City of Edmonton Funds Are As Follows

CITY POLICY Attachment A.

POLICY NUMBER: C212B

REFERENCE: ADOPTED BY: City Council 2001 03 20 City Council City Council 1995 02 07 Municipal Government Act of Alberta SUPERSEDES: SA 1994 c. M-26.1 s. 250 and regulations C212A, C212, 1101 City Council 1994 09 13

PREPARED BY: Corporate Services Department DATE: 2001 03 06

TITLE: INVESTMENT

Policy Statement:

THE CITY MANAGER SHALL INVEST OR CAUSE TO BE INVESTED FUNDS CONTROLLED BY THE CITY OF EDMONTON IN PERMITTED CAPITAL MARKETS TO MAXIMIZE RETURNS AT A PRUDENT LEVEL OF RISK. ALL INVESTMENTS MADE MUST COMPLY WITH THIS POLICY, THE MUNICIPAL GOVERNMENT ACT OF ALBERTA AND ITS REGULATIONS, AND ANY OTHER APPLICABLE LEGISLATIVE REQUIREMENTS.

CITY OF EDMONTON FUNDS ARE AS FOLLOWS:

Schedule A - Ed Tel Endowment Fund – proceeds received by the City from the sale of Edmonton Telephones. Schedule B - Pension Funds – funds set aside to provide pension benefits for specific City employees (excludes those funds administered by the Local Authorities Pension Plan and the Special Forces Pension Plan). Schedule C - Sinking Fund – this fund was established to fulfil a requirement of various public debentures issues wherein cash is to be regularly set aside for the redemption of the debentures. Schedule D - Reserve Funds – funds include operating and capital reserves, deferred revenue accounts, and various other deposits of a trust nature. Schedule E - Working Capital Funds – funds received by the City from various sources and not immediately required for the payment of operating and capital expenditures.

The purpose of this policy is to:

Establish a set of investment principles and guidelines giving consideration to the type of fund, its characteristics, investment return objectives, financial obligations, the objective of preservation of capital, liquidity, a prudent level of risk given the investment time horizon, while at the same time ensuring that the City of Edmonton’s investments comply with statutory requirements.

This policy is subject to any specific provisions of the Municipal Government Act or other relevant legislation or Union Agreement. POLICY NUMBER: C212B SCHEDULE A

STATEMENT OF INVESTMENT POLICY AND GOALS – ED TEL ENDOWMENT FUND

1. DEFINITIONS

1.1 Asset Allocation - Proportion in which assets are divided among various types of investments, such as equities, bonds or cash.

1.2 Budgeted Annual Withdrawal – The inflation adjusted annual payment to the City.

1.3 External Investment Managers - Funds managed by external third party investment managers serving the institutional fund industry. These managers have pooled funds in which an investor can purchase units, or separate segregated funds for each client.

1.4 Funded Status – Retained Earnings divided by the per annum Budgeted Annual Withdrawal.

1.5 Index - A public investment benchmark which is considered to be representative of a specific securities market e.g. the TSE 300 Index, 90 day T-bill Index, etc.

1.6 Index Fund - A portfolio of securities designed to replicate the performance of an Index.

1.7 Internal Controls – Includes authorities, policies, procedures, separation and segregation of duties, compliance checking, performance measurement and attribution, custodian reports, safekeeping and the audit process.

1.8 Investment Policy - A formal statement approved by City Council which provides the basis upon which a fund or pool of funds is to be invested.

1.9 Modern Portfolio Theory – “Increasingly popular theory of trust investment and portfolio management that looks more toward the portfolio as a whole and less toward the prudence of a single investment in the portfolio” as found in the Standards of Practice Handbook, the Association of Investment Management and Research (AIMR), 8th edition.

1.10 Proxy Voting - A proxy which, is a legal transfer to another party of a shareholder’s right to vote, allows shareholders that cannot attend such meetings, to participate nonetheless.

1.11 Prudent Investor Rule – “Modern conception of the Prudent Man Rule that requires a trustee to act prudently and with caution, discretion, loyalty and care but does not restrict the assets in which a trustee can invest. The Prudent Investor Rule makes heavy use of Modern Portfolio Theory and applies the standard of prudence to the entire portfolio rather than to individual investments. It identifies the fiduciary’s central consideration as the trade-off between risk and return. The Prudent Investor Rule is fast becoming the standard for fiduciaries.” AIMR Standards of Practice Handbook 8th edition.

1.12 Retained Earnings – Difference between the market value and the inflation adjusted principal.

1.13 Risk - The uncertainty of future investment returns.

1 / 5 POLICY NUMBER: C212B SCHEDULE A

1. DEFINITIONS – Con’t.

1.14 Risk Tolerance - The financial ability to absorb a loss or withstand a short-to-medium-term value decline. Risk tolerance increases with the build up of retained earnings or a surplus of assets over liabilities.

2. INVESTMENT OBJECTIVES 2.1 Maximize returns at a prudent level of risk, using a long-term investment horizon. 2.2 Investment returns will provide inflation indexing of the principal and the annual budgeted withdrawal (inflation is as per the Statistics Canada Edmonton Regional Consumer Price Index). 2.3 Maintain retained earnings at a level of one (1) to two (2) times the amount of the annual budgeted withdrawal paid to the City. This level of retained earnings will accommodate regular market volatility and provide time for a measured response to poor market performance. 2.4 The Prudent Investor Rule shall apply to the Ed Tel Endowment Fund. 2.5 Risk control is managed primarily through the diversification provided for in the Asset Allocation. Additional risk control is provided by the restrictions on the permitted investments, implementation strategies, and depth and breadth of the monitoring and controls. 2.6 Investments shall be consistent with Modern Portfolio Theory.

3. INVESTMENT BELIEFS

3.1 In the long term, equities will outperform bonds to compensate for their higher risk.

3.2 Capital markets (stock and bond prices) due to investor exuberance will overshoot fundamental economic values on a short-term basis. This phenomenon is evident in both up and down markets.

3.3 Capital markets are mean reverting over long periods of time (i.e. investment returns for each category tend to go from extremes back to long term averages). This implies that on average, that periods of stellar performance will be followed by periods of more moderate performance, and vice-versa. However, prices also tend to be trend following whereby once a stock or bond starts moving up or down, more people will buy or sell it moving the security price further up or down in the same direction.

3.4 Limited value is realized from tactical Asset Allocation shifts.

3.5 The larger and more sophisticated the national economy, the more efficient the capital markets.

3.6 The larger the fund, the more the fund resembles the market.

4. PERMITTED INVESTMENTS

4.1 Permitted investments include all investment categories allowed under the Municipal Government Act and its regulations. Significant investment categories include treasury bills (T-bills), bonds, Canadian equities, securities of Canadian banks, foreign equities, asset-backed securities and derivative instruments (futures, swaps, options).

4.2 Fixed income credit quality rating requirements are as specified in the Municipal Government Act and its regulations. Securities held in the fund whose credit rating has been down graded to a level below that required are to be sold within a reasonable period of time, given the then current market conditions.

4.3 The fixed income maximum is not more than 10% of the market value of the total fixed income portfolio in a single corporate issuer, not more than 20% of market value denominated in non- Canadian currencies, and not more than 20% of market value in mortgages or mortgage backed securities which must be Canada Mortgage and Housing Corporation (CMHC), National Housing Act (NHA) or otherwise fully insured.

4.4 Total equity maximum limit to any one company will be not more than 10% of the market value of the asset class.

4.5 Publicly traded securities valuation will be monthly in accordance with the Canadian Institute of Chartered Accountants Handbook.

4.6 Securities lending is also permitted, so long as the collateral requirement conforms to the Securities Lending Guideline of the Office of the Superintendent of Financial Institutions (Canada).

4.7 Neither the internal or external investment managers, may pledge, hypothecate or otherwise encumber in any way, the assets of the Ed Tel Endowment Fund, except to the extent required to cover temporary overdrafts that occur in the normal course of business.

4.8 Pooled Funds will be used where appropriate and in the best interests of the Ed Tel Endowment Fund.

5. ASSET ALLOCATION

5.1 The policy asset mix and asset mix ranges are based on market values. The asset mix policy weight and the asset mix range minimums and maximums are as follows:

Asset Class Policy Asset Mix Minimum Maximum

Fixed Income Total 40% 35% 45%

Cash 2% 0% 4% Canadian Bonds 38% 33% 43% Mortgages 0% 0% 10%

Equity Total 60% 55% 65%

Canadian Equity 30% 25% 35% Foreign Equity 30% 25% 35%

5. ASSET ALLOCATION – Con’t.

5.2 Performance Measurement

a) The total fund return comparison is as per 2.2.

b) The minimum investment performance reporting standards for the total fund and asset classes are to be Association of Investment Manager Research (AIMR) compliant and calculated quarterly and measured on an annualized four year rolling basis, in market value terms.

c) The performance benchmarks are as follows:

Category Performance Benchmarks

Cash Scotia Capital (SC) 91-Day T-Bill Index

Mortgages SC Mid-term Bond Index

Canadian Bonds SC Universe Bond Index (SCU)

Canadian Equities TSE 300 Capped 10% Total Return Index

U.S. Equities S&P 500 Index in Canadian Dollar Terms

Foreign (Non-North American) Equities Morgan Stanley Capital Index (MSCI) Europe and Far East (EAFE) Index

Global Equities – Ex-Canada MSCI World Ex Canada

Total Fund (the asset class benchmark 2% SC 91-day T-Bill Index, 38% SCU, 30% returns are applied to the target Asset TSE 300 Capped 10% Index, 30% MSCI Allocation) World - Ex Canada Index.

d) Performance relative to other funds with similar investment constraints will be monitored and evaluated at the asset class level. On an annualized four-year basis the expectation would be that the Ed Tel Endowment Fund’s performance in each asset class would rank in the top half of the peer fund universe.

e) For assets under active management, a premium above the performance benchmark is to be achieved. Premiums are to be based on industry standards and prevailing market conditions. These benchmarks will be incorporated into the individual investment manager mandates and manager contracts.

5.3 An asset mix study will be conducted every three (3) to five (5) years to ensure the asset mix continues to be appropriate given the Ed Tel Endowment Fund’s financial objectives and financial conditions.

6. IMPLEMENTATION STRATEGY

6.1 The implementation strategy alternatives may include active and passive management mandates, balanced fund managers, specialist fund managers, internal pooled funds and external pooled funds. Some diversification of equity investment style will be maintained.

7. RESPONSIBLE PROXY VOTING

7.1 Share ownership carries with it the right to vote for, to vote against or even to abstain from voting on proposals presented by both management and shareholders at annual general and special meetings.

7.2 On a best efforts basis, all proxy’s, for both active and passive mandates, will be voted in the following responsible manner:

a) The proxy must be voted in the economic best interest of the beneficial owners of the fund.

b) Proxy proposals are to be voted in a manner to encourage the achievement of the following social and political aims:

i) discourage the expansion of products which are harmful or destructive to human life;

ii) expansion of gender and racial equality;

iii) environmentally responsible business practices;

iv) progressive industrial relations with employees.

7.3 Responsible proxy voting may be implemented through external investment managers, internal staff, or an external proxy analysis and voting service. A record of all proxies received and voted must be maintained and reported annually.

8. MONITORING AND CONTROLS

8.1 Custody of the funds and securities will in all instances be held by a third party fund custodian.

8.2 A compliance program will include monitoring and reporting on investment activity, performance results and performance attribution, and ensures compliance with the City’s Investment Policy, all applicable statutes and regulations and investment manager contracts.

8.3 Internal controls will be in place for investment processes and procedures. This will include the appropriate formal delegation of authorities to transact and enter into contracts with external managers, transfer of funds, safekeeping of assets, segregation of duties, performance reporting and performance attribution and compliance checking and reporting.

8.4 External audits will be performed annually, including an assessment of investment effectiveness and risk management.

9. REPORTING

9.1 An annual report to City Council will be provided by the City Manager, in form and content to the satisfaction of City Council. At a minimum, the report is to include information on the funded status of the fund, the fund size, asset mix, investment performance, proxy voting, confirmation of policy and statutory compliance and detail the past years accomplishments and next year’s planned activities.

5 / 5 POLICY NUMBER: C212B SCHEDULE B

STATEMENT OF INVESTMENT POLICY AND GOALS - PENSION FUNDS

1. DEFINITIONS

1.2 External Investment Managers - Funds managed by external third party investment managers serving the institutional fund industry. These managers have pooled funds in which an investor can purchase units or separate segregated funds for each client.

1 INVESTMENT OBJECTIVES

2.1 Maximize returns at a prudent level of risk, using a long-term investment horizon.

2.2 The Fund can meet all of the financial requirements in the Pension Plan text.

2 INVESTMENT OBJECTIVES – Con’t.

2.3 The Prudent Investor Rule shall apply to all Funds.

2.4 Risk control is managed primarily through the diversification provided for in the Asset Allocation. Additional risk control is provided by the restrictions on the permitted investments, implementation strategies, and depth and breadth of the monitoring and controls.

2.5 Investments shall be consistent with Modern Portfolio Theory.

4.1 Permitted investments include all investment categories allowed under the Employment Pension Plans Act (Pension Benefits Standards Act [Canada]) & the Municipal Government Act and its’ regulations. Significant investment categories include Treasury Bills (T-bills), bonds, Canadian equities, securities of Canadian banks, foreign equities, asset-backed securities and derivative instruments (futures, swaps, options).

4.2 Fixed Income Credit Quality Rating requirements are as specified in the Municipal Government Act and its regulations. Securities held in the fund whose credit rating has been down graded to a level below that required are to be sold within a reasonable period of time, given the current market conditions.

4. PERMITTED INVESTMENTS – Con’t.

4.3 The fixed income maximum is not more than 10% of the market value of the total fixed income portfolio in a single corporate issuer, not more than 20% of market value denominated in non-Canadian currencies, and not more than 20% of market value in mortgages or mortgage backed securities which must be Canada Mortgage and Housing Corporation (CMHC) National Housing Act (NHA), or otherwise fully insured.

4.4 Total equity maximum limit to any one company, will be not more than 10% of the market value of the asset class.

4.7 Neither the internal or external investment managers, may pledge, hypothecate or otherwise encumber in any way, the assets of the Pension Funds, except to the extent required to cover temporary overdrafts that occur in the normal course of business.

4.8 Pooled Funds will be used where appropriate and in the best interests of the Pension Funds.

5. ASSET ALLOCATION

5.1 The Policy asset mix and asset mix ranges are based on market values. The asset mix policy weight and the asset mix range minimums and maximums are as follows:

Fixed Income Total 45% 40 % 50%

Cash 2% 0% 4%

Canadian Bonds 43% 38% 48%

Mortgages 0% 0% 10%

Equity Total 55% 50% 60%

Canadian Equity 27.5% 22.5% 32.5%

Foreign Equity 27.5% 22.5% 32.5%

a) The minimum investment performance reporting standards for the total fund and asset classes are to be Association of Investment Manager Research (AIMR) compliant and calculated quarterly and measured on an annualized four year rolling basis, in market value terms.

b) The performance benchmarks are as follows:

Cash Scotia Capital (SC) 91-Day T-Bill Index

Canadian Equities TSE 300 Capped 10% Total Return Index

Foreign (Non-North American) Equities Morgan Stanley Capital Index (MSCI)— Europe and Far East (EAFE) Index

Global Equities – Ex-Canada MSCI World Ex Canada

Total Fund (the asset class benchmark 2% SC 91-day T-Bill Index, 43% SCU, 27.5% returns are applied to the target Asset TSE 300 Capped 10% Index & 27.5% MSCI Allocation) World – Ex Canada Index.

c) Performance relative to other funds with similar investment constraints will be monitored and evaluated at the asset class level. On an annualized four-year average basis the expectation would be that the Pension Fund’s performance in each asset class would rank in the top half of the peer fund universe.

d) For assets under active management, a premium above the performance benchmark is to be achieved. Premiums are to be based on industry standards and prevailing market conditions. These benchmarks will be incorporated into the individual investment manager mandates and manager contracts.

5.3 An asset mix study will be conducted every three (3) to five (5) years to ensure the asset mix continues to be appropriate given the Pension Fund’s financial objectives and financial conditions.

6.1 The implementation strategy alternatives may include active and passive management mandates, balanced fund managers, specialist fund managers, internal pooled funds and external pooled funds. Some diversification of equity investment style will be maintained. 4 / 5 POLICY NUMBER: C212B SCHEDULE B

7.2 On a best efforts basis, all proxies, for both active and passive mandates will be voted in the following responsible manner:

i) discourage the expansion of products which are harmful or destructive to human life; ii) expansion of gender and racial equality; iii) environmentally responsible business practices;

7.3 Responsible proxy voting will be implemented through external investment managers, internal staff, or an external proxy analysis and voting service. A record of all proxies received and voted must be maintained and reported annually.

8.2 A compliance program will include monitoring and reporting on investment activity, performance results and performance attribution, and ensures compliance with the City’s Investment Policy, all applicable statutes and regulations and investment manager contracts.

8.3 Internal Controls will be in place for investment processes and procedures. This will include the appropriate formal delegation of authorities to transact and enter into contracts with external managers, transfer of funds, safekeeping of assets, segregation of duties, performance reporting and performance attribution and compliance checking and reporting.

9. REPORTING

9.1 An annual report to City Council will be provided by the City Manager, in form and content to the satisfaction of City Council. At a minimum, the report is to include information on the funded status of the fund, the fund size, asset mix, investment performance, proxy voting, confirmation of policy and statutory compliance and detail the past years accomplishments and next year’s planned activities. 5 / 5 POLICY NUMBER: C212B SCHEDULE C

STATEMENT OF INVESTMENT POLICY AND GOALS – SINKING FUND

1. DEFINITIONS

1.10 Risk Tolerance - The financial ability to absorb a loss or withstand a short-to-medium- term value decline. Risk tolerance increases with the build up of retained earnings or a surplus of assets over liabilities.

1.11 Sinking Fund Required Contributions – (Annual Sinking Fund Requirement) The amount of capital to be set aside each year in a sinking fund as detailed on each debenture issue(s).

1.12 Sinking Fund Required Earnings – The investment earnings necessary such that the required contributions will grow to a value sufficient to repay the principal owing on all outstanding Sinking Fund debentures.

1.13 Surplus Earnings Sinking Fund – Investment earnings in excess of the required earnings.

1 / 4 POLICY NUMBER: C212B SCHEDULE C

2. INVESTMENT OBJECTIVES

2.1 Maximize returns at a prudent level of risk, considering an investment horizon consistent with the structure of the Fund’s liabilities, the objectives of preservation of capital and liquidity, and the pre-determined fixed nature of the obligation. 2.2 Earn a rate of return that generates the earnings required, such that the accumulated balance in the Fund will provide for the retirement of all maturing City of Edmonton Sinking Fund debenture issues. 2.3 The Prudent Investor Rule shall apply to the Sinking Fund. 2.4 Risk control is provided by the restrictions on the permitted investments, implementation strategies, and depth and breadth of the monitoring and controls. 2.5 Interest rate risk is to be maintained at moderate levels. 2.6 Maintain a surplus of assets to accrued liabilities. This will provide a cushion against interest rate discontinuities and allow a modest value adding strategy. 2.7 Investments shall be consistent with Modern Portfolio Theory.

3.1 Capital markets (bond prices) due to investor exuberance will overshoot fundamental economic values on a short-term basis. This phenomenon is evident in both up and down markets.

3.2 Capital markets are mean reverting over long periods of time (i.e. investment returns for each category tend to go from extremes back to long term averages). This implies that on average, that periods of stellar performance will be followed by periods of more moderate performance, and vice-versa. However, prices also tend to be trend following whereby once a bond starts moving up or down, more people will buy or sell it moving the security price further up or down in the same direction.

4.1 Permitted Investments include all investment categories allowed under the Municipal Government Act and its Regulations, excluding domestic and foreign equities. The allowed categories include treasury bills (T-bills), corporate money market instruments and debentures, convertible bonds, Government bonds, securities of Canadian banks, asset-backed securities and derivative instruments (futures, swaps, options).

4.2 Fixed income credit quality rating requirements are as specified in the Municipal Government Act and its Regulations. Securities held in the Fund whose credit rating has been down graded to a level below that required are to be sold within a reasonable period of time, given the current market conditions.

4.3 The fixed income maximum is not more than 10% of the market value of the total fixed income portfolio in a single corporate issuer, not more than 20% of market value denominated in non-Canadian currencies, and not more than 20% of market value in mortgages or mortgage backed securities which must be Canada Mortgage and Housing Corporation (CMHC) National Housing Act (NHA), or otherwise fully insured.

4.4 Publicly Traded Securities Valuation will be monthly in accordance with the Canadian Institute of Chartered Accountants Handbook.

4.5 Securities Lending is also permitted, so long as the collateral requirement conforms to the Securities Lending Guideline, of the Office of the Superintendent of Financial Institutions (Canada).

4.6 Neither the internal or external investment managers may pledge, hypothecate or otherwise encumber in any way, the assets of the Fund, except to the extent required to cover temporary overdrafts that occur in the normal course of business.

5. ASSET ALLOCATION

5.1 The policy asset mix and asset mix ranges are based on market values. The asset mix policy weight and the asset mix range minimums and maximums are as follows:

Fixed Income Total 100% 100% 100%

Cash 2% 0% 20%

Canadian Bonds 98% 80% 100%

5.2 The maximum allocation to cash and minimum allocation to Canadian bonds may be exceeded for short time periods for the specific purpose of raising cash for debenture principal repayments.

5.3 Performance Measurement Benchmarks – The nature of the liabilities of the Sinking Fund requires a custom benchmark for assessing the performance of the fund manager(s). The custom benchmark will consist of a blending of the Scotia Capital Bond Indices such that the implicit duration of the benchmark is equivalent to the duration of the liabilities. The indices used will be the Scotia Capital Long, Mid, Short and 91day T-bill indices. The percentage weights of each of the Scotia Capital Markets Indices in the benchmark will be reviewed and adjusted at least quarterly due to changes in the duration of the liabilities and indices.

5.4 The benchmark performance levels will be provided by an independent performance measurement service provider calculated quarterly using an annualized four-year rolling basis and market values.

6.1 The implementation strategy alternatives may include active and passive management mandates, specialist fund managers, internal segregated and pooled funds and external segregated and pooled funds.

7.2 A compliance program will be in place, which includes monitoring and reporting on investment activity, performance results and performance attribution, and ensures compliance with the City’s Investment Policy, as well as all applicable statutes and investment manager contracts.

7.3 Internal Controls will be in place, for investment processes and procedures. This will include the appropriate formal delegation of authorities to transact and enter into contracts with external managers, transfer of funds, safekeeping of assets, segregation of duties, performance reporting and performance attribution and compliance checking and reporting.

7.4 Audits - external audits will be performed annually, including an assessment of investment effectiveness and risk management.

8. REPORTING

8.1 An annual report to City Council will be provided by the City Manager, in form and content to the satisfaction of City Council. At a minimum, the report is to include information on the funded status of the Fund, the Fund size, asset mix, investment performance, confirmation of policy and statutory compliance, details the past years accomplishments and next year’s planned activities.

4 / 4 POLICY NUMBER: C212B SCHEDULE D

STATEMENT OF INVESTMENT POLICY AND GOALS - RESERVE FUNDS

1. DEFINITIONS

1.10 Reserve Funds – includes those funds with a longer term investment horizon and a risk tolerance that would permit exposure to equities. Eligible funds could include operating and capital reserve funds, deferred revenue accounts, portions of the General Fund and other similar mandated funds.

2.1 Maximize returns at a prudent level of risk, using a medium to long-term investment horizon. 2.2 As deposits are of a trust nature, the preservation of capital is a key objective. 2.3 Liquidity is required to facilitate the requirement of periodic withdrawals from certain deposits. 2.4 The Prudent Investor Rule shall apply to the Reserve Funds. 2.5 Risk control is managed primarily through the diversification provided for in the Asset Allocation. Additional Risk control is provided by the restrictions on the permitted investments, implementation strategies, and depth and breadth of the monitoring and controls. 2.6 Investments shall be consistent with Modern Portfolio Theory.

4.1 Permitted investments include all investment categories allowed under the Municipal Government Act and its regulations. Significant investment categories include Treasury Bills (T-bills), bonds, Canadian equities, securities of Canadian banks, foreign equities, asset-backed securities and derivative instruments (futures, swaps, options).

4.2 Fixed Income Credit Quality Rating requirements are as specified in the Municipal Government Act and its regulations. Securities held in the fund whose credit rating has been down graded to a level below that required are to be sold within a reasonable period of time, given then current market conditions.

4. PERMITTED INVESTMENTS - Con’t.

4.3 The fixed income maximum is not more than 10% of the market value of the total fixed income portfolio in a single corporate issuer, not more than 20% of market value denominated in non- Canadian currencies, and not more than 20% of market value in mortgages or mortgage backed securities which must be Canada Mortgage and Housing Corporation (CMHC) National Housing Act (NHA), or otherwise fully insured.

4.4 Total equity maximum limit to any one company will not be more than 10% of the market value of the asset class.

4.7 Neither the internal or external investment managers, may pledge, hypothecate or otherwise encumber in any way, the assets of the City of Edmonton, except to the extent required to cover temporary overdrafts that occur in the normal course of business.

4.8 Pooled Funds will be used where appropriate and in the best interests of the Reserve Funds.

5. ASSET ALLOCATION

5.1 The asset mix ranges are based on market values. The asset mix range minimums and maximums are as follows:

Asset Class Minimum Maximum

Fixed Income Total 40% 100%

Cash 0% 20%

Canadian Bonds 40% 100%

Mortgages 0% 10%

Equity Total 0% 60%

Canadian Equity 0% 35%

Foreign Equity 0% 35%

a) The minimum investment performance reporting standards for the total fund and asset classes are to be Association of Investment Manager Research (AIMR) compliant, calculated quarterly and measured on an annualized four year rolling basis, in market value terms.

b) The performance benchmarks are as follows:

Cash SC (Scotia Capital Markets) 91-Day T-Bill Index

Canadian Equities TSE 300 Capped 10%Total Return Index

Foreign (Non-North American) Equities Morgan Stanley Capital International (MSCI)- Europe and Far East (EAFE) Index

Global Equities MSCI – World Ex. Canada

c) Performance relative to other funds with similar investment constraints will be monitored and evaluated at the asset class level. On an annualized four-year average basis the expectation would be that the Reserve Fund’s performance in each asset class would rank in the top half of the peer fund universe.

d) For assets under active management, a premium above the performance benchmark is to be achieved. Premiums are to be based on industry standards and prevailing market conditions. These benchmarks will be incorporated into the individual investment manager mandates and manager contracts.

6.1 The implementation strategy alternatives may include active and passive management mandates, balanced fund managers, specialist fund managers, internal pooled funds and external pooled funds. Some diversification of equity investment style will be maintained.

7.2 On a best efforts basis, all proxies, for both active and passive mandates will be voted in the following responsible manner:

i) discourage the expansion of products which are harmful or destructive to human life.

ii) expansion of gender and racial equality;

iii) environmentally responsible business practices;

7.3 Responsible proxy voting will be implemented through external investment managers, internal staff, or an external proxy analysis and voting service. A record of all proxies received and voted must be maintained and reported annually.

8.1 Custody of the funds and securities will, in all instances, be held by a third-party fund custodian.

8.2 A compliance program is required, which includes monitoring and reporting on investment activity, performance results and performance attribution, and ensures compliance with the City’s Investment Policy, all applicable statutes and regulations and manager contracts.

8.3 Internal Controls are required for investment processes and procedures. This will include the appropriate formal delegation of authorities to transact and enter into contracts with external managers, transfer of funds, safekeeping of assets, segregation of duties, performance reporting and performance attribution and compliance checking and reporting. 8.4 External audits will be performed annually, including an assessment of investment effectiveness and risk management.

9. REPORTING

9.1 An annual report to City Council will be provided by the City Manager, in form and content to the satisfaction of City Council. At a minimum, the report is to include information on the funded status of the fund, the fund size, asset mix, investment performance, confirmation of policy and statutory compliance and detail the past years accomplishments and next year’s planned activities.

5 / 5 POLICY NUMBER: C212B SCHEDULE E

STATEMENT OF INVESTMENT POLICY AND GOALS – WORKING CAPITAL FUNDS

1. DEFINITIONS

1.2 Defeasing Portfolio – A portfolio of fixed income securities for which the amounts and maturities exactly offset (may be greater than but may not be less than) a fixed set of liability payments.

1.3 External Investment Managers - Funds managed by external third party investment managers serving the institutional fund industry. These managers have pooled funds in which an investor can purchase units or separate segregated funds for each client.

1.12 Working Capital Funds – includes funds with a short-term investment horizon, high liquidity needs and a risk profile that would not support exposure to equities. Eligible funds could include the General Fund, Ed Tel Defeasance Fund, Transportation Fund, and other similarly mandated funds.

2.1 Maximize returns at a prudent level of risk, using an investment horizon consistent with known obligations and forecasted expenditures. 2.2 Earn a rate of return that provides for the payment of obligations where funds are set aside for specific purposes. 2.3 The Prudent Investor Rule shall apply to Working Capita Funds. 2.4 Risk control is provided by the restrictions on the permitted investments, implementation strategies, and depth and breadth of the monitoring and controls. 2.5 Investments shall be consistent with Modern Portfolio Theory.

3.1 Capital markets (bond prices) due to investor exuberance will overshoot fundamental economic values on a short-term basis. This phenomenon is evident in both up and down markets.

3.2 Capital markets are mean reverting over long periods of time (i.e. investment returns for each category tend to go from extremes back to long term averages). This implies that on average, that periods of stellar performance will be followed by periods of more moderate performance, and vice-versa. However, prices also tend to be trend following whereby once a bond starts moving up or down, more people will buy or sell it moving the security price further up or down in the same direction.

4.1 Permitted investments include all investment categories allowed under the Municipal Government Act and its regulations, excluding domestic and foreign equities. The allowed categories include Treasury Bills (T-bills), bonds, corporate money market instruments and debentures, convertible bonds, Government bonds, securities of Canadian banks, asset-backed securities and derivative instruments (futures, swaps, options).

4.2 Fixed Income Credit Quality Rating requirements are as specified in the Municipal Government Act and its regulations. Securities held in the fund whose credit rating has been down graded to a level below that required are to be sold within a reasonable period of time, given current market conditions.

4.3 The fixed income maximum is not more than 10% of the market value of the total fixed income portfolio in a single corporate issuer, not more than 20% of market value denominated in non- Canadian currencies, and not more than 20% of market value in mortgages or mortgage backed securities which must be Canada Mortgage and Housing Corporation (CMHC) National Housing Act (NHA), or otherwise fully insured.

4.6 Neither the internal or external investment managers, may pledge, hypothecate or otherwise encumber in any way, the assets of the City of Edmonton, except to the extent required to cover temporary overdrafts that occur in the normal course of business.

4.7 Pooled Funds will be used where appropriate and in the best interests of the Working Capital Funds.

5. ASSET ALLOCATION

5.1 The nature of these Funds leads to an asset allocation policy restricted to fixed income securities. Asset allocation between cash (money market) and Canadian bonds will be determined based on the investment objectives (Section 2 above). There is no pre-determined policy asset mix for these Funds, due to the cyclical nature of revenue collections, changes to forecasted expenditures, both operating and capital, and the available opportunities in the fixed income market.

Where the Fund objectives are consistent with recognized published indices, the usual index benchmarks shall be used. Where fund objectives warrant implementation strategies that are not comparable to market indices, performance shall be measured and then evaluated on an objective basis, using a customized benchmark, consistent with like or comparable funds.

6.1 The implementation strategy alternatives may include active and passive management mandates, specialist fund managers, internal accounts and pooled funds and external accounts or pooled funds.

7.1 Custody of the funds will in all instances be held by a third party fund custodian.

7.2 A compliance program is required, which includes monitoring and reporting on investment activity, performance results and performance attribution, and ensures compliance with the City’s Investment Policy, all applicable statutes and regulations and investment manager contracts.

7.3 Internal Controls are required for investment processes and procedures. This will include the appropriate formal delegation of authorities to transact and enter into contracts with external managers, transfer of funds, safekeeping of assets, segregation of duties, performance reporting and performance attribution and compliance checking and reporting.

7. MONITORING AND CONTROLS – Con’t.

8. REPORTING

8.1 An annual report to City Council will be provided by the City Manager, in form and content to the satisfaction of City Council. At a minimum, the report is to include information on the funded status of the fund, the fund size, asset mix, investment performance, confirmation of policy and statutory compliance and detail the past years accomplishments and next year’s planned activities.