Appendix III Extracts from the Investment Policy Statement 1. Canadian fixed income securities Not more than 5% of a portfolio shall be invested in debt issues of any one issuer. 2. Canadian equities a) An investment must be listed on a recognized Canadian exchange. b) Not more than 8% of a portfolio shall be invested in the equity of any one issuer. c) Not more than 15% of a portfolio shall be invested in "small capitalization" stocks, and not more than 1% of the portfolio shall be invested in a small capitalization issuer (market capitalization of less than $300 million). 3. Real estate Real estate investments shall not exceed 10% of the value of any portfolio. 4. Foreign investments Not more than 30% of the value of a portfolio shall be invested in foreign content. Securities must adhere to the same investment guidelines established for Canadian investments (sections 1 and 2). 5. Asset mix and rate of return expectation a) Asset mix At no time shall the total equity component of the endowment portfolio exceed 80% of the total market value of the portfolio. b) Diversification The endowment portfolio should always contain at a minimum: 3% Canadian cash equivalents, 15% Canadian fixed income securities, and 10% Canadian equities. c) Rate of return objective Three-year annualized return in the order of 2.5% to 3.5% net of the investment management fees and transaction fees. Appendix I Background information on the endowment fund Investment earnings are an important funding source for the college. Considering the growth in the net asset value (NAV) of the endowment fund, the board of governors established its IPS in 1980 and later updated it in November 2001. The IPS plays a pivotal role in determining the extent that the endowment fund will be able to sustain a stable flow of meaningful benefits to beneficiaries. The NAV, investment return, and distributions over the past six years are as follows (in $'000s): ($'000s, rounded) 2015 2016 2017 2018 2019 2020 NAV, beginning 3,200 3,223 3,287 3,297 3,354 3,143 Gross investment return 124 160 106 240 -44 259 Management fees / transaction costs -54 -48 -46 -33 -7 -6 Scholarship distributions -47 -48 -50 -150 -160 -165 NAV, ending 3,223 3,287 3,297 3,354 3,143 3,231 Investment return % 3.9% 5.0% 3.2% 7.3% -1.3% 8.2% Management fee % 1.7% 1.5% 1.4% 1.0% 0.2% 0.2% Unless the board provides new direction, SCC does not plan to change the asset mix or distribution levels. Gross returns are anticipated to be 3.5% on the investments, less a 0.2% management fee over the next three years. The asset mix of the endowment fund over the past six years is as follows: 2015 2016 2017 2018 2019 2020 Cash and short-term paper 14% 13% 12% 3% 2% 1% Canadian fixed income 55% 54% 56% 19% 18% 15% Canadian large cap equity 20% 21% 19% 49% 39% 36% Canadian small cap equity 3% 4% 2% 7% 10% 11% Real estate N/A N/A N/A N/A N/A 10% Foreign securities 8% 8% 11% 22% 31% 27% 100% 100% 100% 100% 100% 100% Appendix I (continued) Background information on the endowment fund The return on each asset class in the endowment fund over the past six years is as follows: 2015 2016 2017 2018 2019 2020 Cash and short-term paper 1.0% 1.0% 1.1% 1.1% 1.2% 1.0% Canadian fixed income 4.1% 3.5% 4.0% 3.7% 4.0% 4.2% Canadian large cap equity 6.1% 10.2% 1.0% 9.2% -2.0% 9.8% Canadian small cap equity 6.5% 10.0% -1.5% 12.0% Real estate 0.0% 0.0% Foreign securities 1.0% 5.0% 0.0% 6.2% -3.0% 6.5% 0.0% 0.0% 6.0% 5.4% -3.1% 10.2% The following is a summary of the most significant investment activities over the past three years: In 2020, an investment was made in Genesis Genomes (GG). GG is a start-up company that was spun off from SCC's innovation department. The investment cost is included in the small capitalization asset class and represents a third of the asset class' value. The large cap Canadian equity asset class consists of an exchange-traded fund that tracks the top 15 dividend paying stocks in Canada. In 2018, SCC sold a significant number of its fixed income investments. The fixed asset class now consists of two investments: an exchange-traded bond fund that tracks high-quality Canadian corporate bonds and a 30-year bond of a large Canadian telecom company. These two investments are approximately equal in value in 2020. The foreign securities class consists of an exchange-traded fund that tracks the common stock of the 30 largest companies in the world. Appendix II Benchmark asset class returns The following are the historical benchmark returns for each asset class: Average historical historical Average return return Asset class Benchmarks 2015-2017 2018-2020 Cash and short-term paper Canadian fixed income Canadian large cap equity Bank of Canada 91-Day Treasury Bills 0.9% 1.2% Bank of Canada Long-Term Bonds 3.8% 4.3% S&P/TSX Composite Index 4.6% 6.2% Canadian small cap equity S&P/TSX SmallCap Index 3.0% 4.5% Real estate Foreign securities S&P/TSX Capped Real Estate Index S&P Global Index 5.5% 6.0% 5.8% 7.7% The risk-free rate for the six-year period is as follows: 2015 2016 2017 2018 2019 2020 Cash and short-term paper 1.0% 1.0% 1.1% 1.1% 1.2% 1.0%