National Instrument 81-102 Investment Funds
Appendix F

Item 5 – Reference index

(1) For the purposes of Item 4(2), the mutual fund must select a reference index that reasonably approximates or, for a newly established mutual fund, is expected to reasonably approximate, the standard deviation of the mutual fund.

(2) When using a reference index, a mutual fund must

(a) monitor the reasonableness of the reference index on an annual basis or more frequently if necessary, and

(b) disclose in the mutual fund’s prospectus in Part B, Item 9.1 of Form 81-101F1 of National Instrument 81-101 Mutual Fund Prospectus Disclosure or Part B, Item 12.2 of Form 41- 101F2 of National Instrument 41-101 General Prospectus Requirements, as applicable,

(i) a brief description of the reference index, and

(ii) if the reference index has changed since the last disclosure under this item, details of when and why the change was made.

Instructions:

(1) A reference index must be made up of one permitted index or, where necessary, to more reasonably approximate the standard deviation of a mutual fund, a composite of several permitted indices.

(2) In selecting and monitoring the reasonableness of a reference index, a mutual fund must consider a number of factors, including whether the reference index

(a) contains a high proportion of the securities represented, or expected to be represented, in the mutual fund’s portfolio,

(b) has returns, or is expected to have returns, highly correlated to the returns of the mutual fund,

(c) has risk and return characteristics that are, or are expected to be, similar to the mutual fund,

(d) has its returns computed (total return, net of withholding taxes, etc.) on the same basis as the mutual fund’s returns,

(e) is consistent with the investment objectives and investment strategies in which the mutual fund is investing,

(f) has investable constituents and has security allocations that represent investable position sizes, for the mutual fund, and

(g) is denominated in, or converted into, the same currency as the mutual fund’s reported net asset value.

(3) In addition to the factors listed in Instruction (2), the mutual fund may consider other factors, if relevant to the specific characteristics of the mutual fund.

Commentary:

A mutual fund must consider each of the factors in (2), and may consider other factors, as appropriate, in selecting and monitoring the reasonableness of a reference index. However, a reference index that reasonably approximates, or is expected to reasonably approximate, the standard deviation of a mutual fund may not necessarily meet all of the factors in (2).