1. DESCRIPTION OF THE FUND
The 1986-1990 Hepatitis C Fund (the "Fund")
was established to hold and invest funds and administer
their payment as compensation to claimants who qualify as
class members, all pursuant to the terms of the January
1, 1986 - July, 1990 Hepatitis C Settlement Agreement (the
"Agreement") made as of June 15, 1999 and the
Judgments of the Supreme Court of British Columbia, Superior
Court of Justice for Ontario and Superior Court of Quebec
(the "Courts").
The maximum obligations to the Fund established as at
January 10, 2000 were $1.203 billion, shared between the
Government of Canada (72.7273%) and the governments of the
provinces and territories (27.2727%), plus interest accruing
thereafter on the unpaid obligations. The Government of
Canada has made contributions to the Fund, which totally
satisfy its obligation to the Fund. The provincial and territorial
governments are required to contribute as and when required
for payment of their share of expenses. Provinces and territories
may elect to prepay their contributions. To the extent provinces
and territories do not prepay their contributions, interest
is calculated on their outstanding obligations at treasury
bill rates applied quarterly.
The operations of the Fund are subject to various reviews
and approvals by the Courts.
The Fund is a trust that is exempt from income tax under
the Income Tax Act.
2. ACCOUNTING POLICIES
The financial statements have been prepared in accordance
with Canadian generally accepted accounting principles and
include the following significant accounting policies:
Liabilities and funding for future payments
These financial statements do not present liabilities
for payments to be made to class members in future years
nor the related future funding requirements of provincial
and territorial governments.
Revenue recognition
The Fund follows the deferral method of accounting for
contributions. Revenue is recognized as expenses are incurred
and shares of such expenses are allocated to governments,
as set out in the Agreement. To the extent that contributions
are paid to the Fund in advance of expenses being incurred
and allocated, the contributions and the investment earnings
thereon are deferred and recorded as funding held for future
expenses. Accordingly, the funding held for future expenses
includes:
a) Funding contributed in payment of the Government of
Canada obligation;
b) Contributions prepaid by provinces and territories,
if any; and
c) Investment earnings for the period.
As expenses are incurred and allocated, amounts are deducted
from the balance of the funding held for future expenses and
are recognized as revenue.
Where provincial and territorial governments have not
prepaid contributions and expenses are allocated to them,
such amounts are requisitioned by the Fund and are recognized
directly as revenue of the Fund.
Claims
A claim is recognized as an expense in the period in which
the claim approval process has been completed.
Operating expenses
Operating expenses are recorded in the period in which
they are incurred. Operating expenses are subject to approval
by the Courts.
Investments
Investments are recorded at market value including interest
and dividend revenue receivable. Realized and unrealized
gains (losses) together with interest and dividend revenue
are reported as investment earnings and are deferred, pending
their allocation to pay expenses.
Foreign currency
Transactions denominated in foreign currencies are translated
into Canadian dollars at the rates of exchange prevailing
at the dates of the transactions. Investments and cash balances
denominated in foreign currencies are translated at the
rates in effect at year-end. Resulting gains or losses from
changes in these rates are included in investment earnings.
3. INVESTMENTS
| Investments are summarized as follows: |
Market Value
|
|
Cost
|
| |
(000's)
|
| |
|
|
|
| Cash |
$ 144
|
|
$ 144
|
| Investment earnings receivable |
10,568
|
|
10,568
|
| Fixed income |
795,937
|
|
744,020
|
| Equities |
67,520
|
|
78,509
|
| |
|
|
|
| |
|
|
| |
$ 874,169
|
|
$ 833,241
|
|
|
|
Determination of market values
Fixed income consists of debt obligations of governments
and corporate bodies paying interest at rates appropriate
to the market at the date of their purchase. Bonds are recorded
at prices based upon published market quotations. The fixed
income portfolio's sensitivity to a change in market rates
is represented by the duration of the portfolio. As at March
31, 2001, the average duration of the bonds and debentures
in the portfolio, weighted on market values, was 3.1 years.
Equities consist of pooled fund units. Pooled fund units
are valued at prices based on the market value of the underlying
securities held by the pooled funds.
Investment risk
Investment in financial instruments renders the Fund subject
to investment risks. These include the risks arising from
changes in interest rates, in rates of exchange for foreign
currency, and in equity markets both domestic and foreign.
They also include the risks arising from the failure of
a counterparty to a financial instrument to discharge an
obligation when it is due.
The Fund has adopted investment policies, standards and
procedures to control the amount of risk to which it is
exposed. The investment practices of the Fund are designed
to avoid undue risk of loss and impairment of assets and
to provide a reasonable expectation of fair return given
the nature of the investments. The maximum investment risk
to the Fund is represented by the market value of the investments.
a) Concentration risk
Concentration risk exists when a significant proportion
of the portfolio is invested in securities with similar
characteristics or subject to similar economic, political
or other conditions. The relative proportions of the types
of investments, in the portfolio are as follows:
| |
% of Market
Value |
| |
|
| Cash |
-
|
| Investment earnings receivable |
1
|
|
|
|
|
1
|
|
|
|
| Fixed income |
|
| Government of Canada |
73
|
| Corporate |
9
|
| Provinces of Canada |
5
|
| Fixed income pooled fund units |
4
|
|
|
|
| |
91
|
|
|
|
| Equities |
|
| Canadian |
-
|
| Pooled fund units |
4
|
| |
|
| Foreign |
|
| U.S. pooled fund units |
2
|
| International pooled fund units |
2
|
|
|
|
|
8
|
|
|
|
| |
100
|
|
b) Foreign currency risk
Foreign currency exposure arises from the Fund's holdings
of non-Canadian denominated investments, as follows:
| |
(000's)
|
| Equities |
|
| U.S. pooled fund units |
$ 17,472
|
| International pooled fund units |
17,679
|
|
|
| |
|
| |
$ 35,151
|
|
4. FUNDING HELD FOR FUTURE EXPENSES
Changes in the balance during the period were as follows:
| |
(000's)
|
| |
|
Funding contributed in payment of the
Government of Canada obligation
|
$ 874,680
|
| Contributions prepaid by provincial governments |
27,100
|
| Investment earnings for the period |
98,013
|
| Amounts recognized as revenue |
(137,792)
|
| |
|
| |
| Balance, end of period |
$ 862,001
|
|
|
5. CLAIMS
Claims recognized as expenses of the Fund during the current
period consist of the following:
| |
(000's)
|
| Approved by the Administrator of the Fund |
|
Disbursed
|
$ 72,341
|
| Accrued and in process of payment |
11,206
|
| |
|
| |
| |
83,547
|
| |
|
| Previously paid by the Government of Canada |
16,800
|
| |
|
| |
| |
$ 100,347
|
|
|
The Government of Canada paid certain HIV/AIDS claims on
behalf of the Fund, prior to the Fund becoming operational.
6. START-UP COSTS
Start-up costs include counsel fees for the class actions,
class member notification advertisements, actuarial services
and the development of the Fund's structure, facilities,
and hardware and software for the Fund's systems. Included
in the start-up costs are expenses of approximately $2,589,000
paid by the Government of Canada on behalf of the Fund,
prior to the Fund becoming operational.
7. OPERATING EXPENSES
| |
(000's)
|
| |
|
Administrator
|
$ 4,871
|
| Legal |
2,913
|
| Traceback fees |
488
|
| Investment management |
267
|
| Custodial trustee |
149
|
| Medical and other consulting |
97
|
| Audit and related services |
96
|
| Investment advisory |
70
|
| Actuarial |
28
|
| |
|
| |
| |
$ 8,979
|
|
|
8. STATEMENT OF CASH FLOWS
A statement of cash flows has not been prepared as information
relating to cash flows is otherwise adequately disclosed.
9. CONTINGENCIES
In addition to the legal fees recorded by the Fund as
at March 31, 2001, there is an ongoing court proceeding
in respect of counsel fees for Quebec class actions. An
additional amount up to $10,000,000, may be payable by the
Fund for Quebec legal fees relating to start-up costs. No
provision with respect to this claim has been made in the
financial statements. In the event any cost is incurred,
it will be charged to expense in the year incurred.
Certain other legal proceedings are in process. While
their outcomes are not currently determinable, the resolution
of these matters should not result in any adverse impact
on the Fund.
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