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NATIONAL INSTRUMENT 81-101
MUTUAL FUND PROSPECTUS DISCLOSURE
TABLE OF CONTENTS
PART TITLE
PART 1 DEFINITIONS
1.1 Definitions
1.2 Interpretation
1.3 Application

PART 2 DISCLOSURE DOCUMENTS
2.1 Filing of Disclosure Documents
2.2 Supporting Documents
2.3 Fund Summary

PART 3 DOCUMENTS INCORPORATED BY REFERENCE AND DELIVERY TO SECURITYHOLDERS
3.1 Documents Incorporated by Reference
3.2 Delivery of Preliminary Fund Summary and Fund Summary
3.3 Documents to be Delivered or Sent upon Request
3.4 Toll-Free Telephone Number or Collect Telephone Calls
3.5 Soliciting Expressions of Interest Prohibited

PART 4 PLAIN LANGUAGE AND PRESENTATION
4.1 Plain Language and Presentation
4.2 Inclusion of Educational Material
4.3 Preparation in the Required Form

PART 5 PACKAGING
5.1 Packaging
PART 6 CALCULATION OF MANAGEMENT EXPENSE RATIO
6.1 Calculation of Management Expense Ratio

PART 7 EXEMPTION
7.1 Grant of Exemption
7.2 Evidence of Exemption by Securities Regulatory Authority

PART 8 TRANSITION
8.1 Effective Date
8.2 Prospectus Disclosure

NATIONAL INSTRUMENT 81-101(1)


MUTUAL FUND PROSPECTUS DISCLOSURE

PART 1 DEFINITIONS, INTERPRETATION AND APPLICATION

1.1 Definitions(2) - In this Instrument

"educational material" means material containing general information about one or more of investing in general, mutualfunds, portfolio management, capital markets, retirement savings, income or education saving plans and financialplanning, if the material does not promote or refer to a particular mutual fund or mutual fund family(3) or to the productsor services offered by a particular mutual fund or mutual fund family; and

"financial year" includes the first completed financial period of a mutual fund beginning with the inception of the mutualfund and ending on the date of its first financial year end.

1.2 Interpretation - Terms defined in National Instrument 81-102 Mutual Funds or National Instrument 81-105 Mutual FundSales Practices and used in this Instrument have the respective meanings ascribed to them in those Instruments.

1.3 Application - This Instrument does not apply to mutual funds that are

(a) labour-sponsored venture capital corporations;

(b) subject to National Instrument 81-104 Commodity Pools; or

(c) listed and posted for trading on a stock exchange or quoted on an over-the-counter market.(4)

PART 2 DISCLOSURE DOCUMENTS

2.1 Filing of Disclosure Documents

(1) A mutual fund shall satisfy

(a) the requirement under securities legislation(5) to file a preliminary prospectus by filing concurrently apreliminary fund summary(6) and a preliminary fund prospectus(7) under this Instrument, each prepared, andthe fund prospectus certified, in the required form;

(b) the requirement under securities legislation to file a pro forma prospectus by filing concurrently a pro formafund summary and a pro forma fund prospectus under this Instrument, each prepared in the required form;

(c) the requirement under securities legislation to file a prospectus by filing concurrently a fund summary anda fund prospectus under this Instrument, each prepared, and the fund prospectus certified, in the requiredform; and

(d) the requirement to file an amendment to a prospectus by filing concurrently an amendment to a fundsummary and a fund prospectus, or, in circumstances in which changes are made only to a fund prospectus,an amendment to a fund prospectus, each prepared, and the amendment to the fund prospectus certified,in the required form.

(2) An amendment to a fund summary or a fund prospectus may consist of either a separate amending document oran amended and restated fund summary or fund prospectus.

2.2 Supporting Documents(8)

(1) A mutual fund shall

(a) file with a preliminary fund summary and a preliminary fund prospectus any other supporting documentsrequired to be filed under securities legislation; and

(b) at the time a preliminary fund summary and preliminary fund prospectus are filed, deliver or send to thesecurities regulatory authority(10)

(i) a copy of all material contracts made by, and drafts of all material contracts intended to be made bythe mutual fund,

(ii) a copy of a draft statement of net assets of the mutual fund, and

(iii) any other supporting documents required to be delivered or sent to the securities regulatory authorityunder securities legislation.

(2) A mutual fund shall

(a) file with a pro forma fund summary and a pro forma fund prospectus

(i) a copy of any material contract made by the mutual fund not previously filed, and any amendmentto a material contract made by the mutual fund not previously filed, and

(ii) any other supporting documents required to be filed under securities legislation; and

(b) at the time a pro forma fund summary and pro forma fund prospectus are filed, deliver or send to thesecurities regulatory authority

(i) a copy of the pro forma fund summary, blacklined to show changes and the text of deletions from thefund summary previously filed,

(ii) a copy of the pro forma fund prospectus, blacklined to show changes and the text of deletions fromthe fund prospectus previously filed,

(iii) a copy of a draft of all material contracts of the mutual fund or any draft amendment to a materialcontract of the mutual fund proposed in either case to be executed by the time of filing of the fundsummary, and

(iv) any other supporting documents required to be delivered or sent to the securities regulatory authorityunder securities legislation.

(3) A mutual fund shall file, or deliver or send to the securities regulatory authority, as appropriate, with a combinedpro forma and preliminary fund summary and a combined pro forma and preliminary fund prospectus

(a) the documents required to be filed, or delivered or sent to the securities regulatory authority with a pro formafund summary and pro forma fund prospectus under subsection (2); and

(b) the documents required to be filed, or delivered or sent to the securities regulatory authority with apreliminary fund summary and preliminary fund prospectus under subsection (1).

(4) A mutual fund shall

(a) file with a fund summary and a fund prospectus

(i) a copy of any material contract, and any amendment to a material contract, made by the mutual fundand not previously filed, and

(ii) any other supporting documents required to be filed under securities legislation; and

(b) at the time a fund summary is filed, deliver or send to the securities regulatory authority

(i) a copy of the fund summary, blacklined to show changes and the text of deletions from thepreliminary, pro forma or combined pro forma and preliminary fund summary previously filed,

(ii) a copy of the fund prospectus, blacklined to show changes and the text of deletions from thepreliminary, pro forma or combined pro forma and preliminary fund prospectus previously filed, and

(iii) any other supporting document required to be delivered or sent to the securities regulatory authorityunder securities legislation.

(5) A mutual fund shall

(a) file with an amendment to a fund summary and an amendment to the fund prospectus

(i) a copy of any material contract and any amendment to a material contract, made by the mutual fundnot previously filed, and

(ii) any other supporting documents required to be filed under securities legislation; and

(b) at the time an amendment to a fund summary is filed, deliver or send to the securities regulatory authority

(i) if the amendment to the fund summary is in the form of an amended and restated fund summary, acopy of that document blacklined to show changes and the text of deletions from the fund summarypreviously filed,

(ii) if the amendment to the fund prospectus is in the form of an amended and restated fund prospectus,a copy of the amended fund prospectus, blacklined to show changes and the text of deletions fromthe fund prospectus previously filed, and

(iii) any other supporting document required to be delivered or sent to the securities regulatory authorityunder securities legislation.

(6) A mutual fund shall

(a) file with an amendment to a fund prospectus in circumstances in which the corresponding fund summaryis not amended

(i) a copy of any material contract of the mutual fund not previously filed, and any amendment to amaterial contract of the mutual fund and not previously filed, and

(ii) any other supporting documents required to be filed under securities legislation; and

(b) at the time an amendment to a fund prospectus is filed, if the amendment is in the form of an amended andrestated fund prospectus, deliver or send to the securities regulatory authority

(i) a copy of the amended and restated fund prospectus blacklined to show changes and the text ofdeletions from the fund prospectus previously filed, and

(ii) any other supporting documents required to be delivered or sent to the securities regulatory authorityunder securities legislation.

2.3 Fund Summary - A fund summary is a prospectus for the purposes of securities legislation.

PART 3 DOCUMENTS INCORPORATED BY REFERENCE AND DELIVERY TO SECURITYHOLDERS

3.1 Documents Incorporated by Reference - The following documents shall, by means of a statement to that effect, beincorporated by reference into, and shall form part of, a fund summary:

1. The fund prospectus that is filed concurrently with the fund summary.

2. The most recently filed comparative annual financial statements of the mutual fund, together with theaccompanying report of the auditor, filed either before or after the date of the fund summary.

3. The most recently filed interim financial statements of the mutual fund that were filed before or after the date of thefund summary and that pertain to a period after the period to which the annual financial statements thenincorporated by reference in the fund summary pertain.

3.2 Delivery of Preliminary Fund Summary and Fund Summary

(1) The requirement under securities legislation to deliver or send a preliminary prospectus to a person or companyis satisfied by delivering or sending a preliminary fund summary filed under this Instrument, prepared in therequired form, either with or without the documents incorporated by reference.

(2) The requirement under securities legislation to deliver or send a prospectus to a person or company is satisfiedby delivering or sending a fund summary filed under this Instrument, prepared in the required form, either with orwithout the documents incorporated by reference.

3.3 Documents to be Delivered or Sent upon Request - A mutual fund shall deliver or send to any person or company whorequests a fund summary or any of the documents incorporated by reference into a fund summary of the mutual fund,a copy of the fund summary or requested document, within three business days of receipt of the request and free ofcharge.

3.4 Toll-Free Telephone Number or Collect Telephone Calls - A mutual fund shall have a toll-free telephone number for,or accept collect telephone calls from, persons or companies who want to receive a copy of a fund summary and any orall documents incorporated by reference into the fund summary.

3.5 Soliciting Expressions of Interest Prohibited - Neither a combined pro forma and preliminary fund summary nor acombined pro forma and preliminary fund prospectus shall be used to solicit expressions of interest.(11)

PART 4 PLAIN LANGUAGE AND PRESENTATION

4.1 Plain Language and Presentation

(1) A fund summary and fund prospectus shall be prepared using plain language and in a format that assists inreadability and comprehension.(12)

(2) A fund summary shall

(a) present all information briefly and concisely;

(b) present the items in the order stipulated in the required form;

(c) use the headings and sub-headings stipulated in the required form, and may, at the option of the mutualfund, use sub-headings in items on which no sub-headings are stipulated;

(d) include only the information that is specifically mandated by the required form; and

(e) not contain any cross-references to any other documents.

4.2 Inclusion of Educational Material - Despite paragraph 4.1(2)(d), a fund summary may contain educational material ifthe educational material is

(a) contained in sidebars or otherwise separated from the mandated disclosure contained in the fund summary; and

(b) close to mandated disclosure to which the educational material substantively relates.(13)

4.3 Preparation in the Required Form - Despite provisions in securities legislation relating to the presentation of the contentof a prospectus, the fund summary and fund prospectus shall be prepared in accordance with this Instrument.

PART 5 PACKAGING

5.1 Packaging

(1) No material other than educational material or the documents incorporated by reference may be attached to, orbound with, a fund summary.

(2) If the material or documents referred to in subsection (1) are attached to, or bound with, the fund summary

(a) the fund summary shall be the first document contained in the package; and

(b) no pages shall come before the fund summary in the package other than, at the option of the mutual fund,a general front cover and a table of contents pertaining to the entire package.

PART 6 CALCULATION OF MANAGEMENT EXPENSE RATIO

6.1 Calculation of Management Expense Ratio(14)

(1) A mutual fund may disclose its management expense ratio only if the management expense ratio is calculated fora financial year of the mutual fund and if it is calculated by

(a) dividing

(i) the total expenses of the mutual fund for the financial year as shown on its statement of operations;(15)

by

(ii) the average net asset value of the mutual fund for the financial year, obtained by

(A) adding together the net asset values of the mutual fund as at the close of business of themutual fund on each day during the financial year on which the net asset value of the mutualfund has been calculated, and

(B) dividing the amount obtained under clause (A) by the number of days during the financial yearon which the net asset value of the mutual fund has been calculated; and

(b) multiplying the result obtained under paragraph (a) by 100.

(2) If any fees and expenses otherwise payable by a mutual fund in a financial year were waived or otherwise absorbedby a member of the organization(16) of the mutual fund, the mutual fund shall disclose in a note to the disclosure ofits management expense ratio, details of

(a) what the management expense ratio would have been without any waivers or absorptions;

(b) the length of time that the waiver or absorption is expected to continue;

(c) whether the waiver or absorption can be terminated at any time by the member of the organization of themutual fund; and

(d) any other arrangements concerning the waiver or absorption.

(3) If a management fee was paid directly by investors of a mutual fund during the period to which the disclosedmanagement expense ratio relates, the mutual fund shall include those management fees in its calculation of themanagement expense ratio with an appropriate explanation in a note to the disclosure.(17)

(4) If the aggregate amount of a management fee payable directly by investors of a mutual fund during the period towhich the disclosed management expense ratio relates is not ascertainable, the mutual fund shall include themaximum amount of management fees that could have been paid by those investors in its calculation of themanagement expense ratio.(18)

PART 7 EXEMPTION

7.1 Grant of Exemption

(1) The regulator(19) or the securities regulatory authority may grant an exemption to this Instrument, in whole or in part,subject to such conditions or restrictions as may be imposed in the exemption.

(2) Despite subsection (1), in Ontario only the regulator may grant such an exemption.

7.2 Evidence of Exemption by Securities Regulatory Authority - Without limiting the manner in which an exemption undersection 7.1 may be evidenced, the issuance by the regulator of a receipt for a fund summary and fund prospectus, or anamendment to a fund summary and fund prospectus, is evidence of the granting of the exemption if

(a) the person or company that sought the exemption sent to the regulator, with the pro forma or preliminary fundsummary and fund prospectus, or combined pro forma and preliminary fund summary and fund prospectus, or atleast 10 days before the issuance of the receipt in the case of an amendment, a letter or memorandum describingthe matters relating to the exemption and indicating why consideration should be given to the granting of theexemption; and

(b) the regulator has not sent written notice to the contrary to the person or company that sought the exemption before,or concurrent with, the issuance of the receipt.(20)

PART 8 TRANSITION

8.1 Effective Date - This Instrument comes into force on July 1, 1999.(21)

8.2 Prospectus Disclosure - The prospectus of a mutual fund for which a preliminary, pro forma or combined preliminaryand pro forma prospectus is filed, or for which a receipt is obtained, before the date that this Instrument comes into forceis not required to comply with this Instrument if it complies with National Policy Statement No. 36 as if that policystatement or a rule based on that policy statement were in force in the local jurisdiction.(22)


Footnotes
1. The proposed Instrument is an initiative of the Canadian Securities Administrators (the "CSA") and is based upon the Concept Proposal datedJanuary 31, 1997 "Mutual Fund Prospectus Disclosure System", published as CSA Notice 81-301 (in Ontario at (1997), 20 OSCB 559). TheInstrument is expected to be adopted as a rule in British Columbia, Alberta, Manitoba, Ontario and Nova Scotia, as a Commission Regulation inSaskatchewan and as a Policy in all other jurisdictions represented by the CSA, other than Quebec. The Commission des valeurs mobilières duQuébec (the "CVMQ") notes that its securities legislation provides for a specific simplified prospectus disclosure regime for mutual fund disclosure.The CVMQ will be conducting a review of its securities legislation to determine how best it can integrate the disclosure regime proposed by theInstrument with the mandated mutual fund prospectus disclosure regime.

 

The proposed Instrument replaces National Policy Statement No. 36 (NP36). The proposed Instrument and related forms also incorporate thedisclosure obligations contained in proposed National Instrument 81-102 Mutual Funds ("NI81-102"), which replaces National Policy StatementNo. 39 ("NP39") and which was published for comment in June 1997. Those disclosure provisions will be deleted from NI81-102 before thatproposed Instrument is finalized so that all disclosure provisions concerning conventional mutual funds will be in the proposed Instrument andrelated forms. NI81-102 is proposed to come into force at the same time as the proposed Instrument.

2. A national definition instrument has been adopted as National Instrument 14-101 Definitions. It contains definitions of certain terms used in morethan one national instrument. National Instrument 14-101 also provides that a term used in a national instrument and defined in the statute relatingto securities of the applicable jurisdiction, the definition of which is not restricted to a specific portion of the statute, will have the meaning in thatjurisdiction given to it in that statute, unless the context otherwise requires. National Instrument 14-101 also provides that a provision or a referencewithin a provision in a national instrument that specifically refers by name to a jurisdiction, other than the local jurisdiction, shall not have any effectin the local jurisdiction, unless otherwise stated in the provision.

3. The term "mutual fund family" is defined in National Instrument 81-105 Mutual Fund Sales Practices as meaning "two or more mutual funds thathave (a) the same manager, or (b) managers that are affiliates of each other".

4. The disclosure regime provided for by this proposed Instrument and related forms is designed for conventional mutual funds only. Labour-sponsored venture capital corporations will continue to be subject to the long form prospectus requirements of securities legislation. The prospectusdisclosure requirements for commodity pools will be provided for in proposed National Instrument 81-104 Commodity Pools (which is proposedto come into force at the same time as the proposed Instrument). The disclosure requirements of this proposed Instrument are not designed forinvestment vehicles that technically may be mutual funds, but differ in material ways from conventional mutual funds, such as subdivided offerings.Since those vehicles are virtually always listed on a stock exchange or quoted on an over-the-counter market, the CSA have used this distinguishingfeature to prevent those vehicles from using the disclosure system permitted by this proposed Instrument.

5. The term "securities legislation" is defined in National Instrument 14-101 Definitions as meaning, for the local jurisdiction, the statute and otherinstruments set out in an appendix to that instrument.

6. Each jurisdiction will, by implementing rule, policy or other instrument, provide that the required form for a fund summary is Form 81-101F1.

7. Each jurisdiction will, by implementing rule, policy or other instrument, provide that the required form for a fund prospectus is Form 81-101F2.

8. This section reflects the requirements of the CSA that apply on a national basis. Issuers should check the requirements of local securitieslegislation for particulars concerning the requirement to file, deliver or send additional supporting documents. Documents that are "filed" are on the public record, and documents that are "delivered" or "sent" to the securities regulatory authority are notnecessarily on the public record. Under this proposed Instrument, all final material contracts will be on the public record. Draft material contractsand draft statements of net assets are not final documents and accordingly should not be on the public record.

10. The term "securities regulatory authority" is defined in National Instrument 14-101 Definitions as meaning, for the local jurisdiction, the securitiescommission or similar regulatory authority set out in an appendix to that instrument.

11. As with NP36, the proposed Instrument will permit pro forma and preliminary fund summaries to be combined together, but they will not be ableto be used to solicit expressions of interest.

12. For further discussion on the presentation of information in a fund summary, see Part 3 of the proposed Companion Policy to this Instrument.

13. A discussion of the inclusion of educational material in a fund summary is contained in section 5.3 of the proposed Companion Policy to thisInstrument.

14. The rule mandating the method for calculating the management expense ratio is published for comment in this proposed Instrument, but it will bemoved into NI81-102 when that proposed Instrument is next published, resulting in its eventual deletion from this proposed Instrument. This methodof calculating management expense ratio is required for whenever a mutual fund states its management expense ratio, either in or outside of aprospectus.

15. Taxes, including GST, are included as expenses in the calculation of the management expense ratio.

16. The term "member of the organization" has the meaning ascribed to it in National Instrument 81-105 Mutual Fund Sales Practices.

17. This provision is new.

18. The requirements for calculating the management expense ratio for a "fund of funds", now contained in instruction 4 of item 10 of Schedule A ofNP36, have been deleted from this draft of the proposed Instrument. The CSA are reviewing these requirements, and those requirements, withor without revisions, will be included in the republication of NI81-102.

19. The term "regulator" is defined in National Instrument 14-101 Definitions as meaning, for the local jurisdiction, the person set out in an appendixto that instrument.

20. This section is consistent with section 20.2 of NI81-102.

21. The CSA are proposing that this Instrument come into force on July 1, 1999, that being the date that NP36 will cease to be a rule in Ontario.

22. This provision permits a mutual fund to continue to use a prospectus that was receipted before this Instrument comes into force for the life of theprospectus. This provision is designed to ease the transition required to be made by mutual funds in complying with this proposed Instrument.A mutual fund prospectus will not, however, be receipted after this proposed Instrument comes into force unless it satisfies the specific disclosurerequirements of this proposed Instrument or unless a preliminary or pro forma prospectus has been filed before this proposed Instrument comesinto force. In this case, the preliminary or pro forma prospectus must comply with NP36.