11. The biggest proportion of the Fund's investment will be in Equities. This type of investment bias is intended to maximise growth in the value of assets over the long term.

12. Fixed Interest Securities, Index Linked Securities, Alternative Investments and Cash Deposits will make up the balance of investment. The distribution of investments between the asset classes will vary based on perceived economic and market conditions.

13. The Fund's planned asset allocation strategy will be linked to a fund-specific benchmark, and for 2009/10 the Fund will invest within the following control ranges for each asset class. Depending on market conditions, the Fund may stray outside the control ranges on occasions before adjustments are made to rectify the situation.

14. Investment into Private Equity Funds, Fund of Hedge Funds, and Currency Funds have been progressively increased, and the Benchmark and Control Ranges for these asset classes will be reviewed annually with potential increases over the ensuing years. As a result of the progressive increase in Private Equity, Fund of Hedge Funds, and Currency Funds there will be a corresponding reduction required in other asset classes, which will be determined each year in the light of investment strategy and policy.

Risk

15. To minimise risk, the investment portfolio of the Fund will be continually monitored and reviewed, and the portfolio will be well diversified as evidenced by the fact that the Fund's equity holdings are spread across more than 300 UK companies, 700 foreign companies, and a range of unit trusts and managed funds.

16. Risk will also be controlled by reviewing on an on-going basis the risk attached to the Fund's asset allocation relative to the fund-specific benchmark, so that any major divergence from the benchmark is acceptable. Mercer Investment Consulting completed an 'Investment Strategy Review' for WYPF in 2008, and this has provided details of the risks associated with adopting the fund-specific benchmark and variations to it.

17. Custodian risk is controlled through an ongoing monitoring and periodic review of the custodial arrangements.

18. Risk is also monitored in relation to the ongoing funding position of WYPF and the investment requirements that flow from it, in conjunction with the Fund's Actuary.

19. Counter-party and cash management risk is controlled by the in-house investment management team through the setting of appropriate limits for exposure with any individual organisation.

Expected Return on Investments

20. The Fund's investment portfolio will be actively managed by internal managers, supported by the external investment advisers, and the Fund's annual investment return will be measured against the fund-specific benchmark. The expected return on investments will be such as to achieve +0.5% per annum above the fund-specific benchmark annualised over 3-year rolling periods, and linked to an under-performance limit of 1.5% against the benchmark in any one year, as measured independently by the WM Company.

Realisation of Investments

21. The majority of investments to be held will be in fixed interest securities and equities that are quoted on recognised stock markets, and may be easily realised if required. The liquidity in other classes varies enormously (for example in property, fund of hedge funds and private equity).

Transaction Costs

22. The in-house team of investment managers utilise a core list of brokers to provide a dealing service for share transactions undertaken. Commission paid to all brokers on UK and Overseas share transactions are at competitive rates negotiated by the in-house investment managers. No soft commissions or commission recapture programmes are included.

23. Transaction fees and custody fees are paid to HSBC for overseas stock market transactions on terms agreed with HSBC under the contract for banking services.

24. The Fund subscribes to the 'Transaction Cost Measurement Service' offered by its custodian HSBC, which provides transaction execution cost comparisons by country/broker pairing.

Socially Responsible Investment

25. Investment decisions are taken based on financial and commercial considerations so as to yield the best return by way of income and capital appreciation. If it is shown that particular types of social, environmental and ethical investment can produce at least comparable returns, then the Fund will invest in such companies as part of the normal investment process.

26. The voting policy of the West Yorkshire Pension Fund is viewed as a fundamental contribution towards socially responsible investment. The Fund is committed to ensuring that the companies in which it has a shareholding adopt sound principles of corporate responsibility, particularly in relation to environmental and employment standards. The Fund will utilise the shareholding wherever possible, through the voting policy and engagement, to exert influence on those companies falling short of acceptable standards.

27. The WYPF is a member of the Local Authority Pension Fund Forum (LAPFF), which currently comprises 46 local authority pension funds with combined assets of £80 billion. The Forum exists to promote the investment interests of local authority pension funds, and in particular to maximise their influence as shareholders to promote corporate social responsibility and high standards of corporate governance amongst the companies in which they invest.

28. The WYPF is also a member of the Institutional Investors Group on Climate Change (IIGCC). The IIGCC seeks to promote a better understanding of the implications of climate change amongst its members and other institutional investors, and to encourage companies and markets in which its members invest to address any material risks and opportunities to their businesses associated with climate change and a shift to a lower carbon economy.

29. The WYPF first became a signatory to the Carbon Disclosure Project (CDP) in 2007, and again in 2008, and has committed to be a signatory for the three years 2009 to 2011. The CDP seeks information from over 2,750 companies world-wide on their Greenhouse Gas Emissions.

Exercise of Rights Attached to Investments

30. The West Yorkshire Pension Fund will exercise its voting rights at the Annual/ Extraordinary General Meetings of all UK companies, European companies within the Eurotop 300, US companies in the S&P 500, and Japanese companies in the TOPIX index, and companies in all other countries, in which the Fund has a shareholding. The voting policy to be adopted by the Fund at these meetings will be based on the latest 'Shareholder Guidelines' issued by the Pensions and Investment Research Consultants Limited (PIRC), an independent adviser to the pensions industry who provide policy research and analysis on shareholder issues. These 'Shareholder Guidelines' encompass the Combined Code of Best Practice arising from the Cadbury, Greenbury, Hampel, Higgs and Smith Committees relating to corporate governance and corporate responsibility. Details of the Fund's voting policy, and its voting activity at all company AGMs/EGMs are shown on the Fund's website.

31. Special resolutions at UK companies are voted on by agreement with the Investment Advisory Panel based upon guidance from the LAPFF and PIRC.

32. The Fund will normally take up its entitlement attached to rights issues when offered at a discount to the current market price.

Myners' Report

33. In 2000, the Government commissioned a ‘Review of Institutional Investment in the United Kingdom’ by Paul Myners of Gartmore Fund Management Group. Paul Myners published the outcome of his review in a report in March 2001. In response to the proposals contained in the review, the Government issued a set of investment principles. Since then HM Treasury has undertaken a review of the principles following a consultation, which was based on a study commissioned by the Government and carried out by the National Association of Pension Fund. The outcome of the consultation has been to produce a smaller number of high-level principles, and they cover the six areas of effective decision making; clear objectives; risk and liabilities; performance assessment; responsible ownership; and transparency and reporting.

34. The extent to which WYPF has adopted these investment principles is as follows:

Effective Decision-Making:
the Investment Panel encompasses a range of expertise, supported by external investment advisers and the in-house team of investment managers. In fact, the external investment advisers and senior investment managers attend all meetings of the Panel so as to provide the
necessary expert advice to support the Panel members in coming to their decisions. Greater emphasis is being placed on training for Panel members, and a number of initiatives on this front have been, and continue to be, developed. Attempts are being made to ensure that Panel members have a minimum tenure of appointment of at least three years on the Panel so as to ensure continuity and a build up of experience. An annual business plan for the Panel is produced.

Clear Objectives:
members of the Panel take a long-term view in setting investment objectives. Investment objectives are set for the Fund itself, which have due regard to the Fund’s Statement of Investment Principles and Funding Strategy Statement. Investment return targets are also set for the managers and external investment advisers in order to encourage added value commensurate with a measured and controlled level of volatility.

Risk and Liabilities:
Panel members focus entirely on asset allocation, with day-to-day stock selection left to the discretion of the in-house investment managers. The Investment Panel has commissioned independent asset and liability studies from time to time to provide comment on the current asset policy and associated risks being pursued by WYPF. Active management is adopted with appropriate risk controls as reflected in a well-diversified portfolio of investments.

Performance Assessment:
the Panel formally monitors the investment performance of the Fund annually at one of its meetings, and an assessment is made of the in-house managers’ and external investment advisers’ performance against the investment target return. Since 2005 the Fund has used a fund-specific benchmark to compare actual asset allocation and investment returns. Specific performance and volatility targets are given to the Fund of hedge Funds managers and Currency Fund managers in which WYPF invests. Arrangements have been put in place for several years now for the external investment advisers to assess the effectiveness of the Panel itself on an annual basis.

Responsible Ownership:
the WYPF actively votes its shares in all UK companies, the top 300 European companies, the US S&P 500 companies, the Japanese TOPIX companies, and in companies in all other countries, in which it has a shareholding. WYPF also jointly engages with companies through its membership of the Local Authority Pension Fund Forum, the Institutional Investors Group on Climate Change, and the Carbon Disclosure Project.

Transparency and Reporting:
the Statement of Investment Principles is regularly updated and is available for viewing on the Fund's website. Details of the Fund’s voting policy and voting activity is also accessible on the website.



February 2009