Government pension fund Act (No. 123 of 21 December 2005)

Section 1 The Government Pension Fund shall support central government saving to finance the National Insurance Scheme’s expenditure on pensions and long-term considerations in the application of petroleum revenues.

Section 2 The Government Pension Fund is managed by the Ministry of Finance. The Fund comprises the Government Pension Fund – Global and the Government Pension Fund – Norway.

The foreign portion is deposited in an account at Norges Bank. The countervalue is managed under further rules laid down by the Ministry, see section 7.

The domestic portion is placed as a capital contribution to Folketrygdfondet. The counter­value is managed under further rules laid down by the Ministry, see section 7.

Section 3 Income of the Government Pension Fund – Global consists of the cash flow from petroleum activities, which is transferred from the central government budget, the return on the Fund’s capital, and the net results of financial transactions associated with petroleum activities.

The cash flow is the sum of

1. total tax revenues and royalty deriving from petroleum activities collected pursuant to Petroleum Taxation Act (no. 35 of 13 June 1975) and the Petroleum Activities Act (no. 72 of 29 November 1996),

2. revenues deriving from tax on CO2 emissions due to petroleum activities on the continental shelf,

3. revenues deriving from tax on NOx emissions due to petroleum activities on the continental shelf,

4. revenues deriving from the State’s Direct Financial Interest in petroleum activities, defined as operating income and other income less operating expenses and other direct expenses,

5. central government revenues from net surplus agreements associated with certain production licences,

6. dividends from Statoil ASA,

7. transfers from the Petroleum Insurance Fund,

8. central government revenues deriving from the removal or alternative use of installations on the continental shelf,

9. any government sale of stakes representing the State’s Direct Financial Interest in petroleum activities,

less

1. central government direct investments in petroleum activities,

2. central government expenses in connection with the Petroleum Insurance Fund,

3. central government expenses in connection with the removal or alternative use of installations on the continental shelf,

4. any government purchase of stakes as part of the State’s Direct Financial Interest in petroleum activities.

Net financial transactions associated with petroleum activities are gross revenues from government sale of shares in Statoil ASA less

1. any government purchase of shares in Statoil ASA, defined as the market price paid by the government for the shares,

2. government capital contributions to Statoil ASA and companies attending to government interests in petroleum activities.

Section 4 Income of the Government Pension Fund – Norway consists of the return on the capital under management.

Section 5 The capital of the Government Pension Fund may only be used for transfers to the central government budget pursuant to a resolution by the Storting (Norwegian parliament).

Section 6 The Government Pension Fund itself has no rights or obligations vis-à-vis private sector entities or public authorities, and may not institute legal proceedings or be subjected to legal proceedings.

Section 7 The Ministry may issue supplementary provisions to implement this Act. The Ministry may also lay down further provisions concerning the administration etc., Folketrygdfondet.

Section 8 The Act enters into force at such time as the King decides. The King may bring the individual provisions into force at different times. The Ministry may make transitional rules.

Provisions on Folketrygdfondet laid down pursuant to the National Insurance Act section 23-11 fourth paragraph apply until otherwise prescribed pursuant to section 7.

Section 9 The following amendments to other Acts become effective as from the entry into force of this Act:

1. Repeal of the Government Petroleum Fund Act (no. 36 of 22 June 1990).

Regulations on Management of the Government Pension Fund – Global

Laid down by the Ministry of Finance on 22 December 2005 pursuant to the Government Pension Fund Act (no. 123 of 21 December 2005).

Section 1 Management of the Government Pension Fund – Global

Norges Bank manages the Government Pension Fund – Global (hereafter termed “the Fund”) on behalf of the Ministry of Finance. The Bank may use other managers.

Norges Bank shall prepare an annual report and quarterly reports for the Fund. The reports shall be public.

Section 2 Investment of the Fund

The Fund shall be placed on separate account in the form of krone deposits with Norges Bank. Norges Bank shall invest this capital in its own name in financial instruments and cash deposits denominated in foreign currency.

The actual portfolio shall be composed through extensive use of diversification.

Norges Bank shall seek to achieve the highest possible return on the investments in foreign currency within the investment limits set out in these regulations and guidelines issued under these regulations.

Section 3 Accounting return

The value of the Fund’s krone account shall be equivalent to the value of the portfolio of financial instruments and cash deposits in foreign currency. Norges Bank’s book return on the port­folio, less remuneration to Norges Bank, shall be added to the Fund’s krone account on 31 December each year.

Section 4 Investment universe

The Fund shall be invested in accordance with the following asset allocation:

• Fixed income instruments 30 – 70%

• Equity instruments 30 – 70%

Financial instruments, including derivatives, which are naturally related to asset classes as mentioned in the first paragraph may be utilised. Commodity-based contracts and fund units are also eligible. Commodity-based instruments shall not be taken into account when calculating the asset allocation under the first paragraph.

The portfolio of fixed income instruments shall be invested in accordance with the following currency and regional distribution:

• Europe 50 – 70%

• The Americas and Africa 25 – 45%

• Asia and Oceania 0 – 15%

The Ministry of Finance may lay down further rules on the exclusion of fixed income instruments from the investment universe.

The portfolio of equity instruments shall be invested in equity instruments that are listed on a regulated and recognized market place in accordance with the following currency and regional distribution:

• Europe 40 – 60%

• The Americas and Africa 25 – 45%

• Asia and Oceania 5 – 25%

Investments in securities issued by Norwegian enterprises are not permitted. “Norwegian enterprises” means any enterprise whose head office is in Norway.

Section 5 Benchmark portfolio and tracking error

The Ministry of Finance establishes a benchmark portfolio for the Fund.

The expected difference in return between the actual portfolio and the benchmark portfolio measured by tracking error on an annualised basis shall not exceed 1.5 percentage points.

Section 6 Equity holdings

The investments may not be placed such that the Fund attains a holding of more than five per cent of the shares of a single company that confer voting rights.

Norges Bank shall exercise voting rights for the Fund. The Ministry of Finance may issue supplementary guidelines for Norges Bank’s exercise of ownership. The overall goal of exercise of ownership is to safeguard the Fund’s financial interests.

Section 7 Risk systems and risk management

Norges Bank shall ensure that satisfactory risk systems and control routines are in place in regard to instruments used in the management of the Fund. The same applies in regard to the handling of counterparty risk and operational risk.

Section 8 Screening and exclusion

The Ministry of Finance establishes Ethical Guidelines for the Fund and decides whether specific issuers shall be excluded from the Fund’s investment universe. An ethics council shall be appointed to advise on whether investment opportunities in financial instruments issued by specified issuers are contrary to the Ethical Guidelines.

The Ministry of Finance may lay down further rules for the ethics council, its activities and organisation.

Section 9 Commencement

These regulations shall come into force on 1 January 2006.

Guidelines for management of the Government Pension Fund – Global

These guidelines lay down supplementary provisions to the Government Pension Fund Act and the Regulations on Management of the Government Pension Fund – Global (“the regulations”).

Contents:

1. Benchmark portfolio

2. Rebalancing of the benchmark portfolio

3. Tracking error and additional constraints

4. Requirements on valuation, measurement of return and management and control of risk

5. Ethics

1. Benchmark portfolio – section 5 of the regulations

1.1 The strategic benchmark portfolio

The composition of the strategic benchmark portfolio is 60 per cent fixed income and 40 per cent equities.

1.2 Benchmark portfolio for fixed income instruments

The strategic benchmark portfolio for fixed income instruments has the following composition:

• 60 per cent of the portfolio shall consist of Barclays Capital Global Aggregate Bond Index (BCGA) and Barclays Capital Global Inflation Linked Index (BCGI) in Europe except for Norwegian kroner (NOK) and with the addition of domestic government bonds that are included in Barclays Capital Swiss Franc Aggregate Bond Index. This section of the benchmark portfolio consists of the following currencies: Euro, British pound, Swiss franc, Swedish krona and Danish krone.

• 35 per cent of the portfolio shall consist of BCGA and BCGI in the United States and Canada with adjusted sector weights in accordance with table 8.1. This section of the benchmark portfolio consists of the following currencies: Canadian dollar and US dollar.

• 5 per cent of the portfolio shall consist of domestic government bonds from developed markets in BCGA and BCGI in Asia/Oceania (Australia, Japan, New Zealand and Singapore). Japan’s share is calculated based on a factor of 25 per cent of the market capitalisation value of Japanese bonds.This section of the benchmark portfolio consists of the following currencies: Australian dollar, Japanese yen, New Zealand dollar and Singapore dollar.

At each month-end the composition of the benchmark portfolio is revised in line with the changes in composition carried out by Bardays Capital.

If new currencies that otherwise form part of the benchmark portfolio are included in BCGI, such instruments shall be included in the benchmark portfolio as from the date decided by the Ministry of Finance.

1.3 Benchmark portfolio for equity instruments

The strategic benchmark portfolio for equity instruments is based on tax-adjusted FTSE All-Cap indices (large and medium-size and small companies) and shall have the following composition:

• 50 per cent FTSE All-Cap Europe in which the following countries are included: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Portugal, Sweden, Spain, Switzerland and United Kingdom.

• 35 per cent FTSE All-Cap Americas/FTSE All-World Africa in which the following countries are included: Brazil, Canada, Mexico, South Africa and United States.

• 15 per cent FTSE All-Cap Asia Pacific in which the following countries are included: Australia, Hong Kong, Japan, New Zealand, Singapore, South Korea, and Taiwan.

The allocation within each region are determined on the basis of market capitalization weights with daily rebalancing of country weights within each region.

2 Rebalancing of the benchmark portfolio – section 5 of the regulations

This item is exempt from the public domain.

3 Tracking error and additional restrictions – sections 4 to 6 of the regulations

3.1 Limit on tracking error

A general requirement is that expected (ex ante) tracking error shall be calculated using a system which models risk associated with the most important financial instruments in which the Fund invests. In cases where the system does not model financial instruments in which the Fund invests, the approach shall employ conservative estimates and methods making it more likely that expected tracking error will be overestimated than underestimated in relation to actual tracking error. The system shall aggregate risk across asset classes and financial instruments in a satisfactory manner.

An important objective for the risk system is that risk attending financial instruments should be calculated in such a way as to ensure that, over time, estimated risk in the Fund deviates as little as possible from actual risk. Moreover, some degree of stability in the choice of system for calculating risk is appropriate.

3.2 Restrictions on investments in certain fixed income securities issued by sovereigns

The Fund may not be invested in fixed income securities issued by the following sovereigns: Burma (Myanmar).

3.3 Requirements on the approval process for new markets and currencies

Prior to the implementation of investments in new countries, a thorough process must have been completed, which in each individual case provide the bank with an overview of relevant issues relating to valuation, return measurement, as well as the management and control of risks associated with investments in each individual market and currency. Such effort is required to include an assessment against the requirements implied by the Regulations and the supplementary guidelines, and to be documented.

4 Requirements on valuation, performance measurement and management and control of risk – section 7 of the regulations

Valuation, performance measurement and management and control of risk shall comply with internationally recognised standards and methods. The Fund cannot invest in markets, asset classes or instruments if compliance with these requirements cannot be documented. See also 3.1.

4.1 Valuation and measurement of return

The method used to establish the value of financial instruments shall be verifiable and shall indicate with reasonable assurance the true value of the Fund’s assets at the time of measurement. Valuation shall take place at least monthly and shall be based on market prices or, in cases where market prices cannot be observed, on generally recognised price models.

4.2 Management, measurement and control of risk

4.2.1 Market risk

Market risk shall be measured in such a way that compliance with the limit on relative risk in the Pension Fund can be documented. Best practice in the area shall be employed in regard to measuring methods, decomposition and measurement frequency.

4.2.2 Counterparty risk

Norges Bank shall have satisfactory routines and systems for selecting and evaluating counterparties. The monitoring system and measurement frequency employed for control of counterparty risk, including requirements on minimum credit rating and exposure limits, shall follow best practice in the area.

Counterparties for unsecured deposits and trading in unlisted derivatives shall have a long-term credit rating of at least A-/A3/A- from at least one of the following three agencies: Fitch, Moody’s or Standard & Poor’s. Norges Bank may make exemption from this minimum requirement in regard to a central counterparty. When such exemption is granted, the Ministry of Finance shall be informed thereafter.

Norges Bank must lay down such supplementary requirements on credit rating, provision of security and exposure limits as are appropriate in the operative management, and shall measure overall exposure to counterparties using internationally recognised methods that meet necessary requirements as to verifiability and accuracy.

Norwegian banks can be used as counterparties in currency trading and when making bank deposits, provided the currency involved is included in the investment universe.

4.2.3 Operational risk

Identification and measurement methods shall comply with internationally recognised standards for the various dimensions of operational risk. Operational risk shall be identified and shall be measurable and controllable before new activities (e.g. investments in new countries, instruments, asset classes, counterparties, external service providers, IT systems etc) are started.

4.3 Reporting

Annual reports prepared by Norges Bank under section 1 of the regulations shall contain:

• Norges Bank’s strategic plan and the investment strategy for the Fund

• A list of all significant external service providers, including a complete list of external managers

• An account of the standards employed by Norges Bank for the purpose of valuation (accounts), measurement of return, along with management, measurement and control of identified risk factors (market risk, counterparty risk and operational risk)

• A report on the Fund’s return, including absolute and relative return measured in Norwegian kroner and the Fund’s currency basket, real return, decomposition of return on asset class and internal/external management

• A report on costs related to the phasing in of new capital, exclusion of companies and other changes resulting from any decision by the Ministry of Finance to change the Fund’s benchmark portfolio

• A report on the Fund’s absolute and relative market risk (volatility), monthly figures – in the aggregate and distributed on asset classes

• The composition of the fixed income portfolio by main categories of credit rating grade

• An overview of new countries, currencies and instruments in which the portfolio has been invested

• An overview of the Fund’s investments in relation to the regulations’ quantitative provisions

• An account of the exercise of ownership rights in accordance with the ministry’s Ethical Guidelines, see 5.3.2

• A list of companies that are excluded from the investment universe

• A report on the accounts in accordance with Norges Bank’s accounting principles

• A complete list of equities and bonds as of 31 December

• An account of the organisation and operating expenses of Norges Bank Investment Management

Quarterly reports prepared by Norges Bank shall contain:

• A report on the Fund’s return, including absolute and relative return in Norwegian kroner and the Fund’s currency basket, real return, and a description of important contributions to relative return

• A report on the Fund’s absolute and relative market risk (volatility), monthly figures – in the aggregate and distributed on asset classes

• The composition of the fixed income portfolio by main categories of credit rating grade

• An overview of the Fund’s investments in relation to the regulations’ quantitative provisions

• A list of companies that are excluded from the investment universe

• A report on the accounts in accordance with Norges Bank’s accounting principles

Any breach of the regulations’ cap on maximum holdings that is reversed within 10 trading days does not constitute a formal breach of the regulations and shall not be reported to the ministry.

5 Ethical guidelines – section 8 of the regulations

5.1 Basis

The Fund’s Ethical Guidelines are based on two premises:

• The Fund is an instrument for ensuring that a reasonable portion of the country’s petroleum wealth benefits future generations. The financial wealth must be managed with a view to generating a sound return in the long term, which is contingent on sustainable development in the economic, environmental and social sense. The Fund’s financial interests should be consolidated by using the Fund’s ownership positions to promote sustainable development.

• The Fund should not make investments that entail an unacceptable risk that Fund is contributing to unethical acts or emissions, serious violations of fundamental humanitarian principles, gross violations of human rights, gross corruption or severe environmental degradation.

5.2 Mechanisms

The ethical basis for the Fund shall be promoted using the following three mechanisms:

• Exercise of ownership rights to promote long-term financial returns based on the United Nations Global Compact and the OECD Guidelines for Corporate Governance and for Multinational Enterprises

• Negative screening from the investment universe of companies which, themselves or through companies they control, produce weapons whose normal violates fundamental humanitarian principles

• Exclusion of companies from the investment universe where there is deemed to exist a considerable risk of contributing to:

  • Gross or systematic violations of human rights, such as murder, torture, deprivation of liberty, forced labour, the worst forms of child labour and other child exploitation

  • Gross violations of individual rights in war or conflict situations

  • Severe environmental degradation

  • Gross corruption

  • Other particularly serious violations of fundamental ethical norms.

5.3 Exercise of ownership rights

5.3.1

The primary objective of Norges Bank’s exercise of ownership rights for the Fund is to safeguard the Fund’s financial interests. The exercise of ownership rights shall be based on a long horizon for the Fund’s investments, and broad investment diversification in the markets that are included in the investment universe. The exercise of ownership rights shall primarily be based on the United Nations Global Compact and the OECD Guidelines for Corporate Governance and for Multinational Enterprises. Norges Bank’s internal guidelines for the exercise of ownership rights shall stipulate how these priniciples are to be integrated in the exercise of ownership rights.

5.3.2

Norges Bank shall report on its exercise of ownership rights in connection with its ordinary annual reporting. An account shall be provided of how the Bank has acted as owner representative – including including a description of the work to promote special interests relating to the long-term horizon and diversification of investments in accordance with section 5.3.1.

5.3.3

Norges Bank may delegate the exercise of ownership rights to external managers in accordance with these guidelines.

5.4 Negative screening and exclusion

5.4.1

The Ministry of Finance shall make decisions on negative screening and exclusion of companies from the investment universe based on the recommendations of the Fund’s Advisory Council on Ethics. The recommendations and decisions are to be made public. The ministry may in certain cases postpone the time of public disclosure if this is deemed necessary in order to ensure a financially sound implementation of the exclusion of the company concerned.

5.4.2

The Fund’s Advisory Council on Ethics shall be composed of five members. The Council shall have its own secretariat. The Council shall submit an annual report on its activities to the Ministry of Finance.

5.4.3

The Council shall issue recommendations at the request of the Ministry of Finance on whether an investment may be in violation of Norway’s obligations under international law.

5.4.4

The Council shall issue recommendations on negative screening of companies that:

• produce weapons that through their normal use violate fundamental humanitarian principles; or

• sell weapons or military materiel to states mentioned in Clause 3.2 of the supplementary guidelines for the management of the Fund.

The Council shall issue recommendations on the exclusion of companies from the investment universe because of acts or omissions that constitute an unacceptable risk of the Fund contributing to:

• serious or systematic human rights violations, such as murder, torture, deprivation of liberty, forced labour, the worst forms of child labour and other forms of child exploitation,

• serious violations of individuals" rights in situations of war or conflict,

• severe environmental damages,

• gross corruption; or

• other particularly serious violations of fundamental ethical norms.

The Council shall raise issues under this provision on its own initiative or at the request of the Ministry of Finance.

5.4.5

The Council shall gather the necessary information on an independent basis and ensure that a matter is elucidated as fully as possible before a recommendation concerning screening or exclusion from the investment universe is issued. The Council can request Norges Bank to provide information as to how specific companies are dealt with in the exercise of ownership rights. All enquiries to such companies shall be channelled through Norges Bank. If the Council is considering an exclusion recommendation, the draft recommendation, and the grounds for it, shall be submitted to the company for comment.

5.4.6

The Council shall review on a regular basis whether the grounds for exclusion still apply and can on receipt of new information recommend that the Ministry of Finance reverse the exclusion decision.

5.4.7

Norges Bank shall receive immediate notification of the decisions made by the Ministry of Finance in connection with the Council’s recommendations. The Ministry of Finance can request that Norges Bank inform the companies concerned of the decision taken by the Ministry of Finance and the reasons for the decision.

5.5 Exclusion of individual companies

The list of companies that are excluded from the investment universe of the Government Pension Fund – Global is available on the website of the Ministry of Finance.

Temporary guidelines - transition periodes

This item is excempt from the public domain

Management agreement between the Ministry of Finance and Norges Bank

The Ministry of Finance and Norges Bank entered into the following Management Agreement for the Government Pension Fund – Global on 12 February 2001. It was most recently amended on 22 December 2005:

1. The contents of the agreement etc.

The State, represented by the Ministry of Finance, has delegated responsibility for the operational management of the Government Pension Fund – Global (“the Fund”) to Norges Bank. The management of the Fund is subject to the Government Pension Fund Act (no. 36 of 20 December 2005), Regulations on the Government Pension Fund – Global and guidelines with supplementary provisions that have been or may be adopted by the Ministry of Finance. This Agreement, together with the Act and Regulations regulations mentioned, governs the relationship between the Ministry of Finance and Norges Bank in connection with the management of the Fund.

All communication referring to this agreement shall be in writing and shall be signed. Such communication shall be sent to Norges Bank Investment Management and to the Economic Policy Department of the Ministry of Finance.

2. Norges Bank’s obligations

2.1 Norges Bank’s responsibilities

Norges Bank shall manage the Fund in accordance with the law, the Regulations for Financial Management in the Government Administration, regulations and other decisions and guidelines that apply to the Fund (cf. Clauses 1 and 3.1). Matters of special importance shall be submitted to the Ministry of Finance.

Quarterly and annual reports on the management of the Fund which are issued by Norges Bank (see section 1 of the regulations), shall be certified by Central Bank Audit. Norges Bank shall without undue delay notify the Ministry of significant changes or expected significant changes in the value of the Fund. Norges Bank shall provide the Ministry of Finance with information as requested by the Ministry, including information in machine-readable form to companies that assist the Ministry in evaluating Norges Bank’s management of the Government Pension Fund – Global.

Norges Bank is liable to pay damages to the State for losses arising as a result of negligence or intent on the part of the Bank, external managers or external service providers with whom the Bank has entered into an agreement (see Clause 2.2 first paragraph of the Agreement).

2.2 Management of the Fund

Norges Bank may use external managers and external service providers in the management of the Fund. Such managers must have satisfactory internal Ethical Guidelines for their activity. Norges Bank is party to agreements with such service providers, and shall oversee their activity on behalf of the Fund.

The Ministry of Finance shall be informed of the choice of external service providers that are of major importance to management and of the grounds for the choice. The Ministry shall receive copies of the annexes relating to remuneration in new management agreements entered into by Norges Bank with external managers in connection with the management of the Fund. Remuneration to external managers shall be such that the Fund retains the major part of the increase in excess return. The Ministry of Finance may require Norges Bank to submit to the Ministry all contracts entered into in connection with the management of the Fund.

2.3 Amendments to regulations, guidelines etc.

At the request of the Ministry of Finance, Norges Bank shall provide the Ministry with advice regarding amendments to the framework conditions for management, including regulations, decisions and guidelines laid down by the Ministry. Norges Bank may also submit its own proposals for changes in the framework conditions if the Bank considers it appropriate.

2.4 Exclusion and screening of financial instruments

At the request of the Ministry of Finance or the Fund’s Advisory Council on Ethics, Norges Bank shall obtain information from specified issuers and give this information to the Council.

If the Ministry of Finance decides to exclude particular financial instruments from the investment universe of the Fund, Norges Bank shall normally be allowed a period of eight weeks in which to complete the sale of these instruments.

Norges Bank shall notify the Ministry of Finance when a sale has been completed. The Ministry of Finance shall consider whether to announce the assessments of the Council and the Ministry of Finance on a case-by-case basis (cf. the Royal Decree of 19 November 2004). If management considerations so indicate, the Ministry shall endeavour to postpone announcement until after it has been notified that a sale has been completed.

2.5 Information

Norges Bank shall, within the framework of the Freedom of Information Act and the Public Administration Act, and in accordance with further guidelines issued by the Ministry of Finance, provide information to the public concerning the performance of the management assignment.

3. The obligations of the Ministry of Finance

3.1 Regulations, guidelines, etc.

Norges Bank shall have the opportunity to express its view before any changes are made to regulations, decisions or guidelines on management, and shall be given reasonable notice to make changes in the portfolio.

3.2 Remuneration

Remuneration shall be in compliance with Annex 1 to this Agreement. Up to 1 December each year both parties may request changes in the method of calculating remuneration for the subsequent calendar year.

Remuneration shall be deducted from the Fund’s gross return before the net return is transferred to the Fund’s krone account on 31 December each year. Norges Bank shall submit its remuneration calculations to the Ministry of Finance as early as possible and no later than one week before finalising the accounts.

3.3 Crediting

The Ministry of Finance shall make any transfers of capital from the Treasury to the Fund’s krone account in Norges Bank. The deadline for notifying Norges Bank and the final krone amount to be credited shall be in accordance with the prevailing “Guidelines for rebalancing the Fund”.

3.4 Debiting

The Ministry of Finance shall notify Norges Bank in due time before making any deductions from the Fund to allow the Bank to make portfolio adjustments. The Ministry of Finance shall notify Norges Bank of the account to which the transfer is to be credited.

3.5 Tax issues

The Ministry of Finance shall contribute to providing the documentation necessary to clarify the tax position of the Fund’s investments abroad.

4. Amendments and termination

4.1 Amendments

The Agreement shall be amended when changes in laws or regulations, decisions or guidelines so indicate. This Agreement and the annex thereto shall not otherwise be amended without written approval from both parties.

4.2 Termination etc.

If neither party has given written notification by 31 December in a given year that the agreement is to be terminated as from 31 December of the following year, the agreement will continue to apply for a further year at a time until such notification is given.

The Ministry of Finance will lay down further rules and instructions regarding termination of the management assignment, including severance pay and other remuneration to Norges Bank in connection with the termination. Clause 3.1 shall apply to a corresponding extent.

Oslo, 22 December 2005

For the Ministry of Finance

For Norges Bank

Annex 1:

Remuneration for management of the Government Pension Fund – Global

The remuneration shall cover Norges Bank’s costs associated with management of the Fund. For 2008, however, costs over and above 10.0 basis points of the Fund’s average market value will not be covered. Calculation of the average amount shall be based on the market value of the Fund’s portfolio measured in Norwegian kroner at the start of each month in the calendar year. In addition to coverage of costs up to the upper limit, Norges Bank shall receive remuneration for performance-based fees to external managers.

Act No. 44 of 29 June 2007 relating to Folketrygdfondet

Section 1 Objective

By order of the Ministry, Folketrygdfondet shall manage, in its own name, the equivalent of the capital contribution of the Government Pension Fund – Norway; cf. section 2 of Act of 21 December 2005 relating to the Government Pension Fund. Folketrygdfondet shall also perform other management tasks assigned to it by the Ministry.

Section 2 Owner

The Government is the sole owner of Folketrygdfondet.

Section 3 Legal status

Folketrygdfondet is a separate legal entity.

Section 4 Statutes

Folketrygdfondet shall have statutes that are laid down by the Ministry.

Section 5 Registration in the Register of Business Enterprises

Folketrygdfondet shall be registered in the Register of Business Enterprises.

Section 6 Relationship with other legislation

The Public Administration Act does not apply to Folketrygdfondet. However, the Public Administration Act’s provisions concerning bias and duty of confidentiality apply to Folketrygdfondet’s representatives, employees, and others who provide services to or work for Folketrygdfondet. The duty of confidentiality does not apply in relation to the Ministry.

Folketrygdfondet is considered a public body under the Archives Act of 4 December 1992 No. 126, section 2, paragraph (g).

Section 7 Government equity contribution and liability

Upon the establishment of Folketrygdfondet, the Government shall make an equity contribution. The Ministry may determine changes in the contribution and the application of the profit thereof.

The Government is not liable for Folketrygdfondet’s obligations.

Section 8 The Executive Board

Folketrygdfondet shall have an Executive Board comprising nine members, who, together with their personal alternates, are to be appointed by the King for four years at a time, until the accounts have been closed for the fourth year after the appointment.

When discussing administrative matters, the Executive Board is to be supplemented by one additional member and one observer elected from amongst the employees.

Members and alternates may step down before the end of their term of appointment with reasonable prior notice to the Ministry.

Upon the resignation or death of a board member or alternate during the term of their appointment, a new member or alternate shall be appointed for the remaining term.

The King appoints the chairperson of the Executive Board. The Executive Board elects the vice chairperson from amongst its members.

Board members and alternates shall receive remuneration as stipulated by the Ministry.

Section 20-6 of the Companies Act is equally applicable to Folketrygdfondet.

Section 9 The management and supervisory responsibility of the Executive Board

The management of Folketrygdfondet falls within the scope of the Executive Board.

The Executive Board shall make sure the entity is properly organised. The Executive Board shall keep itself informed of Folketrygdfondet’s activities and is obliged to ensure that the operation, including accounts and asset management, is subject to adequate control.

The Executive Board shall supervise the administrative staff’s management of Folketrygdfondet and the operation in general.

Section 6-17 of the Companies Act is equally applicable to Folketrygdfondet.

Section 10 Managing director

The managing director of Folketrygdfondet is appointed by the Executive Board. The managing director’s remuneration and pension are determined by the Executive Board with notification to the Ministry.

The managing director is in charge of the daily running of Folketrygdfondet’s activities and shall observe the guidelines and instructions issued by the Executive Board.

Day-to-day management does not include matters of an unusual nature or of great importance.

The managing director shall ensure that Folketrygdfondet’s accounts comply with the requirements laid down in section 12 of this Act and that the asset management is adequately organized.

Section 6-17 of the Companies Act is equally applicable to the managing director of Folketrygdfondet.

Section 11 External representation

The Executive Board represents Folketrygdfondet externally and signs on its behalf.

The Executive Board may authorize board members or the managing director to sign on behalf of Folketrygdfondet. Such powers may be prescribed by the statutes, which may also limit the Executive Board’s authority to sign on behalf of Folketrygdfondet.

The managing director represents Folketrygdfondet externally in matters that fall within his or her mandate under section 10 of this Act.

In the case that anyone who represents Folketrygdfondet by acting on its behalf oversteps his authority, the transaction is not binding on Folketrygdfondet if the other contracting party realized or should have realized that the authority had been exceeded and that it would therefore be contrary to honesty to invoke the transaction.

Section 12 Annual accounts and annual report

Folketrygdfondet is required to prepare accounts under the Accounting Act and to keep books and records under the Bookkeeping Act. The Ministry’s regulations may supplement or deviate from the provisions in the Accounting Act with regard to Folketrygdfondet.

The annual accounts and annual report shall be approved by the Ministry and reported to the Storting.

Section 13 Auditing

Folketrygdfondet shall have an auditor elected by the Ministry. The Ministry may lay down auditing rules in the regulations.

The auditor’s remuneration shall be approved by the Ministry.

The Executive Board shall appoint Folketrygdfondet’s internal audit department. The Executive Board shall approve the resources and plans of the internal audit department on an annual basis. The internal audit department shall report to the Executive Board.

Section 14 Inspection by the Office of the Auditor General

The Office of the Auditor General supervises the management of Government interests and may carry out inspections of Folketrygdfondet under Act No. 21 of 7 May 2004 relating to the Office of the Auditor General and directives issued by the Storting.

Section 15 Supplementary provisions

The Ministry may establish regulations for Folketrygdfondet containing more detailed rules.

Section 16 Effective date and amendments to other Acts

The Act will enter into effect on the date determined by the King.

From the time the Act enters into effect, the following amendments will be made to other Acts:

The following amendments will be made to Act No. 14 of 26 March 1999 relating to Capital and Income Taxation (the Taxation Act):

Section 2-30, subsection (1), paragraph (e), no. 7, shall read:

7.Folketrygdfondet

Section 2-30, subsection (1), paragraph (f), shall read:

f. Folketrygdfondet

2. Section 7, second clause, of Act No. 123 of 21 December 2005 relating to the Government Pension Fund is repealed.

Section 17 Transitional provisions

The transfer of obligations associated with the administrative body Folketrygdfondet to the separate legal entity Folketrygdfondet releases the Government. Creditors and other rightful claimants cannot oppose the transfer or claim that the transfer constitutes a reason for cessation of the legal relationship.

Act No. 3 of 4 March 1983 relating to Civil Servants etc. (Civil Service Act), section 13, subsection 2-6, concerning the preferential right to other posts and severance pay, shall still be applicable to employees of the administrative body Folketrygdfondet who are dismissed on the grounds cited in the Civil Service Act, section 13, subsection 1, paragraphs (a), (b), and (c), and who were covered by these rules before the Act entered into effect. The preferential rights to other posts and severance pay pursuant to the previous clause expire three years after the Act has entered into effect.

Other transitional provisions are determined by the King.

Regulations relating to the management of the Government Pension Fund – Norway

Legal authority: Laid down by the Ministry of Finance on 7 November 2007 under and in pursuance of section 15 of Act No. 44 of 29 June 2007 relating to Folketrygdfondet.

Section 1 Management of the Government Pension Fund – Norway

Folketrygdfondet shall manage the Government Pension Fund – Norway (hereinafter referred to as the «Pension Fund») on behalf of the Ministry of Finance.

Section 2 Investment of the Pension Fund

The Pension Fund is a capital contribution to Folketrygdfondet. Folketrygdfondet shall reinvest, in its own name, this capital in financial instruments and cash deposits.

The Executive Board of Folketrygdfondet is responsible for ensuring that the Pension Fund’s capital is invested with a view to achieving the best possible return over time in Norwegian kroner within the framework of laws, regulations, and supplementary guidelines governing the management.

Section 3 Accounting return

The value of the Pension Fund shall be equivalent to the value of the portfolio of financial instruments and cash deposits. The book return on the portfolio, with the deduction of payments to Folketrygdfondet, is added to the capital as of 31 December each year.

Section 4 Investment universe

The Pension Fund shall be invested in an equity and fixed income portfolio according to the following distribution:

Equity instruments 50-70 pct.

Interest-bearing instruments 30-50 pct.

Equity instruments include shares, primary capital certificates, convertible bonds, and bonds with warrants for shares listed on a regulated market place. In the management of the equity and fixed income portfolio, financial instruments may be used, including derivatives. Folketrygdfondet may enter into sale and repurchase agreements relating to equity instruments and interest-bearing instruments whereby the purchaser of the instruments is obliged under the agreement to return these to the seller.

The portfolio of equity instruments shall be invested in equity instruments listed on a regulated market place in accordance with the following distribution:

Norway 80-90 pct.

Denmark, Finland, and Sweden 10-20 pct.

The fixed income portfolio shall be invested in interest-bearing instruments whose issuers are domiciled in Denmark, Finland, Sweden, and Norway, or have listed equity on regulated market places in these countries, according to the following distribution:

Norway 80-90 pct.

Denmark, Finland, and Sweden 10-20 pct.

Up to 2.5 pct. of the Pension Fund capital may be invested in Norwegian shares that have not been listed on a regulated market place if the company has applied for or has specifically planned to apply for a listing on such a market place.

Folketrygdfondet may retain shares in Norwegian companies that change their status to become foreign companies in connection with acquisitions, mergers etc.

The Ministry of Finance may decide to exclude companies from the investment universe of Folketrygdfondet.

Section 5 Benchmark portfolio and tracking error

The Ministry of Finance determines a benchmark portfolio for the Pension Fund.

The expected discrepancy between the return on the actual portfolio and that on the benchmark portfolio, measured by expected tracking error on an annualized basis must not exceed 3 percentage points. Foreign currency positions shall not be taken in the active management of the Pension Fund.

Section 6 Share ownership

Folketrygdfondet may hold up to 15 per cent of the share capital or the primary capital of one single company in Norway. Folketrygdfondet may hold up to 5 per cent of the share capital or the primary capital in one single company in Denmark, Finland, and Sweden. A company’s ownership of its own shares shall not be taken into account under this provision.

Section 7 Risk management

The Executive Board shall ensure that adequate risk management and control routines are adopted in the management of the Pension Fund.

Section 8 Exercise of ownership rights and ethics

The primary objective of Folketrygdfondet’s exercise of ownership rights is to safeguard the Pension Fund’s financial interests.

Folketrygdfondet shall have Ethical Guide­lines for the management of the Pension Fund.

Section 9 Annual and semi-annual reports

Folketrygdfondet shall prepare annual and semi-annuals reports on the management of the Pension Fund.

Section 10 Supplementary provisions

The Ministry of Finance may prescribe more detailed provisions in order to supplement and implement the rules. In special cases, the Ministry of Finance may deviate from sections 4 – 6.

Section 11 Effective date

The Regulations enter into effect on 1 January 2008, repealing, from the same date, Regulations No. 1419 of 1 December 2006 relating to the Management of the Government Pension Fund – Norway.

Guidelines for the management of the Government Pension Fund – Norway

These guidelines provide supplementary provisions to the Act relating to the Government Pension Fund and Regulations relating to the Government Pension Fund – Norway («Regulations»).

Contents:

1. Benchmark portfolio and investment universe

2. Rebalancing of the benchmark portfolio

3. Requirements for valuation, return measurement, and risk management and control

4. Reporting

5. Exercise of ownership rights and ethics

6. Transitional provisions

1. Benchmark portfolio and investment universe – Sections 4-5 of the Regulations

1.1 Strategic benchmark portfolio – asset classes

The strategic benchmark portfolio consists of 40 pct. fixed income instruments and 60 pct. equity instruments.

1.2 Strategic benchmark portfolio for fixed income instruments

The strategic benchmark portfolio for fixed income instruments has the following composition:

• 85 pct. of the portfolio shall comprise Lehman Global Aggregate (LGA) Norway. This part of the benchmark portfolio may consist of loans issued in the following currencies: NOK, EUR, GBP, USD, SEK, and DKK. The benchmark portfolio shall include a private section and a government section with the following composition:

  • The government section of the index (Lehman Global Treasury Norway) shall be weighted at 30 pct. of total index value for LGA, measured at the end of each month (i.e. the date Lehman uses for index adjustments).

  • The private section of the index (Lehman Global Aggregate Norway) shall be weighted at 70 pct. of the total index value for LGA, measured at the end of each month (i.e. the date Lehman uses for index adjustments).

  This part of the benchmark portfolio shall be hedged against Norwegian kroner.

• 15 pct. of the portfolio shall consist of Lehman Global Aggregate Scandinavia (ex Norway). This section of the benchmark portfolio may include loans issued in the following currencies: DKK, SEK, EUR, GBP, and USD.

  This part of the benchmark portfolio shall not be hedged against Norwegian kroner.

At the end of each month the composition of the benchmark portfolio is altered according to the compositional changes carried out by the Lehman Brothers.

1.3 Strategic benchmark portfolio for equity instruments

The strategic benchmark portfolio for equity instruments has the following composition:

• 85 pct. of the portfolio shall consist of the Oslo Stock Exchange main index (OSEBX).

• 15 pct. of the portfolio shall comprise VINX Benchmark (CMVINXBXINN) dividend-adjusted for investors with a Norwegian tax position. Companies that are listed on the stock exchanges of Iceland and Norway are not included in the index basis. The company and regional distribution within the Nordic countries (ex Norway and Iceland) is established on the basis of the index supplier’s rules for the equity index VINX Benchmark. The benchmark portfolio shall not be hedged against Norwegian kroner.

1.4 Investment universe and market place

When a limited company included in the portfolio of the Government Pension Fund – Norway is delisted, Folketrygdfondet shall sell the shares within three months of the delisting of the company.

The rule of the first clause does not apply to Norwegian limited companies listed on the Oslo Stock Exchange that are subject to acquisitions, mergers, or similar.

2. Rebalancing of the benchmark portfolio – section 5 of the Regulations

This item is exempt from the public domain.

3. Requirements for valuation, return measurement, and risk management and control – sections 5 and 7 of the Regulations

Valuation, return measurement, and risk measurement, management and control shall comply with internationally recognized standards and methods. The Fund shall not be invested in markets, asset classes or instruments if the fulfilment of these requirements cannot be documented.

Folketrygdfondet shall establish principles for risk measurement and management, as well as for the company’s internal control. Moreover, Folketrygdfondet shall prescribe limits for market risk, credit risk, counterparty risk, currency risk, and operational risk. The limits shall be consistent with those given in laws, regulations, supplementary guidelines, and be based on best international practice.

A structure shall be established for delegating responsibility and reporting to the different parts of the organisation. This structure shall contribute to an effective division of work and a satisfactory division of responsibilities between controlling functions and the front office of the organisation. The structure shall reduce undesirable effects of potential conflicts of interest and ensure independence and control in the monitoring of the investment management.

3.1 Measurement and management of market risk

Principles shall be laid down concerning the measurement and management of the market risk of the Government Pension Fund – Norway. These principles shall be consistent with laws, regulations, supplementary guidelines, and best international practice.

The estimate of expected (ex ante) absolute volatility and tracking error shall be calculated using a system that models the market risk associated with the financial instruments in which the Fund invests. Best practice in the area shall be employed with regard to instrument modelling, measurement methods, decomposition, and measurement frequency. The market risk shall be measured so that it can be documented that the limit on relative risk in the Government Pension Fund – Norway is observed at all times.

The system shall aggregate risk across asset classes and financial instruments in a satisfactory manner. This implies that absolute and relative risk associated with the four asset classes (Norwegian and Nordic equities, and Norwegian and Nordic fixed income securities) shall be modelled in an integrated system and that the system shall treat similar instruments consistently.

The risk measurement system shall facilitate the decomposition of absolute and relative risk across relevant dimensions such as individual positions, portfolios, asset classes, instrument types, countries, and sectors.

The risk measurement system shall be flexible in the sense that the risk can be estimated by means of several methods, such as parametric methods, historical simulations, and Monte Carlo simulations. Furthermore, the system must be able to calculate absolute and relative VaR for random confidence intervals for the three methods, in addition to standard calculations of absolute volatility and tracking error.

The risk associated with the securities portfolios shall be calculated in such a way that the estimated risk of the Fund over time shall deviate as little as possible from the variations in actual absolute return and excess return. On a regular basis and at least once a month, Folketrygdfondet shall compare the risk predictions with actual return (backtest/validation).

Absolute and relative risk for the Fund and sub-portfolios shall be measured and reported to the Folketrygdfondet’s management at least once a week. The decomposition of absolute and relative risk shall be measured and reported to the Fund’s management at least once a month.

Documentation of the risk system’s structure shall be available (including flow chart showing the data flow), and procedures for the running of the system shall be drawn up. Moreover, a log shall be kept containing information on the number of positions in the portfolio, the number and types of uploaded positions to the risk measurement system, the number and types of positions that are imported to the system with errors, and the number and types of positions that are excluded from the risk measurement.

Folketrygdfondet shall inform the Ministry of Finance of the choice of system and of a possible later system change. The grounds for a change of risk measurement system shall be given. Furthermore, the Ministry of Finance shall be informed of the choices made by Folketrygdfondet (or determined by the system) with regard to a “calibration” of the system, including the length of historical time series that form the basis for estimating volatility, correlations, the return frequency in these series, the use of decay factors, and the risk prediction horizon.

In specific cases Folketrygdfondet may enter into financial contracts/derivatives that the risk measurement system does not handle in a satisfactory way. The scope of such contracts shall be limited, and a separate overview of the instruments shall be registered. This overview shall cover power of attorney to handle the instrument, number of signed contracts, permitted counterparties, estimated market value, description of method for market valuation, estimated risk, description of method for risk estimation, established risk limits, and accumulated loss/profit. The Ministry of Finance shall be informed of such contracting/instruments in follow-up meetings between the Ministry of Finance and Folketrygdfondet.

In cases where the system does not model the risk associated with the financial instrument, estimates of the risk associated with the instrument shall be aggregated to the risk associated with the modelled section of the portfolio. The aggregation shall be based on conservative estimates and methods so that it is more probable that the expected absolute volatility and tracking error is overestimated than underestimated. The aggregation method and underlying assumptions shall be documented.

At least once a year written evaluations of the Executive Board’s management of market risk shall be prepared. These shall be subject to discussion between the Executive Board and the management.

3.2 Measurement and management of credit risk

Principles shall be established for the measurement and management of credit risk associated with the bond portfolio of the Government Pension Fund – Norway. These principles shall be consistent with laws, regulations, supplementary guidelines, and best international practice.

Credit risk is associated with the probability that an issuer may go bankrupt or for other reasons not pay interest and principal when due. The least sophisticated systems for market risk measurement do not capture credit risk, whereas the more advanced systems measure the risk associated with variations in the difference between interest on corporate and government bonds (credit spread).

In this context credit risk is to be understood as the part of the credit risk associated with the bond portfolio, which is not detected by the market risk measurement system.

Credit risk shall either be measured using a portfolio credit risk system or a system designed for estimating default probabilities. Limits and authorizations shall be established in relation to the credit risk measurement system.

3.3 Measurement and management of counterparty risk

Principles shall be established for measuring and managing the counterparty risk of the Government Pension Fund – Norway. These principles shall be consistent with laws, regulations, supplementary guidelines, and best international practice.

Folketrygdfondet shall have satisfactory routines and systems for selecting and evaluating counterparties. Monitoring systems and measurement frequency for control of counterparty exposure and counterparty risk, including requirements for minimum credit rating and exposure limits, shall follow best practice in the area.

Counterparties for unsecured deposits, trading in unlisted derivatives, and other kinds of contracts that place a counterparty risk on Folketrygdfondet shall have a long-term credit rating of minimum A-/A3/A- from at least one of the three agencies: Fitch, Moody’s or Standard & Poor’s. Folketrygdfondet may place unsecured deposits and trade unlisted derivatives etc. with Norwegian counterparties that are not rated by any of the three agencies. In such cases Folketrygdfondet shall carry out a credit rating of the counterparty in question before unsecured deposits are made or unlisted derivatives are traded. The assessment shall be documented and be repeated regularly, at least once a year, and otherwise when incidents occur in the market in general or relating to the counterparty in particular that are relevant to the assessment of the counterparty’s ability to honour its obligations. No unsecured deposits shall be made, no unlisted derivatives trading or other kinds of contracts shall be entered into with a counterparty unless the result of Folketrygdfondet’s credit rating indicates that the credit risk associated with the counterparty is no bigger than the one implied by credit rating agencies’ requirements to enterprises that are given at least a A-/A3/A-rating. In specific cases Folketrygdfondet may grant exemptions from these minimum requirements to an existing central counterparty. If such exemption is granted, the Ministry of Finance shall be informed afterwards.

Folketrygdfondet must lay down such supplementary requirements on credit rating, provision of security, exposure limits, collateral handling, and netting arrangements as are appropriate in the operative management, and shall measure overall exposure to counterparties using internationally recognized methods that meet the necessary requirements as to verifiability and accuracy.

Foreign banks can be used as counterparties in currency trading, derivatives trading and when making bank deposits, provided the counterparty is legally domiciled in the USA, Great Britain, Denmark, Finland, France, Italy, Holland, Spain, Sweden or Germany.

Documentation shall be available of the system for estimating counterparty exposure and risk (including flow chart which shows the data flow), and procedures shall be prepared for the running of the system. It shall be documented that all relevant instruments and positions are included in the calculations of counterparty exposure and risk.

It is assumed that Folketrygdfondet informs the Ministry of Finance of the structure of the current system and of possible later changes to the system. Changes to the system for measuring counterparty risk and exposure shall be justified.

At least once a year written evaluations of the Executive Board’s management of counterparty risk shall be prepared. These shall be subject to discussion between the Executive Board and the management.

3.4 Measurement and management of currency risk

Principles shall be laid down for measuring and managing the currency risk in the Government Pension Fund – Norway. These principles shall be in line with laws, regulations, supplementary guidelines, and best international practice.

Folketrygdfondet shall not take explicit currency positions as part of the active management of the Government Pension Fund – Norway, neither relative to the Nordic benchmark sub-portfolios nor against Norwegian kroner.

As a result of the active management, the currency distribution in the actual portfolio may deviate from the currency distribution in the benchmark portfolio. In such cases Folketrygdfondet shall seek, through a practical approach, to neutralise the currency exposure.

Over time the Fund shall not be consistently over- or underweighted with regard to the currency weightings in the benchmark portfolio.

At least once a year written evaluations of the Executive Board’s management of currency risk shall be prepared. These shall be subject to discussion between the Executive Board and the management.

3.5 Measurement and management of operational risk

Principles shall be established for measuring and managing the operational risk of Folketrygdfondet.

The framework for operational risk management shall be established in accordance with laws, regulations, statutes and guidelines, as well as best international practice.

Folketrygdfondet shall define and delimit the meaning of the term operational risk. The definition shall at least include the following operational occurrences: 1) internal fraud, such as misreporting of positions, theft, and insider trading; 2) external fraud, such as robbery, forgery, and computer hacking; 3) misuse of confidential information, non-authorized transactions and purchase/sale of unauthorized instruments; 4) damage to physical assets as a result of terrorism, vandalism, fire, etc.; 5) discontinuity in running operations and system errors as a result of errors in hardware/software or telecommunications, power failures, etc.; and 6) entry of wrong data, insufficient quality assurance of data, inadequate collateral handling, incomplete legal documentation, disagreement with suppliers, etc.

Operational risk factors shall be identified, assessed according to probability and consequences, monitored and controlled/handled. Decisions not to close possible gaps between Folketrygdfondet’s practice and best practice in the area shall be documented and justified.

The operational risk shall be identified and documented as well as being measurable and controllable before new activities (such as the investment in new instruments, asset classes, counterparties, external service providers, IT systems etc.) are initiated.

At least once a year written evaluations of the Executive Board’s management of operational risk shall be prepared. These shall be subject to discussion between the Executive Board and the management.

3.6 Valuation and return measurement

Principles shall be established for pricing and performance measurement of various financial instruments.

Shares, bonds, and other financial instruments shall be accounted for by using market values.

The valuation shall occur daily and be based on market prices. In cases where there is no access to listed prices, Folketrygdfondet may obtain price estimates from market makers and brokers, and employ an average of these prices in the valuation of the portfolio. When neither stock exchange prices nor brokers’ estimates are available, the valuation may be based on recognized pricing models.

In cases where market prices cannot be observed, the method for establishing the market value of financial instruments shall be based on best practice, be verifiable, and express the fair value of the Fund’s assets at the time of the valuation.

Folketrygdfondet shall establish written procedures for the valuation of financial instruments. These procedures shall contain a pricing hierarchy for the different instrument types. The methodology that the different pricing models are based on shall be documented in writing and key assumptions shall be pointed out. There shall be consistency in the use of methodology and assumptions.

At least once a year written evaluations shall be prepared of the entity’s procedures for valuation of the portfolio market value and return. These shall be subject to discussion between the Executive Board and the management.

3.7 The entity’s internal control

Principles shall be laid down for the entity’s internal control, covering such factors as the division of responsibilities between the Executive Board, the management, and other controlling functions.

The internal control shall be established in accordance with laws, regulations, statutes and guidelines, as well as best international practice.

The Executive Board and the management shall make sure the internal control is carried out, monitored, and documented. Updated information shall be available regarding what control measures have been established with reference to instructions, authorizations, and work/procedural descriptions.

Before giving its internal approval to investments in new markets, instruments, and currencies, Folketrygdfondet shall go through a thorough process of describing how the Fund in each case will handle problems associated with valuation, performance measurement, risk management and control for investments in the individual market, instrument, and currency. The procedure shall include an assessment vis-à-vis the requirements presented in sections 3.1 to 3.6 of the Supplementary Guidelines. Such assessments shall be documented.

At least once a year written evaluations of the internal control system shall be prepared. Such evaluations shall be subject to discussion between the Executive Board and the management.

4. Reporting – section 9 of the Regulations

The annual reports prepared by Folketrygdfondet under section 9 of the Regulations shall include:

• Folketrygdfondet’s strategic plan and investment strategy for the Fund.

• A description of the key elements of the company’s internal control and risk management.

• A list of all significant external service suppliers, including a complete list of external managers.

• An account of the standards employed by Folketrygdfondet for the purpose of valuation (the accounts), performance measurement, as well as management, measurement, and control of identified risk factors (market risk, counterparty risk, and operational risk).

• A report on the Fund’s absolute and relative return measured in Norwegian kroner, monthly figures – in the aggregate and distributed across asset classes and the four sub-portfolios.

• A report on expenses associated with the Ministry of Finance’s decisions regarding changes in the Fund’s benchmark portfolio.

• A report on the Fund’s absolute and relative market risk (volatility, monthly figures – in the aggregate and distributed across asset classes and the four sub-portfolios).

• The composition of the fixed income portfolio by main categories of credit rating. Corresponding reporting for the fixed income benchmark portfolio.

• An overview of new instruments in which the portfolio has been invested.

• An overview of the Fund’s investments in relation to the quantitative provisions of the Regulations.

• A list of companies that are excluded from the investment universe.

• A report on the accounts in accordance with Folketrygdfondet’s accounting principles.

• A complete list of equity and bond holdings as of 31.12.

• An account of the distribution of operating expenses in Folketrygdfondet.

The semi-annual reports issued by Folketrygdfondet shall include:

• A report on the Fund’s absolute and relative return measured in Norwegian kroner – in the aggregate, across asset classes, and the four sub-portfolios. A description of important contributions to relative return.

• A report on the Fund’s absolute and relative market risk (volatility), monthly figures – in the aggregate and broken down by asset classes and the four sub-portfolios. A description of important contributions to relative risk.

• The composition of the fixed income portfolio by main categories of credit rating grade.

• An overview of the Fund’s investments in relation to the quantitative provisions of the Regulations.

• A list of companies that are excluded from the investment universe.

• A report on the accounts in accordance with Folketrygdfondet’s accounting principles.

5. Exercise of ownership rights and ethics – section 8 of the Regulations

5.1 Ethical foundations

The Ethical Guidelines for the management of the Government Pension Fund are based on two premises:

• The Government Pension Fund is owned by the Norwegian people and coming generations of Norwegians. This financial wealth must be managed with a view to a favourable return in the long term, which is contingent on sustainable development in economic, ecological, and social terms. The Fund’s financial interests shall be consolidated by using the Fund’s ownership positions to promote such sustainable development.

• The Government Pension Fund shall not make investments that constitute an unacceptable risk of the Fund contributing to unethical acts or omissions, such as violations of fundamental humanitarian principles, gross human rights violations, gross corruption, or serious environmental damage.

5.2 Mechanisms designed to integrate ethical considerations

The following mechanisms shall promote the Fund’s ethical foundations:

• The exercise of ownership rights to promote long-term financial gains based on the UN Global Compact, the OECD Principles of Corporate Governance, and the OECD Guidelines for Multinational Enterprises.

• Negative screening and exclusion of companies following decisions from the Ministry of Finance in accordance with provision 5.4.1.

5.3 Exercise of ownership rights

5.3.1

The primary objective of Folketrygdfondet’s exercise of ownership rights for the Government Pension Fund – Norway is to safeguard the Fund’s financial interests. The exercise of ownership rights shall be founded on the Fund’s long investment horizon. The exercise of ownership rights shall primarily be based on the UN Global Compact, the OECD Principles of Corporate Governance, and the OECD Guidelines for Multinational Enterprises, as well as the Norwegian Code of Practice for Corporate Governance. Folketrygdfondet’s internal guidelines shall outline how these principles are to be integrated in the exercise of ownership rights.

5.3.2

Folketrygdfondet shall report annually on its exercise of ownership rights in accordance with the Ministry’s guidelines for the exercise of ownership rights and ethics.

5.4 Negative screening and exclusion

5.4.1

If the Ministry of Finance, pursuant to the Ethical Guidelines for the Government Pension Fund – Global, point 4.1, makes a decision regarding negative screening or exclusion of a company that the Government Pension Fund – Global is invested in, the decision will have the same effect on the investment possibilities of the Government Pension Fund – Norway.

6. Transitional provisions to the Guidelines given in sections 1 – 5

This item is exempt from the public domain.

Management agreement between the Ministry of Finance and Folketrygdfondet

The Ministry of Finance and Folketrygdfondet have, on 17 December 2008, entered into the following agreement for the management of the Government Pension Fund – Global.

1. Background

Folketrygdfondet shall be in charge of the operational management of the Government Pension Fund – Norway (“Pension Fund”), cf. Act No. 44 of 29 June 2007 relating to Folketrygdfondet. The Pension Fund is a capital contribution to Folketrygdfondet that Folketrygdfondet shall reinvest, in its own name, in a separate portfolio of financial instruments and cash deposits in accordance with laws, regulations, and supplementary guidelines.

Together with the Act of 21 December 2005 relating to the Government Pension Fund, the Act of 29 June 2007 relating to Folketrygdfondet, and Regulations for the Government Pension Fund – Norway including Supplementary Guidelines and Provisions, this agreement governs the relationship between the Ministry of Finance and Folketrygdfondet with regard to the management of the Pension Fund.

2. The Pension Fund

2.1 Capital contribution

The Pension Fund is invested as a capital contribution (liability, not equity) in Folketrygdfondet.

At all times the value of the Pension Fund is set as equal to the value of Folketrygdfondet’s separate portfolio of financial instruments and cash deposits.

2.2 Return

The Pension Fund’s return is equal to the return on Folketrygdfondet’s separate investments. The return on the investments is continually added to the Pension Fund. The remuneration to Folketrygdfondet may be deducted from the Pension Fund’s return according to clause 4.1 of the agreement.

3. Folketrygdfondet’s obligations

3.1 Management of the Pension Fund

Folketrygdfondet is required to manage the Pension Fund in accordance with this agreement and within the framework established by or pursuant to the laws, regulations, statutes, and supplementary guidelines for the management of the Pension Fund.

3.2 Information requirement

Folketrygdfondet has a duty to give the Ministry of Finance the information it requests, including information in digitally legible form to the Ministry of Finance and its external service providers. Folketrygdfondet shall give the Ministry of Finance information as specified in Appendix 1 to this agreement.

Folketrygdfondet shall immediately notify the Ministry of Finance if particular circumstances have resulted in, or are expected to result in, significant changes in the value of the Pension Fund.

Folketrygdfondet shall through annual and semi-annual reports inform the public of the execution of the management assignment. More detailed requirements relating to these reports are given in the Supplementary Guidelines.

3.3 Use of external managers etc.

In the management of the Pension Fund, Folketrygdfondet may only use external managers and other external service providers (outsourcing) in accordance with the provisions of this agreement.

In the case of outsourcing, Folketrygdfondet maintains the full responsibility towards the Ministry of Finance for meeting Folketrygdfondet’s obligations under this agreement.

In the case of outsourcing, Folketrygdfondet has a duty to:

1. ensure that the internal control and the ability to monitor compliance with the obligations under this agreement are not impaired or impeded;

2. ensure that the service provider has the necessary competence, capacity, and the licences required to perform the tasks in question;

3. ensure that the service provider supervises the outsourced functions and handles the risk associated with the task;

4. at all times have competence, resources, and adequate procedures to continuously monitor the service provider, ensure that outsourced tasks are satisfactorily performed, and handle the risk associated with the outsourced activities;

5. take sufficient measures if the service provider does not perform the task in accordance with the rules laid down in laws and regulations or if the performance is otherwise unsatisfactory;

6. ensure that the service provider notifies Folketrygdfondet of changes or occurrences that may noticeably influence the service provider’s possibility to perform its tasks;

7. ensure that the outsourcing contract can be terminated by Folketrygdfondet without influencing the continuity and the quality of Folketrygdfondet’s services;

8. ensure that Folketrygdfondet and the service provider have a contingency plan for continued activity in case of possible unexpected incidents and that regular tests of the service provider’s procedures for back-up copies are performed if this is relevant for the outsourced activity;

9. ensure that Folketrygdfondet and the auditor have actual access to information related to the outsourced activity and to the service provider’s premises;

10. ensure that the service provider treats confidential information relating to Folketrygdfondet in a satisfactory manner.

The first time external managers and other external service providers of significance for the management of the Pension Fund are selected, the Ministry of Finance shall be informed of the process and the criteria that form the basis for this, including the choice of suppliers relating to the implementation of new management systems, and later significant changes in such procedures for the selection of external managers and other external service providers. The Ministry of Finance shall also be informed of other changes in the procedures for the selection of external managers and other external service providers. The Ministry of Finance shall be informed of the remuneration model used in the management contracts that Folketrygdfondet signs with external managers in connection with the management of the Pension Fund.

3.4 Consultation etc.

At the request of the Ministry of Finance, Folketrygdfondet shall give the Ministry of Finance advice on changes to the management framework. Folketrygdfondet may also on its own initiative give input to the Ministry of Finance regarding the management framework.

3.5 Exclusion and negative screening of individual financial instruments

If the Ministry of Finance makes decisions regarding the exclusion of companies under sections 4 and 8 in the Regulations relating to the Management of the Government Pension Fund – Norway, Folketrygdfondet shall normally be given a time limit of eight weeks to carry out a possible sell-off.

Folketrygdfondet shall notify the Ministry of Finance once the sale has been concluded.

4. The Ministry of Finance’s obligations

4.1 Remuneration

The Ministry of Finance shall remunerate Folketrygdfondet for the management of the Pension Fund. The remuneration shall be in accordance with Appendix 2 to this agreement. Until 1 December each year both parties may request that the method for calculating the remuneration be renegotiated for the following calendar year.

The remuneration is to be deducted from the Pension Fund’s gross return in accordance with Appendix 2.

4.2 Tax position

The Ministry of Finance shall contribute to present the necessary documentation in order to clarify the tax position of Pension Fund investments abroad.

4.3 Regulations, guidelines, etc.

Folketrygdfondet shall have the opportunity to present its opinion before amendments are made to the regulations, decisions or guidelines pertaining to the management and shall receive reasonable prior notice in order to make possible changes to the portfolio.

5. Changes and limitations to the management assignment in particular cases

In so far as it is deemed necessary and suitable in order to prevent or mitigate loss or risk of loss, whether this is owing to a breach on the part of Folketrygdfondet or other factors, the Ministry of Finance may impose the following changes and/or limitations on the mandate given to Folketrygdfondet under this agreement:

1. restrictions relating to holdings and/or acquisitions of certain types of financial instruments, or instruments within specific sectors or from specific countries or market places;

2. extended reporting requirements and/or reporting formats on a temporary or permanent basis; or

3. other such measures that remedy the loss or the risk of loss that has been detected.

Changes that have been determined pursuant to this provision shall enter into force from the date established by the Ministry of Finance.

6. Liability for damages

Folketrygdfondet is liable to pay compensation for losses inflicted on the government as a result of involuntary or intentional breaches of the provisions of this agreement. This applies equally to actions committed by Folketrygdfondet’s employees, as well as external managers and other service providers that the Folketrygdfondet makes use of, cf. clause 3.3, regardless of whether such actions constitute a breach of the contractual duties to which the one who commits the action is subject.

7. Effective date etc.

7.1 Effective date

This agreement enters into effect 1.1. 2009.

7.2 Amendments

The agreement shall be amended when changes in laws and regulations so indicate. This agreement and its appendices cannot be amended without written consent from both parties.

The Ministry of Finance gives more detailed rules and instructions regarding termination of the management assignment, including severance pay and other remuneration to Folketrygdfondet in connection with the termination. Clause 3.4 shall apply to a corresponding extent.

8. Communication

All communication referring to this agreement shall be in writing and signed. Such communication shall be forwarded to Folketrygdfondet c/o Managing Director and to the Asset Management Division of the Ministry of Finance.

This agreement is issued in 2-two copies, of which both parties retain one copy each.

Oslo, 17 December 2008

On behalf of the Ministry of Finance On behalf of Folketrygdfondet

Tore Eriksen, Secretary General, Olaug Svarva, Managing Director

Appendix 1 Reporting to the Ministry of Finance

This item is exempt due to space limitations.

Appendix 2

Remuneration for the management of the Government Pension Fund – Norway

The remuneration shall cover the expenses incurred by Folketrygdfondet relating to the management of the Fund. For 2009 the running expenses (excl. depreciations) for the management of the Fund will be covered at up to NOK 100 mill. Additionally, investments are covered within a total limit of NOK 9,5 mill.

Both parties may request a renegotiation of the management fee for 2009 until 31 August 2009, provided a significant increase or decrease in consumption is expected with regard to the conditions forming the basis for the stipulation of the management fee for 2009 in accordance with the above paragraph.