2006 Annual Report

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Schedule A – Financial Statements Prepared by Deloitte & Touche LLP as of March 31, 2006

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, 2006 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, 2006 and the results of its operations and its cash flows for the year then ended in accordance with Canadian generally accepted accounting principles.

Our opinion originally issued on May 5, 2006 has been withdrawn and the financial statements have been revised as described in Note 11 to the financial statements.

Chartered Accountants

May 5, 2006
(except as to Note 11, which
is at February 26, 2007)

Statement of Financial Position as at March 31, 2006 (in thousands of dollars)

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

Statement of Expenses and Revenue year ended March 31, 2006 (in thousands of dollars)

Notes to the Financial Statements year ended March 31, 2006

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, 2006 those obligations including interest are estimated to be $218,941,000 (2005 - $226,562,000).

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.

Use of estimates

The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.  Actual results could differ from these estimates.

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 includes 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, 2006, the average duration of the bonds and debentures in the portfolio, weighted on market values, was 17.9 years (2005 - 18.5 years).

Pooled fund units are valued at prices based on the market value of the underlying securities held by the pooled funds.

Investment risk

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. FEES AND EXPENSES TO BE REIMBURSED BY THE FEDERAL GOVERNMENT PURSUANT TO COURT ORDER

During the year, the Joint Committee, Eckler Partners Ltd., and the Administrator incurred fees and expenses related to work performed pursuant to Court Order and at the request of the Federal Government.  The two Court Orders dated August 17, 2005 and December 28, 2005 directed the Joint Committee, Eckler Partners Ltd. and the Administrator to provide certain non-identifying administrative data and access to medical, actuarial, and administrative agents to the Federal Government, to assist the Federal Government in preparing their responding materials for the sufficiency hearing.  The Court Orders state that all costs for and incidental to the exchange of information and data between the agents of the Joint Committee and the Federal Government, including the costs of a representative of the Joint Committee, shall be borne by the Federal Government.  As part of its motion to file its Annual Report for Year 6, the Joint Committee will seek an Order for reimbursement to the Fund of the fees and expenses, along with any applicable taxes incurred pursuant to these Court Orders and at the request of the Federal Government.  The fees and expenses incurred as at March 31, 2006 were as follows:

5. 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 $NIL (2005 - $160,638) received as follows:

6. FUNDING HELD FOR FUTURE EXPENSES

7. CLAIMS

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

The claims include payments totalling $720,000 (2005 - $480,000) for HIV secondary claimants.  Since 2004 these amounts have been disbursed by the Administrator, whereas in 2003 and previous years these amounts were approved by Court Order and disbursed directly by Liberty Health.

8. OPERATING EXPENSES

9. FINANCIAL INSTRUMENTS

The Fund's financial instruments consist of investments, receivables and accounts payable and accrued liabilities.  The fair value of accounts receivable and accounts payable and accrued liabilities approximates their carrying value due to the short-term nature of these items.  The fair value of investments is as disclosed in Note 3.

10. STATEMENT OF CASH FLOWS

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

11. CORRECTION OF AN ERROR

Subsequent to the issuance of the March 31, 2006 financial statements, an error was noted on the statement of financial position.  As at March 31, 2006, both the asset and the liability relating to fees and expenses to be reimbursed should have read $127,000 and not $127,000,000.  This correction has no impact on the revenue and expenses of the Fund.

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