Attachment 1 Toronto Community Housing Corporation Investment Policy Statement

Transcription

1 Attachment 1 Toronto Community Housing Corporation Investment Policy Statement Revised: July 18, 2017 Toronto Community Housing Corporation Investment Policy Statement Revised July 18,

2 Table of Contents Section I Introduction... 3 Section II Governance and Administration... 3 Section III Fund Overview... 5 Section IV Return / Risk Considerations... 6 Section V Permitted Categories of Investments... 6 Section VI Investment Strategy... 8 Section VII Diversification and Quality Constraints... 9 Section VIII Loans and Borrowing Section IX Valuation of Investments Section X Voting Rights Section XI Conflicts of Interest Section XII Monitoring Section XIII Policy Review APPENDIX A: Description and purpose of each fund, strategic fund asset allocation, fund target / objectives and investment return benchmarks SCHEDULE A: Form of Compliance Certificate SCHEDULE B: Form of Pooled Fund Compliance Checklist

3 Section I Introduction 1.1 This statement of investment policy (the "Policy") applies to the assets (the "Fund") set aside and accumulated by the Toronto Community Housing Corporation ( TCHC ) for the purposes of meeting its various capital, financial and other contingency obligations. These include the Funds as per Appendix A that may be changed from time to time by TCHC. 1.2 The purpose of this Policy is to establish investment principles and guidelines appropriate for the purposes for which the Fund is maintained. 1.3 Any external Investment Manager (the "Manager") or other agent or advisor providing services in connection with the investment of the Fund shall accept and adhere to this Policy. 1.4 Appendix A will also stipulate the following: (d) Section II Fundamental purpose of each fund; Strategic asset classification for each fund; Funding target / objective of each fund so as to be able to continuously monitor and assess the Fund performance; and Relevant benchmarks for each fund so as to assess investment performance. Governance and Administration 2.1 The Board of Directors of TCHC has responsibility to ensure that the Fund is managed and administered in a prudent fashion. 2.2 As noted in Section 1.1 of the Policy, the Fund has been established for the purposes of meeting its various capital, financial and other contingencies. As such, the prudent operation of the Fund is the responsibility of the TCHC Board of Directors, supported by such bodies and individuals as they may nominate for the purpose. Specifically, the Board of Directors of TCHC will delegate the oversight of the design, implementation and reporting of the Fund to its Building Investment, Finance and Audit Committee, whom in turn delegates to an Investment Advisory Committee and supporting staff. 2.3 TCHC generally prohibits certain investments made in issuers which may be deemed to present undue environmental, social or governance (ESG) risks for all asset classes in its investment portfolio. It is our belief that responsible corporate behaviour with respect to ESG factors can generally have a positive influence on the long-term financial performance of our investments as well as the society as a whole. TCHC abides by the Principles for Responsible Investments (PRI) and PRI s Mission which states that: We believe that an economically efficient, sustainable global financial system is a necessity for longterm value creation. Such a system will reward long-term, responsible investment and benefit the environment and society as a whole. 3

4 2.4 Governance Functions Role of the Board In addition to the general responsibility for the prudent management of the Fund, the TCHC Board of Directors is charged with specific functions to discharge in the operation of the Fund. These functions include: Establishes terms of reference for the Building Investment, Finance and Audit Committee. Approves Investment Policy. Approves agreements and mandates with external investment managers. Receives reports of the Building Investment, Finance and Audit Committee regarding the design, implementation and reporting of the Policy, investment strategies and initiatives related to the Fund. Role of the Building Investment, Finance and Audit Committee ( BIFAC ) The BIFAC is established as a Committee of the Board. One of the responsibilities of this Committee is to assist the Board in fulfilling the responsibilities relating to capital funds and investments with an Investment Advisory Committee if needed. In that role, BIFAC oversees the design, implementation and reporting of investment policies, strategies and initiatives by Management for capital reserves and reporting and making recommendations to the Board on such matters. The BIFAC may retain external advisors as deemed necessary. Role of Investment Advisory Committee ( IAC ) The IAC is established as an advisory committee to the BIFAC. The purpose of the Committee is to assist the BIFAC in fulfilling its responsibilities in respect of capital funds, investments and other finance related matters. Responsibilities of the IAC include the following: Provide strategic advice with respect to the investment policy and strategy for capital reserves, including the investment of funds allocated for the purposes of the State of Good Repair Fund and/or other capital reserve funds; Monitor investment performance and report on implementation of the investment policy and compliance to the BIFAC; Periodically review performance reports generated by the fund manager(s) and report regularly to the BIFAC with respect to the performance of all invested funds; Conduct periodic asset allocation/manager structure review; Generate recommendations for engagement/termination of external advisors; Formulate changes, updates, revisions to Investment Policy as needed for review and approval by the BIFAC and the Board Review and recommend Investment Mandates and agreements with external advisors; and Approve and oversees the rebalancing of investments. Role of Internal TCHC Staff and External Advisors 4

5 As required and permitted by the Terms of Reference, the IAC may make use of other individuals or groups to provide specific support functions to the IAC as required. Such individuals or groups may be internal staff of TCHC or they may be external advisors such as investment Managers, Investment Advisors or Custodians. Roles of Internal TCHC Staff Recordkeeping of all statements, reports, agreements and policies; Scheduling of IAC meetings including drafting of meeting minutes; Execution of contributions and withdrawals to the funds, in accordance with the purpose of the fund or the IPS; Propose rebalancing or restructuring of the portfolio as appropriate; and Reconciliation of all statements and cash flows. Role of External Advisors Keeping of all transaction records/ forwarding of transaction reports (Custodian). The Fund s Custodian will provide monthly statements detailing all transactions in the Fund. Day to day portfolio management and preparation of performance reporting (Investment Managers). External Investment Managers will provide quarterly performance statements detailing the portfolio s past performance, prospects for future performance and a description of the strategy being followed in the investment of the Fund s assets and other information as may be required. Preparation of third party performance monitoring and assistance with projects as needed (Investment Advisor). External Investment Advisor will provide quarterly and annual third party performance monitoring of all investment managers, including an analysis of all of the Fund s portfolios, potential sources of risk and return, and an assessment of progress towards achieving the overall goals of the Fund. Section III Fund Overview 3.1 It is TCHC's responsibility to ensure that sufficient financial resources exist to properly service and maintain its financial obligations and contingencies. Significant funds have been accumulated, most of which are restricted to particular uses. 3.2 TCHC operates on a non-profit basis and, as such, none of the investment income on the Fund is subject to tax of any kind. 3.3 Each of the funds has a different expectation for contributions and payments. Nevertheless, it may be in the best interests of TCHC to commingle the assets for investment purposes of funds with similar risk and return objectives, and timelines for the following reasons: they have the same broad investment objective; commingling will provide greater opportunity of investment and diversification; and 5

6 commingling will provide for better cost-effective management of the assets. 3.4 In respect of investment reserves pertaining to capital reserves, this Policy shall adhere to the Housing Services Act ( HSA ), Shareholder Direction, the Operating Agreement with the City of Toronto ( City ) as amended and as applicable. 3.5 The primary objectives in the design of the Policy are: Earning a reasonable rate of return given investment objectives; and Ensuring assets are available as and when required. 3.6 From time to time, TCHC may have investments that are in trust of external parties, but for which it has the benefit of. TCHC will continue to monitor these investments, and incorporate the same principles as in this policy in how such investments are invested, where it is in a position to do so. Section IV Return / Risk Considerations 4.1 The return achieved on the Funds will be an important component in TCHC's ability to ensure the sufficiency of the assets. This is more important currently than in the past because of the presently lower interest rate environment and the likelihood of reduced government subsidies and grants. Both of these conditions are expected to continue for the foreseeable future. Given the above, and subject to the objectives outlined in Section 3.5, the return objectives are as reflected in Appendix A. 4.2 This Policy is designed to maximize the likelihood of attaining the Fund s objective without undue risk. 4.3 Risk and volatility should be minimized while still supporting the return requirement by maintaining diversification of securities within the Fund. Section V Permitted Categories of Investments Debt Securities (Applicable for Group 1 and 2 Funds. Refer to Appendix A) 5.1 Short term debt securities are those denominated in Canadian dollars with terms less than one year and include the following: (d) (e) (f) (g) (h) cash including deposits with OSFI regulated Canadian Schedule I banks; Government of Canada treasury bills and other notes guaranteed by the Government of Canada; Provincial T-Bills and notes guaranteed by a Province; banker s acceptances (BA s) and bank deposit notes (BDN s); commercial paper; fixed rate guaranteed investment certificates and term deposits; debt instruments (as described in 5.2) with terms less than one year; and other instruments exhibiting similar characteristics as to (g) above. 6

7 5.2 The Funds may only be invested in Canadian dollar-denominated debt instruments meeting the following criteria: nominal bonds issued or guaranteed by governments and government related entities (including mortgage backed securities with government guarantees); (d) real return bonds issued or guaranteed by governments and government related entities; publicly-traded debt securities issued by a corporation or trust; fixed rate guaranteed investment certificates and term deposits with terms greater than one year; (e) Asset Backed Securities ( ABS ) with a minimum short term credit rating of A- 1(+) by S&P, R-1(high) by DBRS or P-1 by Moody s backed by actual consumer receivables such as residential mortgages, credit card receivables and auto loans up to 5% of the total Group 1 and 2 investment market value. For purposes of the Policy, "governments" includes Canadian and non-canadian governments, provided they meet the credit rating guidelines in Section VII and their related government agencies provided that the securities of such government agencies are guaranteed by the respective governments and meet the credit rating guidelines. Equity Securities (applicable for Group 3 Funds. Refer to Appendix A) 5.3 Equity securities ( Permitted Equity Securities ) shall be limited to the following: Common shares included in S&P/TSX Composite Total Return Index or MSCI All Country World Index and preferred shares that are convertible into shares included in those indices( Eligible Shares ) Debentures convertible into Eligible Shares provided such instruments are traded or expect to trade on a recognized public exchange or through established investment dealers; (d) Rights, warrants, and special warrants exchangeable into Eligible Shares provided such instruments are traded or expect to trade on a recognized public exchange or through established investment dealers;; Units of income trusts included in the respective indices and domiciled in jurisdictions that provide limited liability protection to unit holders; and (e) Units of limited partnerships listed on a recognized public stock exchange. Implementation of the equity allocation will be made through Pooled Funds to seek investment diversification objectives. The investment approach employed by an Investment Manager will focus on capital preservation and lower than index volatility. Such volatility will be measured and reported upon by considering the market beta of the pooled fund, as referred to in section 5.4, as compared to a well-diversified market index. As well, such measures as upside and downside market capture will also be considered. As such, it will be subject to Section Investment of assets made through Pooled Funds are governed by the provisions of the Pooled Funds own investment policy, prospectus or offering memorandum ( Investment Policy ) and, unless the Pooled Fund is designed exclusively for TCHC, may not 7

8 comply with each provision of this Policy, but may nonetheless be substantially or sufficiently similar in policy to be suitable to TCHC's investment needs. TCHC must, however, seek to satisfy itself of the appropriateness of investments in the Pooled Funds through means including: Obtaining from the investment manager and/or dealer a written confirmation that the Pooled Fund is suitable for TCHC's investment needs; and Obtain a checklist or other similar statements from the investment manager or dealer, which outlines the material differences between the Pooled Funds Investment Policy and TCHC's Policy and enable TCHC to monitor these differences on an ongoing basis. A sample checklist is included in Schedule B for reference. 5.5 Subject to the following rules, futures, forwards, options, share purchase warrants, share rights and other derivatives of otherwise permissible securities may be used in Pooled Funds, only when they are regularly traded upon a recognized public exchange or issued by a recognized financial institution. Use of derivatives instruments outside of Pooled Funds is not permitted other than the Permitted Alternative Investments in Section Futures and forwards contracts, options and other derivatives may only be used to: create an asset mix position that does not leverage the Pooled Fund; replicate the performance of a capital market index; reduce risk as part of a hedging strategy. 5.7 Alternative investments ( Permitted Alternative Investments ) shall be limited to investments in funds explicitly and individually approved by the Investment Advisory Committee after due consideration of such characteristics as fee structure, manager track record, redemption restrictions, minimum subscription levels, upfront and future funding commitments, the nature of targeted investments and other relevant considerations, and shall be limited to investment in the following: (d) Infrastructure; Real Estate; Private Equity; and Private Debt 5.8 Unless specifically approved elsewhere in this Policy, the Fund may not be invested in categories of assets excluded from Section V. Section VI Investment Strategy 6.1 The following outlines the allocation of the Permitted Categories of Investment (Section V): 8

9 Percentage of Portfolio at Market Categories Permitted Investments per Section V Duration Value Minimum Maximum Group 1 Cash, Money Market, and/or other Fixed Income Debt Securities Average maturities less than 1 year 5% 60% Group 2 Fixed Income Debt Securities such as Government and/or Large Cap Corporate Bonds Average maturities of more than 1 year but less than 5 years 5% 60% Group 3 Equity Securities including Canadian, US and/or Global Equity Pooled Funds Expected to be held for 5 years or more 5% 40% Group 4 Alternative Investments Expected to be held for 5 years or more 5% 10% 6.2 The investment strategy and allocation of each Group of funds shall be reviewed annually and rebalanced as appropriate as per Appendix A. Tactical asset allocations that deviate from the strategic asset allocation ranges during the course of a year may be considered by the IAC on a temporary basis, due to significant events in the investment markets, or other factors that may arise. 6.3 The investment strategy will follow an investment approach that addresses capital preservation. In this respect, the realization of portfolio investment losses on securities from time to time will only be executed under exceptional circumstances in order to minimize further investment losses as recommended by the external Investment Manager. For greater clarity, it is the intention for all fixed income securities included in Group 1 and 2 funds to be held to maturity, unless there is a capital gain opportunity that can be realized or there is a deemed significant risk of default prior to maturity that is not yet fully reflected in the prevailing market value of the securities. Furthermore, due to the long-term nature of the Group 3 and 4 funds, to the extent that equity securities and Permitted Alternative Investments are held directly and not within a pooled fund, it is intended that equity securities and / or Permitted Alternative Investments will be held and not sold if it is in a capital loss position unless approved for sale by the TCHC Board. The decline in value of these securities must be deemed to be irreversible and the loss must not be material relative to the overall equity portfolio. Section VII Diversification and Quality Constraints 7.1 With respect to the mandates in which the Funds are invested, an Investment Manager will ensure that there is a prudent level of diversification within each asset class subject to the following limits which are based on market value. 7.2 TCHC shall ensure that the diversification requirements in each Investment Manager s mandate, in combination with the amount of assets allocated to each Manager or Pooled Fund, are consistent with the limits in this Policy and within the restrictions of application legislation 9

10 7.3 Canadian Dollar Denominated Debt In respect of the total debt content of the Fund: not more than 5% shall be invested in the debt of a single issuer other than in debt issues of, or fully guaranteed by a government having a debt rating of at least "A". However, higher concentration in securities of a single issuer will be permitted for a period of not more than 60 days, to allow for transition of the portfolios. the quality standards for fixed income investments shall be as follows: Debt Rating Maximum % of Fixed Income Portfolio Lower than BBB / Baa 0% BBB / Baa 30% A or lower 80% AA / Aa or higher no limit (d) (e) all short-term debt shall be rated at least A-1 (low) or equivalent not more than 5% shall be invested in mortgage-backed securities. the term maximum and duration limits for Group 1, 2, 3 and 4 Funds shall be specified within the Investment Manager s mandate. 7.4 Equity (applicable for Group 3 Funds only) In respect of the total equity content of the Fund: individual security holdings shall not be more than 10% of any equity portfolio. not more than 10% of the pooled fund shall be invested in stocks that have a market capitalization of less than Canadian $ 1 billion. if held in a pooled fund, a minimum of 90% of the invested assets should qualify as cash or Permitted Equity Securities. These conditions will be assessed on a continuous and marked-to-market basis, and any deviations from these conditions will be addressed within a reasonable period of time for compliance purposes. 7.6 For purposes of the limitations set forth in Sections 7.3, the debt ratings shall be the DBRS, S&P, Moody s debt ratings or equivalent at the time the debt is purchased and where such equivalent ratings differ, the lowest rating provided by any one of those agencies. In the event the rating of a debt security is downgraded to a level at which it would no longer be eligible for purchase because of such limitations, an Investment Manager does not need to immediately sell such debt security if he or she believes such action would not be in the best interests of the Fund. An Investment Manager 10

11 shall notify TCHC of the non-compliance, in any event no later than two business days upon the occurrence of a breach. Section VIII Loans and Borrowing 8.1 No part of the Funds shall be loaned to any person, including corporations (with the exception of debt instruments highlighted in 5.2). 8.2 The Investment Manager(s) responsible for investment decisions shall assess the solvency of borrowers and adequacy of collateral for loans by reference to published credit ratings and by their own analysis. The Investment Manager's analysis should include all material factors relevant to assess the ability of the borrower to repay the loan, to discharge interest obligations on the specified payment dates and to survive periods of financial adversity. New investments may not be made in debt obligations which are in default of principal or interest. 8.3 Lending of the securities of the Fund will be permitted through a recognized custodial entity and under reasonable circumstances so as to allow the Fund to earn revenues from such security lending. Collateral shall be maintained at 105% and is limited to physical securities. Any such lending will be reported to the IAC. Any other forms of material lending would require approval of the TCHC Board through recommendations of the IAC and the BIFAC. 8.4 No individual shall borrow on behalf of the Fund. 8.5 The Investment Manager(s) shall not borrow money, pledge or otherwise encumber any of the Fund's assets, except to the extent that temporary overdrafts occur in the normal course of day-to-day portfolio management. Section IX Valuation of Investments 9.1 Investments in publicly traded securities shall be valued daily at their market value. 9.2 Pooled Funds shall be valued according to the unit values published daily by the relevant and appropriate third party methods. 9.3 Pooled Funds that are invested in shall be required to provide year end audited statements, and such audited statements must be provided by the Investment Manager to TCHC within 30 days of final issuance. 9.4 Permitted Alternative Investments shall be validated through a third party external appraisal process other than the appointed TCHC investment manager prior to TCHC investing in the Permitted Alternative Investments and on an ongoing basis at least once every calendar year. Section X Voting Rights 10.1 The responsibility of exercising and directing voting rights acquired through Pooled Fund investments shall be delegated to the Investment Manager, who shall at all times act prudently and in the best interests of the Fund. The Investment Manager shall ensure 11

12 that the TCHC is provided with an up to date voting rights policy along with a record of how the Investment Manager voted the TCHC s proxies The Investment Manager shall provide annually a certificate of compliance with the Investment Manager s voting rights policy, a list of votes not in compliance with these policies. Section XI Conflicts of Interest 11.1 A conflict of interest, whether actual or potential, is defined for the purposes of this Policy as any event in which TCHC, an employee of the TCHC, any member of the IAC, the BIFAC or the Board, any Investment Manager, Investment Custodian, any Investment Advisor, or any person or company directly related to any of the foregoing, may benefit materially from knowledge of, participation in, or by virtue of, an investment decision, holding or safekeeping of the Fund Should a conflict of interest arise, the party in the actual or potential conflict, or any person who becomes aware of a conflict of interest situation, shall immediately disclose the conflict to the Chair of the IAC. The Chair of the IAC will immediately advise all members of the IAC of the details relating to the conflict and report the conflict to the Chair of the TCHC Board. Any such party will thereafter abstain from decision-making with respect to the area of conflict, and a written record of the conflict shall be maintained by the Chair of the IAC TCHC and the IAC, BIFAC, Board, internal TCHC staff and external advisors shall also abide by TCHC s conflict of interest policy At a minimum, the Code of Ethics and Standards of Professional Conduct adopted by the CFA Institute shall be expected to apply to the Investment Manager, Investment Custodian, and Investment Advisors. Section XII Monitoring 12.1 The IAC shall normally meet at intervals of not less than once every quarter, to: review progress towards funding reserve obligations monitor each Investment Manager's compliance with the Policy. A sample Compliance Certificate form is included in Schedule A for reference only; review the current economic outlook and investment plans of each Investment Manager; (d) (e) review the Fund strategy and take any action necessary to ensure compliance with this Policy; evaluate the investment performance of the Funds and each Investment Manager against industry statistics; (f) review the value of the Fund. 12

13 12.2 The rate of return objective for each asset class component of the Fund for investment performance measurement purposes is reflected in Appendix A. Section XIII Policy Review 13.1 This Policy shall be reviewed at least annually during a regularly scheduled quarterly Investment Advisory Committee meeting, but otherwise whenever a major change is necessary. Such review may be caused by: a fundamental change in the expected net cash flow or objectives of the Funds; significant revisions to the expected long-term trade-off between risk and reward on key asset classes, normally dependent upon basic economic, political, and/or social factors; (d) (e) a significant shift in the financial risk tolerance of TCHC; shortcomings of the Policy that emerge in its practical application, or substantive modifications that are recommended to TCHC by an Investment Manager, Investment Custodian, or Investment Advisor; applicable changes in legislation. APPENDIX A: Description and purpose of each fund, strategic fund asset allocation, fund target / objectives and investment return benchmarks Reserve Guidelines Percentage of Portfolio at Market CategoriesPermitted Investments per Section V Duration Value Minimum Maximum Purpose Reserves Group 1 Cash, Money Market, and/or other Fixed Income Debt Securities Average maturities less than 1 year 5% 60% Operating cash reserves and Capital Expenditures State of Good Repair Capital Expenditures Group 2 Fixed Income Debt Securities such as Government and/or Large Cap Corporate Bonds Average maturities of more than 1 year but less than 5 years 5% 60% Capital Expenditures State of Good Repair Capital Expenditures Group 3 Equity Securities including Canadian, US and/or Global Equity Pooled Funds Expected to be held for 5 years or more 5% 40% Bond Sinking Funds and Long-term Reserves Group 4 Alternative Investments Expected to be held for 5 years or more 5% 10% Bond Sinking Funds and Long-term Reserves 13

14 Market Value as at Dec. 31, 2016 Categories Permitted Investments per Section V Investment Benchmarks Market Value as at Dec. 31, 2016 % Group 1 Cash, Money Market, and/or other Fixed Income Debt Securities FTSE TMX Canada 91 Day T-Bill Index plus 10 bps. $ 123,404,177 57% Group 2 Fixed Income Debt Securities such as Government and/or Large Cap Corporate FTSE TMX Short-term Bond Index plus 20 bps. $ 73,131,255 34% Bonds Group 3 Equity Securities including Canadian, US and/or Global Equity Pooled Funds S&P/TSX Composite Total Return Index plus 50 bps $ 19,332,731 9% Group 4 Alternative Investments S&P/TSX Composite Total Return Index plus 50 bps $ - 0% Total $ 215,868, % Reserve Proposal based on Market Value as at Dec. 31, 2016 Categories Permitted Investments per Section V Reserve Proposal Reserve Proposal $ Proposed % Group 1 Cash, Money Market, and/or other Fixed Income Debt Securities Development Reserve and other current CARR/SOGR ($50 M) $ 50,000,000 23% Group 2 Fixed Income Debt Securities such as Government and/or Large Cap Corporate Bonds CARR ($67.4 M) * SOGR ($12.0 M) Working Capital and Current Debt Repayment ($66.5 M) $ 145,868,163 68% Group 3 Equity Securities including Canadian, US and/or Global Equity Pooled Funds Bond Sinking Fund ($20.0 M) $ 20,000,000 9% Group 4 Alternative Investments $ - 0% Total $ 215,868, % * As at Dec. 31, 2016, $46 M of CARR is externally restricted CARR per TCHC agreement with the Ontario Ministry of Municipal Affairs and Housing. Based on Section XIII of the Investment Policy Statement ("IPS"), this Policy (and accordingly, this allocation) shall be reviewed annually, but otherwise whenever a major change is necessary. Therefore, the IAC, BIFAC and the TCHC Board can exercise this review and re-allocation of investment reserves per Section XIII. Definition of Selected Terms for Appendix A 14

15 Capital Asset Risk Reserve ( CARR ) The purpose of this reserve is to have funding for capital repairs and expenditures in the event of funding shortfalls from other TCHC sources occur. The components of this fund are as follow: a) an externally restricted fund, as directed by the Ministry of Municipal Affairs and Housing, as tied to certain provincial properties, through a named external Capital Asset Replacement Reserve or External CARR ; and b) Internal CARR - The purpose of this portion of the reserve is to mitigate the building capital repair and expenditure risk of TCHC. Contributions to this fund are as follows: a) in respect of External CARR, contributions are regulated and required by the Ministry of Municipal Affairs and Housing (with the associated required contribution amounts/calculations); and b) Internal CARR - any other sources proposed by Management for IAC review and approval. Withdrawals to this reserve are as follows: Management requests for withdrawal for IAC review and approval. If withdrawal is requested, this portion of the fund will be included in Group 1 for asset allocation purposes given the short-term time horizon requirement. State of Good Repair Fund ( SOGR ) This reserve is set aside to maintain and keep track of proceeds received from the sale of stand-alone housing units or any other capital dispositions, with the exception of assets sold in relation to development initiatives to which such funding is required for development projects, to finance the capital repair needs of existing residential buildings. The State of Good Repair Fund ( SOGR ) also includes education tax savings, and recovery of development costs that were previously incurred by TCHC to maintain TCHC s housing stock in a state of good repair in accordance with the instructions from the City and such other contributions that may be forthcoming in the future, and as directed by the TCHC Shareholder. Permitted withdrawals are for capital expenditures deployed on TCHC properties. Development Risk Reserve This reserve is for the various ongoing development projects of TCHC. Permitted withdrawals of this fund will be for capital deployment related to development projects only. In the event of a significant and material event that requires significant cash flows be provided to the project. Contributions to this fund will be brought to the IAC for review and approval. This fund will be included in Group 2 for asset allocation purposes given the mid-range time horizon unless the use of this fund is imminent and withdrawal has been requested with the IAC and the TCHC Board of Directors. In which case, the funds will be invested in Group 1 while waiting for withdrawal. Bond Sinking Fund for Debentures Maturing in 2037 and 2040 TCHC has entered into a Credit Agreement with TCHC Issuer Trust which in turn entered into an agreement with various agents to issue two (2) long-term bonds totaling $450 Million. A 15

16 4.877% $250 Million Series A Bond which is due in May 11, 2037 and a 5.395% $200 Million Series B Bond which is due on February 22, TCHC is not required to make any principal repayments to the debenture holders on an annual basis, only the interest payments are required two (2) times per year. Establishing a sinking fund is deemed to be a prudent measure. No foreseeable principal withdrawals for this fund given that the first tranche is not due until Any contributions will be brought to the IAC for review and approval. This fund will be included in Group 3 for asset allocation purposes given the long-range time horizon. 16

17 SCHEDULE A: Form of Compliance Certificate CERTIFICATE OF COMPLIANCE [NAME OF INVESTMENT MANAGER] [Name of MANDATE] [Name of Client] (The Client ) The undersigned hereby confirms that for the period from [Date Range] and solely in connection with the above: 1. [NAME OF INVESTMENT MANAGER] has complied with the terms of the Investment Management Agreement between [NAME OF INVESTMENT MANAGER] and the Client including but not limited to the terms of the Mandate(s) (as defined in the Investment Management Agreement) and the investment restrictions in the Investor s Investment Policy Statement; and 2. [NAME OF INVESTMENT MANAGER] has complied with all applicable securities regulatory requirements relating to the investment of the Portfolio. COMMENTS: Notwithstanding the above, during the reporting period, the following exceptions are noted: 1. No exception for this period 2. Or, note the exceptions as it occurred during the reporting period [NAME OF INVESTMENT MANAGER] [Name] Investment Compliance Officer [Date] 17

18 SCHEDULE B: Form of Pooled Fund Compliance Checklist Name of Investment Manager Name of Pooled Fund ( Pooled Fund ) Toronto Community Housing Corporation (the Client ) Section references below shall, unless otherwise indicated, be references to the section of the Client s Investment Policy Statement ( IPS ) (as defined in the Subscription Agreement pursuant to which this Checklist is being delivered) The undersigned confirms that for the month ending [ ]: 1 For All Pooled Funds 1. The management of the Pooled Fund was in accordance with all the terms, conditions and guidelines stipulated in the applicable Pooled Fund s Investment Policy Statement 2. Over a four year period, performance of the Pooled Fund exceeds the investment benchmarks specified in the Toronto Community Housing Corporation Investment Policy Statement. [Appendix A] 3. Over a four year period, the Pooled Fund shall have a market beta of less than 1.00 For Equity Pooled Funds Only 4. No more than 10% of the Pooled Fund is invested in securities having a market cap of less than $1 billion (s7.4) 4. Under normal market conditions, the Pooled Fund s cash position does not exceed 10% Pass /Fail Pass Pass Pass Pass Pass Explanation 1 While certain of the enumerated items in the checklist may not be existing investment strategies/restrictions of the applicable Pooled Fund or may deviate from a Pooled Fund s investment strategies/restrictions, Investment Manager is to report any material discrepancy/deviation (i.e. Pass/Fail ) on an ongoing basis 18

19 5. No individual security on a marked-to-market basis shall represent more than 10% of the Pooled Fund 2 [s7.4] 6. Restricted securities for the Pooled Fund shall not exceed more than 10% of the Pooled Fund portfolio. [s 7.4] Pass Pass Other than what is mentioned in the Explanation section of this checklist, listed below are any other material deviations / discrepancies between the Toronto Community Housing Corporation s Investment Policy Statement and the investment strategies and restrictions and/or the performance of the Pooled Fund for the period covered by this Compliance Checklist. None (place checkmark if none) Details below: Dated: Signed by: Name of Investment Manager 2 Per the Pooled Fund Investment Policy, maximum individual issuer concentration restrictions apply at time of purchase (so restrictions could be exceeded after that point, due to market value fluctuations). 19