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METROPOLITAN TORONTO PENSION PLAN

STATEMENT OF INVESTMENT POLICIES AND PROCEDURES


incorporating all amendments
made up to and including
February 2015

February 2015

STATEMENT OF INVESTMENT POLICIES AND PROCEDURES


FOR
THE METROPOLITAN TORONTO PENSION PLAN

Established and Adopted by:


The Board of Trustees of
The Metropolitan Toronto Pension Plan
following consultation with
Mercer (Canada) Limited
161 Bay Street
P. O. Box 501
Toronto, Ontario
M5J 2S5

February 2015

TABLE OF CONTENTS
SECTION

PAGE NOS.

Fundamentals

1-1 to 1-2

The Plan and its Liabilities

2-1 to 2-4

Investments

3-1 to 3-3

Managers

4-1 to 4-2

Assets

5-1 to 5-4

Lending of Cash and Securities

6-1 to 6-2

Related-Party Transactions

7-1

Liquidity of Plan Assets

8-1

Valuation of Infrequently Traded Assets

9-1

10

Allocation of Responsibilities

10-1 to 10-2

11

Conflicts of Interest

11-1 to 11-2

12

Statement Review

12-1

Monthly Transfer of Funds

A-1

Appendix

February 2015

SECTION 1
FUNDAMENTALS
1.1

Primary Purpose of the Plan


The Metropolitan Toronto Pension Plan (the Plan) was established to provide retirement benefits to
former employees of The Municipality of Metropolitan Toronto and other participating employers (the
Participating Employers) and survivor income to their widowed spouses and dependent children.

1.2

Plan Sponsor
The City of Toronto (the City) as the successor (by amalgamation) to the former Municipality of
Metropolitan Toronto is the sponsor of the Plan.

1.3

Plan Administrator
The administrator of the Plan is a Board of Trustees with three voting members appointed by the City,
three voting members elected by the employees and pensioners, and a Chair who is appointed by the
City.

1.4

Participating Employers
Participating Employers include the City and certain of its boards and agencies.

1.5

Statement of Investment Policies and Procedures


This Statement of Investment Policies and Procedures is the successor to the Statement of Investment
Policies and Goals originally established and adopted by the Board of Trustees on March 31, 1989
pursuant to section 63 of Regulation 708/87 under the Pension Benefits Act, 1987 and now exists
pursuant to Regulation 909 (the Regulation) under the Pension Benefits Act, R.S.O. 1990, Chapter P.8
(the Act), including the federal investment regulations (Federal Investment Regulations) defined in
subsection 66(1) of the Regulation, in each case as has been and may hereafter be amended or
replaced from time to time.

1.6

Compliance with this Statement


(1)

No assets of the Plan shall be invested or loaned except in accordance with this Statement.

(2)

Any investment manager or other adviser providing services in connection with investment of
Plan assets shall adhere to the principles and objectives set forth in this Statement, and the
requirement for such adherence shall be reflected appropriately in the agreement for such
services.

February 2015

Section 1: Fundamentals (continued)

1.7

1-2

Annuity Purchase
Nothing in this Statement shall preclude the purchase of life annuities to fulfil the Plans obligations to
make pension payments.

February 2015

SECTION 2
THE PLAN AND ITS LIABILITIES
2.1

Type of Plan
The Plan is a contributory defined-benefit pension plan providing post-retirement payment benefits for each
plan member, and generally each member's widowed spouse and/or dependent child(ren), calculated on
the basis of the average of the best consecutive 60 months of the member's contributory earnings, and
without regard to the Plan's investment return.

2.2

Pensioner Increases
Pensions in pay and all deferred pensions have been increased annually on an ad hoc basis by the full
change in the Consumer Price Index for each of the last twenty years, and this practice is expected to
continue.

2.3

2.4

Restrictions on Plan Membership


(1)

In accordance with section 9 of the Ontario Municipal Employees Retirement System Act,
membership in the Plan is not open to persons who became or become employees of the
Participating Employers on or after July 1, 1968.

(2)

The Plan is therefore closed, since no new member may join it; consequently, its average
membership age is continuously increasing.

Members' Contributions
Members of the Plan who are active employees of the Participating Employers with less than 35 years of
credited service are required to make contributions to the Plan equal to a specified percentage of their
contributory earnings without regard to the Plan's investment return, but there are no longer any such
members.

2.5

Contributions by Participating Employers


The Participating Employers are required to make:

2.6

(a)

regular contributions matching those made by members of the Plan (now nil); and

(b)

special contributions if required to finance the defined benefits, as established from time to time,
on the advice of the Plan actuary having regard to the Plan's actual experience, including the
Plan's investment return on its assets and to improvements to benefits under the Plan put in place
by the City as its sponsor and/or the Participating Employers.

Expenses Incurred in the Administration of the Plan and Management of its Assets
Some of the expenses incurred in administering the Plan and in managing its assets are paid out of the
Plan.

February 2015

Section 2: The Plan and Its Liabilities (continued)

2.7

2.8

2-2

Nature of Plan Liabilities


(1)

Since the Plan's benefit formula is related to both best consecutive 60 months' earnings and years
of Plan membership, the Plan's liability in respect of a particular employee member grows with the
member's years of membership until retirement, death or termination of employment; however,
since employee membership in the Plan is closed, there is no increase in the total liability as a
result of new employee members, and the Plan's liability in respect of all employee members
decreases because of members' retirements, deaths and other terminations of employment.

(2)

The Plan's liability for pensioners and former but unretired employees increases because of
retirements and terminations of employment and decreases because of deaths of pensioners and
such former employees.

(3)

The Plan's liability for survivor beneficiaries increases as pensioners' deaths result in new survivor
beneficiaries and decreases as survivor beneficiaries die and as child beneficiaries become
disentitled because of age.

(4)

The future net effect of the increases and decreases in the Plan's liabilities for employees, pensioners and beneficiaries as described in paragraphs (1) to (3) hereof is expected to be an annual
decrease in the total liability of the Plan.

(5)

In order to ensure adequacy of the Plan's assets for benefit payments, the Plan's liabilities are determined using fairly conservative assumptions. The discount rate assumed in determining the
Plan liabilities is based on the Plan actuary's expectations taking into account market conditions
and a provision for adverse deviation.

(6)

100% of the Plan liability is in respect of pensioners and deferred vested members. Annual cash
outflows amount to about $49 million or 9% of total assets.

(7)

As at December 31, 2013, the Plan was fully funded on both a going-concern basis and a
solvency basis.

Cash Flows of the Plan


(1)

(2)

Currently the following funds flow into the Plan every year:
(a)

interest, periodic principal repayments and dividends from the Plan's investments;

(b)

maturity proceeds of bonds owned by the Plan; and

(c)

proceeds from any sales of the Plan's investments.

The following funds flow out of the Plan every year:


(a)

benefit payments; and

(b)

expenses.

February 2015

Section 2: The Plan and Its Liabilities (continued)

2.8

Cash Flows of the Plan (contd)


(3)

2.9

The Plan's primary source of cash required to make benefit payments is the monthly liquidation of
Plan assets provided for in the Appendix to this Statement delineating the Plan's Monthly Transfer
of Funds and the subsidiary sources are the cash flows described in clauses (a) and (b) of
paragraph (1) hereof.

Indexation and Contingency Reserve Account


(1)

Upon the recommendation of the Plan actuary, the Board of Trustees:


(a)

(b)

2.10

2-3

established an Indexation and Contingency Reserve Account (the ICR Account) effective
January 1, 1991, for:
(i)

providing increases in pensions for cost of living inflation; and

(ii)

crediting funds not required to meet specific current pension liabilities; and

transferred to the ICR Account the full balance of the 1989 Contingency Reserve and all
1990 experience gains from operations of the Plan.

(2)

Liabilities for the adoption of mandatory indexing having been estimated to be at least 130% of
those for non-indexed pension benefits, the target maximum of the ICR Account shall be 30% of
the Plan's non-indexed pension liabilities.

(3)

Notwithstanding paragraph (2), the Board of Trustees may make such allocations as it deems
appropriate, either from funds not required to meet specific current pension liabilities or from the
ICR Account for providing minor improvements in pension benefits and increases in pensions for
cost-of-living inflation.

Investment Implications of Subsections 2.1 to 2.9


(1)

The Board of Trustees recognizes that


(a)

the liabilities of the Plan are determined independently of the value of its assets;

(b)

the assets of the Plan are the source from which its obligations to pay pension benefits
are met; and

(c)

investment returns on the Plans assets augment those assets and are to be taken into
account in determining the sufficiency of the Plan's funding;

(d)

if at any time there is an insufficiency in the Plan's assets, after taking into account expected investment returns, to meet the Plan's existing and future payment obligations, the City
will be obliged by law to make to the Plan special contributions, which the City regards as
highly undesirable, and therefore avoidance of such an insufficiency is a prime consideration for the Board when it sets investment goals and takes steps to implement them.

February 2015

Section 2: The Plan and Its Liabilities (continued)

2.10

2-4

Investment Implications of Subsections 2.1 to 2.9 (contd)


(2)

In developing and periodically reviewing this Statement, the Board of Trustees considers factors
such as the following:
(a)

the nature of the Plans liabilities;

(b)

the allocation of such liabilities between active members and retired members;

(c)

the funded and solvency positions of the Plan;

(d)

the net cash flow positions of the Plan;

(e)

the investment horizon of the Plan;

(f)

the historical and expected capital market returns; and

(g)

the benefits of investment diversification.

February 2015

SECTION 3
INVESTMENTS
3.1

3.2

Investment Objectives
(1)

The Plan is to be managed as a going concern, with the primary objective of maintaining
satisfactory long-term rates of return on its assets consistent with available market opportunities
and moderate levels of risk, sufficient to fund its payment obligations without further
contributions from the City.

(2)

The overall quantitative performance of the assets of the Plan will be considered satisfactory if
the total annualized returns thereon exceed by 0.35% the returns that could have been earned
by passive management of an asset mix conforming with the Target Mix set forth in subsection
3.3, assuming quarterly re-balancing.

(3)

The Board of Trustees expects the Plan assets to earn a real annual rate of return of 4.0%,
after investment management fees, over the long term (10 years or more), with an expected
annual volatility of 8.0%. The Board of Trustees acknowledges that in any one year, the annual
real return and corresponding volatility may be significantly above or below that rate.

(4)

For the purpose of determining rate of return of the Plan, the methodology described in subsection 4.4 should be used.

Investment Beliefs
The Board of Trustees believes that:
(a)

given the magnitude of the Plan's liabilities and assets, professional investment-management
firms should be engaged so that each such firm (Manager) has responsibility for seeing that a
designated portfolio of Plan assets (Portfolio) is invested and, subject to any specific instruction
from the Board of Trustees, all proxy rights are exercised, in a competent, efficient and costeffective manner in accordance with a particular mandate provided by the Board of Trustees;

(b)

diversification across the major classes of publicly-traded assets is considered an effective


means of achieving the desired levels of risk and liquidity;

(c)

equity investments provide greater long-term returns than fixed-income investments, but have
greater short-term volatility;

(d)

holdings of foreign equities provide the potential for enhanced long-term returns and at the
same time are expected to make a legitimate contribution to diversification;

(e)

foreign-currency hedging while expected to reduce short-term effects of foreign-exchange


volatility, does not provide any benefits over the long term;

(f)

active investment management of some assets may reduce risk below that of the passive
market and potentially add value through security selection strategies;

(g)

passive, indexed investment management of some assets may benefit the Plan through greater
diversification and lower cost;
February 2015

Section 3: Investments (continued)


3.2

3.3

3-2

(h)

division of large asset classes into more than one Portfolio, each managed in accordance with a
style and/or strategy differing from the other(s), is another acceptable means of achieving
diversification; and

(i)

in view of the very high and increasing proportion of the Plan's liability for pensioners and
beneficiaries receiving benefits relative to its liability for active and other unretired members,
sufficient Plan assets must be maintained in cash, units of pooled funds or other readily
marketable securities to ensure uninterrupted payment of benefits to the increasing number of
pensioners and beneficiaries and to avoid losses as a result of forced sales of assets at
unfavourable prices.

(j)

environmental, social, and corporate governance (ESG) considerations may be taken into
account in the selection, retention and realization of investments and that these factors may
affect the performance of the investment portfolios.

Target Asset Mix


The Board of Trustees believes that if the Plan's assets are invested in accordance with the following
target asset mix (the Target Mix) the investment objectives stated in subsection 3.1 may be achieved
over the long term:
Asset Class
Cash and Money-Market Instruments
Canadian Bonds
Canadian Equities
Foreign Equities:
US Equities

Benchmark Index
FTSE TMX Canada 30-Day
T-Bill
FTSE
TMX
Canada
Universe Bond
S&P/TSX Capped
Composite
S&P 500 in Cdn. Dollars

Target Mix
5%
45%
20%
30%

Given that portions of the Plan assets will be actively managed and asset classes provide differing
returns, the actual asset mix of the Plan at any time may deviate from the Target Mix.
3.4

Asset-Mix Range
The market values of the asset classes of the Plan shall be within the following minimum and maximum
aggregate limits:
Asset Class
Cash and Money-Market Instruments
Canadian Bonds
Canadian Equities
Foreign Equities
US Equities

February 2015

Minimum
0%
30%
5%

Maximum
20%
60%
35%

20%

40%

Section 3: Investments (continued)


3.5

3-3

Rebalancing
The Board of Trustees may, from time to time, rebalance the Plan's actual asset mix to achieve closer
adherence to the Target Mix for the purposes of achieving the investment objectives stated in
subsection 3.1, and shall do so primarily by selecting appropriate Portfolio(s) for monthly transfers of
funds for benefit payments and other disbursements, as detailed in the Appendix to this Statement.

3.6

Temporary Departures
The Board of Trustees may authorize temporary departures from the ranges specified in subsection 3.4.

February 2015

SECTION 4
MANAGERS
4.1

Portfolios
(1)

4.2

To achieve the Plans rate-of-return objectives, its assets shall be divided into separately
managed Portfolios, including pooled funds of money-market instruments, stocks and bonds,
as follows:
(a)

one actively-managed short-term investment fund Portfolio (STIF);

(b)

one or more actively-managed Canadian bond Portfolios;

(c)

one or more actively-managed Canadian equity Portfolios;

(d)

one or more passively-managed Canadian equity Portfolios; and

(e)

one or more passively-managed U.S. equity Portfolios.

(2)

The Board of Trustees shall provide each Manager with a mandate for the Portfolio to be
managed by it, and no Manager shall make investments in any asset category other than those
explicitly permitted in its mandate, unless the Board of Trustees first consents in writing.

(3)

All investments made by a Manager shall be made in accordance with the Code of Ethics and
Standards of Professional Conduct of the CFA Institute.

Performance Objectives Actively-Managed Portfolios


(1)

(2)

For an actively-managed Portfolio,


(a)

the primary performance objective shall be to exceed the annualized returns of the
applicable benchmark index by the targeted additional percentage prescribed for the
Portfolio in paragraph (2) below augmented by any further additional rate that may be
specified in the Managers mandate;

(b)

the secondary performance objective shall be to achieve a rank at the 40 th percentile


or better relative to the annualized returns of other managers with comparable
mandates, if any, in a well-recognised manager-performance universe.

The benchmark indices and targeted additional percentages referred to in clause (1)(a) above
shall be as follows:

Asset Class
Cash and Money-Market
Bonds
Canadian Equities

Benchmark Index
FTSE TMX Canada 30-Day TBill
FTSE TMX Canada Universe
Bond
S&P/TSX Capped Composite

Value-Added Target
(%)
0.00
0.35
1.25
.

February 2015

Section 4: Managers (continued)


4.3

4-2

Performance Objectives Passively-Managed Portfolios


(1)

For a passively-managed Portfolio


(a)

the performance objective shall be to minimize the tracking variance, being the difference between the return of the Portfolios assets and the return of the applicable
benchmark index;

(b)

the quantitative performance shall be considered satisfactory if the tracking variance is


within the following guidelines:
Tracking Variance
Range (%)

Asset Class

Benchmark Index

Canadian Equities

S&P/TSX Capped Composite

0.25%

U.S. Equities

S&P 500 in Cdn. Dollars

0.10%
.

4.4

Measurement of Rates of Return


In measuring the rate of return for any Portfolio
(a)

all calculations shall be made before investment management fees, but after transaction
costs, and over rolling four-year periods;

(b)

all index returns shall be total returns;

(c)

all foreign index returns shall be converted to Canadian dollars;

(d)

if more than one asset class is involved, calculations shall be made on the basis of benchmark index weightings and quarterly rebalancing; and

(e)

all calculations shall be on a time-weighted basis.

February 2015

SECTION 5
PERMITTED INVESTMENTS AND PORTFOLIO CONSTRAINTS
5.1

Permissible Asset Classes


(1)

In this Section,
(a)

"DBRS" shall mean Dominion Bond Rating Service;

(b)

Manager" shall mean, with respect to any asset, the Manager having responsibility for
the management of the assets Portfolio;

(c)

"the Portfolio" shall mean, with respect to any asset, the Portfolio of which the asset
forms part;

(d)

"interest asset" shall mean a money-market instrument or a bond; and

(e)

rating shall mean, with respect to any interest asset, the lowest of the asset's most
recent credit ratings, expressed in terms of the DBRS rating scheme, as publicly issued
by at least two of the three major credit rating agencies noted below:
(i)
(ii)
(iii)

DBRS;
Standard & Poor; and
Moody's

and "rating source" shall have a corresponding meaning.


(2)

(3)

Investments of the Plan may consist of assets as described in paragraph (3) below, subject to
the limitations imposed by
(a)

the Act and the Regulation; and

(b)

Section 7 (Related-Party Transactions).

The assets referred to in paragraph (2) above are as follows:


(a)

liquid assets as follows:


(i)

Canadian cash;

(ii)

money-market instruments issued or guaranteed by the Government of


Canada;

(iii)

money-market instruments of Canadian issuers other than the Government of


Canada, provided in each case that, when most recently acquired by the Plan
or, having been so acquired, when transferred by relevant Managers between
their respective Portfolios, the rating of same is not below "R-1 low", but the
Manager shall liquidate the entire holding of any such instrument from the Portfolio as prudently possible if its rating falls below "R-1 low"; or

(iv)

bonds acquired pursuant to clause (b) below, whose terms to maturity during
Plan ownership have decreased to less than One (1) Year and

February 2015

Section 5: Assets (continued)


5.1

(3)

(a)

(iv)

5-2
(A)

which, on that account only, have been designated as money-market


instruments and re-rated at or above "R-1 low"; or

(B)

which continue to be designated as bonds with rating at or above


"A low",

but the Manager shall liquidate the entire holding of any such bond from the
Portfolio as prudently possible if

(b)

(c)

5.2

(C)

it is designated as a money-market instrument and its rating falls below


R-1 low

(D)

it continues to be designated as a bond and its rating falls below A


low

bonds, including US dollar bonds, of Canadian issuers as follows:


(i)

bonds issued or guaranteed by the Government of Canada;

(ii)

bonds other than those described in subclause (b)(i) above, provided that
when acquired by the Plan they are not rated below "A low", but if any such
bond has its rating lowered below "A low" the Manager shall liquidate the entire
holding of the bond from the Portfolio within three (3) months from the date of
the lowering of the credit rating; and

common and preferred shares of corporations, but only if same do not create undue
risk of loss or impairment to Plan assets and yield a reasonably fair return/appreciation
commensurate with the nature of the risk in such investments.

General Limits
Plan assets shall be managed in accordance with

5.3

(a)

the requirements of the Regulation;

(b)

the rules and limits set out in subsections 5.3 to 5.6 of this Statement with respect to particular
asset classes; and

(c)

the prohibitions, required liquidations and limitations set out in subsections 7.2 to 7.4 of this
Statement.

Rules for and Limits on Fixed Income Investments


The following rules and limits shall apply to each fixed income Portfolio:
(a)

the par value of holdings by the Portfolio in a single bond issue, other than that of the
Government of Canada or of a province or territory of Canada, shall not exceed 10% of the par
value of the original issue;

(b)

the Manager shall report to the Board of Trustees all bond holdings in the Portfolio that exceed
5% of the par value of the original issue;
February 2015

Section 5: Assets (continued)


5.3

5.4

5-3

Rules for and Limits on Fixed Income Investments (contd)


(c)

the market value and book value of holdings by the Portfolio in a single bond issue, other than
that of the Government of Canada or of a province or territory of Canada, shall not exceed 10%
of the Portfolios assets, by market value and book value respectively;

(d)

up to 20% of the market value of the Portfolio may consist of bonds which are not readily
marketable, when, in the opinion of the Manager, they represent good value;

(e)

at least 90% of the market value of the assets of the Portfolio shall be invested in permissible
bonds, and any remaining balance, which is not so invested, shall be transferred to the Short
Term Investment Fund (STIF) referred to in clause 4.1(a);

(f)

the Portfolio shall not be invested in any asset backed commercial paper that is not sponsored
by a federally regulated Canadian bank; and

(g)

the Portfolio shall not be invested in any certificates of deposit or bankers acceptances that
were not issued by a Schedule I Canadian bank.

Rules for and Limits on Equity Investments


The following rules and limits shall apply to each equity Portfolio:
(a)

not more than 10% of the outstanding stock of any individual entity shall be held in the Portfolio;

(b)

the Manager shall report to the Board of Trustees all stock holdings in the Portfolio that exceed
5% of the outstanding securities of any individual entity;

(c)

the market value and book value of holdings by the Portfolio in any individual stock shall not
exceed 10% of the Portfolios assets by market value and book value respectively;

(d)

the proportion of the total market value of the Portfolios assets in stocks of a single industry
sector, as defined by the MSCI Barra Global Industry Classification Standard (GICS), shall not
exceed the lesser of:
(i)

three times the sectors weight in the relevant benchmark index; and

(ii)

30% of the market value of assets in the Portfolio,

except for those sectors that constitute greater than a 25% weight in the benchmark index, and
for such sectors, a maximum of the relevant benchmark index sector weight plus 5% may be
held in the Portfolio; and
(e)

at least 90% of the market value of the assets, of the Portfolio shall be invested in equities and
any remaining balance which is not so invested shall be transferred to the Short Term
Investment Fund (STIF) referred to in clause 4.1(a).

February 2015

Section 5: Assets (continued)


5.5

5.6

5-4

Permissible Types of Pooled Funds


(1)

Subject to the Board of Trustees consent, investments pursuant to subsection 5.1 may be
made by holding assets directly in securities and/or in units of pooled funds.

(2)

To the extent that assets of a Portfolio are invested in a pooled fund in accordance with
paragraph (1) above,
(a)

the investment constraints of subsection 5.1, and any other provisions of this Statement
that would otherwise be relevant, shall not apply, but the Manager shall be governed by
the investment policy for such pooled funds; and

(b)

if the investment guidelines of the pooled fund differ from the provisions of this
Statement, the Manager shall promptly provide the Board of Trustees with an
explanation of the differences.

Derivatives, Options and Futures


The Plan shall not hold any investments consisting of derivatives, futures or options.

February 2015

SECTION 6
LENDING OF CASH AND SECURITIES
6.1

Lending of Cash
The Plan may not lend cash except insofar as is contemplated by making bond or money-market
investments as described in this Statement.

6.2

Lending of Securities
The Board of Trustees may, on behalf of the Plan, enter into one or more agreements with Custodian(s)
and/or other lending agents to lend Plan assets, up to a maximum of 30% of total Plan assets, subject to
the following conditions:
(a)

the borrower is a financial institution and/or an investment dealer having a market capitalisation
(i.e., the market value of all outstanding bonds, and common and preferred capital stocks
issued by it) of at least $50 million;

(b)

the loan is secured by collateral comprising one or more of the following:


(i)

Canadian or U.S. cash;

(ii)

Canadian or U.S. Government securities;

(iii)

securities of agencies of the Canadian Government;

(iv)

securities of Canadian provinces;

(v)

irrevocable "A"-rated third-party letters of credit;

(vi)

short-term corporate paper guaranteed, or certificates of deposit issued by a Schedule I


Canadian bank;

(vii)

securities readily convertible into the underlying securities loaned; and

(viii)

commercial paper issued or sponsored by a Schedule I Canadian bank;

(c)

the total market value of collateral provided under condition (b) hereof shall be not less than
such percentage of the market value of the securities loaned as accords with prevailing
practices in the local lending market in which the loan takes place;

(d)

the market values of both the underlying securities loaned and collateral provided under
condition (b) hereof shall be determined at least daily;

(e)

if the market value of collateral provided under condition (b) hereof falls below the product of the
percentage mentioned in condition (c) hereof and the then market value of the securities
loaned, the borrower shall be obliged to provide additional or replacement collateral complying
with condition (b) hereof, to restore the minimum market value of collateral stipulated in (c)
hereof;

February 2015

Section 6: Lending of Cash and Securities (continued)


6.2

6-2

(f)

if any part of the collateral provided under condition (b) and/or condition (e) hereof is sold, the
sale proceeds shall be retained as continuing collateral for the loan or replaced by other
collateral complying with condition (b) hereof, to maintain the minimum market value of
collateral stipulated in (c) hereof; and

(g)

the agreements shall be otherwise on terms satisfactory to the Board of Trustees.

February 2015

SECTION 7
RELATED-PARTY TRANSACTIONS
7.1

Definitions
In this Statement,
(a)

"Non-Public Related-Party Investment" means a Related-Party Investment which is made other


than at a public exchange as defined in the Federal Investment Regulations;

(b)

"Related Party" means the City or its affiliates or any Manager;

(c)

"Related-Party Investment" means


(i)

the acquisition of securities of any Related Party;

(ii)

the taking of an assignment of, or any acquisition of, a loan made by a third party to a
Related Party; or
the taking of a security interest in any securities of a Related Party;

(iii)

7.2

(d)

"Nominal Value" means, with respect to a transaction by which an investment is made, not in
excess of 1% of the market value of the investment; and

(e)

"Immaterial Transaction" means one whose cost, in combination with the market value of any
Non-Public Related-Party Investments already held by the Plan, if any, does not exceed 0.5%
of the market value of all the Plans assets at the relevant time .

Prohibited Transactions in Related-Party Securities


Effective January 1, 2001, no Non-Public Related-Party Investment shall be made by the Plan except as
contemplated by subsection 7.4 of this Statement.

7.3

Liquidation of Material Related-Party Securities


Prior to January 1, 2005, any Non-Public Related-Party Investments, which were acquired by the Plan
prior to January 1, 2001, shall be disposed of to the extent that the value thereof would exceed 0.5% of
the market value of the Plan as at the first-mentioned date.

7.4

Limitation on Related-Party Securities


The Plan may, subject to compliance with all other provisions of this Statement, make a Non-Public
Related-Party Investment if same
(a)

has a Nominal Value or

(b)

constitutes an Immaterial Transaction, or

(c)

was required for the operation or administration of the Plan and the terms and conditions of the
transaction were not less favourable to the Plan than market terms and conditions.

February 2015

SECTION 8
LIQUIDITY OF PLAN ASSETS
8.1

Maintenance of Liquidity for Benefit Payments


(1)

As detailed in the Appendix to this Statement, cash required for monthly benefit payments and
other disbursements is to be raised mainly by liquidating securities from one or more bond
and/or equity Portfolios during the month and is to be transferred to the Plan's Treasury
Account.

(2)

Although managed by the City's Finance Department, the Plan's Treasury Account shall be
under the custody of the Custodian, and, as set out in paragraph A.2(1) of the Appendix, Plan
assets at a level of 2 to 3 times the current month's benefit payments are to be held in that
Account to ensure a sufficient supply of money without holding excessive amounts of cash or
low-yielding liquid assets.

February 2015

SECTION 9
VALUATION OF INFREQUENTLY TRADED ASSETS
9.1

It is expected that generally all the securities held by the Plan will have an active market and that the
values of such securities will be based on their market values.

9.2

(a)

Investments that are not regularly traded shall be valued at least annually by the Custodian in
co-operation with the relevant Manager.

(b)

When the annual valuations referred to in paragraph (1) above are made, consideration shall be
given to bid-and-ask prices, previous transaction prices, discounted cash flow, independent
appraisal values, the valuations of other comparable publicly-traded investments and other
valuation techniques that are judged relevant to the specific situation.

9.3

For untraded investment for which the Custodian has not been provided with a valuation, the relevant
Manager shall
(a)

notify the Board of Trustees within Ten (10) Days after such time as the investment ceased to
be traded; and

(b)

provide for consideration a proposed method for valuing the investment.

February 2015

SECTION 10
ALLOCATION OF RESPONSIBILITIES
10.1

Responsibilities of the Board of Trustees


The Board of Trustees, in accordance with the Act and the Regulation, shall:

10.2

(a)

review this Statement at least annually, and confirm or amend it as appropriate;

(b)

select and appoint one or more investment advisers to assist the Board of Trustees with its
duties in respect of the Plan;

(c)

select and appoint Managers to manage Portfolios defined by the Board of Trustees in
accordance with their respective mandates;

(d)

determine, from time to time, whether any or all of the Managers should be replaced;

(e)

establish a specific investment mandate for each Manager;

(f)

select and appoint one or more custodians to hold Plan assets and, if desired, to engage in
security lending activities on behalf of the Plan;

(g)

review at least annually the performance of each Manager, each Portfolio and Plan assets as a
whole;

(h)

determine the Portfolios from which cash is to be transferred to the Treasury Account of the
Plan for benefit payments and other disbursements; and

(i)

delegate to appropriate persons such responsibilities as is consistent with the efficient


administration of the Plan.

Responsibilities of Investment Managers


Each Manager shall, with respect to the Portfolio managed by it:
(a)

(b)

subject to applicable legislation and the constraints in this Statement and in accordance with its
investment mandate,
(i)

select securities within each asset class; and

(ii)

exercise all proxy rights arising from or in connection with any such securities, as long
as the proxy is instructed to advise the Manager of any conflict of interest, but subject to
any specific instruction given to the Manager by the Board of Trustees in any particular
case; and

provide to the Board of Trustees:


(i)

annual reviews of performance of and return expectations on different classes of Plan


assets under its management,

(ii)

descriptions of its current and future investment strategies regarding its specific
mandate,
February 2015

Section 10: Allocation of Responsibilities (continued)

10.2

10.3

(b)

10-2

(iii)

a warning if at any time an investment or group of investments in its Portfolio does not
comply with this Statement,

(iv)

quarterly certificates attesting to its compliance with this Statement and/or promised
pooled-fund investment parameters,

(v)

its voting rights policies,

(vi)

a report at least annually, outlining and explaining any departures from, or exceptions
to, its voting rights policies, any instances in which the Manager has voted against
corporate management, and any other extraordinary matters.

Responsibilities of Investment Advisers


Each of the appointed investment advisers shall (at the request of the Board of Trustees):
(a)

10.4

participate with the Board of Trustees in:


(i)

periodic reviews of and amendments to this Statement; and

(ii)

reviews of Managers' performance;

(b)

review, from time to time, the Monthly Transfer of Funds procedures and cash flows for benefit
payments; and

(c)

provide such other information and analysis as the Board of Trustees may request.

Responsibilities of Custodians
Each of the appointed Custodians shall:
(a)

provide to the Board of Trustees and such others as the Board of Trustees may direct monthly
financial statements of Plan assets held by it and transactions made by it during the month;

(b)

provide to the Board of Trustees such monthly and/or annual rates of return on Plan assets and
each of the asset classes held by it as are required from time to time by the Board of Trustees;
and

(c)

perform the duties required of the Custodian by law and pursuant to agreements entered into
from time to time with the Board of Trustees.

February 2015

SECTION 11
CONFLICTS OF INTEREST
11.1

Applicability
The provisions in this section shall apply to the following:

11.2

(a)

each member of the Board of Trustees;

(b)

each Manager appointed by the Board of Trustees;

(c)

each Custodian appointed by the Board of Trustees to provide custodial services for assets of
the Plan;

(d)

each adviser appointed by the Board of Trustees to provide investment advice in respect of
assets of the Plan;

(e)

each proxy appointed to exercise voting rights as contemplated by subclause 10.2(a)(ii); and

(f)

any employee or agent of any person or entity listed in any of clauses (a) to (e) hereof who
provides, or is to provide, services requested by the Board of Trustees in respect of assets of
the Plan.

Conflict of Interest
(1)

(2)

A person or entity shall be deemed to have a conflict of interest if such person or entity:
(a)

has an actual or perceived direct or indirect material association, interest, ownership or


other involvement in respect of assets, voting rights and/or cash management of the
Plan; and

(b)

has or ought to have a reason to believe that the applicability of clause (a) above may
result in an actual or perceived conflict of interest.

Without limiting the generality of paragraph (1) hereof, a material association, interest,
ownership or involvement shall include:
(a)

custodial or other possession of any asset prior to its acquisition by the Plan;

(b)

membership on the board of directors of or other non-trivial involvement with a


corporation issuing securities held or proposed to be held by the Plan;

(c)

non-trivial involvement in an existing or proposed contract for the acquisition or disposal


of an asset by the Plan; and

(d)

insider knowledge of an asset of or proposed to be acquired by the Plan or of an issuer,


participant in a transaction or owner of any such asset.

February 2015

Section 11: Conflicts of Interest (continued)

11.3

11.4

11-2

Procedure for Mandatory Disclosure of Conflicts of Interest


(1)

For the purposes of this subsection, a "relevant conflict of interest", of which a person or entity
becomes aware or ought to become aware, shall be as described in subsection 11.2.

(2)

A person present at a meeting of the Board of Trustees shall disclose the extent and nature of
the relevant conflict of interest as soon as practicable after the commencement of the meeting
and shall not take part in the discussion of, or vote on, the matter.

(3)

A person other than the Chair of the Board of Trustees not present at a meeting of the Board
shall disclose the extent and nature of the relevant conflict of interest in writing to the Chair as
soon as practicable.

(4)

The Chair of the Board of Trustees not present at a meeting of the Board shall disclose the
extent and nature of the relevant conflict of interest in writing to the Secretary and at least one
member of the Board as soon as practicable.

(5)

Every disclosure of conflict of interest shall be recorded in the minutes of the Board of Trustees
meeting at which it is first made.

Failure to Comply with the Disclosure Procedure


The failure of a person to comply with the procedure described in subsection 11.3 of this Statement will
not of itself invalidate any decision, contract or other matter.

11.5

Conflict of Interest Policy for Investment Managers


The Board of Trustees shall satisfy itself that every Manager appointed by it pursuant to subsection
3.2(a) adopts and follows a conflict-of-interest policy which, in the opinion of the Board of Trustees, is
not less stringent than the Code of Ethics and Standards of Professional Conduct adopted by the CFA
Institute.

11.6

Conflicts of Interest of a Proxy


A Manager which has appointed a proxy shall, if the Manager becomes aware before the exercise by
the proxy of its voting rights that the proxy has a conflict of interest, withdraw the appointment and forbid
the proxy from voting, unless the Board of Trustees otherwise directs in writing, and the Board of
Trustees may at its discretion do the same with respect to any of its own proxy appointees.

February 2015

SECTION 12
STATEMENT REVIEW
12.1

The Board of Trustees shall periodically, and not less frequently than annually, review this Statement, taking into account whether any developments such as the following have occurred:
(a)

governance changes;

(b)

changes to investment beliefs;

(c)

changes to risk tolerance;

(d)

changes to benefits provided by the Plan;

(e)

changes to the Plans membership demographics and liability distributions;

(f)

changes to the Plans cash flows and surplus/deficit positions;

(g)

changes to expectations for the long term risk/return trade-offs of the capital markets;

(h)

new investment vehicles;

(i)

changes to legislation; and

(j)

any practical issues that arise from the application of this Statement.

February 2015

APPENDIX
MONTHLY TRANSFER OF FUNDS
A.1

Objectives of the Monthly Transfer of Funds


The objectives of the Monthly Transfer of Funds shall be as follows:

A.2

(a)

to ensure, from time to time, that sufficient cash is available for current benefit payments and
other operating expenses; and

(b)

to provide for transfer from the appropriate portfolio(s) of Plan assets of such cash amount(s)
each month to the Treasury Account of the Plan as may be determined from time to time by the
Trustees.

Operating Procedures for the Monthly Transfer of Funds


(1)

A float equivalent to 2 to 3 times the current month's benefit payments shall be maintained in
the Treasury Account of the Plan.

(2)

The Board of Trustees shall at each monthly meeting decide the amount of cash to be
transferred during the following month in accordance with clause A.1(b) of this Appendix and
the Portfolio(s) of Plan assets from which same is to be provided.

(3)

The Manager of each relevant Portfolio of Plan assets shall, sufficiently in advance, be advised of any pending transfer to be made pursuant to paragraph (2) hereof.

(4)

All assets of the Plan held in the Treasury Account of the Plan shall be
(a)

used to meet immediate requirements for paying pensions and other expenses incurred in operating the Plan; and

(b)

to the extent not required for the purposes described in subclause (a) hereof, invested in liquid assets in accordance with this Statement of which this Appendix
forms a part.

February 2015