Board of Governors, June 28, 2000 - APPENDIX II, Annex 11

Report of the Investment Committee

For Information

This report outlines the performance of the investment portfolio and the recent activities of the Investment Committee.


The portfolio returns for various periods were as follows:

Asset Class Annual to March 31, 2000 Annual to March 31, 1999 Annual to March 31, 1998 Annual to March 31, 1997
Bonds 1.2% 7.0% 13.5% 12.5%
Canadian equities 27.6 -11.8 27.3 21.0
US equities 15.9 25.9 52.3 21.5
Non North American equities 22.2 -1.0 25.3 4.7
Total return 13.4% 4.4% 26.3% 16.2%
Return of Median fund 17.5% 1.1% 23.5% 16.3%

As indicated above, except for the current year and 1997, the performance of the University's portfolio exceeded the performance of the median fund in the Frank Russell universe of approximately 57 Canadian portfolios.

Over the five year period ending March 31, 2000, the annualized performance of the portfolio was 15.1% in comparison to the median return of 14.9% in the Frank Russell universe. This represents second quartile performance for our portfolio.

For additional information, please refer to the attached pages which show amounts held by each Investment manager at March 31, 2000, the annual and annualized returns by manager over the five years ending March 31, 2000 and the returns in relation to other Canadian balanced portfolios in the Frank Russell universe.

Returns in relation to the objective of a 5% real rate of return

One of the Investment Committee's objectives is to earn a 5% real rate of return over the long term. (i.e., to earn 5% over the rate of inflation, as measured by the Consumer Price Index). Inflation has averaged 1.7% per year for the past five years.

For the five years ending March 31, 2000 the annualized real rate of return for the portfolio was 13.4%, which consisted of a nominal (actual) annualized return of 15.1% less 1.7% for inflation. For the four years ending March 31, 2000, the annualized real rate of return was 13.1%, consisting of a nominal return of 14.8% less inflation of 1.7%. These returns exceed the Investment Committee's performance objective of a real rate of return of 5%.

Value added by Active Management

Another of the Investment Committee's objectives is to earn the return produced by the asset mix policy, based on the returns of the market indices, and a premium to reflect the additional fees related to active management. In order to achieve this objective, investment managers with active investment mandates need to outperform their benchmark indices. For example, Canadian equity managers need to outperform the TSE 300 index over time and Canadian bond managers need to outperform the SCM universe index over time.

Over the five years ending March 31, 2000, the actual returns for the portfolio were 15.1% and the returns generated by the market indices for the portfolio were 16.3% (the policy return). Over this period, the Canadian bond managers have added value over their benchmark, but the Canadian equity managers have not. The Committee continues to focus on this issue. For some markets, such as US equities, the Committee selected an index manager. Over the past four years, this has resulted in first quartile performance for US equities, since the majority of active US managers have been unable to outperform the return of the Standard and Poor 500 stock index.

Book and Market Value of the Portfolio

As at March 31, 2000, the operating and endowment portfolio had a book value of $170,321,000 and a market value of $200,393,000, as follows:

Book Value
Market Value
Actual Asset Mix Target Asset Mix
Bonds $80,243 $79,415 39.6% 40.0%
Canadian equities 35,468 41,789 20.9 20.0
US equities 33,303 50,511 25.2 25.0
Non North American equities 21,307 28,678 14.3 15.0
Total return $170,321 $200,393 100.0% 100.0%

At March 31, 2000 the portfolio consisted of the following components:

Portion related to Endowed funds: $ 98,863,000

Portion related to Operating and non-endowed funds: $ 101,530,000

Total market value of portfolio: $200,393,000

Manager Review - Templeton

On May 25, 2000, the Investment Committee interviewed Mary Nizzero and Heather Arnold from Templeton Management Limited. The committee has no concerns with this manager.

[Four attached pages are not available in electronic form.]