Audited Financial Statements

1. OVERVIEW
The fund was established to provide a long term disability plan for the employees of the Province of Nova Scotia and such other employee groups as approved by the Trustees.

The Plan was established by Order in Council dated September 26, 1985.

The Trust was established by Agreement and Declaration of Trust dated December 23, 1985. Claimants' benefits became effective May 1, 1985 for employees who, at that time, met prescribed eligibility requirements.

2. ACCOUNTING POLICIES

FINANCIAL INSTRUMENTS
The fund's financial instruments are classified as follows:

Held for trading:
Cash
Investments

Loans and receivables:
Accounts receivable

Other liabilities:
Accounts payable
Accrued liability for benefits

Credit risk
The company is exposed to a credit risk by its customers and suppliers. However, because of the nature of customers and different suppliers, credit risk concentration is reduced to a minimum.

Investments
Marketable securities are stated at market value.

Amortization of equipment and furnishings
The fund records amortization of the equipment and furnishings at the annual rate of 30%, using the declining balance method. Amortization is calculated at one-half of the normal annual rate in the year of acquisition; no amortization is recorded in the year of disposal.

Use of estimates
The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires the fund's management to make estimates and assumptions that affect the amounts reported in the financial statements and related notes to the financial statements. Actual results may differ from these estimates.

Revenue Recognition
Revenue from premiums and EI premium rebates are recognized as they become receivable. Investment income comprises dividends, interest and realized and unrealized gains.

3. INVESTMENTS
Investments include marketable securities, accrued interest thereon, and the custodian's account balance. The investments as at December 31, 2008, are recorded at market value of $70,133,507 (cost - $79,946,566) and at December 31, 2007, were recorded at market value of $74,254,198 (cost - $69,933,914).

4. EQUIPMENT AND FURNISHINGS

5. PREMIUMS

6. ACTUARIAL VALUATION
An actuarial valuation has been completed as at December 31, 2008. This calculated the present value of the fund's liabilities for current disability claims plus estimated incurred but unreported claims as of this date to be $58,300,000. This liability value includes the cost of providing ad-hoc indexing of claims for inflation since the December 31, 2006 actuarial valuation to the current date. The actuarial value of assets in the fund at December 31, 2008 was $74,910,412 producing a funded ratio of 128% and an actuarial surplus of $16,610,412.

The liability and net funded position as at December 31, 2008 have been reconciled with the results of the December 31, 2006 actuarial valuation and the major items contributing to the progression of these items have been quantified. The primary factors included significant investment losses relative to the rate of return on fund assets assumed in the actuarial valuation, surplus premium revenues and continuing positive claims experience. The net effect of these factors was a further strengthening of the fund's financial position in the past two years.

The data used for the valuation as at December 31, 2008 was provided by the disability claims manager. Tests on the data were performed as deemed appropriate under the circumstances to satisfy the actuary as to the reasonableness and completeness of the data.

The actuarial basis used for the December 31, 2008 valuation is identical to that used in the December 31, 2006 valuation. The critical assumptions are:

• A 5.5% rate of return net of investment related expenses to discount liabilities
• Industry standard disability recovery tables which have been adjusted to more accurately reflect actual past experience of the fund
• Explicit recognition of both future costs (rehab expenditures) and recoveries (CPP) relating to claims existing as of the valuation date

The fund has adopted a biennial schedule for valuations; accordingly, the next formal actuarial valuation of the fund is scheduled for Decemeber 31, 2010.

7. COMMITMENTS
The aggregate annual payments under long-term property lease, expiring February 28, 2010, are as follows: