Annual Report 2000-01
Alberta Heritage Savings Trust Fund

June 25, 2001
Edmonton, Alberta

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Table of Contents - Part 1

• Fund Profile
• Minister of Revenue’s Report to Albertans on the Alberta Heritage Savings Trust Fund
• The Year in Review
• Business Plan
• Endowment Portfolio
• Transition Portfolio
• Administrative Expenses
• Glossary

Go to Part 2 (Financial Statements and Investments)

Fund Profile

The Fund, established in 1976, operates under the authority of the Alberta Heritage Savings Trust Fund Act. A new Act was passed and came into force on January 1, 1997 that sets out a revised investment framework for the Heritage Fund. The statutory mission of the Fund is:

"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."

The Standing Committee on the Alberta Heritage Savings Trust Fund reviews and approves the business plan and annual report of the Fund. The Standing Committee has representation from the major parties of the Legislature. The Standing Committee receives regular reports on the performance of the Fund and conducts public meetings on an annual basis in different locations in the Province. The purpose of these meetings is to update Albertans on the management of the Fund and to solicit input from Albertans on the Fund’s objectives.

On March 15, 2001, the government announced new ministry structures. As a result, responsibility for the Fund and its investments was transferred to the new Ministry of Revenue. The Minister of Revenue is required to report on the performance of the Fund quarterly within 60 days of the end of the quarter and make public the annual report within 90 days of the end of the fiscal year.

The business plan of the Heritage Fund is published as part of the budget and the income of the Fund is consolidated into the revenue of the Province.

An Investment Operations Committee was established to add private sector financial and business oversight of the Fund’s investment policies and operation. The Investment Operations Committee is chaired by the Deputy Minister of Revenue and consists primarily of private sector members. The Committee reviews and makes recommendations with respect to the business plan, annual report and investment policy statements for the Fund. The Committee meets at least quarterly to review performance and fund management.

The investment portfolio of the Heritage Fund is managed by a group of highly qualified and experienced professionals in Alberta Revenue’s Investment Management Division. External specialist managers (private sector investment managers) are used to manage specific investment mandates. For the year ending March 31, 2001, the Fund’s total investment expense, for both externally and internally managed investments, was $8.1 million or .067% of the Fund’s total market value. The management of the fund is cost effective. The average investment expense paid by other institutional investors is 0.25% of total market value or the equivalent of $30.3 million. A savings of approximately $22.2 million to the Province.

Minister of Revenue’s Report to Albertans on the Alberta Heritage Savings Trust Fund

It’s an honour to report to Albertans on the performance of the Alberta Heritage Savings Trust Fund during the year of its 25th anniversary. The Heritage Fund has become a unique symbol of pride to Albertans and an illustration of forward thinking and long-range planning by government.

As many Albertans know, the Heritage Fund was created in 1976, when the oil and gas sector was booming. Non-renewable resource revenue collected by the Alberta Government was reaching record highs, so the government decided to take some of those revenues and put them into an investment fund. The idea was, that there would be a source of revenue for the province to fall back on when oil and gas resources are reduced.

The Heritage Fund started with an initial investment of $620 million and a special contribution of $1.5 billion. The Fund earned $88 million from investments during 1976-77, bringing the Heritage Fund’s total assets to $2.218 billion on March 31, 1977.

As of March 31, 2001, the total fair value of the Fund is $12.1 billion and it earned $706.2 million in net investment income.

The future of the Heritage Fund was reviewed in 1995. The Alberta Government surveyed Albertans and we were told to keep the Fund for future generations with a focus on earning greater returns on long-term investments, while providing a steady stream of income to help pay for current needs.

To do this, a plan was put into place in 1997 to re-structure the Fund. The Fund was divided into two distinct portfolios: the Transition Portfolio to support the Province’s immediate fiscal needs; and the Endowment Portfolio to optimize long-term returns.

With the decline in long-term interest rates, it was realized that the only way to provide a sustainable level of income in real terms was to invest in assets that would provide higher long-term returns. This would mean a portfolio with a significant commitment to equities.

In keeping with what Albertans’ said, all of the $706.2 million that the Heritage Fund earned in 2000-01 was transferred to the province’s General Revenue Fund and used for Albertans’ priorities like health care, education, roads, tax reductions and debt repayment.

We must recognize that in focusing more on achieving a higher long-term rate of return, we must accept increased risk and volatility in the Fund’s investment income from year to year. The key to achieving long-run, sustainable performance is to maintain a prudent diversified portfolio, a long-term focus, and investment discipline.

And since the volatility in equity markets can produce fluctuations in performance from year to year, the performance of the Fund must be assessed over the long term.

The Heritage Fund must be managed on a prudent basis. Key to that management is the measurement of performance against clearly defined benchmarks.

As you may have noticed if you watch the markets, fiscal 2000-01 was a weak year in the world equity markets. The downturn in equity markets contributed to lower than expected investment income and a decline of 5.7% in the total fair value of the Fund from the previous year. However, the Fund is still exceeding its performance benchmarks.

The Heritage Fund is an important part of the Province’s fiscal framework and represents an ongoing legacy for all Albertans. Earlier this year, both Moody’s Investor Services, and Standard and Poor’s announced they were boosting Alberta’s credit rating to triple A, higher than any other Canadian province. The long-term stability of the Heritage Fund is a key consideration in their reviews.

The Heritage Fund is an important part of Alberta’s past, present and future. The future of the Heritage Fund will be explored again at the up-coming Future Summit where people from across Alberta will discuss and help develop a plan for a debt-free Alberta.

[original signed]

The Year in Review

• The Fund earned net income of $706.2 million in 2000-01, a decrease of $462.9 million from $1,169.1 million a year earlier. During the year, all of the Fund’s income was transferred to the General Revenue Fund. On March 31, 2001, the net assets of the Fund were $12,256.3 million on a cost basis.
• The Government of Alberta financial statements are prepared on a consolidated basis which eliminates the income the Heritage Fund earns on holdings from Alberta Government and Provincial Corporation securities totalling $53.2 million for the year ending March 31, 2001. On a consolidated basis, Heritage Fund income is $653 million.
• On a cost basis, the Fund returned 6.3% over a one-year period, versus the cost of the debt of 8.3%.
• Over the year, $2,400.0 million (at cost) was transferred from the Transition Portfolio to the Endowment Portfolio.

• On a fair value basis on March 31, 2001, the net assets of the Fund were $12,123.7 million a decline of $730.1 million from the March 31, 2000 amount of $12,853.8 million.

Fair value is determined in accordance with Note 2(d) to the financial statements and is as follows:

• On a market value basis, the Alberta Heritage Savings Trust Fund returned a negative 0.1% over a one-year period versus the cost of the Province’s total debt of 11.9%.

• The market value cost for the Province’s total debt is up in 2000-01 due to the strengthening of the bond market and the weakening of the Canadian dollar.
• In addition to the annual report and quarterly updates, the Alberta Legislature’s Standing Committee on the Alberta Heritage Savings Trust Fund once again undertook a series of public meetings to report on the Fund and answer Albertans’ questions.

Business Plan

The business plan for the Heritage Fund describes the mission and specific investment objectives of the Fund and how the Fund will be invested, managed and measured. The business plan is reviewed annually and is published as part of the budget. The Investment Operations Committee reviews and makes recommendations regarding the business plan and the investment policies for the Fund. The business plan is then reviewed and approved by the Legislature’s Standing Committee on the Alberta Heritage Savings Trust Fund.

The Fund has been structured into two portfolios: the Transition Portfolio and the Endowment Portfolio. Each portfolio has its own investment objective and policy which is closely tied to the goals of the Fund. The three goals of the Fund, as outlined in the plan, remain as follows:

• Invest Transition Portfolio assets in accordance with the investment industry standard "Prudent Person Rule" which assigns the investment manager responsibility to restrict investment to assets that would be approved by a prudent investor.
• Invest in interest-bearing securities.
• Maintain sufficient liquidity to accommodate the transfers to the Endowment Portfolio.
• Limit investments to the various categories of interest-bearing securities.
• The benchmark for the Transition Portfolio is calculated based on 50% of the SC 91-day T-bill Index and 50% of the SC Short-term bond index.

Goal 2 - Make investments in the Endowment Portfolio to maximize long term financial returns.

Goal 3 - To improve Albertans’ understanding and the transparency of the Alberta Heritage Savings Trust Fund.

Transfer of Income to the General Revenue Fund

The Alberta Heritage Savings Trust Fund Act provides for the transfer of Heritage Fund income to the General Revenue Fund.

On March 23, 1999, the Fiscal Responsibility Act received Royal Assent and, until the accumulated gross debt is eliminated, the Minister of Revenue may retain in the Fund such amounts as the Minister of Revenue considers advisable.

Endowment Portfolio

Introduction

The Endowment Portfolio was established on January 1, 1997 with a transfer from the "old" Heritage Fund of $1.2 billion of investments (at cost). This included equity holdings previously held in the former Commercial Investment Division and a mix of short term and mid term fixed income securities. Since the initial $1.2 billion funding, the Endowment Portfolio has received monthly transfers from the Transition Portfolio. At March 31, 2001, the fair value of the portfolio was $7.5 billion. The Endowment Portfolio has undergone considerable change as the initial assets and subsequent cash flow have been invested to meet the policy objectives.

Investment Objective

The investment objective of the Endowment Portfolio is to optimize long term financial returns subject to an acceptable level of risk. Alberta Revenue operates under the "Prudent Person Rule" by legislation. This assigns to the investment manager the responsibility to restrict investments to assets that would be approved by a prudent investor. By investing to optimize long term returns it is expected that over time, the Heritage Fund will generate higher financial returns than in the past when social and economic objectives were pursued or if only shorter term income objectives were pursued. Similar investment funds with long term investment horizons and an objective to optimize long run returns, invest a significant amount of their assets in equities since equities have historically provided investors with higher total returns (dividends and capital gains) than interest bearing investments. This results in more volatility in capital gains and less interest income. Based on historical experience, a similar asset mix policy would have generated a real rate of return of around 5.0%.

The return in each asset class is compared to a market benchmark. The performance of the Endowment Portfolio will be measured by comparing the actual return of the fund to the return generated by a benchmark portfolio asset mix. It is calculated by multiplying the returns achieved by market indices by the Portfolio asset mix policy (see page 7). A four-year measurement period is used to focus management attention on the longer term. It is expected that over a four-year period, active management would add 0.5% in return over and above what would have been generated by the benchmark portfolio asset mix.

Investment Policy

The Endowment Portfolio’s investment policy statement is reviewed and recommended annually by the Investment Operations Committee to the Minister of Revenue. The investment policy statement for the Portfolio is then approved by the Minister of Revenue and forms the reference document for Alberta Revenue as the investment manager. The investment policy statement must be consistent with the business plan of the Fund and it provides the overall investment framework as well as specific policies and guidelines such as:

• a quality constraint for fixed income securities of investment grade (a minimum of a "BBB" credit rating or equivalent)
• investment limits by asset class
• a summary of the legislative authority and governance structure, including specific duties of the investment manager
• requirement to adhere to the "prudent person" rule when making investments
• how investment performance is to be measured and what benchmark is to be used in assessing performance (see below)
• controls with respect to the use of derivatives. Derivative instruments such as swaps can only be used to add value by enhancing fundamental investment strategies and cannot be used for speculative purposes. Over-the-counter derivatives may only be purchased from counterparties with at least a A+ credit rating at the time of purchase.

The strategy is to invest in a diversified portfolio to optimize long term returns at an acceptable level of risk. As liquid, marketable securities are transferred from the Transition Portfolio, the securities are reinvested based on the asset allocation policy established for the Portfolio. The asset allocation policy is based on a long run benchmark asset mix of 40% fixed income and 60% equities. The emphasis is on optimizing long term returns associated with equities relative to current income associated with fixed income.

To manage the equity exposure and further enhance the potential returns, the foreign equity benchmark target is 30% of the Portfolio’s market value. The foreign equity exposure increases the diversification of the fund across countries, industries and individual companies. In addition, the Fund’s exposure to enhanced growth opportunities is increased and provides the potential for higher long run returns.

External investment managers are used in addition to the Investment Management Division to take advantage of specialized knowledge and expertise. This has made it possible to invest in specific asset classes such as Canadian "small-cap" equities, U.S. equities, global equities and diversify investment strategies within the Canadian "large cap" equity component.

Asset Mix

On March 31, 2001, deposits and fixed income instruments accounted for 42.1% of total investments in the Endowment Portfolio and equity investments and real estate accounted for 57.9%.

During the year, the cost of investments held in the Endowment Portfolio increased by the following amounts:

Investment Income

The Endowment Portfolio earned $375.7 million of investment income during the year, of which $243.7 million was realized capital gains and $132.0 million was interest, dividend and other income.

Most capital markets demonstrated negative returns for the year ending March 2001 as shown by the table below. Fixed-income markets outperformed equity markets. The U.S. market, as measured by the Standard and Poor’s 500 Index, showed a return of negative 15% for the fiscal year. Canadian and foreign equity markets also showed negative results. The Canadian Markets returned negative 18.6%, followed by the Pacific Basin, which returned negative 26.5%. Emerging markets returned negative 30.5%. Over a four-year period, the equity markets showed positive returns. Fixed income markets, faced with falling interest rates out-performed the equity markets. Canadian treasury bills delivered a 5.7% return while Canadian bonds (as measured by the Scotia Capital Universe Bond Index) returned 8.7%.

The one year performance of the Endowment Portfolio of negative 6.1% exceeded the policy benchmark return of negative 6.2%. The Endowment Portfolio was overweight in bonds, which was the best performing asset class for most of the year. The Portfolio was also overweight in foreign equities which was the lowest performing asset class.

In terms of performance within the asset classes, the fixed income components of the Portfolio performed ahead of their respective benchmarks. The Canadian equity component out-performed the benchmark during the year but the out-performance was off-set by the under-performance in the foreign equity component.

Fixed Income

When bond yields fall the price of bonds decline and, as a result, the bond market as measured by the Scotia Capital Universe Bond Index recorded a 8.7% return for the year.

The Fund’s short term component returned 5.7% for the year, equal to the Scotia Capital 91-Day T-bill Index. The focus is on maintaining a liquid portfolio of high quality marketable securities. The overall term to maturity will not exceed 180 days and at least 40% of the portfolio will be government (federal and provincial) and government guaranteed securities.

The fixed income component is invested in a broadly diversified pool of publicly traded bonds, privately issued bonds and mortgages. The Fund’s long-term fixed income return was 9.5%, compared to the benchmark Scotia Capital Universe Bond Index of 8.7%. The Fund’s positive performance was due to a higher weighting in better performing corporate bonds and a duration slightly longer then the Scotia Mcleod Universe.

Canadian Equity

The TSE 300 Index returned negative 18.6% during the year. In total, the Fund’s Canadian equity component returned negative 16.0%, 260 basis points better than the benchmark.

The Canadian equity component is based on a diversified management structure that includes both indexed and actively managed mandates. There are two internally managed mandates. One is indexed to the TSE300 and the other is an active mandate with the same benchmark. The indexed portfolio returned negative 18.2% versus the TSE 300 return of negative 18.6%. The active Canadian equities consist of external and internal mandates. The internal active mandate underperformed the TSE300, returning negative 23.2% due to an overweight position in growth stocks, and an underweight in defensive stocks. The externally managed mandates outperformed the benchmark as a whole owing to an underweight in growth stocks. Growth stocks, and technology stocks in particular were the weakest performers in all major global indexes for the year ending March 2001.

Foreign Equity

The foreign equity markets performed poorly in 2000-01. Overall, the Fund returned negative 18.8% versus a benchmark return of negative 18.7% for the Morgan Stanley World Index.

Within the foreign equity mandate, US active managers outperformed their benchmark owing to an underweight in technology stocks. European active managers outperformed their market with positive stock selection and a neutral weight to growth stocks. Managers in the Far East underperformed significantly due to an overweight in growth stocks and the telecommunications sector in particular.

The foreign equity exposure is broadly diversified across all markets. Relative to the policy benchmark of an equal weight between US and international equities, the Fund has a slight underweight in the US.

Real Estate

Returns in real estate were more modest in 2000-01. The Russell Canadian Property Index is estimated to have returned 11.8% for the year, while the Fund’s real estate return was 9.7%. The difference is attributable to the calculation of return. The benchmark is calculated on a gross basis and excludes expenses such as capital expenditures and transaction costs. The Fund return is calculated on a net basis fully reflecting all costs and expenses.

During the 2000-01 fiscal year, the Transition Portfolio transferred $2.4 billion to the Endowment Portfolio. At March 31, 2001, the fair value of the Transition Portfolio’s investments was $4.6 billion (including loans totaling $97.4 million at cost) compared to a cost of $4.5 billion.

Investment Objective

The legislated investment objective of the Transition Portfolio is to make investments with the objective of supporting the government’s short term to medium term income needs as reflected in the government’s consolidated fiscal plan. The investment performance benchmark for the Transition Portfolio for fiscal 2000-01 is calculated based on 50% of the SC 91-day T-bill Index and 50% of the SC Short-term Bond Index.

Investment Policy

The Transition Portfolio’s investment policy statement is reviewed and recommended annually by the Investment Operations Committee to the Minister of Revenue. The investment policy statement for the Portfolio is then approved by the Minister of Revenue and forms the reference document for Alberta Revenue as the investment manager. The investment policy statement must be consistent with the business plan of the Fund and it provides the overall investment framework as well as specific policies and guidelines such as:

• a quality constraint for fixed income securities of investment grade (a minimum of a "BBB" credit rating or equivalent)
• investment limits for the various categories of fixed income securities
• controls to minimize the deviation of the Portfolio’s duration from that of the Province’s debt portfolio
• a summary of the legislative authority and governance structure, including specific duties of the investment manager
• requirement to adhere to the "prudent person" rule when making investments
• how investment performance is to be measured and what benchmark is to be used in assessing performance (see below)
• controls with respect to the use of derivatives. Derivative instruments such as swaps can only be used to add value by enhancing fundamental investment strategies and cannot be used for speculative purposes. Over-the-counter derivatives may only be purchased from counterparties with at least an A+ credit rating at the time of purchase.

Investment Strategy

To support the Province’s revenue needs, the Transition Portfolio is required to generate a stable source of income. Consequently, it is important the assets be revenue generating, and not exposed to significant credit risk. Additionally, due to the transfer program, assets need to be liquid (easily traded) so as to facilitate the monthly transfers to the Endowment Portfolio. This is accomplished by having a high quality portfolio of bonds and money market securities.

The bulk of assets in the Transition Portfolio continue to be in deposits and marketable fixed income securities totaling 90.8%. Provincial debentures constitute 7.1% and project loans are 2.1% of the Transition Portfolio.

Project loans have been further reduced. On a cost basis, the value of project loans is now $97.4 million or 2.1% of the Transition Portfolio. These loans are Ridley Grain Ltd. ($91.3 million) and Vencap Acquisition Corporation ($6.1 million).

In addition, $262.2 million of Provincial corporation debentures were repaid or redeemed. The Fund’s investment in provincial corporation debentures was reduced from $512.6 million at the beginning of the year to $250.4 million at March 31, 2001.

Corporate securities comprise 46.0% of the Transition Portfolio’s marketable fixed income securities. Federal government bonds constitute another 25.7% of the marketable fixed income securities. The Transition Portfolio’s holdings of other provincial governments’ bonds is 25.1% of the total fixed income investments.

For the current fiscal year 2000-01, the one year market return for the Transition Portfolio was 8.2% compared to the benchmark of 7.3%.

The Transition Portfolio outperformed the transition benchmark due to:

• An overweight position in better performing provincial bonds, AAA/AA corporate bonds and asset backed securities.
• Duration slightly longer than the benchmark duration.

During the year, the Transition Portfolio generated investment income totalling $332.0 million. Interest. dividends and other income totalling $384.4 million was offset by realized capital losses of $52.4 million.

Administrative expenses include investment management, cash management, custodial and other expenses. External management and custodial fees are deducted directly from the income of the externally managed pooled funds. Internal administrative expenses are deducted from the internally managed pooled funds and directly from the Endowment Portfolio and the Transition Portfolio.

In the 2000-01 year, the administrative expenses charged directly to the Fund were $1.5 million

($0.8 million in the Endowment Portfolio and $0.7 million in the Transition Portfolio) compared to $1.6 million in the 1999-2000 year ($0.7 million in the Endowment Portfolio and $0.9 million in the Transition Portfolio).

The Fund’s total administrative expenses for the year ending 2000-01, including amounts deducted directly from the investment income of the pooled funds, amounted to $8.1 million compared to $6.4 million in the 1999-2000 year.

The increase in administrative expenses is related to the transfers from the Transition Portfolio to the Endowment Portfolio. The Endowment Portfolio is more expensive to administer because it is predominantly invested in equities, a large portion of which are foreign equities which are externally managed.

ACCRUED INTEREST
Interest income that has been earned but not yet paid in cash.

BOND/DEBENTURE
A financial instrument showing a debt where the issuer promises to pay interest and repay the principal by the maturity date.

BOOK VALUE
See Cost Value.

CAPITAL GAIN
The market value received on sale of an asset beyond its book value or purchase price. If an asset is bought for $50 and sold for $75, the realized capital gain (profit) is $25.

COST VALUE
The value for which an asset was acquired.

DEPOSITS
Liquid, short term investments. A cash equivalent.

DURATION (also called modified duration)
Modified duration is the weighted average term to maturity of the security's cash flows (i.e., interest and principal) and is a measure of price volatility; the greater the modified duration of a bond, the greater its percentage price volatility.

FAIR VALUE
Fair value is the amount of consideration agreed upon in an arm's length transaction between knowledgeable, willing parties who are under no compulsion to act. Fair value is similar to market value.

FIXED INCOME SECURITIES
Interest bearing investments such as bonds or debentures and money market investments such as treasury bills and discount notes (see "Bond" and "Money Market Security").

GENERAL REVENUE FUND (GRF)
The central operating account for the Province of Alberta. It is where most of the revenues received by the Province are deposited and from where most expenditures are made.

GENERALLY ACCEPTED ACCOUNTING PRINICPLES (GAAP)
These are accounting guidelines, formulated by the CICA’s (Canadian Institute of Chartered Accountants) Accounting Standards Committee, that govern how businesses report their financial statements to the public. They are the principles under which the financial statements of the Heritage Fund and other provincial funds are prepared. These principles help ensure fair presentation of the financial affairs of the Province.

INCOME
The return from an investment. Can be derived from interest, dividends or appreciation in the value of the asset that is realized when the asset is sold.

INTERNAL RATE OF RETURN
The internal rate of return is the average rate earned by each and every dollar invested during the period. This rate is influenced not only by the movements in financial markets and decisions made by portfolio managers, but also by the timing and size of the cash inflows and outflows and the beginning and ending book or market values. Since the internal rate of return weights the final overall return by the size of the investment and the timing and size of cash flows in each subperiod, the method produces inappropriate results if the purpose is to compare the performance of two investment funds. For that purpose, the investment industry standard is to use time-weighted rates of return (see "Market (Value) Rate of Return").

INVESTMENT INCOME
Investment income is income from realized capital gains, interest, dividends, security lending and swaps.

INVESTMENT PORTFOLIOS
A pool of securities held as an investment. Holdings of a diverse group of assets by an individual company or fund.

LIQUIDITY
Describes the ease with which an asset can be turned into cash and the certainty of the value it will fetch.

MARKET VALUE
See Fair Value.

MARKET (VALUE) RATE OF RETURN
The market value rate of return measures income (dividends, cash interest and accrued interest) and capital appreciation (or capital depreciation). The method used to calculate the return is the time-weighted method with quarterly valuations. Time-weighted rates of return are designed to eliminate the effect that the size and timing of cash flows has on the internal rate of return since the pattern of cash flows vary significantly among funds. The investment industry uses time-weighted rates of return when comparing the returns of one fund to another fund or to an index.

MARKETABLE SECURITY
An investment for which there is usually a ready market.

MID-TERM INVESTMENT
A fixed income investment (bonds, debentures, treasury bills or discount notes) that matures in one to five years from the date of acquisition.

MODIFIED DURATION
A measure of price volatility of fixed income securities (i.e., bonds). It is the weighted average term-to-maturity of the security's cash flows (i.e., interest and principal). The greater the duration of a bond, the greater its percentage price volatility.

MONEY MARKET SECURITY
A fixed income security that matures within one year from the date of acquisition.

NET INCOME
The amount of earnings remaining after deducting expenses.

NOMINAL RATE OF RETURN
A measure of return that does not exclude or net out the effect of inflation (see Real Rate of Return).

PAR VALUE
A value set as the face amount of a security, typically expressed as multiples of $100 or $1,000. Bondholders receive par value for their bonds on maturity.

PORTFOLIO
The collection of investment securities held by an investor or a subset thereof.

PROVINCIAL CROWN CORPORATIONS
Special purpose companies which carry out government programs. Provincial Crown corporations are used because the nature of the programs are different than those delivered through government departments. The provincial Crown corporations discussed in this report generally offer financial services on a partial or full cost-recovery basis. Alberta Opportunity Company and the Alberta Social Housing Corporation are examples of Alberta provincial Crown corporations.

REAL VALUE OR REAL RATE OF RETURN
A measure of value or return after accounting for inflation. It is equal to the nominal value or return less an amount for inflation.

REALIZED/UNREALIZED
Terms generally used to describe capital gains or losses. A gain or loss is realized when an asset is sold; prior to sale the gain or loss is unrealized and it is only a potential gain or loss.

SECURITY
Any investment instrument such as a bond, common stock, deed of trust on property, or any evidence of indebtedness or equity.

SHORT-TERM INVESTMENT
An investment with a maturity date of less than one year.

TERM-TO-MATURITY
The number of years left until a bond matures.

VOLATILITY
In financial matters, volatility of returns is the measurement used to define risk. The greater the volatility, the higher the risk.

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