2004 Annual Report

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Schedule A – Financial Statements Prepared by Deloitte & Touche LLP as of March 31, 2004

The 1986-1990 Hepatitis C Fund

Auditors’ Report

To the Joint Committee of the 1986-1990 Hepatitis C Fund

We have audited the statement of financial position of the 1986-1990 Hepatitis C Fund as at March 31, 2004 and the statement of expenses and revenue for the year then ended. These financial statements are the responsibility of the Joint Committee of the Fund. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these financial statements present fairly, in all material respects, the financial position of the Fund as at March 31, 2004 and the results of its operations and its cash flows for the year then ended in accordance with Canadian generally accepted accounting principles.

Chartered Accountants

May 7, 2004

Statement of Financial Position

APPROVED BY THE JOINT COMMITTEE OF THE 1986-1990 HEPATITIS C FUND

Statement of Expenses and Revenue

Notes to the Financial Statements for Year Ended March 31, 2004

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 1, 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. As at March 31, 2004 those obligations including interest are estimated to be $238,653,000.

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:

1. Funding contributed in payment of the Government of Canada obligation;
2. Contributions prepaid by provinces and territories, if any; and
3. 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:

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, 2004 , the average duration of the bonds and debentures in the portfolio, weighted on market values, was 19 years (2003 - 19 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:

b) Foreign currency risk

Foreign currency exposure arises from the Fund's holdings of non-Canadian denominated investments, as follows:

4. AMOUNTS TO BE RECOVERED

During the March 31, 2002 fiscal year, the Administrator inadvertently made payments to the estates of the persons who died prior to January 1, 1999 in respect of loss of services and loss of income in the period subsequent to their disability and prior to the year of their death. Such payments are not permissible under Section 5.01 of the Plan. The total amount of such payments was $787,868 and the amounts remaining to be recovered from the Administrator are $350,347 (2003 - $787,868) to be received as follows:

5. FUNDING HELD FOR FUTURE EXPENSES

6. CLAIMS

Claims recognized as expenses of the Fund during the current year consist of the following:

The claims include payments totalling $1,200,000 (2003 - $480,000) for HIV secondary claimants. In 2004 these amounts were disbursed by the Administrator, whereas in 2003 and previous years these amounts were approved by Court Order and disbursed directly by Liberty Health.

In August 2002, the Courts instructed the Administrator to release a $5,000 payment to all claimants who had previously received payment(s), under section 4.01(1)(b) of the Agreement, between June 2000 and August 2002. These payments totalled $14,685,287, of which $23,322 (2003 - $51,009) have not yet been paid due to difficulties in contacting the claimants.

7. OPERATING EXPENSES

8. COMPARATIVE FIGURES

Certain of the prior year's comparative figures have been reclassified to conform with the current year's presentation.

9. STATEMENT OF CASH FLOWS

A statement of cash flows has not been prepared as information relating to cash flows is otherwise adequately disclosed.

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