NOVA SCOTIA TEACHERS' PENSION FUND

Consolidated Financial Statements of NOVA SCOTIA TEACHERS' PENSION FUND

Consolidated Financial Statements Financial Statements Consolidated Statement of Net Assets Available for Benefits and Accrued Pension Benefit Obligation and Deficit 1 Consolidated Statement of Changes in Net Assets Available for Benefits 2 Notes to Consolidated Financial Statements 3

Consolidated Statement of Net Assets Available for Benefits and Accrued Pension Benefit Obligation and Deficit December 31, 2010, with comparative figures for 2009 Net Assets Available for Benefits 2010 2009 Assets Investments (note 3) $ 4,237,818 $ 4,030,360 Contributions receivable: Employees' 2,596 2,304 Employers' 4,953 4,683 Accrued income 13,032 11,364 Net investment transactions outstanding 914 3,739 Prepayment and sundry receivables 1,555 1,712 Cash (note 4b (iii)) 45,514 32,437 Total assets 4,306,382 4,086,599 Liabilities: Real estate mortgages (note 5) $ 71,497 $ 59,855 Accounts payable 11,324 11,287 Total liabilities 82,821 71,142 Net assets available for benefits $ 4,223,561 $ 4,015,457 Accrued Pension Benefit Obligation and Deficit Accrued pension benefit obligation (note 7) 5,367,158 5,289,405 Deficit (note 7) (1,143,597) (1,273,948) Commitments (note 11) Accrued pension benefit net of deficiency $ 4,223,561 $ 4,015,457 See accompanying notes to consolidated financial statements. On behalf of the Board: ORIGINAL SIGNED BY BYRON RAFUSE Director, Teachers' Pension Plan Trustee Inc. ORIGINAL SIGNED BY WILLIAM D. REDDEN Director, Teachers' Pension Plan Trustee Inc. ORIGINAL SIGNED BY JOHN CARTER Chair, Teachers' Pension Plan Trustee Inc. 1

Consolidated Statement of Changes in Net Assets Available for Benefits, with comparative figures for 2009 Increase in Assets 2010 2009 Investment activities (note 3) $ 427,995 $ 552,208 Contributions: Employers' - matched 65,903 65,858 Employees' - matched 65,903 65,858 Employers' - unmatched 1,694 3,964 Employees' - unmatched 1,665 1,270 Transfers from other pension plans 2,233 1,549 137,398 138,499 Total increase in assets 565,393 690,707 Decrease in Assets Benefits paid 338,491 327,348 Operating expenses (note 8) 16,345 13,429 Refunds of contributions, and interest and transfers to other pension plans 2,453 2,691 Total decrease in assets 357,289 343,468 Net increase in net assets 208,104 347,239 Net assets available for benefits, beginning of year 4,015,457 3,668,218 Net assets available for benefits, end of year $ 4,223,561 $ 4,015,457 See accompanying notes to consolidated financial statements. 2

Notes to Consolidated Financial Statements 1. Authority and description of Plan: The Nova Scotia Teachers' Pension Fund (the Fund ) was established by the Teachers' Pension Act (the Act ). Employee and employer contributions and investment earnings are credited to the Fund which is the funding vehicle for the Teachers' Pension Plan (the Plan ), a pension plan which covers public school and community college teachers. The detailed provisions of the Plan, including pension eligibility criteria and benefit formulas, are contained in the Act and in the Regulations made under the Act. The following description is a summary only. For more complete information, reference should be made to the Plan legislative documents and agreements. As part of the June 22, 2005 Agreement between the Province of Nova Scotia (the Province ) and the Nova Scotia Teachers' Union (the Union ), the Province and the Union agreed to joint and equal participation in the governance of the Plan including the sharing of any actuarial surpluses or deficits between the Province and the beneficiaries of the Plan upon the transfer of the Plan to a newly formed trustee entity. Teachers Pension Plan Trustee Inc. (the TPPTI ) was incorporated to act as trustee of the Fund and on April 1, 2006, the TPPTI became the trustee of the Fund. The TPPTI is responsible for administration of the Plan and investment management of Fund assets. The investment of the Fund assets is guided by the Fund s Statement of Investment Policies & Goals (the SIP&G ) as written by the TPPTI. The SIP&G sets out the parameters within which the investments are made. These parameters include permissible investments and the policy asset mix. The Investment Beliefs, also found within the SIP&G, state the general principles upon which the investments are made. The Plan is funded by employee and matching employer contributions of 8.3% of salary up to the Year's Maximum Pensionable Earnings (the YMPE ) per the Canada Pension Plan (the CPP ) and 9.9% of salary above the YMPE. The basic pension formula is 2% for each year of pensionable service times the number of years of pensionable service times the highest average salary of the best 5 years. Vesting occurs after two years. Pensions are integrated with CPP benefits at age 65. Pensions in pay are increased effective July 1 of each year, as applicable, on one of two indexing bases. For pensions with an effective date before August 1, 2006, the rate is equal to the increase in the Consumer Price Index (the CPI ) for Canada less 1%, to a maximum of 6%. For pensions with an effective date on or after August 1, 2006, as well as pensions of members or beneficiaries who elected to change their indexing basis prior to that date, the rate is dependent on the funding level of the Plan. 3

1. Authority and description of Plan (continued): Plan members are eligible for a pension upon reaching any of the following criteria: - 35 years of service; - age 50 with 30 years of service (reduced pension); - age 55 with an age plus service factor of 85 "Rule of 85"; - age 55 with two years of service (reduced pension); - age 60 with 10 years of service; - age 65 with two years of service. Upon the death of a member, the surviving spouse is entitled to receive 60% of the member's pension benefit payable for life, or a higher percentage if the member elected an optional form of pension. Eligible children are entitled to receive 10% of the member's pension benefit, payable until age 18 (or 25 while still in school). Upon termination of employment, a member may choose to defer their pension until they satisfy one of the above eligibility criteria, or they may remove their funds from the plan in the form of a commuted value (or refund of contributions, for service prior to January 1, 1988). The benefit payable upon termination or death of a non-vested member, or upon death prior to retirement of a vested member with no eligible survivors, is a lump sum refund of the member's contributions with interest. 2. Significant accounting policies: (a) Basis of presentation: These consolidated financial statements are prepared on a going-concern basis and present the aggregate financial position of the Fund as a separate financial reporting entity. These consolidated financial statements are prepared in accordance with Canadian generally accepted accounting principles. (b) Consolidation: The Fund holds real estate investments through wholly-owned subsidiaries. The consolidated financial statements include the accounts of the Fund and its wholly-owned subsidiaries. 4

2. Significant accounting policies (continued): (c) Investments: (i) All investment transactions are recorded at the point when the risks and rewards of ownership are transferred. Purchases and sales of publicly traded investments are recorded as of the trade date. Investments are stated at fair value as at year-end. Fair value is the amount of the consideration that would be agreed upon in an arm s length transaction between knowledgeable, willing parties who are under no compulsion to act. Money market securities, fixed income securities, real return bonds and equities are valued at quoted market prices. Pooled funds are valued at the unit values supplied by the pooled fund administrator, which represent the Fund's proportionate share of underlying net assets at fair values determined using closing market prices. Private equity values are estimated with appropriate valuation techniques and best estimates of managers or evaluators. (ii) (iii) The derivative contracts held by the Fund are stated at fair value and are valued using quoted market indices. The gains or losses from derivative contracts are included in the realized and unrealized gains or losses on investments. Real estate is comprised of income producing properties and a real estate pooled fund. Properties are valued annually by independent appraisers in accordance with generally accepted appraisal practices and procedures. This process utilizes discounted future cash flows. In estimating future cash flows, certain assumptions are made with respect to future economic conditions and rates of return. (iv) The Fund holds bank-sponsored asset-backed commercial paper in its cash portfolios; however, exposure is limited to multi-seller, multi-asset conduits with global-style credit facilities, thus mitigating both credit and liquidity risk. There has been no impact on the value of these assets at December 31, 2010. (v) Infrastructure investments are initially valued at the cost of acquiring the asset, including professional fees and other acquisition costs. A suitable method of valuation is used annually by the Fund to determine fair value. Valuation techniques used include the use of discounted cash flows or other pricing models, as appropriate. 5

2. Significant accounting policies (continued): (d) Foreign currency translation: Transactions denominated in foreign currencies are translated into Canadian dollars at the rates of exchange prevailing on the dates of the transactions. The fair values of foreign investments and cash balances held at period end are translated at the year-end rate of exchange. The resulting gain or loss from changes in these rates is included in current period change in the fair value of investments. (e) Investment income/loss and transaction costs: Investment income/loss is reflected in investment activities and includes interest, dividends and operating income/loss from real estate, as well as gains and losses that have been realized on disposal of investments and the unrealized appreciation and depreciation in the fair value of investments. Brokers' commissions and other transaction costs are expensed in the statement of changes in net assets available for benefits in the year incurred. (f) Non-investment assets and liabilities: The fair value of contributions receivable, accrued income, net investment transactions outstanding, prepayment and sundry receivables, cash and accounts payable approximate their carrying amounts due to their short-term nature. (g) Financial instruments: The Fund's financial instruments include cash, contributions receivable, investments, net investment transactions outstanding, accounts payable and real estate mortgages. Due to their short-term nature, the Fund's short-term financial instruments, consisting of cash, contributions receivable, and accounts payable, are carried at cost which approximates their fair values. Investments and real estate mortgages are carried at fair values as described in notes 2, 3, 4 and 5 and are subject to interest rate, market price, credit, foreign currency, and liquidity risks as described in note 4. 6

2. Significant accounting policies (continued): (h) Contributions: Basic contributions from employers and members due to the Plan as at the end of the year are recorded on an accrual basis. Service purchases that include but are not limited to leaves of absence and transfers from other pension plans are recorded and service is credited when the purchase amount is received. (i) Benefits: Benefit payments to retired members, commuted value payments and transfers to other pension plans are recorded in the period in which they are paid. Accrued benefits are recorded as part of the accrued pension benefit obligation. (j) Accrued pension benefit obligation: The value of the accrued pension benefit obligation of the Fund is based on a going concern method actuarial valuation prepared by an independent firm of actuaries using the projected unit credit method. The accrued pension benefit obligation is measured in accordance with accepted actuarial methods using actuarial assumptions and methods adopted by the TPPTI for the purpose of establishing the long-term funding requirements of the Fund. The actuarial valuation included in the consolidated financial statements is consistent with the valuation for funding purposes. (k) Income taxes: The Fund is the funding vehicle for a registered pension plan, as defined by the Income Tax Act (Canada) and, accordingly is not subject to income taxes. (l) Use of estimates: The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of changes in net assets available for benefits during the year. Actual results could differ from these estimates. Significant estimates included in the consolidated financial statements relate to the valuation of private market investments and the determination of the accrued pension benefit obligation. 7

3. Investments and derivatives: (a) Fair value of investments and related income are summarized in the following table: As at For the As at For the December 31, 2010 year December 31, 2009 year Assets % Income * Assets % Income * Money market $ 129,961 3.1 $ 2,034 $ 160,151 4.0 $ 2,247 Fixed Income ** Canadian 805,730 19.0 53,465 791,791 19.6 49,357 US 301,251 7.1 20,305 283,626 7.0 9,039 Real Return Bonds 211,202 5.0 20,070 139,985 3.5 17,930 Equities: Canadian 815,783 19.3 127,555 857,213 21.3 212,374 US 792,751 18.7 73,043 728,133 18.1 68,656 Global 807,605 19.1 61,671 756,071 18.8 86,598 Real Estate 328,694 7.8 6,355 304,335 7.6 (9,151) Infrastructure Canadian 28,192 0.7 418 - - - non-canadian 2,904 0.1 492 - - - Derivatives Equity Swap 1,328-4,142 781-7,396 Currency Forwards 12,417 0.3 57,793 8,274 0.2 106,883 Securities Lending - - 593 - - 813 Other - - 59 - - 66 $ 4,237,818 100.0 $ 427,995 $ 4,030,360 100.0 $ 552,208 * Income for the year includes net realized and unrealized gains of $212,100 (gains of $343,800-2009) and net of brokerage commissions of $1,000 ($1,400 2009). ** US fixed income strategy includes - $24 CAD (2009 - $183 CAD) in fixed income bond-based derivatives implemented by the investment manager. 8

3. Investments and derivatives (continued): (b) Derivatives: Derivatives are financial contracts, the value of which is "derived" from the value of underlying assets or interest or exchange rates. Derivatives provide flexibility in implementing investment strategies. i) Equity Swap Contract The notional value of the equity swap contract represents the market value at the time of the contract opening. The fair value of the contract is determined to be the difference between the current market value and notional value. On a quarterly basis the fair value is paid to the Fund in the event of a gain or to the counterparty in the event of a loss. The notional value is then reset to the current market value. Details of the contract held on December 31, 2010 are shown below: Contract date August 13, 2010 Maturity date February 15, 2011 Counterparty Credit Rating AA (low) Equity Index S&P/TSX 60 BA Index CAD-BA-CDOR Notional value $34,087 Market value $35,415 Fair value $1,328 ii) Currency Forwards Forward contracts are used to manage the currency exposure of investments held in foreign currencies. The net notional amount of the currency forwards represents the contracted amount purchased or sold for settlement at a future date. The fair value is determined by the difference between the current market value and the notional value. Details of the net contracts held on December 31, 2010 are shown below: Maturity date February 28, 2011 Notional value $1,175,685 Market value $1,188,102 Fair value $12,417 9

3. Investments and derivatives (continued): iii) US Fixed Income Derivatives are employed by the investment manager as part of the US fixed income strategy. The fair market value of the derivative strategies on December 31, 2010 was $24 CAD ($183 CAD 2009). The derivatives used to implement the Fund s US fixed income strategy are shown below. Government Futures Interest Rate Swaps Credit Default Swaps Option Premiums Mortgage Derivatives Money Market Derivatives Used to adjust interest rate exposure and replicate government bond positions. Long future positions are backed with high grade, liquid debt securities. Used to adjust interest rate yield curve exposures and substitute for physical securities. Long swap positions increase exposure to long-term interest rates and short positions decrease exposure. Long swap positions are backed with high grade, liquid debt securities. Used to manage credit exposure without buying or selling securities outright. Written credit default swaps ("CDS") increase credit exposure (selling protection), obligating the Fund to buy bonds from counterparties in the event of a default. Purchased CDS decrease exposure (buying protection), providing the right to put bonds to the counterparty in the event of a default. Net long exposures are backed with high grade, liquid debt securities. Underlying credit exposures are continuously monitored. Purchased options are used to manage interest rate volatility exposures. Written options generate income in expected interest rate scenarios and may generate capital losses if unexpected interest rate environments are realized. In-the-money portion of written options are covered by high grade, liquid debt securities. Used to manage portfolio duration and/or enhance yield. Bond exposure is included in portfolio duration, convexity, and prepayment risk measures. Used to manage exposures at the front end of the yield curve. Money market futures are based on short-term interest rates and do not require delivery of an asset at expiration, therefore do not require cash backing. 10

4. Financial instruments: (a) Fair value disclosure: The fair value of investments and derivatives are as described in note 2(c). Fair value measurements recognized in the statement of net assets available for benefits are categorized using a fair value hierarchy that reflects the significance of inputs used in determining the fair values. Level 1: Fair value is based on inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Investment Manager has the ability to access at the measurement date. Level 1 primarily includes publicly listed investments. Level 2: Fair value is based on valuation methods that make use of inputs other than quoted prices included in Level 1, that are observable for the asset or liability, either directly or indirectly, including inputs in markets that are not considered to be active. Level 2 primarily includes debt securities and derivative contracts not traded on a public exchange and public equities not traded in an active market. Level 3: Fair value is based on valuation methods where inputs that are based on nonobservable market data have a significant impact on the valuation. Level 3 primarily includes private market investments valued based on discounted future cash flow models which reflect assumptions that a market participant would use when valuing such an asset or liability. 11

4. Financial instruments (continued): Investments based on the valuation level within the fair value hierarchy are as follows: As at December 31, 2010 Level 1 Level 2 Level 3 Total Money market $ 21,486 $ 66,202 $ 42,273 $ 129,961 Fixed income - Canadian 389,403 416,327-805,730 Fixed income - US 2,319 298,932-301,251 Real return bonds - 122,371 88,831 211,202 Equities - Canadian 499,593 316,190-815,783 Equities - US 760,415-32,336 792,751 Equities - global 709,914 97,691-807,605 Real estate - 86,836 241,858 328,694 Infrastructure - Canadian - - 28,192 28,192 Infrastructure - non-canadian - - 2,904 2,904 Equity swap contract - 1,328-1,328 Currency forwards - 12,417-12,417 $ 2,383,130 $ 1,418,294 $ 436,394 $ 4,237,818 As at December 31, 2009 Level 1 Level 2 Level 3 Total Money market $ 96,800 $ - $ 63,351 $ 160,151 Fixed income - Canadian 251,974 539,817-791,791 Fixed income - US - 283,626-283,626 Real return bonds 57,775-82,210 139,985 Equities - Canadian 554,611 302,602-857,213 Equities - US 500,867 188,379 38,887 728,133 Equities - global 666,747 89,324-756,071 Real estate - 83,535 220,800 304,335 Equity swap contract - 781-781 Currency forwards - 8,274-8,274 $ 2,128,774 $ 1,496,338 $ 405,248 $ 4,030,360 12

4. Financial instruments (continued): The following table shows the changes in the fair value measurement in Level 3 of the fair value hierarchy: Unrealized gains/losses attributable to investments Fair value Total gain Total loss Fair value held at December included in included in Contributed Capital December December 31, 2009 income income capital returned 31, 2010 31, 2010 Money market 63,351 13 - - (21,091) 42,273 13 Real return bonds 82,210 6,621 - - - 88,831 6,621 Private equity funds - US 38,887 - (6,551) - - 32,336 (6,551) Infrastructure funds - CAD - 418-27,774-28,192 418 Infrastructure funds - non- Canadian - 380-2,524-2,904 380 Real estate 220,800 15,379-15,382 (9,703) 241,858 (11,623) Total $ 405,248 $ 22,811 $ (6,551) $ 45,680 $ (30,794) $ 436,394 $ (10,742) (b) Investment risk management: Risk management relates to the understanding and active management of risks associated with all areas of the business and the associated operating environment. Investments are primarily exposed to interest rate volatility, market price fluctuations, credit risk, foreign currency risk and liquidity risk. The Fund has set formal goals, policies, and operating procedures that establish an asset mix among equity, fixed income, real estate and infrastructure investments, require diversification of investments within categories, and set limits on the size of exposure to individual investments and counterparties. Risk and credit committees have been created that regularly monitor the risks and exposures of the Fund. Trustee oversight, procedures and compliance functions are incorporated into Fund processes to achieve consistent controls and to mitigate operational risk. (i) Interest rate risk Interest rate risk refers to the fact that the Fund s financial position will change with market interest rate changes, as fixed income securities are sensitive to changes in nominal interest rates. Interest rate risk is inherent in the management of a pension plan due to prolonged timing differences between cash flows related to the Fund's assets and cash flows related to the Fund's liabilities. 13

4. Financial instruments (continued): The value of the Fund is affected by short term changes in nominal interest rates. Pension liabilities are exposed to the long term expectation of rate of return on the investments as well as expectations of inflation and salary escalation. The term to maturity classifications of interest bearing investments, based upon the contractual maturity of the securities, as at December 31, are as follows: 2010 2009 Average Average Within 1 to 5 5 to 10 Over 10 Effective Effective 1 year years years years Total yield (1) (%) Total yield (1) (%) Money market $ 129,961 $ - $ - $ - $ 129,961 - $ 160,151 0.3 Bonds and debentures 604 475,259 391,885 239,209 1,106,957 5.2 1,075,234 5.1 Real return bonds (2) - 1,012 21,513 188,677 211,202 4.9 139,985 3.7 $ 130,565 $ 476,271 $ 413,398 $ 427,886 $ 1,448,120 4.7 $ 1,375,370 4.4 (1) The average effective yield reflects the estimated annual income of a security as a percentage of its year-end fair value. (2) Real return bond yields are based on real interest rates. The ultimate yield will be impacted by inflation as it occurs. Excluding all other variables, a one percent increase in nominal interest rates would decrease the fair value of the Fund by $96,600 (2009 - $74,900), and a one percent decrease in nominal interest rates would increase the fair value of the Fund by $105,500 (2009 - $82,700). (ii) Market price risk Market price risk is the risk of fluctuation in market values of investments from influences specific to a particular investment or from influences on the market as a whole. Market price risk does not include interest rate risk and foreign currency risk which are also discussed in this note. As all of the Fund's financial instruments are carried at fair value with fair value changes recognized in the statement of changes in net assets available for benefits, all changes in market conditions will directly result in an increase (decrease) in net assets. Market price risk is managed by the Fund through the construction of a diversified portfolio of instruments traded on various markets and across various industries. 14

4. Financial instruments (continued): The Fund's investments in equities are sensitive to market fluctuations. After the effect of derivatives contracts, and without change in all other variables, a ten per cent increase in market values of all public equities and privately owned equities would increase the fair value of the Fund by $241,600 (2009 - $268,600). Similarly, a ten per cent decrease in market values of all public equities and privately owned equities would decrease the fair value of the Fund by $241,600 (2009 - $268,600). (iii) Credit risk Credit risk is the risk of loss in the event the counterparty to a transaction fails to discharge an obligation and causes the other party to incur a loss. Credit risk associated with the Fund is regularly monitored and analyzed through risk and credit committees. Fixed income The Fund's Fixed Income Program includes two main sectors: the Government Sector and the Credit Sector. One benefit to managing these two pieces separately is to provide the opportunity to access physical government bonds when required. When markets are at their utmost distress these may be the only securities available for liquidation. Managing the Corporate Sector and the Government Sector separately allows for the adjustment of credit risk within the Fixed Income Program by changing the allocation between these two sectors - increasing the Government Sector through periods of market duress and increasing the Corporate Sector through periods of stability. This approach also allows the active management of the Credit Sector and taking active decisions where returns can be maximized. The Fund is exposed to credit risk from the following interest earning investments. 2010 2009 Federal government $ 515,434 $ 406,549 Provincial governments 257,802 177,169 Municipal governments 20,359 18,694 Corporate 654,525 772,958 $ 1,448,120 $ 1,375,370 15

4. Financial instruments (continued): Derivatives The Fund is exposed to credit-related losses in the event of non-performance by counterparties to derivative financial instruments. The Fund limits derivative contract risk by dealing with counterparties that have a minimum "A" credit rating. In order to mitigate this risk, the Fund: i) Deals only with highly rated counterparties, with whom International Swap and Derivative Association agreements have been executed, normally major financial institutions with minimum credit standard of A rating, as supported by a recognized credit rating agency; and ii) Credit risk represents the maximum amount that would be at risk as at the reporting date if the counterparties failed completely to perform under the contracts, and if the right of offset proved to be non-enforceable. Credit risk exposure on derivative financial instruments is represented by the receivable replacement cost of contracts with counterparties, less any prepayment collateral or margin received, as at the reporting date. Real estate Real estate investment managers mitigate risk through monthly monitoring of tenant performance and arrears. Tenant exposure is managed by limiting concentration to a specific economic sector or to a single covenant. Transactions, where a new tenant exposure is assumed, is vetted by appropriate due diligence and approval process. Securities lending The Fund lends securities for a fee to approved borrowers. High quality collateral is provided by borrowers to alleviate the credit risk. Regular reporting of the securities lending program ensures that its various components are continuously being monitored. (iv) Foreign currency risk Foreign currency exposure arises from the holding of investments denominated in foreign currencies. A policy of hedging up to 100% of the currency exposure helps to mitigate this risk. 16

4. Financial instruments (continued): The Fund's unhedged and hedged currency exposure from net investment assets as at December 31, 2010 is summarized in the following table: 2010 2010 2009 2009 Currency Unhedged Hedged Unhedged Hedged Canada $ 2,272,626 $ 3,448,310 $ 2,217,455 $ 3,545,017 United States 1,180,367 400,442 1,047,958 110,953 Euro zone 179,926 (31,848) 186,552 (39,692) Japan 142,230 92,023 151,310 84,061 United Kingdom 141,860 38,950 127,505 55,502 Other 293,818 275,367 274,807 257,485 $ 4,210,827 $ 4,223,244 $ 4,005,587 $ 4,013,326 The Fund's currency policy allows for the management of risk through hedging strategies that are implemented through the purchase of forward currency contracts. The forward currency contracts offset the Fund's foreign currency exposure, hence reducing the Fund's foreign currency risk. After the effect of hedging, and without change in all other variables, a ten percent increase in the Canadian dollar against all other currencies would decrease the fair value of the Fund by $70,400 (2009 - $42,600). Similarly, a ten percent decrease in the Canadian dollar against all other currencies would increase the fair value of the Fund by $86,100 (2009 - $52,000). (v) Liquidity risk: Liquidity risk is the risk of not meeting the cash obligations of the Fund in an efficient manner. Cash obligations are fulfilled from contributions to the Fund, cash income of the Fund and planned dispositions of Fund assets as required. Cash requirements of the Fund are reviewed on an ongoing basis to provide for the orderly availability of resources to meet the financial obligations of the Fund. The Fund's cash management policy ensures that the quality and liquidity of the investment vehicles within the cash portfolios are consistent with the needs of the Fund. 17

5. Real estate mortgages: Real estate mortgages have various terms to maturity to 2020 with each mortgage secured by a specific real property. Nominal rates ranging from 4.7% to 6.0%. The mortgages are secured by the underlying mortgaged property. Scheduled principal repayments in each of the next five years, beginning January 1, 2011 are as follows: 2011 $ 3,083 2012 4,157 2013 4,455 2014 10,652 2015 12,410 Thereafter 34,249 $ 69,006 For purposes of the consolidated statement of net assets available for benefits and accrued pension benefit obligation and deficit, real estate mortgages payable are valued at fair values based on prevailing interest rates. 6. Securities lending: The Fund participates in a securities lending program where it lends securities that it owns to third parties for a fee. For securities lent, the Fund receives a fee and the borrower provides readily marketable securities of higher value as collateral which mitigates the credit risk associated with the program. When the Fund lends securities, the risk of failure by the borrower to return the loaned securities is alleviated by such loans being continually collateralized. The securities lending agent also provides indemnification if there is a shortfall between, collateral and the lent security that cannot be recovered. As at December 31, 2010, securities with an estimated fair value of $395,200 (2009 $494,800) were loaned out, while collateral held had an estimated fair value of $415,000 (2009 $519,600). The securities lending contracts are collateralized by securities issued by, or guaranteed without any limitation or qualification by, the government of Canada or the governments of other countries. 18

7. Accrued pension benefit obligation: Actuarial valuations of the Fund are required every year by the Act, and provide an estimate of the accrued pension benefit obligation (Fund liabilities) calculated using various economic and demographic assumptions, based on membership data as at the valuation date. The Plan's consulting actuaries, Eckler Limited, (2009 - Mercer) performed a valuation as at December 31, 2010 and issued their report in April 2011. The report indicated that the Plan had an unfunded liability of $1,143,600 (December 31, 2009 - $1,273,900). The following table reflects the unfunded liability as at December 31, 2010 and as at December 31, 2009. 2010 2009 Actuarial value of assets $ 4,223,561 $ 4,015,457 Accrued pension benefit obligation 5,367,158 5,289,405 Unfunded liability $ (1,143,597) $ (1,273,948) Reconciliation of changes in accrued pension benefit obligation: 2010 2009 Accrued pension benefit obligation at beginning of period $ 5,289,405 $ 5,180,488 Interest on accrued pension benefit obligation 362,860 355,381 Contributions and transfers from other pension plans 137,398 138,499 Net impact of changes in assumptions (953) 32,425 Contributions in excess of current service cost (34,768) (38,798) Refunds of contributions and interest and transfers to other pension plans (2,453) (2,691) Benefits paid (338,491) (327,348) Net impact of experience gains and losses relating to accrued pension benefit obligation (45,840) (48,551) Accrued pension benefit obligation at end of period $ 5,367,158 $ 5,289,405 The actuarial valuation calculates liabilities for each member on the basis of service earned to date and the employee's projected five-year average salary at the expected date of retirement. The projected unit credit method was adopted for the actuarial valuation to determine the current cost and actuarial liability. 19

7. Accrued pension benefit obligation (continued): The major economic and demographic assumptions used in the 2010 valuation remained unchanged from those used in the 2009 valuation, with the exception of (a) total rate of return on assets (i.e. the discount rate), which changed from 6.86% to 6.85%, (b) the age at retirement, which changed from a 60% probability of retiring at the earliest date for an unreduced pension to a 50% probability, and (c) the mortality table, which changed from UP-94 projected to 2020 using scale AA to UP-94 projected with generational mortality improvements using scale AA. Valuation Valuation December 31 December 31 2010 2009 Inflation 2.5% per annum 2.5% per annum Salary increase 2.5% per annum plus merit ranging from 0.0% to 2.75% 2.5% per annum plus merit ranging from 0.0% to 2.75% Total rate of return on assets (i.e. discount rate) 6.85% per annum 6.86% per annum Average retirement age Mortality 50% - retire at earliest date first eligible for an unreduced pension 50% - retire at the earliest of: -age 65-35 years of service; or -age 60 with 10 years of service UP-94 projected with generational mortality improvements using scale AA 60% - retire at earliest date first eligible for an unreduced pension 40% - retire at the earliest of: -age 65-35 years of service; or -age 60 with 10 years of service UP-94 projected to 2020 using scale AA 20

7. Accrued pension benefit obligation (continued): As a result of the agreement between the Province and the Union signed on June 22, 2005, indexing in a given year for pensions with an effective date on or after August 1, 2006, as well as those of existing pensioners who opted for the new indexing arrangement, depends on the funding level of the Plan. If the funding level as at December 31 of the preceding fiscal year is less than 90%, no indexing will be provided. At a funding level of between 90% and 100%, indexing will be granted at 50% of the increase in the 12-month average CPI, at the discretion of the Board of Trustees. If the funding level is greater than 100%, indexing will be provided at 100% of the increase in the 12-month average CPI, to the extent that it does not reduce the funding level to below 100%; however, pensions will be increased by at least 50% of the increase in the 12-month average CPI. For the purposes of the valuation, it was assumed that indexing would not be paid in years in which it is discretionary. 8. Operating expenses: The Fund is charged with administrative and certain other expenses incurred on behalf of the Fund by the Nova Scotia Pension Agency, a related entity. The following is a summary of these operating expenses. 2010 2009 Plan administration: Professional services $ 418 $ 321 Salaries 1,375 1,328 Supplies and services 397 209 Travel 29 45 Technology project 54 - Other 209 167 2,482 2,070 Investment expenses: Investment management and custodian fees 13,066 10,636 Professional services 158 141 Salaries 517 476 Supplies and services 30 21 Travel 11 11 Other 81 74 13,863 11,359 $ 16,345 $ 13,429 21

9. Related party transactions: Investments held in the Fund include debentures of the Province of Nova Scotia with a total fair value of $5,900 (0.1% of total assets) as at December 31, 2010 ($5,200 (0.1% of total assets) as at December 31, 2009). 10. Capital management: The main objective of the Fund is to sustain a certain level of net assets in order to meet its pension obligations. The TPPTI (see note 1) manages the contributions and plan benefits as required by the Teachers Pension Act and its related Regulations. The TPPTI approves and incurs expenses to administer the commerce of the Fund as required by agreement between the Province and the Union. Under the direction of the TPPTI, the Fund provides for the short term financial needs of current benefit payments while investing members contributions for the longer term security of pensioner payments. The TPPTI exercises duly diligent practices and has established written investment policies and procedures, and approval processes. Operating budgets, audited financial statements, yearly actuarial valuations and reports, and as required, the retention of supplementary professional, technical and other advisors, are part of the Fund governance structure. Under the 2005 Agreement, minimum funding targets were established, with objectives of having assets of the Plan reach levels of at least 95% of the actuarial liabilities on or before December 31, 2015 and at least 100% on or before December 31, 2025. These funding targets are required to be regularly reviewed, including a review in 2010, a comprehensive review in 2015, and further reviews every 5 years thereafter. The TPPTI is currently reviewing the funded status of the Plan, with the objective of providing recommendations to the Union and the Province regarding how to address the actuarial deficiency. 22

11. Commitments: In 2010, the Fund invested in infrastructure. The Fund has committed capital over a definite period of time. The table below indicates the capital amount committed and outstanding as at December 31, 2010. Committed Outstanding Canadian infrastructure 40,000 CAD 11,838 CAD Non-Canadian Infrastructure 25,000 USD 22,303 USD 12. Future new accounting pronouncement: The Accounting Standards Board's ("AcSB") April 2008 Exposure Draft, Adopting IFRS in Canada, proposed that, upon adoption of International Financial Reporting Standards ("IFRS") by publicly accountable enterprises, pension plans would continue to prepare their financial statements in accordance with the Canadian Institute of Chartered Accountants' ("CICA") Handbook Section 4100, Pension Plans ("Section 4100"), rather than International Accounting Standards 26, Accounting and Reporting by Retirement Benefit Plans. On July 30, 2009, the AcSB issued an Exposure Draft that proposed changes to existing Section 4100 in the areas of presentation and disclosure. It also provided more guidance on how to measure fair value of investment assets and investment liabilities. In February 2010, the AcSB approved CICA Handbook Section 4600, Pension Plans ("Section 4600"), as Part IV of the CICA Handbook. The new Section 4600 was released in April 2010 and is based on existing Section 4100 with substantive modifications and will be effective for annual financial statements for fiscal years beginning on or after January 1, 2011. The Fund is currently in the process of evaluating the potential impact of adopting Section 4600. 13. Comparative figures: Certain 2009 comparative figures have been reclassified to conform with the financial statement presentation adopted for the current year. 23