Air Canada 2007 Annual Report Download - page 58

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2007 Air Canada Annual Report
58
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 fl ows that approximately match the timing and amount of expected benefi t
payments.
Expected Return on Assets Assumption
Air Canada’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 specifi c portfolio mix of plan assets. Air Canada’s management, in conjunction
with its actuaries, reviews anticipated future long-term performance of individual asset categories and considers the asset
allocation strategy adopted by Air Canada, 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 benefi ts. 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,
2007
November 30,
2006
Target
allocation
Equity 58.9 % 59.1 % 59.0 %
Bonds and Mortgages 36.1 % 34.7 % 41.0 %
Short-term and Other 5.0 % 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 infl ation by at least 3.75% 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 diversifi ed among industries and
economic sectors. Foreign equities can comprise 37% to 43% 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.
■ Bond and mortgage 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 fi xed income allocation, fi xed income investments are required to be diversifi ed among individual
securities and sectors. The target return is comprised of 40% of the total return of the Scotia Capital Universe
Bond Index and 60% of the total return of the Scotia Capital Long Term Bond Index.
Similar investment policies are established for the other pension plans sponsored by Air Canada.