Investments

• 1. How did the fund perform overall?

The fund earned a 14.3% rate of return and investment income totalled $13.3 billion in 2010.

Our rate of return exceeded our 9.8% fund benchmark by a wide margin. This translated into $4.0 billion more than the markets returned, which is what we call value-added returns. This value-added is the highest dollar total in our fund history.

Here is a performance breakdown by asset class:

Asset Class	Performance vs. Benchmark
Equities	Return: 10.4% Benchmark: 7.5%
Fixed income	Return: 9.9% Benchmark: 9.5%
Commodities	Return: 3.2% Benchmark: 3.3%
Real assets	Return: 13.9% Benchmark: 5.5%
Total	Return: 14.3% Benchmark: 9.8%

More information on each of these asset classes is available in the annual report.

• 2. When you refer to benchmarks, what do you mean?

The benchmarks we use reflect the performance of various markets in which we invest, such as the S&P/TSX Composite Index for Canadian stocks and the S&P 500 Index for U.S. stocks. We compare our performance against these benchmarks - our goal is to do as well as or better than the investment returns of the relevant market benchmarks.

Different pension funds have different benchmarks depending on their asset mixes. Every pension plan has different member demographics, contribution rates and benefit structures that influence their investment strategies, so they may use different benchmarks than we do.

A list of the benchmarks we use is available in our annual report.

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Compensation

•  3. Why are bonuses being paid when there's a big shortfall?

There is no relation between incentive compensation and the plan’s funding status (surplus or shortfall). Incentive compensation is based on whether executives and investment staff outperform relevant market benchmarks.

Many important factors that affect the plan’s funding status are beyond the control of pension plan management, such as age demographics, interest rates, contribution rates and benefit levels. (The Ontario Teachers’ Federation and the Ontario government jointly decide contribution and benefit levels.) Factors that are within the pension plan’s control, such as how well we manage plan assets, do affect incentive payments.

• 4. What are bonuses based on?

Our compensation program is designed to attract and retain talented people and reward them appropriately. It is based on the pay-for-performance principle. For example, when markets plunged in 2008 and the fund lost money, incentive compensation also declined.

Incentive compensation for executives and investment staff is based on performance relative to market benchmarks.

Our annual incentive plan rewards employees for beating market benchmarks over two-year periods. The 2010 annual incentive payments resulted from our strong investment performance in 2009 and 2010, when we significantly outperformed our benchmark.

Our long-term incentive plan reflects investment returns, both positive and negative, over the long-term.

We believe this combination of annual and long-term incentive plans is a balanced approach. Our employees must consider both the short and long-term impact of investment decisions.

See the Compensation Discussion and Analysis in our annual report for more information.

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