MCGILL UNIVERSITY PENSION FUND STATEMENT OF INVESTMENT POLICY

MCGILL UNIVERSITY PENSION FUND STATEMENT OF INVESTMENT POLICY

TABLE OF CONTENTS I - DEFINITIONS... 3 II - OVERVIEW AND PURPOSE... 5 III - PENSION ADMINISTRATION COMMITTEE... 6 3.1 Responsibilities of the Committee... 6 3.2 Delegation of Authority... 6 3.3 Monitoring and Review... 7 IV - ACCUMULATION FUND... 8 4.1 Investment Objectives... 8 4.2 Risk Tolerance... 9 4.3 Asset Allocation... 9 4.4 Equity Pool... 9 4.5 Alternative Assets... 10 4.6 Fixed Income Pool... 10 4.7 Money Market Pool... 10 4.8 Socially Responsible Investment Pool... 10 4.9 Balanced Account... 11 4.10 Glide Paths... 12 4.11 Diversification... 13 4.12 Currency Hedging... 14 4.13 Expected Rate of Return... 15 4.14 Liquidity Requirements... 16 V - PENSIONER FUND... 16 5.1 Investment Objective... 16 5.2 Risk Tolerance... 16 5.3 Asset Allocation... 17 5.4 Asset Classes... 17 5.5 Diversification... 17 5.6 Expected Rate of Return... 18 5.7 Liquidity Requirements... 18 VI - SUPPLEMENTAL FUND... 18 6.1 Investment Objective... 18 VII - PERMITTED INVESTMENTS... 19 VIII - VALUATION OF INVESTMENTS... 20 IX - LOANS AND BORROWING... 20 X - CONFLICTS OF INTEREST... 21 XI - VOTING RIGHTS... 21 XII - DERIVATIVE INSTRUMENTS... 22 ii

I - DEFINITIONS 1.1 Absolute Return Strategies shall mean an investment strategy that seeks to earn a positive return by using a variety of investment management techniques. 1.2 Accumulation Fund shall mean the portion of the Fund allocated to the benefit of unretired members of the Plan. 1.3 Act - shall mean the Supplemental Pension Plans Act of the Province of Quebec (law 116, 1989), and associated regulations as amended from time to time. 1.4 Alternative Assets shall mean any asset that is considered to be part of the following asset classes: Diversifying Assets, Infrastructure, Private Investments, Real Estate and Other Alternative Investments. 1.5 Balanced Account shall mean the default investment option established by the Committee and which shall consist of allocations to the Equity Pool, Alternative Assets and Fixed Income Pool, in such proportions as shall be determined from time to time by the Committee. 1.6 Bond Holdings shall mean a debt instrument with a maturity of more than one year. 1.7 Cash and Cash Equivalents shall mean cash and assets that are readily convertible into cash, such as money market holdings, commercial paper, bankers acceptances and treasury bills. 1.8 Committee shall mean the Pension Administration Committee, as established by the terms of the Plan in accordance with the Act. 1.9 Delegate shall mean an individual, group, or legal person to whom the Committee has delegated responsibilities in accordance with this SIP and the Act. 1.10 Diversifying Assets shall mean any investment strategies that have low or no correlation to capital markets and inflation and that seek to generate absolute returns. 1.11 Equity Pool shall mean those holdings of common and preferred shares and other such securities listed in section 7.1 and which are generally considered to be equity-like securities. 1.12 Fixed Income Pool shall mean those holdings of bonds, debentures, mortgage loans, notes, and other such securities listed in section 7.1 and which are generally considered to be debt instruments. 1.13 Fund shall mean the McGill University Pension Fund in its entirety. 1.14 Glide Paths shall mean the investment option established by the Committee and which shall consist of allocations to the Equity Pool, to Alternative Assets and to the Fixed Income Pool. The proportions of such allocations will change automatically over time in a pre-determined manner based on the age of the Plan member and the chosen risk profile. Such allocations shall be determined from time to time by the Committee. 1.15 Money Market Pool shall mean those holdings in cash, short-term investments and other such securities listed in section 7.1 and which are generally considered to be money market instruments. 3

1.16 Pensioner Fund - shall mean the portion of the fund allocated to the benefit of retired members who are in receipt of internal retirement benefits. 1.17 Part A - shall mean the part of the Plan which includes terms and provisions specifically applicable to all active and inactive members of the Plan as at December 31, 2008. 1.18 Part B - shall mean that part of the Plan which includes terms and provisions specifically applicable to all employees of the University on December 31, 2008 who were not yet eligible to join the Plan on that date and to all persons employed by the University on or after January 1, 2009, and who subsequently become members of the Plan. 1.19 Plan - shall mean the McGill University Pension Plan as amended from time to time. 1.20 Plan Document shall mean the instrument describing the McGill University Pension Plan, as amended from time to time. 1.21 Minimum Benefit Amount - shall mean the amount calculated in accordance with section 7.2 of the Plan Document. 1.22 SIP - shall mean the Statement of Investment Policy established through this instrument as it may be properly amended from time to time. 1.23 Recognized Bond Rating Agency shall mean any one of Standard & Poor s, Moody s Investor Services and Dominion Bond Rating Service. 1.24 Secretary shall mean the secretary of the Pension Administration Committee. 1.25 Socially Responsible Investment Pool shall mean those equity, fixed income holdings and cash and cash equivalent holdings and other such securities listed in Schedule 7.1 which are generally considered to be equity, fixed income and money market securities which are managed within a socially responsible investment framework. 1.26 Supplemental Fund shall mean the portion of the Fund to which allocations are made to cover liabilities arising in respect of the minimum benefit provision and which holds contributions related to the amortization of any actuarial deficiencies which may arise under the Plan. 1.27 University shall mean McGill University or the Board of Governors thereof, as the context requires. 4

II - OVERVIEW AND PURPOSE 2.1 The Plan provides retirement benefits for the staff of the University. Effective January 1, 2009, Part A of the McGill University Pension Plan applies to all persons who were active or inactive members of the Plan as at December 31, 2008. The pension for each member covered in Part A is determined in accordance with the accumulated value of the member s pension account at retirement under a defined contribution arrangement. There is a Minimum Benefit Amount determined according to a highest average earnings formula whereby any shortfall in benefit will be funded by the University out of the Supplemental Fund. Effective January 1, 2009, Part B of the McGill University Pension Plan applies to all employees of the University on December 31, 2008 and who were not yet eligible to join the Plan at that time and to all persons employed by the University on or after January 1, 2009 and who subsequently become members of the Plan. The pension for each member covered by Part B is determined in accordance with the accumulated value of the member's pension account at retirement under a defined contribution arrangement. 2.2 There are three liability segments that have significantly different implications for the investment of their respective assets. These segments are: (a) the liabilities in respect of unretired members whose assets are invested in the Accumulation Fund, (b) the liabilities in respect of retired members which are funded from assets invested in the Pensioner Fund, and (c) the liabilities in respect of supplementary pensions required to meet the minimum benefit provision and contributions related to the amortization of any actuarial deficiencies which may arise under the Plan for which assets are invested in the Supplemental Fund. Accordingly, different investment policies apply to each liability segment. Together they include all relevant considerations to formulate an appropriate policy for the Plan as a whole. 2.3 The Accumulation Fund is composed of an Equity Pool, an Alternative Asset class, a Fixed Income Pool, a Money Market Pool and a Socially Responsible Investment ( SRI ) Pool. A Balanced Account and Glide Paths are also available consisting of allocations to the Equity Pool, the Alternative Assets and the Fixed Income Pool, in proportions determined by the Pension Administration Committee (the "Committee") from time to time on the basis of prevailing economic conditions. In order to permit members a degree of control over investment strategy and risk exposure, members can designate the specific percentage of their holdings, and the percentage of each ongoing pension contribution, which is to be directed to each pool or to the Balanced Account. Assets are, by definition, equal to liabilities and there can be no surpluses or deficits in the fund. 2.4 The Pensioner Fund contains the assets required to finance the benefits for retired staff who are eligible for and who have opted for an internal pension settlement. In such cases, assets are transferred from the Accumulation Fund to the Pensioner Fund as of the member s retirement date. On January 1, 2011, the Pensioner Fund became a closed pool of capital as McGill University terminated the issuance of internal annuities to retiring employees. 2.5 The Supplemental Fund contains the assets required to finance the liabilities of the Minimum Benefit Amount and holds all contributions related to the amortization of any actuarial deficiencies which may arise under the Plan. The Supplemental Fund is financed mainly by the University through supplemental contributions and any surpluses or deficits which may arise will accrue to the credit of, or become the liability of, the University. 5

2.6 The purpose of this Statement of Investment Policy (the "SIP") is to formulate investment guidelines which are appropriate to the needs and circumstances of the Plan in a manner which conforms to the requirements of the Act. The SIP establishes investment principles and guidelines which give particular consideration to the benefit provisions and investment options described herein and the general characteristics and financial obligations of the Plan. 2.7 This SIP may be changed or modified at any time by resolution of the Committee. It shall be reviewed as and when the Committee deems appropriate, but not less often than annually, and shall be amended as required to reflect changes in investment objectives, investment strategy, investment markets, investment vehicles, economic factors, benefit design, legislation and such other factors as the Committee shall consider relevant. 3.1 Responsibilities of the Committee III - PENSION ADMINISTRATION COMMITTEE The Committee has been appointed in accordance with the terms of the Act and the procedures described in the Plan Document and, in accordance with the authority and powers set out in such instruments, is responsible for all aspects of the administration of the Plan and the investment of the assets of the Fund including drafting and reviewing the SIP from time to time. 3.2 Delegation of Authority 3.2.1 The Committee may delegate its responsibilities under this SIP in accordance with the Act and as it deems appropriate. All such Delegates shall be chosen on the basis of professional ability and competence to act as agents for or advisors to the Committee. The Committee shall also make changes in such Delegates from time to time, as may be deemed by the Committee to be in the best interests of the beneficiaries of the Plan. 3.2.2 The Committee has delegated to an investment committee (the Pension Investment Committee ) the responsibility for the investment of the Fund s assets and for monitoring investment activities, according to the SIP approved by the Committee, applicable legislation and investment practices that the Committee may establish. a) The Pension Investment Committee is responsible for recommending changes to the SIP to the Committee, for approving the manager structure, for selecting investment managers (the Managers ), for monitoring and terminating contracts entered into with Managers or with other agents or advisors involved in the management of the Fund, approving investment related expenses in accordance with the annual investment budget, monitoring compliance with the SIP and Fund investment policies and guidelines and monitoring compliance of the Office of Investment Staff with their mandate. The Pension Investment Committee is also responsible for monitoring investment returns and different aspects relating to the performance of Managers and informing the the Committee of any relevant issues. b) The Committee has delegated to the Office of Investment the responsibility of: i) performing all routine and day-to-day investment decisions and making all decisions relating to the asset allocation between Managers within the Fund; 6

ii) monitoring Managers performance, strategy and compliance with investment mandates; iii) providing guidelines and instructions to the Managers, custodian and other agents, in accordance with the SIP; iv) acting as an investment advisor to the Pension Investment Committee and the Committee; v) recommending changes to SIP, the strategic asset allocation and the Manager structure; vi) signing contracts and agreements with all investment related service providers after submitting for review to legal advisor; vii) executing and monitoring the derivative transactions related to currency hedging. 3.2.3 The Committee may adopt regulations with respect to the delegation of responsibilities and establish mandates to govern the delegated responsibilities and the powers of the corresponding Delegates. 3.2.4 The mandate to be given to a Delegate shall include guidelines establishing the parameters within which the Delegate will operate, including, but not limited to, limits of discretion, diversification permitted, quality standards and performance expectations. 3.2.5 Each Delegate appointed as a Manager, shall be given an individual investment management mandate which may differ from Manager to Manager, but which in the aggregate will conform to the asset mix policies set out herein for each respective fund. Each Delegate providing services in connection with the investment of any portion of the assets of the Fund shall accept and adhere to this SIP where applicable. 3.2.6 Where responsibilities for carrying out any aspects of this SIP have been delegated, any reference in this SIP to the Committee shall be read as a reference to the appropriate Delegate as much as such delegated responsibilities are concerned. 3.2.7 The Committee shall maintain a current description of the administrative and investment structure of the Plan and the Fund. 3.3 Monitoring and Review 3.3.1 The Committee shall monitor and review the performance of the Fund and of each Delegate at intervals to be determined by the Committee, but not less frequently than annually. 3.3.2 Each such review shall include an assessment of the asset allocation policies currently in place for the Fund and each of its individual components. 3.3.3 Each such review shall include an assessment of the performance of each of the respective Delegates. If the Delegate has been given an investment mandate, such assessment shall include a review of the following: (a) compliance with the mandate granted; (b) compliance with the asset allocation policy; (c) investment performance relative to return objectives; 7

(d) value added through active management; 3.3.4 Following each such review, the Committee shall take such action as might be necessary to ensure compliance with this SIP. 4.1 Investment Objectives IV - ACCUMULATION FUND 4.1.1 It is understood that individual objectives and risk tolerances will vary according to personal and financial characteristics specific to each member. However, the broad objective of members covered by Part A is to accumulate a basic pension benefit which exceeds the Minimum Benefit Amount, and the broad objective of members covered by Part B is to accumulate pension savings. Consequently, after allowing for the investment choices of individual members who have chosen investment options other than the Balanced Account, the Committee will structure the asset mix of the Balanced Account in such a manner as to produce an investment mix for the Balanced Account with a significant content of equities or equity equivalents. 4.1.2 The investment objective of the Equity Pool is to provide long-term capital appreciation and income by investing in a diversified portfolio of Canadian and foreign equity securities. 4.1.3 The investment objective of the Alternative Assets is to provide long-term capital appreciation and income with a focus on capital preservation, by investing in a diversified portfolio of Alternative Assets. 4.1.4 The investment objective of the Fixed Income Pool is to provide a predictable source of income, to improve the match between assets and liabilities, to reduce volatility of investment returns and to provide a hedge against deflation, by investing in a diversified portfolio of primarily Canadian fixed income and floating rate securities. An allocation to real-return bonds may be used to provide a hedge against inflation. 4.1.5 The investment objective of the Money Market Pool is to maintain capital, provide stable returns and maintain liquidity. 4.1.6 The investment objective of the SRI Pool is to optimize capital accumulation over the long term, while following an investment framework that incorporates issues related to socially responsible investing. 4.1.7 The investment objective of the Balanced Account is to optimize capital accumulation over the long-term through allocations to the Equity Pool, to Alternative Assets and to the Fixed Income Pool, as determined by the Committee from time to time. 4.1.8 The investment objective of the Glide Paths is to optimize capital accumulation over the long-term through allocations to the Equity Pool, to Alternative Assets and to the Fixed Income Pool based on the chosen risk profile and age of the Plan member, as determined by the Committee from time to time. 8

4.2 Risk Tolerance 4.2.1 Investments in the various options expose both the members and the University to investment return risk. For members, covered by Part A, the primary risk evolves from the possibility that inadequate capital accumulation will reduce pension expectations to the Minimum Pension Amount. For members covered under Part B, the primary risk evolves from the possibility that inadequate capital accumulation will reduce the value of their pension account. For the University, the primary risk is that inadequate capital accumulation will increase actuarial deficiencies and contributions required by the Supplemental Fund. Short-term return volatility is therefore a significant risk to both the participants and the University. 4.2.2 Understanding the variables that impact the liabilities of the pension plan is a key factor to the implementation of a proper asset-liability strategy. As a Canadian public pension plan, the University s funding requirements are evaluated on a going-concern basis only. Until a participant reaches retirement age, the liability of his pension is calculated using a discount rate equivalent to the weighted-sum of the expected long-term return of each asset class comprised in the asset mix. However, unlike most other public pension plans, the University s Plan remains exposed to Canadian government long term interest rates because the liability, if any, is crystalized at retirement (at the latest) by paying out to the participant the equivalent of an annuity. 4.3 Asset Allocation 4.3.1 The assets of the Accumulation Fund shall be held in four distinct pools: the Equity Pool, the Fixed Income Pool, the SRI Pool and the Money Market Pool, in addition to the Alternative Assets as defined herein, and in the Balanced Account and Glide Paths, which hold investments in the Equity Pool, the Alternative Assets and in the Fixed Income Pool. 4.3.2 The proportion of Accumulation Fund assets to be assigned to each pool shall be derived from: (1) the specific investment choices of participants who have chosen investment options other than the Balanced Account, (2) the allocation to the Equity Pool, the Alternative Assets and the Fixed Income Pool, as determined by the Committee, for participants choosing the Balanced Account option; and (3) the target asset mix of the various Glide Paths (as defined in Section 4.10). 4.3.3 The management of the Equity Pool, the Alternative Assets and the Fixed Income Pool may require that either pool may contain such cash balances or cash equivalents as may be required to meet liquidity requirements. 4.4 Equity Pool 4.4.1 The investments of the Equity Pool shall be classified into the following major asset classes: Canadian equities, Global equities (U.S. equities, non-north-american equities) and cash and cash equivalents or any security resulting from the conversion, reorganization or arrangement related to an original investment in equities or in money market securities. 4.4.2 In order to attain the investment objectives outlined in Sections 4.1.2, a high degree of short-term return volatility, mitigated by diversification, will be accepted in the Equity Pool in pursuit of longterm capital appreciation and higher expected return. 4.4.3 Investments may be made in the above asset classes by direct investment or through pooled funds, commingled funds or mutual funds investing in one or more of such asset classes. 9

4.5 Alternative Assets 4.5.1 The Alternative Investments shall be classified as follows: real assets (real estate and infrastructure), private investments, diversifying assets, other alternative investments, cash and cash equivalents or investments resulting from the conversion, reorganization or arrangement within these particular asset classes. 4.5.2 In order to attain the investment objectives outlined in Sections 4.1.3, a moderate to high degree of short-term return volatility, mitigated by diversification, will be accepted in the Alternative Assets in pursuit of long-term capital appreciation and investment income. 4.5.3 Investments may be made in the above asset classes by direct investment or through pooled funds, commingled funds or mutual funds investing in one or more of such asset classes. 4.6 Fixed Income Pool 4.6.1 The investments of the Fixed Income Pool shall be classified into the following major asset classes: nominal and real return bonds, loans including mortgage loans, cash and cash equivalents or any security resulting from the conversion, reorganization or arrangement related to an original investment in fixed income or in money market securities. 4.6.2 In order to attain the investment objective outlined in Section 4.1.4, a moderate degree of shortterm return volatility will be accepted in the Fixed Income Pool. 4.6.3 Investments may be made in the above asset classes by direct investment or through pooled funds, commingled funds or mutual funds investing in one or more of such asset classes. 4.7 Money Market Pool 4.7.1 The investments of the Money Market Pool shall be classified into the following major asset classes: cash, cash equivalents and bonds. 4.7.2 In order to attain the investment objective outlined in Section 4.1.5, a low degree of short-term return volatility will be accepted in the Money Market Pool. 4.7.3 Investments may be made in the above asset classes by direct investment or through pooled funds, commingled funds or mutual funds investing in one or more of such asset classes. 4.8 Socially Responsible Investment Pool 4.8.1 The investments of the SRI Pool shall be classified into the following major asset classes: Canadian equities, Global equities (U.S. equities, non-north-american equities), bonds, cash and cash equivalents. 4.8.2 Investments may be made in the above asset classes by direct investment or through pooled funds, commingled funds or mutual funds investing in one or more such asset classes 10

4.8.3 When investments are made through pooled funds, commingled funds or mutual funds, the asset mix, asset classes and diversification will be determined by the respective Manager from time to time. The Committee shall review such parameters periodically. When investments are made directly, the asset mix, asset classes and diversification will be that stipulated from the Committee from time to time. 4.8.4 In order to attain the investment objective outlined in Section 4.1.6, a moderate to high degree of short-term return volatility will be accepted in the SRI Pool in pursuit of long-term capital appreciation. 4.9 Balanced Account 4.9.1 The investments of the Balanced Account shall be classified into the following major asset classes: Canadian equities, global equities, real assets (real estate and infrastructure), private investments, diversifying assets, other alternative investments, bonds, cash and cash equivalents or any security resulting from the conversion, reorganization or arrangement related to an original investment in any securities. 4.9.2 In order to attain the investment objectives outlined in Sections 4.1.7, a moderate to high degree of short-term return volatility will be accepted in the Balanced Account in pursuit of long-term capital appreciation. Such short-term return volatility will be moderated through the diversification of assets. 4.9.3 The asset allocation shall be as follows: Asset Class Min (%) Mid (%) Max (%) Equity Pool 30 45 63 Canadian Equity 10 15 20 Global Equity 20 30 40 Cash and Short Term 0 0 3 Alternative Assets 10 20 40 Real Assets (Real Estate + Infrastructure) 5 10 15 Private Investments 3 5 10 Diversifying Assets 0 5 8 Other Alternative Investments 0 0 5 Fixed Income Pool 25 35 55 Cash & Cash Equivalent 0 0 5 Bonds 25 35 50 11

4.9.4 Benchmarks for publicly traded securities must be publicly quoted and readily investable. The benchmark for the Balanced Account will be defined as follows: Weight Benchmark Benchmark Definition 45 % Public Equity Benchmark 1/3 S&P/TSX Composite Index 1/3 S&P 500 (50% USD Hedged) 1/3 MSCI All Country World Index ex-us 20% Alternative Assets Benchmark 50% Real Assets Benchmark (CPI + 4%) 25% Private Investments Benchmark (50% (2/3 S&P500 (50% USD Hedged) + 1/3 MSCI Europe + 3%) + 50% (FTSE TMX 30-Day T- Bill + 5%)) 25% Diversifying Assets Benchmark (US T- Bills (50% USD Hedged) + 5%) 35% Fixed Income Pool Benchmark 100% FTSE TMX Canada Bond Universe 4.10 Glide Paths 4.10.1 The Glide Path options shall make investments in the Equity Pool, the Alternative Assets and the Fixed Income Pool of the Accumulation Fund in such proportion as defined by the risk profile selected by the Plan member and the age of the Plan member. 4.10.2 Three risk profiles are available to Plan members who select the Glide Path options: conservative, moderate and aggressive. 4.10.3 The asset allocation within the risk profiles will vary according to the following age groups: (1) below 30 years of age, (2) between 30 and 39 years of age, (3) between 40 and 49 years of age, (4) between 50 and 59 years of age, (5) between 60 and 65 years of age, and (6) 66 years of age and above. 4.10.4 There are six available asset mix funds. The asset allocation for the asset mix funds and risk profiles shall be as follows: 12

4.11 Diversification Each of the investment options in Subsections 4.4 to 4.10 preceding shall, within themselves and to the extent practicable, be appropriately diversified with respect to source of return, geographic dependence, sector and marketability. No more than 5% of the market value of the Equity Pool shall be invested in the equity issues of any one corporation. 4.11.1 No more than 5% of any one publicly-traded issuer shall be held by the Accumulation Fund, without written approval of the Committee. 4.11.2 No more than 30% of the market value of the public equity in the Equity Pool shall be invested in any single sector as defined by the Committee, such limit to be determined on a global basis which recognizes national concentrations in specific sectors. 13

4.11.3 Foreign holdings shall be broadly diversified by region and country, having due regard to the scope of national economic activity and stock market capitalizations. 4.11.4 No more than 25% of the market value of the Equity Pool shall be invested in small cap corporations as defined by the Committee. 4.11.5 No more than 5% of the market value of the Equity Pool shall be invested in private placements (excluding real assets and private investment holdings) for which marketability may be restricted. 4.11.6 No more than 5% of the market value of the Fixed Income Pool and no more than 5% of the market value of the Money Market Pool shall be invested in the debt of a single issuer, other than the central government of the G7 countries, or a province of Canada. 4.11.7 For fixed income instruments within the Fixed Income Pool and the Money Market Pool, a credit rating from a Recognized Bond Rating Agency is not mandatory for a Canadian government issuer, which includes federal, provincial and municipal entities nor for investment in Private debt funds. 4.11.8 A minimum of 75% of the Fixed Income Pool shall be invested in rated investment grade debt instruments, that is, debt instruments having a credit rating at or above BBB or equivalent, as established by a Recognized Bond Rating Agency. Also, excluding fixed income instruments of non-rated Canadian governmental issuers, a maximum of 15% of the total market value of the Fixed Income Pool shall be invested in non-rated debt instruments, including private debt funds. New investments shall be permitted in instruments having a credit rating lower than B or equivalent up to a maximum of 2% of the market value of the Fixed Income Pool. 4.11.9 The minimum quality standard for the Money Market Pool for individual bonds and debentures is A or equivalent as established by a Recognized Bond Rating Agency. The minimum quality standard for the cash component of the Equity, Fixed Income and Money Market Pools is R-1 low or equivalent as established by a Recognized Bond Rating Agency. 4.11.10 No more than 10% of the market value of the total real estate portfolio shall be invested in a single property, such limitations may be relaxed by the Committee if total real estate and mortgage holdings represent less than 10% of the total market value of the Accumulation Fund. 4.11.11 In the event that the classification, quality, rating, nationality, or any other attribute of any security is altered or adjusted through the normal course of business activity in such a manner as to cause it to be in violation of any of the limits or requirements specified herein, the Committee will take such steps as may be required to ensure compliance with this SIP in an orderly and timely manner. 4.12 Currency Hedging 4.12.1 Given that the Accumulation Fund s liabilities are in Canadian dollars and given the short-term volatility of currency rates together with the meaningful exposure of the portfolio to the U.S. dollar, it is appropriate to hedge the effect of such U.S. dollar exposure by implementing currency hedging bands with respect to the U.S. dollar through the use of currency forward contracts. 14

4.12.2 The currency hedging bands are set as follows: 4.12.3 In order to allow for the volatility of the hedge ratio caused by market movements, the hedging ratio could vary within +/- 10% without requiring a rebalancing. 4.12.4 In addition to the U.S. dollar hedging, other currencies (e.g. EUR), as accepted from time to time by the Committee, can be hedged through the use of currency forward contracts. 4.13 Expected Rate of Return FX CAD Rate (1 CAD = USD) Hedge Ratio of USD 1.00 +/- 0.05 < CAD 25% (+/-10%) 0.70 < CAD 1.00 50% (+/-10%) CAD 0.70 +/- 0.05 75% (+/-10%) The expected rate of return for the investment options of the Accumulation Fund will be as follows: Equity Pool: Alternative Assets Fixed Income Pool: Money Market Pool: SRI Pool: Balanced Account: Glide Paths: 5.00% plus the annual change in the Canadian Consumer Price Index, calculated as an average annual compound rate of return over one or more complete economic cycles. 4.5% plus the annual change in the Canadian Consumer Price Index, calculated as an average annual compound rate of return over one or more complete economic cycles. 1.50% plus the annual change in the Canadian Consumer Price Index, calculated as an average annual compound rate of return over one or more complete economic cycles. The return, on the FTSE TMX 30-Day Treasury Bill Index, calculated as an average annual compound rate of return for the last three consecutive years. 3.6% plus the annual change in the Canadian Consumer Price Index, calculated as an average compound rate of return over one or more complete economic cycles. 3.7% plus the annual change in the Canadian Consumer Price Index, calculated as an average annual compound rate of return over one or more complete economic cycles. The expected rate of return in the Balanced Account is a function of the weighted average of the expected rates of return for the Equity Pool, the Alternative Assets and the Fixed Income Pool. The expected rate of return for each risk profile will be a blend of the expectations specified above, determined in accordance with the specific asset allocation strategy of the risk profile and the age of the individual Plan member. 15

The expected rate of return for an individual member will be a blend of the expectations specified in Subsection 4.13, determined in accordance with the specific asset allocation strategies followed by such member while participating in the Plan. 4.14 Liquidity Requirements A sufficient portion of the assets of the Accumulation Fund shall be maintained in cash, liquid securities or investments which will generate a regular stream of income in order to ensure that liquidity is present to meet the following needs: (a) payment of benefits due at death, termination of service or retirement; (b) payment required under the currency hedging strategy; (c) asset mix changes or adjustments required to meet the mix objectives set by the Committee from time to time for the Balanced Account and investment option changes requested by individual members; (d) the general liquidity required to facilitate active management of the Accumulation Fund; (e) payment of administrative costs chargeable to the fund. 5.1 Investment Objective V - PENSIONER FUND The investment objective of the Pensioner Fund shall be to optimize the performance of the fund over the long term, to provide enhancements of pension amounts in accordance with the Plan Document and to minimize the possibility of actuarial deficiencies. 5.2 Risk Tolerance 5.2.1 The Pensioner Fund exposes the Pensioner Fund members, Part A active members and the University to investment return risk. Pensioner Fund members are exposed to the possibility that investment returns will not be strong enough to allow for an increase of the annuity dividend program. For the University and Part A active members, the primary risk is that if investment returns on the fund are not sufficient to avoid an actuarial deficiency, the University and Part A active members will be required to make payments to the fund to finance the actuarial deficiency thus arising. Inadequate returns are therefore a significant risk to the Pensioner Fund members, Part A active members and the University. 5.2.2 In order to attain the investment objective outlined in Section 5.1, a moderate to high degree of short-term return volatility will be accepted in the Pensioner Fund. 5.2.3 Such return volatility will be moderated through the diversification of assets. 16

5.3 Asset Allocation 5.3.1 The asset mix of the Pensioner Fund shall have no more than 65% of the market value in fixed income, and no more than 65% in equities and real estate, as determined by the Committee from time to time. Cash and cash equivalents shall be held as required to meet short-term obligations of the fund and by individual Delegates (Managers), as permitted by the Committee. From time to time other such securities as are listed in Section 7.1 may be acceptable investments subject to the approval of the Committee. 5.3.2 Liability Driven Investment strategies can be included from time to time as deemed appropriate by the Committee to immunize a portion of the Pensioner Fund with regards to its liabilities (pension payments). 5.4 Asset Classes 5.4.1 The investments of the Pensioner Fund shall be classified into the following major asset classes: bonds (fixed and floating rate), real estate holdings, Global equities, cash and cash equivalents or any security resulting from the conversion, reorganization or arrangement related to an original investment in any securities. 5.4.2 As of June 30, 2017, the asset allocation shall be as follows: Asset Class Min (%) Mid (%) Max (%) Equity 35 50 60 Real Estate 0 0 15 Total Equity and Real Estate 35 50 65 Fixed Income Cash & cash equivalent 0 0 10 Bonds 35 50 60 Total Fixed Income 35 50 65 5.4.3 Investments may be made in the above asset classes by direct investment or through pooled funds, commingled funds or mutual funds investing in one or more of such asset classes. 5.5 Diversification 5.5.1 Each of the major asset classes specified in Subsection 5.4.1 preceding shall, within themselves and to the extent practicable, be appropriately diversified with respect to source of return, geographic dependence and industry. 5.5.2 No more than 5% of the market value of the Pensioner Fund shall be invested in the equity or debt of a single issuer, other than the Government of Canada, or a province of Canada. 5.5.3 A minimum of 80% of the market value of the Pensioner Fund fixed income asset class shall be invested in rated investment grade debt instruments, that is, debt instruments having a credit rating at or above BBB or equivalent, as established by a Recognized Bond Rating Agency. Also, excluding fixed income instruments of non-rated Canadian governmental issuers, a maximum of 17

10% of the total market value of the fixed income asset class shall be invested in non-rated debt instruments. 5.5.4 The minimum quality standard for cash and cash equivalents held in the Pensioner Fund is R-1 low or equivalent as established by a Recognized Bond Rating Agency. 5.5.5 In the event that the classification, quality, rating, nationality, or any other attribute of any security is altered or adjusted through the normal course of business activity in such a manner as to cause it to be in violation of any of the limits or requirements specified herein, the Committee will take such steps as may be required to ensure compliance with this SIP in an orderly and timely manner. 5.6 Expected Rate of Return The minimum expected rate of return of the Pensioner Fund is set at 3.25% plus the annual change in the Canadian Consumer Price Index, calculated as an average annual compound rate of return over one or more complete economic cycles. 5.7 Liquidity Requirements A sufficient portion of the assets of the Pensioner Fund shall be maintained in cash, liquid securities or investments which will generate a regular stream of income in order to ensure that liquidity is present to meet the following needs: (a) payment of semi-monthly pension payment reimbursements to the University; (b) the general liquidity required to facilitate active management of the Pensioner Fund; (c) payment of administrative costs chargeable to the fund. 6.1 Investment Objective VI - SUPPLEMENTAL FUND 6.1.1 The investment objective of the Supplemental Fund shall be to optimize capital accumulation over the long term while ensuring sufficient liquidity to meet all current liabilities. 6.1.2 Since the liabilities of the Supplemental Fund are directly related to the performance of the Balanced Account of the Accumulation Fund, and since the investment objective of the Supplemental Fund is essentially similar to that of the Balanced Account, it shall be the policy of the Committee to invest a majority of the assets of the Supplemental Fund in the Balanced Account. For such purpose, the Committee will create a subaccount of the Balanced Account for the investment of such assets and the Supplemental Fund will be subject to all of the policy limitations set out in Article IV which pertain to such Balanced Account. 18

VII - PERMITTED INVESTMENTS 7.1. The Fund may invest in any or all of the following asset categories and subcategories. Investments may be made in the following asset categories by direct investment or through pooled funds, commingled funds or mutual funds investing in one or more of such asset categories. (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) (m) (n) publicly traded common stocks, convertible debentures, depositary receipts, preferred securities, income trust units, exchange traded funds (ETFs) or instalment receipts; bonds, debentures, notes or other debt instruments of governments, government agencies, or corporations; private placements, whether debt or equity, of agencies or corporations; securities, whether debt or equity, of private companies; loans including mortgage loans; investments or participation rights in venture capital, private investments and mezzanine financing, purchased directly, through closed or open-end pooled funds, or through participating debentures or shares of corporations or partnerships formed to invest in such asset classes for pension funds; diversifying assets including absolute return strategies and other uncorrelated strategies or funds invested in these strategies through closed or open-end funds; real estate, purchased directly, through closed or open-end pooled funds, through participating debentures or shares of corporations or partnerships formed to invest in real estate for pension funds, or through real estate investment trusts (REITs) or real estate listed securities; natural resource properties or participation rights, purchased directly, through closed or open-end pooled funds, or through participating debentures or shares of corporations or partnerships formed to invest in such assets for pension funds; derivative instruments described in section 12 of this SIP; commodities, futures, forward contracts or options related to commodities, precious metals, bullion, collectibles, currencies or livestock; infrastructure assets, purchased directly, through closed or open-end pooled funds or in listed securities; guaranteed investment contracts or equivalent instruments of insurance companies, trust companies, banks or other eligible issuers, or funds which invest primarily in such instruments; annuities, deposit administration contracts or other similar instruments regulated by the Canadian and British Insurance Companies Act (Canada) or comparable provincial law, as amended from time to time; 19

(o) (p) (q) term deposits or similar instruments of trust companies and banks; cash, or money market securities or any security resulting from the conversion, reorganization or arrangement related to an original investment in money market securities; mutual funds, pooled funds or segregated funds eligible for pension fund investment, which may invest in any or all of the above instruments or assets. 7.2. Such investments may be securities or obligations of Canadian or non-canadian entities, subject to such limitations as may be contained in the Act and/or federal and Quebec Income Tax laws. 7.3. Currency diversification shall be permitted. Such currency risk exposures may be offset through the implementation of a hedge ratio, executed using forward contracts and other strategies as determined by the Committee from time to time. VIII - VALUATION OF INVESTMENTS 8.1. Investments in publicly traded securities held in the Fund shall be valued no less frequently than monthly at stated market values. 8.2. Non-traded real assets and private investments held in the Fund shall be valued by the Manager of the account at the most recently determined appraised value, unless otherwise determined by the Committee. 8.3. Investments in pooled funds shall be valued according to the most recent market values provided by the pooled fund Manager. IX - LOANS AND BORROWING 9.1. Subject to the provision for mortgage loans set out in Section 9.2, no part of the Fund shall be loaned to any individual. Loans shall be limited to investments in bonds, debentures, or other debt instruments of governments, government agencies or such corporations as may be permitted by the terms of this SIP. 9.2. Notwithstanding Section 9.1, mortgage loans shall be allowed provided that the total value of the mortgage, together with other indebtedness on the property of equal or superior rank, does not exceed 75% of the market value of the property calculated as of the issue date, unless any excess over 75% is fully insured, non-recourse or otherwise guaranteed, unless otherwise approved by the Committee. 9.3. At least 60% of the portion of the capital value of the fund that is invested in mortgages on properties broadly classified as residential shall be guaranteed under the National Housing Act or otherwise insured, unless otherwise approved by the Committee. 9.4. The Committee may approve the lending of securities, subject to applicable legislation and provided, where no indemnification agreement is present, that minimum collateral coverage of at least 105% of the current market value of the loaned securities is maintained at all times in cash or 20

high quality liquid securities. The Committee may approve the lending of securities on the basis of lower collateral coverage requirements where an agreement which provides full indemnification against loss exists. 9.5. The Committee shall not borrow on behalf of the Fund except for the payment of refunds, benefits or administrative costs of the Plan. The total outstanding borrowings, excluding mortgage loans, shall not exceed twice the amount of the current service contribution in any fiscal year of the Plan. The assets of the Fund shall not be used as collateral for a loan other than a mortgage loan. 9.6. Except as specifically prescribed by provincial regulation, no part of the Fund shall be loaned to any member of the Committee, to any officer of the University, to any employee association or its directors, officers or employees, to any Delegate or its officers, directors or employees, or to the spouse or child of any of the foregoing individuals, or loaned or invested in any legal person owned or controlled by any of the aforementioned, as contemplated in section 176 of the Act. 9.7. The terms of Section 9.6 shall not apply to the extent that any such loan or investment occurs indirectly through the purchase of units of an open-end or closed-end pooled investment fund. X - CONFLICTS OF INTEREST 10.1. For the purposes of this SIP, a conflict of interest shall mean any actual or perceived event or circumstance in which the University, an employee of the University, member of the Committee, Delegate, custodian or directly related party, may benefit materially from knowledge of, participation in, or by virtue of, an investment decision related to a holding of the Fund. Such conflict of interest shall exist only if the party involved is aware, or may be reasonably expected to be aware, of the circumstances leading to the potential conflict of interest. 10.2. Should a conflict of interest arise, the party shall immediately disclose such conflict to the Secretary of the Committee and will thereafter abstain from participation in any decisions related to the area of conflict. The Secretary will maintain a written record of the conflict of interest and will immediately advise all members of the Committee of the particulars related thereto. XI - VOTING RIGHTS 11.1. A Delegate of the Committee shall exercise voting rights as directed by Managers, unless otherwise instructed by the Committee. 11.2. Managers shall provide a copy of their voting rights policies to the Committee upon demand. 11.3. Managers shall maintain a record of how proxies were voted and may be required to provide a report covering at least the previous 24 months of activity to the Committee. 11.4. Voting rights shall be exercised in the spirit of good corporate governance and in the best interest of the Fund and its beneficiaries. 21

XII - DERIVATIVE INSTRUMENTS 12.1. The Committee may invest in futures, forwards, swaps, options, sales and repurchase arrangements (repos), warrants, share rights and other derivatives of otherwise permissible securities which are regularly traded upon a recognized public exchange or executed with a recognized financial institution. 12.2. The value of warrants, share rights and instalment receipts may not exceed 5% of the market value of the Fund, unless offset by a hedge in cash or liquid short-term securities equal to the value of an equivalent position in the underlying security. Derivatives may be used to improve the return/risk profile of the assets and/or of the Fund and, particularly, to: a) hedge unwanted risks; b) decrease management costs; c) replicate an index fund; d) modify the distribution of returns; or e) obtain or reduce exposure to various markets, currencies or commodities. 12.3. Derivatives may also be held when received as a result of holding securities. 12.4. The use of such instruments may not be applied to create asset positions which would contravene the terms of this SIP. 22