fees 67,660 37,975 Audit and tax preparation fee 45,365 34,658 2,530,361 2,357,421 Harmonized sales tax 177, ,154 Amortization and write-off 76,332 30, , ,682 Operating: Salaries and related 727, ,582 Rent and space 130, ,646 Dues and fees 111, ,416 Data processing 74,915 80,255 Office 61,694 59,256 Communications 60,736 16,591 Accounting fees 43,200 39,650 Postage and delivery 31,254 17,824 Insurance 30,076 30,008 Trustees travel 17,278 20,846 Staff education 13,210 4,466 Staff travel 12,763 31,626 Trustee education 10,018 9,757 Bank charges 8,740 8,950 Translation 6,475 3,845 1,339,689 1,239,718 $ 4,124,305 $ 3,954,821 19