mcgill university pension plan

McGill UniversityPension PlanReport and Financial StatementsDecember 31, 2007

Annual Report and Financial Statements

for the fiscal year ended December 31, 2007

Members of the Pension ADMINISTRATION COMMITTEEMr. Étienne Brodeur Independent Member (effective January 21, 2008)

Mr. Albert Caponi Representing the Principal & Chair of the Board

Professor Antal Deutsch (Chair) Representing Academic Staff

Mrs. Lynne B. Gervais Representing the Principal & Chair of the Board

Mr. Leo Kerklaan Representing Administrative & Support Staff

Mr. Pierre Lavigne Independent Member (until December 31, 2007)

Professor Gerald Ratzer Representing Academic Staff

Mr. Warren Simpson Representing the Board of Governors

Dr. Saul Ticktin Representing Administrative & Support Staff

Ms. Manon Vennat Representing the Board of Governors

NOTICE OF ANNUAL MEETING 1

INTRODUCTION 2

FUND INVESTMENTS 3

THE ACCUMULATION FUND 3

Asset Allocation 4

Investment Management 6

Market and Fund Performance 6

Investment Manager Performance 8• Equity Pool 8• Fixed Income Pool 12• Money Market Pool 13• Workout Asset Pool 13

Unit Values 14

THE PENSIONER FUND 15

Asset Allocation 15

Investment Management 15

Performance 16

BENEFITS AND ADMINISTRATIVE MATTERS 17

Plan Amendments 17

2007 Benefit Payments 17

Annuity Dividends 18

Annuity Dividend Valuation 18

Actuarial Valuation of the Plan 20

Administration 20

Contact Us and Staff Directory 21

CHART 1A and CHART 1BACCUMULATION FUND PERFORMANCE 22

CHART 2PENSIONER FUND PERFORMANCE 23

APPENDIX I – RETIREMENTS 24

APPENDIX II – DEATHS 25

APPENDIX III – UNIT VALUE HISTORY 27

APPENDIX IV – GLOSSARY 29

AUDITORS’ REPORT 32

FINANCIAL STATEMENTS 33

Table ofCONTENTS

Notice of Annual Meeting of Pension Plan MembersThe Annual Meeting of Members of the McGill University Pension Plan will be held in Room 132 of the Stephen Leacock Building, 855 Sherbrooke Street West, Montreal,Quebec on Tuesday, the 6th day of May, 2008 at 12:00 noon for the purposes of:

(a) tallying and announcing the voting results – continuance of voting procedures;

(b) electing one Administrative/Support Staff representative, who is member of the Plan as of December 31, 2007 and active employee of the University, to thePension Administration Committee;

(c) receiving the financial statements of the McGill University Pension Plan for the year ended December 31, 2007 and the Auditors’ Report thereon;

(d) receiving the stewardship report of the Pension Administration Committee;

(e) receiving the investment performance report of the McGill University Pension Plan for the year ended December 31, 2007, including the:

• Accumulation Fund;• Pensioner Fund; and the• impact of non-bank Asset-Backed Commercial Paper (“ABCP”) on the holdings

of the Pension Fund; and

(f) conducting such other business as shall be properly brought before the assembly.

Attendance at the meeting shall be restricted to active and non-active members of theplan, including beneficiaries. All attendees are requested to bring one of the followingvalid pieces of identification:

McGill Identification Card

Personal Statement of Holdings as of December 31, 2007

Personal Mail Ballot/Proxy Form

If you have not executed and returned the personal Mail Ballot/Proxy Form issued in your name, you are requested to bring this document to the meeting with you foridentification and voting purposes.

John D’AgataSecretary, Pension Administration CommitteeApril 2008

McGill UniversityPENSION PLAN

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M c G I L L U N I V E R S I T Y P E N S I O N P L A N


This Annual Report reviews and highlights the investment and administrativeactivities of the Pension Administration Committee (“PAC”) of the McGillUniversity Pension Plan (“Plan”) for the fiscal year ended December 31st, 2007.

StructureThe Committee is composed of nine members, of which four are elected by the members of the Plan, two are designated by the Board of Governors and twoare designated by the Principal and the Chair of the Board. One independentmember is appointed by the Board of Governors acting upon therecommendation of the PAC.

PAC Membership Changes in 2007The following changes occurred in the membership of the PAC during the year. InApril 2007, Mrs. Lynne B. Gervais replaced Dr. Morty Yalovsky as the representativefor the Principal and Chair of the Board of Governors. At the Annual Meeting heldon May 8th, Professor Gerald Ratzer (Academic Staff) and Dr. Saul Ticktin(Administrative and Support Staff) were acclaimed to new three-year terms. InDecember 2007, the Independent Member, Mr. Pierre Lavigne’s term ended. He willbe replaced by Mr. Étienne Brodeur who was appointed by the Board in January 2008.The PAC extends its thanks to Dr. Yalovsky and Mr. Lavigne for their wise counsel andvaluable contributions to the deliberations of the PAC.

ResponsibilitiesAs trustees of the Pension Fund, the members of the PAC have fiduciaryresponsibility for ensuring that investments are made on a prudent basis and inaccordance with the demographic profile of its members and the financial needsof the membership. The PAC is also responsible for all administrative matterspertaining to the provision of benefits as set forth in the Plan Document and acts within the framework of legislation and regulations issued under theSupplemental Pension Plans Act of the Province of Quebec and the Income Tax Act ofCanada. These responsibilities are discharged through regular meetings of the PACand through a network of external advisors, consultants and the staff of PensionAdministration and Pension Investments. During 2007, there were elevenmeetings of the full PAC and a number of informal working group meetings. Aninternal support staff of 16 acting under the direction and guidance of the PACcarry out the daily investment and administrative operations of the Plan.

At the end of September 2007, members of the Plan were invited to complete anonline Socially Responsible Investing (SRI) Follow-Up Survey in order to gaugeinterest in an SRI option being offered under the Plan. Based on the results of theFollow-Up Survey, the GEM Balanced Pool, was proposed. The subscriptiondeadline for the SRI option was extended from December 31, 2007 to March 31,2008 in order to allow additional time for members to complete the requiredforms and to attain the minimum investment threshold of $8 million which isrequired to launch the fund.

Introduction to 36th ANNUAL REPORT

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Pension Investment Board (“PIB”)The fundamental role of the PIB, created in 1999by the PAC, is to develop detailed investmentpolicies and set investment strategy that isrecommended to the PAC for approval.

The PIB is responsible for overseeing theimplementation of investment policy. It consistsof four to six independent external members whoare not part of McGill University administrationor staff and who are not members of anotherdecision-making body within the pension plangovernance structure.

In September 2007, Ms. Andrée Mayrand’s termended and she was replaced by Ms. MaureenFarrow. The PIB would like to thank Ms. Mayrandfor her wise counsel and valuable contributions tothe deliberations of the PIB.

The current members of the PIB are: Mr. DonaldWalcot, Chair; Ms. Maureen Farrow; Mr. ChilionHeward; Mr. Pierre Lajeunesse; and Mr. Carl Otto.PIB members, who are appointed by the PAC, servestaggered terms of not more than five years and arelimited to a maximum of two consecutive terms.

During 2007, the PIB met four times.

The AccumulationFUND

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The assets of the Pension Fund are invested inthree separate investment portfolios inaccordance with the three liability segments of the Pension Plan:

assets in respect of active staff members areinvested prior to retirement in theAccumulation Fund,

assets in respect of retired members who haveopted for an internal settlement are investedin the Pensioner Fund, and

assets necessary to provide any supplementarypensions required to meet the provisions ofthe Defined Benefit Minimum Provision aswell as to ensure the solvency of the Plan areinvested in the Supplemental Fund.

The PAC has adopted a comprehensive Statementof Investment Policy which addresses such issuesas investment objectives, risk tolerance, assetallocation, permissible asset classes, investmentdiversification, liquidity requirements, expectedrates of return, valuation procedures and otherissues relevant to the investment process, therebyestablishing a framework within which all theinvestment managers must operate.

The policy is reviewed on a regular basis andupdated when necessary to ensure that itcontinues to meet legal standards and theinvestment requirements of the membership. Acopy of the policy, most recently updated inNovember 2007, can be found on our website at:http://www.mcgill.ca/pensions/investments/ or can be viewed in the offices of the PAC, duringnormal business hours.

The Accumulation Fund, consisting of an EquityPool, a Fixed Income Pool, a Money Market Pooland a Workout Asset Pool, is the section of thePension Fund in which the assets of activemembers are invested prior to retirement. Thisstructure offers a wide range of possible financialstrategies and will allow members to create thespecific investment strategies that will bestrespond to their financial needs.

The PAC also maintains a Balanced Account thatconsists of allocations to the Equity Pool and theFixed Income Pool. The current policy targetprovides that 65% of the assets of the BalancedAccount are allocated to the Equity Pool and 35%are allocated to the Fixed Income Pool. Thecalculation of each member’s Defined BenefitMinimum Provision is based on the performanceof the Balanced Account.


FundINVESTMENTS

The PAC expects that the general policy of globalequity diversification that is in effect will continueto be a cornerstone of its strategic asset allocationpolicy for the Equity Pool and the BalancedAccount.

The investment objectives for the Equity Pool,Fixed Income Pool, Money Market Pool andWorkout Asset Pool, as well as the BalancedAccount are disclosed in Appendix IV.

Asset AllocationPlan members continue to allocate the majority of their assets to the Balanced Account. Thestrategic asset allocation for this Account isreviewed and adjusted periodically by the PAC(as recommended by the PIB) on the basis of acontinuing review of the economic, political andfinancial factors which drive investment markets.

As the performances of individual managers andmarkets move the assets of the Balanced Accountaway from the normal strategic positions, theassets are rebalanced regularly to bring theBalanced Account back within the parameters of the current strategic asset allocation positionset by the PAC. Such rebalancing is achievedthrough directed cash flow or by actively trans-ferring funds among managers when specifiedtrigger points are reached.

Schedule 1 provides the current asset allocationpolicy of the Balanced Account. The actualallocation of the Balanced Account at December31, 2007, was 64% to the Equity Pool and 36% tothe Fixed Income Pool. Related benchmarks andthe actual asset allocation of the BalancedAccount at December 31, 2007 are also shown inSchedule 1.


Balanced Account – Asset Allocation Policy, Related Benchmarks and Actual Asset Allocation as at December 31, 2007

Current ActualPolicy BalancedAllocation Account

Asset Class Benchmark (%) (%) MIN% MID% MAX%

Equity Pool

Cash & Short-Term DEX 91-Day T-Bill 0 1.9 0 0 0

Canadian Equities S&P/TSX Composite 27 28.1 22 27 32

US Equities S&P 1500 AllCap or 15 10.3 10 15 20S&P 500 LargeCap (8) (10) (12)S&P 1000 Small/MidCap (2) (5) (8)

Non-NorthAmerican Equities MSCI EAFE 12 10.2 9 12 15

S&P/IFCI 3 4.2 1 3 5

Alternative Equities:Real Estate Industry Composite 4 4.5 0 4 8Private Equity S&P/TSX Composite 2 3.5 0 2 4Resource Properties S&P/TSX Capped Energy Trust 2 1.3 0 2 4

65% 64.0% 65%

Fixed Income Pool

Cash & Short-Term DEX 91-Day T-Bill 2 6.6 0 2 20Bonds DEX Universe Bond 18 18.6 16 18 20

DEX Real Return 11 8.3 9 11 13ML Global HY (hedged) 4 2.5 3 4 5

35% 36.0% 35%

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The benchmarks for cash and short-term, equity,fixed income and resource properties asset classeswere selected because all are publicly-traded andreadily investable indices. With respect to realestate, two industry-recognized benchmarks areused to create a composite benchmark. While notruly appropriate indices have been identified forprivate equity, the S&P/TSX Composite is used asa benchmark for this asset class.

The actual asset allocations in the AccumulationFund at any particular time will reflect the

strategic asset allocation policies with respect to the Balanced Account, the separate assetallocation policies followed by members whoutilize an investment strategy other than the Balanced Account as well as the allocation bythe Pensioner Fund to the Accumulation Fund($88.2 million in Fixed Income Pool units atDecember 31, 2007).

The actual management and asset allocationstructure of the Accumulation Fund as atDecember 31, 2007 are shown in Schedule 2.


Accumulation Fund – Asset Allocation and Manager Structure – December 31, 2007% of

Amount Equity andAsset Class Manager (millions) Fixed Holdings

Equity Pool

Cash & Short-Term: Internal $ 18.7 1.7%

Canadian Equities: Jarislowsky Fraser 130.3 11.8%TD Asset Management 124.4 11.2%Van Berkom & Associates 30.8 2.8%

US Equities: New York Life Investment Mgmt. 31.3 2.8%LSV Asset Management – LargeCap 31.2 2.8%LSV Asset Management – Small/MidCap 31.7 2.9%State Street Global Advisors 11.0 1.0%

Non-North American Equities: Brandes Investment Partners 52.1 4.7%Capital International 35.0 3.2%JPMorgan Asset Management 17.7 1.6%William Blair & Company 43.3 3.9%

Real Estate: External 46.0 4.2%Private Equity: Internal/External 35.2 3.2%Resource Properties: Internal 13.4 1.2%

Total Equity Pool: $ 652.1 59.0%Fixed Income Pool:

Cash & Short-Term: Internal $ 21.6 1.9%

Treasury Bills: TD Asset Management 60.0 5.4%

Real-Return Bonds: Phillips, Hager & North 104.6 9.5%High-Yield Bonds: Phillips, Hager & North 32.1 2.9%Short-Term Bonds: Phillips, Hager & North 45.4 4.1%Bonds: Addenda Capital 108.1 9.8%

TD Asset Management 82.2 7.4%

Total Fixed Income Pool: $ 454.0 41.0%

Total Equity and Fixed Income Pools: $1,106.1 100.0%

Money Market Pool (MMP):

Cash & Short-Term: Internal $ 14.3 n/a

Workout Asset Pool:

Non-bank ABCP: Internal $ 3.9 n/a

Total Accumulation Fund: $1,124.3

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Investment Management The following investment manager changes weremade in 2007:

In February 2007, GE Asset Management’s USequity mandate was terminated. Assets werereallocated in February 2007 to LSV AssetManagement, who were hired to manage anenhanced US equity mandate and in May 2007 toNew York Life Investment Management who werealso hired to manage an enhanced US equitymandate.

In the Fall of 2007, TD Asset Management wasawarded three Canadian money market mandatesto invest in their Government of Canada Fund;one mandate for each of the Fixed Income Pool,Money Market Pool and the Pensioner Fund.

PerformanceMARKET PERFORMANCE

Canadian equities provided another year of strongreturns. In 2007, the S&P/TSX Composite Indexincreased by 9.8%. The annual return of the Indexwas due in large part to the performance of theMaterials, Information Technology and Energysectors. The S&P/TSX SmallCap Index, themeasure of small-cap performance, was up 0.9%during the year. The DEX Universe Bond Index(formerly the Scotia Capital Universe Bond Index)and the DEX Short-Term Bond Index (formerlythe SC Short-Term Bond Index) gained 3.7% and4.1%, respectively. Real-return bonds returned1.8% for the year versus the 1.6% return of theDEX Real-Return Bond Index (formerly the SCReal-Return Bond Index).

The Canadian dollar appreciated 16.8% versus theUS dollar during the year. In Canadian dollarterms, the S&P 500 lost 10.5% for the year andlagged the S&P/TSX Composite Index for thesixth straight year. Overall returns in Canadiandollars for the S&P 1500, S&P 1000 and the S&P400 indices were -10.6%, -10.8%, and -8.4%,respectively, reflecting the relative similarity inreturn for small, mid and large cap stocks duringthe year. Non-North American marketsrepresented by the MSCI EAFE Index and theS&P/IFCI Index finished the year with returns of -5.3% and 19.0%, respectively.

FUND PERFORMANCE

Schedule 3 following shows the gross rates of marketreturns achieved by the various asset classescomprising each of the investment pools and bythe Balanced Account for the one, five and tenyear periods ended December 31, 2007. Theapplicable benchmark performance for each assetclass is also noted in Schedule 3.

The Equity Pool returned 0.2% for the year incomparison to the composite benchmark of 2.4%.The Canadian equity performance of 9.7%slightly lagged the S&P/TSX Composite Indexbenchmark of 9.8%. The performance of alter-native equity assets at -3.9% underperformed itsS&P/TSX Composite Index benchmark. The USequity performance of -15.4% was lower than theS&P 1500 benchmark performance of -10.6% forthe year, while the non-North American equityperformance of 0.1%, outperformed its compositebenchmark of -0.8%.

The Fixed Income Pool turned in a performanceof 2.9% for the year, above the 1.3% return of itscomposite benchmark.

The Balanced Account’s performance of 1.4% for the year lagged its composite benchmark of2.3%.

The Money Market Pool returned 4.5% for theyear, slightly higher than the 4.4% return of theDEX 91-Day T-Bill Index, its benchmark until theend of 2007. When combined with the holdingsof the Workout Asset Pool, the Money MarketPool returned 1.7%.

The key to performance is meeting the long-terminvestment objectives that are specific to thePension Fund.

The performances of the Equity Pool, FixedIncome Pool and Balanced Account surpassed ormet their respective long-term benchmarks as atDecember 31, 2007, measured over no less thanten years, as shown on the Accumulation Fund:Long-Term Expected Rate of Return table on page 8.

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Accumulation Fund Performance1 as at December 31, 2007

Annualized Rates of ReturnAsset Class 1 year 5 years 10 years

Equity Pool:Cash & Short-Term: 1.6% 2.7% 3.7%Benchmark DEX 91-Day T-Bill Index: 4.4% 3.2% 3.8%

Canadian Equities: 9.7% 18.3% 8.9%Benchmark S&P/TSX Composite Index: 9.8% 18.3% 9.5%

US Equities: -15.4% 1.8% 2.7%Benchmark Return2: -10.6% 3.1% 0.3%

Non-North American Equities: 0.1% 14.5% 8.9%Benchmark Return3: -0.8% 14.1% 7.3%

Alternative Equities4: -3.9% 14.8% 11.9%Benchmark S&P/TSX Composite Index: 9.8% 18.3% 9.5%

Total Equity Pool: 0.2% 13.3% 7.6%Composite Equity Pool Benchmark5: 2.4% 13.9% 7.1%

Fixed Income Pool:Cash & Short-Term: 1.3% 2.7% 3.7%Benchmark DEX 91-Day T-Bill Index: 4.4% 3.2% 3.8%

Bonds: 3.4% 7.2% 6.9%Composite Bond Benchmark6: 1.2% 6.4% 6.6%

Total Fixed Income Pool: 2.9% 6.6% 6.6%Composite Fixed Income Pool Benchmark7: 1.3% 6.2% 6.5%

Balanced Account: 1.4% 11.4% 7.6%Composite Balanced Account Benchmark8 2.3% 11.5% 7.2%

Money Market Pool: 4.5% 3.3% 4.0%Money Market Pool including Workout Asset Pool9 1.7% 2.8% 3.7%Benchmark DEX 91-Day T-Bill Index: 4.4% 3.2% 3.8%

Workout Asset Pool10: -9.6%9 n/a n/a

Note 1: Returns have been determined by an independent performance measurement firm, are reported in Canadian dollars and are gross of fees.

Note 2: Current US Equity benchmark is S&P 1500 Index.

Note 3: Current benchmark is 80% of EAFE Index+ 20% of S&P/IFCI Index.

Note 4: Total of Real Estate, Private Equity and Resource Property Portfolios.

Note 5: Current policy allocation benchmark is 50% of S&P/TSX Composite Index + 22% of S&P 1500 Index + 18% of EAFE Index + 6% of Real Estate Industry Composite + 4% of S&P/IFCI Index.

Note 6: Current benchmark is 57% of DEX Universe Bond Index + 33% of DEX Real-Return Bond Index + 10% of ML Global HY (hedged).

Note 7: Current policy allocation benchmark is 53% of DEX Universe Bond Index + 31.25% DEX Real-Return Bond Index + 9.5% of ML Global HY (hedged) + 6.25% of DEX 91-Day T-Bill Index.

Note 8: Calculated on the basis of historical asset allocation policy targets. As of July 1, 2007, the policy allocation benchmark is 65% of Composite Equity Pool Benchmark + 35% of Composite Fixed Income Pool Benchmark.

Note 9: The combined return incorporates performance of the Money Market Pool and the Workout Asset Pool for the reference period.

Note 10: Workout Asset Pool was established August 31, 2007. Year-to-date return from September 1, 2007.

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43.9%

22.5%

14.6%

2.9%

16.1%

Canadian

US

Non-North American

Alternative Investments

Cash & Short-Term

43.6%

1 0.7%

45.7%

Jarislowsky Fraser

TD Asset Management

Van Berkom & Associates


Summary of Equity Investments(as a percentage of the total Equity Pool)

Management Structure in Canadian Equities

Accu

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the five and ten-year periods ending December31st, 2007. The benchmarks applicable to eachmanager or portfolio are also noted in Schedule 4.

EQUITY POOL

The Equity Pool includes Canadian, US, and non-North American equities as well asinvestments in alternative strategies and cash. At December 31, 2007, the Equity Pool held$278,000, which represents 0.04% of the totalEquity Pool, in non-bank asset-backed commercialpaper (ABCP) which at that time was illiquid. As ofyear end, the PAC has applied a 10% liquiditydiscount to the value of such investments.

CANADIAN EQUITY INVESTMENTS

The Equity Pool is invested in Canadian equitiesthrough both enhanced index and fully activestrategies. For the year, TD Asset Management,which manages an enhanced index mandatereturned 11.8% and Jarislowsky Fraser, employing afully active investment approach, returned 7.1%,compared to the S&P/TSX Composite return of9.8%. The performance of Van Berkom &Associates who actively manage a smallcapmandate was 11.6% for the year, above its S&P/TSXSmallCap Index benchmark performance of 0.9%.

At December 31, 2007, approximately 44% of theCanadian equity portfolio was invested in anenhanced index strategy versus 43% at the end of2006. The entire Canadian equity portfolio wasmanaged externally at year-end.

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Long-Term Expected Rate of Return

Equity Pool: 4.00% plus the annual change in the Canadian Consumer Price Index.

Fixed Income Pool: 2.00% plus the annual change in the Canadian Consumer Price Index.

Balanced Account: 3.30% plus the annual change in the Canadian Consumer Price Index.

Money Market Pool: 0.15% plus the return on the DEX 91-Day T-Bill Index.

While the objectives above are meant to be long-term (no less than 10 years), the following table includes comparative performance over 1 and 5 years:

1-year Long-Term 5-year Long-Term 10-year Long-TermReturn Objective Return Objective Return Objective

Equity Pool: 0.2% 6.4% 13.3% 6.1% 7.6% 6.2%

Fixed Income Pool: 2.9% 4.4% 6.6% 4.1% 6.6% 4.2%

Balanced Account: 1.4% 5.7% 11.4% 5.4% 7.6% 5.5%

Money Market Pool (incl.the Workout Asset Pool): 1.7% n/a 2.8% n/a 3.7% n/a

CPI for the period: 2.4% 2.1% 2.2%

Investment Manager PerformanceSchedule 4 shows the gross rates of market returnsachieved by the various specialist managers andportfolios of the Accumulation Fund for thecalendar year 2007 and, where applicable, over

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Manager Performances1 as at December 31, 2007

Annualized Rates of ReturnManager 1 year 5 years 10 years

Canadian Equity Managers:Jarislowsky Fraser: 7.1% 18.8% n/aTD Asset Management: 11.8% 19.2% n/aBenchmark S&P/TSX Composite Index2: 9.8% 18.3% n/a

Van Berkom & Associates: 11.6% 14.7% 8.8%Benchmark S&P/TSX SmallCap Index2: 0.9% 12.3% 6.6%

US Equity Managers:New York Life Investment Management3: -12.5%3 n/a n/aBenchmark S&P 500 LargeCap Index: -10.5%3 n/a n/a

LSV Asset Management4: -15.0% 4 n/a n/aBenchmark S&P 500 LargeCap Index: -10.8% 4 n/a n/a

LSV Asset Management: -22.0% n/a n/aBenchmark S&P 1000 Index: -10.8% n/a n/a

State Street Global Advisors: -8.4% n/a n/aBenchmark S&P 400 MidCap Index: -8.4% n/a n/a

Non-North American Equity Managers:Brandes Investment Partners: -8.6% 12.6% n/aJPMorgan Asset Management: -5.7% 9.4% 6.7%Benchmark MSCI EAFE Index: -5.3% 11.1% 5.1%

William Blair & Company: 2.1% n/a n/aBenchmark MSCI EAFE & EM: -1.4% n/a n/a

Capital International: 18.7% 25.6% n/aBenchmark S&P/IFCI Index: 19.0% 26.4% n/a

Alternative Equity Managers:Real Estate Portfolio: -3.5% 11.7% 9.5%Industry Specific Benchmark: 1.7% 10.7% 11.1%

Private Equity Portfolio: -2.3% 4.4% -0.4%Benchmark S&P/TSX Composite Index: 9.8% 18.3% 9.5%

Resource Property Portfolio: -8.0% 20.7% 23.5%Benchmark S&P/TSX Capped Energy Trust2: 3.3% 16.9% 8.8%

Bond Managers:Phillips, Hager & North – High-Yield: 4.7% 9.2% n/aBenchmark ML Global HY (hedged)2: -13.9% 2.9% n/a

Phillips, Hager & North – Real-Return: 1.8% 9.4% n/aBenchmark DEX Real-Return Bond Index: 1.6% 8.6% n/a

Phillips, Hager & North – Short-Term: 3.1% n/a n/aBenchmark DEX Short-Term Bond Index: 4.1% n/a n/a

Addenda Capital: 4.6% n/a n/aTD Asset Management: 3.7% n/a n/aBenchmark DEX Universe Bond Index: 3.7% n/a n/a


Note 2: Different benchmark indices were used in the five- and ten-year periods, where applicable.Note 3: Mandate began May 29, 2007. Year-to-date return from June 1, 2007.Note 4: Mandate began February 28, 2007. Year-to-date return from March 1, 2007.


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FOREIGN EQUITY INVESTMENTS

The actual year-end weightings in US equities(10.3%) and non-North Amercian equities (14.4%)were less than the policy allocation of 15% each.

US EQUITY INVESTMENTS

The Equity Pool’s holdings in US equities wereallocated to enhanced index, index and fullyactive strategies at year-end.

New York Life Investment Management, whichmanages an enhanced large cap mandate,

returned -12.5% versus the S&P 500 indexbenchmark return of -10.5% for the last twoquarters of 2007. The S&P MidCap index fund,managed by State Street Global Advisors, returned-8.4%, the same as its benchmark. LSV AssetManagement with two US equity mandates,returned -22.0% for its small/midcap fully activevalue mandate versus its benchmark, theS&P1000 which returned -10.8% for the year, and -15.0% for its enhanced large cap mandate versusthe S&P500 index benchmark return of -10.8% forthe ten-month period ending December 31, 2007.

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Summary of Foreign Equity Holdings

Ten Largest Canadian Publicly Traded Equity Holdings Accumulation Fund as at December 31, 2007

% of Market Value % of Balanced

Security Name (in millions) Equity Pool Account

Potash Corp of Saskatchewan $12.6 1.9% 1.2%

Encana Corporation $11.9 1.8% 1.2%

Manulife Financial Corporation $11.5 1.8% 1.1%

The Bank of Nova Scotia $11.5 1.8% 1.1%

Royal Bank of Canada $11.2 1.7% 1.1%

Toronto Dominion Bank $10.9 1.7% 1.1%

Enerplus Resources Fund $ 9.6 1.5% 0.9%

Nexen Inc. $ 8.9 1.4% 0.9%

Suncor Energy Inc. $ 8.2 1.3% 0.8%

Bank of Montreal $ 6.7 1.0% 0.7%

2.1%

41.7%

17.9%9.3%

12.9%

10.7%

5.4%

United States

Continental Europe

United Kingdom

Emerging Markets

Japan

Pacific Basin (excl. Japan)

Cash

1 0.5%

30.2%

29.7%

29.6%

State Street Global Advisors

LSV Asset Management (Small/MidCap)

LSV Asset Management (LargeCap)

New York Life Investment Management

Management Structure in US Equities

At December 31, 2007, approximately 70.0% ofthe US equity portfolio was invested in an indexor enhanced index strategy versus 74% at the endof December 2006. At December 31, 2007, theentire US equity portfolio was managed externallyas it was at the end of 2006.

NON-NORTH AMERICAN EQUITY INVESTMENTS

The non-North American equity holdings in the Equity Pool were allocated to active managersin both developed and emerging markets.

Brandes Investment Partners, following a valuestyle solely in developed markets, and theJPMorgan Asset Management EQIT Fund,following a growth style predominantly indeveloped markets, returned -8.6% and -5.7%,respectively as compared to the benchmark MSCIEAFE return of -5.3% for the year. William Blair &Company, following a growth mandate indeveloped and emerging markets, returned 2.1%for the year versus the benchmark return of -1.4%. The 18.7% return of the CapitalInternational Emerging Markets Fund, investedsolely in emerging market stocks, slightly under-performed the 19.0% return of its benchmark, theS&P/IFCI index.

At December 31, 2007, the entire non-NorthAmerican portfolio was managed externally as itwas at the end of 2006.

ALTERNATIVE EQUITY INVESTMENTS

The investments in alternative strategies aremeant to provide diversification relative to thepublicly-traded equity and fixed income markets.In 2007, there were no new commitments madeto alternative strategies. However, $16 million wasinvested in a pooled fund consisting of publicly-traded global real estate securities and REITs,bringing the total investment in the pooled fundto $24 million. The investment in the pooledfund is meant to further diversify the real estateportfolio by property type and geography as wellas to provide greater liquidity.

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Ten Largest US Publicly Traded Equity Holdings Accumulation Fund as at December 31, 2007

Market Value % of % of BalancedSecurity Name (in Cdn $ millions) Equity Pool Account

Exxon Mobil $2.5 0.4% 0.2%

General Electric $1.4 0.2% 0.1%

Microsoft $1.3 0.2% 0.1%

AT & T $1.2 0.2% 0.1%

Pfizer $1.1 0.2% 0.1%

ConocoPhillips $1.1 0.2% 0.1%

IBM $1.1 0.2% 0.1%

Procter & Gamble $1.0 0.2% 0.1%

Chevron Corporation $1.0 0.2% 0.1%

Verizon Communications $1.0 0.2% 0.1%


35.6%

23.9%

23.1%

5.4%

1 2.0%

Brandes Investment Partners

Capital International

William Blair: EAFE

William Blair: EM

JP Morgan Asset Management

Management Structure in Non-North American Equities

23.0%

7.1%

10.0%

23.8%

18.1%

18.0%

PH&N - Real Return Bond

PH&N - High Yield

PH&N - Short-Term

Addenda Capital

TD Asset Management

Cash & Short-Term

12

Ten Largest Non-North American Publicly Traded Equity Holdings Accumulation Fund as at December 31, 2007

Market Value % of % of BalancedSecurity Name (in Cdn $ millions) Equity Pool Account

Deutsche Telekom (Germany) $2.4 0.4% 0.2%

Sanofi-Aventis (France) $2.3 0.3% 0.2%

Glaxosmithkline (United Kingdom) $1.9 0.3% 0.2%

Telecom Italia (Italy) $1.9 0.3% 0.2%

Nippon Tel & Tel (Japan) $1.8 0.3% 0.2%

WM Morrison Supermarkets (United Kingdom) $1.6 0.3% 0.2%

Mitsubishi UFJ Financial (Japan) $1.6 0.2% 0.2%

Astrazeneca (United Kingdom) $1.5 0.2% 0.2%

Nestle (Switzerland) $1.5 0.2% 0.1%

Taiwan Semiconductor (Taiwan) $1.4 0.2% 0.1%


The real estate porfolio return of -3.5% was lowerthan the 1.7% return of its composite benchmark.The composite benchmark reflects both privately-held real estate which returned 20.9% versus itsindustry specific benchmark of 16.3% andpublicly-traded global real estate securities andREITs which returned -24.3% versus the -22.7% return of its benchmark, the GPR 250 Net.The private equity portfolio returned -2.3% versusthe S&P/TSX Composite return of 9.8%. Resourceproperties which are comprised of oil and gasroyalty trust units provided a return of -8.0%versus the S&P/TSX Capped Energy Trust return of 3.3%.

FIXED INCOME POOL

The Fixed Income Pool includes allocations tobonds (managed against the DEX CapitalUniverse Bond Index), high-yield bonds, real-return bonds, short-term bonds and cash andshort-term investments.

At December 31, 2007, the Fixed Income Poolheld $21.8 million, which represents 4.8% of thetotal Fixed Income Pool, in non-bank asset-backed commercial paper (ABCP) which at thattime was illiquid. As of year end, the PAC hasapplied a 10% liquidity discount to the value ofsuch investments.

Addenda Capital, which manages an active bondmandate and TD Asset Management whichmanages an indexed bond mandate returned4.6% and 3.7%, respectively versus the DEXCapital Universe Bond Index of 3.7%. Phillips,Hager & North’s mandate to manage a high-yieldbond fund provided a 4.7% return versus the MLGlobal HY (hedged) Index return of -13.9%, itsbenchmark. The return on real-return bonds of1.8% slightly surpassed the 1.6% return of itsbenchmark, the DEX Real-Return Bond Index.Philips, Hager & North’s short-term bondmandate returned 3.1% versus the DEX Short-Term Bond index return of 4.1%.

Summary of Fixed Income Investments(as a percentage of the total Fixed Income Pool)

13


MONEY MARKET POOL

The Money Market Pool includes allocations tocash and cash equivalents. Cash equivalentsinclude Federal and Provincial Governmentissues, Banker’s Acceptances and term deposits.

A portion of the investments are managedinternally with the balance managed externallyby TD Asset Management in its EmeraldGovernment of Canada Fund.

In November 2007, the Money Market Pool’sbenchmark was changed, to be effective January1, 2008, from the DEX 91-Day T-Bill Index(formerly the SC 91-Day T-Bill Index) to the DEX30-Day T-Bill Index.

The Money Market Pool generated a return of4.5% for the year versus the 4.4% generated by itsbenchmark, the DEX 91-Day T-Bill Index.

At December 31, 2007, the Money Market Pooldid not hold non-bank ABCP as these holdingswere transferred to the Workout Asset Pool onAugust 31, 2007. As a result, Money Market Poolunit holders on record as of August 31, 2007received units of the Workout Asset Pool.

For the year, the return of the Money MarketPool, combined with the return of the WorkoutAsset Pool was 1.7%

WORKOUT ASSET POOL

The Workout Asset Pool was established inAugust 2007 to hold the non-bank Asset-BackedCommercial Paper (ABCP) which was initiallyheld in the Money Market Pool at the time of theglobal credit market disruptions in August 2007which resulted in the inability of the issuers ofsuch commercial paper to repay maturing issues.At December 31, 2007, such investments weresubject to a standstill agreement intended to leadto a restructuring of the investments in questionand the issuance of longer-term notes.

At December 31, 2007, the Workout Asset Poolheld $4.35 million in non-bank ABCP which atthat time was illiquid. As of year-end, the PAChas applied a 10% liquidity discount to the valueof such investments, reducing the value of theholdings to $3.9 million.

The restructuring plan, targeted for imple-mentation by March 31, 2008, contemplates (i)the pooling of certain series of non-bank ABCP(ii) the issuance of restructured notes to replacethe existing investments (iii) the creation of astructure to address margin calls for certain of theinvestments, should they occur and (iv) thesupporting of the liquidity needs on holders ofthe non-bank ABCP investments.

For further information, please refer to thePension Plan's website at:www.mcgill.ca/pensions/communiques/.

31.6%

64.4%

4.0%

Banker’s Acceptances

Government Issued/Guaranteed

Term Deposits

Summary of Money Market Pool Investments(as a percentage of the total Money Market Pool)

Unit Values Effective September 30, 2002, unit values arecalculated on a single-month basis with a one-month lag (i.e. units valued at December,were based on the market value in effect inNovember). In addition, the unit values are net ofall investment and administration expenses andfluctuate (subject to increase or decrease) basedon prevailing market conditions. Consequently,the unit value returns can be quite different fromthe market performance returns set out inSchedule 3, which are reported gross of fees andon a calendar basis.

The annual rates of return achieved by investors inthe various pools over the last 10 years, measuredon the basis of unit values as at December 31stof each year, calculated as described above, areshown in Schedule 5.

The actual rate of return earned during the yearby a member’s account will, of course, varyaccording to the mix of investments chosen bythe member. For members who have changedtheir asset mix strategies from time to time overthe years, the long-term rate of return will also

reflect the gains and/or losses that were achievedas a result of such changes. As noted earlier, onlythe performance of the Balanced Account is takeninto account in the calculation of your DefinedBenefit Minimum Provision. If you have partici-pated in any of the other investment pools, yourDefined Benefit Minimum Provision will beadjusted to reflect the impact of the investmentgains or losses achieved under those pools relativeto the performance of the Balanced Account.

Charts 1A and IB on page 22 illustrate thehistorical progress of the unit values frominception of the Plan in 1972 until December 31,2007. A listing of unit values for the past 15 yearsis shown in Appendix III.

Unit Values – Historic PerformanceFixed Money Workout

Balanced Equity Income Market AssetYear Account Pool Pool Pool Pool

1998 2.50% 0.28% 7.44% 4.70%

1999 10.77% 15.22% 1.38% 5.16%

2000 15.12% 18.28% 6.85% 5.87%

2001 -8.39% -15.01% 6.80% 5.10%

20021 -0.87% -4.80% 7.51% 2.96%

2003 11.80% 11.78% 10.77% 3.02%

2004 12.53% 13.75% 10.01% 2.36%

2005 14.97% 18.13% 7.96% 2.70%

2006 13.81% 17.89% 4.73% 3.99%

2007 2.23% 2.52% 0.94% 4.43% -9.60%2

10-Year Annualized Rate of Return: 7.16% 7.22% 6.39% 4.02% n/a

Note 1: Until August 31, 2002, unit values were calculated on the basis of a three-month rolling average with a one-month lag. Effective September 30, 2002, unit values are calculated on a single-month basis with a one-month lag. For market performance on a calendar-year basis please refer to Schedule 3 on page 7.

Note 2: 4 months only – Workout Asset Pool was established in August 2007.

Updates on the web

Unit values and current performancenumbers are updated monthly and can be viewed on our web site:www.mcgill.ca/pensions/unithistory.


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15


The Pensioner Fund is the section of the PensionFund that contains the assets required to financethe benefits for retired staff who have opted for aninternal pension settlement. The investmentobjective of the Pensioner Fund is to optimize thereturn of the fund over the long term in such amanner as to provide high security for pensions inprogress, to provide enhancements of pensionamounts in accordance with the Plan Documentand to minimize the possibility of actuarialdeficiencies. It seeks to achieve this objective byinvesting in a diversified portfolio of fixedincome and equity investments.

Asset AllocationDuring 2007, the PAC reduced the amount ofmortgage loans and equity holdings in the fundwhile increasing allocations to real estate in orderto maintain the desired allocations to the selectedasset classes.

The mortgages are issued by Aylmer & SherbrookeInvestments Inc., a captive mortgage corporationwholly-owned by the McGill University PensionPlan. The corporation is accredited by the CanadaMortgage and Housing Corporation (CMHC). The mortgage portfolio is diversified on the basis ofgeography and type of product.

At December 31, 2007, approximately 65.7% of the Pensioner Fund’s portfolio was managedexternally versus 60.7% in 2006.

As the performances of individual managers andmarkets move the assets of the Pensioner Fundaway from the strategic asset allocation policyestablished by the PAC, the assets are rebalanced.

At December 31, 2007, the Pensioner Fund held$14.8 milion, which represents 5.2% of thePensioner Fund, in non-bank asset-backedcommercial paper (ABCP) which at that time wasilliquid. As of the year-end, the PAC has applied a10% liquidity discount to the value of suchinvestments. For further information, please referto the Pension Plan’s website at the following link:www.mcgill.ca/pensions/communiques/.

Schedule 6 compares the actual Pensioner Fundholdings to the policy allocation on the basis ofmarket values as at December 31, 2007.

Investment ManagementThere were no changes made to the investmentmanagement structure of the Pensioner Fundduring the year.

The PensionerFUND

Pensioner Fund – Asset Allocation Policy

December 3 1 , 2007

Amount % ofAsset Class Manager (in millions) Total Fund MIN% MID% MAX%

Cash & Short-Term includingnon-bank ABCP Int/Ext. 31.0 10.7 0 5 10

Bonds1 External 67.9 23.7 17 20 23

Real-Return Bonds1 External 20.3 7.1 8 10 12

Mortgages Internal 65.9 23.0 25 30 35

Real Estate External 34.2 12.0 10 12 14

Equity External 56.4 19.7 16 19 22

Resource Properties Internal 10.7 3.8 2 4 6

Total Pensioner Fund: $286.4 100.0% 100%

1 Exposure to bonds and real-return bonds is through the Accumulation Fund – Fixed Income Pool units.

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PerformanceIn 2007, the Pensioner Fund had a gross marketrate of return of 3.3% for the year. This was belowthe long-term return objective of 6.50%. Theperformance was positively impacted by the realestate return of 21.6% and the mortgage return of 6.4%.

The return on the investment in theAccumulation Fund - Fixed Income Pool was2.7%, the return on equity was -2.9%, the returnon cash and short-term investments was -3.3%and the return on resource properties was -7.2%.

The return on cash and short-term investmentswas negatively impacted by the Pensioner Fund'sholdings of non-bank ABCP.

Over the past five years, the diversification of theinvestments has allowed the fund to benefit from

the relatively strong performances in theCanadian equity, Canadian resource propertiesand real estate markets.

Schedule 7 shows the gross rates of market returnsachieved by the various asset classes for the one,three and five year periods ending December 31,2007. The applicable benchmark performance foreach asset class is also noted in Schedule 7.

Chart 2 on page 23 illustrates the historicalperformance of the Pensioner Fund for the pastten years as compared against the long-termobjective.

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16

Pensioner Fund Performance1, 2 as at December 31, 2007

Annualized Rates of ReturnAsset Class 1 year 3 years 5 years

Phillips, Hager & North Dividend Income Fund: -2.9% 9.5% 14.0%Benchmark S&P/TSX Composite Index: 9.8% 16.9% 18.3%

Real Estate Porfolio: 21.6% 19.8% 15.3%Industry-Specific Benchmark: 16.3% 16.6% 13.4%

Resource Property Portfolio: -7.7% 9.1% 19.8%Benchmark S&P/TSX Capped Energy Trust3: 3.3% 14.6% 16.9%

Fixed Income Pool4: 2.7% 4.3% n/aFixed Income Benchmark5: 1.3% 3.9% n/a

Aylmer & Sherbrooke Investments Inc.: 6.4% 5.4% 4.8%Benchmark DEX Mortgages – 3 Year: 4.1% 4.7% 5.4%

Cash & Short-Term: -3.3% 1.1% 1.7%Benchmark DEX T-Bills 91-Day Index: 4.4% 3.7% 3.2%

TOTAL PENSIONER FUND: 3.3% 6.9% 8.4%


Note 2: Since January 1, 2003, returns have been calculated on a market value basis.

Note 3: Different benchmark indices were used in the three-and-five year periods, where applicable.

Note 4: Investment in units of the Accumulation Fund – Fixed Income Pool.

Note 5: Current policy allocation benchmark is 53% of DEX Universe Bond Index + 31.25% DEX Real-Return Bond Index + 9.5% of ML Global HY (hedged) + 6.25% of DEX 91-Day T-Bill Index.

17


Benefits and ADMINISTRATIVE MATTERS

Plan AmendmentsEffective December 31, 2007, the Pension Planwas amended (Amendment No. 21) in order tocomply with applicable legislation, to harmonizethe Plan Document with current practices as wellas other changes of an administrative nature.

The most significant changes introduced inAmendment No. 21 are:

• To increase the conversion age from 69 to 71.This change will allow members to postpone thesettlement of their pension plan holdings for anadditional two years. Contributions willcontinue to be maintained until the December31st of the year in which a member turns 69.

• To allow members who no longer meet theeligibility requirements for membership underthe Plan to settle their pension holdings.

• To allow one of the two elected PensionAdministration Committee members whorepresent Academic Staff be a retired employeeof the University and a retired member of thePlan.

• To allow one of the two elected PensionAdministration Committee members whorepresent Administrative and Support Staff be aretired employee of the University and a retiredmember of the Plan.

• To acknowledge that, in certain circumstances,deductibles under a fiduciary insurance policymay be paid from the Pension Fund. Thischange was as a result of the introduction of Bill30 (An Act to amend the Supplemental PensionsPlans Act).

Members are reminded that the text of thecurrent Plan Document and all formalamendments may be examined during normalbusiness hours (Monday to Friday from 9:00 a.m.to 5:00 p.m.) at the offices of the PensionAdministration Commitee located at: 688Sherbrooke Street West, Suite 1420, Montreal,Quebec, H3A 3R1.

2007 Benefit Payments During 2007, 77 plan members settled theirpension accounts. Of these, 36 chose externalsettlements, 37 chose internal pension settle-ments (including 2 temporary annuity purchases)and 4 chose a combination of internal andexternal settlement options. The new retirees whoconsented to have their names included in thisReport are listed in Appendix I. As at December 31,2007, there were 1397 retired members andbeneficiaries receiving pensions from thePensioner Fund. Of these, 1056 are in the OldPool with an average age of 79.6 years and 341 are in the New Pool with an average age of67.3 years. The total of such pensions paymentsamounted to $34,747,816 in 2007.

During the year, 70 deaths were recorded amongmembers of the Plan, of which 11 were activemembers, 53 were retired members from the OldPool and 6 were retired members from the NewPool (see Appendix II). 268 individual benefitsettlements were transacted under the Plan duringthe year for a total amount of $33,080,665. Thetypes of settlement transactions processed and thebenefit amounts paid out of the Plan during 2007are summarized in Schedule 8.

In addition to these settlements, deferred annuityaccounts were set up for 188 terminating mem-bers who reinvested holdings of $6,728,692 in thepension fund.

18


Annuity Dividends Historically, Plan Annuity Rates have been seton the basis of assumptions with respect tointerest earnings and mortality rates in order toinclude provision for potential increases in pen-sions. When surplus earnings emerge in thePensioner Fund as a result of mortality experienceor investment returns that are more favorablethan the rates required to cover current pensioncosts; or when the present value of assets exceedthe present value of liabilities as a result ofchanges in interest rates, these amounts can be setaside to provide increases in the form of “AnnuityDividends” to pensions currently in the course of payment. Annuity Dividends are granted onthe advice of the Plan’s actuary and are subject tothere being sufficient assets in the Pensioner Fundto cover the future cost of pensions purchased.

In 2000, the Pensioner Fund was notionallyseparated into two accounts. One account repre-sents the assets and liabilities in respect of thepensioners who purchased their pensions on the“old” rate basis (prior to January 1, 2000); theother covers the pensioners who annuitize underthe “new” rate basis. Separate dividend distribu-tions apply to each group. The new annuity rates,which came into effect on January 1, 2000, arebased on revised mortality and interest rateassumptions. Schedule 9 shows the full history of

the Annuity Dividends that have been grantedsince the inception of this program and theimpact dividends have had on the benefits paid to the McGill pensioners over the years.

The amount and frequency of each AnnuityDividend is determined by the PAC following anannual actuarial valuation of the liabilities of the Pensioner Fund. All Annuity Dividends are calculated and paid on an actuarial basis thatis designed to distribute the benefits evenly over the remaining lifetimes of all pensioners,within the respective pool. Each new dividend is allocated on a compounded basis in which the benefit is expressed as a percentage increase to be applied to the total of the initial basepension plus all past dividends granted.

Once an Annuity Dividend has been granted it forms part of the contractual lifetime benefitand the member’s pension can never be reducedbelow this amount in the future. Nevertheless, it is important to note that although past divi-dends are guaranteed, future dividend increasesare entirely dependent on the ability of thePensioner Fund to continue to generate surplusearnings; there can be no guarantee that this will be the case.

External Settlements Paid in 2007 (excluding retirement settlements)

Number Total Amount Average Payment

Transfers to LIFs: 27 $13,623,588 $504,577

Transfers to LIRAs: 99 11,757,306 118,761

Death Benefits: 11 2,215,844 201,440

Other1: 7 1,104,973 157,853

Marriage Breakdown Settlements: 3 323,280 107,760

Lump-Sum Payments: 92 1,316,793 14,313

Transfers to other Pension Plans: 20 2,532,991 126,650

Temporary Annuity Purchases: 2 102,829 51,415

Cash Payments: 7 103,061 14,723

Total: 268 $33,080,665 $123,435

1Includes transfers to RRSPs and RIFs

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Impact of Past Dividends – “Old Pool”

2007 Value of Dividends Cumulative Cumulative AnnualYear of Initial Pension Granted Pension Annual Average AverageRetirement of $20,000 “Old Pool”1 Increase Inflation Inflation

1975 $ 41,896 109.48% 285.37% 10.81%

1976 $ 40 674 3.00% 103.37% 257.91% 7.67%

1977 $ 39 394 3.25% 96.97% 232.02% 7.80%

1978 $ 37 880 4.00% 89.40% 204.60% 9.00%

1979 $ 36 648 3.36% 83.24% 179.20% 9.10%

1980 $ 35 580 3.00% 77.90% 153.59% 10.10%

1981 $ 34 428 3.35% 72.14% 125.69% 12.36%

1982 $ 32 580 5.67% 62.90% 103.58% 10.86%

1983 $ 30 554 6.63% 52.77% 91.86% 6.11%

1984 $ 28 752 6.27% 43.76% 83.91% 4.32%

1985 $ 27 260 5.47% 36.30% 76.94% 3.94%

1986 $ 25 948 5.06% 29.74% 69.80% 4.21%

1987 $ 25 012 3.74% 25.06% 62.73% 4.34%

1988 $ 24 132 3.65% 20.66% 56.42% 4.03%

1989 $ 23 468 2.83% 17.34% 49.12% 4.90%

1990 $ 22 484 4.37% 12.42% 42.28% 4.81%

1991 $ 21 650 3.85% 8.25% 34.77% 5.57%

1992 $ 21 248 1.90% 6.24% 32.57% 1.66%

1993 $ 20 904 1.64% 4.52% 30.12% 1.88%

1994 $ 20 658 1.19% 3.29% 29.76% 0.28%

1995 $ 20 366 1.44% 1.83% 27.22% 2.00%

1996 $ 20 100 1.32% 0.50% 25.24% 1.58%

1997 $ 20 000 0.50% 0.00% 23.19% 1.66%

1998 $ 20 000 0.00% 0.00% 22.00% 0.98%

1999 $ 20 000 0.00% 0.00% 19.99% 1.68%

2000 $ 20 000 0.00% 0.00% 16.82% 2.71%

2001 $ 20 000 0.00% 0.00% 13.89% 2.57%

2002 $ 20 000 0.00% 0.00% 11.51% 2.14%

2003 $ 20 000 0.00% 0.00% 8.44% 2.83%

2004 $ 20 000 0.00% 0.00% 6.45% 1.87%

2005 $ 20 000 0.00% 0.00% 4.15% 2.20%

2006 $ 20 000 0.00% 0.00% 2.10% 2.01%

2007 $ 20 000 0.00% 0.00% 0.00% 2.10%

1 “Old Pool” represents those people who purchased their pensions on the “old” rate basis prior to January 1, 2000. No dividends have been granted in the “old pool” since 1997.

2 “New Pool” represents those people who purchased their pensions on the “new” rate basis from January 1, 2000 on. No dividends have been granted in the “new pool” since its inception in 2000.

Example: A pensioner who retired in 1992 with an initial pension of $20,000 per annum was receiving $21,248 per annum as of December 31, 2007. This represents a cumulative pension increase of 6.24% for a 15-year period in which cumulative inflation amounted to 32.57%.

Source: Inflation figures – Bank of Canada. 19

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Annuity Dividend ValuationA separate valuation of the Pensioner Fund isundertaken each year for Annuity Dividendpurposes. The December 31, 2006 valuation of thePensioner Fund for purposes of issuing an AnnuityDividend confirmed an excess of liabilities overassets of $35,691,100 for the “old pool” and$2,423,000 for the “new pool”. Consequently, noAnnuity Dividends could be declared.

The Executive Summary of the Annuity DividendValuation as at December 31, 2006, as prepared by the Plan actuaries, Eckler Ltd., can be found onour web site at:http://www.mcgill.ca/pensions/dividends/summary.

Valuations for Annuity Dividend purposes arelimited to the assets and liabilities of thePensioner Fund. The assumptions used forAnnuity Dividend valuation purposes may not bethe same as those used for triennial valuationpurposes. The assumptions used for triennialvaluation purposes are largely prescribed by theRégie des rentes du Québec and the CanadianInstitute of Actuaries. In addition, triennialvaluations are based on the Pension Plan as awhole whereas valuations for Annuity Dividendpurposes are restricted to the Pensioner Fund.

The adoption of revised mortality assumptions in1999 significantly increased the liabilities of the Pensioner Fund which in turn resulted in a shortfall for Annuity Dividend purposes. Thecurrent shortfall can be largely attributed to thischange in mortality assumptions recognizing that this action was necessary in order to reflectthe increasing longevity of McGill Universitypensioners.

The December 31, 2007 valuation of thePensioner Fund for Annuity Dividend purposeswill be based on current mortality tables and aninterest rate assumption based on market ratesand asset valuation methods requiring smoothingof values over a three-year period. The ExecutiveSummary of the Annuity Dividend Valuation as atDecember 31, 2007 will be posted to the websiteonce it is available.

Actuarial Valuation of the PlanThe Plan is required to provide information andactuarial certification at least every three years.Plan actuaries, Eckler Ltd, in their December 31,2006 valuation report, established the financialposition of the Plan.

The actuarial valuation of the Pension Plan as awhole, established that a going-concern actuarialsurplus of $33,597,000 existed as at December 31,2006.

The degree of solvency is described as the ratio ofsolvency assets to the solvency liabilities. As atDecember 31, 2006, the degree of solvency,excluding the defined contribution balances forthose members who would not have been entitledto receive any benefits under the defined benefitminimum provision of the Plan, had the Planbeen terminated on December 31, 2006 was97.0%. Under the Supplemental Pension Plans Act,as of January 2007, university and municipalpension plans are no longer required to makecontributions to amortize solvency deficits.

The next triennial actuarial valuation of the Planmust be performed no later than December 31,2009.

AdministrationThe day-to-day administration of the PensionPlan is performed by the staff of PensionAdministration, Pension Investments as well asthe staff of Aylmer & Sherbrooke Investments Inc.on the basis of policies and proceduresestablished and monitored by the PensionAdministration Committee and the Board ofDirectors of the Corporation.

The total fees for the investment options in theAccumulation Fund, as well as the total fees forthe Pensioner Fund, are presented in Schedule 10.

21


21

Fees as a Percentage of Average Net Assets

ACCUMULATION FUND2007 2006

Balanced Account 0.33% 0.34%

Equity Pool 0.44% 0.42%

Fixed Income Pool 0.21% 0.21%

Money Market Pool 0.05%1 0.05%

Workout Asset Pool (established August 31, 2007) 0.00%1 n/a1 Effective January 1, 2008, the fees will be approximately 0.20% for these two pools.

PENSIONER FUND 0.25% 0.26%

21

The offices of the Pension AdministrationCommittee, Pension Administration, andInvestments and Aylmer & SherbrookeInvestments Inc. are located at:

688 Sherbrooke Street West, Suite 1420Montreal, Quebec H3A 3R1Tel: (514) 398-6252, Fax: (514) 398-6889

A copy of this annual report and other documents can also be accessed through our web site at http://www.mcgill.ca/pensions

Staff Directory

Pension Administration

John D’Agata, Director – Pension Administration(514) 398-6250 Ext. 2097

Karen Rasinger, Communications Coordinator(514) 398-6250 Ext. 0840

General Information(514) 398-6252

Christine Halse, ManagerExt. 2100

Brenda Shanahan, Pensions and Benefits Officer Ext. 2098

Joanne St-Denis, Pension Officer – Unionized, Administrative & Support StaffExt. 2748

Gary Wilkins, Project ManagerExt. 3243

Celine Garrocho, Project AdministratorExt. 00330

Vivian Riley, Pension AssistantExt. 3028

Tammy Brunet, Pension AssistantExt. 2934

Filomena Ferrara, Receptionist/SecretaryExt. 0857

Pension Investments

John Limeburner, Director – Pension Investments(514) 398-6040

General Information(514) 398-8943

Robert Hall, ManagerExt. 1383

La version française de ce rapport est disponible sur demande.

CONTACT US

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22


0

5

10

15

20

25

30

35

40

45

1972197319741975197619771978197919801981198219831 98419851986198719 88198919 9019911992199319941995199619971998199920002001200220032004200520062007

Balanced Account Equity Pool Fixed Income Pool Money Market Pool C.P.I. Workout Asset Pool

YEAR

UN

IT V

AL

UE

($

)

Accumulation Fund Average Unit Values Since Inception

0

1

10

100

1972

1974

19 76

19 78

19 80

19 82

19 84

19 86

19 88

19 90

19 92

19 94

19 96

19 98

20 00

20 02

20 04

20 06

($)

B a la n ce d Acco u n t E q u ity P o o l Fixe d In co m e P o o l Mo n e y Ma rke t P o o l C .P .I. W o rko u t As s e t P o o l

YEAR

UN

IT V

AL

UE

($

)

Accumulation Fund Average Unit Values (logarithmic scale) Since Inception

CH

AR

T 1A

CH

AR

T 1B

CH

AR

T 2

2323


1998-2007

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

YEAR

FUN

D R

AT

E R

ET

UR

N (

%)

Current Objective is 6.50%. Prior to 2004, the primary objective was 6.75% and the secondary objective was 4.25% plus the increase in the Canadian Consumer Price Index.

Pensioner Fund Performance History from 1998 to 2007

Fund Rate of Return Objective

24


The following members of the Plan retired in 2007 and consented to have their names published in this report.

Name Department or Faculty

Arseneau/Louise/Mrs. Desautels Faculty of Management

Azar/Mona/Mrs. Pharmacology & Therapeutics

Baker/Laurence B.B./Dr. Agricultural Economics – Macdonald Campus

Baxter/Karen/Ms. Admissions, Recruiting and Registrar’s

Bloemendaal/Patricia/Mrs. Desautels Faculty of Management

Cantin Cumyn/Madeleine/Prof. Law

Correia/Maria/Mrs. University Clinic – RVH

Côté/Lucie/Ms. Legal Advisor’s Office

de Montigny/Claude/Dr. Pharmacology & Therapeutics

Gabriel/Adriana/Mrs. McGill Bookstore

Goddard/Barbara J./Mrs. McGill Bookstore

Habberfield/Rodney/Mr. Facilities Management

Haskel/Barbara/Prof. Political Science

Kerklaan/Leo/Mr. Human Resources – Payroll

Lalonde/Claude/Mr. Instructional Multimedia Services

Lenhan/Ronald/Mr. Facilities Management

Martin/Robert F./Prof. Earth & Planetary Sciences

Mehio/Amira R./Dr. Pathology

Minassian/Hassmig/Mrs. Pathology

Papa/Maria/Mrs. Human Resources – Pensions and Benefits

Pilon/Suzanne/Mrs. Family Medicine

Poulin-Mignault/Hélène/Prof. English & French Language Centre

Predelli/Maria/Prof. Italian Studies

Provost/Jean-Claude/Mr. Career & Management Studies

Raymond/Janet/Ms. Psychology

Roston/John/Mr. Instructional Multimedia Services

Simon/Mary/Mrs. Librairies

Smart/Janet/Ms. Psychology

Stiebel/Lise/Ms. Food Science & Agricultural Chemistry

Swift/Joseph E./Mr. McLennan Library

Thompson/Christopher J./Dr. Neurology & Neurosurgery

Toussaint/Godfried T./Dr. School of Computer Science

Tsiampouras/Eleftherios/Mr. Librairies

Wiltshire/Cynthia/Miss International Executive Institute

Woonton/Elizabeth/Ms. Student Services – Macdonald Campus

Zimany/Ilona/Mrs. Biology

Appendix I2007 RETIREMENTS

2525


Active Plan Members whose deaths occurred in 2007:


Biljan/Marinko/Dr. Obstetrics & Gynecology

Domanowski/Gerard Francis/Dr. Pathology

Frischkopf/Hans Walter/Mr. German

Harris/Ralph L./Prof. Mining, Metals and Materials Engineering

Macramalla/Effat A./Dr. Deferred Annuitant

Marleau/Michel/Mr. Facilities Management

Morris/Catherine/Ms. Cognitive Neuroscience – MNI

Paiva/Dulce/Mrs. Office of the Director of Libraries

Ross-Neill/Dixie/Prof. Schulich School of Music

St-Pierre/Gilles/Mr. Facilities Management

Zhao/Yumin/Ms. Animal Resources Centre – Macdonald Campus

Retired Plan Members whose deaths occurred in 2007:


Barrowman/Elizabeth/Miss Montreal Neurological Hospital

Beaulieu/Paul E./Mr. McLennan Library

Bennett/Bert/Mr. Facilities Management

Bissi/Giuseppe/Mr. Facilities Management

Booth/William T./Mr. English

Brathwaite/Louise/Mrs. Residences

Brault/Paul/Mr. Mail Services

Brecher/Irving/Prof. Economics

Broadley/Daphne/Mrs. Montreal Neurological Hospital

Cavadias/George S./Prof. Civil Engineering & Applied Mechanics

Cevizovic/Peter/Mr. Facilities Management

Cirella/Virgilio/Mr. Facilities Management

Cossette/Ann/Mrs. Centre for Medical Education

Cunningham/Albert/Mr. University Language Laboratory

Dalicandro/Lucy/Miss Montreal Neurological Hospital

De Benedetti/Norma/Mrs. Admissions

Djokic/Miodrag/Mr. Facilities Management

Duggan/Helen/Mrs. Undergraduate Program – Management

Edwards/Ronald/Mr. Mechanical Engineering

Ferdinand/Lucretia A./Mrs. Shriners’ Hospital

Ficara/Pasquale/Mr. Facilities Management

Gilday/Joan E./Mrs. Management

Goodfriend/Lawrence/Dr. Medicine

Gordon/Julius/Dr. Microbiology & Immunology

Goring/Dorothy M./Mrs. Library Sciences

Appendix IIDEATHS


Appendix II – Deaths (continued)


Gurvits/Jacques N./Mr. Physics

Henneberry-Fergusson/Celia/Prof. Food Science – Macdonald Campus

Hillenbrand/August/Mr. Montreal Neurological Hospital

Humphry/Thomas/Mr. McCord Museum

Jaz/Dmytro/Mr. Athletics

Leblond/Charles Philippe/Dr. Anatomy & Cell Biology

Leishman/Donald R./Mr. Mining & Metallurgical Engineering

Leone/Giuseppe/Mr. Facilities Management

Lootus/George Robert/Mr. Neuroelectronics

MacDonnell/Hugh John/Mr. Facilities Management

MacKinnon/Kenneth/Dr. Surgery

Marshall/Kenneth G./Dr. Family Medicine

Mayhew/Ruby/Miss Biology

Morrison/Harry D./Prof. Education

Murphy/David Ross/Dr. Medicine

Nicholls/Robert V.V./Prof. Chemistry

Papadopol/Nicolette/Miss Microbiology & Immunology

Pidgeon/Michael/Mr. Facilties Management

Pilon/Rosaire/Mr. Macdonald Campus

Plamondon/Jean M./Mrs. Anatomy

Rajput/Harriet E./Mrs. Law

Reber/Irene/Mrs. Undergraduate Library

Robillard/Giselle/Miss Neurophysiology – MNI

Routley/Alma/Mrs. School of Nursing

Steiner/Diana W./Mrs. Mechanincal Engineering

Taylor/Laughlin B./Prof. Neurology & Neurosurgery

Weigensberg/Bernard I/Prof. Pathology

Weintraub/Marcia/Ms. Classics

Yarosky/Elaine Sanft/Mrs. McLennan Library

26

2727


1993 Balanced Equity Fixed

Jan: 7.7177 9.8647 7.0774Feb: 7.7974 9.9650 7.1481Mar: 7.8304 9.9987 7.1990Apr: 7.9130 10.1233 7.2584May: 8.0657 10.3676 7.3147Jun: 8.2422 10.6509 7.3717Jul: 8.3790 10.8602 7.4245Aug: 8.4610 10.9772 7.4821Sep: 8.6043 11.2071 7.5396Oct: 8.7294 11.4070 7.5975Nov: 8.9344 11.7496 7.6557Dec: 9.0543 11.9431 7.7136

1994 Balanced Equity Fixed

Jan: 9.2725 12.3123 7.7706Feb: 9.4685 12.6367 7.8264Mar: 9.6209 12.8763 7.8810Apr: 9.6436 12.8778 7.9367May: 9.6018 12.7678 7.9923Jun: 9.6375 12.8002 8.0503Jul: 9.6395 12.7734 8.1079Aug: 9.7006 12.8544 8.1660Sep: 9.7709 12.9525 8.2224Oct: 9.8756 13.1024 8.2947Nov: 9.9401 13.1903 8.3482Dec: 9.8822 13.0603 8.3925

1995 Balanced Equity Fixed MMF

Jan: 9.8808 13.0498 8.4114Feb: 9.8116 12.8954 8.4531 1.0000Mar: 9.8478 12.9001 8.5573 1.0017Apr: 9.9511 12.9765 8.7447 1.0050May: 10.1027 13.1606 8.9145 1.0104Jun: 10.2981 13.4157 9.0954 1.0165Jul: 10.4383 13.6174 9.2046 1.0231Aug: 10.6320 13.9294 9.2896 1.0295Sep: 10.6480 14.0539 9.2670 1.0353Oct: 10.7189 14.1803 9.2799 1.0404Nov: 10.6973 14.0894 9.3381 1.0471Dec: 10.8647 14.2112 9.4957 1.0530


Jan: 10.9866 14.3392 9.6349 1.0595Feb: 11.2276 14.7049 9.7686 1.0641Mar: 11.3902 15.0008 9.7827 1.0690Apr: 11.5345 15.2917 9.7420 1.0737May: 11.6990 15.6465 9.6668 1.0782Jun: 11.9081 16.0396 9.6629 1.0827Jul: 12.0083 16.2141 9.6894 1.0870Aug: 11.9134 16.0191 9.7784 1.0913Sep: 11.8375 15.8423 9.8711 1.0955Oct: 11.9198 15.9394 9.9788 1.0995Nov: 12.1174 16.2168 10.1081 1.1032Dec: 12.3498 16.5370 10.2901 1.1066






Jan: 15.3489 20.6891 12.0095 1.2055Feb: 15.6247 21.1567 12.0986 1.2110Mar: 15.6431 21.2020 12.0957 1.2163Apr: 15.7308 21.3465 12.1235 1.2216May 15.8995 21.6640 12.1434 1.2269Jun: 16.1746 22.1693 12.1883 1.2322Jul: 16.3831 22.5995 12.1703 1.2372Aug: 16.4793 22.8354 12.1133 1.2422Sep: 16.6038 23.0948 12.0985 1.2472Oct: 16.5590 23.0043 12.1078 1.2521Nov: 16.5147 22.9225 12.1078 1.2571Dec: 16.5702 23.0345 12.1079 1.2620



Appendix IIIUNIT VALUE HISTORY

28


A complete listing of all unit values since the inception of the Plan in 1972 is available on our website at: www.mcgill.ca/pensions/unithistory













Appendix III – Unit Value History (continued)

2007 Balanced Equity Fixed MMF WAP

Jan: 29.0009 40.1696 20.2984 1.6341Feb: 29.5130 41.1199 20.3348 1.6400Mar: 29.6213 41.0314 20.5361 1.6454Apr: 29.6918 41.2720 20.5283 1.6514May: 29.8870 41.6067 20.6045 1.6572Jun: 30.0617 42.1974 20.3309 1.6633Jul: 29.7806 41.6921 20.2642 1.6692Aug: 29.5262 41.1179 20.3010 1.1395Sep: 29.3258 40.6423 20.3675 1.1438 0.5360Oct: 29.4669 40.7507 20.5116 1.1480 0.5371Nov: 29.6986 41.2270 20.5254 1.1522 0.4839Dec: 29.1511 40.0191 20.6587 1.1563 0.4843

29


29

Active Management: A management style wherebya manager selects individual investments with thegoal of earning a higher return than its comparativebenchmark.

Actuary: An independent professional who calcu-lates pension plan liabilities and compares them to pension plan assets in order to determine thefinancial status of a pension plan.

Annualized Rate of Return: A rate of returnexpressed over one year, although the actual rates of return being annualized are for periods longer or shorter than one year.

Annuity: A series of payments of a fixed amount for a specified period of time.

Asset Allocation: The proportion of assets inves-ted in different asset classes such as cash andequivalents, fixed-income securities and equities.

Asset-backed commercial paper (ABCP): ABCPs areissued by banks and non-bank financial companiesand is backed by longer term assets such as car loans,mortgage loans, credit card balances and otherinterest-bearing assets.

Balanced Account: The investment optionestablished by the Pension AdministrationCommittee and which consists of allocations to the Equity and Fixed Income Pools in suchproportions as shall be determined from time to time by the Committee.

Basis Point: One-hundredth of a percentage point.The difference between 5.25% and 5.50% is 25 basis points.

Benchmark: A standard against which rates ofreturn can be measured, such as stock and bondmarket indices.

Bonds: Evidence of a debt on which the issuerpromises to pay the holder a specified amount of interest for a specified length of time and to repay the indebtedness at maturity.

Commercial paper: Commercial paper is short-termdebt issued, usually maturing in under a year butfrequently in as little as a month.

Common shares: Securities representing owner-ship in a company, usually carrying voting privileges.Common shareholders share in growth throughcapital appreciation and may also be entitled todividends, at the company’s discretion.

Consumer Price Index (CPI): An inflationaryindicator provided by Statistics Canada that meas-ures the change in the price of a fixed basket ofgoods and services. The basket is supposed to reflectthe average needs of a family.

Custodian: An independent organization, usually a trust company, entrusted with holding investmentson behalf of the owner. The custodian maintainsfinancial records for the investments and may per-orm other services for the owner as well.

Defined Benefit Minimum Provision: Based on aformula that takes into account the plan member’scredited service and highest 60-consecutive monthsof earnings.

DEX 91-day Treasury Bills Index: (formerly theScotia Capital 91-day Treasury Bills Index) Measuresthe performance attributable to 91-day Treasury Billsof the provincial and federal governments.

DEX Real-Return Bond Index: (formerly the ScotiaCapital Real-Return Bond Index) Measures theperformance of Canadian real-return bonds.

DEX Universe Bond Index: (formerly the ScotiaCapital Universe Bond Index) Designed to be a broad measure of the Canadian investment-grade fixed income market. The Universe Index is divided into a variety of sub-indices (e.g. Short,Mid, Long) according to term and credit and also consists of four main credit or borrowercategories: bonds issued by the Government ofCanada (including Crown Corporations), Provincialbonds (including provincially-guaranteed securities),Municipal Bonds, and Corporate Bonds.

Diversification: A strategy to spread investment riskamong different asset classes, different types ofassets, among securities, among economic sectors,and among different countries.

Duration: A measure of the interest rate sensitivity ofa bond’s market price taking into consideration itscoupon and maturity date.

Emerging Markets: Markets in developing countriesas defined by the International Finance Corporation(IFC) on the basis of Gross National Product (GNP) per capita. Countries classified as low ormiddle-income by the World Bank are considereddeveloping or emerging countries.

Enhanced Index Mandate: A form of activemanagement whereby an investment manager aimsto outperform the index by investing in securitiesincluded in the index, subject to investmentrestrictions, such as weighting limits of holdings in the portfolio.

Equity Pool: Those holdings of common andpreferred shares and other such holdings which aregenerally considered to be equity securities. TheEquity Pool may hold cash and cash equivalentsfrom time to time.

Appendix IVGLOSSARY

30


Exchange Traded Funds (ETFs): A fund that tracksan index, but can be traded like a stock.

Fixed Income Pool: Those holdings of bonds,debentures, mortgage loans, notes and other such holdings which are considered to be debtinstruments. The Fixed Income Pool may hold cashand cash equivalents from time to time.

Going-concern actuarial surplus: Means theamount, if any, by which the sum of the going-concern assets exceed the going-concern liabilities;going-concern valuation: assumes that the Plan willremain in effect indefinitely and is, therefore, based onlong-term actuarial assumptions and methods.

GPR 250 Net Index: – is a real estate benchmarkconsisting of the 250 most liquid propertycompanies worldwide, and uses the tradable marketcapitalization of these companies as index weights.

Gross Rate of Return: Rate of return of a portfoliobefore deducting investment management fees.

High-Yield Bonds: A corporate bond that has beenassigned a rating below investment grade by a ratingagency reflecting lower credit quality of the issue.

Index Funds: An investment fund that closelyreplicates the composition of a particular marketindex (e.g. S&P 400 MidCap Index Fund).

Inflation: The term used to describe rising prices of goods and services within an economy. Thepurchasing power of the monetary unit declineswhen inflation is present.

Investment Objective – Balanced Account: Tooptimize capital accumulation over the long-termthrough allocations to the Equity and Fixed IncomePools with a target asset mix of 68% equity securitiesand 32% fixed income securities.

Investment Objective – Equity Pool: To providelong-term capital appreciation and dividend incomeby investing in a diversified portfolio of Canadianand foreign equity securities.

Investment Objective – Fixed Pool: To provide apredictable source of interest income, reducedvolatility of investment returns and a hedge againstdeflation, by investing in a diversified portfolio ofprimarily Canadian fixed income securities. Anallocation to real-return bonds will provide a hedgeagainst inflation.

Investment Objective – Money Market Pool: Topreserve capital, provide stable returns and maintainliquidity.

Investment Objective – Workout Asset Pool: Tominimize the erosion of capital related to itsinvestment holdings.

Liquidity: The ability to buy or sell an asset quickly.

Market Value: The price at which an investmentcan be bought or sold.

Merrill Lynch Global High Yield (Hedged) Index:Measures the performance of below investmentgrade Canadian and US dollar-denominated bonds(i.e. rated BBB and lower) of Canadian domiciledcorporate issuers. The index is fully hedged toeliminate the impact of the US dollar on US dollar-denominated issues.

MSCI EAFE: The Morgan Stanley Capital Inc. EAFE®

Index (Europe, Australasia, Far East) is a free float-adjusted (i.e. the equity of a company available tointernational investors) market value weighted index(stock price times the number of shares outstanding)that is designed to measure the market equityperformance of 21 developed markets, excluding the US & Canada.

Money Market Pool: Those holdings of cash, short-term investments and other such securitieswith maturities less than a year which are generallyconsidered to be money market instruments.

New Pool: Represents plan members who purchasedtheir pensions on the “new” rate basis from January1, 2000 on.

Non-North American Investments: Investmentsmade in securities of companies generally domiciledoutside of Canada or the United States.

Old Pool: Represents plan members who purchasedtheir pensions on the “old” rate basis prior toJanuary 1, 2000.

Pension Fund: Consists of employee and employercontributions into the Pension Plan plus the income,gains and/or losses derived from fund investments.In addition, the pension fund disburses all benefitsprovided by the Pension Plan and pays Pension Planadministration expenses.

Pension Plan: Shall mean the McGill UniversityPension Plan as described in the Plan Document, asamended from time to time. The Pension Plan hasbeen established for the purpose of providingretirement, death and termination benefits foremployees and their beneficiaries.

Plan Document: The text of the McGill UniversityPension Plan as amended to January 1, 2001 andwhich is available for viewing by members at theoffices of the Pension Administration Committee.

Private Equity: Equity capital invested in a privatecompany and which may include investments inventure capital, corporate buyouts and mezzaninefinancing.

Appendix IV – Glossary (continued)

31


31

Rate of Return: The income earned (i.e. yield)plus/minus any realized and unrealized capitalgains/losses for a particular period, usually expressedas a percentage.

Realized Gains/Losses: Capital gains/losses thatresult when an appreciated/depreciated asset is sold.

Real Estate Investment Trust (REIT): Acorporation or trust that uses the pooled capital of many investors to purchase and manage income property.

Real-Return Bonds: Evidence of a debt on whichthe issuer promises to pay the holder a periodicamount of interest for a specified length of timebased on a real rate of interest and actual inflation.The bond’s principal or indebtedness is repaid on maturity.

Rebalancing: An investment approach by which the investor or manager maintains an investmentmix by reallocating funds periodically over time.

S&P 1500 (or SuperComposite 1500): An indexcombining the S&P 500, S&P 400 MidCap, and S&P600 SmallCap indices to efficiently create a broadmarket portfolio representing approximately 90% ofthe market value of US publicly-traded equities.

S&P 500 LargeCap: A US index consisting of 500stocks chosen for market size, liquidity, and industrygroup representation. It is a market value weightedindex (stock price times number of sharesoutstanding), with each stock’s weight in the Indexproportionate to its market value.

S&P 400 MidCap: A US index consisting of 400domestic stocks chosen for market size, liquidity, andindustry group representation. Like the S&P 500index, it is also a market value weighted index. It isconsidered a proxy for measuring performance of themid-size company segment of the US market.

S&P 1000 Small/MidCap: A combination of the S&P 600 SmallCap and S&P 400 MidCap indices,where the S&P 600 SmallCap representsapproximately 30% and the S&P 400 MidCaprepresents approximately 70%.

S&P/IFCI: A market capitalization-weighted indexmeasuring the equity performance of 22 emergingmarkets.

S&P/TSX Canadian SmallCap: An index of smallerCanadian companies that have been included in theS&P/TSX Composite index, but are not members of the S&P/TSX 60 or the S&P/TSX Canadian MidCapIndices.

S&P/TSX Capped Energy Trust: A sector-basedindex of income trusts in the Energy sector. Theindividual constituent Energy income trusts willhave their relative weights capped at 25%.

S&P/TSX Composite: Comprises approximately 71%of the market capitalization for Canadian-basedToronto Stock Exchange listed companies and trusts.

SPDR – Standard & Poor’s Depositary Receipts:Represents ownership in the SPDR, Trust Series 1, aunit investment trust established to accumulate andhold a portfolio of the equity securities that comprisethe Standard & Poor’s 500 Composite Stock PriceIndex.

Solvency deficiency: Means the amount by whichthe sum of the solvency liabilities exceeds the sum ofthe solvency assets. A solvency valuation is based onthe assumption that the Plan is being terminated.

T-Bills: Treasury bills are short-term governmentdebt, which do not pay interest but are sold at a discount to reflect short-term interest rates andmature at par value. The difference between thepurchase price and the proceeds at maturityrepresents investment income.

Trust Units: Investments in business trusts, royaltytrusts (oil and gas), or real estate investment trusts(REITs).

Unit Value: The value/cost of each unit in a par-ticular investment pool. Unit values for all the poolsare calculated on a market-value basis on the lastbusiness day of each month with a one-month lag.(e.g. the December unit values were based on themarket values in effect on November 30th). Unitvalues are net of all investment and administrativeexpenses and fluctuate (subject to increase ordecrease) on a monthly basis in accordance withprevailing market conditions.

Venture Capital: Financing provided to start-upcompanies and early and later stage businesses withhigh growth potential.

Workout Asset Pool: A new pool establishedAugust 31, 2007 to hold the non-bank asset-backedcommercial paper which was initially held in theMoney Market Pool at the time of the global creditmarket disruptions in August 2007. The WorkoutAsset Pool is a closed pool and is not open to newinvestments.

Yield: A ratio obtained by dividing the annualincome (dividends, interest, rent) by the currentmarket price of an investment, generally expressed as a percentage.

Appendix IV – Glossary (continued)

32


To the Pension Administration CommitteeMcGill University Pension Plan

We have audited the statement of net assets available forbenefits of the McGill University Pension Plan as at December 31, 2007 and the statements of changes in net assetsavailable for benefits for the year then ended. These financialstatements are the responsibility of the Plan’s management and the Pension Administration Committee. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with Canadian generallyaccepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurancewhether the financial statements are free of material misstate-ment. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accountingprinciples used and significant estimates made by manage-ment, as well as evaluating the overall financial statementpresentation.

In our opinion, these financial statements present fairly, in all material respects, the net assets available for benefits of thePlan as at December 31, 2007 and the changes in net assetsavailable for benefits for the year then ended in accordancewith Canadian generally accepted accounting principles.

Chartered AccountantsMontreal, QuebecFebruary 22, 2008

Auditors’REPORTREPORT

33


33

Statement of Net AssetsAVAILABLE FOR BENEFITS

Accumulation FundASSETS 2007 2006

Investments (Note 3) $1,118,969,270 $1,117,771,413Cash 3,297,473 1,917,697Accrued investment income 1,990,779 2,340,686Accounts receivable 1,656,124 1,208,455Due from McGill University 22,888 730,293

1,125,936,534 1,123,968,544

LIABILITIES

Owing to former members for units redeemed 5,320,839 10,363,040Due to Pensioner Fund (Note 4) 92,956,775 99,687,274Accounts payable 3,534,553 470,700Accrued expenses 983,661 918,895

102,795,828 111,439,909

Net assets available for benefits 1,023,140,706 1,012,528,635

Pensioner Fund ASSETS

Investments (Note 3) 286,546,211 289,778,905Cash 11,355 112,525Accrued investment income 487,120 538,363Accounts receivable 450 924Due from Accumulation Fund (Note 4) 4,757,309 13,799,753Due from McGill University ------ 30,368

291,802,445 304,260,838

LIABILITIES

Due to McGill University 2,803 ------Accrued expenses 70,227 86,277

73,030 86,277

Net assets available for benefits 291,729,415 304,174,561

Total net assets available for benefits $1,314,870,121 $1,316,703,196

As at December 31, 2007

34


Statementof Changes inNetAssetsAVAILABLE FOR BENEFITS

Accumulation Fund2007 2006

Net assets available for benefits, January 1 $1,012,528,635 $ 936,562,065

INCREASE

Investment incomeInterest – term deposits and cash 3,461,978 2,268,580Interest – bonds 16,048,173 15,037,895Dividends – common stocks 11,736,244 11,051,883Real estate 1,498,084 1,323,932Private equity 350,911 265,080Resource properties 1,642,950 1,718,952

34,738,340 31,666,322

Current year change in fair value of investments (21,223,204) 88,177,478

Members’ regular contributions 14,267,838 13,421,373University contributions 25,674,713 25,845,521Transfers from other registered plans 3,079,870 3,019,286

43,022,421 42,286,180

Total increase in assets 56,537,557 162,129,980

DECREASE

Administration expenses 2,070,515 1,805,980Investment management fees 2,519,644 2,289,174Amounts transferred to Pensioner Fund 13,286,105 29,435,652Units redeemed 28,049,222 52,632,604

Total decrease in assets 45,925,486 86,163,410

Change in net assets available for benefits 10,612,071 75,966,570

Net assets available for benefits, December 31 $1,023,140,706 $1,012,528,635

Year ended December 31, 2007

3535


Pensioner Fund2007 2006

Net assets available for benefits, January 1 $304,174,561 $285,021,153

INCREASE

Investment income

Interest – term deposits and cash 1,372,180 1,207,416Interest – mortgages 4,747,710 5,528,883Interest – bonds 117,597 ------Dividends – common stocks 2,978,373 1,341,289Real estate 1,421,297 1,271,037Resource properties 1,320,678 1,403,527

11,957,835 10,752,152

Current year change in fair value of investments (2,211,544) 11,897,022

Amounts transferred from Accumulation Fund 13,286,105 29,435,652

Total increase in assets 23,032,396 52,084,826

DECREASE

Administration expenses 614,383 641,116Investment management fees 115,343 108,706Pension payments 34,747,816 32,181,596

Total decrease in assets 35,477,542 32,931,418

Change in net assets available for benefits (12,445,146) 19,153,408

Net assets available for benefits, December 31 $291,729,415 $304,174,561

Statementof Changes inNetAssetsAVAILABLE FOR BENEFITS Year ended December 31, 2007

36


Notes to the FINANCIAL STATEMENTS

1.

Year ended December 31, 2007

Summary Description of the Plan

(A) GENERAL

The Plan provides retirement benefits for the staffof McGill University (“University”). The pensionfor each member is determined in accordancewith the accumulated value of the member’spension account at retirement under a definedcontribution arrangement.

(B) FUNDING POLICY

Geographic Full-Time (University) staff (“GFT-U”)are required to contribute 5.5% of Basic Earningsless 1.8% of the portion of Basic Earnings that issubject to a Quebec Pension Plan contribution. All other members of the Plan are required tocontribute 5% of Basic Earnings less 1.8% of theportion of Basic Earnings that is subject to a Quebec Pension Plan contribution.

The University is required to make regularmonthly contributions to the Plan equal to apercentage of Basic Earnings determinedaccording to the following table, less 1.8% of theportion of Basic Earnings subject to a requiredemployer contribution to the Quebec PensionPlan:

Percentage of Basic Earnings

Members’ age at end of preceding GFT-U Othermonth Members Members

39 or less 5.8% 5.0%

40 through 49 8.3% 7.5%

50 to 69 10.8% 10.0%

The University is required to make additionalcontributions as may be necessary to fund the cost of the Defined Benefit Minimum Provisionof the Plan, as well as to ensure the solvency of the Plan. The determination of the value of the Defined Benefit Minimum Provision and thedegree of solvency are based on a triennialactuarial valuation (see Note 5).

(C) RETIREMENT BENEFITS

The retirement benefit for each member is determined in accordance with the accumulatedvalue of the member’s pension account at retire-ment. There is a Defined Benefit MinimumProvision determined according to a highestaverage earnings formula. Any shortfall betweenthe accumulated value and the Defined BenefitMinimum Provision is funded by the Universityout of the Supplemental Fund.

(D) DEATH BENEFITS

In the event of death before retirement, a lumpsum death benefit equal to the total value of the member’s pension account is paid to thebeneficiary or beneficiaries entitled thereto.

In the event of death after retirement, the deathbenefit, if any, is determined according to thesettlement option chosen at retirement.

(E) TERMINATION BENEFITS

A termination benefit is payable when a memberceases to be employed. The value of the termi-nation benefit is determined in accordance withthe accumulated value of a member’s pensionaccount.

(F) ACCUMULATION FUND

The Accumulation Fund is composed of an EquityPool, a Fixed Income Pool, a Money Market Pooland a Workout Asset Pool. A Balanced Account isalso available, composed of allocations to theEquity Pool and the Fixed Income Pool inproportions determined from time to time by thePension Administration Committee (“PAC”).

This structure offers a wide range of possible investment strategies permitting members tocreate specific strategies that best respond to theirindividual financial needs.

37


37

Summary Description of the Plan

(F) ACCUMULATION FUND (continued)

All assets of the Accumulation Fund are allocatedto individual accounts and all investment income,gains and losses are distributed accordingly. Assets are, by definition, equal to liabilities andthere can be no surplus or deficit in the Fund.

(G) SUPPLEMENTAL FUND

The Supplemental Fund holds University con-tributions arising from the Defined BenefitMinimum Provision, as well as the University’sfunding related to actuarial valuation deficiencies.

Any actuarial surplus existing in the Supple-mental Fund is the property of the University tobe applied in such fashion as the University shall determine, including but not limited to, thepayment of University contributions otherwiserequired under the Plan.

Any actuarial deficit arising from the DefinedBenefit Minimum Provision or from actuarialvaluation deficiencies is the responsibility of the University, to be funded by Universitycontributions.

The assets of the Supplemental Fund are investedin the Balanced Account and included in theAccumulation Fund.

(H) PENSIONER FUND

The Pensioner Fund holds the assets required tosecure the obligation for retired staff who have opted for an internal pension settlement.

Significant Accounting Policies

BASIS OF PRESENTATION

These financial statements include the accountsof Aylmer & Sherbrooke Investments Inc., whichis a wholly-owned subsidiary of the pension plan.This company invests primarily in mortgages (see Note 3h on page 40 - National Housing Actinsured and conventional mortgages). Aylmer &Sherbrooke Investments Inc. was incorporated in

1993 under the Canada Business Corporations Actto facilitate the origination and administration ofmortgage investments for the Pensioner Fund. Itis a tax-exempt pension investment corporation.

The preparation of financial statements in con-formity with Canadian generally acceptedaccounting principles requires management tomake estimates and assumptions that affect the reported amounts of assets and liabilities atthe date of the financial statements and thereported amounts of current period change in fairvalue of investments. Actual results could differfrom such estimates and assumptions.

INVESTMENTS

Investments are recorded as of the trade date andare carried at fair value. Fair value is the amount of the consideration that would be agreed upon inan arm’s length transaction between knowledge-able, willing parties who are under no compulsionto act.

The fair value of investments is determined asfollows:

(a) Short-term investments, excluding non-bankasset-backed commercial paper («PCAA»), arevalued at quoted market prices.

(b) Non-bank ABCP is valued at management'sbest estimate of current fair values. The Planholds investments in non-bank ABCP with apar value of $41,210,000 at December 31, 2007,allocated as follows: $26,424,000 -Accumulation Fund and $14,786,000 -Pensioner Fund. These investments havematurity dates between August 16, 2007 andMarch 7, 2008; those maturing on or beforeDecember 31, 2007 have not been repaid dueto liquidity problems in the ABCP market. Atthis time, there is a proposal to restructure theABCP market that calls for the ABCP to beconverted into medium-term notes withmaturities that correspond to the maturities ofthe assets underlying the ABCP. The Plan has

2.

1.

Notes to the Financial Statements Year ended December 31, 2007

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Significant Accounting Policies

INVESTMENTS (continued)

used a discounted cash flow approach toestimate a fair value using the bestinformation currently available. As a result,the Plan recognized a discount of $4,120,541during the year, allocated as follows:$2,639,215 - Accumulation Fund and$1,481,326 - Pensioner Fund. This estimate issubject to measurement uncertainty and thefair value of the ABCP may differ from anactual fair value that will be realized.

At December 31, 2006, the Plan hadinvestments in non-bank ABCP with a parvalue of $27,831,000, allocated as follows:$15,626,000 - Accumulation Fund and$12,205,000 - Pensioner Fund. Theseinvestments matured and proceeds werereceived in 2007.

(c) Bond investments and equity investments arevalued at quoted market prices.

(d) Mortgage investments are valued at thepresent value of the future payments usingcurrent market yields of financial instrumentsof similar maturity and credit rating.

(e) Real estate investment valuations are based on periodic appraisals for privately-heldinvestments and on quoted market prices forthe investment in a global real estate fund.

(f) Private equity investments are valued atmanagement’s best estimate of current fairvalues.

(g) Resource property investments are valued atquoted market prices.

INCOME RECOGNITION

Investment income is recorded on the accrualbasis. Processing fee revenue is deferred andrecognized as mortgage interest income over theexpected term of the mortgage.

CURRENT YEAR CHANGE IN FAIR VALUE

The current year change in fair value ofinvestments comprises both realized andunrealized gains and losses.

Investments

(A) TERMS AND CONDITIONS

The Plan holds investments to fund the retire-ment benefits for members of the Plan. The termsand conditions of investments are as follows:

Short-Term Investments and Non-Bank ABCP

Short-term investments, primarily securitiesissued by Canadian chartered banks, governmentagencies and Canadian corporations, have anaverage term to maturity of 34 days in theAccumulation Fund (2006 - 42 days) and 41 daysin the Pensioner Fund (2006 - 50 days).

The non-bank ABCP currently consists ofholdings of illiquid non-bank ABCP issued bytrusts.

Bonds

In the Accumulation Fund, bonds, 66% of whichare guaranteed by the federal and provincialgovernments (2006 - 71%), have a marketweighted average yield to maturity of 4.17%(2006 - 3.64%) and an average duration of 8.3years (2006 - 8.1 years). In the Pensioner Fund,the yield to maturity and duration are identical to that of the Accumulation Fund, as it invests in units of the Accumulation Fund’s Fixed Income Pool.

Mortgages

In the Pensioner Fund, mortgages, 27% of whichare insured under the National Housing Act(2006 - 26%), have a market weighted averageterm of 3.0 years (2006 - 3.6 years) and an averagecoupon rate of 7.41% (2006 - 7.42%). Themortgage portfolio is diversified throughoutCanada.


3.2.

39


39


Investments

(A) TERMS AND CONDITIONS (continued)

Common Stock

In both the Accumulation Fund and PensionerFund, common stocks, including trust units, arediversified by issuer, industry and country.

Real Estate

In both the Accumulation Fund and PensionerFund, real estate consists of investments inpooled funds investing directly in land andbuildings. The Accumulation Fund also holdsinvestments in a pooled fund that invests inpublicly-traded global real estate securities andreal estate investment trusts.

Private Equity

In the Accumulation Fund, private equityinvestments consist of investments in Canadianpension fund corporations, a U.S. limitedpartnership and six non-Canadian private equityfunds of funds.

Resource Properties

In both the Accumulation Fund and PensionerFund, resource properties consist of investmentsin publicly-traded Canadian oil and gas trustunits.

(B) COMMITMENTS

There are commitments in the amount of $56.0 million (2006 - $86.3 million) to fundprivate equity and real estate investments. It isanticipated that these commitments will be metin the normal course of operations.

(C) SECURITIES LENDING

Contracts are entered into whereby securitiesare loaned to a borrower for a fee, in accordancewith terms of a prearranged contract. At alltimes, the borrower must maintain collateralcoverage in the amount of 105% of the fairvalue of the securities on loan. At year end,securities with a fair value of $22,215,317 (2006 - $17,005,093) were loaned with collateralcoverage.

(D) CREDIT RISK

Credit risk arises from the potential for a bondissuer or mortgagor to default on its contractualobligations to the Plan. Although the Plan policypermits investments in below investment gradesecurities, it provides limits on suchinvestments. The credit risk of mortgagors isminimized by dealing with borrowers consideredto be of high quality and by monitoring theircredit risk. Investments are recorded at fair value.This represents the maximum credit riskexposure of the Plan.

(E) INTEREST RATE RISK

Interest rate risk refers to the impact of interestrate changes on the Plan’s financial position.Interest rate changes directly impact the fairvalue of fixed income securities held in the Plan.Interest rate changes will also have an indirectimpact on the remaining assets in the Plan. ThePlan employs investment diversification tomanage this risk.

(F) FOREIGN CURRENCY RISK

Foreign currency risk is the risk that the value ofa foreign currency denominated asset or liabilitywill fluctuate due to changes in foreignexchange rates. The Plan employs diversificationof assets to minimize this risk.

(G) MARKET RISK

Market risk is the risk that the fair value of aninvestment will fluctuate as a result of changesin market price. The Plan employs diversificationof assets to minimize this risk.

3.



Investments (continued)

(H) FAIR VALUE

Accumulation Fund 2007 2006

Short-term investments

and non-bank ABCP (Note 2b and 3a) $ 124,034,248 $ 52,086,261

Fixed income investmentsFederal bonds 185,033,462 206,775,149

Provincial bonds 58,726,254 48,665,789

Municipal bonds 1,640,806 1,659,719

Corporate bonds 122,472,188 104,200,808

U.S. Government bonds ------ 7,677,467

367,872,710 368,978,932

Equity investments

Common stocks, Canadian 283,377,967 298,434,823

Common stocks, Foreign 249,127,247 329,789,646

Real estate 46,047,461 30,196,690

Private equity 35,208,728 22,158,361

Resource properties 13,300,909 16,126,700

627,062,312 696,706,220

$1,118,969,270 $1,117,771,413

Pensioner Fund

Short-term investments

and non-bank ABCP (Note 2b and 3a) $ 31,028,376 $ 24,193,670

Mortgages

National Housing Act insured mortgages 18,060,884 20,202,568

Conventional mortgages 47,855,743 56,322,470

65,916,627 76,525,038

Fixed income investments

Accumulation Fund – Fixed Income Pool (Note 4) 88,199,466 85,887,521

Equity investments

Common stocks, Canadian 56,453,871 63,926,910Real estate 34,216,093 26,334,115Resource properties 10,731,778 12,911,651

101,401,742 103,172,676

$286,546,211 $289,778,905

3.

40

41


4. Due from (to) Accumulation Fund(Pensioner Fund)

Pensioner Fund

Due from Accumulation Fund $ 4,757,309

Investment, AccumulationFund - Fixed Income Pool $88,199,466

Accumulation Fund

Due to Pensioner Fund $92,956,775

The amount of $88,199,466 (2006 - $85,887,521)relates to an investment made by the PensionerFund in units of the Accumulation Fund’s FixedIncome Pool. The amount of $4,757,309 (2006 -$13,799,753) relates to transfers into thePensioner Fund that were accrued at year end.

5. Funding Deficit

The most recent triennial actuarial valuation, which was carried out as at December 31, 2006 by Eckler Ltd., the Plan’s actuary, confirmed apension asset for actuarial valuation purposes of$1.3 billion and a going-concern actuarial surplus of $33,597,000.

Comparative Amounts

Certain comparative amounts were reclassified toconform to the current year’s presentation.

6.


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