CANADIAN REAL ESTATE INVESTMENT FUND No

CANADIAN REAL ESTATEINVESTMENT FUND No.12012 ANNUAL REPORT

CANAD IAN REAL ES TATE INVES TMENT FUND NO.1

The Canadian Real Estate Investment Fund No. 1 is one of Canada’s largest open-ended, segregated real estate funds. The Fund’s core objective is to provide secure, growing cash flow, a hedge against inflation, low volatility, diversification and the potential for capital appreciation.

TABLE OF CONTENTS

1 Portfolio Manager’s Report

2 Portfolio Diversification

3 Portfolio & Tenant Diversification

6 2012 Performance & Activity

13 Multi-Family Effective Age Calculator

14 2013 Portfolio Business Plan

18 Independent Auditor’s Statement

19 Audited Financial Statements

23 Statement of Investment Portfolio

31 Notes to Statement of Investment Portfolio

34 Notes to Financial Statements

39 Senior Management

40 Office Locations

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

Any statements in this report concerning future financial performance of the Fund are subject to, among other things, risks, uncertainties and assumptions about the Fund, economic factors and real estate markets generally. They are not guarantees of future performance, and actual events and results may differ materially from those expressed or implied by forward-looking statements included in this report.

2012 ANNUAL REPORT

P O R T F O L I O M A N A G E R ’ S R E P O R T

It would be inappropriate to begin this report without a loud

pronouncement that the 2012 total gross return for the Fund was

a record setting 19.7%. However, as we have emphasized over

the years, it is not the one-year return that is the focus of Fund

management. The design, strategy and philosophy of this fund

has always taken a long-term view. The five-year, ten-year and

historical (32 year) annualized gross returns of the Fund are 8.1%,

10.3% and 8.7% respectively. The Fund’s real estate portfolio is

designed to both withstand the challenging periods, as it did in

2009 and 2010, and benefit from stronger economic conditions

as in 2011 and 2012. It achieves these stable results by investing

in high quality assets, occupied by financially strong tenants and

diversified both by property type and city.

The 2012 annual gross return is made up of 6.4% income return

on the real estate which, after adjusting for cash, results in an

income return of 5.2%, consistent with recent performance. The

remainder of the total return is made up of a very healthy capital

return of 14.2% and 0.3% adjustment for marking mortgages

and bond investments to market. All property types accounted

for the strong capital return this year, but Calgary office, Toronto

office and the Fund’s apartment buildings were the largest three

contributors. The continuing strong demand for good quality real

estate of all property types pushed capitalization rates down,

resulting in strong value increases.

The Fund acquired four new assets for an initial investment of

$228.8 million. The new additions to the portfolio included two

Walmart anchored shopping centres, one in Ontario and one in

Saskatchewan, as well as an office building in Ottawa, 100%

leased to the federal government. The fourth transaction was

a forward purchase of an industrial development project in

Edmonton. The Fund also sold its 50% interest in a Calgary

office building for $50.5 million. Further details on these

trades are provided on pages 11 and 12.

The leasing teams across the country had a very active year.

Highlights included a 35,000 square foot expansion with

Snamprogetti at Watermark Tower in downtown Calgary; the

leasing of an entire building of 245,000 square feet at 7070

Mississauga Road in Mississauga, Ontario, to Hoffman La Roche

Pharmaceuticals; a lease renewal for three full floors (about

37,000 square feet) to the law firm HGE Management Company

Limited at 650 West Georgia in Vancouver; and an 85,200 square

foot renewal of the Toronto Transit Commission at 5140

Yonge Street in Toronto. Details of these lease transactions

are provided on pages 9 and 10.

Looking forward, Fund management will continue to selectively

sell non-core properties and add new properties to further

strengthen the portfolio in terms of diversification and quality.

In addition, the planning of three potential developments will

pick up momentum in 2013. The projects are an office building in

Vancouver, an apartment complex in Toronto and an office tower

in Calgary. Planning will include market and financial analysis,

assembling the development team, sourcing lead tenants for the

office projects and working through the approval process with

each city. Cash management; keeping a low loan-to-value ratio;

executing property level business plans; continuing best-in-class

property management standards and maintaining GWL Realty’s

many well established green initiatives are all important parts of

the 2013 portfolio business plan.

Canadian real estate fundamentals were very strong in 2012.

Good supply/demand balance in most markets, improving

employment and a strengthening economy resulted in improving

occupancy levels and increasing rents. Abundant and inexpensive

debt and capital, along with more investors appreciating the sound

investment rationale for owning direct real estate, helped increase

demand for quality real estate, pushing up prices.

There remain many global market and geopolitical challenges and

uncertainties heading into 2013. The Fund, like Canada, is well

positioned, on a relative basis, to meet these challenges. Canada’s

resource wealth, strong banking system, stable government and

improving employment numbers will sustain modest growth. The

Fund – with its institutional quality assets, excellent diversification

in four property types, largely in Canada’s major cities, with long-

term leases to financially strong tenants – will benefit from this

positive backdrop and result in good leasing activity and stable

operating incomes, consistent with recent performance.

David N. Rose

Vice President, Portfolio Management

January 2013

1

P O R T F O L I O D I V E R S I F I C A T I O N

Total gross market value: $3.64 billion Total number of properties: 117 ($ in millions)

United States 0.6% $20.7 (3)

British Columbia14.8% $538.1 (14)

Alberta 25.5% $926.1 (18)

Ontario 53.0% $1,929.1 (69)

Atlantic 1.8% $64.3 (2)

Quebec 3.1% $114.5 (10)

The Fund owns 34 office properties across Canada. 20 are located in the central business districts (CBD) of major Canadian urban centres and 14 are located in established business parks in suburban settings. The CBD office holdings are worth $1.6 billion or approximately 85.5% of the office allocation, and the suburban office properties are valued at $364.4 million, approximately 18.5% of the office allocation.

The Fund owns 12 retail properties, concentrated in British Columbia, Saskatchewan, Ontario and Quebec. The centres are open format, typically anchored by a supermarket, drug store or other nationally recognized retailer.

OFFICE PROPERTIES RETAIL PROPERTIES MULTI-FAMILY PROPERTIES INDUSTRIAL PROPERTIES

The Fund owns 18 institutional-quality apartment complexes comprised of 28 separate buildings, concentrated in Ontario, with a few in Alberta and British Columbia. Most of the apartment buildings are concrete construction and are located near major public transit infrastructure.

The Fund owns 42 industrial properties largely located in Ontario, with other properties in British Columbia, Alberta and Quebec. The Fund owns a mixture of manufacturing, distribution and flex-industrial facilities. Most of the Fund’s industrial buildings have more than one tenant to maximize stability of cash flow.

Prairies 1.2% $45.3 (1)

BY REGIONat December 31, 2012

Retail 9.7% $353.1 (12)

Office 54.3% $1,975.1 (34)

Other 1.5% $54.2 (11)

Residential 22.8% $829.6 (18)

Industrial 11.7% $426.02 (42)

BY TYPEat December 31, 2012


P O R T F O L I O & T E N A N T D I V E R S I F I C A T I O N

PORTFOLIO DIVERSIFICATION – CORE PROPERTIESCBD Office ($ in millions)

# of Properties Value % of Real Estate

Vancouver 2 $ 109.7 3.0%

Calgary 5 $ 605.0 16.6%

Edmonton 2 $ 53.9 1.5%

Toronto 6 $ 506.2 13.9%

Ottawa 3 $ 271.6 7.5%

Halifax 2 $ 64.3 1.8%

Total 20 $ 1,610.7 44.3%

Multi-Family ($ in millions)

# of Properties Value % of Real Estate

Vancouver 1 $ 20.9 0.6%

Calgary 1 $ 42.3 1.2%

Edmonton 2 $ 63.1 1.7%

Toronto*

Central 7 $ 500.5 13.8%

West 4 $ 130.6 3.6%

Ottawa 3 $ 72.5 2.0%

Total 18 $ 829.7 22.8%

*Several are multiple building complexes

300 5TH AVENUE SW, CALGARY, AB 400 WALMER ROAD, TORONTO, ON

32012 ANNUAL REPORT



TOP FIVE TENANTS BY BASE REVENUE at December 31, 2012

Office Tenant Annual Base Rent at Ownership % of Total Fund Revenue

Government (Federal & Provincial) $ 20,546,488 10.5%

Conoco Phillips Canada $ 3,322,293 1.7%

Ritchie Brothers Auctioneers $ 2,806,800 1.4%

Invesco Canada Ltd. $ 2,724,218 1.4%

Trans Mountain Pipeline L.P. $ 2,047,928 1.0%

Total $ 31,447,727 16.1%

• The diversity in the Fund’s office tenant base is highlighted in the tables above and on page 5, with the top five tenancies accounting

for only 9.6% of the total Fund area and 16.1% of total Fund revenue.

• While the largest exposure is to the federal and provincial governments, the Fund is protected by both the long-term nature of the

contractual leases and the diversification of the government rental revenue over twelve different leases in five different cities.

Industrial Tenant Annual Base Rent at Ownership % of Total Fund Revenue

Minister of National Defense $ 2,145,000 1.1%

The Proctor & Gamble Company $ 1,100,647 0.6%

Kodiak Group Holdings Inc. $ 910,000 0.5%

Dover Corporation (Canada) Ltd. $ 815,304 0.4%

Smiths Detection Montreal Inc. $ 572,894 0.3%

Total $ 5,543,845 2.8%

• The top industrial tenancies are located across the country and given their superior financial covenant, provide secure,

long-term cash flow.

• The top five tenancies account for approximately five percent of the Fund’s total area and nearly three percent of its total revenue.

Retail Tenant Annual Base Rent at Ownership % of Total Fund Revenue

Walmart Canada Corporation $ 3,835,560 2.0%

Home Depot of Canada Inc. $ 968,995 0.5%

Michaels of Canada, ULC $ 493,211 0.3%

Future Shop $ 445,178 0.2%

Mark’s Work Warehouse Ltd. $ 419,243 0.2%

Total $ 6,162,186 3.2%

• The top retail tenancies by area and rent are well-recognized national and international retailers, with a history of being excellent

long-term tenants.

• The Fund’s largest exposure on the retail front is to Walmart, which accounts for both two percent of the total Fund area and

total Fund revenue.

4

2012 ANNUAL REPORT

• The Fund’s office properties are leased to an array of different firms, with the government, professional and technical services and financial services firms occupying close to 60% of the office area.

• Many of the nation’s leading banks, accounting and law firms have a presence in the Fund’s buildings.

• The Fund’s industrial properties feature a larger allocation to the three largest NAICS classifications, with manufacturing, transportation and warehousing and wholesale trade occupying over 75% of the industrial area.

• Although manufacturing accounts for over 40% of the occupied industrial area, for the most part this represents manufacturing companies that lease warehouse space in the Fund’s industrial buildings.

Note: Numbers may add up to more than 100% due to rounding.

1 North American Industry Classification System (NAICS) is an industry classification system developed by the statistical agencies of Canada, Mexico and the United States. It is

designed to provide common definitions of the industrial structure of the three countries and a common statistical framework to facilitate the analysis of the three economies.


TOP FIVE TENANTS BY OCCUPIED AREA at December 31, 2012

Office (Total 5,909,609 Sq. Ft.)

Tenant Occupied Area at Ownership (Sq. Ft.) % of Total Office Area % of Total Fund Area

Government (Federal & Provincial) 962,851 16.3% 6.0%

Invesco Canada Ltd. 175,756 3.0% 1.1%

Canadian Pacific Railway Co. 129,742 2.2% 0.8%

Conoco Phillips Canada 128,845 2.2% 0.8%

MDA Systems Ltd. 127,112 2.2% 0.8%

Total 1,524,305 25.8% 9.6%

Industrial (Total 5,150,930 Sq. Ft.)

Tenant Occupied Area at Ownership (Sq. Ft.) % of Total Industrial Area % of Total Fund Area

The Proctor & Gamble Company 268,596 5.2% 1.7%

Kodiak Group Holdings Inc. 140,000 2.7% 0.9%

Minister of National Defense 135,000 2.6% 0.8%

Tubular Conduits Industries of Canada Ltd. 129,045 2.5% 0.8%

Sears Canada Inc. 104,560 2.0% 0.7%

Total 777,201 15.1% 4.9%

Retail (Total 1,329,737 Sq. Ft.)

Tenant Occupied Area at Ownership (Sq. Ft.) % of Total Retail Area % of Total Fund Area

Walmart Canada Corporation 326,309 24.5% 2.0%

Home Depot of Canada Inc 69,214 5.2% 0.4%

Michaels of Canada, ULC 32,619 2.5% 0.2%

Big Lots Canada, Inc. 26,720 2.0% 0.2%

Hudson’s Bay Company 24,084 1.8% 0.2%

Total 478,945 36.0% 3.0%

CREIF OFFICE TENANT NAICS DIVERSIFICATION BY OCCUPIED AREA

Mining/Oil & Gas Extraction 8.6%

Transportation & Warehousing 6.3%

Finance & Insurance 19.9%

CREIF INDUSTRIAL TENANT NAICS DIVERSIFICATION BY OCCUPIED AREA

Other 25.3%Professional, Scientific and Technical Services 16.3%

Public Administration 23.7%

Other 22.5%

Wholesale Trade 16.5%

Transportation & Warehousing 20.5%

Manufacturing 40.6%

5

2 0 1 2 P E R F O R M A N C E & A C T I V I T Y

RETURNS

It was a record-breaking year for the Fund, producing a

total return of 19.7%, the highest return in Fund history.

The strong market demand for real estate investments

resulted in compressed capitalization rates and increasing

asset values as seen in the 14.5% capital return. The

capital return was observed at 14.2% before considering

the 0.3% adjustment for marking mortgages and bond

investments to market. Comparably, the net income

return held steady relative to previous years at 5.2%,

which includes the Fund’s cash holdings and 6.4%,

which excludes the impact of the Fund’s cash balance.

• The 19.7% gross return for 2012 comprises an income return of 5.2% and capital return of 14.5%

• Considering the recent financial crisis, the five-year gross return, before fees, held up well at 8.1%

• Long-term investors were rewarded with a 10-year gross return, before fees, of 10.3%.

GROSS ANNUALIZED RETURNS (%)

GROSS MARKET VALUE OF REAL ESTATE ASSETS ($ millions)

ANNUAL REAL ESTATE NET OPERATING INCOME ($ millions)

COMMERCIAL LEASE EXPIRY PROFILE (Sq. Ft. in 000s) Total 12,119 Sq. Ft.

FIFTH & FIFTH, CALGARY, AB

1Yr 2Yr 3Yr 4Yr 5Yr 10Yr 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012 2013 2014 2015 2016 2018

• In 2012, strong value appreciation and four new acquisitions increased the Fund’s asset values to 2008 levels, which was the prior peak for Fund assets under management

• Notable value increases were witnessed in the multi-family holdings across Canada and within the industrial and office holdings in Alberta. Sustained economic growth in Alberta buoyed demand for office and industrial space, serving to increase rental income and asset values.

• Year-over-year, net operating income (NOI) declined by 3.0% to $195 million from the previous year

• NOI decline resulted from net dispositions in prior years. The acquisitions made in Q3 2012 will have a favourable NOI impact going forward

• Aside from the total portfolio NOI decline, multi-family assets continued to generate growing rental income with a year-over-year NOI increase of 7.1%. The retail and office acquisitions in 2012 added $6.4 million to portfolio NOI.

• The five-year average annual expiry of 10.7% is very manageable and warrants steady future cash flow to the Fund’s unit holders.

2012 ANNUAL REPORT6

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2012 ANNUAL REPORT

2 0 1 2 P E R F O R M A N C E & A T T R I B U T I O N

2012 PERFORMANCE BY ASSET CLASSBy Type Return (%)

Retail 20.7%

Office 24.1%

Industrial 9.4%

Residential 30.7%

Miscellaneous 10.2%

Similar to 2011, the multi-family sector was the best- performing

asset class again in 2012. The total return comprises a net income

return of 7.1% and a capital return of 23.6% for a total return

of 30.7%. Office and retail round out the top three asset class

performers with total returns of 24.1% and 20.7%, respectively.

2012 PERFORMANCE BY REGIONBy Region Return (%)

British Columbia 12.6%

Alberta 31.4%

Prairies 0.0%

Ontario 22.2%

Quebec 12.8%

Atlantic 15.4%

United States 11.2%

Alberta was once again the top-performing region in 2012 with a

return of 31.4%. The total return is comprised of a 7.0% net income

return and a 24.4% capital return. Ontario and Atlantic Canada

followed with total returns of 22.2% and 15.4%, respectively.

2012 ATTRIBUTION BY ASSET CLASSSector % Income Attribution % Capital Attribution % Total Attribution % of Gross Market Value

Retail 9.9% 7.9% 8.5% 9.7%

Office 56.9% 61.6% 60.2% 54.3%

Industrial 12.5% 3.0% 5.7% 11.7%

Residential 20.1% 26.5% 24.7% 22.8%

Miscellaneous 0.6% 1.0% 0.9% 1.5%

Total 100.0% 100.0% 100.0% 100.0%

Assets in both office and multi-family sectors were strong contributors to the Fund’s record breaking return in 2012. The 22.8%

portfolio weighting to multi-family contributed to 26.5% of the Fund’s total return, 54.3% of the portfolio allocation to office

commanded 60.2% of the Fund’s total return performance of 19.7%.

2012 ATTRIBUTION BY REGIONSector % Income Attribution % Capital Attribution % Total Attribution % of Gross Market Value

British Columbia 12.6% 6.7% 8.4% 14.8%

Alberta 30.0% 41.9% 38.5% 25.5%

Prairies 1.4% 0.0% 0.4% 1.2%

Ontario 49.5% 48.6% 48.9% 53.0%

Quebec 3.3% 1.6% 2.1% 3.1%

Atlantic 2.1% 1.0% 1.4% 1.8%

United States 1.0% 0.1% 0.4% 0.6%

Total 100.0% 100.0% 100.0% 100.0%

The Fund’s total return is 87.4% attributed to the holdings in Alberta and Ontario. Comprising 25.5% of portfolio holdings, Alberta

commanded an impressive 38.5% towards the Fund’s total return. And at 53.0% of the Fund’s weighting, Ontario contributed 48.9%

to the Fund’s total return.

7


2012 PORTFOLIO VACANCY Net Rentable Area Vacant Area at Vacant % at Vacant % at at Ownership (Sq. Ft.) Dec. 31/12 (Sq. Ft.) Dec. 31/12 (Sq. Ft.) Dec. 31/11 (Sq. Ft.)

British Columbia 1,955,242 306,699 15.7% 15.5%

Alberta 2,609,172 72,935 2.8% 6.3%

Prairies 165,168 - 0.0% -

Ontario 9,317,722 467,810 5.0% 5.3%

Quebec 1,417,206 512,522 36.2% 5.2%

Atlantic 231,637 25,112 10.8% 6.2%

United States 226,514 - 0.0% 0.0%

Total 15,922,660 1,385,078 8.7% 6.7%

Retail 1,329,737 36,888 3.6% 2.3%

Office 5,909,609 389,901 6.6% 7.6%

Industrial 5,150,930 898,229 17.4% 10.1%

Residential 3,532,384 60,060 1.7% 1.6%

Total 15,922,660 1,385,078 8.7% 6.7%

Occupancy in the portfolio increased during the second and third quarters of the year and only in the final quarter of 2012 did it witness a sig-

nificant decline. A large industrial lease expiry that occurred in Montéal, QC, at the end of October was the catalyst for the increase in vacancy

during 2012. Without the lease expiry, vacancy would have declined year-over-year to 6.1% from the 6.7% reported at year end 2011.

MONTHLY VACANCY RATE IN 2012Fund Vacancy %

Asset Type 2012 Absorption 2012 Y/E Occupancy (%) (Sq. Ft.)

Retail (12,852) 97.2%

Office 36,399 93.4%

Industrial (382,622) 82.6%

Residential (2,914) 98.3%

Total (361,989) 91.3%

The office asset class witnessed strong leasing velocity, with over

36,000 square feet of absorption in 2012. In particular, it was

the Calgary CBD office buildings that witnessed the bulk of the

activity with over 87,000 square feet of positive absorption. The

national vacancy rate for the Fund’s office properties declined

from 7.6% at the start of the year to close the year at 6.6%,

a decline of 100 basis points. As discussed earlier, the overall

increase in vacancy for the Fund is largely attributed to the lease

expiry of one large tenant. Removing the effect of this tenancy,

the industrial holdings actually experienced positive absorption

of 28,600 square feet. While the departure of this industrial

tenancy does skew the occupancy results, it is more of an

aberration than a trend and Fund management will work

to reduce vacancy during 2013.


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2012 ANNUAL REPORT


VANCOUVER CENTRE, VANCOUVER, BC WATERMARK TOWER, CALGARY, AB

HARPER GREY LLP LEASE RENEWAL VANCOUVER CENTRE, VANCOUVER, BC

Harper Grey LLP is a mid-sized, Vancouver focused law firm that

has been a long-term tenant at the Vancouver Centre office

complex. In 2012, GWL Realty Advisors was able to complete

a lease renewal with this tenant for approximately 37,000

square feet to secure their occupancy in the building until 2024.

Harper Grey occupies the top three floors of the building and is

afforded commanding views of the Burrard Inlet and downtown

Vancouver. The tenant had last renewed their lease sometime

ago and market rents had increased appreciably since then.

With its premises somewhat dated and facing a much higher

renewal rate, the tenant was exploring other options outside of

Vancouver Centre. However, GWL Realty Advisors was able to

retain their tenancy by offering the tenant additional premises

to carry on business while they undertook renovations in their

existing space. The flexibility to grow into additional office space

as was required by the tenant helped solidify their decision to

renew for another ten years at market leading rental rates in

Vancouver Centre.

SNAMPROGETTI LEASE EXPANSION WATERMARK TOWER, CALGARY, AB

Watermark Tower is a 405,000 square foot office tower in

Calgary’s central business district. The building has benefited

from a very high occupancy level. Sometimes that can be an

issue if there are tenants that need to expand. In 2012, a

rare 35,000 square foot vacancy became available upon a

lease expiry. Through the efforts of our leasing team and their

excellent relationship with the tenant, this space was almost

immediately taken up by the existing tenant, Snamprogetti, an

international engineering firm that already occupied 78,000

square feet. A 5-year 7-month lease deal was struck at market

rents. This transaction brings the building to full occupancy,

ensures continued cash flow, improves the lease expiry profile

of the building and enhances the asset’s valuation.

LEASING

9



7070 MISSISSAUGA ROAD, MISSISSAUGA, ON 5140/5150/5160 YONGE STREET, TORONTO, ON

HOFFMANN-LA ROCHE CANADA LEASE 7070 MISSISSAUGA ROAD, MISSISSAUGA, ON

In the summer of 2012, long-time tenant DuPont vacated

7070 Mississauga Road upon expiry of their lease, leaving the

building vacant. Built in 1987, 7070 Mississauga Road was

constructed as a single-tenant head office building for DuPont

and did not lend itself well to being leased to several different

users. Fund management was concerned with the potential

down-time associated with finding a new tenant that could truly

appreciate the unique attributes of the building. Some features

of the building include a garden cafeteria, an atrium that runs

throughout the centre of the building and an onsite fitness

facility. However, in relatively short order GWL Realty Advisors

was able to re-let the building on a 100% basis to Hoffmann-

La Roche Canada (Roche), a Switzerland-based pharmaceutical

company. This transaction secured a strong covenant tenant, at

market leading rental rates, for a 15-year term. Roche and the

Fund are making a significant capital investment in the building

with a focus on sustainability and energy management, targeting

a minimum LEED EB Silver certification. The Roche transaction will

provide unitholders with secure cash flow well into the future.

TORONTO TRANSIT COMMISSION LEASE RENEWAL NORTH YORK CITY CENTRE, TORONTO, ON

The Toronto Transit Commission (TTC) had been a tenant

in 5140 and 5150/5160 Yonge Street since 2008. The

two Yonge Street buildings form part of the GTA North

office market which, at the time the lease was concluded in

September, featured a vacancy rate of only 4.5% for Class ‘A’

product. However, despite the low vacancy in the market node,

there was over 380,000 square feet of contiguous long-term

sublet space in neighbouring properties that was well suited to

the needs of the TTC. GWL Realty Advisors leveraged its long-

standing relationship with the tenant, and renewed the TTC for

a lease term of 5 years on 85,200 square feet. The renewal

featured a limited capital investment on behalf of the Fund,

served as a strong rental rate benchmark for future leasing

activity and helped to maintain occupancy at close to 100%

for both buildings.

10

LEASING

2012 ANNUAL REPORT


200 KENT STREET, OTTAWA, ON

BOWMANVILLE RETAIL, CENTRE, BOWMANVILLE, ON

ACQUISITIONS The Fund purchased four assets in 2012 for an initial capital

outlay of $228.8 million. A forward purchase of an industrial

development in Edmonton, Alberta, was concluded. At completion,

the complex will feature 377,400 square feet of Class ‘A’

industrial product spread over four buildings. Two retail properties

were purchased in strong residential growth nodes; one located in

Saskatoon, Saskatchewan and the other in Bowmanville, Ontario,

which is 75 kilometres east of Toronto. Both retail centres feature

Walmart as an anchor tenant and a strong roster of national

tenants that complement Walmart. Both shopping centres have

ongoing expansion programs that will add new tenants, increasing

cash flow and value. The Fund’s final purchase was a 387,000

square foot office building in downtown Ottawa, Ontario. At the

time of acquisition, it was 100% leased to the federal government

with a remaining lease term of twelve years.

DEVELOPMENTAs mentioned in the acquisitions section, the Fund has an

ongoing industrial development in Edmonton, which is expected

to be completed in 2013. This development is in line with

Fund management’s business plan of owning modern, highly

functional, industrial product in what is widely considered

to be a strong growth market.

At the two Walmart retail centres, there is an additional

201,800 square feet to be built in the near term. The bulk of the

construction will take place in Saskatoon, and will feature a Lowe’s,

Staples, Dollarama and other retail tenants, for a total of 159,600

square feet upon completion. At the Bowmanville location, an

additional 42,200 square feet will be completed and includes

a Liquor Control Board of Ontario (LCBO) store. These centres

feature long-term leases to nationally recognized retailers and

will provide unitholders with stable cash flow over the long term.

SOUTH CENTRAL BUSINESS PARK, EDMONTON, AB

11



CORPORATE SOCIAL RESPONSIBILITY

Management is committed to lowering the carbon footprint of

the assets held within the Fund. One recent initiative involves

the sub-metering of apartment units in the Fund’s multi-family

buildings. Upon lease turnover, units that used to have electricity

included in the rent have been sub-metered so that the incoming

tenant pays electricity directly. There is no cost for the Fund

to have the unit sub-metered and, on average, net operating

income (NOI) has increased annually by $480 per unit. Across

the portfolio, that generates an annual NOI gain of $230,400.

Fund analytics indicate that, on average, electricity consumption

has declined by 36% at units that have undergone sub-metering.

This program will be extended to more apartment units in

Fund assets as opportunities arise.

Fund management strives to achieve best practices in property

management standards. Examples include Leadership in Energy

and Environmental Design (LEED) certification for newly

constructed buildings and LEED Existing Building (EB) certification

for existing buildings. To obtain LEED certification, a building

must achieve certain thresholds for five areas of human and

environmental health, which include: water and energy efficiency;

sustainable site development; materials selection; and indoor

environmental quality. At present, the Fund has three buildings

that have obtained LEED certification and several others are

undergoing LEED EB certification.

Over 40 of the Fund’s buildings have achieved at least one level

of BOMA BESt certification. BOMA BESt is a standard set by

the Building Owners and Managers Association (BOMA) and

addresses six areas of buildings performance, namely: energy,

water, waste reduction, emissions, indoor environment and

environmental management system. An onsite inspection of the

building is completed for all buildings seeking certification to

ensure the rating system retains its integrity.

12

PURDY’S WHARF I & II, HALIFAX, NS

SIGNIFICANT CAPITAL PROJECTSThe Fund spent $39.4 million on capital upgrades to its buildings

in 2012. Examples of large capital projects include garage

and balcony upgrades at the multi-family holdings, new roof

and repaving projects at the industrial assets and elevator

modernizations and lobby upgrades for the office properties.

Construction was finalized in 2012 on a food court amenity

in an underutilized area of the retail concourse at 5140 and

5150/5160 Yonge Street. The total cost of the project was $2.7

million and initial feedback from tenants has been quite favourable.

This new addition to the complex is expected to increase the

appeal of the two buildings to existing and future tenancies.

DISPOSITIONSTwo assets were disposed of in 2012. The first sale was a portion

of industrial development lands the Fund holds in the GTA. The land

was sold at above market pricing to an adjacent user that required

additional outdoor storage space. The second asset was a Class ‘B’

office tower located on the fringe of the downtown core in Calgary,

Alberta. In accordance with the portfolio business plan with regard

to managing regional weightings, Fund management had been

targeting to dispose of this asset during a period of market strength

and the pricing received for the building was above expectations.

FINANCINGThe Fund paid down over $9.9 million of mortgages in 2012. Three

mortgages were extinguished for a total of $20.7 million, while

Fund management renewed two mortgages for $10.8 million. The

weighted average interest rate for the Fund declined to 4.7% from

4.8% at the commencement of the year. The loan-to-value (LTV)

ratio for the Fund declined to 23.0% from 27.7% at the start of

the year. Rising asset values and the Fund’s ample cash position, in

addition to the retirement of three of the Fund’s mortgages, were

catalysts for the decline. The Fund’s modest LTV is well within the

Investment Policy guideline maximum of 35% and provides Fund

management with significant flexibility moving forward.

FIRST CANADIAN CENTRE, CALGARY, AB

2012 ANNUAL REPORT

M U L T I - F A M I L Y E F F E C T I V E A G E C A L C U L A T O R

As noted in the building capital section of the business plan on

page 16, the multi-family asset management team has developed

the concept of effective age calculator, a very useful management

tool. The Effective Age model determines an existing building’s

effective age based on building structure, maintenance level,

historical capital spending and the useful life of various

building components.

The calculations are based on fixed and variable building

components. Fixed components are weighted based on the

existing structure condition and maintenance level of the

property, based on 1% per year up to 40%. The total variable

component is then calculated by subtracting the calculated

fixed weighting from 100%.

After a complete analysis of the Fund’s multi-family portfolio

and applying the Effective Age Calculator methodology, it was

determined that those buildings in the portfolio that were more

than 40 years old, had an average age of 45 years and Effective

Age of only 31 years.

BENEFITS OF EFFECTIVE AGEThe detailed analysis involved in making the Effective Age

calculation allows the Investment team to better underwrite new

acquisitions and assist in determining the initial capital program

that forms part of the initial business plan of the property.

Similarly, it assists in the update of the capital spending

section of each asset’s annual business plan and helps prioritize

capital spending. The analysis will also allow for more efficient

maintenance and building capital planning and costing when

new developments are under consideration. In addition, the

information provided by the calculation will be useful to Lenders

when doing their loan analysis, and will be beneficial with regards

to potentially increasing the loan amount and giving leverage

to interest rate negotiations. Appraisers will also find the

information useful and will bolster valuations in terms of investment

parameters applied to the property’s cash flow. Finally, the Effective

Age data will be helpful in increasing the liquidity of the property if

it is ever for sale, in that a prospective purchaser can understand

that, for example, the building may be 45 years old, but has an

effective age of only 31 years.

13

BAYVIEW VILLAGE,TORONTO, ON 1541/1551 RIVERSIDE DRIVE, OTTAWA, ON


9500 GLENLYON PARKWAY, BURNABY, BC

2 0 1 3 P O R T F O L I O B U S I N E S S P L A N

ACQUISITIONS AND DISPOSITIONSAn important target in 2013 is to increase the Fund’s weighting

in the retail sector. With the Fund owning good retail assets in the

Vancouver and Montreal areas, priority will be given to properties

in Calgary, Edmonton, Toronto and Ottawa. Some important

criteria for shopping centres include: a high percentage by area

and revenue should come from national or strong regional tenants;

tenants should include grocery, drug and/or a major anchor (e.g.,

Walmart, Canadian Tire, etc.); the centre should be dominant or

second in its local market; and there should be ample parking,

good access and high traffic count.

Notwithstanding that the Fund is currently heavily weighted in

the office sector, if a potential office property on the market was

deemed to enhance the quality of the portfolio and improve long-

term returns, it would be considered for acquisition. The closing

of such a transaction might then lead to the sale of a non-core

property from the portfolio. Priority will be given to Class ‘A’ office

towers in downtown Toronto and Vancouver for new acquisitions.

A strong roster of tenants, a lease expiry profile with limited

short-term risk, a location with good access to transportation

and amenities, and a conventional floor plate are all important

underwriting considerations for an office property.

Industrial properties in most major cities will be considered that have

the following characteristics: new construction, high clear heights,

ample loading doors, a sufficient truck turning radius and satisfactory

parking. Another important requirement is that industrial buildings

have excellent access to major transportation routes.

For multi-family acquisitions, priority will be given to properties

in Calgary, Edmonton and Ottawa. Desirable characteristics

of apartment buildings would include newer and preferably

concrete construction, over 100 suites in size, and proximity

to transit and amenities.

During any year, select non-core assets or properties whose

business plans have been fully executed, may be sold. In 2013,

a portfolio of non-core Ontario industrial buildings will be put

up for sale. Proceeds will be re-deployed into the development

of industrial buildings in Edmonton.

With respect to future dispositions, Fund management will

continue to selectively sell non-core assets on an opportunistic

basis. These may include older industrial properties and select

suburban office assets. Any asset sales should result in the

redeployment of the proceeds into higher quality, strategic

acquisitions that strengthen the portfolio.

THE MANDATE OF THE FUND, AS IN PAST YEARS, IS TO PROVIDE INVESTORS, OVER THE LONG TERM, WITH A STABLE AND GROWING INCOME RETURN AND THE POTENTIAL FOR CAPITAL APPRECIATION. THIS IS ACHIEVED BY INVESTING IN FOUR CATEGORIES OF HIGH-QUALITY PROPERTIES IN CANADA’S MAJOR CITIES. BEYOND THE OBJECTIVE OF STRONG, RELIABLE RETURNS, INVESTING IN DIRECT REAL ESTATE ADDS DIVERSIFICATION, ACTS AS A HEDGE AGAINST INFLATION AND REDUCES VOLATILITY TO INVESTORS’ OVERALL PORTFOLIOS.

14

2012 ANNUAL REPORT


15

LEASINGLeasing is arguably the most important day-to-day operating

function in managing a real estate portfolio. Each property’s

annual business plan details the leasing strategy with respect to

renewals, vacant space and improving the market position of the

property. Subject to market conditions, intelligence we have on

certain tenants and in an effort to better manage the lease expiry

profile of a building, leasing strategies may include early renewals,

terminations, relocations, expansions and/or space reductions.

The leasing team, working with asset and property management,

has an excellent record of maintaining a high tenant retention

ratio on lease roll-over and attracting new tenants. There is

1.8 million square feet or about 15% of the commercial space

expiring in 2013. Much of this has already been renewed or had

new lease transactions struck. However, as in most years, there

are some specific challenges in a large portfolio. These include

a large industrial building in Montreal that was 100% vacated

at the end of a 15 year term, a vacancy of 10% in the Purdy’s

Wharf office complex in Halifax and more than 20% vacancy in

the Crestwood Business Park located in Richmond, BC. In each

case, these properties are well located and meet the standard

high quality criteria required of assets in the portfolio and

will be re-leased.

DEVELOPMENTAs the Fund grows in size and matures in terms of quality and

diversification of the properties in the portfolio, development of

new assets takes on a more material role. Development allows

Fund management to build what, where and to the quality it

wants and to earn risk-adjusted returns. New construction also

reduces future year capital expenditures. The Fund has always

had modest development activity and the current portfolio has a

material weighting of about 9% of assets that have been internally

developed. In 2012, an industrial development in Edmonton

commenced, and retail acquisitions made in 2012 include a

development component. Both of these are discussed on page

11 of this report. Planning began or continued on several major

potential developments and this process will continue into 2013.

The development strategy of the Fund is to give priority to

those sites already in the Fund that have development potential

through intensification of the site. For example, management is in

a position to apply for a building permit to construct a 600,000

square foot office building on land owned by the Fund adjacent

to a downtown Calgary building owned by the Fund. Such a large

scale project would only commence once a significant portion

of the building was pre-leased to a tenant of superior financial

covenant. In Toronto, planning is well underway for the potential

development of two apartment towers on land where the Fund

owns two buildings. Planning will include market and financial

analysis, assembling the development team, sourcing lead

tenants for the office projects and working through the approval

process with the city. Preliminary planning has also begun for the

development of a downtown Vancouver office building, again

on land owned by the Fund adjacent to an office building also

in the Fund. There are several other examples of development

opportunities within Fund held assets and these will be acted

upon subject to market conditions. Development projects,

especially the larger ones, can take a long time to plan and

longer to build, but in the end they enhance the quality,

diversification and cash flow of the Fund.

CRESTWOOD CORPORATE CENTRE, RICHMOND, BC



BUILDING CAPITALExcluding the ongoing industrial development program in

Edmonton and the build-out of the two new shopping centres

acquired in 2012, the 2013 building capital budget is $63.2

million. These funds that are re-invested in the properties range

from mandatory to discretionary. Mandatory funds address

matters like boilers that have reached the end of their useful life;

underground garages or balconies that require major rehabilitation;

roof and window replacements; elevator enhancements; and

various code related requirements. Discretionary items may

include apartment suite upgrades, lobby renovations, re-cladding

building exteriors, re-designed office building entrances, major

new signage at shopping centres, etc. Capital expenditures also

include projects that will result in energy/utility savings and/or

efficiencies. Each property’s business plan includes a five-year

capital program that is designed to maintain/improve the physical

integrity of the asset and preserve or enhance building value.

An important analysis performed by the multi-family asset team

showed that, given the level of building capital investment over

the years in this aging portfolio, the buildings with an average age

of 45 years had an “effective age” of only 31 years. This analysis

will help our team better manage capital spending going forward,

will help in underwriting new acquisitions and will be beneficial to

financing and valuations. You can read more about this analysis on

page 13 of this report.

CASH MANAGEMENT AND FINANCINGFund management has the challenge of, firstly, having sufficient

cash on hand to invest in new acquisitions, fund investor

withdrawals and support property level operations, including

spending on leasing and building capital; and secondly, not having

too much cash on hand for too long, such that there is a material

drag on the return of the Fund. Cash as a percent of equity at the

start of 2013 is 15.2%, somewhat higher than the long-term

average of about 10%, which positions the Fund well to transact

on some larger quality acquisitions. Financing is one tool that

Fund management can use to assist in cash management. If cash

is high, maturing debt can be repaid. If cash is low, financing can

be used to assist in acquiring assets. Strategic positive leverage

can also materially enhance property returns. Thus, most of

the Fund’s multi-family assets have financing since lenders

provide more funding at lower interest rates than on commercial

properties, thereby increasing yields. In all cases, lenders have

recourse only to the property financed. Specifically in 2013, there

are seven maturing loans: three are smaller commercial loans

that will be paid off at maturity, three are loans on apartment

buildings that will be refinanced, and one is related to a property

on a land lease that will be paid out and then refinanced once

the new land lease rent is established. 2013 begins with a

loan-to-value ratio of 23.0%, well within the Investment

Policy’s conservative guideline maximum of 35%.

16

33 YONGE STREET, TORONTO, ON

2012 ANNUAL REPORT


RISK MANAGEMENTThere are many strategies by which portfolio return risk is

managed. Several of these have been discussed – diversification

by type and region, quality of assets, checking the financial

strength of tenants, pre-leasing for development, the five-

year capital program in each property’s business plan, very

conservative loan-to-value ratio and non-recourse financing.

Another key strategy is the appropriate management of both

lease and debt expiries such that short-term risk is limited.

Risk is further managed by:

• maintaining best-in-class property management operations

and industry leading professional staff

• leading standards in terms of energy saving and

other green initiatives

• ongoing staff training

• excellent communication and relations with tenants

• conducting tenant surveys – commercial and residential

• securing in-depth market intelligence from real estate

participants, including leasing and investment brokers

as well as competing landlords

From a fiduciary perspective, risk is managed by having

appropriate financial controls at the property operating level and

with regard to a transparent investment process, all with written

procedures that are reviewed by internal and external auditors as

well as corporate senior management.

LOOKING FORWARDNotwithstanding the global economic and geopolitical challenges

and uncertainties all investors face in any given year, the Fund

remains well positioned, by virtue of its excellent diversification

and high quality properties, to once again deliver a solid income

return in 2013 with the potential for capital appreciation. With its

32 year track record of growth and solid returns, management

expects new investment dollars from both institutional and retail

investors. These investments, along with the Fund’s own cash

flow, will finance the Fund’s growth by selectively adding new

properties by both acquisition and development.

17

5150/5160 YONGE STREET, TORONTO, ON6505 TRANS CANADA HIGHWAY, ST. LAURENT, QC


I N D E P E N D E N T A U D I T O R ’ S R E P O R T

To the Policyholders of The Great-West Life Assurance Company - Canadian Real Estate Investment Fund No. 1

We have audited the accompanying financial statements of The Great-West Life Assurance Company - Canadian Real Estate Investment

Fund No. 1, which comprise the statements of net assets as at December 31, 2012 and 2011, the statements of operations and

changes in net assets for the years then ended, the statement of investment portfolio as at December 31, 2012 and a summary

of significant accounting policies and notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with Part V of

the Canadian generally accepted accounting principles and the requirements of Part XII of the Canadian Life and Health Insurance

Association Guideline G2, 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 audit 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, the auditor considers 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 Great-West Life Assurance

Company - Canadian Real Estate Investment Fund No. 1, as at December 31, 2012 and 2011, and the results of its operations and

changes in net assets for the years then ended and its statement of investment portfolio as at December 31, 2012 in accordance

with Part V of the Canadian generally accepted accounting principles and the requirements of Part XII of the Canadian Life and Health

Insurance Association Guideline G2.

Chartered Accountants

Winnipeg, Manitoba

March 15, 2013

Deloitte LLP360 Main StreetSuite 2300Winnipeg MB R3C 3Z3Canada

Tel: 204-942-0051Fax: 204-947-9390www.deloitte.ca

2012 ANNUAL REPORT 19

F I N A N C I A L S T A T E M E N T S

STATEMENT OF NET ASSETS

At December 31 (in $ thousands, except per unit amounts) 2012 2011

Investments

Bonds 25,301 24,526

Stocks – –

Real Estate 3,612,913 3,006,623

Mortgages and sales agreements – –

Other – –

Investment fund units – –

Total investments 3,638,214 3,031,149

Cash, short-term deposits and (overdrafts) 476,898 564,431

Investment income due and accrued 660 640

Due from (to) The Great-West Life Company (Note 9) 113,802 (1,005)

Due from (to) brokers – –

Due from (to) outside parties (173,002) (50,083)

Mortgages on real estate (Note 3) (934,980) (981,641)

Net assets 3,121,592 2,563,491

Adjustment from bid market prices to last traded market prices (Note 6) – –

Net assets representing policyholder equity (at last traded market prices) 3,121,592 2,563,491

MANAGEMENT EXPENSE RATIO (NOTE 7)

Year 2012 2011 2010 2009 2008

No Load 3.24 3.20 3.15 3.12 3.11

Back-End Load 3.01 2.98 2.94 2.91 2.90

Managed Money 1.84 1.82 1.77 1.75 1.75

75/75 guarantee policy 3.00 2.90 2.80 2.91 –

75/100 guarantee policy 3.16 3.08 3.04 3.00 –

100/100 guarantee policy 3.79 3.69 3.49 – –


STATEMENT OF OPERATIONS

For the years ended December 31 2012 2011

Investment income

Bond interest 2,645 1,368

Dividends – –

Mortgage interest – –

Real estate income 349,550 361,153

Interest on short-term investments and miscellaneous income (loss) 5,096 4,552

Total investment income 357,291 367,073

Expenses

Management fees (Note 9) 22,045 20,502

Real estate expenses 210,408 218,948

Other 1,049 963

Total expenses 233,502 240,413

Net investment income 123,789 126,660

Realized gain (loss) 30,322 39,167

Unrealized gain (loss) 332,500 210,976

Transaction costs – –

Net realized and unrealized gain (loss) from investments and foreign exchange 362,822 250,143

Net increase (decrease) in net assets resulting from operations 486,611 376,803

STATEMENT OF CHANGES IN NET ASSETS

For the years ended December 31 2012 2011

Net assets - beginning of year 2,563,491 2,679,355

Policyholder deposits 490,474 182,325

Policyholder withdrawals (418,984) (674,992)

Increase (decrease) from operations: 486,611 376,803

Change in net assets 558,101 (115,864)

Net assets - end of year 3,121,592 2,563,491




UNIT VALUES (NOTE 6)

Investment Individual Individual 75/75 75/100 100/100 For the years ended Investment Investment Only Group No-Load Back-End Managed guar. guar. guar. December 31 Only (A) Only (AI) (AC/AL) RRSP/DCP (IA) Load (IB) Money (IC) policy policy policy

2012 # Units outstanding 982,240 415,849 1,770,084 – 1,690,804 1,173,443 96,810 1,627,264 1,071,604 148,396 Net asset value

per unit 1538.13 547.79 206.46 – 266.28 276.47 519.26 13.14 13.06 12.81 Earnings per unit 252.81 65.61 33.98 – 36.76 38.70 77.68 1.84 1.81 1.71

2011 # Units outstanding 1,050,701 239,939 1,706,469 – 1,552,484 1,102,470 94,635 240,364 162,907 26,891 Net asset value

per unit 1285.32 482.18 172.48 – 229.52 237.77 441.58 11.30 11.25 11.10 Earnings per unit 183.02 44.51 24.59 – 26.57 27.99 56.26 1.33 1.30 1.22

2010 # Units outstanding 1,040,311 354,997 2,804,558 – 2,105,755 1,668,525 126,214 27,167 10,402 858 Net asset value

per unit 1102.30 437.67 147.89 – 202.95 209.78 385.32 9.97 9.95 9.88 Earnings per unit 50.40 (4.73) 6.79 – 3.40 3.93 11.41 0.18 0.17 0.12

2009 # Units outstanding 923,359 500,057 3,527,188 122,061 3,139,486 2,455,615 201,472 793 1,537 – Net asset value

per unit 1051.90 442.40 141.10 57.11-64.91 199.55 205.85 373.91 9.79 9.78 – Earnings per unit 16.62 (20.80) 2.24 – (2.74) (2.41) (0.21) 0.02 0.03 –

2008 # Units outstanding 864,028 473,808 3,542,166 181,689 3,232,844 2,516,584 208,358 – – – Net asset value

per unit 1035.28 463.20 138.86 57.24-64.58 202.29 208.26 374.12 – – – Earnings per unit (5.09) (27.40) (0.67) – (6.94) (6.79) (7.95) – – –

NET ASSET VALUE BY CATEGORY

For the years ended Investment Individual Individual 75/75 75/100 100/100 December 31 Investment Investment Only Group No-Load Back-End Managed guar. guar. guar. (in $ thousands) Only (A) Only (AI) (AC/AL) RRSP/DCP (IA) Load (IB) Money (IC) policy policy policy

2012 Net Asset Value 1,510,812 227,800 365,455 – 450,223 324,419 50,270 21,377 13,995 1,900

2011 Net Asset Value 1,350,492 115,694 294,336 – 356,321 262,129 41,789 2,716 1,833 299

2010 Net Asset Value 1,146,735 155,372 414,766 – 427,363 350,023 48,633 271 103 8

2009 Net Asset Value 971,281 221,225 497,686 – 626,484 505,488 75,332 8 15 –

2008 Net Asset Value 894,511 219,468 491,865 – 653,972 524,104 77,951 – – –

PORTFOLIO TURNOVER RATE (UNAUDITED) (NOTE 8)

For the years ended Portfolio Turnover December 31 Rate (%)

2012 4.88

2011 2.72

2010 2.42

2009 –

2008 8.32



STATEMENT OF INVESTMENT PORTFOLIO

No. of Units, Shares Average Cost Fair Value As at December 31, 2012 or Par Value ($ 000) ($ 000)

Canadian Bonds

Corporate – Non Convertible Ontario Ltd. 801611 10.40% 10-31-2013 4,691,557 4,692 7,166 Ontario Ltd. 801611 5.00% 10-31-2013 4,209,117 4,209 5,509 Ontario Ltd. 801611 6.82% 10-31-2013 5,735,582 5,736 6,727 Ontario Ltd. 801611 9.36% 10-03-2014 3,773,382 3,773 5,899

Total Corporate – Non Convertible 18,410 25,301

Total Canadian Bonds 18,410 25,301

Total Bonds 18,410 25,301

22

2012 ANNUAL REPORT

S T A T E M E N T O F I N V E S T M E N T P O R T F O L I O

As at December 31, 2012 (in thousands of dollars)

Real Estate

Mortgages Building Name Property Date of Total Fair Date of N.R.A on Real 2012 and Address Type Purchase Cost Value Last Appraisal (S.F.) Leased Estate NOI

British Columbia

840 Howe Street Office 1-Mar-97 19,348 44,350 1-Dec-12 210,492 100.00% - 1,584 Vancouver, British Columbia

650 West Georgia Street Office 12-Dec-01 33,740 65,375 1-Dec-12 473,865 94.73% (11,106) 3,134 Vancouver, British Columbia

4750 Arbutus Street Residential 10-Jan-02 11,443 20,935 1-Mar-12 79,457 94.00% (8,392) 910 Vancouver, British Columbia

13211–13231, 13251, Industrial 3-Sep-02 14,710 18,350 1-Oct-12 256,693 76.38% - 663 13155, 13140, 13200, and 13260 Delf Place Richmond, British Columbia

4600 Jacombs Road Office 18-Sep-02 6,921 8,675 1-Oct-12 85,689 81.13% - 513 Richmond, British Columbia

800 Carleton Court Industrial 3-Mar-03 12,708 10,500 1-Feb-12 92,564 22.58% - (285) Delta, British Columbia

13811 and 13911 Wireless Way Office 1-Jun-06 26,402 25,315 1-Apr-12 150,164 97.30% - 2,356 Richmond, British Columbia

14815 – 108th Avenue Retail 1-Jun-06 12,620 5,594 1-Oct-12 118,822 93.61% - 757 Surrey, British Columbia

3200 Island Highway Retail 1-Jun-06 52,511 52,028 1-Jul-12 289,166 96.20% (22,099) 1,181 Nanaimo, British Columbia

2401 Millstream Road Retail 2-Aug-07 68,448 60,830 1-Aug-12 264,350 96.24% (33,312) 3,451 Victoria, British Columbia

7488 King George Highway Retail 16-Apr-08 30,146 33,950 1-Apr-12 145,315 88.91% (12,722) 1,844 Surrey, British Columbia

9500 Glenlyon Parkway Office 12-Aug-08 45,823 45,500 1-Jun-12 164,580 100.00% (25,447) 3,643 Burnaby, British Columbia

13700 and 13711 International Place, Office 12-Aug-08 152,802 109,900 1-Sep-12 756,972 70.95% (5,190) 5,410 13511, 13551, 13571, 13575, 13775, 13777 and 13800 Commerce Parkway Richmond, British Columbia

1500 and 1575 Banks Road Retail 3-Nov-08 34,625 36,820 1-Aug-12 150,697 100.00% (16,035) 2,267 Kelowna, British Columbia

Alberta

4637 Macleod Trail SW Residential 1-Nov-96 14,440 42,300 1-Sep-12 172,851 98.47% (18,491) 2,118 Calgary, Alberta

300 5th Avenue SE Office 17-Dec-96 24,415 112,805 1-Dec-12 386,005 95.86% - 6,414 Calgary, Alberta

23




Real Estate


Alberta (continued)

11012 Jasper Avenue Residential 30-Jun-97 18,485 41,600 1-Sep-12 182,820 98.73% - 2,228 Edmonton, Alberta

10145 - 121 Street Residential 18-Apr-98 11,434 21,490 1-Apr-12 101,533 100.00% (9,952) 1,077 Edmonton, Alberta

605 - 5th Ave. S.W. Office 12-Jun-00 24,908 61,750 1-Dec-12 469,704 100.00% (19,699) 3,099 Calgary, Alberta

530 - 8th Ave. S.W. Office 10-Jul-00 69,299 171,000 1-Dec-12 405,206 98.85% (50,481) 9,538 Calgary, Alberta

8403 Roper Road Industrial 28-Dec-97 18,595 21,500 1-Mar-12 135,000 100.00% (9,092) 1,672 Edmonton, Alberta

300 and 350 7th Avenue SW Office 23-Sep-05 78,282 109,594 1-Dec-12 508,495 96.48% - 5,842 Calgary, Alberta

9940 - 106th Street NW Office 21-Jun-06 18,500 26,853 1-Mar-12 177,305 100.00% - 1,009 Edmonton, Alberta

9942 - 108th Street NW Office 21-Jun-06 16,733 27,007 1-Oct-12 164,892 100.00% (10,223) 999 Edmonton, Alberta

1816 & 1824 Crowchild Trail NW Office 21-Jun-06 25,687 30,350 1-Jun-12 125,650 98.25% (6,746) 1,707 Calgary, Alberta

6703 68 Avenue Industrial 15-Aug-07 57,372 55,671 1-Feb-12 563,437 89.35% - 3,264 Edmonton, Alberta

3603 - 53 Avenue NW Land 28-Feb-03 3,830 5,849 1-Nov-12 n/a n/a - (150)Edmonton, Alberta

4035 - 53rd Avenue NW Industrial 28-Feb-03 13,561 14,050 1-Nov-12 189,670 100.00% - 957 Edmonton, Alberta

3603 - 53 Avenue NW Development 28-Feb-03 1,919 2,569 1-Nov-11 n/a n/a - - Edmonton, Alberta

3604 - 51 Avenue NW Development 28-Feb-03 769 1,029 1-Nov-11 n/a n/a - - Edmonton, Alberta

401 - 9th Avenue SW Office 13-Dec-07 141,361 149,800 1-Dec-12 1,074,043 98.55% (52,834) 7,591 Calgary, Alberta

75th Street and 68th Avenue Development 4-May-12 30,903 30,903 Purchase n/a n/a - 825 Edmonton, Alberta

Saskatchewan

Saskatoon West Retail Centre Retail 24-Jul-12 45,296 45,307 Purchase 235,954 100.00% - 1,015 Saskatoon, Saskatchewan




Real Estate


Ontario

0 Enfield Place Land 13-Jul-87 1,037 1,984 1-Dec-12 n/a n/a - 38 Mississauga, Ontario

2160 Lakeshore Road Residential 15-Jan-97 22,757 29,803 1-Sep-12 163,045 98.13% (10,165) 1,514 Burlington, Ontario

50 Prince Arthur Ave. Residential 15-Jul-97 37,629 51,700 1-Aug-12 166,000 98.67% (26,411) 2,579 Toronto, Ontario

255 Albert Street Office 16-Jan-98 31,157 62,100 1-Jan-12 210,305 95.81% (37,566) 3,229 Ottawa, Ontario

6 Silver Maple Court Residential 30-Apr-98 37,429 51,800 1-Oct-12 311,805 98.82% (25,891) 2,536 Brampton, Ontario

88 Redpath Avenue Residential 5-Aug-98 22,332 33,600 1-Jul-12 117,600 100.00% (13,882) 1,600 Toronto, Ontario

35, 65, and 95 Residential 1-Mar-99 106,368 159,141 1-Mar-12 1,191,665 98.04% (98,239) 8,754 High Park Ave., 66 & 111 Pacific Ave., 255 Glenlake Ave. and 66 Oakmount Rd. Toronto, Ontario

1551 Riverside Drive Residential 9-Apr-99 24,272 33,980 1-Apr-12 192,328 98.06% (17,670) 1,882 Ottawa, Ontario

5140 Yonge Street Office 30-Aug-99 88,451 151,200 1-Jul-12 546,974 96.96% (70,564) 8,590 Toronto, Ontario

400 Walmer Road Residential 27-Dec-00 60,717 61,750 1-May-12 548,923 96.34% (19,821) 4,270 Toronto, Ontario

200 University Ave Office 30-Nov-00 15,521 21,465 1-May-12 145,063 90.14% - 874 Toronto, Ontario

2020 Walkley Rd Industrial 2-Jan-01 3,563 4,530 1-Sep-12 107,567 65.59% - 221 Ottawa, Ontario

5166-5170 Lakeshore Road Residential 15-Jan-97 34,077 34,748 1-Sep-12 213,102 99.01% (13,347) 1,633 Burlington, Ontario

2220 Marine Drive Residential 26-Aug-02 10,833 14,000 1-Sep-12 148,363 99.33% (6,562) 665 Oakville, Ontario

269 Laurier Avenue West Office 1-Jan-03 37,933 64,800 1-Oct-12 360,148 100.00% (33,221) 3,484 Ottawa, Ontario

65 Lillian Street Residential 5-Aug-98 36,957 49,100 1-Nov-12 89,950 98.58% - 2,153 Toronto, Ontario




Real Estate


Ontario (continued)

40 & 52-66 High Park Avenue Residential 25-Mar-03 70,847 83,423 1-Oct-12 413,415 99.26% (32,379) 4,143 and 51-65 & 77 Quebec Ave. Toronto, Ontario

640,642,644 Sheppard Ave. E. Residential 25-Mar-03 46,908 61,778 1-May-12 368,214 97.38% (30,834) 2,903 Toronto, Ontario

2260 Argentia Road Industrial 1-Jun-03 5,946 6,900 1-May-12 131,259 100.00% - 804 Mississauga, Ontario

6665,6675-6685 Millcreek Road Industrial 1-Jun-03 5,857 5,650 1-May-12 119,789 86.28% - 254 Mississauga, Ontario

6695 & 6705 Millcreek Road Industrial 1-Jun-03 5,974 7,350 1-May-12 110,530 81.98% - 776 Mississauga, Ontario

6715 & 6725 Millcreek Road Industrial 1-Jun-03 4,724 6,050 1-May-12 94,598 61.26% - 944 Mississauga, Ontario

33 Yonge Street Office 1-Jul-03 73,497 107,400 1-Jun-12 516,530 98.23% - 4,918 Toronto, Ontario

2250 Argentia Road Industrial 1-Jun-03 2,469 3,420 1-May-12 31,910 100.00% - 195 Mississauga, Ontario

7070 Mississauga Road Office 7-Aug-03 12,694 17,050 1-Dec-12 244,128 100.00% - 831 Mississauga, Ontario

55 - 425 Superior Blvd Industrial 11-Oct-01 20,144 25,060 1-Aug-12 777,471 94.88% (11,507) 1,382 Mississauga, Ontario

1-2, 4-5 & 7 Paget, 2,4,6,8 & 14 Industrial 11-Oct-01 26,837 30,310 1-Mar-12 1,013,008 98.83% (10,435) 1,987 Kenview, 2 Castleview and 7925 & 7965 Goreway Brampton, Ontario

3485 Steeles Ave Industrial 11-Oct-01 5,026 5,180 1-Mar-12 175,270 100.00% - 326 Brampton, Ontario

3495 Steeles Ave Land 11-Oct-01 1,804 1,974 1-Mar-12 n/a n/a - (22)Brampton, Ontario

3389 Steeles Ave E Land 11-Oct-01 491 343 1-Mar-12 n/a n/a - (6)Brampton, Ontario

2679 - 2831 Bristol Circle Industrial 11-Oct-01 17,462 21,131 1-Aug-12 660,617 88.58% (8,670) 1,030 Oakville, Ontario

1541 Riverside Drive Residential 7-Aug-02 15,986 19,250 1-Apr-12 244,125 100.00% (8,626) 1,119 Ottawa, Ontario

1 Van Der Graaf Court Industrial 16-Feb-04 4,379 3,138 1-Jun-12 102,205 0.00% - 246 Brampton, Ontario

26

2012 ANNUAL REPORT



Real Estate


Ontario (continued)

1 Woodslea Road Industrial 16-Feb-04 3,988 2,300 1-Jun-12 110,148 0.00% - (148)Brampton, Ontario

1075 Clark Blvd. Industrial 16-Feb-04 1,510 1,625 1-Jun-12 35,842 100.00% - 121 Brampton, Ontario

161 Orenda Road Industrial 16-Feb-04 9,906 8,950 1-Jun-12 319,077 75.79% - 540 Brampton, Ontario

165 Orenda Road Industrial 16-Feb-04 2,074 1,950 1-Jun-12 57,055 100.00% - 127 Brampton, Ontario

292-294 Walker Dr. Industrial 16-Feb-04 3,575 3,475 1-Jun-12 74,583 74.77% - 181 Brampton, Ontario

300 Walker Dr. Industrial 16-Feb-04 3,712 3,350 1-Jun-12 102,972 100.00% - 272 Brampton, Ontario

40 Summerlea Rd. Industrial 16-Feb-04 5,543 4,450 1-Jun-12 121,138 100.00% - 162 Brampton, Ontario

5 Intermodal Dr. Industrial 28-May-04 3,376 3,350 1-Jun-12 87,108 100.00% - 237 Brampton, Ontario

6 Shaftsbury Lane Industrial 16-Feb-04 4,664 3,400 1-Jun-12 125,871 100.00% - 318 Brampton, Ontario

8705 Torbram Rd. Industrial 16-Feb-04 9,500 8,000 1-Jun-12 296,469 76.25% - 140 Brampton, Ontario

2844 Bristol Circle Industrial 31-Jan-05 3,339 4,235 1-Aug-12 132,500 100.00% (1,797) 268 Oakville, Ontario

7030 Century Avenue Industrial 18-Feb-05 7,696 8,525 1-Feb-12 83,246 100.00% - 528 Mississauga, Ontario

415 - 419 Milner Avenue Industrial 7-Dec-84 5,181 6,400 1-Feb-12 95,763 100.00% - 436 Scarborough, Ontario

445 Milner Avenue Industrial 7-Dec-84 2,107 2,900 1-Feb-12 41,822 100.00% - 154 Scarborough, Ontario



50 - 70 Nably Court Industrial 7-Dec-84 2,209 2,750 1-Feb-12 41,468 100.00% - 196 Scarborough, Ontario

20-24 York Street Residential 27-Sep-05 16,128 19,280 1-Jan-12 93,047 95.83% (7,032) 972 Ottawa, Ontario

27




Real Estate


Ontario (continued)

Part of Lot 6, Concession 6, Albion, Land 11-May-07 2,514 2,785 1-Sep-12 n/a n/a - (23) Designated as Parts 1 & 2 on Reference Plan 43R-1253, S ave and Except Parts 17 & 17 on Reference Plan 43R-30557, Town of Caledon, Regional Municipality of Peel Bolton, Ontario

One City Centre Drive Office 17-Aug-07 33,973 33,720 1-Mar-12 287,867 89.42% - 1,850 Mississauga, Ontario

One City Centre Drive Land 17-Aug-07 3,838 4,416 1-Mar-12 n/a n/a - - Mississauga, Ontario

99 Savannah Oaks Drive Industrial 21-Dec-07 19,538 16,940 1-Nov-12 527,915 100.00% - 762 Brantford, Ontario

1549 Yorkton Court Industrial 21-Dec-07 6,016 5,075 1-Oct-12 80,925 91.35% - 238 Burlington, Ontario

8400 - 8450 Lawson Road Industrial 21-Dec-07 19,354 16,030 1-Nov-12 236,149 89.23% - 880 Burlington, Ontario

800 - 900 Main Street East Retail 14-Mar-08 27,761 25,900 1-Apr-12 97,144 91.70% - 1,446 Milton, Ontario

7025 Langer Drive Land 22-Sep-06 1,766 1,813 1-Aug-12 n/a n/a - (44)Mississauga, Ontario

2100 Derry Road Office 22-Sep-06 15,076 17,350 1-Aug-12 106,773 100.00% - 1,194 Mississauga, Ontario

2050 Derry Road Office 22-Sep-06 16,592 19,200 1-Aug-12 125,163 85.59% - 792 Mississauga, Ontario

415 Thompson Drive Industrial 8-Feb-08 14,560 13,320 1-Jan-12 140,000 100.00% (6,730) 1,102 Cambridge, Ontario

4 King Street West Office 14-Mar-08 65,664 63,000 1-Feb-12 291,237 95.27% (30,711) 3,292 Toronto, Ontario

155 University Ave Office 14-Mar-08 34,577 32,981 1-Mar-12 186,226 83.07% (14,582) 1,807 Toronto, Ontario

1141 Kennedy Road Retail 19-Oct-06 6,399 7,665 1-Oct-12 34,284 100.00% (2,003) 430 Scarborough, Ontario

145 - 167 Bell Blvd Retail 4-Jan-07 9,499 10,780 1-Jan-12 66,987 100.00% (4,277) 560 Scarborough, Ontario

5150 - 5160 Yonge St Office 17-Oct-08 123,406 130,172 1-Oct-12 620,218 93.85% (56,287) 6,885 Toronto, Ontario




Real Estate


Ontario (continued)

Bowmanville Retail Centre Retail 24-Jul-12 35,916 35,923 Purchase 191,417 100.00% - 828 Bowmanville, Ontario

200 Kent Street Office 8-Aug-12 144,695 144,695 Purchase 387,015 100.00% - 3,761 Ottawa, Ontario

Quebec

6505 Trans-Canada Highway Office 19-Jun-98 10,979 13,400 1-Feb-12 110,931 59.45% - 14 St. Laurent, Quebec

555 Frederik-Philips Office 24-Sep-99 11,207 13,300 1-Nov-12 80,355 92.55% - 665 St. Laurent, Quebec

4600 Poirer Blvd. Industrial 14-Mar-02 6,092 6,550 1-Mar-12 104,560 100.00% - 436 St. Laurent, Quebec

9415-9495 Trans-Canada Highway Industrial 14-Mar-02 4,676 4,760 1-Mar-12 88,921 86.97% - 288 St. Laurent, Quebec



6520-6620 Abrams Street Industrial 14-Mar-02 10,758 11,200 1-Mar-12 224,403 90.87% - 685 St. Laurent, Quebec

2200 Trans-Canada Highway Industrial 14-Mar-02 17,526 16,200 1-Mar-12 411,265 0.00% - 1,088 Pointe - Claire, Quebec

43 - 55 Cite Des Jeunes Blvd. Retail 21-Jul-06 20,068 21,910 1-Jan-12 131,217 100.00% (6,920) 1,278 Vaudreuil - Dorion, Quebec

224 Joseph-Casavant Ave. Retail 11-Jun-08 14,262 16,450 1-Aug-12 174,271 100.00% (6,896) 1,013 Beauport, Quebec

Atlantic

1959 Upper Water Street Office 14-Jun-83 19,941 31,464 1-Dec-12 327,061 87.73% (4,763) 1,931 Halifax, Nova Scotia

1969 Upper Water Street Office 31-Dec-93 16,654 32,863 1-Dec-12 367,919 90.43% (5,371) 2,149 Halifax, Nova Scotia

Purdy’s Wharf-The Wharf Miscellaneous 30-Jun-90 183 - Dec-12 n/a n/a - - Upper Water Stree Halifax, Nova Scotia




Real Estate


United States

396 West Greens Road Office 21-Jun-06 18,344 8,009 1-Nov-12 186,791 100.00% - 917 Houston, Texas

396 West Greens Road Land 21-Jun-06 439 557 1-Nov-12 n/a n/a - - Houston, Texas

8101 Sam Houston Parkway Office 21-Jun-06 14,895 12,188 1-Nov-12 136,800 100.00% - 939 Houston, Texas

Current and prior year(s) sold property - - - - 1,463

Real Estate - subtotal 2,876,529 3,612,913 25,475,568 (934,980) 186,702

less: encumbrances (884,704) (934,980)

Capitalization of loss on assumed mortgages (4,949) -

Total Real Estate 1,986,876 2,677,933

Total Investments 2,005,286 2,703,234


N O T E S T O T H E S T A T E M E N T O F I N V E S T M E N T P O R T F O L I O

At December 31, 2012

A. RISK MANAGEMENT

The Fund’s investment activities expose it to a variety of financial risks. The Statement of Investments presents the securities held by

the Fund as at December 31, 2012, and groups the securities by asset type, geographic region and/or market segment. Significant

risks that are relevant to the Fund are discussed below.

B. LIQUIDITY RISK

As investments in real property are not actively traded, the Fund is exposed to liquidity risk due to the redemption of redeemable

units. To a lesser extent, mortgage liabilities also expose the Fund to liquidity risk. To manage liquidity, the Fund has the ability to incur

additional mortgage indebtedness as long as the total borrowings do not exceed 35% of the total asset value of the Fund, and provided

the value of each mortgage assumed is not greater than 75% of the related property’s value.

C. INTEREST RATE RISK

Interest rate risk arises on interest-bearing financial instruments such as bonds. 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. The table below

summarizes the Fund’s exposure to interest rate risks by remaining term to maturity.

2012

($000) Less than 1 year 1 – 5 years 5 – 10 years > 10 years Total

Bonds 19,402 5,899 – – 25,301

2011

($000) Less than 1 year 1 – 5 years 5 – 10 years > 10 years Total

Bonds – 24,526 – – 24,526

As at December 31, 2012, had prevailing interest rates raised or lowered by 1% assuming a parallel shift in the yield curve, with all

other variables held constant, net assets would have decreased or increased, respectively, by approximately $236 (2011 - $463) or

approximately 0.0% (2011 - 0.0%) of total net assets. The Fund’s sensitivity to interest rate changes was estimated using the weighted

average duration of the bond portfolio. In practice, the actual 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. The Fund’s greatest concentration of credit risk is in debt securities, such as bonds. The fair value of debt

instruments includes consideration of the credit worthiness of the debt issuer. The carrying amount of debt instruments represents

the maximum credit risk exposure as at December 31, 2012. The amount of credit risk to any one issuer may be determined from the

information reported in the Statement of Investment.

All transactions in listed securities are settled / paid for upon delivery using approved brokers. The risk of default is considered minimal,

as delivery of securities sold is only made once the broker has received payment. Payment is made on a purchase once the securities

have been received by the broker.

As of December 31, debt securities by credit rating are as follows:

2012 2011

Percent of Percent of Percent of Percent of Total Bonds Total Net Total Bonds Total Net (%) Assets (%) (%) Assets (%)

NR * 100.0 0.8 100.0 1.0

* bonds rated NR are mortgage backed securities or privately placed bonds or bonds that have not been rated by a rating agency


E. FAIR VALUE CLASSIFICATION

The following table presents information about the Fund’s financial assets and liabilities measured at fair value on a recurring basis as of

December 31, 2012, and indicates the fair value hierarchy of the valuation techniques utilized by the Fund to determine such fair value:

Financial Assets and Liabilities Measured at Fair Value

($000’s) 2012

Financial assets measured at fair value Level 1 Level 2 Level 3 Total

Bonds – – 25,301 25,301

Stocks – – – –

Mortgages and sales agreements – – – –

Other – – – –

Investment Fund Units – – – –

Total assets measured at fair value – – 25,301 25,301

Financial liabilities measured at fair value

Mortgages on real estate – 934,980 - 934,980

Net financial assets and liabilities measured at fair value – (934,980) 25,301 (909,679)

Financial Assets and Liabilities Measured at Fair Value

($000’s) 2011

Financial assets measured at fair value Level 1 Level 2 Level 3 Total

Bonds – – 24,526 24,526

Stocks – – – –

Mortgages and sales agreements – – – –

Other – – – –

Investment Fund Units – – – –

Total assets measured at fair value – – 24,526 24,526

Financial liabilities measured at fair value

Mortgages on real estate – 981,641 – 981,641

Net financial assets and liabilities measured at fair value – (981,641) 24,526 (957,115)

There have not been any significant transfers in or out of Level 1 or 2 during the period.




E. FAIR VALUE CLASSIFICATION (continued)

The following table presents additional information about assets measured at fair value on a recurring basis and for which the Fund has

utilized Level 3 inputs to determine fair value for the year ended December 31:

Level 3 Financial Assets

2012 2011

Bonds Stocks Bonds Stocks

Balance, January 1 24,526 – 21,036 –

Total gains/(losses) included in net income 775 – 3,490 –

Purchases – – – –

Sales – – – –

Issuances – – – –

Settlements – – – –

Transfers in to Level 3 – – – –

Transfers out of Level 3 – – – –

Balance, December 31 $ 25,301 $ – $ 24,526 $ –

Total gains/(losses) for the year included in net income for assets held at December 31 775 – 3,490 –


December 31, 2012 (In thousands of dollars)

1. THE FUND

The following Fund is offered by The Great-West Life

Assurance Company:

Canadian Real Estate Investment Fund No. 1

The Great-West Life Assurance Company is the sole issuer of

the insurance contracts providing for investment in this Fund. The

assets of the Fund are owned by The Great-West Life Assurance

Company and are segregated from other assets. The Fund is not

a separate legal entity.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial statements of the Fund have been prepared in

accordance with Canadian generally accepted accounting

principles (GAAP). The significant accounting policies used in the

preparation of these financial statements are summarized below.

a) Use of Estimates The preparation of financial statements in accordance with

Canadian generally accepted accounting principles requires

management to make estimates and assumptions that affect

the reported amount of assets and liabilities at the reporting

date and the reported amount of revenues and expenses during

the reporting period. The valuation of investments is the most

significant component of the financial statements subject to

estimates; actual results could differ from these estimates.

b) Future Accounting Policies International Financial Reporting Standards (IFRS) The

Canadian Accounting Standards Board (AcSB) has mandated

that all Canadian publicly accountable entities are required

to transition from Canadian generally accepted accounting

principles (GAAP) to IFRS. The AcSB has formally delayed its

IFRS changeover date for investment funds from the original

date of January 1, 2011 to January 1, 2014. The deferral

of the IFRS adoption by the AcSB applies to investment

companies applying Accounting Guideline - 18 and would

allow these companies to continue to apply the current

accounting standards while the International Accounting

Standards Board (IASB) finalizes its proposed IFRS Investment

Entities standard. Consequently, the Fund plans to adopt IFRS

in their semi-annual and annual financial statements starting

with the June 30, 2014 interim financial statements and will

provide corresponding comparative information for 2013.

The Company continues to evaluate the financial statement

impact of transitioning from Canadian GAAP to IFRS and the

related effect on its information systems and processes. Until

this effort is complete, the final impact of adopting IFRS and the

related effects on the financial statements of the Fund cannot

be reasonably determined.

c) Financial Instruments Fair Value Classification In accordance with the Canadian Institute of Chartered

Accountants (CICA) Handbook Section 3862, Financial

Instruments - Disclosures, the fair value of financial assets

and liabilities have been categorized based upon the

following fair value hierarchy:

Level 1 – determined by reference to quoted prices in

active markets for identical assets and liabilities;

Level 2 – determined using inputs other than the quoted

prices that are observable for the asset or liability, either

directly or indirectly; and

Level 3 – determined using inputs that are not based on

observable market data.

d) Bonds

Bonds are recorded at fair value determined with reference

to quoted market bid prices primarily provided by third party

independent pricing sources. Fair values are determined

on the basis of the closing bid price for a security on the

recognized exchange on which it is principally traded. Bonds

and Mortgage Backed Securities are recorded at fair value,

established using the closing bid price on the over-the-

counter market.

The fair value of unlisted securities is established using

quotations determined by a major dealer in a particular security.

Should the quoted value for a security, in the opinion of the

manager, be inaccurate, unreliable, or not readily available, the

value of the security is estimated using valuation techniques.

e) Cash, Short-term Deposits and Overdrafts

Cash, short-term deposits and overdrafts are comprised of

cash on deposit, overdrafts and short-term deposits with

terms to maturity of less than one year at acquisition. Cash,

overdrafts and short-term deposits are held at cost, which

approximates fair value.

N O T E S T O T H E F I N A N C I A L S T A T E M E N T S


f) Real Estate Investments The cost of real estate investments is acquisition cost plus the

cost of capital improvements.

Real estate investments are recorded at cost from the date

of acquisition until receipt of the first appraisal; thereafter,

they are recorded at their most recent external or internal

appraised value. Real estate investments of the Funds are

appraised annually by qualified external real estate appraisers.

Fund Management may adjust individual property values

periodically due to changing market conditions.

For real property investments, the capitalization rate (cap

rate) is a measure of a property’s value to its income and is a

key metric in the valuations prepared by real estate appraisers.

Cap rates are influenced by factors in the overall real estate

market in Canada, which is in turn influenced by supply and

demand factors as well as the domestic economy.

Real estate investments are subject to a degree of risk.

They are affected by various factors including changes in

both general and local market conditions, credit markets,

competition in the environment, stability and credit-

worthiness of tenants, and various other factors.

Properties under development include interest on both

specific and general debt, property taxes and general and

administrative expenses incurred directly in connection with

the acquisition and development of properties.

Mortgages on real estate investments are recorded at fair

value. Fair value of mortgages has been determined using

future payments of principal and interest of the actual

outstanding mortgages, discounted at the current market

interest rates available to the Fund.

g) Recognition of Investments and Income Investment purchases and sales are recorded on a trade

date basis. The accrual basis of accounting is used to

record all types of investment income earned and

expenses incurred by the Fund.

Realized gains (losses) on investments are recorded

upon the sale or maturity of an asset. Gains are calculated

as the excess of the net proceeds from sale over the

average cost of the investment.

Unrealized appreciation (depreciation) of investments is

calculated as the in-year change in the excess of fair value

over the original cost of the asset.

Foreign currency translations are calculated using the

exchange rate in effect when the transaction occurred. The

gains or losses generated by foreign exchange are recorded in

the Statement of Operations as miscellaneous income (loss).

h) Other Expenses

Other expenses consist primarily of securities handling

charges. All these expenses are paid to third parties.

i) Income Allocation

Net investment income (loss) of the Fund accrues to each

participant through the appreciation (depreciation) of the

net asset value per unit, with the exception of category

A units of specific clients. The net investment income of

this category is allocated to the participants in the form

of additional units.

Realized and unrealized capital appreciation or depreciation

of the Fund’s investments accrues to participants through

an increase or decrease in the net asset value per unit.

j) Issue and Redemption of Units

Units are issued and redeemed at their net asset value per unit

established as noted in the information folder of the Fund.

k) Transaction Costs

Transaction costs, such as brokerage commissions, incurred in

the purchase and sale of securities by the Fund are charged to

net income in the period.

Transaction costs, such as brokerage commissions, legal

fees and land transfer taxincurred in the purchase and sale

of real estate by the Fund are added to the cost of the asset

in the period.



3. MORTGAGE ON REAL ESTATE

Mortgages on Real Estate are comprised of term mortgages

which bear contractual interest rates ranging from 2.46% to

7.12% (2011 - 3.24% to 7.36%), and a weighted average

contractual interest rate of 4.69% (2011 - 4.84%). Mortgages

are secured by the real property investment and an assignment

of leases and amounts due from property rentals. The terms of

the mortgages are subject to renegotiations from 2013 to 2023.

As at December 31, 2012, had prevailing interest rates raised or

lowered by 1%, assuming a parallel shift in the yield curve, with all

other variables held constant, net assets would have decreased

or increased, respectively, by approximately $32.9 million (2011

- approximately $37.2 million) and approximately 1.06% of net

fund value (2011 - approximately 1.45% of net fund value).

As at December 31, 2012, the approximate principal payments

due in the next five years are as follows:

Principal payments Year ended due ($000)

December 31, 2013 $ 103,926

December 31, 2014 139,669

December 31, 2015 72,751

December 31, 2016 169,945

December 31, 2017 77,414

Thereafter 321,000

Fair value adjustment 50,275

Total $ 934,980

4. DESCRIPTION OF UNITS

The capital of the Fund is divided into four categories of units

as follows:

Investment Only units are available to Canadian Group

Registered and Non-Registered Plans.

Group RRSP/DCP units are available to Group Registered

Retirement Savings Plans, Deferred Profit Sharing Plans

and certain Money Purchase Plans. Category B units are

available at ten levels representing different management

fee structures.

Individual units are available to individuals for investment

in Registered Retirement Savings Plans, Registered Savings

Plans, and Non-Registered Savings Plans through the

purchase of the Flexible Accumulation Annuity and the

Flexible Income Fund. Category I units are available under

three different options. Option A is a no load Investment

Fund option, Option B is a back end load investment option

and Option C is for high net worth investors. In addition

to the Individual units, units are available for Option S1R

75/75 guarantee policy, Option S1HB Preferred Series

1 (PS1) 75/75 guarantee policy, Option S1HU Preferred

Series 2 (PS2) 75/75 guarantee policy, Option S2R

75/100 guarantee policy, Option S2HB PS1 75/100

guarantee policy, Option S2HU PS2 75/100 guarantee

policy, Option S3R 100/100 guarantee policy, Option

S3HB PS1 100/100 guarantee policy, and Option S3HU

PS2 100/100 guarantee policy.

Portfolio units are those units owned by the Portfolio

Investment Funds. There are nine different Portfolio

funds each represented by a separate category.

The four categories of units, Investment Only, Group RRSP/

DCP, Indiviudal, and Portfolio, and the various levels within each,

are accounted for separately and any increases or decreases in

participants’ equity during the year are allocated proportionately

to each category.

5. INCOME TAXES

The Fund is deemed to be an inter-vivos trust under the provisions

of the Income Tax Act (Canada). Income of a segregated fund

is deemed to be payable to the policyholders and therefore the

segregated fund will not have taxable income. In addition, capital

gains and losses are deemed to be those of the policyholders

and not of the trusts. Realized gains or losses may be reduced

by the amount of gains or losses realized by policyholders on

the redemption of their investment. As a result, no provision of

income tax is required in the financial statements of the Fund.

6. UNIT VALUE CATEGORY DETAIL

The presentation of unit values is broken down by

participant category.

The unit values presented in these financial statements reflect

the Canadian Securities Administrators (“CSA”) amendment

to its regulations effective September 8, 2008, such that the

daily Net Asset Value (“NAV”) of an investment fund may be

calculated without reference to GAAP. The difference reported

in the financial statements between NAV and Net Assets is due

to the valuation of securities at bid price for financial statement

purposes versus the NAV which is typically represented using

the closing price to determine fair value. There is no difference

between the NAV and the Net Assets of the Funds for those

funds that invest entirely in the underlying funds. For asset based



funds, the difference between the NAV and the Net Assets of

the Funds will be presented on the financial statement with an

adjustment for bid market prices to last traded market prices.

Earnings per unit represents the change in net asset value

per unit between the prior year and the current year.

In addition to the categories represented on the Financial

Statement, the unit value category detail for the fund with

preferred series 1 and preferred series 2 guarantee policy

categories is as follows (in $ thousands, except per unit amounts):

PS1 guarantee policy

75/75 75/100 100/100


# Units outstanding 293,144 57,083 -

Net asset value per unit 1 0.93 1 0.92 -

Earnings per unit 0.70 0.91 -

Net asset value 3,203 623 -


75/75 75/100 100/100


# Units outstanding 398,605 258,819 -

Net asset value per unit 11.10 11.10 -

Earnings per unit 1.06 1.06 -

Net asset value 4,426 2,874 -

7. MANAGEMENT EXPENSE RATIO

The management expense ratio has been calculated as the

aggregate of all fees, taxes, charges and other expenses incurred

during the year divided by the average daily net asset value of

the segregated fund attributable to the particular fee option.

All ratios shown are on an annual basis. In circumstances where

the particular fund or fee option did not have twelve months’

exposure the ratios have been annualized. Management expense

ratios are calculated for Individual Retirement and Investment

Services clients only. No management expense ratio is calculated

for the preferred series 2 guarantee policy option as such fees

are charged directly to the policyholder.

In addition to the management expense ratios represented

on the Financial Statement, the management expense ratio

category detail for the fund with preferred series 1 guarantee

policy category is as follows:


75/75 75/100 100/100

Canadian Real Estate Investment Fund No. 1 2.56 2.72 -

8. PORTFOLIO TURNOVER RATE

The portfolio turnover rate presented in the financial statement

reflects the Canadian Life and Health Insurance Association Inc.

(CLHIA) Guideline G2, Individual Variable Insurance Contracts

Relating to Segregated Funds 12.2(f)(iv)(3).

The portfolio turnover rate indicates how actively the portfolio

investments have been bought or sold throughout the year.

A portfolio turnover rate of 100% is equivalent to the Fund

buying and selling all of the securities in its portfolio once in

the course of the year.

9. RELATED PARTY TRANSACTIONS

a) The Great-West Life Assurance Company provides

property and asset management services to the

Canadian Real Estate Investment Fund No. 1 in the

normal course of business at competitive market rates.

b) The Great-West Life Assurance Company provides

management, advisory and administrative services to the

Fund. In respect of these services, the Fund is charged

management and other fees. Management and other fees

for Preferred Series 2 categories are charged directly to

the policyholder by redeeming units from their policy.

For Managed Money AMS fees are charged directly to

the policyholder by redeeming units from their policy,

management and other fees are calculated at set rates

applied against the net assets at each valuation date.

Management fees and other fees charged to other

categories are calculated at set rates applied against the

net assets of the specific category at each valuation date.

c) A separate investment management fee is charged

directly to the transaction account of the participant

by The Great-West Life Assurance Company. Accordingly

such fees are not included as an expense in these

financial statements.



d) The amounts shown as “Due from (to) The Great-West

Life Company” represent outstanding management fees,

un-cleared deposits/withdrawals and investment activity

from the December 31st valuation.

e) The Canadian Real Estate Investment Fund No. 1 holds

bonds issued by 801611 Ontario Ltd., a wholly owned

subsidiary of The Great-West Life Assurance Company,

with a fair value as at December 31, 2012 of $24,304

($24,526 in 2011).

f) The suspension on withdrawals and transfers from the

Canadian Real Estate Investment Fund No. 1, effective

the close of business December 15, 2008, was lifted on

October 17, 2011. During this suspension, payments

of certain redemption requests were arranged. In order

to settle these approved post-suspension redemption

requests the general fund of The Great-West Life

Assurance Company paid out the value of the notional

units that were redeemed and received the applicable

notional units in return.

As at December 31, 2012, The Great-West

Life Assurance Company held 72,729 units

(2011 – 149,033 units) with a value of $111.9 million

(2011 - $191.6 million).

g) Certain funds invest in assets or underlying funds

managed by GLC Asset Management Group Ltd.,

which is a wholly owned subsidiary of The Great-West

Life Assurance Company. All investment transactions

with the corresponding underlying fund are at quoted

market prices.



S E N I O R M A N A G E M E N T

Paul Finkbeiner President

Ralf Dost Executive Vice President & Chief Operating Officer

James Midwinter Executive Vice President Development

Susan MacLaurin Executive Vice President Portfolio Management

Tanyss Price Senior Vice President & Chief Financial Officer

Don Harrison Senior Vice President Asset Management

Mike Snell Senior Vice President Asset Management

Tom Sullivan Senior Vice President Portfolio Management & Finance

Scott Taylor Senior Vice President Asset Management

David Rose Vice President Portfolio Management

Michele Walkau Vice President Corporate Resources


O F F I C E L O C A T I O N S

Vancouver 650 West Georgia Street Suite 3000 Vancouver, BC V6B 4N7 Main Line: (604) 713-6450 Main Fax: (604) 683-3264

Calgary 700 9th Avenue SW Suite 2700 Calgary, AB T2P 3V4 Main Line: (403) 777-0410 Main Fax: (403) 269-3266

Edmonton 10155 -102 Street Suite 208 Edmonton, AB T5J 4G8 Main Line: (780) 944-1222 Main Fax: (780) 428-4047

Winnipeg 433 Main Street Suites 800 & 900 Winnipeg, MB R3B 1B3 Main Line: (204) 946-7363 Main Fax: (204) 946-8849

Mississauga One City Centre Drive Suite 300 Mississauga, ON L5B 1M2 Main Line: (905) 275-6600 Main Fax: (905) 615-8128

Toronto 330 University Avenue Suite 300 Toronto, ON M5G 1R8 Main Line: (416) 552-5959 Main Fax: (416) 552-5111

Markham 15 Allstate Parkway Suite 103 Markham, ON L3R 5B4 Main Line: (905) 475-1995 Main Fax: (905) 475-3676

Ottawa 255 Albert Street Suite 502 Ottawa, ON K1P 6A9 Main Line: (613) 238-2333 Main Fax: (613) 238-2006

Montréal 2001 University Street Suite 1820 Montreal, QC H3A 2A6 Main Line: (514) 350-7940 Main Fax: (514) 350-7954

Halifax 1949 Upper Water Street Suite 220 Halifax, NS B3J 3N3 Main Line: (902) 421-1122 Main Fax: (902) 423-1894

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2012 ANNUAL REPORT

“This document may contain third-party trademarks, graphics, or logos. All such trade-marks, graphics or logos mentioned in this document are the property of their respective owners. The inclusion of any third-party trademarks, graphics, or logos is intended to be representative only and does not imply any endorsement by the owners of such trademarks. The names of tenants of specific properties are provided solely for informational purposes and for no other reason.”

GWL Realty Advisors is a leading Canadian real estate investment advisor providing comprehensive asset management, property management, development and specialized real estate services to pension funds and institutional clients.

With in-depth local expertise in major Canadian markets, GWL Realty Advisors is the trusted source for real estate advice and services. A strong experienced fiduciary, the company delivers stable, long-term returns for its clients.

GWL Realty Advisors is a wholly-owned subsidiary of The Great-West Life Assurance Company. For further information, visit our website at www.gwlra.com

www.gwlra.com

Documents

CANADIAN REAL ESTATE INVESTMENT FUND No