Investors Mortgage and Short Term Income Fund Annual Financial Report MARCH 31, 2015 Copyright Investors Group Inc. 2015 Trademarks owned by IGM Financial Inc. and licensed to its subsidiary corporations.
ANNUAL FINANCIAL STATEMENTS MARCH 31, 2015 STATEMENTS OF FINANCIAL POSITION at March 31, 2015 with comparative figures at March 31, 2014 and April 1, 2013 (in $ 000 except per security amounts) Assets Current assets: Mar. 31 Mar. 31 Apr. 1 2015 2014 2013 Investments at fair value 4,725,124 4,533,311 4,369,132 Cash and cash equivalents 125,373 52,573 6,385 Accrued interest receivable 20,395 15,846 12,386 Dividends receivable - - - Accounts receivable for investments sold 10,628 30,507 - Accounts receivable for securities issued 84 276 212 Accounts receivable from the Manager - 2 - Margin on futures contracts - - - Unrealized gains on derivative contracts - - - Other assets - - - Non-current assets: 4,881,604 4,632,515 4,388,115 Taxes recoverable - - - Other assets - - - - - - Total assets 4,881,604 4,632,515 4,388,115 Liabilities Current liabilities: Bank indebtedness - - - Accounts payable for investments purchased 10,000 30,000 - Accounts payable for securities redeemed 195 383 135 Distributions payable - - - Accrued expenses and miscellaneous payables 78 95 723 Dividends payable on investments sold short - - - Liability for options written - - - Unrealized losses on derivative contracts - - - Taxes payable - - - Other liabilities 3,652 3,736 3,335 Total liabilities 13,925 34,214 4,193 Net assets attributable to securityholders 4,867,679 4,598,301 4,383,922 STATEMENTS OF COMPREHENSIVE INCOME for the periods ended March 31 (in $ 000 except per security amounts) 2015 2014 Income: Dividends - - Interest income 138,667 140,149 Other changes in fair value of investments: Net realized gain (loss) 2,788 (5,150) Net unrealized gain (loss) 29,986 (32,677) Income (loss) from derivatives - - Income (loss) from short selling - - Securities lending income 73 24 Other - - Total income 171,514 102,346 Expenses: Management fees 19,465 33,644 Management fee rebates (58) (384) Service fees - - Service fee rebates - - Mortgage administration and service fees 3,596 3,243 Administration fees 1,335 1,467 Trustee fees 648 1,099 Commissions and other portfolio transaction costs 2 - Independent Review Committee costs 25 24 Other 15 27 Expenses before amounts absorbed by Manager 25,028 39,120 Expenses absorbed by Manager - - Net expenses 25,028 39,120 Increase (decrease) in net assets attributable to securityholders from operations before tax 146,486 63,226 Foreign withholding taxes paid (recovered) - - Foreign income taxes paid (recovered) - - Income tax paid (recovered) - - Increase (decrease) in net assets attributable to securityholders from operations 146,486 63,226 Net assets attributable to securityholders per security per series Mar. 31 Mar. 31 Apr. 1 Mar. 31 Mar. 31 Apr. 1 2015 2014 2013 2015 2014 2013 Series A 9.87 9.87 9.98 401,943 457,741 522,317 Series B 9.86 9.86 9.97 115,887 158,029 193,859 Series C 5.03 5.03 5.09 295,769 367,361 473,404 Series Jdsc 9.92 9.91 10.00 213,738 128,567 85,655 Series Jnl 9.91 9.90 9.99 40,814 31,319 25,977 Series P 11.03 10.94 10.96 3,716,882 3,388,780 63,851 Series S 10.04 10.05 10.16 69,561 62,276 57,237 Series U 10.06 9.99-13,085 4,228 - Series Z - - 5.14 - - 2,961,622 4,867,679 4,598,301 4,383,922 Increase (decrease) in net assets attributable to securityholders from operations per security per series 2015 2014 2015 2014 Series A 0.17 0.03 7,767 1,571 Series B 0.17 0.03 2,273 470 Series C 0.09 0.01 5,751 1,368 Series Jdsc 0.20 0.07 3,108 822 Series Jnl 0.20 0.06 665 193 Series P 0.39 0.25 125,494 68,504 Series S 0.16 0.03 1,157 221 Series U 0.32 0.17 271 54 Series Z - - - (9,977) 146,486 63,226 See accompanying notes.
ANNUAL FINANCIAL STATEMENTS MARCH 31, 2015 STATEMENTS OF CHANGES IN FINANCIAL POSITION for the periods ended March 31 (in $ 000 except when stated) TOTAL SERIES A SERIES B SERIES C 2015 2014 2015 2014 2015 2014 2015 2014 Net assets attributable to securityholders, beginning of period 4,598,301 4,383,922 457,741 522,317 158,029 193,859 367,361 473,404 Increase (decrease) in net assets attributable to securityholders resulting from: Operations 146,486 63,226 7,767 1,571 2,273 470 5,751 1,368 Distributions: Income (115,425) (96,712) (7,761) (6,888) (2,354) (2,429) (5,871) (5,700) Capital gains - - - - - - - - Return of capital - - - - - - - - Management fee rebates (58) (384) (1) (1) - - (14) (355) Service fee rebates - - - - - - - - Total distributions (115,483) (97,096) (7,762) (6,889) (2,354) (2,429) (5,885) (6,055) Security transactions: Proceeds from sale of securities 1,597,645 4,243,647 105,091 116,060 44,523 77,159 30,713 35,019 Proceeds from securities issued on merger - - - - - - - - Reinvested from distributions 115,353 96,560 7,733 6,859 2,331 2,406 5,824 5,583 Payment on redemption of securities (1,474,623) (4,091,958) (168,627) (182,177) (88,915) (113,436) (107,995) (141,958) Total security transactions 238,375 248,249 (55,803) (59,258) (42,061) (33,871) (71,458) (101,356) Increase (decrease) in assets attributable to securityholders 269,378 214,379 (55,798) (64,576) (42,142) (35,830) (71,592) (106,043) Net assets attributable to securityholders, end of period 4,867,679 4,598,301 401,943 457,741 115,887 158,029 295,769 367,361 Increase (decrease) in securities (in thousands): Securities outstanding, beginning of period 46,388 52,367 16,023 19,443 72,967 93,011 Add (deduct): Securities sold 10,670 11,730 4,524 7,800 6,113 6,937 Securities issued on merger - - - - - - Reinvested from distributions 786 694 237 243 1,161 1,106 Securities redeemed (17,113) (18,403) (9,032) (11,463) (21,487) (28,087) Securities outstanding, end of period 40,731 46,388 11,752 16,023 58,754 72,967 SERIES Jdsc SERIES Jnl SERIES P SERIES S 2015 2014 2015 2014 2015 2014 2015 2014 Net assets attributable to securityholders, beginning of period 128,567 85,655 31,319 25,977 3,388,780 63,851 62,276 57,237 Increase (decrease) in net assets attributable to securityholders resulting from: Operations 3,108 822 665 193 125,494 68,504 1,157 221 Distributions: Income (2,832) (1,763) (620) (461) (94,646) (67,645) (1,136) (846) Capital gains - - - - - - - - Return of capital - - - - - - - - Management fee rebates (34) (21) (9) (7) - - - - Service fee rebates - - - - - - - - Total distributions (2,866) (1,784) (629) (468) (94,646) (67,645) (1,136) (846) Security transactions: Proceeds from sale of securities 128,067 85,911 33,292 24,992 1,219,621 3,643,269 21,876 20,466 Proceeds from securities issued on merger - - - - - - - - Reinvested from distributions 2,859 1,778 626 468 94,646 67,645 1,136 846 Payment on redemption of securities (45,997) (43,815) (24,459) (19,843) (1,017,013) (386,844) (15,748) (15,648) Total security transactions 84,929 43,874 9,459 5,617 297,254 3,324,070 7,264 5,664 Increase (decrease) in assets attributable to securityholders 85,171 42,912 9,495 5,342 328,102 3,324,929 7,285 5,039 Net assets attributable to securityholders, end of period 213,738 128,567 40,814 31,319 3,716,882 3,388,780 69,561 62,276 Increase (decrease) in securities (in thousands): Securities outstanding, beginning of period 12,980 8,568 3,165 2,600 309,884 5,825 6,199 5,637 Add (deduct): Securities sold 12,927 8,650 3,366 2,519 111,154 333,272 2,183 2,031 Securities issued on merger - - - - - - - - Reinvested from distributions 289 179 63 47 8,633 6,199 113 84 Securities redeemed (4,649) (4,417) (2,475) (2,001) (92,793) (35,412) (1,571) (1,553) Securities outstanding, end of period 21,547 12,980 4,119 3,165 336,878 309,884 6,924 6,199 See accompanying notes.
ANNUAL FINANCIAL STATEMENTS MARCH 31, 2015 STATEMENTS OF CHANGES IN FINANCIAL POSITION (CONTINUED) for the periods ended March 31 (in $ 000 except when stated) SERIES U SERIES Z 2015 2014 2015 2014 Net assets attributable to securityholders, beginning of period 4,228 - - 2,961,622 Increase (decrease) in net assets attributable to securityholders resulting from: Operations 271 54 - (9,977) Distributions: Income (205) (44) - (10,936) Capital gains - - - - Return of capital - - - - Management fee rebates - - - - Service fee rebates - - - - Total distributions (205) (44) - (10,936) Security transactions: Proceeds from sale of securities 14,462 6,169-234,602 Proceeds from securities issued on merger - - - - Reinvested from distributions 198 39-10,936 Payment on redemption of securities (5,869) (1,990) - (3,186,247) Total security transactions 8,791 4,218 - (2,940,709) Increase (decrease) in assets attributable to securityholders 8,857 4,228 - (2,961,622) Net assets attributable to securityholders, end of period 13,085 4,228 - - Increase (decrease) in securities (in thousands): Securities outstanding, beginning of period 423 - - 576,657 Add (deduct): Securities sold 1,443 618-45,788 Securities issued on merger - - - - Reinvested from distributions 20 4-2,138 Securities redeemed (586) (199) - (624,583) Securities outstanding, end of period 1,300 423 - - See accompanying notes.
ANNUAL FINANCIAL STATEMENTS MARCH 31, 2015 STATEMENTS OF CASH FLOWS for the periods ended March 31 (in $ 000 except when stated) Cash flows from operating activities 2015 2014 Increase (decrease) in net assets attributable to securityholders from operations 146,486 63,226 Adjustments for: Net realized loss (gain) on investments (2,788) 5,150 Change in net unrealized loss (gain) on investments (29,986) 32,677 Purchases of investments (1,926,228) (2,360,630) Proceeds from sale and maturity of investments 1,767,068 2,158,117 Change in accrued interest receivable (4,549) (3,460) Change in dividends receivable - - Change in accounts receivable from managers and others 2 (2) Change in other assets - - Dividends paid on investments sold short - - Change in accrued liabilities (101) (227) Change in taxes recoverable - - Change in margin on futures contracts - - Change in liability for options written - - Net cash provided by (used in) operating activities (50,096) (105,149) Cash flows from financing activities: Proceeds from securities issued 1,597,837 1,262,941 Proceeds from securities issued on merger - - Payments on redemption of securities (1,474,811) (1,111,068) Distributions paid net of reinvestments (130) (536) Net cash provided by (used in) financing activities 122,896 151,337 Increase (decrease) in cash and cash equivalents 72,800 46,188 Cash and cash equivalents at beginning of period 52,573 6,385 Effect of exchange rate fluctuations on cash and cash equivalents - - Cash and cash equivalents, end of period 125,373 52,573 Cash - - Cash equivalents 127,585 53,295 Bank indebtedness (2,212) (722) Supplementary disclosures on cash flow from operating activities: 125,373 52,573 Dividends received net of withholding taxes - - Interest received net of withholding taxes 134,118 136,689 Interest paid - - See accompanying notes.
ANNUAL FINANCIAL STATEMENTS MARCH 31, 2015 SCHEDULE OF INVESTMENTS as at March 31, 2015 No. of Units, Average Fair Shares, or Cost 1 Value Country Sector Par Value ($ 000) ($ 000) MORTGAGES Canada See Schedules 2 to 6 2,281,911,658 2,298,498 2,308,688 FIXED INCOME Bank of Montreal 3.49% 06-10-2016 Canada Corporate Non Convertible 94,000,000 95,928 96,616 Bank of Montreal 2.10% 09-01-2017 Canada Mortgage Backed 46,203,449 46,149 47,237 Bank of Montreal 3.21% 09-13-2018 Canada Corporate Non Convertible 53,000,000 54,024 56,324 Bank of Montreal 2.43% 03-04-2019 Canada Corporate Non Convertible 35,000,000 34,992 36,349 Bank of Montreal 2.84% 06-04-2020 Canada Corporate Non Convertible 53,600,000 52,887 56,690 The Bank of Nova Scotia 3.90% 02-01-2016 Canada Mortgage Backed 7,742,235 8,302 7,924 The Bank of Nova Scotia 1.80% 05-09-2016 Canada Corporate Non Convertible 20,000,000 20,060 20,157 The Bank of Nova Scotia 2.10% 11-08-2016 Canada Corporate Non Convertible 25,000,000 25,227 25,366 The Bank of Nova Scotia 2.74% 12-01-2016 Canada Corporate Non Convertible 25,000,000 25,732 25,636 The Bank of Nova Scotia 2.598% 02-27-2017 Canada Corporate Non Convertible 30,500,000 30,895 31,271 The Bank of Nova Scotia 1.50% 09-01-2017 Canada Mortgage Backed 27,168,878 26,928 27,449 The Bank of Nova Scotia 1.33% 05-01-2018 Canada Corporate Non Convertible 50,000,000 49,989 50,011 The Bank of Nova Scotia 2.462% 03-14-2019 Canada Corporate Non Convertible 49,000,000 49,000 50,900 The Bank of Nova Scotia 2.40% 10-28-2019 Canada Corporate Non Convertible 16,000,000 15,996 16,565 The Bank of Nova Scotia 2.27% 01-13-2020 Canada Corporate Non Convertible 16,000,000 15,994 16,470 The Bank of Nova Scotia 3.27% 01-11-2021 Canada Corporate Non Convertible 43,600,000 44,249 47,171 Bell Canada 3.60% 12-02-2015 Callable Canada Corporate Non Convertible 18,500,000 19,277 18,777 Canada Housing Trust No. 1 2.35% 12-15-2018 Canada Federal Government 101,000,000 104,974 106,304 Canada Housing Trust No. 1 4.10% 12-15-2018 Canada Federal Government 90,000,000 98,469 100,443 Canadian Imperial Bank of Commerce 1.75% 06-01-2016 Canada Corporate Non Convertible 22,000,000 22,047 22,166 Canadian Imperial Bank of Commerce F/R 07-14-2016 Canada Corporate Non Convertible 25,000,000 25,000 25,037 Canadian Imperial Bank of Commerce 3.95% 07-14-2017 Canada Corporate Non Convertible 37,000,000 39,222 39,235 Canadian Imperial Bank of Commerce 2.35% 10-18-2017 Canada Corporate Non Convertible 25,000,000 24,767 25,673 Canadian Imperial Bank of Commerce 2.22% 03-07-2018 Canada Corporate Non Convertible 30,000,000 29,427 30,826 Enbridge Inc. 5.00% 08-09-2016 Callable Canada Corporate Non Convertible 12,000,000 13,149 12,563 Equitable Trust 4.50% 09-01-2017 Canada Mortgage Backed 26,497,408 28,065 28,555 First National Financial Group Corp. 2.99% 02-01-2016 Canada Mortgage Backed 15,370,373 15,319 15,597 First National Financial Group Corp. 2.35% 04-01-2017 Canada Mortgage Backed 42,765,800 42,911 43,698 First National Financial Group Corp. 1.95% 06-01-2017 Canada Mortgage Backed 18,263,848 18,201 18,567 First National Financial Group Corp. 1.65% 03-01-2018 Canada Mortgage Backed 20,252,344 20,130 20,557 Golden Credit Card Trust 3.51% 05-15-2016 Canada Corporate Non Convertible 35,000,000 36,326 35,934 Home Trust Co. 2.60% 11-01-2015 Canada Mortgage Backed 22,617,562 23,102 22,795 Home Trust Co. 3.00% 12-01-2015 Canada Mortgage Backed 3,513,503 3,639 3,543 Home Trust Co. 2.95% 01-01-2016 Canada Mortgage Backed 18,002,984 18,659 18,229 Home Trust Co. 1.75% 07-01-2017 Canada Mortgage Backed 10,177,721 10,242 10,343 Home Trust Co. 2.29% 08-01-2018 Canada Mortgage Backed 84,426,473 85,479 87,148 Home Trust Co. 2.28% 09-01-2018 Canada Mortgage Backed 34,960,603 35,379 36,252 Home Trust Co. 3.70% 08-01-2019 Canada Mortgage Backed 3,901,823 4,000 4,276 Hydro One Inc. 2.78% 10-09-2018 Series MTN Canada Corporate Non Convertible 30,000,000 30,365 31,690 2 I.G. Investment Management, Ltd. 2.05% 11-01-2018 Canada Mortgage Backed 16,050,534 15,965 16,509 Macquarie Financial Ltd. 2.80% 07-01-2015 Canada Mortgage Backed 2,141,042 2,127 2,148 Master Credit Card Trust 3.502% 05-21-2016 Canada Corporate Non Convertible 24,000,000 24,000 24,632 Master Credit Card Trust 2.626% 01-21-2017 Canada Corporate Non Convertible 12,000,000 12,283 12,302 National Bank of Canada 2.05% 01-11-2016 Canada Corporate Non Convertible 8,000,000 8,000 8,063 National Bank of Canada 2.019% 04-13-2017 Canada Corporate Non Convertible 8,000,000 8,000 8,119 NOVA Gas Transmission Ltd. 12.20% 02-28-2016 Canada Corporate Non Convertible 15,000,000 23,147 16,428 Province of Ontario 1.75% 10-09-2018 Canada Provincial Governments 5,000,000 4,991 5,140 Province of Ontario 4.40% 06-02-2019 Canada Provincial Governments 118,000,000 130,798 133,933 Royal Bank of Canada 2.75% 11-01-2015 Canada Mortgage Backed 27,546,151 28,017 27,803 Royal Bank of Canada 3.03% 07-26-2016 Canada Corporate Non Convertible 15,000,000 15,145 15,373 Royal Bank of Canada 2.58% 04-13-2017 Canada Corporate Non Convertible 35,000,000 35,731 35,912 Royal Bank of Canada 2.26% 03-12-2018 Canada Corporate Non Convertible 20,000,000 19,995 20,545 Royal Bank of Canada 2.82% 07-12-2018 Canada Corporate Non Convertible 65,000,000 65,432 67,997 Royal Bank of Canada 2.89% 10-11-2018 Canada Corporate Non Convertible 25,000,000 25,450 26,288 Royal Bank of Canada 2.77% 12-11-2018 Canada Corporate Non Convertible 65,000,000 65,779 68,149 Royal Bank of Canada F/R 03-23-2020 Canada Corporate Non Convertible 30,000,000 30,000 29,882 Royal Bank of Canada 1.59% 03-23-2020 Canada Corporate Non Convertible 25,000,000 24,997 25,078 Royal Bank of Canada 1.968% 03-02-2022 Canada Corporate Non Convertible 9,500,000 9,500 9,474 The Toronto-Dominion Bank 1.95% 09-01-2015 Canada Mortgage Backed 11,408,811 11,318 11,435 The Toronto-Dominion Bank 2.75% 01-01-2016 Canada Mortgage Backed 46,585,353 47,083 47,087 The Toronto-Dominion Bank 2.30% 02-01-2016 Canada Mortgage Backed 14,454,250 14,665 14,577 The Toronto-Dominion Bank 2.60% 04-01-2016 Canada Mortgage Backed 25,449,934 26,108 25,748 The Toronto-Dominion Bank 2.65% 04-01-2016 Canada Mortgage Backed 28,786,374 28,624 29,199 The Toronto-Dominion Bank 1.00% 06-01-2016 Canada Mortgage Backed 11,910,353 11,696 11,916 The Toronto-Dominion Bank 2.30% 06-01-2016 Canada Mortgage Backed 25,029,310 25,042 25,339 The Toronto-Dominion Bank 1.50% 09-01-2016 Canada Mortgage Backed 23,678,848 22,986 23,837 The Toronto-Dominion Bank 1.50% 12-01-2016 Canada Mortgage Backed 19,164,754 18,820 19,322 The Toronto-Dominion Bank 2.433% 08-15-2017 Canada Corporate Non Convertible 32,000,000 31,937 32,895 The Toronto-Dominion Bank 1.25% 12-01-2017 Canada Mortgage Backed 17,327,338 17,026 17,415 1 Amortized cost for mortgages and average cost for other fixed income securities. 2 The issuer of this security is the Manager of the Fund.
ANNUAL FINANCIAL STATEMENTS MARCH 31, 2015 SCHEDULE OF INVESTMENTS (continued) as at March 31, 2015 No. of Units, Average Fair Shares, or Cost 1 Value Country Sector Par Value ($ 000) ($ 000) FIXED INCOME (continued) The Toronto-Dominion Bank 1.70% 12-01-2017 Canada Mortgage Backed 16,240,359 16,037 16,471 The Toronto-Dominion Bank 1.65% 01-01-2018 Canada Mortgage Backed 30,958,560 30,620 31,380 The Toronto-Dominion Bank 1.40% 03-01-2018 Canada Mortgage Backed 24,699,234 24,232 24,918 The Toronto-Dominion Bank 1.65% 04-01-2018 Canada Mortgage Backed 31,975,724 31,362 32,476 The Toronto-Dominion Bank 2.171% 04-02-2018 Canada Corporate Non Convertible 42,000,000 42,694 43,128 The Toronto-Dominion Bank 1.67% 05-01-2018 Canada Mortgage Backed 21,694,041 21,131 22,044 The Toronto-Dominion Bank 2.447% 04-02-2019 Canada Corporate Non Convertible 30,000,000 30,000 31,189 The Toronto-Dominion Bank 1.693% 04-02-2020 Canada Corporate Non Convertible 10,000,000 10,000 10,004 The Toronto-Dominion Bank 2.563% 06-24-2020 Canada Corporate Non Convertible 21,000,000 21,000 21,937 2,376,239 2,416,436 TOTAL INVESTMENTS 4,674,737 4,725,124 Net Assets (see Schedule 1): Total investments 4,725,124 Cash and cash equivalents 125,373 Other net assets (liabilities) 17,182 4,867,679 Schedule 1 - Asset Composition as at March 31, 2015 BY ASSET TYPE % of net asset value Canadian Bonds 49.6 Mortgages 47.4 97.0 Cash and cash equivalents 2.6 Other net assets (liabilities) 0.4 100.0 CANADIAN BONDS BY SECTOR Corporate Non Convertible 26.3 Mortgage Backed 16.3 Federal Government 4.2 Provincial Governments 2.8 49.6 MORTGAGES BY YEAR OF MATURITY 2015 6.6 2016 9.1 2017 9.9 2018 7.8 2019 10.8 2020 3.2 47.4 BY INTEREST RATE less than 2.5% 3.2 2.5 3.0% 19.2 3.0 3.5% 12.7 3.5 4.0% 9.0 greater than 4.0% 3.3 47.4 as at March 31, 2014 BY ASSET TYPE % of net asset value Canadian Bonds 53.8 Mortgages 44.8 98.6 Cash and cash equivalents 1.1 Other net assets (liabilities) 0.3 Total 100.0 CANADIAN BONDS BY SECTOR Mortgage Backed 26.8 Corporate - Non Convertible 22.5 Provincial Governments 2.6 Federal Government 1.9 53.8 MORTGAGES BY YEAR OF MATURITY 2014 4.6 2015 10.3 2016 9.1 2017 9.7 2018 8.6 2019 2.5 44.8 BY INTEREST RATE less than 2.5% 4.1 2.5 3.0% 9.6 3.0 3.5% 11.9 3.5 4.0% 12.0 4.0 4.5% 4.9 4.5 5.0% 2.0 greater than 5.0% 0.3 44.8 as at April 1, 2013 BY ASSET TYPE % of net asset value Canadian Bonds 56.0 Mortgages 43.7 99.7 Cash and cash equivalents 0.1 Other net assets (liabilities) 0.2 Total 100.0 CANADIAN BONDS BY SECTOR Mortgage Backed 30.6 Corporate - Non Convertible 19.8 Federal Government 3.1 Provincial Governments 2.5 56.0 MORTGAGES BY YEAR OF MATURITY 2013 4.6 2014 7.0 2015 9.7 2016 9.8 2017 10.1 2018 2.5 43.7 BY INTEREST RATE less than 3.0% 8.6 3.0-3.5% 8.3 3.5-4.0% 13.7 4.0-4.5% 7.8 4.5-5.0% 3.4 greater than 5.0% 1.9 43.7 1 Amortized cost for mortgages and average cost for other fixed income securities.
ANNUAL FINANCIAL STATEMENTS MARCH 31, 2015 Schedule 2 Distribution of Mortgages by Interest Rate as at March 31, 2015 Principal value Amortized Fair Number outstanding cost value Rate of loans ($ 000) ($ 000) ($ 000) 1.001 to 1.250 2 189 179 182 1.251 to 1.500 1 217 216 215 2.001 to 2.250 111 16,783 16,775 16,713 2.251 to 2.500 762 141,546 141,724 141,079 2.501 to 2.750 839 153,316 153,888 153,215 2.751 to 3.000 3,989 773,881 778,606 779,951 3.001 to 3.250 2,030 322,709 324,874 326,619 3.251 to 3.500 1,743 286,849 289,878 293,066 3.501 to 3.750 1,666 234,724 237,412 239,656 3.751 to 4.000 1,482 198,018 199,613 201,448 4.001 to 4.250 529 70,175 71,060 71,718 4.251 to 4.500 338 47,676 48,135 48,499 4.501 to 4.750 210 25,179 25,395 25,551 4.751 to 5.000 68 7,471 7,530 7,551 5.001 to 5.250 22 2,417 2,437 2,446 5.251 to 5.500 7 383 391 393 5.501 to 5.750 1 55 57 58 6.251 to 6.500 3 276 276 276 7.001 to 7.250 1 28 30 30 7.251 to 7.500 1 20 22 22 13,805 2,281,912 2,298,498 2,308,688 The rates used for determining market value of NHA and conventional loans as at March 31, 2015, were as follows: Term Commercial rate 6 month (open) 6.50% 6 month (closed) 4.01% 0-12 months (open) 6.30% 0-12 months (closed) 2.48% 13-24 months 2.51% 25-36 months 2.61% 37-48 months 2.62% 49-60 months 2.76% 61-84 months 4.20% 85-120 months 4.45% Schedule 4 Distribution of Mortgages by Type of Construction as at March 31, 2015 Percentage Principal value Amortized Fair total fair Number outstanding cost value value of loans ($ 000) ($ 000) ($ 000) (%) Single Family Dwelling 11,431 1,899,578 1,913,618 1,922,372 83.3 Condominiums 1,824 290,542 292,342 293,401 12.7 Multi-unit Dwelling up to 8 units 550 91,792 92,538 92,915 4.0 13,805 2,281,912 2,298,498 2,308,688 100.0 Schedule 5 Distribution of Mortgages by Year of Maturity as at March 31, 2015 Percentage Principal value Fair total fair Number outstanding value value of loans ($ 000) ($ 000) (%) 2015 2,480 323,219 322,471 14.0 2016 3,135 437,431 441,831 19.1 2017 2,804 474,463 480,691 20.8 2018 2,107 373,260 379,674 16.5 2019 2,527 515,686 524,799 22.7 2020 752 157,853 159,222 6.9 13,805 2,281,912 2,308,688 100.0 Schedule 6 Distribution of Mortgages by Type of Insurance as at March 31, 2015 Percentage Principal value Fair total fair Number outstanding value value of loans ($ 000) ($ 000) (%) Insured by National Housing Act (Canada) 7,755 1,062,963 1,075,652 46.6 Insured by a Private Insurer 1,063 244,395 247,466 10.7 Uninsured - Conventional 4,987 974,554 985,570 42.7 13,805 2,281,912 2,308,688 100.0 Schedule 3 Distribution of Mortgages by Geographic Location as at March 31, 2015 Percentage Principal value Fair total fair Number outstanding value value of loans ($ 000) ($ 000) (%) British Columbia 1,712 326,458 330,273 14.3 Alberta 1,953 415,882 421,225 18.2 Saskatchewan 842 135,415 137,460 6.0 Manitoba 1,032 150,376 152,479 6.6 Ontario 4,375 746,680 754,772 32.7 Quebec 3,072 409,407 413,592 17.9 New Brunswick 273 28,886 29,271 1.3 Nova Scotia 275 31,745 32,119 1.4 Newfoundland and Labrador 186 27,863 28,154 1.2 Prince Edward Island 62 5,567 5,639 0.2 Yukon/Territories 23 3,633 3,704 0.2 13,805 2,281,912 2,308,688 100.0
NOTES TO THE ANNUAL FINANCIAL STATEMENTS MARCH 31, 2015 1. ORGANIZATION OF THE FUND, FISCAL PERIODS AND GENERAL INFORMATION (a) Organization of the Fund The Fund is organized as an open-ended mutual fund trust established under the laws of Manitoba and governed by a Declaration of Trust. The address of the Fund s registered office is 447 Portage Avenue, Winnipeg, Manitoba, Canada. The Fund is authorized to issue an unlimited number of securities of multiple series. If issued, Series, P, S and Z securities are only available for purchase by other Investors Group Funds or other qualified investors. All series generally share in the operations of the Fund on a pro rata basis except for items that can be specifically attributed to one or more series. Distributions for each series may vary, partly due to the differences in expenses between the series. (b) Financial Periods The Statements of Financial Position are presented as at March 31, 2015, March 31, 2014, and April 1, 2013. The Statements of Comprehensive Income, Statements of Changes in Financial Position and Statements of Cash Flows are for the periods ended March 31, 2015 and 2014. The Schedule of Investments is presented as at March 31, 2015. Where a Fund or series of a Fund was established during either period, the information for the Fund or series is provided from inception date. (c) Fund and series information Date Deferred operations sales Management Service Administration Trustee Series commenced 1 charge (%) fee (%) fee (%) fee (%) fee (%) Series A n/a up to 5.50 1.55-0.08 0.05 Series B n/a - 1.55-0.13 0.05 Series C n/a up to 5.50 1.55-0.13 0.05 Series Jdsc n/a up to 5.50 1.30-0.08 0.05 Series Jnl n/a - 1.30-0.13 0.05 Series P n/a - - - - - Series S n/a - 1.55-0.10 0.05 Series U July 12, 2013-0.20-0.13 0.05 Series Z n/a - 1.55 - - 0.05 1 If within the financial periods ended March 31, 2015. Effective July 2, 2013, Series Z was terminated and net assets attributable to securityholders transferred to Series P at fair value. The transfer of $2,980,642,000 is included in Proceeds from sale of securities for Series P and in the Payment on redemption of securities for Series Z in the Statements of Changes in Financial Position. Securities sold for Series P includes 272,613,000 securities and Securities redeemed for Series Z includes 584,440,000 securities related to this transaction. (d) General information I.G. Investment Management, Ltd. is the Manager and Trustee of the Fund. The Fund is distributed by Investors Group Financial Services Inc. and Investors Group Securities Inc. (collectively, the Distributors). These companies are, indirectly, wholly owned subsidiaries of IGM Financial Inc. IGM Financial Inc. is a subsidiary of Power Financial Corp. and Power Corporation of Canada. Power Financial Corp. also owns a majority of Great-West Lifeco Inc. and its related companies and, therefore, those companies are considered affiliates of the Trustee, the Manager and the Distributors. The Fund may invest in certain securities within the Power Group of Companies, subject to certain governance criteria, and these holdings, as at the end of the period, have been identified on the Schedule of Investments for the Fund. Any transactions during the period were executed through market intermediaries and under prevailing market terms and conditions. 2. BASIS OF PREPARATION AND PRESENTATION These annual financial statements (financial statements) have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). These are the Fund s first annual financial statements prepared in accordance with IFRS and accordingly, IFRS 1 First-time Adoption of International Financial Reporting Standards has been applied. The Fund adopted IFRS on April 1, 2014, as required by Canadian securities legislation and the Canadian Accounting Standards Board. Previously, the Fund prepared its financial statements in accordance with Canadian generally accepted accounting principles as defined in Part V of the Chartered Professional Accountants Canada (CPA Canada) Handbook (Canadian GAAP). All IFRS standards in effect at March 31, 2015, have been applied retrospectively and consistently in presenting the Fund s opening IFRS Statement of Financial Position at April 1, 2013 and throughout all periods presented, as if these policies had always been in effect. A summary of the Fund s significant accounting policies under IFRS is presented in Note 3. These financial statements are presented in Canadian dollars, which is the Fund s functional currency, and rounded to the nearest thousand unless otherwise indicated. These financial statements are prepared on a going concern basis using the historical cost basis, except for financial assets and liabilities that have been measured at fair value. These financial statements were authorized for issue by the Manager on June 4, 2015. The preparation of these financial statements under IFRS resulted in changes to accounting policies as compared with the most recent annual financial statements prepared in accordance with Canadian GAAP. Note 12 discloses the impact of the transition to IFRS on the Fund s reported financial position and financial performance, including the nature and effect of significant changes in accounting policies from those used in the Fund s financial statements for the year ended March 31, 2014 prepared under Canadian GAAP. Standards issued but not yet effective for the current accounting year are described in Note 3. 3. SIGNIFICANT ACCOUNTING POLICIES (a) Financial Instruments Investments include financial assets and liabilities such as debt and equity securities, open-ended investment funds and derivatives. The Fund has elected to apply IFRS 9 Financial Instruments (IFRS 9) on adoption of IFRS and has applied the standard retrospectively to April 1, 2013. Upon initial recognition, financial instruments are classified as fair value through profit or loss (FVTPL). All financial assets and liabilities are recognized in the Statement of Financial Position when the Fund becomes a party to the contractual requirements of the instrument. Financial instruments are derecognized when the right to receive cash flows from the instrument has expired or the Fund has transferred substantially all risks and rewards of ownership. As such, investment purchase and sale transactions are recorded as of the trade date. Financial instruments are subsequently measured as FVTPL with changes in fair value recognized in the Statement of Comprehensive Income. The cost of investments is based on the weighted average cost of investments and excludes commissions and other portfolio transaction costs, which are separately reported in the Statement of Comprehensive Income. Realized gains and losses on disposition including foreign exchange gains or losses on such investments, are determined based on the average cost of investments. Gains and losses arising from changes in the fair value of the investments are included in the Statement of Comprehensive Income for the period in which they arise. The Fund accounts for its holdings in unlisted open-ended investment funds at FVTPL. The Fund has concluded that unlisted open-ended investment funds in which it invests do not meet the definition of structured entities. The Fund s investment in unlisted open-ended funds, if any, is presented in the Schedule of Investments at fair value which represents the Fund s maximum exposure on these investments.
NOTES TO THE ANNUAL FINANCIAL STATEMENTS MARCH 31, 2015 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (b) Fair value measurement Fair value is defined as 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. The Fund s valuation policies are as follows: (i) Mortgages All mortgages are recorded at FVTPL, which is the principal amount required to produce a yield to maturity equal to or not less than one-quarter of one percent below the interest rate at which major lending institutions are making commitments on the date of valuation. Amortized cost is the principal cost of mortgages purchased net of amortized premium or discount. All mortgages are subject to pre-payment with appropriate penalties being remitted. The Manager retains credit risk on all mortgages sold to the Fund and therefore mortgage valuations do not include expected credit losses. (ii) Fixed-income securities other than mortgages Investments in securities listed on a public securities exchange or traded on an over-the-counter market are valued at the last traded market price or close price recorded by the security exchange on which the security is principally traded, where the close price falls within the bid-ask spread of the security. In situations where the last traded market price is not within the bid-ask spread, the Manager selects the point within the bid-ask spread that is most representative of fair value. Unlisted or non-exchange traded securities, or securities for which a last traded market price is unavailable or securities for which market quotations are, in the Manager s opinion, inaccurate, unreliable or not reflective of all available material information, are valued at their estimated fair value, determined by using appropriate and accepted industry valuation techniques including valuation models. The estimated fair value of a security determined using valuation models requires the use of inputs and assumptions based on observable market data including volatility and other applicable rates or prices. In limited circumstances, the estimated fair value of a security may be determined using valuation techniques that are not supported by observable market data. (c) Cash and cash equivalents Cash and cash equivalents includes cash on deposit with banks and short term investments that are readily convertible to cash, are subject to an insignificant risk of changes in value, and are used by the Fund in the management of short-term commitments. Cash and cash equivalents are reported at fair value which closely approximates their amortized cost due to their nature of being highly liquid and having short terms to maturity. Bank overdraft positions are presented as bank indebtedness in current liabilities in the Statements of Financial Position. (d) Currency All amounts are expressed in Canadian dollars. Foreign currency amounts have been expressed in Canadian dollars on the following bases: (i) Fair value of investments and other assets and liabilities at the rate of exchange at the end of the period. (ii) Income, expenses, purchases and sales of investments at the rate of exchange on the dates of such transactions. (e) Income recognition (f) Interest income from interest bearing investments is recognized using the effective interest method. Securities lending and repurchase transactions The Fund may be permitted to enter into securities lending, repurchase and reverse repurchase transactions as set out in the Fund s Simplified Prospectus. These transactions involve the temporary exchange of securities for collateral with a commitment to deliver the same securities on a future date. Income is earned from these transactions in the form of fees paid by the counterparty and, in certain circumstances, interest paid on cash or securities held as collateral. Income earned from these transactions is recognized on the accrual basis and included in the Statements of Comprehensive Income. All the counterparties have a sufficient, approved credit rating and the value of cash or securities held as collateral must be at least 102% of the fair value of the securities loaned, sold or purchased. Collateral received is comprised of debt obligations of the Government of Canada and other countries, Canadian provincial and municipal governments, and financial institutions. Value of Value of securities collateral ($ 000) loaned received March 31, 2015 93,323 98,354 March 31, 2014 111,412 117,166 April 1, 2013 54,859 58,120 (g) Redeemable securities The Fund s redeemable securities entitle securityholders the right to redeem their interest in the Fund for cash equal to their proportionate share of the net asset value of the Fund, amongst other contractual rights. These redeemable securities involve multiple contractual obligations on the part of the Fund and therefore meet the criteria for classification as financial liabilities. The Fund s obligation for net assets attributable to securityholders is measured at FVTPL, with fair value being the redemption amount as of the reporting date. (h) Commissions and other portfolio transaction costs (i) (j) Commissions and other portfolio transaction costs are costs incurred to acquire, dispose or otherwise transact financial assets or liabilities. They include fees and commissions paid to agents, exchanges, brokers and dealers, and other intermediaries. Increase (decrease) in net assets attributable to securityholders from operations Increase (decrease) in net assets attributable to securityholders from operations per security for a series in the Statement of Comprehensive Income represents the weighted average increase (decrease) in net assets attributable to securityholders from operations for the series, per security outstanding during the period. Mergers The Fund applies the acquisition method of accounting for Fund mergers. Under this method, one of the Funds in each merger is identified as the acquiring Fund, and is referred to as the Continuing Fund, and the other Fund involved in the merger is referred to as the Terminated Fund. This identification is based on the comparison of the relative net asset values of the Funds as well as consideration of the continuation of such aspects of the Continuing Fund as: investment advisors; investment objectives and practices; type of portfolio securities; and management fees and expenses. (k) Future accounting changes Amendment to Applying the Consolidation Exception to Investment Entities In December 2014, the IASB issued a narrow-scope amendment called Investment Entities: Applying the Consolidation Exception amendments to IFRS 10 Consolidated Financial Statement, IAS 28 Investments in Associates and Joint Ventures and IFRS 12 Disclosure of Interests in Other Entities. The amendment clarifies the application of the exemption from presenting consolidated financial statements that is available to investments entities under IFRS 10 Consolidated Financial Statements. The amendment is effective for annual periods beginning on or after January 1, 2016. The Fund is assessing the implications, if any, on the Fund s financial statements.
NOTES TO THE ANNUAL FINANCIAL STATEMENTS MARCH 31, 2015 4. USE OF ACCOUNTING JUDGMENTS AND ESTIMATES The preparation of financial statements in accordance with IFRS requires judgments, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities at the reporting date and the reported amounts of income and expenses during the period. However, existing circumstances and assumptions may change due to market changes or circumstances arising beyond the control of the Fund. Such changes are reflected in the assumptions when they occur. The following discusses the most significant accounting judgments and estimates made in preparing the financial statements: (a) Functional Currency The Fund s functional and presentation currency is the Canadian dollar, which is the currency considered to most faithfully represent the economic effects of the Fund s underlying transactions, events and conditions taking into consideration the manner in which securities are issued and redeemed and how returns and performance by the fund are measured. (b) Classification of financial instruments In classifying and measuring financial instruments held by the Fund, the Manager is required to make significant judgments in determining the most appropriate classification in accordance with IFRS 9. The Manager has assessed the Fund s business model, the manner in which all financial assets and financial liabilities are managed and performance evaluated as a group on a fair value basis, and concluded that FVTPL in accordance with IFRS 9 provides the most appropriate measurement and presentation of the Fund s financial assets and financial liabilities. (c) Estimations of Fair Value The Fund may, from time to time, hold financial instruments that are not quoted in active markets, such us unlisted securities or private securities. To estimate fair value, the Manager uses valuation techniques that make use of observable data, to the extent practicable. The Fund categorizes the fair value of its assets and liabilities into three categories, which are differentiated based on the observable nature of the inputs and extent of estimation required. Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly. Examples of Level 2 valuations include quoted prices for similar securities, quoted prices on inactive markets and from recognized investment dealers, and the application of factors derived from observable data to non-north American quoted prices in order to estimate the impact of differences in market closing times. The estimated fair values for these securities may be different from the values that would have been used had a ready market for the investment existed. Level 3 Inputs that are not based on observable market data. Various valuation techniques are utilized, depending on each situation. These methods and procedures may include, but are not limited to, performing comparisons with prices of comparable or similar securities, obtaining relevant information from issuers and/or other analytical data relating to the investment, and recent arm s length transactions. Key inputs and assumptions used are usually security specific and may include estimated discount rates, credit risk, volatility, correlations, and future cash flows. Changes in key inputs and assumptions could affect the reported fair value of these financial instruments held by the Fund. The estimated fair values for these securities may be significantly different from the values that would have been used had a ready market for the investment existed. See Note 11 for the fair value classifications of the Fund. 5. MANAGEMENT FEES AND OTHER EXPENSES (a) Each series of the Fund will incur expenses that can be specifically attributed to that series. Common expenses of the Fund are allocated across the series of the Fund on a pro rata basis. (b) The Manager provides or arranges for the provision of investment and advisory services for a management fee. See Note 1 for the annual rates paid (as a percent of average assets) by the Fund. (c) The Fund pays the Manager an administration fee and in return the Manager will bear the operating expenses of the Fund, other than certain specified Fund costs. See Note 1 for the annual rates paid (as a percent of average assets) by the Fund. Other Fund costs include taxes (including but not limited to GST/HST and income tax), transaction costs related to the purchase and sale of investments and derivatives, interest and borrowing costs, and Independent Review Committee (IRC) costs. (d) The Fund may pay the Distributors a service fee to compensate them for providing or arranging for the provision of services to the Fund. A portion of the service fee related to Series C is rebated by the Distributors to the Fund on a quarterly basis as outlined in the Fund s Prospectus. The rebate is distributed as a capital distribution to eligible securityholders and is reinvested in additional Series C securities of the Fund or another distributing Fund held by the securityholder. See Note 1 for the annual rates paid (as a percent of average assets) by the Fund. (e) The Trustee is responsible for overall direction and management of the affairs of the Fund. See Note 1 for the annual rates paid (as a percent of average assets) to the Trustee by the Fund. (f) The Fund pays the Manager a mortgage administration and servicing fee of up to 0.15% annually, applicable to the value of mortgages held by the Fund that are originated and serviced by the Manager. (g) An advisory fee is charged by the Distributors for investment advice and administrative services related to Series U, if issued. The advisory fee is payable monthly directly by investors in Series U, and not by the Fund. (h) GST/HST paid by the Fund on its expenses is not recoverable. In these financial statements, reference to GST/HST includes QST (Québec sales tax), as applicable. (i) (j) Other expenses are comprised of interest and borrowing charges and other miscellaneous expenses. The Manager may, at its discretion, pay certain expenses of the Fund so the Fund s performance remains competitive; however, there is no assurance that this will occur in the future. Any expenses absorbed by the Manager during the periods have been identified in the Statements of Comprehensive Income. 6. INCOME TAXES The Fund qualifies as a mutual fund trust under the provisions of the Income Tax Act (Canada) and, accordingly, is subject to tax on its income including net realized capital gains, which is not paid or payable to its securityholders. The Fund maintains a December year-end for tax purposes. It is the intention of the Fund to distribute sufficient amounts from net income for tax purposes, as required, so that the Fund will not pay income taxes other than refundable tax on capital gains, if applicable. The net capital losses can be carried forward indefinitely to reduce future realized capital gains. The non-capital losses may be utilized to reduce taxable income of future years and expire in December of the years indicated. Income tax losses ($ 000) that were available to offset future income for tax purposes as at the last taxation year-end were as follows: Total Total Expiration year for non-capital losses capital loss non-capital loss 2015 2026 2027 2028 2029 2030 2031 2032 2033 2034 82,011 - - - - - - - - - - - 7. TRANSACTIONS WITH THE FUND MANAGER During the period, the Fund acquired mortgages from the Manager valued at $905,026,000 at time of purchase (March 31, 2014 $784,844,000). The fair value of the mortgages at acquisition was calculated using the Modified Lender s Rate method. Under the terms of the transaction, the Manager retains the credit risk exposure associated with these mortgages. 8. GUARANTEES AND INDEMNITIES Agreements between the individual members of the Fund s IRC and the Trustee, on behalf of the Fund, provides for the indemnification of each IRC member by the Fund from and against liabilities and costs in respect of any action or suit against the member by reason of being or having been a member of the IRC, provided that the member acted honestly and in good faith with a view to the best interest of the Fund, or, in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, that they had reasonable grounds for believing that his/her conduct was lawful. No claims with respect to such occurrences have been made and, as such, no amount has been recorded in these financial statements with respect to these indemnifications. 9. CAPITAL MANAGEMENT The capital structure of the Fund consists of redeemable securities in multiple series. The net capital received by the Fund is managed in accordance with investment objective and strategies of the Fund and to maintain adequate liquidity to meet securityholder redemption requests. The Fund is not subject to externally imposed capital requirements and has no legal restrictions on the issue or redemption of securities beyond those included in the Fund s prospectus. Securities issued, reinvested and redeemed during the periods are reflected in the Statements of Changes in Financial Position.
NOTES TO THE ANNUAL FINANCIAL STATEMENTS MARCH 31, 2015 10. FINANCIAL INSTRUMENT RISK The Fund s investment activities expose it to a variety of financial risks. See the Schedule of Investments for additional information about the securities held by the Fund as at the end of the period. (a) Risk management The Manager seeks to minimize potential adverse effects of financial instrument risks on the Fund s performance by employing professional, experienced portfolio advisors, daily monitoring of the Fund s positions and market events, and diversifying the investment portfolio within the constraints of the investment objective. To assist in managing risk, the Manager also uses internal guidelines that identify the target exposures for each type of risk, maintains a governance structure that oversees the Fund s investment activities and monitors compliance with the Fund s stated investment strategy, internal guidelines and securities regulations. The Fund invests primarily in short-term debt securities and mortgages on improved real estate in Canada. (b) Liquidity risk The Fund is exposed to daily cash redemptions of redeemable securities. The corporate and government-issued debt securities held by the Fund are liquid (i.e. investments that are traded in an active market and can be readily sold). Mortgages can be disposed within a short period of time, but are not as liquid as bonds. In addition, the Fund retains sufficient cash and short-term investments to maintain adequate liquidity. The Fund also has the ability to borrow up to 5% of its net assets for the purposes of funding redemptions. (c) Interest rate risk Interest rate risk arises on interest-bearing financial instruments such as bonds and mortgages. The Fund is exposed to the risk that the value of interest-bearing financial instruments will fluctuate due to changes in the prevailing levels of market interest rates. Generally, these securities increase in value when interest rates fall and decrease in value when interest rates rise. Cash and short-term investments and other money market instruments are short term in nature and are not generally subject to significant amounts of interest rate risk. The tables below summarize the Fund s exposure to interest rate risk by remaining term to maturity. as at March 31, 2015 ($ 000) Less than 1 year 1-3 years 3-5 years > 5 years Total Bonds 214,407 962,208 1,094,546 145,275 2,416,436 Mortgages 439,525 923,421 943,507 2,235 2,308,688 Total 653,932 1,885,629 2,038,053 147,510 4,725,124 as at March 31, 2014 ($ 000) Less than 1 year 1-3 years 3-5 years > 5 years Total Bonds 171,396 885,960 1,199,607 216,590 2,473,553 Mortgages 319,395 865,470 872,369 2,524 2,059,758 Total 490,791 1,751,430 2,071,976 219,114 4,533,311 as at April 1, 2013 ($ 000) Less than 1 year 1-3 years 3-5 years > 5 years Total Bonds 240,047 1,461,759 748,287 4,677 2,454,770 Mortgages 266,686 786,923 857,839 2,914 1,914,362 Total 506,733 2,248,682 1,606,126 7,591 4,369,132 As of March 31, 2015, had prevailing interest rates increased by 1%, assuming a parallel shift in the yield curve, with all other variables held constant, net assets would have decreased by approximately $116,546,000 or 2.4% of total net assets attributable to securityholders (March 31, 2014 approximately $120,978,000 or 2.6%; April 1, 2013 approximately $102,815,000 or 2.3%). Similarly, had prevailing interest rates decreased by 1%, assuming a parallel shift in the yield curve, all other variables held constant, net assets would have increased by approximately $118,492,000 or 2.4% of total net assets attributable to securityholders (March 31, 2014 approximately $122,649,000 or 2.7%; April 1, 2013 approximately $104,503,000 or 2.4%). The Fund s sensitivity to interest rate changes was estimated using the weighted average duration of the bond portfolio and a valuation model which estimates the impact to the fair value of mortgages based on changes in prevailing interest rates in a manner consistent with the valuation policy for mortgages. In practice, the actual trading results may differ and the difference could be material. (d) Credit risk Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Fund. All transactions in listed securities are settled/paid for upon delivery using approved third-party brokers. The risk of default is considered minimal, as delivery of investments sold by the Fund is only made once the broker has received payment. Payment is made by the Fund on a purchase only once the investments have been received by the broker. The carrying amount of investments represents the maximum credit risk exposure. The carrying amount of other assets also represents the maximum credit risk exposure, as they will be settled in the short term. The Fund may enter into securities lending transactions with counterparties whereby the Fund temporarily exchanges securities for collateral with a commitment by the counterparty to deliver the same securities on a future date. Credit risk associated with these transactions is considered minimal as all counterparties have a sufficient, approved credit rating and the value of cash or securities held as collateral must be at least 102% of the fair value of the investments loaned. Legislation requires that any mortgage loan with a loan to value ratio greater than 80% at time of funding must be insured by an approved mortgage default insurance provider. The Manager may also, on a case by case basis, utilize mortgage default insurance to mitigate any unique or unusual risk associated with the nature or the location of property pledged as security. In either case, the mortgage default insurance provides coverage on any losses incurred in the event of credit default resulting from the enforcement and disposition of the property. Schedule 6 to the Statement of Investments provides information on the type of mortgage insurance in place and the value. As of March 31, 2015, March 31, 2014 and April 1, 2013 there were no mortgages in arrears by 90 days or more. Due to the quality of mortgages held, defaults and other credit losses are not considered a significant risk to the Fund. The fair value of fixed-income securities includes consideration of the creditworthiness of the issuer. The maximum exposure to any one issuer as of March 31, 2015 was 10.1% (The Toronto Dominion Bank) of the net assets of the Fund (March 31, 2014 16.2%; April 1, 2013 20.1%).
NOTES TO THE ANNUAL FINANCIAL STATEMENTS MARCH 31, 2015 10. FINANCIAL INSTRUMENT RISK (d) Credit risk (continued) The tables below summarize the bonds by credit rating: Percent of total March 31, 2015 net assets (%) AAA 23.1 AA 24.9 A 1.6 Total 49.6 Percent of total March 31, 2014 net assets (%) AAA 30.4 AA 21.3 A 2.1 Total 53.8 Credit ratings are based on DBRS, Standard & Poor s or Moody s ratings. Percent of total April 1, 2013 net assets (%) AAA 35.7 AA 17.4 A 2.9 Total 56.0 Credit ratings are based on DBRS, Standard & Poor s or Moody s ratings. (e) Other price risk 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 or currency risk), whether caused by factors specific to an individual investment, its issuer or other factors affecting all instruments traded in a market or market segment. All investments present a risk of loss of capital. The Manager moderates this risk through a careful selection of investments and other financial instruments within the parameters of the investment strategies. Except for certain derivative contracts, the maximum risk resulting from financial instruments is equivalent to their fair value. The maximum risk of loss on certain derivative contracts such as forwards, swaps, options written and futures contracts is equal to their notional values. However, these instruments are generally used within the overall investment management process to manage the risk from the underlying investments and do not typically increase the overall risk of loss to the Fund. As at March 31, 2015, March 31, 2014 and April 1, 2103, the Fund did not have a significant exposure to other price risk. 11. FAIR VALUE OF INVESTMENTS The tables below summarize the fair value of the Fund s investments using the fair value categories described in Note 4. as at March 31, 2015 ($ 000) Level 1 Level 2 Level 3 Total Fixed income - 4,725,124-4,725,124 Equities - - - - Total investments - 4,725,124-4,725,124 Short-term investments - 127,585-127,585 Derivative assets - - - - Derivative liabilities - - - - Total - 4,852,709-4,852,709 as at March 31, 2014 ($ 000) Level 1 Level 2 Level 3 Total Fixed income - 4,533,311-4,533,311 Equities - - - - Total investments - 4,533,311-4,533,311 Short-term investments - 53,295-53,295 Derivative assets - - - - Derivative liabilities - - - - Total - 4,586,606-4,586,606 as at April 1, 2013 ($ 000) Level 1 Level 2 Level 3 Total Fixed income - 4,369,132-4,369,132 Equities - - - - Total investments - 4,369,132-4,369,132 Short-term investments - 6,799-6,799 Derivative assets - - - - Derivative liabilities - - - - Total - 4,375,931-4,375,931 During the periods, there were no significant transfers between Level 1 and Level 2.
NOTES TO THE ANNUAL FINANCIAL STATEMENTS MARCH 31, 2015 12. TRANSITION TO IFRS The effect of the transition to IFRS from Canadian GAAP is summarized as follows: (a) Transition elections The only voluntary exemption adopted by the Fund upon transition was the ability to designate financial assets or financial liabilities at FVTPL upon transition to IFRS. All financial assets upon transition were previously carried at fair value under Canadian GAAP as required by Accounting Guideline 18, Investment Companies. (b) Revaluation of investments Under Canadian GAAP, the fair value of investments was generally based on bid prices for long positions and ask prices for short positions. Under IFRS, the fair value of investments is generally measured using last traded market prices, which is consistent with how the daily net asset value per security is measured for securityholder transactions. As a result, on adoption of IFRS, adjustments to the reported fair values of investments were necessary at April 1, 2013 and March 31, 2014. The tables below provide the reconciliation of the net assets and net increase (decrease) in net assets attributable to securityholders from operations as previously reported under Canadian GAAP to IFRS. Net Assets ($ 000) as at March 31, 2014 as at April 1, 2013 Net assets as reported under Canadian GAAP 4,596,283 4,382,201 Revaluation of investments at FVTPL 2,018 1,721 Net assets attributable to securityholders 4,598,301 4,383,922 Comprehensive Income ($ 000) for the year ended March 31, 2014 Net increase (decrease) in net assets from operations as reported under Canadian GAAP 62,929 Revaluation of investments at FVTPL 297 Increase (decrease) in net assets attributable to securityholders from operations 63,226 (c) Classification of redeemable securities of the Fund Under Canadian GAAP, the Fund accounted for redeemable securities as equity. Under IFRS, IAS 32 Financial Instrument Presentation, requires that securities of an entity which include a contractual obligation for the issuer to repurchase or redeem them for cash or another financial asset be classified as a financial liability if certain additional criteria are not met. The Fund s redeemable securities do not meet the criteria in IAS 32 for classification as equity and therefore, have been reclassified as financial liabilities on transition to IFRS. Other than presentation, there was no impact to the net assets of the Fund. (d) Statement of Cash Flows Under Canadian GAAP, the Fund was exempt from providing a Statement of Cash Flows. IAS 1 Presentation of Financial Statements, requires that a complete set of financial statements include a statement of cash flows for the current and comparative periods, and prepared in accordance with IAS 7 Statement of Cash Flows. (e) Comparative figures Certain prior period comparative amounts have been reclassified to conform to the current period s presentation under IFRS. 13. SUBSEQUENT EVENT Effective after the close of business on May 15, 2015, Investors Short Term Capital Yield Class (the Terminated Fund) was merged into this Fund. The Fund acquired all the assets and assumed all the liabilities of the Terminated Fund in exchange for issuing securities of the Fund. The fair value of net assets acquired was $42,132,000. 14. OTHER INFORMATION (a) Abbreviations Foreign currencies, if any, are presented in these financial statements using the following abbreviated currency codes: Currency Code Description Currency Code Description AUD Australian dollars MXN Mexican peso BRL Brazilian real MYR Malaysian ringgit CAD Canadian dollars NGN Nigerian naira CHF Swiss franc NOK Norwegian krona CLP Chilean peso NTD New Taiwan dollar CNY Chinese yuan NZD New Zealand dollars COP Colombian peso PEN Peruvian nuevo sol DKK Danish krone PHP Philippine peso EUR Euro PLN Polish zloty GBP United Kingdom pounds RON Romanian leu HKD Hong Kong dollars RUB Russian ruble HUF Hungarian forint SEK Swedish krona IDR Indonesian rupiah SGD Singapore dollars ILS Israeli sheqel THB Thailand baht INR Indian rupee TRL Turkish lira JPY Japanese yen USD United States dollars KOR South Korean won ZAR South African rand (b) Additional information available A copy of the Fund s current Simplified Prospectus, Annual Information Form and/or Management Report of Fund Performance, will be provided, without charge, by writing to: Investors Group Financial Services Inc., 447 Portage Avenue, Winnipeg, Manitoba, R3B 3H5 or, in Québec, 2001, Robert-Bourassa Boulevard, Bureau 2000, Montréal, Québec, H3A 2A6, or by calling toll-free 1-888-746-6344 (in Québec 1-800-661-4578).
Independent Auditor s Report MARCH 31, 2015 TO THE SECURITYHOLDERS OF INVESTORS MORTGAGE AND SHORT TERM INCOME FUND (THE FUND ) We have audited the accompanying financial statements of the Fund, which comprise the statements of financial position as at March 31, 2015, March 31, 2014 and April 1, 2013, and the statements of comprehensive income, changes in financial position and cash flows for the periods ended March 31, 2015 and March 31, 2014, as indicated in note 1, and a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the 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 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 financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as at March 31, 2015, March 31, 2014 and April 1, 2013, and its financial performance and cash flows for the periods ended March 31, 2015 and March 31, 2014, as indicated in note 1, in accordance with International Financial Reporting Standards. Chartered Accountants June 4, 2015 Winnipeg, Canada
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