Fundata FUNDGrade™ - a unique and valuable tool which independently measures risk, return and consistency

Fundata is pleased to introduce a new rating system entitled " Fundata FUNDGrade™". The Fundata FUNDGrade™ is based upon independent measurements of risk, return, and consistency. All three measurement factors are independently calculated and weighted equally to create the overall score. This differs from many other rating systems which combine factors to create scores.

The Fundata FUNDGrade™ rating system ranks mutual funds from A (superior past performance) to E (poor past performance). Our rating system grades funds that are at least two years old into asset class categories, such as Canadian bond funds or International equity funds etc. Each month our ranking system shows the rating for each mutual fund based on its rate of return, its risk and its consistency of performance.

Rate of return, risk and consistency measures are based on a formula that gives more weight to recent returns than to more distant performance.

The funds are ranked based on return, risk and consistency criteria and are awarded scores as follows:

A - Superior past performance

B - Strong past performance

C - Average past performance

D - Sub-par past performance

E - Poor past performance

Funds are ranked against both their peers in their asset class category as well as against suitable benchmarks for the category. (For example, Canadian equity funds are measured against the TSE 300 Composite Index.) The benchmark for each fund group is that of the Investment Funds Standard Committee ("IFSC"). Currently, there are 33 categories in the IFSC universe.

To score an "A" grade, a fund must not only substantially outperform the category average - it must also beat the benchmark for the category. The percentage ranking for the benchmark will be used to divide the group. Subsequent divisions will then occur within those that outperformed the benchmark and those that under performed the benchmark. The A to E rating is assigned as follows:

The Fundata FUNDGrade™ ranking system has some particularly useful and differentiating features.

(i) Consistency measures used as well as return and variance

In addition to rate of return and risk, consistency of performance is given equal weight to that of return and variance. Funds that display relatively consistent performance are valuable for investors attempting to (i) build appropriate asset allocation portfolios, (ii) to preserve wealth and (iii) measure downside risk of the fund.

(ii) Dual comparative hurdles

The FUNDGrade™ model is based on performance relative to both the mutual fund asset class objective group average (peer group) and to the asset class objectives group benchmark. By ranking against both the asset class objectives group average and the benchmark, the categories that have overall relatively poor performance are appropriately downgraded. Accordingly, a fund needs to outperform both the group average and the benchmark to earn an above-average rating. This dual ranking means that you can avoid selecting funds from a pool of poor asset class objectives group past performers.

The rate of return, risk and factors are time weighted, using sum-of-the-years digit calculations. The use of time weighting means that more recent fund performance is rated more heavily than more distant performance. Recent results are likely to be more indicative of the current fund manager's policy, strategy and success (or lack thereof) than more distant results.

(vi) Survivorship Bias Adjustment

Most of the current mutual fund performance surveys suffer from survivorship bias. For example, if the survey starts with the current list of mutual funds and looks back at how they have done over the past ten years, this means that funds that disappeared over that time period would not be included. Often it's the poorer performing funds that disappear. Any backward looking study is likely to suffer from this effect. The problem with survivorship bias is that it is likely to overestimate overall returns. Objectives group averages are shown as both with and without survivorship adjustments. The adjustment for survivorship bias means that the investor gets a clear picture of actual returns over the period examined.

All of the three measurement factors were independently calculated and weighted equally for the overall score. One of the benefits of our methodology can be particularly seen during the period where the market is extremely volatile.

In this scenario, other rating systems that combine risk and return to calculate their score tend to have one factor overshadow the other. For example, the NASDAQ composite in 1999 had a return of 86%. Other organizations models which combine risk and return would tend to conclude that the high-tech funds have a potential of return outweighing its potential risk, and therefore, these funds would receive the highest score. The fact is that temporary market volatility is not likely to repeat in future, and the funds taking high risk for high return are not warranted to have the highest score. On the other hand, our Fundata FUNDGrade™ ranking system will only warrant a high grade to a fund that is strong in all measures of risk, return and consistency.

Other fund rating systems have suffered from vague criteria for fund categorization. For example: by market capitalization, and style. In addition the rankings of the peer groups has tended not to be very meaningful because the funds are simply incomparable (e.g. country specific funds and small cap funds). A real point of difference in the Fundata FUNDGrade™ system is that we use IFSC fund category standards. The adoption of IFSC fund category standard in the Fundata FUNDGrade™ system has greatly increased the comparability of fund against its peers. Fund groupings are based on similar fund objectives and asset class holdings to provide relevant and meaningful comparison amongst its peers.

Back testing was conducted on the historical record for all fund categories using 25 years of past data spanning the period 1975 through 2000. Overall, the Fundata FUNDGrade™ model discriminates by identifying top performers based on past results.

For further Information on the Fundata FUNDGrade™ system please visit our web site www.fundata.com or call 1-888-328-9174 ext. 263.