CI Investments Inc.

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- relief granted from section 2.9.1 of NI 81-102 to permit fund to use Absolute Value at Risk (Absolute VaR) measurement for leverage exposure -- relief granted from sections 15.3, 15.6 and 15.8 of NI 81-102 to permit use of performance data from prior to becoming a reporting issuer in sales communications -- relief granted from section 15.1.1 to permit use of similar performance data for use in calculating risk rating -- relief also granted from section 2.1 of NI 81-101 to disclose this risk rating in the prospectus and fund facts and relief granted from section 4.4 of NI 81-106 to use this past performance data in MRFPs -- relief needed to facilitate top fund's strategy to clone the performance of underlying fund which was previously granted the same relief -- relief will permit top fund to use and disclose underlying fund's Absolute VaR and past performance data in its own disclosure documents.

Applicable Legislative Provisions

National Instrument 81-102 Investment Funds, ss. 2.9.1, 15.3(2), 15.6(1)(a)(i), 15.6(1)(d), 15.8(2)(a.1) and (3)(a.1), 15.1.1(a) and 19.1.

National Instrument 81-101 Mutual Fund Prospectus Disclosure, ss. 2.1 and 6.1.

Form 81-101F1 Contents of Simplified Prospectus, Item 10(b).

Form 81-101F3 Contents of Fund Facts Document, Item 4.2(a).

National Instrument 81-106 Investment Fund Continuous Disclosure, ss. 4.4 and 17.1.

Form 81-106F1 Contents of Annual and Interim Management Report on Fund Performance, Items 3.7(1), 4.1(1), 4.1(2), 4.2(1), 4.3(1) and 4.3(2) of Part B, Items 3(1) and 4 of Part C.

January 30, 2024

IN THE MATTER OF
THE SECURITIES LEGISLATION OF ONTARIO
(the Jurisdiction)

AND

IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS
IN MULTIPLE JURISDICTIONS

AND
IN THE MATTER OF CI INVESTMENTS INC.
(the Filer)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction (the Legislation) to grant the Filer, and the CI Auspice Alternative Diversified Corporate Class (the Top Fund), exemptive relief from:

Leverage Relief

(a) the requirements of:

(i) section 2.9.1 of National Instrument 81-102 Investment Funds (NI 81-102), which limits an alternative mutual fund's aggregate exposure to cash borrowing, short selling and specified derivatives transactions to 300% of the fund's net asset value; and

(ii) Item 4 and Instruction (4) of Part B of Form 81-101F1 Contents of Simplified Prospectus (Form 81-101F1) and Item 3 of Part I of Form 81-101F3 Contents of Fund Facts Document (Form 81-101F3), which all require an alternative mutual fund to disclose its maximum aggregate exposure to leverage as calculated pursuant to Section 2.9.1 of NI 81-102

(collectively, the Leverage Relief); and

Performance Relief

(b) the requirements of:

(i) subsection 15.3(2), paragraph 15.3(4)(c), subparagraph 15.6(1)(a)(i), and paragraphs 15.6(1)(d), 15.8(2)(a.1) and 15.8(3)(a.1) of NI 81-102, to permit the Top Fund to include the past performance data of the Auspice Diversified Trust (theUnderlying Fund) in its sales communications notwithstanding that the past performance data will relate to a period prior to the Underlying Fund offering its units under a simplified prospectus (the past performance data);

(ii) paragraph 15.1.1(a) of NI 81-102 and items 2 and 4 of Appendix F Investment Risk Classification Methodology to NI 81-102 (the Risk Classification Methodology) to permit the Top Fund to include the past performance data of the Underlying Fund in determining the Top Fund's investment risk level in accordance with the Risk Classification Methodology;

(iii) paragraph 15.1.1(b) of NI 81-102, and item 4(2)(a) and instruction (1) of item 4 of Form 81-101F3, to permit the Top Fund to disclose its investment risk level as determined by including the past performance data of the Underlying Fund in accordance with the Risk Classification Methodology;

(iv) Item 10(b) of Part B of Form 81-101F1, to permit the Top Fund to use the past performance data of the Underlying Fund to calculate its investment risk rating in the Top Fund's simplified prospectus;

(v) Items 5(2), 5(3) and 5(4) and instruction (1) of Part I of Form 81-101F3 in respect of the requirement to comply with subsection 15.3(2), paragraph 15.3(4)(c), subparagraph 15.6(1)(a)(i), and paragraphs 15.6(1)(d), 15.8(2)(a.1) and 15.8(3)(a.1) of NI 81-102, to permit the Top Fund to include in its fund facts document the past performance data of the Underlying Fund notwithstanding that such performance data relates to a period prior to the Underlying Fund offering its units under a simplified prospectus, and that the Underlying Fund has not distributed its units under a simplified prospectus for 12 consecutive months;

(vi) section 2.1 of National Instrument 81-101 Mutual Fund Prospectus Disclosure (NI 81-101) for the purposes of the relief requested from Form 81-101F1 and Form 81-101F3;

(vii) Items 3.1(7), 4.1(1) (in respect of the requirement to comply with subsection 15.3(2)) and paragraph 15.3(4)(c) of NI 81-102, items 4.1(2), 4.2(1), 4.3(1) and 4.3(2) of Part B of Form 81-106F1 Contents of Annual and Interim Management Report of Fund Performance (Form 81-106F1), and items 3(1) and 4 of Part C of Form 81-106F1 to permit the Top Fund to include in its annual and interim management reports of fund performance (MRFP) the past performance data and financial highlights of the Underlying Fund notwithstanding that such performance data and financial highlights relate to a period prior to the Underlying Fund offering its units under a simplified prospectus; and

(viii) section 4.4 of National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106) for the purposes of relief requested herein from Form 81-106F1

(collectively, the Performance Relief and together with the Leverage Relief, the Exemption Sought).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions,

(a) the Ontario Securities Commission (the OSC) is the principal regulator for this application; and

(b) the Filer has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each of the other jurisdictions of Canada, (collectively with the Jurisdiction, the Jurisdictions).

Interpretation

Terms defined in National Instrument 14-101 Definitions, MI 11-102, NI 81-101, NI 81-102, and NI 81-106 have the same meaning if used in this decision, unless otherwise defined.

Facts

The following information has been provided to us by the Filer:

The Filer

1. The Filer is a corporation amalgamated under the laws of the Province of Ontario with its head office located in Toronto, Ontario.

2. The Filer is registered as

(a) an investment fund manager in Ontario, Québec and Newfoundland and Labrador;

(b) a portfolio manager and exempt market dealer in all of the Jurisdictions; and

(c) a commodity trading counsel and commodity trading manager in Ontario.

3. The Filer will be the investment fund manager and portfolio manager of the Top Fund.

4. The Filer has also retained the services of Auspice Capital Advisors Ltd. (the Sub-Adviser) as the sub-adviser to the Top Fund.

5. The Filer is not in default of securities legislation in any of the Jurisdictions.

Top Fund

6. The Top Fund will be an "alternative mutual fund" as defined in NI 81-102. The Top Fund's securities will be distributed pursuant to a simplified prospectus and Fund Facts (the Disclosure Documents) prepared in accordance with NI 81-101 and will be a reporting issuer subject to NI 81-102.

7. The Top Fund will be established as classes of shares of a mutual fund corporation and will be governed by the laws of Ontario.

8. The investment objective of the Top Fund is to generate returns on investment in, trading in or exposure to commodity and financial interests. Using a disciplined rules-based investment process, the Top Fund intends on capturing dominant trends both long and short, and that are agnostic to market direction and popular consensus. Risk management and capital allocation will be systematic to preserve capital as part of the Top Fund's investment strategy in addition to its core objective of providing returns that are non-correlated to traditional equity, fixed income and most alternative strategies. A core goal of the Top Fund is to provide performance and crisis alpha in times of significant equity correction.

9. To achieve its investment objective, the Top Fund will invest substantially all of its assets in units of the Underlying Fund. The remainder of the Top Fund's portfolio will be liquid, comprised of cash and cash equivalents.

The Underlying Fund

10. The Underlying Fund is a mutual fund that was established under the laws of Alberta in June 2009.

11. The Underlying Fund became a reporting issuer distributing its securities under a simplified prospectus dated February 28, 2023 and prepared in accordance with NI 81-101. The Underlying Fund operates as an "alternative mutual fund" as defined in NI 81-102 and is subject to that Instrument.

12. The Sub-Advisor is the investment fund manager and portfolio manager of the Underlying Fund.

13. The investment objective of the Underlying Fund is to generate returns on investment in, trading in or exposure to commodity and financial interests. Using a disciplined rules-based investment process, the Underlying Fund captures dominant trends long and short, agnostic to market direction and popular consensus. Risk management and capital allocation is systematic to preserve capital as the strategy's core objective along with providing returns that are non-correlated to traditional equity, fixed income and most alternative strategies. A core goal of the Underlying Fund is to provide performance and crisis alpha in times of significant equity correction.

Leverage Relief

14. The Sub-Adviser uses a rules-based investment process to allocate capital and provide disciplined risk management to the Underlying Fund. Sector allocation parameters ensure risk diversification and all positions held by the Underlying Fund have stringent risk management parameters. The strategy employed by the Sub-Adviser for the Underlying Fund is indiscriminately long or short, and able to capture trends in both up and down markets. This typically results in returns that have a low correlation to traditional equity, fixed income, and real estate investments.

15. The Sub-Adviser uses multiple strategies over multiple timeframes to participate in and capture trends. These strategies derive returns by adapting organically to changes in volatility resulting in a greater efficiency in capturing the trends in each individual market. The result is a more efficient use of capital and a low margin to equity ratio. Robustness, capital preservation and risk management are the highest priorities.

16. The Sub-Adviser and the Underlying Fund were granted exemptive relief similar to the Leverage Relief under a decision dated February 23, 2023 (the Auspice Decision) under which the Underlying Fund may use leverage through the use of cash borrowings, short sales and derivatives that does not have to comply with Section 2.9.1 of NI 81-102. The Leverage Relief under the Auspice Decision permits the Underlying Fund to instead manage its portfolio risk in such a manner as to keep the absolute value-at-risk (Absolute VaR) of the Underlying Fund under 20% of its net asset value, as set out in Appendix A.

17. The current regulatory framework in Section 2.9.1 of NI 81-102 does not appropriately or adequately address the uniqueness of the investment strategies that the Filer indirectly wants to use for the Top Fund by investing substantially all of the assets of the Top Fund in the Underlying Fund.

18. When dealing with a fund that is managed using a multi-asset approach like the Sub-Adviser does for the Underlying Fund, an Absolute VaR based approach is a better means of managing risk because, unlike notional amounts which do not measure risk or volatility, Absolute VaR enables risk to be measured in a reasonably comparable and consistent manner.

19. The Sub-Adviser has employed an Absolute VaR based risk management for its funds, including the Underlying Fund, for several years that are consistent with both the U.S. Securities and Exchange Commission Rule 18f-4 under the Investment Company Act of 1940, and the new regulation of mutual funds that the European Union adopted in 2010 which introduced an Absolute VaR based approach to regulatory risk management for investment funds that extensively use derivatives. Since the Sub-Adviser's inception, it has been using volatility-based risk measures as its primary risk metric.

20. The Leverage Relief will also allow the Top Fund to invest in the Underlying Fund and to effectively track the investment strategy that is being implemented by the Underlying Fund.

21. With minor exceptions, the Underlying Fund has consistently operated well below a 20% Absolute VaR limit since its inception.

Performance Relief

22. Upon the issuance of a final receipt for the Disclosure Documents of the Top Fund, the Top Fund will become a reporting issuer in the Jurisdictions and will become subject to the requirements of NI 81-102 that relate to alternative mutual funds and the requirements of NI 81-106 that apply to investment funds that are reporting issuers.

23. The Underlying Fund is managed on the same basis as it was during the period before it became a reporting issuer. The investment objective, fees and day-to-day administration of the Underlying Fund did not change when the Underlying Fund became a reporting issuer.

24. Except as set out herein, the Underlying Fund has complied with the investment restrictions and practices contained in NI 81-102 since inception.

25. The Filer proposes to use the Underlying Fund's past performance data to determine its investment risk level and to disclose that investment risk level in the Disclosure Documents for each class of shares of the Top Fund. Without the Performance Relief, the Filer, in determining and disclosing the Top Fund's investment risk level in the Disclosure Documents for each class of shares of the Top Fund, cannot use performance data of the Underlying Fund that relates to a period prior to and after the Underlying Fund became a reporting issuer.

26. The Filer proposes to include in the fund facts documents for each class of shares of the Top Fund past performance data in the charts required by items 5(2), 5(3) and 5(4) of Form 81-101F3 under the sub-headings "Year-by-year returns", "Best and worst 3-month returns" and "Average return", respectively, related to periods prior to and after the Underlying Fund became a reporting issuer in the Jurisdictions. Without the Exemption Sought, the fund facts document of the Top Fund cannot include performance data of the Underlying Fund that relates to a period prior to and after the Underlying Fund became a reporting issuer.

27. As a reporting issuer, the Top Fund is required under NI 81-106 to prepare and send MRFPs to all holders of its securities on an annual and interim basis. Without the Exemption Sought, the MRFPs of the Top Fund cannot include financial highlights and performance data of the Underlying Fund that relates to a period prior to and after the Underlying Fund became a reporting issuer.

28. It is important from a marketing and administrative perspective for the Top Fund to be able to refer to the performance of the Underlying Fund before and after the Underlying Fund became a reporting issuer so that the Top Fund can use such performance data in calculating its risk rating, in its sales communications, and in its MRFPs.

29. The Underlying Fund also obtained performance relief under the Auspice Decision that is similar to the Performance Relief being sought by the Top Fund.

30. The Filer believes that allowing the Top Fund to invest in the Underlying Fund is a more efficient and cost effective means of allowing the Top Fund to achieve its investment objective and to gain exposure to the investment strategy that it wants to offer to its investors.

31. Except for the Exemption Sought, the Top Fund will otherwise comply with the requirements for alternative mutual funds under NI 81-102.

Decision

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

Leverage Relief

1. The decision of the principal regulator under the Legislation is that the Leverage Relief is granted, provided that:

(a) Both the Filer and the Top Fund will indirectly comply with the Absolute VaR test, as defined in Appendix A;

(b) the Filer discloses in the Top Fund's simplified prospectus and fund facts document the maximum Absolute VaR that the Top Fund is indirectly permitted to incur, and the Filer discloses in the annual and interim MRFPs of the Top Fund the maximum amount of Absolute VaR indirectly incurred by the Top Fund over the applicable period;

(c) the Filer does not change the Absolute VaR model that it is using with respect to the Top Fund;

(d) the Filer notifies the OSC within one business day of being advised by the Sub-Adviser that the Underlying Fund is offside the 20% Absolute VaR test for more than five consecutive business days, as required by its sub-advisory agreement with the Sub-Adviser (the Sub-Advisory Agreement); and

(e) the Filer promptly (e.g., within 24 hours) provides the OSC with any other information that the OSC may request regarding the Top Fund's investment in the Underlying Fund and the inter-month calculations and risk metrics that the Underlying Fund is using, which the Sub-Adviser has agreed to provide to the Filer pursuant to the terms of the Sub-Advisory Agreement; and

(f) the Filer appropriately documents its risk methodology for the Top Fund in accordance with the requirements of the Risk Classification Methodology.

Performance Relief

2. The decision of the principal regulator under the Legislation is that the Performance Relief is granted, provided that

(a) any sales communication, fund facts documents and MRFP of the Top Fund that contains performance data of the units of the Underlying Fund relating to a period of time prior to and after the Underlying Fund became a reporting issuer discloses that:

(i) the performance data provided relates to the past performance of the Underlying Fund;

(ii) the Underlying Fund was not a reporting issuer during such period;

(iii) the expenses of the Underlying Fund would have been higher during such period had the Underlying Fund been subject to the additional regulatory requirements applicable to a reporting issuer;

(iv) the Filer obtained exemptive relief on behalf of the Top Fund to permit the disclosure of performance data of the units of the Underlying Fund relating to a period prior to and after the Underlying Fund became a reporting issuer; and

(v) with respect to any MRFP, the financial statements of the Top Fund for such period are posted on the Filer's website and are available to investors upon request; and

(b) the Filer posts the financial statements of the Top Fund on the Filer's designated website and delivers those financial statements to investors upon request.

Expiration

3. This decision expires on February 22, 2027.

Application File #: 2023/0604

SEDAR File #: #6059831

APPENDIX A

ADDITIONAL LEVERAGE CONDITIONS

In these conditions,

"absolute VaR test" means that the VaR of a fund's portfolio does not exceed 20% of the value of the fund's net assets;

"board", with respect to a fund, means the fund manager's board of directors;

"derivatives risk manager" means an officer or officers of the fund's investment adviser responsible for administering the program and policies and procedures required by condition 1 below, provided that the derivatives risk manager:

(1) may not be a portfolio manager of the fund, or if multiple officers serve as derivatives risk manager, a majority of the derivatives risk managers must not be portfolio managers of the fund; and

(2) must have relevant experience regarding the management of derivatives risk;

"derivatives risks" means the risks associated with a fund's derivatives transactions or its use of derivatives transactions, including leverage, market, counterparty, liquidity, operational, and legal risks and any other risks the derivatives risk manager deems material;

"derivatives transaction" means

(1) any swap, security-based swap, futures contract, forward contract, option, any combination of the foregoing, or any similar instrument, under which a fund is or may be required to make any payment or delivery of cash or other assets during the life of the instrument or at maturity or early termination, whether as margin or settlement payment or otherwise; and

(2) any short sale borrowing.

"designated index" means an unleveraged index that is approved by the derivatives risk manager for purposes of the relative VaR test and that reflects the markets or asset classes in which the fund invests and is not administered by an organization that is an affiliated person of the fund, its investment adviser, or principal underwriter, or created at the request of the fund or its investment adviser, unless the index is widely recognized and used. In the case of a blended index, none of the indexes that compose the blended index may be administered by an organization that is an affiliated person of the fund, its investment adviser, or principal underwriter, or created at the request of the fund or its investment adviser, unless the index is widely recognized and used;

"designated reference portfolio" means a designated index or the fund's securities portfolio. Notwithstanding the first sentence of the definition of designated index in these conditions, if the fund's investment objective is to track the performance (including a leverage multiple or inverse multiple) of an unleveraged index, the fund must use that index as its designated reference portfolio;

"independent director" means a director who would be independent within the meaning of section 1.4 of National Instrument 52-110 Audit Committees;

"relative VaR test" means that the VaR of the fund's portfolio does not exceed 200% of the VaR of the designated reference portfolio;

"securities portfolio" means the fund's portfolio of securities and other investments, excluding any derivatives transactions, that is approved by the derivatives risk manager for purposes of the relative VaR test, provided that the fund's securities portfolio reflects the markets or asset classes in which the fund invests (i.e., the markets or asset classes in which the fund invests directly through securities and other investments and indirectly through derivatives transactions);

"value-at-risk" or "VaR" means an estimate of potential losses on an instrument or portfolio, expressed as a percentage of the value of the portfolio's assets (or net assets when computing a fund's VaR), over a specified time horizon and at a given confidence level, provided that any VaR model used by a fund for purposes of determining the fund's compliance with the relative VaR test or the absolute VaR test must:

(1) take into account and incorporate all significant, identifiable market risk factors associated with a fund's investments, including, as applicable:

(i) equity price risk, interest rate risk, credit spread risk, foreign currency risk and commodity price risk;

(ii) material risks arising from the nonlinear price characteristics of a fund's investments, including options and positions with embedded optionality; and

(iii) the sensitivity of the market value of the fund's investments to changes in volatility;

(2) use a 99% confidence level and a time horizon of 20 trading days; and

(3) be based on at least three years of historical market data.

Conditions

1. Derivatives risk management program. The fund must adopt and implement a written derivatives risk management program (program), which must include policies and procedures that are reasonably designed to manage the fund's derivatives risks and to reasonably segregate the functions associated with the program from the portfolio management of the fund. The program must include the following elements:

i. Risk identification and assessment. The program must provide for the identification and assessment of the fund's derivatives risks. This assessment must take into account the fund's derivatives transactions and other investments.

ii. Risk guidelines. The program must provide for the establishment, maintenance, and enforcement of investment, risk management, or related guidelines that provide for quantitative or otherwise measurable criteria, metrics, or thresholds of the fund's derivatives risks. These guidelines must specify levels of the given criterion, metric, or threshold that the fund does not normally expect to exceed, and measures to be taken if they are exceeded.

iii. Stress testing. The program must provide for stress testing to evaluate potential losses to the fund's portfolio in response to extreme but plausible market changes or changes in market risk factors that would have a significant adverse effect on the fund's portfolio, taking into account correlations of market risk factors and resulting payments to derivatives counterparties. The frequency with which the stress testing under this paragraph is conducted must take into account the fund's strategy and investments and current market conditions, provided that these stress tests must be conducted no less frequently than weekly.

iv. Backtesting. The program must provide for backtesting to be conducted no less frequently than weekly, of the results of the VaR calculation model used by the fund in connection with the relative VaR test or the absolute VaR test by comparing the fund's gain or loss that occurred on each business day during the backtesting period with the corresponding VaR calculation for that day, estimated over a one-trading day time horizon, and identifying as an exception any instance in which the fund experiences a loss exceeding the corresponding VaR calculation's estimated loss.

v. Internal reporting and escalation --

A. Internal reporting. The program must identify the circumstances under which persons responsible for portfolio management will be informed regarding the operation of the program, including exceedances of the guidelines specified in paragraph 1.ii. of these conditions and the results of the stress tests specified in paragraph 1.iii. of these conditions.

B. Escalation of material risks. The derivatives risk manager must inform in a timely manner persons responsible for portfolio management of the fund, and also directly inform the board as appropriate, of material risks arising from the fund's derivatives transactions, including risks identified by the fund's exceedance of a criterion, metric, or threshold provided for in the fund's risk guidelines established under paragraph 1.ii. of these conditions or by the stress testing described in paragraph 1.iii. of these conditions.

vi. Periodic review of the program. The derivatives risk manager must review the program at least annually to evaluate the program's effectiveness and to reflect changes in risk over time. The periodic review must include a review of the VaR calculation model used by the fund under condition 2 below (including the backtesting required by paragraph 1.iv. of these conditions) and any designated reference portfolio to evaluate whether it remains appropriate.

2. Limit on fund leverage risk.

i. The fund must comply with the relative VaR test unless the derivatives risk manager reasonably determines that a designated reference portfolio would not provide an appropriate reference portfolio for purposes of the relative VaR test, taking into account the fund's investments, investment objectives, and strategy. A fund that does not apply the relative VaR test must comply with the absolute VaR test.

ii. The fund must determine its compliance with the applicable VaR test at least once each business day. If the fund determines that it is not in compliance with the applicable VaR test, the fund must come back into compliance promptly after such determination, in a manner that is in the best interests of the fund and its securityholders.

iii. If the fund is not in compliance with the applicable VaR test within five business days,

A. The derivatives risk manager must provide a written report to the board and explain how and by when (i.e., number of business days) the derivatives risk manager reasonably expects that the fund will come back into compliance;

B. The derivatives risk manager must analyze the circumstances that caused the fund to be out of compliance for more than five business days and update any program elements as appropriate to address those circumstances; and

C. The derivatives risk manager must provide a written report within thirty calendar days of the exceedance to the board explaining how the fund came back into compliance and the results of the analysis and updates required under paragraph 2.iii.B. of these conditions. If the fund remains out of compliance with the applicable VaR test at that time, the derivatives risk manager's written report must update the report previously provided under paragraph 2.iii.A. of these conditions and the derivatives risk manager must update the board on the fund's progress in coming back into compliance at regularly scheduled intervals at a frequency determined by the board.

3. Board oversight and reporting --

i. Approval of the derivatives risk manager. The board, including a majority of independent directors of the fund manager, if any, must approve the designation of the derivatives risk manager.

ii. Reporting on program implementation and effectiveness.On or before the implementation of the program, and at least annually thereafter, the derivatives risk manager must provide to the board a written report providing a representation that the program is reasonably designed to manage the fund's derivatives risks and to incorporate the elements provided in paragraphs 1.i. through vi. of these conditions. The representation may be based on the derivatives risk manager's reasonable belief after due inquiry. The written report must include the basis for the representation along with such information as may be reasonably necessary to evaluate the adequacy of the fund's program and, for reports following the program's initial implementation, the effectiveness of its implementation. The written report also must include, as applicable, the derivatives risk manager's basis for the approval of any designated reference portfolio or any change in the designated reference portfolio during the period covered by the report; or an explanation of the basis for the derivatives risk manager's determination that a designated reference portfolio would not provide an appropriate reference portfolio for purposes of the relative VaR test.

iii. Regular board reporting. The derivatives risk manager must provide to the board, annually or at such other frequency determined by the board, a written report regarding the derivatives risk manager's analysis of exceedances described in paragraph 1.ii. of these conditions, the results of the stress testing conducted under paragraph 1.iii of these conditions, and the results of the backtesting conducted under paragraph 1.iv of these conditions since the last report to the board. Each report under this paragraph must include such information as may be reasonably necessary for the board to evaluate the fund's response to exceedances and the results of the fund's stress testing.

4. [Not applicable]

5. [Not applicable]

6. Recordkeeping --

i. Records to be maintained. A fund must maintain a written record documenting the following, as applicable:

A. The fund's written policies and procedures required by paragraph c.1. of these conditions, along with

1. The results of the fund's stress tests under paragraph 1.iii. of these conditions;

2. The results of the backtesting conducted under paragraph 1.iv. of these conditions;

3. Records documenting any internal reporting or escalation of material risks under paragraph 1.v.B. of these conditions; and

4. Records documenting the reviews conducted under paragraph 1.vi of these conditions.

B. Copies of any materials provided to the board in connection with its approval of the designation of the derivatives risk manager, any written reports provided to the board relating to the program, and any written reports provided to the board under paragraphs 2.iii.A. and C. of these conditions.

C. Any determination and/or action the fund made under paragraphs 2.i. and ii. of these conditions, including a fund's determination of: The VaR of its portfolio; the VaR of the fund's designated reference portfolio, as applicable; the fund's VaR ratio (the value of the VaR of the fund's portfolio divided by the VaR of the designated reference portfolio), as applicable; and any updates to any VaR calculation models used by the fund and the basis for any material changes thereto.

ii. Retention periods.

A. A fund must maintain a copy of the written policies and procedures that the fund adopted under condition 1. that are in effect, or at any time within the past seven years were in effect, in an easily accessible place.

B. A fund must maintain all records and materials that paragraphs 6.i.A.1. through 4. and 6.i.B. through D. of these conditions describe for a period of not less than seven years (the first two years in an easily accessible place) following each determination, action, or review that these paragraphs describe.