Air Canada 2006 Annual Report Download - page 50

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Discount Rate
The discount rate used to determine the pension obligation was determined by reference to market interest
rates on corporate bonds rated "AA" or better with cash flows that approximately match the timing and amount
of expected benefit payments.
Expected Return on Assets Assumption
The Corporation’s expected long-term rate of return on assets assumption is selected based on the facts and
circumstances that exist as of the measurement date and the specific portfolio mix of plan assets. Management,
in conjunction with its actuaries, reviews anticipated future long-term performance of individual asset categories
and considers the asset allocation strategy adopted by the Corporation, including the longer duration in its bond
portfolio in comparison to other pension plans. These factors are used to determine the average rate of
expected return on the funds invested to provide for the pension plan benefits. While the review considers
recent fund performance and historical returns, the assumption is primarily a long-term, prospective rate.
Asset Allocation
The composition of the Domestic Registered Plan assets and the target allocation consists of the following:
November 30
2005
November 30
2006
Target
allocation
Equity 62.3% 59.1% 59.0%
Bonds and Mortgages 32.1% 34.7% 41.0%
Real Estate 0.1% 0.0% 0.0%
Short-term and Other 5.5% 6.2% 0.0%
Total 100.0% 100.0% 100.0%
Domestic Registered Plans
For the Domestic Registered Plans, the investments conform to the Statement of Investment Policy and
Objectives of the Air Canada Pension Master Trust Fund (Fund). The investment return objective of the Fund is
to achieve a total annualized rate of return that exceeds inflation by at least 3.75 percent over the long term.
In addition to the broad asset allocation, as summarized in the asset allocation section above, the following
policies apply to individual asset classes:
• Equity investments can include convertible securities and are required to be diversified among
industries and economic sectors. Foreign equities can comprise 37 percent to 43 percent of the total
market value of the trust. Limitations are placed on the overall allocation to any individual security at
both cost and market value. Derivatives are permitted to the extent they are not used for speculative
purposes or to create leverage.
• Fixed income investments are oriented toward risk averse, long-term, investment grade securities rated
"A" or higher. With the exception of Government of Canada securities, or a province thereof, in which
the plan may invest the entire fixed income allocation, fixed income investments are required to be
diversified among individual securities and sectors. The target return is comprised of 40 percent of the
total return of the Scotia Capital Universe Bond Index and 60 percent of the total return of the Scotia
Capital Long Term Bond Index.
Similar investment policies are established for the other pension plans sponsored by the Corporation.
Best Estimate of Employer Contributions
Based upon an agreement between Air Canada and representatives of the unionized and non-unionized
employees and retirees with respect to the funding of the domestic registered plans, which agreement is subject
to approval of the Office of the Superintendent of Financial Institutions (Canada) ("OSFI"), the actual 2005 and
2006 contributions are as follows:
50