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Alberta
Heritage Savings Trust Fund |
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Alberta
Heritage Savings Trust Fund |
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Released: August
31 , 2004
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The Heritage Fund contributed $328 million to the Province’s general revenues this quarter despite flat growth in the Canadian stock market. The contribution helps finance Albertans’ priorities such as healthcare, education, roads and tax reductions. The Canadian economy grew at a slower than expected pace this quarter. A weakening manufacturing sector, slower retail sales and regional labor disputes contributed to the slow down. As a result, the Canadian stock market, measured by the S&P/TSX Composite Index remained the same, posting a zero percent return over the quarter. The Bank of Canada bank rate remained unchanged at 2.25%. Canadian investors continued to speculate on when the Bank of Canada would trigger an interest rate increase. During the quarter, the value of the US dollar strengthened against the Canadian dollar. By the end of this quarter, $1 US purchased $1.34 Canadian compared to $1.31 Canadian at March 31, 2004. As a result, the appreciation in value of US equity investments during the quarter was further enhanced when translated into Canadian dollars. The recovery in the US economy appears firmly rooted. In May 2004, consumer spending increased by the largest amount in more than two years. American incomes also increased. Overall, the US economy continued to accelerate at a healthy pace. On June 30, 2004, the US Federal Reserve increased interest rates, the first increase in the past four years. The US federal funds rate increased from 1.0% to 1.25%. Over the quarter, the US market measured by the S&P 1500 Index grew by 1.7%, in US dollars, and 4.1% in Canadian dollars. The non-North American market measured by the MSCI EAFE Index increased by 2.5% this quarter.
At June 30, 2004, the fair value of the Heritage
Fund stood at $12.1 billion down from $12.4 billion at the beginning
of the quarter. Over the quarter, the increase in fair value of the
Fund's investments totalling $74 million or 0.6% was offset by transfers
to the General Revenue Fund of $328 million resulting in a net decrease
in the fair value of the Fund totalling $254 million.
The Fund recorded net income of $328 million during the first quarter of fiscal year 2004-05. Interest, dividends, real estate income and security lending income totalled $114 million, net of administrative expenses. Net realized capital gains from sale of securities and gains and losses from derivative transactions totalled $214 million.
The Fund's forecast investment income for fiscal year 2004-05 is $954 million, an increase of $307 million from the original budget forecast of $647 million. The Government of Alberta financial statements are prepared on a consolidated basis, which eliminates the income the Heritage Fund earns from Alberta provincial corporation securities, which is forecast to be $16 million for fiscal year 2004-05. Therefore, on a consolidated basis the Heritage Fund forecast investment income is $938 million.
Investments and investment income are recorded on the financial statements of the Heritage Fund at cost in accordance with government accounting policies. The fair value of the Fund and its investments are provided for information purposes. Management uses fair value to assess the investment performance of the fund against market-based benchmarks. The Fund's policy is to write down the cost of those securities where the decline in value below cost is not considered temporary. On a quarterly basis, management reviews the Fund's investment portfolio to identify those securities where the fair value has declined significantly below cost. Based on managements review, no write downs were taken during the quarter.
The Heritage Fund accounts for its investments on a cost basis of accounting. Investment income on a cost basis excludes unrealized gains and losses. Investment income on a fair value basis includes unrealized gains and losses. The investment income on a fair value basis for the three months ended June 30, 2004 was $74 million.
The investment strategy is to invest in a diversified portfolio to optimize long-term returns at an acceptable level of risk. The policy asset allocation is reported in the Fund's 2004-07 business plan as follows:
Based on the Heritage Fund 2004-07 business plan, the long term policy asset mix for fixed income securities decreases from 35.0% to 32.5%. The long-term policy mix for public equity investments remains the same at 45.0%. The reduction in Canadian fixed income securities is offset by an increase in absolute return strategy investments. Absolute return strategy investments increased from 5.0% to 7.5% of total portfolio investments. Real estate investments are expected to remain unchanged at 10.0% of total portfolio investments. The actual investment mix changed over the quarter. Fixed income securities decreased from 33.2% to 32.5%. Public equity investments decreased from from 54.1% to 53.5%. Real estate investments increased from to 7.6% to 7.9% of the Fund's total investment portfolio. Absolute return strategies increased from 4.0% to 4.7% of the Fund's investment portfolio. Private equity investments increased slightly from 1.1% to 1.4%. Actual private equities are below the long term target allocation of 5.0%, due to the limited availability of private equity opportunities.
Transfers to the General Revenue Fund Net income earned by the Fund is not reinvested in the Fund. Instead, all of the net income is transferred to the Province's main operating fund, the General Revenue Fund (GRF), and is used for Albertans' priorities like health care, education, roads and tax reductions. Changes in unrealized gains and losses are not included in net income and therefore not transferred to the General Revenue Fund. The Fund's net income for the quarter ended June 30, 2004, amounted to $328 million of which $162 million was transferred to the General Revenue Fund and $166 million remains payable to GRF.
The Heritage Fund posted an overall rate of return of 0.6% this quarter, 20 basis points less than the Fund's benchmark return of 0.8%. The performance of the Heritage Fund is measured over the long term. Over the past five-year period, the fund generated a nominal annualized return of 4.2%. The Heritage Fund is expected to generate a real rate of return of 4.5% at an acceptable level of risk over a moving five-year period. Over a five-year period, the annualized inflation rate was 2.5%. Therefore, the Fund is expected to generate a nominal annualized rate of return of 7.0%. The majority of the Fund’s investments are held in publicly traded equities. Over the last five years, public equity returns have fallen below their historical long term rate of return.
The performance of the Heritage Fund investments is measured against various market-based indices. Value added by investment management is accomplished through asset mix decisions and security selection. The following sections describe the performance of the Fund's major asset classes in relation to their benchmarks.
The Canadian bond market declined this quarter. The Scotia Capital (SC) Universe Bond Index measures the performance of marketable Canadian bonds with terms to maturity of more than one year. Over the past quarter, the SC Universe Bond Index decreased by 2.0% while the short term SC 91-Day T-Bill Index increased by 0.5%.
The Fund's actual rate of return over the quarter from long-term Canadian fixed income securities was negative 1.8%, 20 basis points better than the benchmark SC Universe Bond Index. Over five years, the return from long-term securities was 7.4% or 70 basis points better than the benchmark of 6.7%. The out-performance was primarily due to a higher weight in corporate bonds and duration management. The Fund's return from short-term securities was 0.5% and 4.0% over three months and five years respectively. The Heritage Fund's fixed income portfolio is internally managed through various pools and through direct holdings. Over the quarter, investments in bonds, notes, short term paper, provincial corporation debentures and loans declined from 33.2% to 32.5% of total investments. Fixed income securities now total $4.0 billion down from $4.2 billion at March 31, 2004.
The Canadian stock market finished the quarter on a flat note. The Toronto Stock Exchange S&P/TSX Composite Index, which measures the performance of Canada's top companies, reported a 0.0% return for the quarter ending June 30, 2004. The information technology sector and consumer discretionary sector led all sectors with returns of 5.0% each. The utilities sector finished the quarter with the lowest return of negative 8.7%.
The Heritage Fund's Canadian equity portfolio is held in various investment pools, which are managed by internal and external managers. Over the quarter the Fund's actual return from Canadian equities rose by 0.5%, 50 basis points better than the benchmark return from the S&P/TSX Composite Index of 0.0%. Higher returns from Canadian large cap investments contributed to the out-performance. Over five years, the Fund's return from Canadian equities was 5.1% compared to the benchmark return of 5.7%. At June 30, 2004, investments in Canadian public equities totalled 21.3% or $2.6 billion of the Heritage Fund investment portfolio down from to 22.1% or $2.8 billion at the beginning of the quarter.
United States Equity Investments The United States equity market closed out the quarter posting modest gains. The Standard & Poor's 1500 Index, S&P 1500, which measures the performance of the top 1500 U.S. companies, increased by 1.7% in US dollars and 4.1% in Canadian dollars.
The Fund's actual rate of return over the quarter from US equities was 3.4% in Canadian dollars or 70 basis points less than the S&P 1500 Index. Weaker than expected performance from the Fund's US large cap and small cap stock portfolios contributed to the under-performance. Over five years, the Fund's US equity portfolio returned a negative 3.6%, 50 basis points better than the benchmark. At June 30, 2004, investments in US equities totalled 15.7% or $1.9 billion of the Heritage Fund investment portfolio compared to 15.6% or $2.0 billion at March 31, 2004.
Non-North American Equity Investments The Non-North American equity market recorded positive returns this quarter. The Morgan Stanley Capital International Index for Europe, Australasia, and the Far East, MSCI EAFE Index, measures the performance of approximately 1000 companies on 21 stock exchanges around the world. The index rose by 2.5% over the quarter, in Canadian Dollars.
The Fund's actual return from Non-North American equities was 2.1% or 40 basis points less than the MSCI EAFE Index. Over five years the Fund's Non-North American equity portfolio returned a negative 0.7%, 120 basis points better than the benchmark MSCI EAFE Index. At June 30, 2004, investments in Non-North American equities totalled 16.5% or $2.0 billion of the Heritage Fund investment portfolio compared to 16.4% or $2.1 billion at the beginning of the quarter.
The Fund's real estate investments are held in the internally managed Private Real Estate Pool and in the newly created Foreign Private Real Estate Pool. Real estate investments earned 2.6% over the quarter and 8.4% over five years.
Nearly half of the real estate portfolio in Canada is invested in retail, half in office and a small portion in industrial and residential. Approximately three quarters of the Canadian real estate holdings are located in Ontario and nearly one quarter in Alberta with a small portion in British Columbia. At June 30, 2004, investments in real estate totalled 7.9% or $981 million of the Heritage Fund investment portfolio compared to 7.6% or $950 million at March 31, 2004.
Absolute return strategy investments encompass a wide variety of investments with the objective of realizing positive returns regardless of the overall market direction. A common feature of many of these strategies is buying undervalued securities and selling short overvalued securities. Over the quarter, absolute return strategies generated a negative return of 0.7%, 360 basis points less than the benchmark Consumer Price Index (CPI) plus 6.0%. Macro economic factors and weaker than expected performance from the convertible bond arbitrage strategy contributed to the under performance.
At June 30, 2004, investments in absolute return strategies totalled 4.7% or $575 million of total Fund investments compared to 4.0% or $507 million at March 31, 2004.
Private Equity and Private Income Investments At June 30, 2004, the private equity and private income portfolio comprised a small portion of the Fund's overall investment portfolio at 1.4% or $174 million compared to 1.1% or $136 million at March 31, 2004. During the quarter, the private equity and income portfolio returned 1.0%, 230 basis points below the benchmark Consumer Price Index plus 8%. In the early years, private equity funds will show low or negative returns. The investment gains usually come in the later years as the companies mature and, with the help of the General Partner, increase in value. The effect of this timing on the Fund’s interim returns is known as the J-Curve effect.
Administrative expenses include investment management and administration expenses. Fees charged by external managers and external administration fees are deducted directly from the income of externally managed investment pools. Internal investment management costs and internal administrative costs are deducted from the internally managed pooled funds and also directly from the Fund. External investment management fees are based on a percentage of net assets under management at fair value. Internal investment management expenses are based on a recovery of costs. The Fund's total administrative expenses for the quarter ended June 30, 2004, including amounts deducted from the investment income of the pooled funds, amounted to $6,142,000 or 0.051% of the Fund’s net assets at fair value compared to $5,518,000 or 0.047% of net assets for the same period last year. Total investment management expenses amounted to $5,086,000 for the quarter, while administrative expenses amounted to $1,056,000 million.
Over the past quarter, expenses of direct and internally managed investment pools increased by $84 thousand over the same period last year. Expenses from externally managed investment pools increased $540 thousand over the same period last year.
Business Plan Performance Measures
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| Alberta Heritage Savings Trust Fund Financial Statements June 30, 2004 Balance Sheet
Notes to the Financial Statements June 30, 2004 (unaudited) NOTE 1 AUTHORITY AND MISSION The Alberta Heritage Savings Trust Fund operates under the authority of the Alberta Heritage Savings Trust Fund Act (the Act), Chapter A-23, Revised Statutes of Alberta 2000, as amended. The preamble to the Act describes the mission of the Fund as follows: "To provide prudent stewardship of the savings from Alberta's non-renewable resources by providing the greatest financial returns on those savings for current and future generations of Albertans." NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND REPORTING PRACTICES These financial statements are prepared in accordance with generally accepted accounting principles. The accounting policies of significance to the Fund are as follows: (a) Portfolio Investments Fixed-income securities, mortgages, equities, real estate investments and absolute return strategy investments held directly by the Fund or by pooled investment funds are recorded at cost. Cost includes the amount of applicable amortization of discount or premium using the straight-line method over the life of the investments. Investments in loans are recorded at cost less any allowance for credit loss. Where there is no longer reasonable assurance of timely collection of the full amount of principal and interest of a loan, a specific provision for credit loss is made and the carrying amount of the loan is reduced to its estimated realizable amount. Investments are recorded as of the trade date. The cost of disposals is determined on the average cost basis. Where there has been a loss in value of an investment in fixed-income securities, mortgages, equities, real estate and absolute return strategies that is other than a temporary decline, the investment is written down to recognize the loss. The written down value is deemed to be the new cost. (b) Investment
Valuation Gains and losses arising as a result of disposals of investments are included in the determination of investment income. Income and expense from derivative contracts are included in investment income. Certain derivative contracts, which are primarily interest rate swaps and cross-currency interest rate swaps, are designated as hedges of market risks for purposes of hedge accounting. Hedge accounting recognizes gains and losses from derivatives in the statement of income in the same period as the gains and losses of the security being hedged. As a result, income and expense from derivative contracts designated as hedges are recognized in income on an accrual basis with gains and losses recognized in income to the extent realized. Derivative contracts not designated as hedges for purposes of hedge accounting, which are primarily bond index swaps, equity index swaps and equity index futures contracts are recorded at fair value. (c) Foreign Currency (d) Investment
Valuation
(e)
Valuation of Derivative Contracts
NOTE 3 PORTFOLIO INVESTMENTS
The majority of the Fund's investments are held in pooled investment funds established and administered by Alberta Revenue. Pooled investment funds have a market based unit value that is used to allocate income to participants and to value purchases and sales of pool units. As at June 30, 2004, the Fund's percentage ownership, at market, in pooled investment funds is as follows:
(a) The Consolidated Cash Investment Trust Fund is managed with the objective of providing competitive interest income to depositors while maintaining appropriate security and liquidity of depositors' capital. The portfolio is comprised of high-quality short-term and mid-term fixed-income securities with a maximum term-to-maturity of three years. As at June 30, 2004, securities held by the Fund have an average effective market yield of 1.93% per annum (2004: 2.11% per annum). (b) The Canadian Dollar Public Bond Pool is managed with the objective of providing above average returns compared to the total return of the Scotia Capital Universe Bond Index over a four-year period while maintaining adequate security and liquidity of participants' capital. The excess return is achieved through management of portfolio duration and sector rotation. The portfolio is comprised of high quality Canadian fixed-income instruments and debt related derivatives. As at June 30, 2004, securities held by the Pool have an average effective market yield of 4.98% per annum (2004: 4.20% per annum) and the following term structure based on principal amount: under 1 year: 3% (2004: 2%); 1 to 5 years: 39% (2004: 40%); 5 to 10 years: 31% (2004: 30%); 10 to 20 years: 11% (2004: 10%); over 20 years: 16% (2004: 18%). (c) As at June 30, 2004, fixed-income securities held directly by the Fund have an average effective market yield of 3.42% per annum (2004: 2.69% per annum). As at June 30, 2004, fixed-income securities have the following term structure based on principal amount: under one year: 100%. (d) The Private Mortgage Pool is managed with the objective of providing investment returns higher than attainable from the Scotia Capital Universe Bond Index over a four-year period or longer. The portfolio is comprised primarily of high quality commercial mortgage loans (94.4%) and provincial bond residuals (5.6%). To limit investment risk, mortgage loans are restricted to first mortgage loans, diversified by property usage and geographic location, and include a small portion of NHA insured loans. As at June 30, 2004, securities held by the Pool have an average effective market yield of 5.90% per annum (2004: 5.50% per annum) and the following term structure based on principal amount: under 1 year: 7% (2004: 7%); 1 to 5 years: 22% (2004: 23%); 5 to 10 years: 32% (2004: 26%); 10 to 20 years: 16% (2004: 20%); and over 20 years: 23% (2004: 24%). (e) As at June 30, 2004, Provincial corporation debentures have an average effective market yield of 7.76% per annum (2004: 7.10% per annum) and the following term structure based on principal amounts: 5 to 10 years: 100%. (f) Investment in loans are recorded at cost. The fair value of loans is estimated by management based on the present value of discounted cash flows. As at June 30, 2004, investment in loans, at cost, include the Ridley Grain loan amounting to $91,245,000 (2004: $91,245,000) and the Vencap loan amounting to $1,937,000 (2004: $1,899,000). The increase in the carrying value of the Vencap loan resulted from amortization of the loan on a constant yield basis.
(g) The Domestic Passive Equity Pooled Fund is managed on a passive approach with the objective of providing investment returns comparable to the Toronto Stock Exchange S&P/TSX Composite Index. The portfolio is comprised of publicly traded Canadian equities and structured investments replicating the S&P/TSX 60 Index. The Pool's investment in units of the Floating Rate Note Pool (FRNP) are used as the underlying securities to support the index swaps of the pool. FRNP is managed with the objective of generating floating rate income needed for the swap obligations in respect of structured investments in foreign equities, domestic equities and domestic bonds. Through the use of interest rate swaps, FRNP provides investment opportunities in high quality floating-rate instruments with remaining term-to-maturity of five years or less. (h) The Canadian Pooled Equity Fund is managed with the objective of providing competitive returns comparable to the total return of the S&P/TSX Composite Index while maintaining maximum preservation of participants' capital. The portfolio is comprised of publicly traded equities in Canadian corporations. Risk is reduced by prudent security selection and sector rotation. (i) The Canadian Large Cap Equity Pool consists of multiple portfolios of publicly traded Canadian equities. The portfolios are actively managed by external managers with expertise in the Canadian large cap equity market. The performance objective is to provide returns higher than the total return of the S&P/TSX Composite Index over a four-year period. Return volatility is reduced through multiple manager investment style and market capitalization focus. (j) The Growing Equity Income Pool is managed with the objective of providing a steady and growing stream of dividend income to client portfolios by investing in mature companies with strong financial characteristics and growing distributions. Risk is reduced by holding established well capitalized companies. The performance of the pool is measured against the total return of the S&P/TSX Composite Index. (k) Publicly traded US equities held in the S & P 500 Index Fund replicate the Standard & Poor's (S&P) 500 Index. The performance objective is to provide returns comparable to the total return of the S&P 500 Index over a four-year period. The Pool's investment in units of the Floating Rate Note Pool (FRNP) are used as the underlying securities to support the index swaps of the pool (see Note 3g). (l) The US Large Cap Equity Pool consists of multiple portfolios of publicly traded United States equities. Each portfolio is actively managed by an external manager with expertise in the US large cap equity market. The performance objective is to provide returns higher than the total return of the Standard & Poor's (S&P) 500 Index over a four-year period. Return volatility is reduced through multiple manager investment style and large capitalization focus. (m) The US Small/Mid Cap Equity Pool consists of one portfolio of publicly traded United States equities. The portfolio is actively managed by an external manager with expertise in the small cap and mid cap US equity market. The performance objective is to provide returns higher than the total return of the Russell 2500 index over a four-year period. (n) The Portable Alpha United States Equity Pool consists of futures and swap contracts which provide exposure to the U.S. equity market by replicating the S&P 500 Index and investments in value added absolute return strategies. The performance objective is to provide returns higher than the total return of the Standard & Poor's S&P 500 Index over a four-year period. (o) The Europe, Australasia and Far East (EAFE) Core and Plus Equity Pools consist of multiple portfolios of publicly traded non-North American equities. EAFE Core portfolios are actively managed by external managers with European and Pacific Basin mandates. EAFE core managers have constraints on foreign currency management and deviations from the MSCI EAFE Index asset mix by country. The EAFE Plus portfolios are actively managed by external managers with less constraints on country allocation, stock selection, currency management and investments in emerging markets. The performance objective is to provide returns higher than the total return of the Morgan Stanley Capital International (MSCI) EAFE Index over a four-year period. (p) The externally managed EAFE Passive Equity Pool consists of one portfolio of non-North American publicly traded equities that replicate the MSCI EAFE Index. The performance objective is to provide returns comparable to the total return of the MSCI EAFE Index over a four-year period. (q) The External Managers Emerging Markets Equity Pool consists of publicly traded equities in emerging markets around the world. The portfolio is actively managed by external managers with expertise in emerging markets. The performance objective is to provide returns higher than the total return of the Morgan Stanley Capital Index Emerging Markets Free (MSCI EMF) Index over a four-year period. (r) The Private Real Estate Pool is managed with the objective of providing investment returns higher than the Consumer Price Index plus 5%. Real estate is held through intermediary companies which have issued to the Pool, common shares and participating debentures secured by a charge on real estate. Risk is reduced by investing in properties that provide diversification by geographic location, by property type and by tenancy. As real estate returns are positively correlated to inflation and negatively correlated to returns from fixed income securities and equities, the Pool provides diversification from the securities market with opportunities for high return. (s) The Foreign Private Real Estate Pool is managed with the objective of providing investment returns higher than the Consumer Price Index plus 5%. The Pool provides diverse exposure to non-domestic real estate by investing in foreign real estate backed securities and assets. (t) The Absolute Return Strategy Pool is managed with the objective of providing investment returns higher than the Consumer Price Index (CPI) plus 6%. The Pool uses external managers who employ various investment strategies. These strategies are expected to produce absolute positive investment returns with lower volatility. (u) Private Equity Pools are managed with the objective of providing investment returns higher than the Consumer Price Index (CPI) plus 8.0%. The Private Equity Portfolio consists of the Private Equity Pool, PEP98, PEP02, PEP04, and the Foreign Private Equity Pool 2002 and the Private Income Pool. Private equity investments are held in institutionally sponsored private equity pools. Risk is reduced by avoiding direct investments in private companies and by limiting holdings in any single pool. The Private Income Pool allows unit holders to participate as equity investors in infrastructure related projects. (v) Where there has been a loss in value of an investment that is other than a temporary decline, the cost of the investment is written down to recognize the loss (see Note 2 (a)). Where the fair value remains less than cost, after recording a writedown, it is management's best judgement that the decline in value is caused by short-term market trends and is temporary in nature. NOTE 4 DERIVATIVE CONTRACTS Derivative contracts are financial contracts, the value of which is derived from the value of underlying assets, indices, interest rates or currency rates. The Fund uses derivative contracts held indirectly through pooled investment funds to enhance return, manage exposure to interest rate risk and foreign currency risk and for asset mix management purposes. The notional value of a derivative contract represents the amount to which a rate or price is applied in order to calculate the exchange of cash flows. (i) A swap is a contractual agreement between two counter-parties to exchange a series of cash flows based on a notional amount. An equity or bond index swap involves the exchange of a floating interest rate cash flow for one based on the performance of a market index. For interest rate swaps, parties generally exchange fixed and floating rate interest cash flows based on a notional amount. Cross-currency interest rate swaps are contractual obligations in which the principal amounts of Canadian fixed-income securities denominated in foreign currency are exchanged for Canadian currency amounts both initially and at maturity. Over the term of the cross-currency swap, counter-parties exchange fixed to fixed and fixed to floating interest rate cash flows in the swapped currencies. A credit default swap allows counter-parties to buy and sell protection on credit risk inherent in a bond. A premium is paid, based on a notional amount, from one counter party to a second counter party in exchange for a contingent payment should a defined credit event occur with respect to the underlying security. There are underlying securities supporting all swaps. Leveraging is not allowed. (ii) Forward foreign exchange contracts are contractual agreements to exchange specified currencies at an agreed upon exchange rate and on an agreed settlement date in the future. (iii) An equity index futures contract is an agreement to receive or pay cash based on changes in the level of the specified stock index. The following is a summary of the fund's proportionate share of the notional amount and fair value of derivative contracts held by pooled funds at June 30, 2004.
(a) The method of determining the fair value of derivative contracts is described in note 2 (e). NOTE 5 INVESTMENT RISK MANAGEMENT Income and financial returns of the Fund are exposed to credit risk and price risk. Credit risk relates to the possibility that a loss may occur from the failure of another party to perform according to the terms of a contract. Price risk is comprised of currency risk, interest rate risk and market risk. Currency risk relates to the possibility that the investments will change in value due to future fluctuations in foreign exchange rates. Interest rate risk relates to the possibility that the investments will change in value due to future fluctuations in market interest rates. Market risk relates to the possibility that the investments will change in value due to future fluctuations in market prices.
Risk is reduced through asset class diversification, diversification within each asset class, quality and duration constraints on fixed-income instruments, and restrictions on amounts exposed to countries designated as emerging markets. Controls are in place respecting the use of derivatives (see Note 4). Forward foreign exchange contracts may be used to manage currency exposure in connection with securities purchased in foreign currency (see Note 4). NOTE 6 FUND EQUITY Section 8 (2) of the Alberta Heritage Savings Trust Fund Act (the Act) states that the net income of the Heritage Fund less any amount retained in the Fund to maintain its value shall be transferred to the General Revenue Fund annually in a manner determined by the Minister of Revenue NOTE 7 NET INCOME (LOSS)
Investment income (loss) is comprised of interest, dividends, amortization of discount and premiums, swap income, security lending income and realized gains and losses, net of write-downs, on investments. The Fund's share of income (loss) earned from externally and internally managed investment pools is net of administrative expenses incurred by the pools. (see Note 8). NOTE 8 ADMINISTRATIVE EXPENSES The following is a summary of the investment performance results attained by the Fund determined on a fair value basis:
NOTE 9 INVESTMENT PERFORMANCE The following is a summary of the investment performance results attained by the Fund determined on a fair value basis:
NOTE 10 COMPARATIVE FIGURES Certain comparative figures have been reclassified to conform current period presentation. NOTE 11 APPROVAL OF FINANCIAL STATEMENTS These financial statements were approved by the Deputy Minister of Revenue.
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