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Pension Fund Investment Report. Accountable To You 4th Annual General Meeting October 15, 2005. Vancouver Webcast. Overview. Structure of investments Examples of investments Performance results and current outlook Corporate governance Summary. STRUCTURE OF INVESTMENTS.

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  1. Pension Fund Investment Report Accountable To You 4th Annual General Meeting October 15, 2005 Vancouver Webcast

  2. Overview • Structure of investments • Examples of investments • Performance results and current outlook • Corporate governance • Summary

  3. STRUCTURE OF INVESTMENTS

  4. Governance of the Plan • Trustees determine plan’s investment policies and strategic direction • Day-to-day management is responsibility of investment professionals at bcIMC • Fund is managed for long-term, with the goal of securing pension benefits for current and future beneficiaries

  5. Structure of Investments • At $18.2 billion, Municipal Pension Plan is one of the largest pension plans in Canada • Highly diversified investment portfolio—follows the old adage of “not putting all your eggs in one basket” • The plan has investments in 36 countries, in thousands of securities and other income producing assets (e.g., real estate)

  6. Growth of the Municipal Pension PlanBasic and Inflation Adjustment Accounts Municipal Pension Plan 1990 to 2005 20 18 16 14 12 Billions 10 8 6 4 2 0 1990 1993 1997 2000 2004 Basic Account Basic + Inflation

  7. Market Value of Basic, IAA & RAAas at December 2004 ($ Billions) Total Portfolio = $18.2 billion Real Estate, Mortgages and Foreign Currency $2.5 (14%) Private Placements $0.5 (3%) Bonds $5.4 (30%) International Equities $3.0 (16%) Short-term $0.2 (1%) US Equities $2.9 (16%) CDN Equities $3.7 (20%)

  8. EXAMPLES OF INVESTMENTS

  9. Real Estate Investments Yaletown 939Vancouver Western Canadian PlaceCalgary

  10. Real Estate Investments Marché Central Montreal

  11. Real Estate Investments Livingston Place Calgary Menkes Office & Industrial Toronto

  12. Private Placements Investments American Ref-Fuel Company • Owns and operates six state-of-the-art waste-to-energy facilities located major northeastern U.S. cities • Household garbage is used to generate electricity

  13. Private Placements Investments Tree Island Industries • Is one of North America’s largest makers of wire products • With production facilities located in Canada and U.S., company headquarters are in Richmond

  14. Public Equity Investments OPTI Canada Inc. • Developing an integrated oil sands project in Long Lake, AB • Using its OrCrudetm process, OPTI is able to extract crude oil using steam injection

  15. Public Equity Investments Suncor Energy Inc. • 13 billion barrels of crude oil reserves • Strategically located in Fort McMurray, AB

  16. PERFORMANCE RESULTS & OUTLOOK

  17. Investment PerformanceBasic Account as at December 31, 2004 12% • Reason for strong returns in 2004: • High oil prices and strong demand for commodities led to good year from Canadian stocks • Hedging has mitigated the impact of falling US$ • Lower interest rates provided good returns on bonds 10.0% 10.1% 10% 8% 6% 4.6% 4.2% 4% 2% 0% 1 Year 5 Year Fund Return Total Fund Benchmark

  18. Value Added • Investment performance is assessed relative to market conditions • Investment managers can add value through managing the asset mix, security selection, and risks (e.g., hedging against currency fluctuations) • Over past five years, bcIMC and its managers have added $235 million in additional return relative to market benchmark (after fees)

  19. Investment Costs • Industry surveys find that bcIMC is a low-cost service provider • Investment costs in 2004 were about 15 cents for every $100 invested. Retail mutual funds often charge between $2 to $3 for every $100 invested

  20. Review of 2005 To Date • Canadian equity markets continue to be one of the best performers as global demand for commodities persists • Economic impact of Hurricane Katrina will be devastating for the region but minimal relative to US economy • Bank of Canada recently raised interest rates for the first time since October 2004 • Expectation is for modest returns in 2005 and on a go-forward basis

  21. Investment Risks • US Current Account deficit • Use of leverage in financial markets • Higher interest rates and debt levels

  22. CORPORATE GOVERNANCE

  23. Corporate Governance & Proxy Voting • Exercising shareholder rights (e.g., voting proxies) is an important duty as a fiduciary and responsible investor • Trustees delegate voting rights to bcIMC and have instructed bcIMC to act in the best financial interests of the Plan • bcIMC votes in accordance with our Corporate Governance and Proxy Voting Guidelines. These guidelines were developed based on input fromMPP and other clients

  24. Corporate Governance & Proxy Voting • The goal of the proxy voting process is to influence corporate behaviour and to encourage changes in practices that do not meet expected standards • bcIMC reports quarterly to the Trustees on corporate governance and proxy voting issues. In addition, a summary of our voting record is prepared annually. • bcIMC voted more than 4,200 issues in 2004 • bcIMC’s proxy voting results are posted on the website at www.bcimc.com

  25. Advocacy for Social Responsibility • In addition to voting proxies, bcIMC may approach corporate management directly on matters of social responsibility • bcIMC expects companies to approach social and environmental issues in a manner that is responsible to the communities and that serves to maximize shareholder value Example 1 • bcIMC supports all shareholder proposals asking companies to adopt International Labour Organization (“ILO”) standards

  26. Advocacy for Social Responsibility Example 2 • Until the mid-1980’s, James Hardie Industries was Australia’s largest manufacturer and supplier of asbestos-containing building products • bcIMC contacted company management advocating that employees who are victims of asbestos poisoning be treated appropriately and that they be fairly compensated for their work related illnesses

  27. Corporate Governance & Proxy Voting • Member of: • Canadian Coalition of Good Governance (CCGG) • bcIMC is on CCGG’s Board • International Corporate Governance Network • Asian Corporate Governance Association

  28. Summary • Expectation is for more modest returns on a go forward basis • The focus of Trustees and bcIMC is to grow the asset base to secure pension benefits

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