The Wawanesa Life Insurance Company Segregated Funds. Interim Unaudited Financial Statements June 30, 2013

Transcription

1 The Wawanesa Life Insurance Company Segregated s Interim Unaudited Financial Statements

2 Segregated s Statements of Net Assets As at (unaudited) and December 31, 2012 (audited) Investments - at fair value (see Statements of Investment Portfolio) $112,218,118 $ 38,266,909 $ 16,626,705 $ 25,609,415 $113,164,563 $ 28,904,169 $ 13,763,143 $ 26,848,625 Less Management fees payable 36,315 12,238 5,234 8,260 36,578 9,708 4,425 8,747 Due to (from) the investment manager 143,246 75,786 45,647 (97,097) Due to (from) The Wawanesa Life Insurance Company (180,373) (88,003) (50,925) 86,737 1, ,247 (812) 21 (44) (2,100) 37,787 9,864 4,932 15,994 Net assets representing unitholders equity $112,218,930 $ 38,266,888 $ 16,626,749 $ 25,611,515 $113,126,776 $ 28,894,305 $ 13,758,211 $ 26,832,631 The accompanying notes constitute an integral part of the financial statements.

3 Segregated s Statements of Changes in Net Assets For the period ended (unaudited) and the year ended December 31, 2012 (audited) Net assets - Beginning of year $113,126,776 $ 28,894,305 $ 13,758,211 $ 26,832,631 $106,778,814 $ 23,565,709 $ 11,176,269 $ 22,115,219 Increase (decrease) in net assets resulting from operations (1,889,464) 5,879,710 1,344,976 (652,367) 5,732,863 2,654,286 1,533, ,355 Unit transactions Proceeds from sale of units Class A 900, , , ,330 1,011, , , ,006 Class B 2,860,755 1,758, , ,146 4,631,392 1,484, ,317 2,672,457 Class C 5,212,922 2,884,566 1,749,745 2,321,537 7,882,739 3,854,146 2,176,924 5,210,902 8,974,514 5,134,347 2,223,320 3,262,013 13,525,194 5,636,335 2,652,808 8,810,365 Payments on redemption of units Class A 933, ,783 27, ,837 1,701, , , ,971 Class B 4,409, ,492 8, ,910 6,037,985 1,500, ,435 1,630,548 Class C 2,649, , ,857 2,175,015 5,170,445 1,134, ,729 1,988,789 7,992,896 1,641, ,758 3,830,762 12,910,095 2,962,025 1,604,786 4,512, ,618 3,492,873 1,523,562 (568,749) 615,099 2,674,310 1,048,022 4,298,057 Net assets - End of period $112,218,930 $ 38,266,888 $ 16,626,749 $ 25,611,515 $113,126,776 $ 28,894,305 $ 13,758,211 $ 26,832,631 The accompanying notes constitute an integral part of the financial statements.

4 Segregated s Statements of Changes in Net Assets continued For the period ended (unaudited) and the year ended December 31, 2012 (audited) Number of units outstanding - End of period Class A 662, , , , , , , ,766 Class B 2,770,591 1,392, , ,800 2,844,352 1,282, , ,525 Class C 2,467,345 1,888,892 1,085, ,362 2,327,481 1,665, , ,544 Net asset value per unit - At last valuation date June 27, 2013 December 27, 2012 Class A $ $ $ $ $ $ $ $ Class B Class C The accompanying notes constitute an integral part of the financial statements.

5 Segregated s Statements of Operations For the periods ended June 30 (unaudited) The accompanying notes constitute an integral part of the financial statements. Investment income Dividends $ - $ - $ - $ - $ - $ - $ - $ - Foreign Interest , ,204 Capital gains (losses) 584,717 22,390 (1,054) 92, ,083 (79,384)) (65,879) 45, ,717 22,390 (1,054) 580, ,083 (79,384) (65,879) 529,619 Expenses Management fees (note 4) 936, , , , , ,610 99, ,150 Net investment income (loss) (351,768) (258,680) (124,759) 370,274 (288,268) (302,994) (165,512) 319,469 Unrealized appreciation (depreciation) of investments Fair value of investments 112,218,118 38,266,909 16,626,705 25,609, ,196,300 26,729,663 12,049,159 25,443,487 Cost of investments 94,113,213 34,353,263 16,718,956 25,352,535 89,514,356 29,287,252 14,637,435 24,061,888 18,104,905 3,913,646 (92,251) 256,880 13,681,944 (2,557,589) (2,588,276) 1,381,599 Less: Prior years unrealized appreciation (depreciation) of investments 19,642,601 (2,224,744) (1,561,986) 1,279,521 15,877,597 (4,868,497) (3,003,542) 1,430,342 (1,537,696) 6,138,390 1,469,735 (1,022,641) (2,195,653) 2,310, ,266 (48,743) Increase (decrease) in net assets from operations $ (1,889,464) $ 5,879,710 $ 1,344,976 $ (652,367) $ (2,483,921) $ 2,007,914 $ 249,754 $ 270,726

6 Segregated s Statements of Investment Portfolios As at (unaudited) and December 31, 2012 (audited) Number of units Average cost Fair value Number of units Average cost Fair value Underlying fund - TD Emerald # ,300,067 $94,113,213 $112,218,118 3,299,547 $93,521,962 $113,164,563 Underlying fund - TD Emerald Market Index # ,044,886 $34,353,263 $ 38,266,909 2,768,466 $31,128,913 $ 28,904,169 Underlying fund - TD Emerald # ,381,403 $16,718,956 $ 16,626,705 1,262,581 $15,325,129 $ 13,763,143 Underlying fund - TD Emerald # ,031,816 $25,352,535 $ 25,609,415 2,054,705 $25,569,104 $ 26,848,625 The accompanying notes constitute an integral part of the financial statements.

7 Segregated s 1 The s The s consist of four segregated funds maintained by The Wawanesa Life Insurance Company (Wawanesa Life) in respect of individual variable deferred annuity contracts. Annuity contractholders can select a segregated fund investment option in which the benefit amount is directly linked to the fair value of the units held in the particular segregated fund. Although the underlying assets are registered in the name of Wawanesa Life, the annuity contractholder has no direct access to the specific assets. The assets of each are segregated from the other assets of Wawanesa Life. The s are not separate legal entities. The contractual arrangements are such that the annuity contractholder bears the risk and rewards of the s investment performance. The annuity contractholders have minimum maturity value and death benefit guarantees from Wawanesa Life. Each of the s will invest in securities consistent with the investment objectives described in The Wawanesa Life Insurance Company Individual Savings and Investment Plans Information Folder. Investments are primarily in units of institutional pooled funds offered by the s investment manager, TD Asset Management Inc. (TDAM). Unitholder contributions, withdrawals and transfers between funds are used to acquire or redeem units in the s. The s are open ended with the value of the assets held in each described for reporting purposes by reference to units of the. Such units represent a simple means of measuring the liability of Wawanesa Life to the unitholder in respect of the s. Transactions with unitholders occur at the net asset value per unit (NAVPU) for each class within the s. 2 Significant accounting policies These financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) as set out in Part V of the Institute of Chartered Accountants (CICA) Handbook. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results may differ from such estimates. Changes in estimates are recorded in the accounting period in which they are determined. The fair value of investments is a financial statement component subject to management judgment and estimates. Management did not adjust the quoted price for the s investments (note 6). The significant accounting policies of the s are as follows: a) Accounting standards comprising CICA Handbook section 3855 Financial Instruments - Recognition and Measurement requires that the fair value of financial instruments which are actively traded be measured based on the bid price for the security, where available. Bid prices are not available for the underlying funds. Investments in underlying institutional pooled funds are carried at the underlying institutional pooled funds transactional NAVPU at the end of each valuation day. The difference between this amount and the average cost is shown as unrealized appreciation (depreciation) of investments. b) The accrual basis of accounting is used to record investment expenses incurred by the s. c) Dividends, interest and capital gains (losses) distributions from pooled funds are recognized on the income distribution dates. The earnings of each are reinvested in the. (1)

8 Segregated s 2 Significant accounting policies (continued) d) The Company uses trade date accounting for purchases and sales of these investments. Realized gains and losses on investments are calculated on disposal as the net proceeds less the average cost of the investment. Unrealized gains (losses) are calculated by the change in fair value compared to the change in average cost. e) The fair values of foreign investments and other assets and liabilities in the underlying institutional pooled funds are translated into dollars at exchange rates prevailing at the close of business on the date of each valuation. f) Purchases and sales of foreign investments and the related income in the underlying institutional pooled funds are translated into dollars at rates of exchange prevailing on the respective dates of such transactions. (2)

9 Segregated s 3 Description of units Each is subdivided into three classes of units (Class A, Class B, and Class C units) and these units are attributed to individual variable deferred annuity contracts for the purpose of determining the value of the benefits under those contracts. Annuity contractholders acquire no direct claim on the units or assets of a by purchasing a contract but only the benefits which are provided under the contract. Units are attributed to and withdrawn from a contract when required by the terms of the contract. Class A, Class B and Class C units differ with respect to management fees charged to each. Class B is closed to new contracts. A separate net asset value per unit is determined for each class of each. The number of units outstanding in each as at and December 31, 2012 and the number of units attributed to and withdrawn from contracts during the periods were as follows: Outstanding Attributed Withdrawn Outstanding Attributed Withdrawn Class A 662,734 46,472 47, ,961 54,261 91,163 Class B 2,770, , ,795 2,844, , ,096 Class C 2,467, , ,371 2,327, , ,960 Class A 329,521 47,407 16, ,075 32,570 35,732 Class B 1,392, ,881 43,605 1,282, , ,555 Class C 1,888, , ,933 1,665, , ,567 Class A 160,791 17,383 2, ,150 17,018 24,995 Class B 289,202 28, ,988 35,581 45,158 Class C 1,085, ,554 61, , , ,689 Class A 346,940 22,856 44, ,766 61,262 59,450 Class B 357,800 38,012 61, , , ,171 Class C 939, , , , , ,196 (3)

10 Segregated s 4 Related party transactions Wawanesa Life provides investment management and administrative services to the s. In respect of these services, the s are charged a management fee calculated on a weekly basis. The management fee is calculated at a set rate applied against the net asset value of the s units attributable to each class. Each is also responsible for all applicable taxes, including goods and services tax and harmonized sales tax, and all brokerage commissions incurred by that in buying and selling investments on behalf of that. The amounts shown as Management fees payable and Due to (from) The Wawanesa Life Insurance Company represent outstanding management fees, un-cleared deposits/withdrawals and investment activity from the last valuation date. 5 Taxation of the s Each is treated as a separate trust under the Income Tax Act (Canada) and its income and realized capital gains and losses, as applicable, are allocated to unitholders and their beneficiaries. Accordingly, subject to any foreign withholding taxes which may be payable, under current tax legislation there are no income taxes payable by the s. (4)

11 Segregated s 6 Fair value hierarchy Financial assets and liabilities recorded at fair value in the statements of net assets are measured and classified in a hierarchy consisting of three levels for disclosure purposes. The three levels are based on the priority of the inputs to the respective valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). An asset or liability s classification within the fair value hierarchy is based on the lowest level of significant input to its valuation. The input levels are defined as follows: Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities. The s define active markets based on the frequency of valuation and any restrictions or illiquidity on disposition for institutional pooled funds. Assets measured at fair value and classified as Level 1 are the s investments in institutional pooled fund units. Fair value is based on market price data obtained from the investment manager. The s do not adjust the quoted price for such instruments. Level 2: Quoted prices in markets that are not active or inputs that are observable either directly (i.e., as prices) or indirectly (i.e., derived from prices). Level 2 inputs include observable market information, including quoted prices for assets in markets that are considered less active. Fair value is based on market price data obtained from the investment manager. There are no investments that meet the level 2 fair value measurement criteria. Level 3: Unobservable inputs that are supported by little or no market activity and are significant to the estimated fair value of the assets or liabilities. Level 3 assets and liabilities would include financial instruments whose values are determined using internal pricing models, discounted cash flow methodologies, or similar techniques that are not based on observable market data, as well as instruments for which the determination of estimated fair value requires significant management judgment or estimation. There are no investments that meet the level 3 fair value measurement criteria. No financial assets were transferred between levels in 2013 or (5)

12 Segregated s 7 Financial risk management There are several types of financial risks to which a segregated fund may be subject. A segregated fund which invests in the units of an underlying fund will be subject to the same investment risks as the underlying fund. To understand those risks and how they are managed, unitholders should consult the financial statements of those underlying funds identified in the Statements of Investment Portfolios. Significant risks that are relevant to the s are discussed below. Credit risk Credit risk is the possibility of financial loss, despite realization of collateral security or property, resulting from the failure of a debtor to honour its obligation to the s. Of the s offered by Wawanesa Life, the is the only with exposure to credit risk. While the has no direct exposure to credit risk, it may be exposed to indirect credit risk through its investments in the underlying fund. This risk is mitigated by investing primarily in a pooled investment fund which invests in almost all of the bonds included in the DEX Universe. The s are exposed to counterparty credit risk through their investment in institutional pooled funds managed by TDAM that use derivative instruments. This risk is considered in determining the fair value of the s, however for the period ended and the year ended December 31, 2012, it had no impact on the fair value presented in the financial statements. Liquidity risk Liquidity risk is defined as the risk that the s will not be able to settle or meet their obligations as they come due. All s are exposed to potential weekly cash redemptions of redeemable units. Units are redeemed on demand at the unitholder s option based on the s NAVPU on the date of redemption. The s maintain sufficient liquidity by investing the majority of their assets in underlying funds that can be readily disposed. (6)

13 Segregated s 7 Financial risk management (continued) Market risk Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk includes interest rate risk, currency risk and other price risk. Interest rate risk is the potential for financial loss arising from changes in interest rates. The Bond Index is the only which is exposed to the risk that the value of interest-bearing financial instruments in the underlying fund will fluctuate due to changes in the prevailing levels of market interest rates. Currency risk represents the risk that the s incur losses due to exposure to foreign currency fluctuations. The investments in the and the are denominated in dollars, however the underlying funds are exposed to currency risk as their investments are denominated or traded in a foreign currency. Other price risk is the risk that the value of financial instruments will fluctuate as a result of changes in market prices (other than those arising from interest rate risk or currency risk), whether caused by factors specific to an individual investment, its issuer, or all factors affecting all instruments traded in a market or market segment. All s present a risk of loss of capital. The s are exposed indirectly to these risks through their investment in underlying funds. However, the underlying funds are managed to track the performance of the indices they are designed to represent. 8 Future change in accounting policies In 2008, the Accounting Standards Board (AcSB) confirmed that publicly accountable enterprises would be required to adopt Financial Reporting Standards (IFRS) by 2011 to replace GAAP. The s meet the definition of a publicly accountable enterprise. In December 2011, the AcSB announced a further extension of the option to defer the adoption of IFRS for segregated funds of life insurance enterprises until The s plan to adopt IFRS for the fiscal period beginning January 1, (7)